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6/19/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
Full report issues Wednesday
MARKET ALERTS
Target hit alerts: DO
Buy alerts: RL; SIMO; ORB (bonus)
Trailing stops: ATHR; CX
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:
- Indices go about their own business, continuing the consolidation of last week's recovery rally.
- May housing starts fade less than expected, but the housing market still has too much inventory to bottom just yet.
- This pullback already looks to be just about over.
Nice consolidation action continues.
There was more data, some potentially damaging Tuesday, but the market basically ignored it. BBY missed on its earnings, and when a big consumer discretionary retailer (do you really need that big LCD television?) misses that raises fears that $3/gallon gasoline is going to bring the consumer down. Housing starts were down 2.1%, but that was lower than the -3.5% expected. FCX was downgraded on a valuation call. There were some positives as well, the main one being bond yields falling yet again (2 year falls to 4.94% and the 10 year to 5.08%).
The data did not move the market much if at all. The indices were overall sluggish once more, testing lower early as they continue to consolidate after that important rebound recovery last week. Once again they managed a slow steady recovery into the afternoon, taking back the losses and indeed closing higher on the large cap and small cap indices. No great gains in the indices, but there was leadership once more from energy and Chinese stocks, though as with Monday the leadership list thinned a bit more.
Technically it was a very solid, steady session for a consolidation. Low to high action is always good. Volume was still low overall, but it rose over Monday as the indices tested lower and then recovered; there were some buyers coming back in on the early fade. Breadth was flat, but that is what you want when there is some consolidation. Very importantly, there are simply some excellent patterns setting up in all of the indices but particularly in SP500, DJ30 and SP600. The rather fast and sharp test to start June double bottomed at support (the 50 day EMA or a trendline), rebounded, and is now forming a nice handle, i.e. the shakeout just below the prior highs where the last sellers looking to get out 'even' sell. When they are gone demand exceeds supply and boom, breakout.
This may seem incongruous as some of the leaders that spearheaded this last rebound are still moving higher or just started to pause Tuesday. They look as if they may still need to rest after their 7 day runs. Nonetheless, there may not be much more consolidating in the overall market given what the major indices are showing, particularly on what many saw as a rather nondescript Tuesday session. It was bland when you look at the data, and you know the market typically moves when no one expects it, i.e. when things are quiet. When you put the picture together, however, it looks pretty sweet.
THE ECONOMY
May housing starts fall modestly month over month.
Housing starts were down but at -2.1% they beat the expected 3.5% decline. Permits surprised with a 3% gain versus the 1% expected. Year over year puts them in better perspective, however, as they were down 22%.
Inventories still remain the problem for the market as they stand at an 8.4 month level. Inventories have ballooned from 3+ months just last year. More and more contracted housing projects are being completed and many units are going unsold. Until these all finally come on line and work through the system the housing market will remain mushy. The prediction is that the market will bottom in Q3. Don't look now but Q3 starts in less than one month.
Bond yields tumbling back down.
When rates were surging over 5.25% and toward the intraday high at 5.33% on the 10 year bond, we wrote about the snowball effect some forced bond selling was contributing to the spike. There are mortgage funds that hold large amounts of mortgages and bonds and they have to maintain a certain allocation of assets based upon bond prices and yields. When bond yields broke appreciably over 5% they had to shuffle their allocation.
As you recall, though the 2 year bond rose as well, the more dramatic move was on the longer end, particularly the 10 year. The yield curve was inverted to flat when this started. A the peak it was 5.33% to 5.10%. In short, the long end screamed higher as the funds were forced to sell more 10 years than short term bonds.
At the close Tuesday yields were 4.94% on the 2 year and 5.08% for the 10 year. The reverted curve remains, though the curve has flattened back down once more. At the time of that 5.3% handle on the 10 year we wrote that was likely the peak and it has indeed come back down to a much more realistic level as the funds finished their selling and bonds stabilized.
THE MARKET
MARKET SENTIMENT
VIX: 12.85; -0.57
VXN: 15.53; -0.33
VXO: 12.74; -0.4
Put/Call Ratio (CBOE): 0.92; 0
Bulls versus Bears:
Bulls: 56.7%. Well so much for bulls fading in the selling. They spiked above 55% from 52.2% after falling over the past three weeks from 54.3%. This is over the 55% considered bearish, and is thus another factor along with the lower volume on this recovery bounce that suggests the market is still overbought here. Still off the 60% hit in December 2006 but getting closer. For reference it bottomed in the summer 2006 near 36%.
Bears: 21.1%. Tanking as well, falling from 22.8% last week. A one-week bounce from 21.5% is right back down. It hit 20.7% three weeks back after spending some time below the 20% level considered bearish (19.6%). It is still well off the 27.5% hit 2 months back. The rally has taken the bears down from the recent highs near 29 (28.4% and 28.9%), 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: +0.16 points (+0.01%) to close at 2626.76
Volume: 1.962B (+10.05%). Volume advanced as NASDAQ tested below the upper channel line and then recovered flat. As noted above, that shows some buying interest on the test lower and recovery.
