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world stock market, us stock market
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5/15/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: BA (bonus); OIH
Trailing stops: FLIR
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:
- CPI/Fed-speak combo spark early rally, but the news was played out and the indices reversed the gains.
- CPI monthly disappointing, but year over year trend continues its nice decline.
- Earnings and economic news mostly spent for now as market looks for a catalyst.
- Can the small March double bottom withstand serious selling?
Plenty of news but it lacked staying power.
As noted in the pre-market alert, there was the good (CPI yearly trend posts a solid decline, New York PMI rebounds nicely), the bad (Net foreign inflows fell to $45B versus $75.0B expected), and the ugly (a triumvirate of bad retail results from HD, WMT, and TJX with LTD warning mid-session). Many expected HD to post a breakout quarter, and it did, just to the downside and not the upside as many believed.
The CPI did manage to swing futures from their weak early readings and stocks started modestly higher, but it was not enough to hold the gains as the indices started selling off within 10 minutes, turning negative. The CPI was bolstered, however, by the Fed's Mehann who stated that inflation was still a problem but that it was trending lower. That Fed acknowledgement of the obvious trend was deemed a blessing and that brought the buyers right back into the market, pushing the indices nicely positive. Not huge gains, but a solid, steady move on a very nice volume boost. Energy and industrials were leading, but the techs were there as well. Looked pretty impressive.
A midmorning test held and the indices rebounded toward session highs at lunchtime. Then the floor opened on NASDAQ and its gains disappeared in a flash. NASDAQ peeled off 30 points in 2.5 hours, and a last hour bounce only set up a bit more 'take that' selling ahead of the bell. The move took all indices other than DJ30 negative in a pretty nasty intraday reversal. Of course if you were listening to one of the financial stations there was still a 'broad rally' underway even as NASDAQ lost those 30 points and breadth had swung from modestly positive to clearly negative.
Technically, the intraday high to low reversal on volume is typically the worst kind of action a rally can show. Good news tries to rally the market once more but similar to Wiley Coyote the road runs out from underneath and the sellers suck prices lower as they take over. Volume was up on the upside, a good thing to see, but it did not fade on the selling one bit. As a result NASDAQ posted its third distribution session (higher volume selling versus the prior session) in four. That is getting close to the point where it erodes the uptrend and sets up deeper downside.
NASDAQ and SP600 both broke some near support at the 18 day EMA with NASDAQ falling to the February closing high. SP600 did the same. With these breaks lower they are not likely to make that lateral 'consolidation in place' move of the prior month. Both NASDAQ and SP600 have small head and shoulders like patterns that basically show those indices are a bit top-heavy.
On the other hand the NYSE large caps were very solid yet again with the indices hardly noticing the selling in NASDAQ and company. Leadership remains excellent despite the industrials and energy, the stalwarts in the session, giving back a chunk of their big gains. There are many of these stocks, and indeed many in the market as a whole even on NASDAQ, that are still in very good position to ride out some selling and even make the break higher as the recent movers make their pullback. Some will fall by the wayside but right now many are sticking to their guns.
Definitely a mixed market in this test with NASDAQ struggling while industrials maintain their position, regaining relative strength. The question debated is whether NASDAQ drags the rest lower as it tests or if they remain bifurcated. Tuesday NASDAQ's selling gravity pulled the rest of the market toward it with the vacuum its afternoon rush lower created. With its distribution it appears bent upon selling some more, and that is going to impact the rest of the market. Maybe this is where that short 4 week double bottom that led into this last rally comes back to haunt the market. Thus far the impact has been pretty minimal, and as long as our positions continue to hold support on relatively light trade we will look for new opportunity to move in as they set up more upside. At the same time we will tap some ripe downside as it presents itself.
THE ECONOMY
CPI continues the trend lower, but no major shift in the move.
The headline was a bit cooler at 0.4% (0.5% expected), but as usual the core had the spotlight. It rose 0.2%, meeting expectations and not giving us that immediate gratification drop on the heels of the PPI. The year over year, however, posted a significant drop to 2.3% from 2.5%. That is a hefty one month decline, and looks quite good compared to the 2.9% growth rate posted last September.
The culprits were the usual. Medical care rose 0.4%. Housing rose 0.2% thanks to that rent equivalent measure that the government makes a wild guess at when the housing market cools. It assumes more are renting and thus rents must be rising. Thus housing is down but housing is up according to the government. Get out the salt and shake a few grains onto that number.
Food was up 0.4% again as we pay the price for more corn demand. A corollary of that is the reduction in soy bean planting. We are hearing from many agricultural forecasters that we are going to have a bean problem in the next year or two as beans are a bigger part of the world diet than corn is in ours. Thus we will see bean prices jump before too long. Sounds like something of an opportunity. This is what happens when the government sets mandates. The markets have to shift to take best advantage of the mandates, and as we all know from history, there are unintended consequences to every mandate.
