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world stock market, us stock market
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7/05/07 Technical Traders Report Update
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Technical Traders Report Subscribers:
MARKET ALERTS
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SUMMARY:
- Market struggles to continue the rebound though NASDAQ, and particularly large cap techs, easily run to new post-2002 highs.
- ISM Services latest data to confirm the resumption in the economic expansion
- Earnings are ready to start as NASDAQ takes the lead.
Stocks rebound to close positive on a light volume, post-holiday session.
Some of the action you anticipate for a Monday came on a Thursday return from holiday: M&A (Blackstone buying Hilton), RIMM finally getting its entr e into China, a downgrade of GM. There was also the stronger ADP employment forecast (about as good as our weatherman, say 10% accuracy), a strong ISM Services report, and a jump in oil and gasoline inventories. That news offset the surge in bond yields (4.97% 2 year, 5.14% 10 year) that only earlier in the week saw the 10 year at 5%. The rebound in rates was encouraged by the solid economic data as well as the BOE raising its interest rates 25BP.
Stocks tried to hold a gain early, but the blue chips were a drag from the start. The bounce attempt failed and stocks were all negative but lunch. Then a slow, steady recovery carried all of the indices less the Dow back to positive by the close. Not bad action with NASDAQ and the large cap techs in particular leading the way again. Trade was low as is often the case in a summertime holiday week. Nonetheless there was some strong volume leadership on the session, and as stocks head into earnings with SP500 still playing footsy with its trendline, leadership is what the market needs.
Technically the session was not a barnburner. There was not even a fire. Volume was low and breadth was negative even as the indices recovered to positive late in the session. It was a struggle, but stocks did make that low to high move that you want to see. Of course, it took until the last few minutes to seal the positive close after that afternoon comeback. NASDAQ broke to a new post-2002 high, once more showing new leadership strength while the prior leaders, i.e. SP500 and DJ30, struggled. DJ30 is actually trying to form up nicely but SP500 is still in a fight to move past its trendline. NASDAQ is showing leadership and just lacks some stronger volume to really get it running.
THE ECONOMY
ISM Services posts its best showing in 14 months.
The manufacturing sector report was solid once again as we saw Monday, and the services did not disappoint, posting a 60.7 reading beating the 58.0 expected and the 59.7 in May. That pushed services growth to the highest level since April 2006. Strong internals as well: new orders were strong again at 56.9; export orders were lower from the huge May gains but were still strong; employment rose to the highest level in 12 months.
Once more another economic report shows the resumption of the expansion after that mid-cycle slowdown, and these ISM reports are more contemporaneous than many, particularly the employment report out on Friday. Employment always lags, and thus while the economy has restarted its growth the employment report may not show it. While the employment report gets most of the press because jobs are near and dear to us all, the market knows it is lagging.
It will respond to the report short term, but as we noted the past week, the market didn't trend higher in anticipation of slower economic and earnings growth. It started higher while things looked to be slowing in 2006, spurred by the FOMC going on hold with rate hikes as well as the underlying strength in the economy. Thus if the jobs report disappoints by either being too weak or too strong the market will balk, but the employment report is an afterthought to the other indicators. Manufacturing, non-manufacturing, personal income and spending, business investment, etc. all show stronger activity while the core PCE and CPI show inflation falling at the same time. That was plenty for the market to rally on.
Stock market showing some rotation after the initial strong run.
The next phase is whether the market continues the advance on expectations of continued future economic growth and thus a resumption of stronger earnings growth. Right now the market, albeit not NASDAQ the past 5 weeks, is struggling. It could be that the NYSE indices, particularly SP500, are just suffering through a hangover after leading the market on the long run from August 2006. It may now be time for more traditional growth, e.g. tech, other than the 'new' growth stocks in the industrials that enjoyed the strong leadership from 2006 as the rest of the world builds out their countries.
Rotation is a very healthy sign for the stock market. After a certain portion of the market leads higher it will inevitably have to take a pause and correct or at least consolidate. When that happens, if money moves to other sectors in the market (evident as other sectors come to life), a run can continue as the torch is passed to the next group. Rotation in the market, similar to rotation with your tires, leads to longer rally life.
Thus with technology breaking out, even SP500's relative weakness would not condemn the overall market. Indeed DJ30 and SP600 have improved their patterns. The neat thing about rotation in a strong market is that though leadership changes, even the former leading sectors still tag along until the money rotates again and they move up toward leadership again. With an improving economy and falling inflation, that lays the groundwork for this type of healthy action.
THE MARKET
MARKET SENTIMENT
VIX: 15.48; +0.56
VXN: 17.09; +0.39
VXO: 14.73; +0.78
Put/Call Ratio (CBOE): 0.9; -0.01
Bulls versus Bears:
Bulls: 53.8%. Still holding high levels, rising from 53.3% after a spike to 56.7% three weeks back. Still too high, but as noted before, bulls 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: 20.4%. Back up above the 20% threshold considered bearish after falling to 18.9% three weeks back. After hitting near 30% in March it has faded back in the subsequent rebound and this current selling has not done much to jump it higher. Looking only at this indication and the fact it has not risen as it did in March when the selling took hold, you would conclude that there is more selling to go. Well off the 27.5% hit in April. 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: +11.7 points (+0.44%) to close at 2656.65
Volume: 1.658B (+48.51%). Volume was up but still well below average and below Monday's trade as well as last week's trade. Thus it was no surge of buyers pushing aside all sellers, just a lack of sellers standing in the way of technology. That takes some luster off the move to yet another new post-2002 high, but summer is typically a slow volume time.
