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world stock market, us stock market
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5/19/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: BTU. Took some interim gain on a strong energy move: HAL, RIG, SU
Buy alerts: BCSI; CEPH; GS
Trailing stops: TK
Stop alerts: MIL
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 end a mixed week on an up note.
- Inflation in its death throes
- With the 1990's 'old economy' stocks now the world's 'new economy' stocks, does SP500 and NASDAQ swap places with respect to growth?
- Extended, but that just means pick quality new positions.
Expiration rally closes out a mixed week.
Yes it was indeed mixed. DJ30 and to a lesser extent SP500 marched higher for yet another week, continuing a rather impressive string of new highs. On the other side of the tracks NASDAQ and SP600, while up on Friday, were down for the week as they struggled in a three week consolidation with NASDAQ sporting a couple of distribution sessions to start the week. Even with that sluggish action the black sheep of the rally did not break down and indeed put in a solid expiration session. Ah the power of massive liquidity: even when an index struggles it does not give up much ground.
Friday the market started higher on another round of generally good news. Earnings were solid with KSS, JWN, and INTU all posting impressive profits. After a pretty weak showing on same store sales, retail sales, and earnings results the prior week, the return of solid retail results fired back at those claiming retail was in a swoon. More M&A as usual with MSFT bidding for AQNT, but the 85% premium was not usual. It was, how do you say it . . . outrageous. Everyone seemed to love it, however, as it added to the takeover craze and vaulted the only remaining player in the sector, VCLK, as everyone figured someone had to pony up for it. Analysts were active again, showing some of that renewed bravado with upgrades of INTC and VZ and a downgrade of JNPR. There was also a splash of economic data. Michigan preliminary sentiment (is this before they have real sentiment?) came in stronger at 88.7 versus the 86.5 expected. They are going bonkers in the great white north.
That started things higher but the sellers made their attempts. The market survived an early run at selling, then once more recovered and rallied on into the afternoon. As on Thursday, the sellers made another afternoon run at the tape and forced a sharp drop in the next to last hour. Unlike the prior session, however, the buyers came back and closed the indices out at their highs. Despite the mixed action for the indices on the week, on Friday they were all working together.
Technically the action was not bad though on an expiration Friday it is hard to precisely rate the result. But we will anyway. It was another low to high move, always a good indication of an underlying bullish theme. This one had the additional benefit of overcoming a couple of selling attempts, though on expiration some volatility is expected. Volume was up as well, moving back above average on both NASDAQ and SP500. Again, expiration tends to cloud up the volume picture, making it harder to say the rising trade on rising prices was accumulation. Expiration also impacts the earlier part of the week as well, however, so if we call Tuesday distribution on NASDAQ we can call Friday accumulation.
As noted above, NASDAQ and SP600 are still struggling in somewhat toppy near term patterns though both did test the breakout and did what they had to do, i.e. bounce. DJ30, and to a slightly lesser extent, SP500 both enjoyed great weeks but both are extended. NASDAQ and SP600 struggling, DJ30 and SP500 extended. Almost anyway you slice it, logic says the indices are not in the best buying position.
Logic says be prudent, but leadership is still strong and still blossoming. As noted Thursday, energy took off after a slight pullback. Impressive surges that continued Friday with even more energy stocks breaking out and joining those that streaked higher Thursday. Financials showed some strength Friday after spending several weeks trying to 'get right.' While tech continues to struggle and the 'old economy' stocks from the 1990's enjoy huge success as the rest of the world's 'new economy' stocks in the 2000's, if the financials break higher that is a bullish, Katy bar the door sign. This market has moved higher on waves of buying moving to new areas, and after waiting on deck for 4 weeks the financials are showing signs of being the next wave.
Again, the problem is the extension of the run on NYSE. It is not a valuation problem or a weak economy problem though you hear some of that on the financial stations. No, it is simply how darn far it has run in a short time with no rest. A bull run no doubt. But bull runs are peppered with sharp sell offs from time to time, and when you get big extensions such as this move, the time is riper, particularly with the kind of sentiment you are seeing from the bulls/bears ratio and the very high option activity levels (driven in large part by another area of fluff, the M&A activity). It is normal to have a sharp correction. With the big strength on the NYSE indices and with NASDAQ and SP500 struggling, you have to be diligent.
