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6/25/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
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SUMMARY:
- Early rebound attempt is flipped negative.
- Bear Stearns has more sub-prime issues, raising fears it may spread to other companies.
- May existing home sales are barely existing.
- NASDAQ falls toward its 50 day EMA as well, putting market at the lick log for a rebound attempt.
- Many strong stocks are in position to rebound . . . if they will.
Rebound to start the session gets turned on its head.
There was not a lot of pre-market news to drive stocks, at least not at the level seen over the past few months. Oil was lower after the Nigerian strike ended. Bond yields were lower (and stayed lower through the session with a close at 4.88% on the 2 year and 5.09% on the 10 year). Analysts were active again, upgrading GM and CVX, downgrading BSC and NVDA.
That opened the indices higher, but within 10 minutes they were being tested again by sellers. They turned negative and then the existing home sales gave the market some heart as they were down 0.3%, basically in line. A nice rebound ensued and all indices were higher, though the gains never really made it over 0.5%. Volume was running a bit light compared to last week (throwing out Friday's Russell rebalance volume).
At about 2ET a sell program hit and that sucked the upside down with the undertow it created. NASDAQ peeled off 32 points when the selling started, and it was already off its session high. DJ30 dumped 160 points while SP500 dropped 18 points. The loss was widely attributed to more issues in the financial sector, particularly BSC as it was rumored another of its hedge funds was failing and that the SEC was looking at a full investigation. There was also the rumor that BSC's problems would become GS' problems.
After that selling, oil started to recover and with it the energy stocks, weak laggards early on, bounced back. That provided some leadership and the move off the lows was brisk. It could not hold, however, and half the rebound gains were scrapped by the bell. That left the financials in disarray, joining materials and homebuilders that were already weak early on after the existing home inventory was at a 15 year high. We wanted to see the NYSE large caps return and show some relative strength, and they did that Monday. Problem is, their 'strength' only kept the losses down.
Technically the market showed another failed rebound attempt and that high to low action that weighs stocks down. Stocks fought off an early selling attempt and logged solid gains, but those were pushed aside when the sellers returned. Volume was running lower but then moved higher on the afternoon selling. NASDAQ trade was in line with last week's trade outside of Friday so there was no real ramp in selling activity. NYSE on the other hand once again showed higher trade on the downside, suggesting large cap stocks are still being sold.
The move left SP500 just below its 50 day EMA with NASDAQ, DJ30 and SP600 all testing that level. This is old hat for SP500 as it has been here three times this month. NASDAQ and DJ30 have stayed away, but they too are being dragged toward this level. That begs the question will it hold or not. NASDAQ has tried to show some leadership of late, but once again it is breaking lower with this move toward the 50 day. The indices are at a point where they need to hold and break up this top-heavy action shown the past month and one-half.
Leadership continues to hold up, slipping toward support but still holding the line. The pullback is what we wanted to see to give us some better buy points on some of these stocks and they are doing just that, coming back to support. The question is whether they will bounce here and take the indices higher with them or if this is just a step off point to more selling. The action of the leaders, i.e. the plays on the report, will show what the case is. They need to step up and deliver and help break up the toppy action in the indices, particularly SP500.
THE ECONOMY
May housing starts fell 0.3%, in line with expectations. Prices fell 2.1%, also basically in line. Inventories rose 5% to 8.9 months, a 15 year high. Doing the math that means that after the long housing run and fade, inventories have hit levels not seen since the 1991-92 recession.
We are seeing more and more 15 to 16 year records or lows pop up with respect to housing. That dates back to the last housing drop during that recession. After this long housing run those lower numbers make great headlines, but all it really shows is that housing is stalling after a long run that lasted an abnormally long time (attributed to 9-11 and other factors we have discussed the past month).
Back in 1992 the economy was coming out of recession when these numbers were posted. What does that mean for the economy today? It does not, as some suggest, necessarily indicate the economy is heading lower with them. The economy obviously survived these levels back in 1992. The fear is that the market continues to weaken to the extent that it does impact the rest of the economy and take out the recovery from the mid-cycle slowdown. That could happen if housing completely collapses and it spreads to the financial sector beyond well beyond BSC.
