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5/17/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued. Most positions are still trending higher so letting them continue the trend.
Buy alerts: CFC; SGR; SWN
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:
- Energy sprints higher but sellers still manage to strip away an afternoon rally.
- Philly Fed shows more than cream cheese.
- Leading Economic Indicators (LEI) should be renamed to LEI (Lagging Economic Indicators)
- Still working on the consolidation, still more to do, but still places to buy.
Sluggish start, afternoon rally, but the sellers get the last word.
Again it was more of the same with respect to what the market had to mull over to start the session. Sure the economic reports change names, the earnings are from different companies, and of course the M&A activity involves different companies, but the scenario is familiar. Three M&A deals (ADS and ACXM going private, WPPGY buying TFSM), earnings (JCP and HPQ beat, guide higher), and economic data (jobless claims fall to 293K, LEI is weak yet again, Philly Fed posts a stronger gain).
There was also the Bernanke overlay as he talked directly about the sub-prime mortgage market. The nutshell version (and it is not worth more than that): it wont impact the economy. Some took that as a rate hike coming, some took it as no move at all, others didn't care. What it means is Bernanke is still trying to buy enough time to let the core PCE inflation continue its fall and get comfortably below 2% before the declining 90 day Treasury gets too low and screams for Fed loosening.
The market started softer, always a better way to start the day, particularly with the indices dancing around post-2002 highs after a long run. Buyers did not rush back in, however, and stocks struggled all morning. Bernanke's speech prompted a modest bounce, but that rolled over at lunch the indices were back negative and at session lows.
Oil started to spike in the early afternoon (closed at $64.86, +2.31) along with gasoline, and that started energy stocks on an afternoon sprint. Somewhat strangely, the rest of the market followed them higher. That has the indices positive at the start of the last hour after an 11 point recovery on NASDAQ. Nice low to high action as the market once more found buyers out of selling.
This time, however, the gains could not hold. It took two hours to build those gains back from the early selling, but just one hour to give almost all of them back by the bell. Thus the indices closed lower though mostly modestly so. The weaker indices of late (NASDAQ, SP600) were weaker again while SP500 and DJ30 just paused in their moves. More of the same as noted above. What was different was the sellers' ability to overturn an afternoon rally. A couple of weeks back the sellers would not have tried. Instead the market continued to show more of the recent weakness that popped up as NASDAQ hit a new post-2002 high but then stalled.
Technically the indices continued their consolidation that started a couple weeks back for NASDAQ and SP600 and to some extent SP500. The late selling shows it is not through with the process. Of course, there was no breakdown yet. NASDAQ and SP600 continue to struggle with those toppy patterns, but no breakdown. Indeed, volume was lower on both NYSE and NASDAQ, showing the sellers did not overrun the market. They just beat out some tepid buying.
As has been the case, however, despite the overall sluggishness, there was leadership. Energy surged on some strong volume. After a lateral move for almost two weeks it found buyers in a big way as oil and gasoline jumped. Industrials were still strong as well. The market continues finding leadership as an outlet for the cash coming out of NASDAQ and SP500. Thursday, while down, was thus kind of cool in that the selling was on light volume, meaning no dumping, but the buying was on heavy volume, meaning new money was again coming in. Thus, even though much of the market (that outside of DJ30) is in consolidation mode, money was still looking for opportunity and moving in with some force when it found it.
THE ECONOMY
Philly Fed tops expectations.
For once the Philly Fed showed some strength this year after three months of flat lining (4.2 versus 4.0 expected). It actually decided to follow the ISM (though the regional indices typically lead the ISM). New orders, employment and shipments were all much stronger.
Sounds good but Philly is rather fickle. It has lagged all other regions and is quite volatile. Of course, except for the prior three months when it was flat while the other regions were starting to strengthen. It is a bit late but looks to have given a decent reading that is in line with what the other economic reports are showing.
Leading economic indicators lag.
Speaking of indicators that are not that indicative, the Conference Board's monthly rendition of what it believes are leading indicators was down 0.5% versus the 0.0% expected. The prior month (March) was originally reported at 0.1%, but was revised to 0.6%. Perhaps it takes the Board a bit of looking around to get it right.
