|
|
start investing, option trading
* * * *
2/05/02 Technical Traders Update Report
* * *
Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Issued some more 'target hit' alerts and some trailing stop alerts, taking some profit off the table. OEX put (gain ranged from $8 to $15 per option for the various positions taken). SCSC (9.5% as a trailing stop), LTD (13% trailing stop), MANU (15.6% trailing stop). Market was up and down but we took our gains at the targets and cut our losses short.
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes rallied from bounce at support, but death of stimulus package was death to the rally attempt.
- Economy: ship is still taking on water.
- Bearish finish to session that could have been another attempt at a reversal.
- Subscriber Questions
- Team Trades
Weak market gets dealt a heavy blow.
The market was ready to continue its lower trade and test the recent lows from last week. The S&P tested Wednesday's low in the first 40 minutes and rebounded from there. The other indexes followed. As the lunch hour ended the indexes took off and rallied to new session highs, rallying toward the resistance after once again testing the floor.
They needed some help to clear the resistance, and they sure did not get it. Senator Daschle announced that the stimulus package was not going to pass regardless of the version, so it was being shelved. Well, there has been concern about the recovery and concern over the stimulus package. The rubber stamp on its death took whatever steam there was in the upside move right out. The indexes spiraled downward, missing their session lows by narrow margins on the close. The lack of a stimulus package has come home to roost for good finally, and it has had the negative effects on the market that we were concerned about.
This has come at a bad time. The markets were worried over Greenspan's month-old speech that raised the issue that stocks may be too pricey given the level of economic recovery he foresaw. That got the markets thinking. The problem has grown since then, not abated. The real concern is just how strong this recovery can be with a consumer already suffering from a high debt load (you cannot borrow no matter how cheap money is if you are already loaded in debt) and no interest or incentive for business capital spending. Then there is the ENE accounting issue that, as we said last night, is more an issue of how numbers will be lower based on very conservative estimates for fear of public backlash.
Not really accounting concerns, but the economy.
It is not really fears about accounting as many are saying. While poor accounting practices and criminal activity are wrong, the problems as far as the market is concerned arose when the economy started to crumble. Though Enron was setting up a house of cards, most who have looked at the house said it fell because the economy fell. If the economy held on, Enron would have held on. Global Crossing may have held on. K-Mart might have made it. There are a lot of sayings about this type of situation. Jimmy Rogers said "You don't know who is swimming naked until the tide goes out." In the oil patch it is said that you don't know how good your title is until you strike oil. In the legal arena we would say you never know how good your case is until a jury enters its verdict. The point: if the economy had been allowed to run, a lot of the people without 401k accounts, ENE and otherwise, would not be giving tearful testimony. Again, it is the concern over the economic recovery. The bankruptcies are a symptom of that (and other issues as well, such as an overly complex tax system).
So instead of getting serious about a stimulus package, many lawmakers are using Greenspan's statement that a package is not needed now (but may be needed in the future) to refuse to compromise and come up with a plan. As discussed below, this is wrong. The economy is not in as good of shape as most would think. It is at subsistence level, alive and crawling, but not ready to jump up and run.
They are bickering over extending benefits and how they should be extended. Their inaction won't help those out of work, but indeed will hurt more as more jobs are lost and more businesses declare bankruptcy because there is no stimulus package. Today's Challenger jobless claims shot up for the week; these are new jobless claims, and they show that we are not out of this. We have a question: they want to increase benefits to the unemployed, but cannot agree on how to do it. As more and more become unemployed, are they going to keep fighting over how to increase their benefits or are they going to do something about the problem that is causing the unemployed to piled up higher and higher? Extending the benefits does not fix the problem; it helps those get through the trouble times. They also have to fix the economy. Extending benefits is like having a ship with holes in it and not enough lifeboats. Instead of plugging up the holes, they order more lifeboats that won't arrive until after the ship has gone down.
THE ECONOMY: stimulus is needed
Look at the economic reports. They show some improvement, but they are also backsliding. That is a sign that there is change taking place from the continued downtrend, but it does not show that a recovery will be robust. The bond market is all of the sudden starting to price in another rate cut after it was starting to price in a rate hike. Always look to the bond market for signs of where things are heading. It is rallying, rates are falling. That means recovery is less certain. It is not rosy; we knew it was not and wonder how the heck did a wobbly, shaky economy that hand plunged off the ledge all of the sudden jump right back up. It had not, of course.
The ISM services index dropped back below 50 to 49.6, below expectations as well as the 50.1 reading in December. New orders fell to 49.4 after it was greater than 50 in December. That means contraction, not expansion. No free and easy running ahead. It is a back and forth scratch it out kind of economy.
Challenger jobs survey for January shows a 212,000 drop (+32%). This shocked many, but it is exactly in line with the January employment report where 1 million unemployed just gave up looking for jobs. The number is a staggering upswing in job losses that were showing signs of tapering. With job losses still able to show such huge gains, there are still many bumps in the road ahead.
