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us stock market, trade stock
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5/23/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: None issued
Buy alerts: AKAM; NVEC; OMCL
Trailing stops: BEAV
Stop alerts: DRIV
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:
- The mouth speaks again: Greenspan sounds off once more, this time about Chinese irrational exuberance, giving nervous holders a reason to sell.
- Energy inventories, refinery runs, product quantities suggest a near term peak in gasoline prices
- NYSE large caps refusing to give up ground but still looking winded at this level.
Stocks defy gravity once more until Greenspan speaks.
As Alan Greenspan said himself over 7 years ago, no man, indeed even a maestro, can tell when a market is ready to implode. Apparently Greenspan has learned something he did not know as Federal Reserve chairman or he has simply forgotten he said that because Wednesday he stated that the Chinese stock market gains were unsustainable and that its market was going to experience a "dramatic contraction at some point." Okay, so it wasn't a prediction that market was going to implode at 1:30 p.m. on August 3; the last part of that statement mitigated a lot of the criticism thrown his way in the wake of the comments.
The real point to take from the comments, however, is that a former Federal Reserve chairman, just as every chairman before him, should not be out making speeches prognosticating with respect to currencies, monetary policy, or markets. Hell, the Chinese just got finished taking us to task over politicizing trade and exchange rates on Tuesday, and here we have Greenspan out Wednesday predicting its market advance was unsustainable and that something ugly was coming. Now that is how you get what you want in trade negotiations.
Of course, as we noted in the alerts during the session, Greenspan only has his mouth at this point and not the stick of Chairman of the US Federal Reserve. As chairman he showed a complete inability to understand the stock market and accordingly mishandled monetary policy, inflating the stock market with a massive liquidity injection in the late 1990's and then removing the liquidity overnight to start the new century. There was little doubt the crash was coming after that, though Greenspan to this day does not see (or at least won't admit) the cause and effect of his actions. As a private citizen he cannot raise rates and drain liquidity anymore just because he sees evil in the shadows (or is that just a smudge on his lenses?). He just has a big mouth now, though too many people give it too much weight given his track record.
Before the Green-speak the US market was again defying gravity with all indices posting solid gains with SP500 nicely above its prior all-time closing high. We saw the Greenspan comments early in the session but figured it was not that big of an event since it did have that 'at some point' tacked on at the end and given the markets were not really reacting to it. A bigger event appeared to be the energy inventories that were higher than expected along with better refinery runs; the market took that in and continued to move higher though the action slowed. Indeed, after that first hour the market more or less worked laterally through lunch and into the early afternoon.
SP500 was again through the old high and its upper channel line, but as discussed this week, it and DJ30 are struggling to advance with SP500 stalling at those twin resistance points. There are also a lot of nervous brokers and managers out there, afraid to sell but afraid to commit a lot more money at this juncture. Thus when the Greenspan words were put on the headlines in the afternoon session the words were used as a reason to pull the trigger and sell. So they did. NASDAQ swung 24 points lower from its afternoon high, managing to close at its up trendline. SP500 lost 10 points high to low, closing below the old high and the upper channel line.
Technically the market showed more of the struggles it has experienced this week, at least with respect to SP500 and DJ30. They were already showing signs of slowing with failed rallies all week. They were not giving up any ground, however, and they were rallying prior to Greenspan. Whether it was Greenspan's comments that sealed the intraday reversal or they were doomed to fade given SP500's continued struggle at the old high and its upper channel line, the result was the same. Again, they have refused to give back any ground despite struggling; a testament to the money that is holding them up.
This time, however, NASDAQ and SP600, after leading to start the week, suffered losses, and the losses led the market. Interestingly, both NASDAQ and SP600 hit the upper channel line on the session high before they turned back. And, as noted above, the move had stalled out in the morning well before the afternoon fade. That suggests they too were winded after the run this week where they showed a bit of leadership.
Volume jumped on NASDAQ and NYSE, indicating some distribution on NASDAQ and some churn on SP500 (no big losses on that index, just high volume as it showed a tombstone doji). The price/volume action suggests the move is running out of steam, but of course it took the Greenspan comments to turn another run higher into a reversal and some selling. Thus there was that liquidity at work buying up stocks (look at the drillers; one day down and they were back up) even with the indices struggling some heading into the session. The question now is whether the excuse Greenspan provided the nervous sellers is enough to push SP500 and DJ30 into the pullback they have been trying to make this week.