In any event, it has completely missed the strengthening in the economy. The reason? Because one of the components is the bond yield curve and as we know, the curve is back to inverted somewhat (though flat is more like it at least with respect to the 90 day, 2 year, 3 year and even the 10 year bond). The LEI, however, uses a cumulative yield curve. That means month after month of the modestly inverted curve adds more and more downside weight to the reading.
Theoretically that is somewhat palatable because the longer the curve stays inverted there is historically more of a chance of an economic decline. The problem is, it is so out of proportion to the other indicators given its cumulative effect that it has skewed the entire indicator. Thus the LEI, in our book, is now a lagging indicator at best and just plain inaccurate at worst.
THE MARKET
MARKET SENTIMENT
Remember the perma-bulls during the early 2000's? No matter how ugly the selling was, no matter how bad the patterns were and how fast the earnings were falling they kept recommending the old 'tried and true' stocks from the preceding rally. Remember Joe Batapaglia? He was a buy-aholic all the way down.
Now he is an obstinate bear. Sure the management company he is with is 80% invested in stocks, but for months he has been sullen about the economic prospects. Housing, a weakening consumer, weak auto sales . . . he is expecting a meltdown though admittedly it is more modest than other predictions we have heard.
The point of all of this? This is the kind of adamant one-mindedness, just on the other side of the fence, that was prevalent as the market dove into the prior bear market. Having been scorched by massively excessive optimism as Rome burned, JB is fighting with all his might not to get overly bullish this time. We see that over and over, that refusal to believe.
Not criticizing at all. Indeed we are pleased. As long as many are adamant that this all craziness that can only end in tragedy we are pretty comfortable. I recall back in 1997 reading how the internet run was incredibly overdone and that the end was near. Then came 1998 and 1999 and the explosive gains. Sure the end was coming, it just was not that near.
Throw in that the retail investor is even more bearish than JB, and you are not near the prior levels of bullishness. The retail investor, despite the popularity of some new shows, is still not in the game with any significance. The market has to hit new highs and not collapse before the retail guys come out en masse. That is not the case right now as any of the discount brokers will tell you and as the AAIA surveys show.
VIX: 13.51; +0.01
VXN: 16.75; +0.44
VXO: 13.37; +0.1
Put/Call Ratio (CBOE): 0.79; -0.24
Bulls versus Bears:
Bulls: 54.3%, up from 53.5% last week and 51.7% the week before. This indicator is right at the 55% level considered bearish. Too high, but as noted above, there are other indications that say that there are potential investors out there that are still apprehensive. Still, it is too overdone as would be expected when the indices are hitting new all-time or multiyear highs. It was 45.5% seven 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: 19.6%. Below the 20% level considered bearish, the level it hit last week (20.0%). A big plunge the past two weeks from 24.7%. Quite a drop from the 27.5% hit 6 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: -8.04 points (-0.32%) to close at 2539.38
Volume: 2.017B (-5.61%). Volume mercifully faded on some selling, falling below average as NASDAQ posted a modest loss. Beats the 3 sessions of distribution, the last two occurring Monday and Tuesday.
Up Volume: 921M (-519M)
Down Volume: 1.076B (+405M)
A/D and Hi/Lo: Decliners led 1.69 to 1
Previous Session: Advancers led 1.45 to 1
New Highs: 118 (+2)
New Lows: 108 (-9)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ turned every so slightly positive, but all that did was take it to the 10 day EMA. It failed to move over that level and it closed near the 18 day EMA. It could not push the Wednesday advance further, just lamely waffling in the last hour and frittering away the afternoon bounce. Thus no change in the status quo for NASDAQ: it is still in a short term toppy pattern, it has 3 days of distribution to contend with, and the past two sessions of mild trade and price action has not changed the distribution or the pattern.
SOX (-1.05%) was showing some true colors Thursday as it sold off to the top of its 6 month trading range that it took so long to break from. At least it did not cave in. Technology is struggling as the technology for the rest of the world, industrials, is the growth area.
SP500/NYSE
Stats: -1.39 points (-0.09%) to close at 1512.75
NYSE Volume: 1.456B (-3.35%). Volume posted its second straight below average session. Wednesday was on an upside day, and that showed no strength. Thursday was on a flat session at the peak of the move; no strength there either. At least it did not turn over on high volume. Talk about looking for a positive.
