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9/24/07 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: FTK; AMZN
Buy alerts: AAPL; DSX; TSL
Trailing stops: DWSN
Stop alerts: None issued
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:
- Stocks start the week stronger, finish weaker, but continue the consolidation.
- Return of some key economic data makes this week even more interesting.
- Leaders indicate the market needs a bit more consolidation before it breaks higher to take on the prior highs.
Market tries to make a run, and ends up with another consolidation session.
It was Monday, and of course that means the analysts are going to be active, particularly after expiration Friday. EMC received two upgrades, AAPL was upgraded with its price target raised, BHP was set to announce a huge gold find down under, and GM was rumored close to striking a deal with the UAW. Those upgrades had the technology stocks running free market, and things looks relatively decent, though outside of technology. The action was rather sluggish.
Stocks started higher across the board i.e. all indices were rising nicely. The financials and energy were lagging, however, and at the end of the first hour the market has hit its apex for the climb. The indices sold glad for the rest of the session, and by the close they'd given up their early gains. Only the NASDAQ 100 was able to hold on to positive territory by the closing bell. That action had financial station commentators rather glum by the market giving up its gains and closing negative.
Technically, however, the action was not bad at all. Sure most stocks were lower, but of course there were stellar moves by some of the usual suspects: BIDU, SNDA, EXM, DRYS, AAPL. That was not the normal on Monday, but overall this is exactly the kind of action we wanted to see continue. Sure, the indices were down, but they've traded in a relatively narrow range for the past four days, neither moving up much nor moving down much.
This action was shown in several leading stocks that performed similarly, moving down toward near supports to test and consolidate their recent breakouts and runs higher. This is particularly evident in the energy sector that has returned us stellar gains over the past few weeks. We're looking for these stocks to complete their pullbacks and provide us another good entry point just before the next bounce starts anew.
As noted, the action in the overall market is very similar: a continued lateral move in a very tight range on very good price/volume action. In other words, volume is higher on the upside sessions in his lower on the down sessions. That shows that there are more buyers than sellers in the market at this juncture. Overall volume is not surged to the levels reached are in the July and August selling, and we would like to see stronger volume in the market overall, but with excellent action in the leaders in the volume they are showing, we're willing to keep investing in those stocks.
In short, this is exactly the action that we wanted to see continue as it helps set the foundation for the run at the prior highs. There is no real selling in the market after the nice break higher following the Fed decision, investors and the pundits get a bit worried that the market has lost its steam after the Fed rate cut search, leaders get a nice rest after a strong surge higher, and then the market in the leaders rebound higher. Thus far, despite all of the worries about rising gold, the sinking dollar, surging oil prices, and pretty much anything else you want to throw into the mix, the leaders in energy, technology, agriculture, metals, China stocks, and a smattering in several other sectors, are performing just as you want them to do.
THE ECONOMY
Just when you think all of the big economic data is over...
Last Tuesday when the Fed cut the Fed funds rate by 50 basis points it seemed as if we reached the apex of the economic news cycle. Indeed the rest of the week the news was not able to engender too much excitement that could match the Fed rate cut. With all of the concern about the repercussions of the Fed action, however, the further we get from the Fed decision the more important the economic data becomes.
Tuesday the data kicks off once more with consumer confidence and existing home sales. Consumer confidence is not going to be too closely watched, but it is showing strength while many are saying the consumer has none. Remember, a lot of people are calling for the total retrenchment of the US consumer in the face of the mortgage issues as well a prolonged spending binge. That is hard to reconcile as long as the consumer confidence readings remain at the levels they are trending at. It takes much weaker sentiment in a sphere with respect to jobs to get the consumer scared enough to significantly curtail consumption such that the result is a recession. The trend is always important, but we're not seeing that same deterioration in consumer confidence at this point, mainly because the job picture. Looking forward remains solid. There was a weak jobs report last month, but that was likely an aberration as it is outside what the other leading economic reports are showing.
Existing home sales will of course be scrutinized closely as that remains one of the key issues the financial stations enjoy reporting on. They like it because it's readily understood by every viewer, as opposed to the credit crunch or the fact that gold is rising sharply, while the dollar is falling. We housing sales have been unable to recover because there are fewer lenders willing to part with their money due to the weak aftermarket for mortgage backed securities. Until the Fed's attempt to fallout the credit market enjoys more success, the housing market is going to remain relatively weak. We've heard rumors that the housing market is stabilizing, and even one of the US official speaking in China said that was the case. Sounds like pretty hopeful talk at this juncture, at least until the Fed's actions start to work on the credit market and result in unlocking a lot of funds that lenders have thus far refused to let go of.