Thus Friday we could have taken a lot more new positions than we did. There were several plays dancing around the buy point on decent trade, but with the expiration sprint higher and the often opposite reaction the following Monday (though M&A has altered that of late), there was no hurry to jump in to a lot of new positions. Indeed, we took some gain off the table on the spurt higher in energy stocks. If these stocks are still moving this week coming then we can move in. Over the years we have learned that patience is a primary pillar of investing whether buying into a position, taking some profits, or getting out.
THE ECONOMY
The past two weeks gave the latest 'official' read on inflation. Two weeks ago the annualized core PCE attached to personal income and spending fell to 2.1%, finally starting to show a serious decline after inflation pressures peaked way back in October 2006. Last week the annualized core CPI fell to 2.3% as it made a significant drop. Of course, CPI overstates the actual inflation level, so 2.3% is more like 2% or the 2.1% shown on PCE.
Outside the official indicators that the news media has to have in order to put a label on anything, the market indicators are even more emphatic that the inflation war is over. The spreads on inflation protected treasuries (TIPS) are narrowing significantly. Gold is declining off of a double top and is testing a break below its 90 day MA. Key bond indicators are falling as the 90 day treasury yield is at 4.8%, well off the Fed funds rate (5.25%) and now in line with the 2 year, 5 year and 10 year bond yields. In other words, the bond curve has flattened as short end yields fall. Art Laffer, one of the best economists there is, says this is a near perfect scenario.
Why is this happening? It is the resumption of the expansion alleviating the pressures. Conventional Phillips Curve wisdom (though history shows it is not wisdom at all but more akin to an old wives tale) says a stronger economy increases inflation pressures. Reality, as voiced by former Dallas Fed president McTeer just recently (again), is that economic expansion reduces inflationary pressures as supply anticipates and satisfies demand. Thus a return to a stronger growth rate as the recent economic data indicates and the further growth anticipated by ECRI explain the reduction in inflation pressures that swelled some as the economy slowed the second half of 2006.
Some are still calling for a recession based upon the inverted curve. They may ultimately be correct; we could still make the wrong policy decisions and torpedo a revival of the expansion (trade barriers, tax increases on incomes and capital gains), sending us into recession and exacerbating inflation. At least one such pundit has suggested we may already be in a recession. Wow. If this is a recession we can live with that. If it is a recession it is the mildest in recorded history because the stock market correction that preceded it (there is always one because the market looks down the road) was back in the summer of 2006 (before the 2006 second half slowdown) and lasted all of 13 weeks. Since that time the market has been on fire, rising ahead of the next expansion (it does that ahead of time as well). Again, if this is recession we can live with it.
The sum total is inflation is on the decline and is about to break back into the Fed's comfort zone. Will that lead the Fed to lower rates? Conventional wisdom says no, that the Fed will not lower until something breaks. That is the history of the Fed and thus it is a pretty good bet. Based on our review of Bernanke's actions since becoming Fed chairman, however, Bernanke talks the old line so everyone understands and does not feel a void after Greenspan, but he acts according to a newer line of thinking, one more in line with reality. With the 90 day treasury falling sharply away from 5.0%, that has flattened the yield curve to a more palatable level, but it also indicates the Fed funds rate is too high. If Bernanke is truly following the market then a reduction of the Fed Funds rate is in order. As noted last week, however, the Fed cannot move until inflation is back in the range, and Bernanke is hanging on as long as he can hoping the economy will avoid any further backsliding.
THE MARKET
MARKET SENTIMENT
VIX: 12.76; -0.75
VXN: 15.91; -0.84
VXO: 12.34; -1.03
Put/Call Ratio (CBOE): 0.98; +0.19
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: +19.07 points (+0.75%) to close at 2558.45
Volume: 2.072B (+2.74%). Volume moved back up to slightly above average on the Friday gain. Hard to call it accumulation given it was expiration Friday, but as noted above, expiration likely influenced the Tuesday distribution as well. Given the prior distribution, however, we still need to watch NASDAQ carefully as it continues the current choppy action.