In any event, the trend is lower with a significant drop in the core CPI on an annual basis. As the CPI tends to overstate inflation, you can argue that the inflation rate is right at 2%. Indeed, the PCE which is viewed by the Fed and many as a more accurate measure of consumer prices, is at 2.1% based upon the last available data. You know the Fed wants to push it back to 1.5% or so, and thus even though the Fed has for all intents and purposes won its fight against inflation, it is not going to do anything for now unless you call doing nothing something. It is hoping inflation will continue to fall and that the core PCE will get close to 1.5% without the economy balking much. Then it can lower rates. As we know, however, the Fed typically never moves with respect to lower rates until something breaks. Hopefully (home rhymes with dope?) the Fed will not wait until things break but will cut when it hits the 1.5% range. Bernanke has surprised us before . . .
THE MARKET
MARKET SENTIMENT
You know the market has peaked the current run when . . . CNBC advertises a special about investing, stating 'the bears are running and the bulls are caged; how should YOU ride the rally?' It conjures up memories of the Baron's edition that screamed the headline 'Are you rich yet?' In other words, when the newspapers, magazines and/or television shows get around to a special section on a particular market move you have to be concerned about the move running out of steam. NASDAQ is under distribution and breaking the trend even before this special hits the air. And let's not forget the 'it is different this time' utterance last week with respect to how the rally would continue on given the M&A activity. The market sold off the next session. Nice call, Bob. When sentiment couples with negative (or positive) market action, a bit more caution is warranted.
VIX: 14.01; +0.05. Edging higher but just edging, still well off even the 16 level hit intraday in late March as the indices formed the handle to that short double bottom.
VXN: 17.09; +0.26
VXO: 13.97; -0.12
Put/Call Ratio (CBOE): 0.92; +0.05
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: -21.15 points (-0.83%) to close at 2525.29
Volume: 2.286B (+9.85%). Volume jumped up to last Thursdays level, moving back well above average. That day was a downside session as well, and as noted three out of four of the last sessions have sold on rising trade. That distribution erodes the foundation of a rally and then the index breaks lower to a deeper test. That is what it started Tuesday though it did manage to close at some support. The higher volume selling, however, makes a fall more likely.
Up Volume: 518M (-258M)
Down Volume: 1.751B (+490M)
A/D and Hi/Lo: Decliners led 2.42 to 1. After some decent upside breadth on some solid upside moves, the downside breadth is consistently stronger as large and small cap tech stocks share the pain.
Previous Session: Decliners led 2.11 to 1
New Highs: 135 (-16)
New Lows: 123 (+33)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ could not hold the 18 day EMA Tuesday nor the July/August trendline. An early session rally that reversed some modest early losses was slapped back down as NASDAQ peeled off 30+ points on the way down to the February closing high at 2525. That is the breakout point and thus an important level, but three closely spaced higher volume selling sessions have build up a head of downside foam as NASDAQ shows a short 4 week head and shoulders top. Those are tricky patterns; they set up and then are never consummated as a stock or index recovers. Given the distribution and the generally crappy performance of NASDAQ this month (after it tried to show some relative strength in the internals early on) a test of 2500 where there is another high as well as the 50 day EMA looks in order. Quite frankly, given NASDAQ's performance during this rally, a test of that level would be close to sufficient as that would give back three-fifths of the move since the breakout. That, of course, presupposes the short base was enough to sustain a much further rally. We originally had our doubts, but with the money pushing the market higher you have to go with the market. Now we have to watch and see if that small base has the stones to hold. More accurately, we have to see if the money ready to move into the market wants to wait for a deeper pullback before it comes back in.
You know I want to say it, but with SOX (-1.20%) holding the 18 day EMA after its breakout, I really can't (SOX sucks). Of course, with AMAT's after hours earnings inspiring only sellers and dragging practically ever chip equipment stock into the pit with it, the SS moniker may be appropriate Wednesday. There is support from the top of the 6 month range at 493 and SOX closed at 498. Just a quick thud away.
SP500/NYSE
Stats: -1.96 points (-0.13%) to close at 1501.19
NYSE Volume: 1.644B (+18.04%). Volume jumped above average on NYSE as the small caps sold through the 18 day EMA and SP500 reversed a move to a new high intraday. Reversals are significant and even more so on volume. This was the highest volume since the month started. That means the buyers were trumped by the sellers with some force.
Up Volume: 666.504M (+119.977M)
Down Volume: 952.103M (+119.304M)
A/D and Hi/Lo: Decliners led 1.66 to 1. Pretty modest even with the small cap whipping.
Previous Session: Decliners led 1.8 to 1
New Highs: 212 (-23)
New Lows: 38 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 surged to a new post-2002 high and then gave it back on a rise in volume that moved above average for the first time since the first of May new money session. Reversals on volume should command attention. SP500 tried last week's high and was rejected. It managed to hold the 10 day EMA and it is still easily in the uptrend. Many large caps are in excellent shape. Thus you don't want to get all twisted over this action, particularly with NASDAQ giving rise to most of the selling angst. Nonetheless with NASDAQ selling and with this intraday turnaround you watch a bit closer even if things still look solid.
