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world stock market, us stock market
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6/20/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Target hit alerts: BIDU; ICE
Buy alerts: CMI; FFIV; SPWR
Trailing stops: CEPH
Stop alerts: MUR
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:
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SUMMARY:
- Another decent consolidation attempt turns nasty late.
- Volatility returns as sellers were not shaken out by the last sell off and recovery.
- After SP500 and DJ30 roll over on volume, NASDAQ is left in the role of summertime leader.
- Downside has the momentum yet again, but leaders overall holding up quite well after the Wednesday onslaught.
The pullback was over indeed: higher volume selling returns as consolidation is thrashed.
Tuesday night we stated it looked as if the modest test of last week's recovery rebound was ending. It was. Unfortunately for the upside it ended with a higher volume sell off that broke SP500 below its trendline. Sellers were not done and what we said we had to watch for transpired, i.e. the rollover at the prior high on rising trade.
The futures were quite solid Wednesday as HD's big stock buyback, the JNC buyout, MS strong earnings offset Circuit City's earnings miss on the heels of BBY and modestly higher interest rates. Stocks started higher but quickly faded. When oil inventories hit at 10:30ET and were substantially higher than expected (+6.9M bbl crude, +1.8M bbl gasoline) the market rebounded right back up. Very solid action. DJ30 came within a couple of points of its prior high, however, and that was it.
Stocks started to fade back once more, but even though they were not making the breakout once more, they were going about another rather nice consolidation. NASDAQ was holding well above the 10 day EMA well into the afternoon and SP500 was nicely testing its 18 day EMA. A bit longer and deeper shakeout was no real worry. Energy was weak, and though it is a leading sector, the jump in inventories easily explained the sector's weakness.
The sellers attacked late, however, and the market slipped and slid lower into the bell, unable to find footing and turn back the sellers. As the downside mounted late, volume jumped on NYSE. What was controlled selling turned into heavy downside that pushed SP500 below its trendline and jacked up volume.
Technically the action was near the top of the list of bad things that can happen to an upside advance. A high to low finish closing at session lows, the only thing stopping the decline was the bell. SP500 undercut support as sellers took over late and really throttled up. DJ30 and SP500 rolled over just below their prior highs and did so on big volume and negative breadth, setting up a double top. Volatility returned as well, quite evident by the surge lower similar to the up and down surges of the past three weeks. The sellers were not vanquished after the last selling and solid rebound. That means at least some more basing action or at worst some heavy selling still to come off of these nascent double tops.
NASDAQ, while lower by 1% as well, held near support on rising but below average volume. Ironically it is in position to lead as it shows some relative strength and is still in its uptrend. Nothing spectacular, but its run to a new post-2002 high left it in better shape after the last rally. Of course, as we note daily, NASDAQ has shown flashes of relative strength only to give in.
On the bright side, leadership was basically still intact after Wednesday with many making the tests we wanted to see to give us new entry points if they can survive this round of selling. Many of our plays held up very well on the session as the strong market leaders absorbed some punches. That is the beauty of buying into leaders as they do tend to hold up better and often rebound nicely if the selling does not ratchet out of control.
THE ECONOMY
Not a whole lot on the economic front Wednesday. The Bank of England minutes revealed it was closer to a rate hike at its last meeting though still held off. The Swedish central bank was not so accommodating, joining the list of foreign central banks hiking rates the past month.
While the Fed is independent, this places pressure back on the Fed with respect to rate hikes. Of course right now many are willing to say that the US, the leader in the world economic recovery out of 2000, is lagging. Just today the president of steel company Arcelor Mittal said business was good around the globe though the US was soft. Bernanke can use that as cover to keep rates steady when there is pressure around the world to hike rates.
The interesting thing to witness is what the newly capitalistic eastern European countries do with their rates. They dumped their strict socialist systems and opted not to even model after the more moderate western European socialist systems. They imposed flat taxes and are promoting business along the lines of Ireland. Will they also thumb the nose at the old school, heavy-handed European form of central banking that tends to block every economic expansion with rate hikes for fear of inflation that may one day appear? It will be fascinating to see if they also embrace modern economic theory (the one that explains all but six years of economic history) that supply meets demand if you let it and indeed even creates its own demand.
For now there is that lingering fear among the EU and even in the US that growth equals inflation. It can, but that growth and inflation appear together is mere serendipity; the culprit is poor handling or over-manipulation (dare you call it meddling) of money supply. That is the root of all inflation, and it only is related to economic growth because central banks tend to meddle with the money supply excessively during growth spurts. If inflation was just a product of growth, then how do you get inflation when there is contraction? It should never happen, but it does, and indeed that slowdown is typically where the seeds of inflation are first sewn when it does actually appear. Just look at the last US recovery: poor monetary handling and demand-side tax policy when demand required no stimulus planted inflation even before the real recovery began. We have spent the past few years dealing with what should not have been a problem.
THE MARKET
MARKET SENTIMENT
VIX: 14.67; +1.82
VXN: 16.68; +1.15
VXO: 14.72; +1.98
Put/Call Ratio (CBOE): 1.05; +0.13. Back up over 1.0 on the close for the first time in a week. It put in 7 consecutive such closes on the last leg of selling.
