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5/16/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: ACN (bonus); NVDA; SLB
Trailing stops: IGLD
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:
- Stocks breakout in a rash after oil data, but money moves in and pushes them back up.
- Industrial production is latest indication the economy is on the rebound.
- The new money finds its catalyst: a market dip.
- Market could part ways here, and longer term that is always an issue.
Four out of five days lower on NASDAQ is too much for the liquidity to stand.
Every morning it is pretty much 'the usual.' More earnings (FD lower guidance, DE beats but disappoints), more M&A (BOL going private), and more economic data (housing starts +2.5% though down 16% year/year; industrial production surging 0.7%). The housing data nudged futures higher, but they were back to pre-housing levels when the production numbers goosed them once more. The result was a solid open that saw NASDAQ up 10 points and SP500 up 7 points out of the gate.
The gains mostly held through the first hour when the weekly oil inventories hit. They were basically in line with a 1M build in crude, 1.7M in gasoline, and another 1M in distillates. Refinery runs were less than expected, rising 0.5% to 89.5% versus the 0.7% gain anticipated. That leaves gasoline at decade low levels (inventory-wise), and the market seemed to key in on that and the prospect it won't improve dramatically with refineries still operating at below 90% capacity when they are typically closer to 95% at this transition time of the year.
The reaction was swift and significant. All of the indices sold sharply into negative territory over the subsequent 45 minutes. Energy stocks, a stronger sector of late, were selling hard as well. Didn't look too pretty on NASDAQ as it undercut 2525 that marked the February closing high (the peak ahead of the March selling).
Once more the market bottomed midmorning. It made a knifepoint turn and rallied steadily higher into the close. There was no blowout volume or breadth, but there was solid leadership once more as the new money still circling the globe could not hold back after a week of NASDAQ weakness that is actually part of a two week pullback. When the money moved in the indices found the floor and started that steady, rather unspectacular recovery that kept improving as the day wore on. In the last hour gains accelerated into the bell once the money saw the sellers were not going to have the stones to take it back down.
Technically the action was the mirror of Tuesday's low to high reversal. Stocks gave back a gain and then reversed off negative territory to close at session highs. Outside of that the similarities grow rather thin. Volume was lower on the rebound, and though it was above average on NASDAQ it could not top the Tuesday selling volume. Breadth was ho-hum in the 1.5:1 range. NASDAQ and SP600 are not out of the woods with the recent harder downside hits, but they did what they had to do at next support. NASDAQ held 2525 and bounced nicely while SP600 undercut its uptrend and then rebounded as well.
The key for the session was the leadership that continues to look solid. HAL broke higher, NVDA made an excellent test and rebound, NTGR bounced off support, energy stocks tested and reversed to positive. Relentless selling will beat leadership just as good pitching will beat good hitting, but it has to be relentless. The money in the market continues the B-12 shots, steroids, creatin or whatever you want to call it that keeps pumping the leaders up. Selling has reared its head the pat two weeks (on NASDAQ), but it really does not seem like two weeks as the initial pullback was a sideways move that led into the more recent NASDAQ downside. The leaders keep coming back or breaking out even on some downside sessions. That is a continued positive, but again, NASDAQ and SP600 are not out of the woods based just on the Wednesday rebound.
THE ECONOMY
Industrial production rose 0.7% (0.3% expected), making the past 6 months the best growth spurt since October, i.e. since the economic slowdown that started second half 2006. This is another arrow in the bulls eye with respect to the economic recovery. The mounting data shows that despite a continued sluggish housing market the economy is picking up speed once again after this mid-cycle slowdown. According to the ECRI data, there is still plenty more of this to come farther down the road.
Housing, while still a drag, showed some life with housing starts rising 2.5%, topping expectations that presupposed a decline. Instead an annualized 1.528M units were started versus the 1.491K in March. Even with the gain, however, starts fell 16% year/year. Permits were on the decline, however, falling 8.9% (-28% year/year).
