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day trading, Breakout test
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5/14/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: AEO; BIDU; CAT; HAL; SPN
Trailing stops: None issued
Stop alerts: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the SSR alert service you can sign up at the following link:
http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Early bounce turns south as indices test near support, NASDAQ distributes again ahead of CPI
- Gasoline posts a national average new high before storm 1 appears, administration pushes to meet State of the Union energy initiative.
- CPI has a lot riding on it but how much can it add right now.
Early upside cannot hold ahead of CPI.
Asian markets were popping off new all-time highs and early on the US equities market followed it. It was Monday so M&A activity was at it again (CAH buying VAS, MYL buying MRK's German generic business, DCX selling a chunk of its money losing Chrysler business). Joint ventures made an appearance with Aramco and DOW hooking up for a $22B petrochemical complex in Saudi Arabia. NOK guided higher, but that news was ultimately lost on the market as techs were one of the worst performing groups of the day.
All of this managed to start the market higher despite gasoline prices that continue to burn higher along with more Nigerian problems with CVX pulling out 'hundreds' of workers while local oil worker unions go on strike and another push by President Bush regarding his 20% reduction in gasoline consumption in 10 years. Whether it was the rising gasoline issues or the lack of any real news ahead of Tuesday's CPI, that early bounce could not hold up. Within a half hour (actually 15 minutes), the market was giving back the early upside. It was the old feint upside and then reversal from a market that showed the emergence of some more selling Thursday. Again, not many wanted to get involved ahead of the CPI. That said, there was some good movement in some leaders once more (e.g. CAT, BIDU, HAL), and that was encouraging similar to Friday.
Technically, the losses were modest for the most part, but NASDAQ lost 0.62% as it distributed (higher volume selling) again, its second episode in three sessions. Volume was still below average, however, so you have to water that down a bit. The small cap SP600 lost 0.69%, the other index that was roughed up a bit. Outside of that the losses were less than 0.2% with the Dow actually scratching out a gain (HAL and CAT did not hurt one bit). Breadth wasn't great (-1.8:1 NYSE, -2.1:1 NASDAQ); you can say it was better than the downside breadth on Thursday, and it was. Getting beat by 7 runs in baseball is better than 10 runs, but you still got stomped.
In any event, the indices undercut near support intraday but managed an afternoon bounce to hold those levels. Good to see a little comeback there, and good to see they are just not collapsing on through. It is still early in the pullback attempt, however, and the parameters of the pullback have not been set as the market consolidates that last run higher. As noted over the weekend, the overall market can still move lower after this run higher. It is trying to hold the losses to a minimum and is doing so for now, but again, it is early on. There was some good leadership again on Monday, however, just as on Friday. Some energy was moving, some industrials, and some more 'exotics' as well such as BIDU. Good volume, good breaks higher, and that shows money is still moving into specific stocks and areas even as the overall market remains a bit top heavy and sluggish heading into the CPI.
THE ECONOMY
Gasoline national average hits a record.
The $3.10/gallon national average paid last week is a new all-time high, topping even the post-Katrina spike as that storm banged up our Gulf of Mexico production. That spike was aided by a 16 year low gasoline inventory level and continued sub-par refinery runs as our too few and overtaxed refineries are having a hard time keeping the flow of oil moving. In other words, our old line of US refineries are breaking down from overuse. Each time they start a new run they must be crossing their fingers as they cajole the equipment as we used to cajole our old Plymouth when I was in high school (come on baby, just one more start to get me home).
Our refinery infrastructure just cannot keep up, and even before storm number 1 appears in the Gulf of Mexico prices are at record levels. The key is how long they stay up here. After Katrina, prices fell right back down rather quickly as oil and gasoline imports jumped higher as we asked for more imports and we got them. With no specific catalyst other than a creep in demand and a decline in refining capacity, the pressures have a longer horizon. That is a completely different dynamic from Katrina and Rita, and when prices remain elevated for a long time it has a more permanent impact.