THE ECONOMY
Petroleum product inventories were more or less in line. Crude stores rose 2.0M for the week (1.2M expected) while gasoline rose 1.5M bbl (1.4M expected). No major advances were made in supply and thus the overall energy market did not fade on the news. It didn't soar to the sky, but for the most part it did not fade.
Inventory runs were the key. They rose to 91.1%, finally cracking the 90% level (89.9% was expected). That confirmed what we heard out of the Colonial Pipeline company Tuesday that there was more product available right now than the pipelines could handle. That does not mean that the country is awash in gasoline from sea to shining sea; after lower production runs led to lower supplies it takes awhile to get supplies back up given there are only so many pipelines and those are only able to hold so much product at a time.
In addition, you have to look at the price action of gasoline of late. The retail level has matched and even hit an all-time high in inflation adjusted dollars. The wholesale level, however, appears to have topped near term. Gasoline did not break through a key level at $2.45/gallon this past week when it had the momentum to do so. It backed off Monday and Tuesday, and this rise in refinery runs added to the downside pressure. Historically gasoline rises in anticipation of the summer drive and then peaks in May. This action is falling right into place historically even if it is at a higher price. Indeed a higher price makes sense given the lower inventory levels to this point due to all of the refinery issues.
This all points to a near term peak in gasoline prices. Just about time too; my gasoline storage tanks I filled a couple of months back are starting to tap out. It does not mean we have seen the high in product price for the summer; a refinery bust before product can get re-stocked puts us in the same place. A major storm in the Gulf and all bets are off near term.
THE MARKET
MARKET SENTIMENT
VIX: 13.24; +0.18
VXN: 16.93; +0.86
VXO: 12.79; +0.39
Put/Call Ratio (CBOE): 1; -0.21. A second consecutive close at 1.0 or above shows getting a bit anxious with a lot of bets to the downside as SP500 and DJ30 show some toppy action. Sure looks as if they are right, but if that is the case then are we wrong about a top? That could give you a headache. Sentiment sometimes gets it right in the short term.
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: -10.97 points (-0.42%) to close at 2577.05
Volume: 2.127B (+4.75%). Volume moved above average for the first time this week. Unfortunately it was on a downside move after NASDAQ tapped its upper channel. Once more NASDAQ shows some distribution without any real accumulation volume during the rally back up from the last selling.
Up Volume: 754M (-555.651M)
Down Volume: 1.237B (+545.479M)
A/D and Hi/Lo: Decliners led 1.38 to 1
Previous Session: Advancers led 1.72 to 1
New Highs: 191 (-4)
New Lows: 46 (-2)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was at new post-2002 highs again, making a solid early 12 point run. That put it right at its upper channel line from the late 2006/early 2007 uptrend. It stalled there in the first hour then moved laterally until the early afternoon. It tried again but was already fading some when the Greenspan comments got top billing in the afternoon news. NASDAQ dropped over 20 points into the close, failing a last hour rebound attempt. Some distribution as the techs gave back some of the gains from the past week. It closed at the up trendline at the bottom of the channel. Want NASDAQ to hold onto some of these gains as it continues to test.
SOX (-1.30) broke below the highs in the trading range (493), managing to hold above the 50 day SMA on the close. SMH is faring better as it is still well above its breakout point and the 50 day EMA. Chips looked great but they are losing some of their leadership showed to end April.
SP500/NYSE
Stats: -1.84 points (-0.12%) to close at 1522.28
NYSE Volume: 1.605B (+8.51%). Volume was above average here as well after two below average sessions to start the week. Matched with the third straight doji at the prior high and the upper channel line, that distribution is not the best action here.
Up Volume: 769.186M (+20.366M)
Down Volume: 818.026M (+104.515M)
A/D and Hi/Lo: Decliners led 1.44 to 1
Previous Session: Advancers led 1.17 to 1
New Highs: 292 (+53)
New Lows: 25 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 showed the third straight doji (the tombstone brand) at the prior closing high and the upper channel line. That combination of resistance has built some thick ice the large caps hare having trouble breaking through. The action suggests SP500 has some pullback ahead of it, and 1500 is a good looking point to come back to for a modest test of near term support. That point marks the up trendline from November.