Many viewed the housing starts as positive, indicating a bottom in the sector. No, this is just what we said would come last month, i.e. that there were still a lot of projects in progress that were going forward because the market has not reached the point where it is more economic to break contracts than go ahead and complete them. Thus the housing starts is not any sign of an improvement in demand, but instead is simply adding to the inventory overhang. Hard to get too excited about that.
THE MARKET
MARKET SENTIMENT
VIX: 13.5; -0.51
VXN: 16.31; -0.78
VXO: 13.27; -0.7
Put/Call Ratio (CBOE): 1.03; +0.11. Market reversed and closed positive just as a lot of downside positions are being taken. A lot of protective put buying and downside speculation, but likely not enough to single-handedly put in a new rally.
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: +22.13 points (+0.88%) to close at 2547.42
Volume: 2.136B (-6.55%). Volume was lower but still above average as NASDAQ tested below near support but then rebounded. Still it was not as strong as the reversal/selling volume Tuesday, and NASDAQ has yet to wash away those three distribution sessions the past week.
Up Volume: 1.44B (+922M)
Down Volume: 671M (-1.08B)
A/D and Hi/Lo: Advancers led 1.45 to 1. Pretty mediocre as noted though it was a rebound session from high to low and it takes awhile for breadth to catch up.
Previous Session: Decliners led 2.42 to 1
New Highs: 116 (-19)
New Lows: 117 (-6)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ rebounded off of an undercut of the February closing high at 2525, rallying back to the July/August 2006 on the close. NASDAQ basically did what it had to do, i.e. hold at this support level after three distribution sessions in four through Tuesday. It did not reverse that selling, just put it at bay for the session. NASDAQ still has that short head and shoulders top in place that it is trying to fight off. Tuesday we asked the question whether the new money wanted to see a further pullback or would move in quicker. Wednesday it started back in after a week of pullback but it was not a clear reversal or a clear trump of the selling strength. The money is indeed still there and is still ready to come in, it just was not clear and convincing that it was strong enough to end the NASDAQ selling right here.
SOX (-0.11%) was the lone downside closer, but it was mounting a serious comeback that closed it at the 18 day EMA and just off of flat. That intraday test took it down to the top of its 6 month range it broke out of to end April. There were springs there because SOX bounced back over 5 points from that low to close. AMAT didn't help it, but as the close shows, it did not mortally wound the breakout.
SP500/NYSE
Stats: +12.95 points (+0.86%) to close at 1514.14
NYSE Volume: 1.507B (-8.36%). Nice bounce but volume did not run higher on the session, coming in below average after the Tuesday reversal from the new post-2002 high. That session had the looks of an index scared to move higher, but the large caps were right back at it Wednesday. The small caps rebounded as well, but their pattern, as with NASDAQ, did not overcome that prior higher volume selling.
Up Volume: 1.075B (+408.298M)
Down Volume: 413.774M (-538.329M)
A/D and Hi/Lo: Advancers led 1.68 to 1. Mirror of the Tuesday selling. Nice recovery but nothing special.
Previous Session: Decliners led 1.66 to 1
New Highs: 170 (-42)
New Lows: 36 (-2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 turned right back up after that Tuesday fade from a new post-2002 high, holding 1500 support and bouncing to . . . a new post-2002 closing high. Volume lagged after moving above average Tuesday for the first time in three weeks. Not a stellar move but then again, very much in keeping with the run higher as SP500 maintains its trend higher in its channel.
SP600 (+0.63%) was in it deep midmorning, undercutting the February peak though not by much. That took it within 2 points of the 50 day EMA as well. Nice recovery off of a test of support, but as with NASDAQ, it was not enough to convert the small head and shoulders pattern into anything benign just yet. It did what it had to do, but surviving is not quite thriving.
DJ30
The blue chips are in the zone. Not sure if it is the zone you hear about in sports or the Twilight Zone, but it is in a zone. Another 100+ point session puts DJ30 10.4% above its 200 day SMA. As we have noted in the past, a move to that level is often when DJ30 starts to struggle. That said, outside of last Thursdays drop to the 10 day EMA, there hasn't been a whole lot of struggling on DJ30. With HAL coming to life, JPM bouncing higher, C breaking out on investment news, and HPQ higher after hours on strong earnings, there has been no struggle at all. It cannot keep this juggernaut pace forever, but it is not showing signs just yet of giving it up, however.