The immediate impact is as we saw after the Gulf storms: demand backs off and then prices follow as lower demand allows supply to catch up. In this situation supply may not be able to catch up without a strong drop in demand because this is not a situation where 2 to 3 refineries are offline but then start back up in relatively short order. Either demand has to drop and remain down or we have to get more supply. There is no rush to build new refineries, and even if there were it would not impact prices for the years it took to get them online. So, know anyone with some extra gasoline?
Seriously, this puts a dangerous spin heading into hurricane season. We all saw how absurd the Texas evacuations were with motorists out of gas on the highway as the storm barreled toward the coastline. Well, there was gasoline back then, it was just a bureaucratic fumble that left people dying from heat exhaustion on the southeast Texas highways in August. This time around there may not be enough gasoline to provide even if there is no bungling.
President hawks another gasoline initiative.
Even as the new gasoline figures and prognosis was released, President Bush was pushing his 20% less usage gasoline usage in 10 years initiative announced in his state of the union address. The new directive: the EPA is to develop steps to reduce greenhouse gas emissions by 2008. The idea was to have the regulations become law by the end of 2008. The EPA administrator said "we know that emissions contribute to climate change and this is a serious issue." Oh we do? Remember cyclamates back in the 1960's and 1970's? They caused cancer in rats if you pumped the amount contained in 500 Fresca sodas through the rat's body per day. At some point emissions likely do contribute to climate change, but as we noted a few weeks back, no one can say if we have hit that point yet, and indeed, the NASA data regarding the sun's increased heat output likely accounts for the change.
In any event, the new 'initiative' left most seasoned energy experts once again shaking their heads as they did after the ethanol initiative and its sub-parts that made it illegal to import sugar-based ethanol products (i.e. those made from sugar cane, the best source of ethanol) and whose only concrete promise was higher food prices (as we have already felt). So we want to champion free trade around the world but we back-door subsidies to US corn growers by restricting imports of much needed and much more efficient ethanol producing products.
Once more we opt to have the US consumer pay more and receive virtually no benefit. Those that do benefit? The corn growers and sellers. If you try to look at this from a true energy independence perspective it falls apart. You have to look at it for what it is: politics as usual as the mortally wounded GOP panders for any votes it can get after it squandered its base by failing to live up to its promises made prior to taking the presidency and Congress. This kind of protectionism, however, only further alienates the conservatives. Talk about politics as usual. This is exactly what happened in 1991 and led to Ross Perot entering the race, siphoning off conservative votes, and handing President Clinton the White House. At least Clinton ended up cutting capital gains tax rates and helped get the economy running again after his income tax hikes almost delivered a head shot to the expansion.
THE MARKET
MARKET SENTIMENT
VIX: 13.96; +1.01. Inching higher but still below the late April bump on that sharp day of selling to end the month. If the market sells further, however, VIX is poised to rise quickly toward 16.
VXN: 16.83; +0.74
VXO: 14.09; +1.18
Put/Call Ratio (CBOE): 0.87; -0.07
Bulls versus Bears:
Bulls: 53.5%, up from 51.7% and close to the 55% considered bearish. Seems the market beat it to the punch and sold before 55. It was 45.5% six weeks back. It has not topped its recent high at 53.3% but is well off the 60% hit in December 2006. For reference it bottomed in the summer 2006 near 36%.
Bears: 20.0%. Plunged from 24.7% in the most telling move of the two indicators. This is the level considered bearish, and of course the market was careening lower on Thursday. Quite a drop from the 27.5% hit 5 weeks back. The rally has taken the bears down from the recent highs near 29 (28.4% and 28.9%). It is now matching its January and February lows. For reference, it hit a post-2002 high in that late June 2006 move (hit near 36%), eclipsing the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005).
NASDAQ
Stats: -15.78 points (-0.62%) to close at 2546.44
Volume: 2.081B (+15.5%). Volume rose as NASDAQ sold once more, its second distribution session in three. Volume was below average so it was not a huge surge in selling, but on the heels of Thursday it takes on a bit more significance.