Looking at confidence and the housing market and how that ties into retail consumption, yes to start looking at how the retail stocks are performing. There's no doubt they've been down in the dumps of late, but some very strong outlooks from the likes of DRI (Red Lobster, Olive Garden restaurants) and the action in the charts of stocks such as BBY and COH suggests there is some type of recovery trying to gel. The Fed has hopefully put a floor into these sectors, but it will take a little bit longer to see if that bottom is going to hold. It will get a serious test on Tuesday, as LOW (retail building supplies) announced after the close that its sales were tracking lower than anticipated.
THE MARKET
MARKET SENTIMENT
VIX: 19.37; +0.37
VXN: 20.83; +0.12
VXO: 18.83; +0.54
Put/Call Ratio (CBOE): 0.81; -0.05
Bulls: 53.9%. Another big jump higher, up from 48.3%. Much to bullish and much to quickly, moving toward the 55% level that is considered bearish. On a steady climb from 42.9% and 40.6%, the latter being the low for this round. Never made the thirties. Getting close to the 56.7% hit in June. The 55% level is considered bearish, and it topped that level on this last run. 60% in December 2006. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 27.0%. Big drop off from 31.0% last week and 10 points off the prior week (37.4%) where it held for 3 weeks. Still well off the very low 18% hit 8 weeks back, and it topped the June 2006 peak (36%) on this run. That June peak eclipsed 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: -3.27 points (-0.12%) to close at 2667.95
Volume: 1.879B (-11.1%). Very nice low volume on the session. Not talking about the decline from expiration Friday, but the fact that volume was well below average as the index tried to move but faded back. No major reversal based on the volume action, just more of the consolidation of the post-Fed break higher.
Up Volume: 792.123M (-691.786M)
Down Volume: 1.078B (+327.472M)
A/D and Hi/Lo: Decliners led 1.62 to 1. It was an all large cap session as the index was flat but the A/D line was out of whack (NASDAQ 100 +0.38%).
Previous Session: Advancers led 1.2 to 1
New Highs: 60 (0)
New Lows: 38 (+12)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher and ran up 21 points as the large cap techs were surging. They mostly hung onto the bulk of their gains, but the rest of the techs that were riding their coattails early in the session did not, and thus the fade back to negative by the close. Still an overall lateral move, however, as NASDAQ also consolidates that break higher from the FOMC rate cut. It is still nicely above the June lows (2635) and the early September high (2645). Log another consolidation session.
SOX (-1.17%) showed a pretty ugly session, not even trying to move higher. It plunked down to the 10 day EMA, falling through the 50 day EMA in the process. Still not a whole lot of life here.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -8.02 points (-0.53%) to close at 1517.73
NYSE Volume: 1.345B (-34.93%). Just as with NASDAQ, volume fell well off the Friday expiration volume level. That was not the key, however. The key was the fact that volume was well below average on a very sluggish, slow consolidation session. NYSE volume showing the right price/volume action, i.e., up on outside sessions, and down on downside sessions. That is exactly what we want to occur during this nice consolidation.
Up Volume: 463.497M (-889.832M)
Down Volume: 870.174M (+186.935M)
A/D and Hi/Lo: Decliners led 1.57 to 1
Previous Session: Advancers led 1.66 to 1
New Highs: 60 (-29)
New Lows: 35 (+19)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Textbook perfect consolidation action on the S&P 500 Monday as the index slid back modestly on very low volume. This is the fourth day in the consolidation, and the index is forming an excellent handle. This is where all of the excited buyers during the post-Fed rate cut surge get nervous and are shaken out, fearing that the upsurge on the news has run out of gas and a new plunge is ahead. Very solid price/volume action as noted above, and it may take a few sessions until it's ready to make the break higher, but for now this is showing just the kind of action we want to see. It closed over 1517, and as noted last week, it could pull back to 1512 before it finds support and starts to move back up.
S&P 600 (-0.89%). Really struggled on the session, falling through its 90 day SMA. Not as tide of pattern or range is on the larger indices, but it is still a handle formation to its 11 week cup with handle base.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Very similar to S&P 500, DJ 30 is working laterally and slightly lower in a very tight, narrow range. The price/volume action is the same, i.e. a: the outside sessions and down on the downside sessions. Thus far, this is classic action to consolidate a nice break higher that formed the right side of the 11 week base. As with NASDAQ, it is easily a holding above the June peaks (13,692 to 13,688) as it forms a handle to the base, just what we wanted to see because that shows excellent strength. So far so good, and we will watch for DJ 30 to continue the lateral move for a few more sessions and then tried to break higher to take on the old high.
