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7/23/07 Technical Traders Report
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Technical Traders Report Subscribers:
MARKET ALERTS
Targets hit alerts: BIDU (took the rest of the gain off the table)
Buy alerts: CMED; MTL; RIO
Trailing stops: CAT; CLF; GSOL; GRMN; RIMM
Stop alerts: CXW
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:
- Market starts the week taking back some Friday losses but squanders a nice gain.
- More perspective on the sub-prime mortgage issue.
- Earnings continue to be quite good or quite disappointing.
- Market is focusing on fewer leaders.
Stocks reverse some expiration losses but have a hard time holding the gains.
Expiration Friday left the market a bit roughed up after GOOG missed and CAT's US sales were bulldozed. Monday it was earnings and M&A that helped bring it back. GSF and RIG in drilling were linking up, NOK was rumored to buy TLAB, ARRO and CMLS were taken out as well. Earnings were strong as MRK beat and guided higher, HAS, TASR and HAL beat. Mondays following expiration are often the opposite of expiration, and on this Monday stocks were starting back up.
It didn't hurt that OPEC came out and said it was 'concerned' about high oil prices and that the range for global prices should be $60 - $65. That pressured oil and it closed lower at 74.89, down 0.90. Bond yields ticked higher to 4.80% on the two year and 4.96% on the 10 year, but not a month ago the market was petrified by 10 year yields that touched 5.33% on an intraday high.
That started stocks nicely higher. They immediately sold back to test the move with NASDAQ fading to flat. Not so for the NYSE large cap indices. Financials still struggled, but the indices did not threaten the prior close as the large cap non-techs showed some relative strength. A midmorning rebound from the early selling was quite promising. A lunchtime rest was normal, but then that stretched out to another hour with no further upside. The sellers used that to take another shot, and they had more success with the techs as NASDAQ gave up almost all of its gains on the close. Overall the market held some gains, more so on the NYSE large caps than NASDAQ. Not a very satisfying close though with below average NYSE volume and negative breadth.
Technically the action was pretty weak. Volume was not all that bad on NASDAQ, still coming in above average. Of course, it was on a skin of the teeth upside day where NASDAQ did all it could to get rid of an 18 point gain. Volume backed off on NYSE, coming in below when the NYSE large caps put on a better price show than the leading (of late) NASDAQ. As noted, breadth was negative on both NYSE and NASDAQ, hardly a sign of a general return to buying following the Friday selling. The indices all held where they had to with the lagging SP500 bouncing off its 18 day EMA where it closed Friday, but it was a very narrow group of stocks that did all the lifting. In sum, the indices still hold their breakouts, but the A/D line continues to flatten, and that means most stocks are not keeping pace. The generals are still leading but the troops are not as willing over the past couple of months to follow them into the breach.
With that backdrop we saw some stocks struggle after that first run higher, not able to make much of the early move and then dropping on that first round of selling. We took some nice profit on some positions that have run a long way and were showing their wear and tear. Some of them recovered late, but we had some September options out and we did not want to suffer through a downturn after a good long run and hope that the stocks recovered before the ice cube (the options) started to melt as expiration approached. We also entered some more solid moves, however, because even with this chop this market has paid well to follow the individual strong moves by strong stocks.
THE ECONOMY
There was no scheduled economic reports Monday, and indeed nothing gets underway until Wednesday. Basically the earnings reports were telling the economic story for the day, and on Monday it was a good story. After hours we had more issues as TXN and AXP did not meet muster; looks as if once more the market tennis match continues based upon those earnings reports.
Aside from earnings the sub-prime housing crash is one of the leading stories. It is the backdrop to any discussion of the economy or the market. There is always a pundit saying "well yes, but you have to factor in the flood of sub-prime foreclosures and how they affect the consumer." No argument there. So let's take a look.
To date the foreclosure rate for sub-prime mortgages is running at 0.6% of all mortgages. That is a small amount. It makes sense because sub-prime mortgages are a very small portion of the mortgage market. Most of the no-down payment and other shady loans were issued very late in the cycle as the lenders tried to squeeze out every possible nickel from the market. At the tail end of a run that is typically the result. Because it occurred late in the cycle when the lenders were culling the mullets to find mortgagees, there were not that many. They are low as a percentage of all mortgages, and while they will likely rise with respect to the number of foreclosures, even with all of the angst in the market the overall levels are low.
THE MARKET
MARKET SENTIMENT
VIX: 16.81; -0.14
VXN: 17.85; +0.36
VXO: 16.55; -0.78
Put/Call Ratio (CBOE): 0.82; -0.41
Bulls: 52.3%. Up from 49.5% and 49.4%. Moving back up toward that 53.8% hit a month back and 56.7% six weeks back. The 55% level is considered bearish, and it topped that level on this last run. Still off the 60% hit in December 2006 but getting closer. For reference it bottomed in the summer 2006 near 36%.
Bears: 19.3%. Back down under the 20% threshold level, down from 21.3% after jumping up from 18%. Spent a month at 18%, well off the 30% hit in March. 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: +2.98 points (+0.11%) to close at 2690.58
Volume: 2.08B (-3.13%). Volume was lower than expiration but still respectable, coming in above average. Lower than the other sessions from last week, but as we know, expiration week volume sees elevated trade from Tuesday to Friday.
Up Volume: 1.164B (+652.418M)
Down Volume: 896.644M (-951.137M)
A/D and Hi/Lo: Decliners led 1.17 to 1. Negative even on an upside session. The troops were not that interested in following.