SP600 (-0.48%) surged higher to a new all-time high (lately every move higher is a new high) but it gave it back as the market turned back down. It hit an interim up trendline that marks a nearer upper channel line in its uptrend channel. It still looks very solid here even with this pullback and likely a bit more to come before it rebounds.
DJ30
DJ30 moved laterally yet again, showing a doji again but it is refusing to give up any ground. It is fading toward the 10 day EMA (13,451) as it moves up to it. That near support has been support for the blue chips all the way up. DJ30 is a bit tired after that last run that started two weeks back, but it is also showing no signs of real stress. Another pullback in the 10 day EMA range will tell us if another bounce is coming. Some smart traders are looking to short it when it shows more weakness, and we are watching as well (not that we don't consider ourselves smart traders as the sentence seems to imply), but right now it is not showing the kind of issues that make us want to jump in before something more serious shows up.
Stats: -14.3 points (-0.11%) to close at 13525.65
Volume: 208M shares Wednesday versus 201M shares Tuesday. Still very low volume as DJ30 eases laterally and a bit lower. That is classic low volume testing that indicates no serious selling.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Some economic data returns Thursday with jobless claims, durable goods orders, and a few new home sales. Many traders were looking for the durables orders as a key report for the week, but of course that was before the Greenspan comments in the afternoon. Those comments stirred the pot, muddied the water a bit (choose your favorite clich ), and we still have to see how things settle out in response. Our gut tells us it won't be any kind of lasting event as most will shrug off Greenspan's musings as being as accurate now as he was back when he was the Fed head.
Worrisome to tech is the really crappy earnings miss by NTAP after hours (though as earnings misses go it was a beauty). It lost a fifth of its value after hours and it was acting as a drag on tech in general (a pretty big feat given the chips were such a drag during the session). The Q's were down along with most storage stocks. We will have to see how NASDAQ absorbs this late season earnings report; after all of the solid numbers during the regular season, one late report is putting the hurt on techs just as they were trying to show some leadership once more. Familiar story.
It will give NASDAQ a chance to test the recent gains along with SP500. Again the large caps looked ready to test back all week with their stall at the upper channel and old high. NASDAQ rallied well this week and could survive testing back to consolidate some of those gains. There are still stocks in great position to move higher and indeed stocks did so and some even held their gains after the Greenspan comments. We will continue to look for those opportunities, but we need to be patient at this point and see how the Greenspan and NTAP news plays out, particularly with the action on SP500. We are also still looking for an energy pullback to give us some new entry points for the next run higher. Heck, we are always looking for any leader or leadership group to give a pullback for a new entry point for the next leg higher.
We have to keep in mind a 3-day weekend is ahead and volumes will likely get lighter. Of course we thought that would be the case Wednesday and what do you get. Still they will likely decline as the weekend draws near. At the same time there will be those not wanting to be short much given the possibility of buyouts on Tuesday. That has helped prop up the market ahead of the weekend.
Support and Resistance
NASDAQ: Closed at 2577.05
Resistance:
2580 is the May high
2590-95 from an April 1999 interim peaks
2602 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:
2577 is the November/February up trendline
The 10 day EMA at 2563
The July/August trendline at 2562
2531.42 is the February high (post-2002 high); 2525 intraday
2523 is price resistance November 2000
The 50 day EMA at 2515
2509 is the January 2007 high
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 1522.28
Resistance:
The upper trendline of the channel at 1527
1528 close, 1553 intraday from March 2000 all-time index peak
Support:
1520 from the September 2000 peak
1500 from April 2000 peak
The 10 day EMA at 1515
The 18 day EMA at 1506
1499 is the late November to February up trendline
1496 is a peak from July 2000
The 50 day EMA at 1477
1475 from peaks in December 1999 and January 2000
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 13,525.65
Resistance:
Now 10.2% above its 200 day SMA, a point where DJ30 has historically show some struggles.
Support:
The 10 day EMA at 13,451
The 18 day EMA at 13,339
13,315 is the upper channel line in the November/February channel
13,240 is the former up trendline that marks the lower channel.
The 50 day EMA at 12,998
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): 2.0M actual versus 1.2M expected, 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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