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us stock market, stock prices
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9/25/07 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: DRYS; EXM; GRMN
Buy alerts: CMED; CMI; CROX; FWLT; TEX
Trailing stops: CVX; WHQ
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 face some bad news, sell off, but then recover in a good shakeout session.
- Consumer confidence softens as LOW, TGT issue some warnings
- Existing home sales slump as expected as inventories leap
- Stocks are 'getting there' in this pullback.
Market fights off bad news and a lower open, rebounds nicely.
There was plenty of bad news Tuesday morning to set the market in a bad mood. In the retail sector, LOW lowered its outlook for the entirety of 2006, stating that "uncertainties make it prudent to lower" guidance for the year. Target (TGT) narrowed its September sales guidance range, but it was narrowed below previously stated levels; not good for price. In the homebuilding sector, LEN reported typical weak earnings that we are somewhat accustomed to, but as with the other homebuilders, earnings were much lower than anticipated. The real topper was when BP (major integrated oil company) told its investors that Q3 may be "dreadful." It makes you wonder what the heck BP is doing as oil hit a record high in current dollars this past month. The Britts are known for understating things, but for its investors sake you hope they were overstating the situation.
That raft of bad news really helped jump the fear level as we heard several commentators in the pre-market discussing economic failure and the market rollover. When the bell rang stocks sold off as the futures indicated. Consumer confidence was lower than expected, and existing home sales, while in line, were quite dreadful (borrowed from BP). Neither helped put investors in a good mood, particularly as existing home inventories jumped to an 18 year high.
After that initial opening downside move, however, the indices started a slow, dogged recovery, fighting back all session to close basically flat. Even with the selling NASDAQ held well above its June highs while DJ30 reached down and tapped just above those levels. NASDAQ was again the leader with an outsized gain as the large-cap technology stocks once more outperformed the market, while the small caps were again the laggard index. By the close there were no great gains, nor were there any big losses. Once more the indices closed basically flat. That may bother the journalist majors chairing the financial station desks, but as you probably have surmised based on our writings over the past couple of nights, this action was just what we wanted.
This action tells us two important things. First, despite the swirl of negative news stories confronting the market over the past month and the new negative stories for the day, the market was able to fight back from a lower opening and closed basically flat. Indeed, leaders continued to either lead higher or set up nicely to resume their upside moves. The low to high action shows us that there are not many sellers ready to try and sell the market, and at the same time, there are buyers ready to move in and buy on the low. That is always a positive.
Second, this is more great action and the ongoing consolidation. The early selloff, and then the recovery to close basically flat is a shakeout. The market gets pushed lower on some bad news just as we had today, then the buyers stepped in, stem the losses, and push the market backup. This has the effect of pushing the weaker holders or the easy sellers out of the market. Once they're gone and only those wanting to hold stocks are left, the consolidation ends in the market breaks higher. This is classic consolidation action, and the rebound after the early pullback put the market right back into its narrow consolidation range, still setting up for the breakout move higher.
As you have guessed, technically this is very good action. Volume was lower on NYSE and modestly higher on NASDAQ; that keeps it well below average during the consolidation action. The intraday low to high price action is a positive as it shows those buyers coming back in an overpowering the early sellers. Leadership is acting positive still. Energy gap lower on the BP news, but it mostly held near support and started to rebound. Large machines started to move higher as well, e.g., CMI and TEX. Technology is already leading, and with industrials coming back and energy just about to complete its pullback, the consolidation is getting close to its end. Indeed, when energy finishes its pullback and starts higher the consolidation will probably be over.
THE ECONOMY
Consumer sentiment slides in less than expected. How's that for timing?
Monday night, we discussed consumer sentiment and how it impacts the economy overall. More particularly, how consumer sentiment is an indicator for the economy overall. Basically, consumer sentiment has to be down in the 50s or 60s before we really worry about a recession. Of course, the big retail stories Tuesday were LOW and TGT and how their sales were shaping up rather atrociously.
September sentiment came in at 99.8 versus the 104.5 expected and the 105 in August. That is not a horrible number in and of itself, and it's not altogether unexpected given the drop in the market and the prior months as well as the rise in oil prices during the month. But where does this place September with respect to the prior months? In other words, what is the all important trend that is in place that may lead to a number down in the 50s or 60s?
The trend ain't bad. Consumer confidence is it a six-year high in July, part of a steady uptrend that started back in early 2003 just as the Iraq war began. It backed off modestly in August, and then dumped lower this past month to a two-year low. As noted above, this did is easily explained by the volatility in the financial markets, the worries in the household mortgage sector, and all of the stories in the news regarding the financial credit crisis. With the job market remaining tight despite the aberrant unemployment report from last month, gasoline prices remaining stable despite the rise in oil, the Federal Reserve 50 basis point rate cut, and the nice rise in the stock market in September, the trend is likely to reassert itself in the October report.