Up Volume: 776M (-651M)
Down Volume: 1.261B (+909M)
A/D and Hi/Lo: Decliners led 2.11 to 1. Another fairly heavy day of downside breadth; seems it is either strong upside or strong downside. That is indicative of an ongoing fight between the buyers and sellers, something the price/volume action is telling us as well.
Previous Session: Advancers led 2.34 to 1
New Highs: 151 (+26)
New Lows: 90 (+4)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ is struggling here after the last run higher. It is holding the 18 day EMA after undercutting it intraday, but volume was again higher as it sold. There is more selling the past few sessions than buying as some big money investors get rid of technology stocks after the last run higher. For now NASDAQ is holding near support but it is under pressure, trying to hold its gains that took it to a new post-2002 high on this last run. That prior high is at 2525, and a test of that and how it holds at that level tells us a lot more about the move.
SOX (-0.14%) showed excellent relative strength, bouncing up off the 10 day EMA as it continues testing the move to a new breakout high last week just before the Thursday dip. Still showing solid action as NASDAQ gets a bit flaky. Could provide some serious support to NASDAQ if the chips can continue the breakout move from that 6 month trading range.
SP500/NYSE
Stats: -2.7 points (-0.18%) to close at 1503.15
NYSE Volume: 1.393B (-1.44%). Volume remained well below average and it was again lower as the NYSE indices lost some ground. The large caps in the market showed much better relative strength with just modest losses, but at least all of the losses were on lower, below average volume.
Up Volume: 546.527M (-616.523M)
Down Volume: 832.799M (+592.799M)
A/D and Hi/Lo: Decliners led 1.8 to 1. Not bad, not great. The small caps had the most issues.
Previous Session: Advancers led 3.35 to 1
New Highs: 235 (+92)
New Lows: 26 (-1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 continued the Friday bounce rally but could not hold the move. It quickly sold and undercut near support at the 10 day EMA, but it rebounded to easily hold above that level on the close. Really nothing bad here, just a bit sluggish ahead of the CPI as SP500 remains in its uptrend channel on a low volume test.
SP600 (-0.69%) took some more licks, unable to hold the Friday rebound. The small caps did hold some support at the 18 day EMA, and that keeps them in the uptrend. That is a positive, but the move takes it right back down after that bounce attempt, making the index look a bit top heavy here as it could not continue higher and choke off that Thursday thump lower. Again, it is still in the uptrend; how it holds here tells the near term story.
DJ30
The blue chips managed the only gain on the session, testing lower intraday with the other indices but never getting in any trouble. Volume was still below average and was lower, so there was not a ton of buying. CAT and HAL were up, and they did their part for the modest gain. Hard to call the day watershed as DJ30 moved to a new all-time high intraday but then backed off on the close. It is a bit extended, a bit low on volume here, but also not showing any signs of trouble.
Stats: +20.56 points (+0.15%) to close at 13346.78
Volume: 199M shares Monday versus 210M shares Friday. Another upside session on lower, below average volume. Not much volume strength as DJ30 coasts higher. Notably, the Thursday selling volume was lighter than the preceding upside trade, so even then there was no dumping.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
The CPI is out and we are looking for something better on the core than the 0.2% expected. Might get this one handed right back in our faces, but the trend had been lower (though the pressures on the overall numbers, i.e. food and energy, are still higher). Either way it goes, the indices have come a long way and even a low core might not deliver any further upside. It might keep the indices consolidating around near support as opposed to a stronger push lower, but moving higher just right now is a harder proposition, at least for the entire market.
The reality is the Fed could cut rates 25BP to follow the 90 day Treasury lower and be doing the financial markets a favor. The other reality is the Fed is not going to do that even though a weaker core CPI would give it the room to do so. It is way too early for the Fed to cut rates, at least in the eyes of the rest of the world. With gasoline hitting new highs and the storm season not even here the Fed would be hard-pressed to say that it was not concerned that might spark up inflation. More damage is done by higher prices to the economy than it boosts inflation, but that is a reality that is beside the point when it comes to the Fed and inflation fighting (or the pretense of inflation fighting).