Up Volume: 1.367B (+446M)
Down Volume: 678M (-398M)
A/D and Hi/Lo: Advancers led 1.76 to 1. Not bad breadth given how it has acted of late.
Previous Session: Decliners led 1.69 to 1
New Highs: 138 (+20)
New Lows: 93 (-15)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, then tested the 18 day EMA on the midday test before rebounding to a nice solid close. Higher volume but again it was expiration. NASDAQ is still in a short term toppy pattern. Friday tried to break it up a bit, moving back over the July/August 2006 trendline. It has not done the trick yet, but as noted last week, NASDAQ, while choppy and toppy, has not broken down. It held the February high that marks the breakout during the Tuesday selling. If it continues higher from here on more solid volume that is a coup. As of Friday the battle is still on.
SOX (-0.12%) struggled again, but all was not lost. It rebounded from an intraday test of its 50 day EMA, closing near the highs in its 6 month range. This is the make or break point for SOX, and it did show some positive attributes Friday with a nice doji with tail that held support and prompted an intraday recovery. It is hanging on where it absolutely has to. Now we see if that translates into a rebound.
SP500/NYSE
Stats: +10 points (+0.66%) to close at 1522.75
NYSE Volume: 1.647B (+13.15%). Volume topped average for just the second time in three weeks. Tuesday the high volume was on an intraday reversal from high to low; at least Friday, though expiration aided, was on solid gains.
Up Volume: 1.223B (+542.277M)
Down Volume: 410.52M (-350.583M)
A/D and Hi/Lo: Advancers led 1.63 to 1. Quite modest given the gains in energy and financials showing some life signs.
Previous Session: Decliners led 1.56 to 1
New Highs: 266 (+72)
New Lows: 33 (-10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 bolted higher once more. A soft start to the week and then a rousing finish. Volume was up Friday after rising on the Tuesday reversal from nice gains. Price/volume action has not been stellar this month, but that has not stopped the large caps. New post-2002 high Friday and close to a new all-time high. It continues to steamroll higher after the early April breakout from that short double bottom with handle base, and it is acting as if that base was all it needed to put in another solid run that bounces 4 to 5 times off the 18 day EMA on the way up. That still leaves SP500 with plenty of upside on this run though this latest bounce (the third) is already at the upper channel line of its channel, and that stalled the last bounce and sent the index back to the 18 day EMA where it started this latest run. Thus if that pattern holds, this bounce is ready for the fork.
SP600 (+0.75%) held the August/January trendline that it has danced with the past week, posting a solid gain on the session. The move was aided no doubt by the leadership in energy. The action was solid, but as with NASDAQ, the other struggling growth index, it is not out of the woods. It is making a higher low, however, and those woods are thinning, aided by the energy stocks that hit a gusher last week.
DJ30
DJ30 continues its rampage. After a pause Thursday on low volume it jumped to a new all-time high on the strongest volume in a month and one-half. It is now 10.7% above its 200 day SMA, a point where historically it has struggled. As noted last week, it is not struggling. More on this in the review for Monday below.
Stats: +79.81 points (+0.59%) to close at 13556.53
Volume: 282M shares Friday, the best since last expiration. Very solid trade as energy garnered a lot of volume.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
A paradigm shift with respect to what indices are growth indices?
We have noted how DJ30 historically struggles when it gets 10% above its 200 day SMA and then starts to correct at 15%. On the other hand, NASDAQ historically had more stretch to it, at least prior to the crash. It could get 15% before it would feel any heat, and 20% before it started to struggle.
We talked about this a month back, but with the run in the Dow and SP500 and the strength of their stocks, you have to consider if the paradigm is shifting. We are not saying it is different this time, but there is a shift. The new economy stocks of the 1990's are not so new anymore. There has been a shift to wireless that salvaged technology after the crash, but overall technology has lagged as the world economy recovered. The 'old economy' stocks of the 1990's are now the new economy stocks in this century as the rest of the world builds out to match the west.