Nikkei hits 18 year low. Last week the Nikkei fell below the Dow for the first time. Japan is going nowhere but down. Japan has failed to recover because it has failed to provide stimulus to invest in Japan. Throwing government money in programs and benefits has not sparked consumer demand, and has not sparked investment in Japan. The U.S. has no capital investment right now, i.e., investment in the things used to make US goods and provide services. Simply put, we are not investing in our futures because no one likes what they see: a slow recovery drawn out over a few years.
Yet, Congress refuses to act to pass legislation that encourages investment. Let's get clear. We are not talking about the giant corporations that so many lawmakers like to rail about when posturing and speech making. We are talking about you and me. Eighty percent of the businesses in the U.S. are small businesses. Despite all of the hogwash that is slopped around, businesses of all types will benefit from accelerated depreciation and investment tax credits. It can be written where we all get it, and that is one sure way to raise investment rates right here in the U.S.
Someone wrote and said that Congressmen do not even read emails because they receive so many. Well, if that is the case, they should be voted out of office. My senators read my emails and respond. Pick up the phone and call them if you need to and tell them you are sending an email and demand a response.
THE MARKET
Negative session even though the indexes sported losses of less than 1%. What was looking to be another reversal off of the intraday low hit last Wednesday was choked off in the last hour on more fears about the economic future without a stimulus package. Perhaps this was the final wringing out of that story; it has been ongoing for over a month now.
VIX: 26.77; -0.08. Disappointing performance even when the selling was at its height. A continued indication of the problems the market is having; even with selling the VIX is at low levels.
VXN: 46.74; +0.90. A slight rise on the selling, but as with the VIX it was not a big move even as the Nasdaq was selling sharply.
Put/Call Ratio (CBOE): 0.99; +0.01. Still high on the session, one sign that there is some fear in the market. Still only one close over the 1.0 level; that is a sign that speculation to the downside is high, and that often means a turn is close at hand. One reading over 1.0 is usually not sufficient.
Nasdaq
Again it was the biggest loser on the session, though it managed to hold the losses to just under 1%. Volume shot higher on the action, however, and with the loss it was a distribution session. The candlestick chart shows a doji, a sign there may be some interest in a move higher, but the Nasdaq basically has to start over for any rally.
Stats: -17.01 points (-0.9%) to close at 1838.52.
Volume: 2.107 billion (+18.5%). First 2 billion share session since last Wednesday's reversal. Technically a distribution day, i.e., more institutional dumping of stocks.
Up volume: 506 million
Down volume: 1.588 billion. Continued downside strength.
A/D and Hi/Lo: Declining issues pulled back to 1.5 to 1 (2.75 to 1 Monday).
New highs: 55 (-23)
New lows: 90 (+21)
The Chart: http://www.investmenthouse.com/cd/$compq.html
If there was any doubt that last Wednesday's reversal attempt was over, today finished the thought. On the low the techs tapped 1828.67, no real support level, and rallied back up to 1867.94, just below the bottom of the November consolidation range at 1875. Yet, the index did try another reversal during the session before it was thrown back on fears of what no stimulus package would mean. The result was a doji on the candlestick pattern, and that can indicate that an index is ready to turn back up after a bout of selling. To do that it would have to shake off the late selling as overreaction to the announcement (not a total surprise, but the market usually overreacts to a certain extent). Perhaps it is ready to make a try, but the low volatility, continuing distribution, and lack of substantive evidence of a stronger recovery at hand (at least evidence that investors will accept) makes that problematical. For now, the reasons for the selling have not changed, nor have the indicators shown that there is a level of pessimism high enough to support any sustained rally. The Nasdaq looks to have double topped and is downtrending toward the 1750 level with the immediate resistance to the downtrend at 1875 to 1900.
Dow/NYSE
Showed a doji as well on the candlestick pattern after a rough day of selling Monday. Basically the index ran in place on very high volume. It is ready to try a run back up so soon? It continues to hold up the best of the big three and it has refused to give up the 9700 level. Today there were buyers coming in before the late selloff. It is trying to hang on but is getting no help.
Stats: -1.66 points (-0.02%) to close at 9685.43.
NYSE Volume: 1.750 billion (+20%). Technically a distribution day, but it is important to note that the Dow held close to support on the close and showed a doji. That indicates high turnover but the sellers could not take the index lower. That is actually somewhat positive.
Up volume: 499 million
Down volume: 1.240 billion. Down volume was identical as up volume rose 200 million.
A/D and Hi/Lo: NYSE decliners led 1.36 to 1, well off Monday's 2.35 to 1 pace.
New highs: 87 (-16)
New lows: 77 (+22). Third day over 50; if it hits 5 it is a concern of further selling.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow is hanging on. It sells back but then moves right back up toward the 9700 level. It is either trying to hold the range from 9700 to 10,100 or so, or it just does not know when it is finished. The high-volume doji indicates a lot of pretty closely matched trade; such signals have led to minor gains in the subsequent sessions recently. After one session of hard selling Monday, could the Dow be ready once again to try higher levels? Basically we see nothing to change the negatives that have been hounding the market, yet the Dow refuses to give in with its cyclical components (PG, GE, etc.). That is what is keeping it afloat. We are not confident they will keep it above water. A test of 9500 and how it responds to that level will still be key.