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: -26.8 points (-1.02%) to close at 2599.96
Volume: 2.038B (+3.9%). Volume jumped back above 2B, but that still did not push NASDAQ trade above average. It was a distribution session without doubt, but the volume shows the selling was less intense than say a couple of weeks back. A thin thread of a silver lining.
Up Volume: 439M (-434M)
Down Volume: 1.581B (+523M)
A/D and Hi/Lo: Decliners led 2.59 to 1
Previous Session: Advancers led 1.16 to 1
New Highs: 149 (-10)
New Lows: 73 (+19)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ tried and actually did push to a new post-2002 early on but then rolled over and fell to close on the 10 day EMA. Bigger picture this action was not nearly as negative a session as on the large cap NYSE indices as it held near support and can still make a higher low after a higher high. It isn't a rose patch what with the higher volume selling, but it was not a massive rollover. As noted above, this leaves NASDAQ trying to be the leaders in the summer, a time when techs often struggle. That engenders a lot of confidence.
SOX (-0.64%) was actually up most of the session before it too was sucked into the afternoon downside spiral. Its action was a notch better than NASDAQ as it eased back further, forming a bit more of the handle to its double bottom.
SP500/NYSE
Stats: -20.86 points (-1.36%) to close at 1512.84
NYSE Volume: 1.673B (+14.58%). Now that is a volume spike, coming in well above average as SP500 turned back down from the prior high. It accompanied a move through the 18 day EMA and the trendline; the sellers were well in control. A resumption of the distribution and the strongest trade outside of expiration Friday in two weeks. Unlike NASDAQ, the sellers took control.
Up Volume: 338.613M (-487.394M)
Down Volume: 1.319B (+707.753M)
A/D and Hi/Lo: Decliners led 3.48 to 1. Ugly downside as the small and large caps suffered as energy was weak as well. Once more the breadth returns to the tennis match effect, volleying back and forth at high levels on both sides of the net.
Previous Session: Advancers led 1.42 to 1
New Highs: 223 (+8)
New Lows: 51 (+4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
As noted above, the large cap action was poor. SP500 failed to take out the prior high and rolled down from there, breaking through its up trendline, on a big run in volume. The sellers entered and drove the index down hard. This sets up a potential double top, and with the return of the downside volume in addition to all of the volatile and distributive action the entire month of June, this does not look good for the large caps.
SP600 (-1.26%) was drilled as well though the large caps did manage to outdo it on a percentage basis. That shows you how severe the large cap selling was; it usually does not rival the volatility of the small caps. SP600 did manage to hold at the 18 day EMA. It made a lower high and that is not a positive, but it does still have wiggle room to hold the line and recover, particularly of the energy sector holds the line and recovers.
DJ30
Similar to SP500, the blue chips rolled over at the prior high and sold on a big jump in volume as the large cap industrials were thrashed as well. It is not in the dire, trend-breaking shape of SP500 as its rally pushed it well above its trendlines, but the reversal is as bad with the high volume rollover below the prior peak.
Stats: -146 points (-1.07%) to close at 13489.42
Volume: 274M shares Wednesday versus 233M shares Tuesday as the blue chips were hammered lower.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Jobless claims, leading economic indicators, and the Philly Fed are on the economic calendar. Maybe that will help as a light economic calendar certainly has not given stocks any push this week. Bond rates will continue to play a role; their rise from Tuesday levels added a big wet blanket on the afternoon action, smothering the upside.
The momentum has turned downside again in one fell swoop. It may dry up again if energy gets its legs again, but you have to look at this in relation to the prior volatile action as well. In other words, the recovery last week was not the end of the sellers; when the market stalled out for more than a couple of sessions the sellers dived back in with force. The sellers are not wrung out of the market by virtue of that early June selling. After a pause they are ready for some more action.
That means the market is likely to continue with the choppy action and likely show some more downside along the lines of the early June moves unless this Wednesday selling dries up immediately. Typically when you see the kind of volatility seen early in the month and then a resumption after a pretty solid looking attempt to quell it, there is some more work to be done in working through a consolidation.
As noted above, the leaders handled the Wednesday action pretty much in stride. There were some ducking for cover, but many plays are still holding up well. They will continue to try and hold out, but if the selling continues to ramp higher even the leaders will feel the heat. Given the return of the high volume volatility to the downside after a short and rather solid looking upside attempt, it is prudent to be careful with positions and take them off the table if they struggle with near support.
At the same time we will watch the energy, metal, and related stocks to see if their pullbacks hold and give us an entry point by riding out the selling at near support. We will also continue to look at downside as it presents itself; if the market is going to sell here as the Wednesday return of the sellers and the sharp volatility suggests, we should be ready to take some of that as well.
Support and Resistance
NASDAQ: Closed at 2599.96
Resistance:
2613 is the November/February up trendline
2626 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:
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 2587
The 50 day EMA at 2556
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 1512.84
Resistance:
1518 is the late November to February up trendline
1520 from the September 2000 peak
The 10 day EMA is 1521
1528 is the March 2000 closing high
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:
1500 from April 2000 peak
The 50 day EMA at 1500
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 13,489.42
Resistance:
The 10 day EMA at 13,532
The mid-May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,420 is the upper channel line in the November/February channel
13,285 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,277
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): +6.9M bbl actual versus 100K expected and 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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world stock market
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