Stats: +103.69 points (+0.77%) to close at 13487.53
Volume: 237M shares Wednesday versus 265M shares Tuesday. Volume faded back to just below average as DJ30 continued its run. Lower trade overall but there was strong volume on some key leaders in the index. Not great trade the past three weeks and that keeps you honest, along with the straight up run.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Jobless claims, Leading economic indicators (Conference Board version), and the Philly Fed top the economic agenda with HPQ earnings on the stock side. Jobless claims are staging a decline that is indicative of a further rebound in the economy. The LEI, well, it is hard to tell what it indicates as it has become a rather lagging indicator over the past few years. The Philly Fed will be interesting; it is the weakest of the regions, month in and month out though it is expected to post a decent recovery this month (as it was expected last month but instead trotted out a 0.2 result).
The key will be the money that has kept this rally going thus far and that moved back in Wednesday and rescued NASDAQ from giving up its breakout over the February high. That may be a short-lived respite as the volume on the rebound was lower and NASDAQ's pattern is still toppish. SP600's pattern fails to generate any warm feelings either. As noted above, they both held where they had to hold on Wednesday, and now we see if the money still wants to move in. HPQ earnings were solid as we all knew they would be, yet HPQ was up after hours anyway. There was some spillover into other techs as well, and perhaps that will be what pushes NASDAQ back up with SP500. Still have to be cautious of any stronger NASDAQ open at this stage, however. Wednesday a higher open was sold only to be rescued by lower volume. Again, it has not washed away that distribution or broken up its near term somewhat toppish pattern.
As with Wednesday, there are still many stocks in solid position to move higher, and the Wednesday action only provided a good shakeout for many more so they could reset and try a further move higher. Energy has been a bit choppy the past several sessions, but it also looks primed to continue its move higher, particularly if money moves away from NASDAQ; that money will seek something deemed safer, such as energy, metals, industrials. We still have many current plays waiting for that break higher, and we keep finding more. Look over your portfolio and see what you need more exposure to and look at those plays on the report in those sectors. We have a good representation and we just sit back and see what shows us the best move.
With that we also have to keep in mind DJ30 is basically getting to a point where everyone is afraid of it. Problem is, the stocks within the index continue to set up in waves and them move higher group after group. That is what is keeping it rolling higher right now. You have DJ30 on one hand getting pretty extended while NASDAQ struggles to hang on. Pretty much the definition of bifurcation. If NASDAQ breaks lower that money will move elsewhere as noted, but at some point it reaches a saturation point and needs a rest. It looked close to doing that the past two weeks, but then only NASDAQ and to some extent SP600 bought into it. As Tin Cup said in 'Tin Cup,' you have to ride her until she bucks you. We just have to be watching for where we want to land when that happens, and with one part of the market running higher and another struggling to hang on, that means we have to look both ways as this scenario plays out.
Support and Resistance
NASDAQ: Closed at 2547.42
Resistance:
The 10 day EMA at 2548
The July/August trendline at 2549
2569 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 2503
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 1514.14
Resistance:
1520 from the September 2000 peak
The upper trendline of the channel at 1524ish
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1500 from April 2000 peak
The 10 day EMA at 1503
1496 is a peak from July 2000
The 18 day EMA at 1495
1491 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1467
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 13,487.53
Resistance:
Now 10.4% above its 200 day SMA, a point where DJ30 has historically show some struggles.
Support:
The 10 day EMA at 13,314
13,272 is the upper channel line in the November/February channel
The 18 day EMA at 13,197
13,160ish is the former up trendline that marks the lower channel.
The 50 day EMA at 12,880
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): 1.528M actual versus 1.48M expected, 1.491M prior
Building permits, April (8:30): 1.429M actual versus 1.520M expected, 1.569M prior
Industrial production, April (9:15): 0.7% actual 0.3% expected, -0.3% prior
Capacity utilization, April (9:15): 81.6% actual versus 81.5% expected, 81.2% prior
Crude oil inventories (10:30): +1.06M actual, 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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