SP600 (-0.81%) undercut the 18 day EMA, but it has done that so frequently of late that level is pretty much a revolving door. It also fell through the October/January up trendline that marks its former channel, and that is the more significant move as it has not violated that trendline since the February and March sellathon. Similar to NASDAQ, SP600 sports a short head and shoulders pattern of sorts, and that suggests more downside. The 50 day EMA is at 420ish (closed at 424). That may not hold it, but it would be damn close to enough pullback given the move since the breakout from the short base.
DJ30
DJ30 was not immune to the afternoon selling though it took the anchors on television until the last 20 minutes of the session to figure that one out. It coughed up an almost 100 point hairball as it reversed an impressive intraday move despite HD and WMT stepping on its toes all the way up. Volume jumped to the highest since April, topping average. The candlestick chart is a massive tombstone doji. At the apex of a 5 week run that could make seasoned traders nervous. Unlike NASDAQ, it has put in some serious ground since its breakout, adding a thousand points. A test of the upper channel line (13,275ish) would appear to be in order at a minimum, with the lower channel line (13,145ish) likely. With the money pushing these industrials higher and the still excellent patterns they are showing, however, it might not take much of a pullback to bring that money in.
Stats: +37.06 points (+0.28%) to close at 13383.84
Volume: 265M shares Tuesday versus 199M shares Monday. DJ30 managed to hold some gains on the close so technically there was no dumping on the session. The 100 point give back after a strong run higher, however, suggests it was not all polite conversation on Tuesday. The sellers were in there landing some blows.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The CPI is put to bed but Wednesday there are still housing starts and permits, capacity and production, and oil inventories (and the important refinery runs). The lay of the land is set with earnings, inflation and the Fed for now, and now the market is looking around for a reason to make its next move. To this point a lot of money seeking returns has been the next reason, but the higher volume on the downside in NASDAQ and some reversal action in the NYSE says that money has moved to the sidelines for a bit.
It was better than expected earnings that helped bring that money into the market in April and early May, and ironically it might be earnings, AMAT's earnings, that prompt more of it to come out after a few distribution sessions. AMAT's results were decent, but it was not enough and it took down the chip equipment sector with it after hours. SOX has provided NASDAQ some life support on this last move, and if SOX starts gasping NASDAQ will likely continue the pullback it has started. Indeed a test of 2500 looks probable and from there we see how tough that March double bottom is.
With respect to the market we see the issues outlined above and we also see some great patterns still in position to break higher and a lot of continuing trends still in good shape. That means thus far the NASDAQ contagion has not spread to much of the market. That does not mean it won't; most patterns in an uptrend look good until they start to look worse. Kind of an obvious statement, and it simply means we are not going to stick our heads in the sand and ignore the issues on NASDAQ. If the solid stocks we see and also have positions on start to show similar higher volume selling and cracking support we have to anticipate a deeper test this time than the prior consolidations. That makes since after such a solid move higher with little rest and then the NASDAQ hiccups. We still see solid volume buying ongoing even Tuesday, indicating the money is still there. The question is whether it will remain strong enough to keep these trends in place if NASDAQ sells more.
We still see a lot of solid positions we are going to prepare plays for and be ready to move in when they show they are holding up and flash the 'buy me' signal, i.e. moving higher from solid buy points on some good trade. That might not be for a few sessions now given the Tuesday afternoon action, particularly with NASDAQ. If we see some ripe downside we will look at that as well as we look for the overall trend to ultimately hold. That all depends upon the money again seeking stocks; the March base was rather puny and this could always be the test of that short sell off. As it stands, that is the only test of significance since last August, and that is a long run. Thus we protect trends and positions; if they cannot hold into the close and volume is increasing, better to be cautious and see if this long run can hold.
Support and Resistance
NASDAQ: Closed at 2525.29
Resistance:
The 18 day EMA at 2540
The July/August trendline at 2549
2568 is the November/February up trendline
2580 is the May high
2595ish 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:
2531.42 is the February high (post-2002 high); 2525 intraday
2523 is price resistance November 2000
2509 is the January 2007 high
The 50 day EMA at 2501
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 1501.19
Resistance:
The upper trendline of the channel at 1521
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 1465
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 13,383.84
Resistance:
13,369.29 is the May high, and it fell on Tuesday
Support:
The 10 day EMA at 13,275
13,268 is the upper channel line in the November/February channel
The 18 day EMA at 13,163
13,145 is the former up trendline that marks the lower channel.
The 50 day EMA at 12,855
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): 0.4% actual versus 0.5% expected, 0.6% prior
Core CPI (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
New York Empire State Index, May (8:30): 8.0 actual versus 9.0 expected, 3.8 prior
Net foreign purchases, March (9:00): $45B actual versus $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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