In sum, we are not too sure the market could get any more mileage out of a tame core CPI given the run to this point. A lot of good news in the form of earnings and improving economic data, the PPI included, is in the market, along with a thousand points on the Dow since April. The market is trying to consolidate 'in place' once more with NASDAQ well out in front of the rest of the pack with a little over a week of testing back to the 18 day EMA. With the upside move to this point and the start of some distribution in the techs you have to be a bit more cautious about the prospects of the overall market to hold here and then continue higher. Thus far, however, it is doing just that, particularly when you look at DJ30 and SP500.
That is also evident when you look at stocks such as CAT, HAL, MRO, BIDU, etc. As noted last week and over the weekend, there is fresh, strong money moving into some stocks and sectors even as much of the market looks top heavy. That new money helps keep the indices consolidating in place. That also keeps us interested in picking up some positions as they make the moves. When you see good volume and good moves higher you have to take notice. The overall market could drag them down, but at this juncture we like the solid action in these leaders.
Support and Resistance
NASDAQ: Closed at 2546.44
Resistance:
2565 is the November/February up trendline
2580 is the May high
2590ish is the top of the November/February channel
2590-95 from an April 1999 interim peaks
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
The 18 day EMA at 2542
The July/August trendline at 2547
2531.42 is the February high (post-2002 high)
2523 is price resistance November 2000
2509 is the January 2007 high
The 50 day EMA at 2500
2471 is the December 2006 high
2468.42 is the November 2006 high
2460 is the March high
2405 is the 'hump' high
2400ish from the late November and late December 2006 lows.
S&P 500: Closed at 1503.15
Resistance:
The upper trendline of the channel at 1519
1520 from the September 2000 peak
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1500 from April 2000 peak
The 10 day EMA at 1500
1496 is a peak from July 2000
The 18 day EMA at 1492
1489 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1464
1461.57 is the February 2007 high.
1440 is the mid-January high
1439 is the March high
1432 is the December 2006 high
1425 is an interim high from November 1999
1410 is the 'hump' high
1408 is the November high
Dow: Closed at 13,346.78
Resistance:
13,369.29 is the May high
Support:
13,260 is the upper channel line in the November/February channel
The 10 day EMA at 13,251
The 18 day EMA at 13,137
13,125 is the former up trendline that marks the lower channel.
The 50 day EMA at 12,833
12,796 at the February 2007 high
12,700 is the early February peak intraday high
12,623 is the mid-January high
12,511 is the March intraday high.
12,499 is the December intraday high.
12,361 is the November 2006 high
12,350 is the March 'hump' high
12,039 is the early March low.
October high is 12,167
11,986 is price support from mid-October and the early November low.
11,940 is the March low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
May 15
CPI, April (8:30): 0.5% expected, 0.6% prior
Core CPI (8:30): 0.2% expected, 0.1% prior (this will likely be wrong)
New York Empire State Index, May (8:30): 9.0 expected, 3.8 prior
Net foreign purchases, March (9:00): $75.0B expected, $58.1B prior
May 16
Housing starts, April (8:30): 1.48M expected, 1.581M prior
Building permits, April (8:30): 1.520M expected, 1.564M prior
Industrial production, April (9:15): 0.3% expected, -0.2% prior
Capacity utilization, April (9:15); 81.5% expected, 81.4% prior
Crude oil inventories (10:30): 5.511M prior
May 17
Initial jobless claims (8:30): 310K expected, 297K prior
Leading Economic Indicators, April (10:00): 0.0% expected, 0.1% prior
Philly Fed (12:00): 4.0 expected, 0.2 prior
May 18
Michigan sentiment, May preliminary (10:00): 86.5 expected, 87.1 prior
End part 1 of 3
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day trading
Breakout test
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