As discussed over the weekend, however, we don't see that as the case. Sentiment is vastly negative regarding housing with the until recently ever-ebullient homebuilders very bearish. They were gushing with enthusiasm even in 2006 about the '10 year bullish housing demographic' and now we have all heard the blunt statements about how bad the housing market will be for the entirety of 2007. From 10 additional years of a bull run to 'crap' for all of 2007. That kind of emotional swing is the stuff bottoms are build upon. Problem is, sentiment indicators are not great timing devices; they show you things are getting sold out but they are not the bell ringing.
THE MARKET
MARKET SENTIMENT
VIX: 16.65; +0.9. VIX hit the early June levels tapped as SP500 initially sold off to the 50 day EMA. This is another indication this is a jump off point for the market, i.e. whether it rebounds from here or continues lower and pushes VIX up toward 20 where it hit in the February and March selling.
VXN: 18.07; +0.78
VXO: 17.1; +0.13
Put/Call Ratio (CBOE): 1.12; +0.09. Second consecutive close above 1.0 and the third in four sessions. It is rising with the VIX but it is not likely ready to suggest a turn is here.
Bulls versus Bears:
Bulls: 53.3%. Back below 55% after spiking to 56.7% last week. Even with this decline they are historically too high, but then again, they have been in this range since last October. The 55% level is 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: 18.9%. Dumping back below the 20% level considered bearish after 21.1% last week. It held in the 22 range more or less after bouncing back up from 20.7% a month ago, but it tumbled right back down. 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: -11.88 points (-0.46%) to close at 2577.08
Volume: 2.072B (-41.66%). NASDAQ volume fell off massively from Friday's rebalance volume. Throwing out Friday as we should, the volume was on par with Wednesday and Thursday, i.e. below average. Thus there was no real change in character volume-wise as NASDAQ tested the 50 day SMA and its trendline.
Up Volume: 618M (-189.282M)
Down Volume: 1.396B (-496.687M)
A/D and Hi/Lo: Decliners led 1.93 to 1. Breadth remained on the negative side and at fairly high levels.
Previous Session: Decliners led 2.35 to 1
New Highs: 111 (+34)
New Lows: 102 (+37)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ started to crack some on Monday after tying to hold the line with its recent post-2002 high. It slipped down to the 50 day SMA and just above its October/December/February trendline where it found some support and bounced off the session lows. NASDAQ remains one of the better positioned indices in the selling as it made a higher high and can still make a higher low at its trendline. The NYSE indices could use its help.
SOX (-1.50%) tanked back down from its breakout last Thursday, managing to hold the 18 day EMA on the low but giving up the breakout. Once more the chips threaten to break down after a good breakout. It is time to make a bounce if they are going to continue higher.
SP500/NYSE
Stats: -4.82 points (-0.32%) to close at 1497.74
NYSE Volume: 1.74B (-33.68%). Volume was lower than Friday but it was also higher than last week's trade that was non-rebalance. Thus the selling trade was still strong as SP500 cracked through its 50 day EMA.
Up Volume: 423.198M (-331.273M)
Down Volume: 1.277B (-575.136M)
A/D and Hi/Lo: Decliners led 2.18 to 1. More hefty downside breadth as the NYSE A/D line continues to sag back from its recent high.
Previous Session: Decliners led 3.08 to 1
New Highs: 66 (-14)
New Lows: 111 (+54)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps rallied up to the 10 day EMA intraday and then started the long slide lower for the afternoon. The index managed to bounce modestly off the lows but nothing major and not enough to take it back over its 50 day EMA on the close. It breached the 50 day for a close on the first trip lower in June and managed a recovery. As we have discussed before, these trips to the 50 day EMA in rapid succession, particularly coming off a lower high, indicate a weakening move. SP500 has again cracked the 50 day EMA on the close (and the 50 day SMA as well) and remains in a very top heavy posture.