Stats: -61.13 points (-0.44%) to close at 13759.06
Volume: 236M shares Monday versus 419M shares Friday. Volume was not going to compete with expiration volume from Friday, but as noted above, that was not the key to volume on the session. It was the return of below-average volume trade that showed there were really no sellers on the index as it posted a slight loss.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
TUESDAY
Monday some of the same old leaders continue to surge higher as we noted above (e.g. BIDU), but more of the leaders were in the test mode, i.e. fading back toward near support on lower volume. While some stocks have already made it back to near support and looked ready to rebound once more, the majority look as if they still have a couple more sessions at least before they're ready to hold and make a new move higher. Thus will be ready to move into some new positions as they bounce higher, but more than likely we will mostly be in a waiting game, waiting for stocks to complete this pullback.
Cramer is suggesting a one to 2% pullback in the market overall, but frankly, the action that we are looking at doesn't suggest that. Some of the stocks that have surged higher with basically nonstop momentum are due for a test, but the overall market is really holding up well, showing excellent price/volume action on this test after the Fed rate cut. Again, we believe it will take two to three more days, at least, in order for the market to fully consolidate that move, ratchet up enough anxiety that it has lost its momentum, and then return to the move higher, but we're not looking for a major decline.
Many of our positions are currently testing near support or coming back toward near support, and are also toying with their stop loss points. If the action remains positive, then we are inclined to let them test a bit more and see how they hold up. If the pullback remains positive, we will use it to look at more positions when the stocks find support and then resume their move back to the upside. Thus will be patient, and at the same time. Look for stocks to make the tests and start to rebound. As noted, we already see some in that position and we will be looking at starting new positions as they continue their bounce. You don't want to be too hasty in these circumstances, but instead let the stocks make the tests and set up for the buys, and move then when they start to move back up.
Support and Resistance
NASDAQ: Closed at 2667.99
Resistance:
2673 is the early July high
2693 is the November/December/February up trendline
2724 is the November/February up trendline
2725 is the July high
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
The 10 day EMA at 2635
The 90 day SMA at 2596
The 50 day EMA at 2593
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2523
2509 is the January 2007 high
2450 is some price support from November and December 2006
2422 is that old trendline from August 2004 to May 2005
2400 is price support
2386 is the August intraday low
S&P 500: Closed at 1517.73
Resistance:
1534 is the early July high
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
Support:
The 10 day EMA is at 1503
The 90 day SMA is at 1497
1499 is the July 2006/March 2007 up trendline
1490.72 is the early June closing low and early August peak.
The 50 day EMA at 1484
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1465
1461.57 is the February 2007 high.
1440 is the mid-January high
1427 represents some interim peaks from December 2006 and the early August low
1406 - 1407 from March 2007 and November 2006 interim peaks
1389 from October 2006 interim peak
1375 - 70 from March 2007 low
1370 is the August intraday low
Dow: Closed at 13,759.06
Resistance:
13,875 is the old channel line
The July high at 14,022
Support:
The August high at 13,696
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 10 day EMA at 13,617
The mid-May peak at 13,556
The 90 day SMA at 13,470
The 50 day EMA at 13,417
13,225 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 12,989
12,845 is July closing low
12,796 at the February 2007 high
12,518 is the August intraday low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
September 25
Consumer Confidence, September (10:00): 104.5 Expected, 105.0 prior
Existing home sales, August (10:00): 5.55m expected, 5.75M prior
September 26
Durable goods orders, August (8:30): -2.5% expected, 5.9% prior
Crude oil inventories (10:30): -3.875M prior
September 27
GDP final, Q2 (8:30): 3.9% expected, 4.0% prior
Chain deflator, Q2 (8:30): 2.7% expected, 2.7% prior
Initial jobless claims (8:30): 311K prior
New home sales, August (10:00): 830K expected, 870K prior
September 28
Personal income, August (8:30): 0.4% expected, 0.5% prior
Personal spending, August (8:30): 0.4% expected, 0.4% prior
Core PCE, August (8:30): 0.2% expected, 0.1% prior
Chicago PMI, September (9:45): 53.5 expected, 53.8 prior
Construction spending, August (10:00): -0.1% expected, -0.4% prior
Michigan sentiment, final, September (10:00): 84.0 expected, 83.8 prior
End part 1 of 3
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