Up Volume: 680.27M (-394.532M)
Down Volume: 761.103M (+347.329M)
A/D and Hi/Lo: Decliners led 1.56 to 1
Previous Session: Advancers led 1.68 to 1
New Highs: 194 (+24)
New Lows: 43 (+7)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Pushed to another new post-2002 high intraday (1517.14) and then gave it back, posting a modest loss on lower volume. Fairly innocuous action but it also comes at the top of a pretty impressive run, and the doji on the candlestick chart deserves some attention. SP500 has been consolidating the past two weeks, just not as obviously as NASDAQ. Its upside advance has basically stalled thanks to that one big downdraft last Thursday. That put it back at the late April highs and it has only been able to get back up to that prior high on this last move. Still looks as if there is more work to do here, but of course, it is holding onto its gains.
SP600 (-0.43%) could not hold positive as did its mid-cap brother. Similar to NASDAQ, it continues its short toppish pattern, trying to hold the October to January trendline but having a heck of a time doing so. It still looks ready to test the 50 day EMA (420.77) before this is over, and that is near support at that.
DJ30
DJ30 actually stalled out some Thursday after streaking higher once more Wednesday. It showed a doji on the candlestick chart and that can indicate a change in momentum or a peak on an upside move. It has shown some of these during this run, but they were just pauses before the next move higher. It has been hard to fight the Dow's advance, but each doji after such a run gets you wondering if this is the time it is going to start that inevitable pullback. Lighter trade showed there was not that heavy turnover that would indicate the sellers were selling as fast as the buyers were buying and eroding the trendline.
Stats: -10.81 points (-0.08%) to close at 13476.72
Volume: 195M shares versus 237M shares Wednesday. Big decline in trade and thus the difficulty in pushing the Wednesday advance. No big turnover that would indicate a reversal, just ran out of gas on Thursday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Expiration Friday is upon us and looking at the open interests in the strikes bracketing the at the money options we see most are betting on further upside. That also is why we saw some of that heaver volume on Tuesday as the market sold. It always hits midweek in expiration week these days. Expiration and Michigan sentiment are all that is out Friday, at least the scheduled type of data.
Expiration may offer some fireworks; there is always that chance, and with NASDAQ and SP600 in top-heavy patterns and techs undergoing some distribution the door is open for more selling. An issue that has counterbalanced the urge to sell on Friday is Merger Monday. With trillions in private equity circling the market looking for opportunity to swoop in, the idea of being short over weekends has carried with it an unwanted burden. Thus Friday has found something of an artificial floor. Look at last Friday: distribution on NASDAQ Thursday then bounced right back up to end the week. That won't last forever, but thus far it has kept some of the sellers at bay.
There is still more to do with this consolidation on NASDAQ and SP600, and SP500 nor DJ30 can ultimately get off scott-free. The top-heavy look of NASDAQ and the small caps makes it harder to buy into new positions, but as noted above, strong stocks in great position keep attracting money. Gastrological issues or not, money is moving into specific sectors with determination, and we cannot ignore that. Can't throw caution to the wind, but these moves should not be dismissed because of perceptions of what is high or not.
We liked the action in energy today. We bought some positions and we watched existing positions rally on volume. We will continue to look for that money moving into strong patterns. It is hard to argue with strong volume and solid accumulation patterns. We see some technology here and there that still looks good, but we also see some of them looking good to the downside.
Support and Resistance
NASDAQ: Closed at 2539.38
Resistance:
The 10 day EMA at 2546
The July/August trendline at 2551
2571 is the November/February up trendline
2580 is the May high
2590-95 from an April 1999 interim peaks
2600ish is the top of the November/February channel
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 2504
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 1512.75
Resistance:
1520 from the September 2000 peak
The upper trendline of the channel at 1525ish
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1500 from April 2000 peak
The 10 day EMA at 1504
The 18 day EMA at 1497
1496 is a peak from July 2000
1492 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1469
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 13,476.72
Resistance:
Now 10.4% above its 200 day SMA, a point where DJ30 has historically show some struggles.
Support:
The 10 day EMA at 13,343
13,285 is the upper channel line in the November/February channel
The 18 day EMA at 13,226
13,190ish is the former up trendline that marks the lower channel.
The 50 day EMA at 12,903
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): 293K actual versus 310K expected, 298K prior
Leading Economic Indicators, April (10:00): -0.5% actual versus 0.0% expected, 0.6% prior (revised from 0.1%)
Philly Fed (12:00): 4.2 actual versus 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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