Up Volume: 1.051B (+316.936M)
Down Volume: 582.249M (+218.7M)
A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Advancers led 1.23 to 1
New Highs: 111 (-3)
New Lows: 36 (-1)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ moved to that new post-2002 high, continuing the bounce from the 50 day EMA just over a week back. It moved past the upper channel line Tuesday and continued the break Thursday. Money is moving into techs, particularly big name techs, as the industrials take a deserved rest. As for the current surge, it is up 5 out of 6 sessions and took out the upper channel line. It will need a breather before getting much higher, but as we said on Monday, it is dealing more from a position of strength here as it does come back given it has cleared resistance to a new post-2002 high and is coming back to test versus struggling to break on through.
SOX (+0.76) took another step toward recapturing its breakout, moving up to the early May high. Looking solid for the next breakout though NASDAQ is getting a bit extended on its run, and SOX is taking its lead from the other techs. Thus if NASDAQ takes a breather, SOX will, but we are still considering an upside buy off of this pattern that has turned into something of a 9 week reverse head and shoulders.
SP500/NYSE
Stats: +0.53 points (+0.03%) to close at 1525.4
NYSE Volume: 1.375B (+79.78%). Volume was summer and holiday light once more, coming in well below average. With SP500 struggling the lower volume at least shows no dumping of stocks.
Up Volume: 677.214M (+204.233M)
Down Volume: 674.696M (+400.621M)
A/D and Hi/Lo: Decliners led 1.2 to 1
Previous Session: Advancers led 1.65 to 1
New Highs: 139 (-23)
New Lows: 19 (+1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 moved up to its up trendline this week though volume was anemic. It has basically matched the late May interim peak on this move, showing a doji at the trendline (1535) Thursday. It could conceivably form a handle here, i.e. moving laterally for a few sessions to consolidate the bounce, shake out the non-believers, and then break higher to take on the June highs. That remains to be seen. As noted, SP500 is tagging along at this point, letting NASDAQ take the point. As such it is still capable of following along but it is still in a precarious position right now.
SP600 (+0.28%) rebounded nicely on the back of energy's recovery. It advanced up to the mid-June highs and has somewhat improved its pattern with this last move off a higher low at the 50 day SMA late last week. It still has two highs ahead of it, and the way it looks it is likely to need a breather before it tries to take them on.
DJ30
The blue chips moved laterally Thursday, losing some ground but with a nice test lower intraday toward near support at the 10 day EMA and then a recovery to basically flat. Of the three NYSE indices we follow its position is the best as it makes higher lows, bumping up against the highs. It still as the June twin peaks to deal with, but if it moves laterally for a couple more sessions on low trade it will be set up well to make the attempt at the next break higher.
Stats: -11.46 points (-0.08%) to close at 13565.84
Volume: 188M shares Thursday versus 111M shares Tuesday. Trade was still well below average and at the low levels hit Monday and last Thursday. In short, not a lot of volume, but with the fade and negative close, lower volume is just fine.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The jobs report is out before the open and while trade was low on Thursday, NASDAQ seemed to have no fear of it. The report will set the tone for the market for the session, but it is also the end of the first week in July, and that means next week earnings start. There has been a real lack of earnings warnings thus far, leading us to speculate that results will once again turn out better than expected. Remember, most analysts harbor a very negative view of the economy even though it has surged well past Q1 with the likelihood of a 3%+ reading. Of course the key is the view of the future, but it never hurts to have a good quarter in the bag and a rebounding economy after a slowdown that ran from Q3 2006 through Q4 2007.
Earnings are just ahead and NASDAQ has broken higher to new post-2002 highs, taking the lead in the market. Sure volume is not where you would want, and we cannot lose sight of that. Still the rotation into technology indicates the market has sniffed out some better earnings in tech and thus made them worth buying heading into the earnings. Earnings are always problematical in the short term and a run into earnings begs some profit taking. NASDAQ is up, SP500 is struggling. What we will continue doing is buying into solid moves as they show them and on some more upside ahead of earnings we will bank some gain heading in to lock in some gains.
Support and Resistance
NASDAQ: Closed at 2656.65
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2634.60 is the June peak
2636 is the top of the November/February channel
2630 is the November/February up trendline
2601 is the mid-May intraday peak.
The 18 day EMA at 2609
2577 is the October/December/January trendline
The 50 day EMA at 2575
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 1525.40
Resistance:
1525 is the late November to February up trendline
1528 is the March 2000 closing high
1541 is the June high.
1553 intraday high from March 2000 is the all-time index peak
The upper trendline of the channel at 1559
Support:
The 50 day SMA at 1512
The 50 day EMA at 1503
1490.72 is the early June closing low
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 13,565.84
Resistance:
The early June high at 13,676 (closing), 13,692 (intraday)
Support:
The mid-May peak at 13,556
13,478 is the upper channel line in the November/February channel
13,418 is the November/February up trendline that marks the lower channel.
The 50 day EMA at 13,337
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.
July 2
ISM Index, June (10:00): 56.0 actual versus 55.0 expected, 55.0 prior
July 3: Early close
Factory Orders, May (10:00): -0.5% actual -1.0% expected, 0.5% prior (revised from 0.3%)
Pending home sales, May (10:00): -3.5% actual versus 0.3% expected, -3.4% prior (revised from -3.2%)
July 4: Closed
July 5
Initial jobless claims (8:30): 318K versus 315K versus 316K prior
ISM Services, June (10:00): 60.7 actual versus 58.0 expected, 59.7 prior
Crude inventories (10:30): 1.5M actual versus -600K expected and 1.56M prior
July 6
Non-farm payrolls, June (8:30): 125K expected, 157K prior
Unemployment rate (8:30): 4.5% expected, 4.5% prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Average workweek (8:30): 33.9 expected, 33.9 prior
End part 1 of 3
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world stock market
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