Up Volume: 873M (+75M)
Down Volume: 1.058B (+159M)
A/D and Hi/Lo: Advancers led 1.16 to 1. Nice and flat on a consolidation.
Previous Session: Decliners led 1.13 to 1
New Highs: 159 (-8)
New Lows: 54 (+3)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
We are looking at NASDAQ day by day given its failed prior attempts to take a leadership role (and given that it is summer, a typically dog time for techs), but you have to like what it showed Tuesday. It tested back after that strong Friday gap higher on the CPI, undercutting the upper channel line as it did. It held the line, however, and rebounded to close flat. Volume bumped higher as it tested and recovered. Not bad action at all though it may have a bit more testing to do.
SOX (-0.47%) brought up the rear, but it also managed to recover most of its lost ground after an initial dip lower. As with NASDAQ it looks as if it could use another day or two of consolidation to form a handle to its 6 week double bottom, but it is holding the gains and setting up.
SP500/NYSE
Stats: +2.65 points (+0.17%) to close at 1533.7
NYSE Volume: 1.46B (+18.74%). Similar to NASDAQ, NYSE trade was still below average but it rose after the initial test and the afternoon recovery. Buyers were moving in on the recovery on both SP500 and SP600.
Up Volume: 826.007M (+287.66M)
Down Volume: 611.528M (-67.709M)
A/D and Hi/Lo: Advancers led 1.42 to 1
Previous Session: Decliners led 1.1 to 1
New Highs: 215 (-46)
New Lows: 47 (+8)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
You have to like this action with the double bottom on the 50 day EMA, the bounce off that double bottom back up just below the all-time highs hit in early June, and now a handle forming on lower volume. This is the shakeout point where the sellers are flushed out. Look at the Tuesday action: test down near the 10 day EMA and then are rebound to close positive on rising volume. This is good shakeout action, and it is setting up the breakout. Looks really good and very close to making a break higher.
SP600 (+0.32%) showed similar action, tapping the 10 day EMA on the low and rebounding to close positive on the session. It too double bottomed at the 50 day EMA (and its trendline) and rebounded to just below the June high and is now working laterally on the lower NYSE volume, shaking out each session with a test lower and recovery. As with SP500, it does not look too far from a breakout move.
DJ30
DJ30 is setting up a double bottom with handle of its own the past four weeks, showing the same action as the other NYSE indices. It double bottomed at its trendline and rebounded, and is now sliding laterally as the 10 day EMA (13,542) rises to meet it. Volume was no slouch Tuesday, bouncing up to near average on the fade and recovery. Very good action for the blue chips as well.
Stats: +22.44 points (+0.16%) to close at 13635.42
Volume: 233M shares Tuesday versus 174M shares Monday. Good rebound in volume on DJ30 as well as it came back from the early test lower.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
As noted above, many of the leaders that started this rally, indeed started higher well before the pre-CPI run, have yet to pause and rest. We are looking for them to do so to move into some more positions, but they are likely to need a few sessions. The index patterns, however, may not give them that chance before the rest of the market moves higher. The pullbacks in the indices may take another session, but they are just about set up for a move higher.
That means we are going to continue looking for upside to take advantage of this set up. It may take another day to complete the handle, it may take another two days. All that does is set up the break higher even better. We just need to be patient and let the plays come to us and not get impatient. That is often something that is hard to do when you see a good set up. Good thing about this action and the continued liquidity in the market: it is rather forgiving even if you are not absolutely right on the timing.
Support and Resistance
NASDAQ: Closed at 2626.76
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2624 is the top of the November/February channel
2610 is the November/February up trendline
2601 is the mid-May intraday peak.
The 10 day EMA is at 2601
2590-95 from an April 1999 interim peaks
The July/August trendline at 2581
The 50 day EMA at 2554
2531.42 is the February high (post-2002 high); 2525 intraday
2523 was price resistance November 2000
2509 is the January 2007 high
S&P 500: Closed at 1533.70
Resistance:
1541 is the June high.
The upper trendline of the channel at 1545
1553 intraday high from March 2000 is the all-time index peak
Support:
1528 is the March 2000 closing high
The 10 day EMA is 1522
1520 from the September 2000 peak
1517 is the late November to February up trendline
1500 from April 2000 peak
The 50 day EMA at 1499
1475 from peaks in December 1999 and January 2000
1461.57 is the February 2007 high.
1440 is the mid-January high
Dow: Closed at 13,635.42
Resistance:
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
The mid-May peak at 13,556
The 10 day EMA at 13,542
13,410 is the upper channel line in the November/February channel
13,280 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,269
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.
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
June 19
Housing starts, May (8:30): 1.474M actual versus 1.475M expected, 1.506M prior
Building permits, May (8:30): 1.501M actual versus 1.470M expected, 1.457M prior
June 20
Crude oil inventories (10:30): 82K prior
June 21
Initial jobless claims (8:30): 310K expected, 311K prior
Leading economic indicators (10:00): 0.2% expected, -0.5% prior
Philly Fed, June (12:00): 8.0 expected, 4.2 actual
End part 1 of 3
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