By new economy we mean growth stocks. A lot of old, staid, and mature companies are rallying with the vigor of a 20 year old lifeguard at the pool hosting the Miss America swimsuit press conference. Well, maybe more like a 70 year old who has discovered the virtues of Viagra. Talk about growth. In any event, their products are in hot demand and thus the impressive growth figures.
Thus, should we worry with DJ30 10.7% above its 200 day SMA? Perhaps. At this juncture, however, it is showing no signs of slowing this sprint. SP500 bucked a bit the past couple of weeks, but all the while maintained its trend higher. With all of the growth worldwide and the liquidity fueling that growth as well as stock buys, it is very likely that investors are willing to tolerate larger P/E ratios in these stocks than before. Growth, no matter if it is in the economy, in earnings, or after using Viagra, tends to cure most ills.
How to proceed.
Considering the above, while there is a heck of a run underway that has the NYSE indices extended and many worried about how long it can last, there are also, as we have noted, a lot of quality stocks that are setting up for another move higher either with a fresh breakout or after testing a prior breakout. While some stocks are on extended runs others that were out in front early have tested and started higher as seen with energy last week. In our market scans we still see a significant number of stocks that are or are setting up for a new move higher. Thus you have some extended runs but you also have accumulation in other areas, setting up for new moves. We continue to look at those for potential buys.
At the same time it is hard to throw old standards to measure moves out the window, and it is likely a big mistake to do so. Still, you don't want to miss out on any moves that are still to come. Recall the 1990's and how some missed, oh around 5 years of gains that saw the indices more than double because they were convinced the moves had to end. They did, but as always, timing is everything.
So we will continue to look for buys; if DJ30 and SP500 can go 20% above their 200 day SMA before starting to correct, that leaves plenty of fruit to still pick. We don't want to get crazy, however. We still want to pick quality. Quality stocks with quality buy points setting up. You don't want to chase the bus because when you get that desperate, i.e. feeling you have to buy at less than good levels just because you don't want to miss out, then you end up getting run over by the bus you were chasing.
Stick with quality and let the plays come to you, i.e. be patient. Some stocks we were watching broke out last week with gaps and did not come back right away. We did not break ranks and run after them. As we have seen again and again in this market, good breakouts are getting nice tests, and frankly, the test of the breakout is a favorite entry point. Once a stock starts back up after the test that shows us the buyers are back and ready to buy even at this higher price. Now that is bullish as it confirms the breakout and the demand for the stock. Patience also means not buying stocks that are not showing great moves. As noted above, we passed Friday on some stocks that were decent but not showing great moves. No point in rushing in as it was Friday expiration.
The week is rather light on economic data with durable goods orders and home sales (new and existing) highlighting. Jobless claims are the new weekly buzz, however, with their trend lower when the economy, according to some, is swirling in the toilet. Monday after a strong expiration session can react in the opposite direction. That would not be that bad as it would set some plays up for better buys. We are letting many positions continue their trends higher while other plays set up for buys. In this market the money looking for a home keeps things turning over nicely.
Support and Resistance
NASDAQ: Closed at 2558.45
Resistance:
2575 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:
The July/August trendline at 2555
The 10 day EMA at 2548
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 2506
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 1522.75
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 1508
The 18 day EMA at 1499
1496 is a peak from July 2000
1493 is the late November to February up trendline
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1471
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 13,556.53
Resistance:
Now 10.7% above its 200 day SMA, a point where DJ30 has historically show some struggles.
Support:
The 10 day EMA at 13,382
13,285 is the upper channel line in the November/February channel
The 18 day EMA at 13,261
13,194ish is the former up trendline that marks the lower channel.
The 50 day EMA at 12,929
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 23
Crude oil inventories (10:30): 1.061M prior
May 24
Durable goods orders, April (8:30): 1.0% expected, 3.7% prior
Initial jobless claims (8:30): 300K expected, 293K prior
New home sales, April (10:00): 860K expected, 858K prior
May 25
Existing home sales, April (10:00): 6.10M expected, 6.12 M prior
End part 1 of 3
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world stock market
us stock market
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