S&P 500: Tested the Wednesday low again (1081) on the session low (1082.50) and once again held. Indeed, from there the index made its way to 1100.96 on the high; it spanned what looks to be some developing support to a potential resistance level in on 18 point move. It was cut short at that point, however, with the afternoon stimulus story. As with the other indexes, it showed a doji on the candlestick chart and after some selling that can indicate it is ready to rally. Indeed, the index was ready to rally today, but reversed back down to close negative on rising volume. Still, the pattern is much as the Dow's: not dumping as the index did not sell off; it held the line near where it opened. Nonetheless, the distribution, poor volatility figures, and low levels of pessimism (bulls versus bears) do not provide longer term strength. It may try a rally at this point, but it has a lot of recent overhead supply.
Stats: -4.42 points (-0.4%) to close at 1090.02.
Volume: NYSE volume surged again to 1.750 billion (+20%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The indexes showed signs of recovery today or at least a willingness to bounce off of recent lows. The fragile rally, however, was fairly easily thwarted by renewed fears that there is no help coming for the slow to respond economy. The chart patterns suggest they will try a move higher once they get over the stimulus news. The field, however, will not have changed much; there is not a lot of change in the idea about how strong or weak the recovery will be. So we have to watch where any upside volume and where it meets resistance.
We saw some of this action building today and that is one reason we were issuing several 'target hit' alerts to take some gains off the table. We also issued several trailing stop alerts where we pocketed some gains on plays that had moved for us but were turning back.
Some key items to remember about this up and down action. First, small stocks continue to work well for us to the upside. Second, large stocks as a group are trending lower and they take the major indexes with them. Third, we want to play the trends as much as we can because the trends are more forgiving; you don't have to be exactly right with your entry point or timing to make money in the trend. That has been the theme in our plays on the reports: stick with the trend for that stock, sector, or group. Thus, on small stocks we are playing the upward bias and making nice 20% to 50% gains. On the bigger names we are playing the downside trend and taking home some nice gains on the puts.
In this market, keeping reasonable targets on plays and letting them work for you is key. Let the trend help your investments. By doing this, even in a choppy market you will make trades that bring home nice gains. Limit your losses by using stops and trailing stops as we do on the alert system, and take the good moves off the table when your targets are hit. If you keep your investments 'even,' i.e., the same dollar amount, taking a 20% or better gain on the wins and a 7% or less loss on the losers keeps you handsomely in the black even in such a choppy market as this.
Tomorrow we anticipate some attempt at a rally once again. It was in the process today before it was chopped back. Thus, we may see some stocks rally once again with the Nasdaq testing 1875, the S&P 1100 to 1112, the Dow back up to 9800 or so. Unless the climate changes, however, we think they will stop at resistance and turn back once again. That will reset some of the put plays we took some profits on and give us some new plays as well.
Support and Resistance
Nasdaq: Closed at 1838.52.
Resistance: 1875 to 1900 is the bottom of the November consolidation. Then 1934 to 1941 represents the top of the November consolidation range. The 50 day MVA (1929.80) and the 200 day MVA (1938.93) are still right in the midst of this consolidation level. After that we look at the simple 50 day MVA (1964.08) that stopped the index in late December.
Support: 1850 did not hold. The Nasdaq is in a slow slide to 1800. 1750 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1090.02.
Resistance: 1100 could try to stop it on the way back up. Then there are the price consolidations at 1125, and the 50 day MVA (1131.07). 1150 is after that, with the simple 50 day MVA (1140.30) right below that.
Support: 1080 is forming up. A range of support from 1075 to 1050, the 1050 level holding twice in October. That is right at the 50% retracement (1060).
Dow: Closed at 9685.43.
Resistance: 9691 to 9750 represent the bottom of the November, December and January range. The 50 day MVA (9851.01); the simple 50 day MVA (9929.70). Right behind that is 9992 to 10,000. Then the 200 day MVA (10,099.49). The January high at 10,300 level is last.
Support: 9500 is the next level, and it held on last Wednesday's intraday selloff. After 9500 there is a very congested trading range from 9125 to 9500. A 50% retracement is 9181.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-04-02
Auto Sales, January (time not supplied): 6.0M versus 5.2M prior.
Truck Sales, January (time not supplied): 6.8M versus 7.8M prior.
2-05-02
ISM Services, January (10:00): 49.6 actual versus 51.8 expected and 54.2 prior.
Factory Orders, December (10:00): +1.2% actual versus 1.0% actual and -3.3% prior.
2-06-02
Productivity-Prel., Q4 (8:30): 3.0% versus 1.1% prior.
2-07-02
Initial Claims, 2/2 (8:30): 395K versus 390K prior.
Consumer Credit, December (15:00): $9.0B verusus $19.9B prior.
2-08-02
Wholesale Inventories, December (10:00): -0.5% versus -1.1% prior.
End Part 1 of 2
|
start investing
option trading
|