SP600 (-0.68%) sold down to the 50 day EMA as well, managing to hang on by its teeth. That may be a moot point as it too is making its third rapid test of this support level after a lower high last week. It is top heavy as well and needs to pull one out of the hat again. Gets harder to do that the further along a run gets.
DJ30
The blue chips tapped the 50 day EMA on the low and breached its up trendline intraday before rebounding to close with a modest gain and hold both support levels. The candlestick chart showed a big doji. That combined with a support level can lead to rebounds, and unlike SP500, DJ30 is trying to make a higher low at this key support. It still has to make the move and there is a lot of baggage in the large cap stocks right now. With stocks such as CAT and UTX still in very nice tests, however, there is leadership that can push it back up if the buyers re-emerge.
Stats: -8.21 points (-0.06%) to close at 13352.05
Volume: 251M shares Monday versus 380M shares Friday. Slightly above average volume and comparable to the other sessions last week (e.g. 241M shares Thursday). Nice volume at the doji at the 50 day EMA.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
New home sales and consumer confidence follow the existing home sales, and the FOMC warms up for its latest edict on Wednesday. Not expecting much from the new home sales as the housing market has yet to hit bottom. Even if new home sales jumped no one would really believe it as this point. Thus there likely won't be any real positive catalysts on the economic front to inspire the market.
That leaves SP500 just below the 50 day EMA, looking for some help from DJ30 and NASDAQ (both still holding their 50 day EMA and trendlines) to bounce. This is the point they need to make the move to break free of this top heavy pattern, and with the lower highs and lower low on SP500 that is a tough move to make. There are quite a few strong stocks in position to rebound from this selling, however, in addition to DJ30 and NASDAQ.
As noted above, we were looking for a pullback to move in and now we have it. If these stocks (e.g. UTX, CMI, GME, PCLN, GES, VLO, CIEN) start to rebound on some volume we are going to be ready to move in. They have led the market, they have made the pullback, and if they start back up on some volume they are likely to lead the market out of this top heavy pattern on SP500. That volume is the key as there has been distribution (high volume selling) that has to be offset with renewed buying.
Support and Resistance
NASDAQ: Closed at 2577.08
Resistance:
2601 is the mid-May intraday peak.
2616 is the November/February up trendline
2627 is the top of the November/February channel
2634.60 is the June peak
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2564 is the October/December/February trendline
The 50 day EMA at 2560
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 1497.74
Resistance:
The 50 day EMA at 1501
1523 is the late November to February up trendline
1528 is the March 2000 closing high
1541 is the June high.
The upper trendline of the channel at 1550
1553 intraday high from March 2000 is the all-time index peak
Support:
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 13,352.05
Resistance:
13,435 is the upper channel line in the November/February channel
The 18 day EMA at 13,478
The mid-May peak at 13,556
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
13,325 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,293
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 25
Existing home sales, May (10:00): 5.99M actual versus 6.00M expected, 6.01M prior (revised from 5.99M)
June 26
Consumer confidence, June (10:00): 106.0 expected, 108.0 prior
New home sales, May (10:00): 925K expected, 981K prior
June 27
Durable goods orders, May (8:30): -1.0% expected, 0.8% prior
Crude oil inventories (10:30)
June 28
GDP final, Q1 (8:30): 0.8% expected, 0.6% prior
Chain deflator, Q1 (8:30): 4.0% expected, 4.0% prior
Initial jobless claims (8:30): 324K prior
FOMC policy statement (2:15)
June 29
Personal income, May (8:30): 0.6% expected, -0.1% prior
Personal spending, May (8:30): 0.7% expected, 0.5% prior
Core PCE, May (8:30): 0.2% expected, 0.1% prior
Chicago PMI, June (9:45): 58.0 expected, 61.7 prior
Construction spending, May (10:00): 0.2% expected, 0.1% prior
Michigan sentiment revised, June (10:00): 84.0 expected, 83.7 prior
End part 1 of 3
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