Previous Session: Decliners led 2.77 to 1
New Highs: 60 (+20)
New Lows: 79 (-64)
NASDAQ CHART: http://www.investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher but closed near its session low with next to no gain. It held the 10 day EMA and volume was lower, so no nefarious intraday reversal, just a lack of buyers coming in. NASDAQ is still easily holding its renewed breakout from just over a week ago as NASDAQ remains in a leadership position. Once again, however, the tech earnings after the close were not that compelling as TXN was in line, i.e. no upside surprises.
SOX (-0.55%) struggled all session and when the overall market turned lower in the afternoon the semiconductors were the natural downside leaders. As with NASDAQ, however, they are still easily holding the breakout and coming back to test near support at the 10 day EMA.
SP500/NYSE
Stats: +7.47 points (+1521458000%) to close at 1541.57
NYSE Volume: 1.521B (-23.52%). Volume faded back below average after the big Wednesday and Friday sessions last week. That was expiration related though Wednesday saw buyers rush back in after that intraday test lower. Volume is still on the bubble for the NYSE indices as indeed they are on the bubble as well, particularly SP500.
Up Volume: 851.959M (+611.46M)
Down Volume: 654.99M (-1.083B)
A/D and Hi/Lo: Decliners led 1.06 to 1. As with NASDAQ, breadth was negative on an upside session (small caps were flat). Not many wanting to take the lead-out as the NYSE indices bounced back.
Previous Session: Decliners led 3.38 to 1
New Highs: 98 (+47)
New Lows: 85 (+2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 held its 18 day EMA once again as it did Friday and bounced for a nice little half percent gain. It managed to hold right at its prior highs, struggling to hang onto the breakout it enjoyed as the all of the large cap indices made their moves just over a week back. Still the laggard of the large caps and following rather than taking the lead.
SP600 (-0.00%) was flat, running higher to the 10 day EMA and then rolling over to close flat. It continues in its range, holding at its up trendline Monday after tapping the 50 day EMA on the Friday intraday low. It continues to hold both of those levels as it works higher, making marginal new highs. It has not made a definitive breakout this run as have the other indices. The small caps are growth stocks and they are falling behind some.
DJ30
The blue chips had a lot of help from the pharmaceuticals and almost landed a triple digit gain. Notice the number of triple digit moves of late? With the big breakout just over a week back that is not as much of an issue, but it is something to watch as the test progresses. DJ30 posted up at the 10 day EMA and started back up Monday. That is where it needs to hold and continue its move to show the strongest action, and thus far it is doing so.
Stats: +92.34 points (+0.67%) to close at 13943.42
Volume: 237M shares Monday versus 377M shares Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Still no economic data scheduled, but a lot more earnings. The big duo after hours was AXP and TXN and they were not whipping up any excitement, at least to the upside. The earnings continue to excite and then disappoint, but clearly the excitement has not been enough, the beats have not been strong enough as in Q1, to send stocks surging. There was that nice breakout from the indices as the season got underway, but now the market is once again trying to find the news it needs to continue the breakout.
It looked as if last Thursday the market had found the juice once more and was continuing higher with the breakout following that Wednesday test lower on the Intel results. Friday changed the picture with the GOOG and CAT misses. The Monday bounce on good results was nice but it did not have the strength of the prior moves. Tuesday the next round of earnings will test the market again even if there are some more good earnings out ahead of the open. Again, the market has not received that surge of surprise earnings and guidance that would propel it higher once more. It is holding the line at near support while it fights out the next move, and that is a positive.
The market is showing some strain even as it breaks higher with that last strong upside breakaway. There was solid A/D on that move, but overall the breadth line has flattened even as the market has moved higher. In that situation we have to simply focus on the best stocks that are in position to make continuing moves. When breadth declines and the market moves higher that means money is focusing into fewer areas. It did this in the late 1990's for several months as the market ignored the broad market and money pushed the big NASDAQ names higher and higher. It may make no sense to anyone, but it makes sense to follow the money and the stocks that are getting it as they tend to set up for moves again and again.
Support and Resistance
NASDAQ: Closed at 2690.58
Resistance:
2725 is the July high
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
The 10 day EMA at 2688
2673 is the early July high
The 18 day EMA at 2670
2651 is the November/February up trendline
2634.60 is the June peak
The 50 day EMA at 2618
2601 is the mid-May intraday peak.
2598 is the October/December/January trendline
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 1541.57
Resistance:
1539 is the late November to February up trendline
1539 is the mid-June intraday high
1541 is the early June high.
1553 intraday high from March 2000 is the all-time index peak
1561 is the upper channel line from October/December 2006
Support:
1534 is the early July high
1528 is the March 2000 closing high
The 50 day EMA at 1517
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 13,943.42
Resistance:
The July high at 14,022
Support:
The 10 day EMA at 13,850 held on Friday and Monday
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The early July peak at 13,671
The mid-May peak at 13,556
13,570 is the upper channel line in the November/February channel
The 50 day SMA at 13,568
The 50 day EMA at 13,525
13,511 is the November/February up trendline that marks the lower channel.
The 90 day SMA at 13,195
12,796 at the February 2007 high
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
July 25
Existing home sales, June, (10:00): 5.9M expected, 5.99M prior
Crude oil inventories (10:30)
Fed Beige Book (2:00)
July 26
Durable Goods Orders, June, (8:30): 2.0% expected, -2.4% prior
Initial jobless claims (8:30): 310K expected, 301K prior
New home sales, June (10:00): 900K expected, 915K prior
July 27
GDP advance Q2 (8:30): 3.2% expected, 0.7% prior
Chain Deflator, Q2 (8:30): 3.4% expected, 4.2% prior
Michigan sentiment, final July (10:00): 91.5 expected, 92.4 prior
End part 1 of 3
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