In sum, while the retail guidance on Tuesday was disappointing to the market, consumer sentiment remains at levels consistent with continued steady consumption. As long as consumers remain confident about their employment situation, consumption will remain steady. It may not be spectacular, heading into the holiday season, but the numbers indicate it will be steady.
Existing home sales stink once again.
August resells fell to a five-year low, sporting a 4.3% loss. While large, that was in line with expectations, and thus not a shock to the market. That makes six consecutive declines with existing home sales falling 17% over the last six months. They're down 25% from the June 2005 peak. The surprise of sorts was inventories, as they rose to a 10 month supply. That is the highest in 18 years. That's impressive.
Nonetheless, prices remain rather stable. The median was up 0.2% year-over-year, while the average price was down just 0.3% year-over-year. We are hearing from the real estate experts that many homeowners are simply not lowering their prices enough to sell their product. After years of double-digit appreciation (at least in some markets; many markets have not seen nearly that kind of strong appreciation), sellers are reluctant to reduce their prices, preferring to "wait it out" and see how things turn out. We are told they will eventually have to lower prices in the 5% to 10% range in order to clear out that huge inventory bulge. Until that reality sets in, and they start lowering prices, this is another factor that makes it hard for the housing market to find a bottom.
THE MARKET
MARKET SENTIMENT
VIX: 18.6; -0.77
VXN: 20.8; -0.03
VXO: 17.85; -0.98
Put/Call Ratio (CBOE): 1.14; +0.33. After several days closing below 1.0, note how easily and quickly the put/call ratio jumped back up to close above that key 1.0 level. Throw a little bit of bad news in and a little bit of low volume selling, and you get the fear ratcheting up. Many people hear the stories on the financial stations and on the evening news about how the Fed rate cut is weakening the dollar and is going to import inflation into the United States. When a little bit of selling entered the market, but put activity jumped up, whether it was protective put buying or downside speculation. That shows that despite the high bullishness reading, investors are still quite edgy.
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: +15.5 points (+0.58%) to close at 2683.45
Volume: 1.898B (+1.03%). Volume is higher on the session, and with the gap lower, followed by the move upside that closed positive, we don't have a problem with that. That shows some accumulation, though with volume remained well below average, not a whole lot of buying. Basically it is more good consolidation volume is NASDAQ continues its overall lateral move.
Up Volume: 1.192B (+399.52M)
Down Volume: 684.583M (-393.174M)
A/D and Hi/Lo: Decliners led 1.26 to 1
Previous Session: Decliners led 1.62 to 1
New Highs: 45 (-15)
New Lows: 59 (+21)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Monday NASDAQ gap hiring couldn't hold the move, and Tuesday it gapped lower then recovered to close at the session high. The past few sessions, NASDAQ has held an old trendline from December 2006/January 2007, using that as support as it bounces up and down, but overall moves laterally. It easily held above the June high is (2635) and early September high (2645) before bouncing higher. That is telling as NASDAQ has quite a bit of support at this level as the buyers are using each modest dip to accumulate some positions. It is still a large cap move, however, as NASDAQ 100 gained 0.95% on the session. With breadth modest on a session where the index gained ground, that shows you that the large-cap technology stocks are leading higher. We would really like to see the rest of the NASDAQ join in on this move to give the break higher to come some credence.
SOX (plus 0.39%) tested lower as well, holding 490 on the low and rebounding to close positive and right at the 50 day EMA. It is still mired in a seven-week lateral consolidation, trying to make a higher low to break up a right shoulder to a larger head and shoulders pattern.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.52 points (-0.03%) to close at 1517.21
NYSE Volume: 1.329B (-1.22%). Nice low volume as the NYSE indices reached lower on the session and then rebounded to close flat. That shows very few sellers on early downside. It also shows there were not many buyers as the indices moved back up. That is okay for now, however, because they are still in the consolidation mode.
Up Volume: 548.737M (+85.24M)
Down Volume: 762.272M (-107.902M)
A/D and Hi/Lo: Decliners led 1.45 to 1
Previous Session: Decliners led 1.57 to 1
New Highs: 56 (-4)
New Lows: 47 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Another textbook move with respect to the consolidation as the large-cap index reached lower and tapped the 10 day EMA (1514) and then rebounded to close flat for the session. We expected to move down near 1512-ish or thereabouts, and this move filled the bill. It also provides an excellent shake out for the large caps, as they continue to consolidate the break higher. There may still be some filling in above the 10 day EMA before it is ready to make the break higher, but thus far, this action is just what you want to see with respect to a consolidation.
SP600 (-0.37%) remains the laggard in the market. It moved well on the Federal Reserve rate cut because small caps live on the prospect of economic growth. As the economic worries have pushed back to the forefront during the recent pullback, small caps have suffered the most. The Tuesday action was not bad, however. SP600 tapped its 50 day EMA on the low and rebounded to close above the 10 day EMA. That keeps above the February peak and in a handle to its current base. Not as great a handle as the large-cap indices, but as S&P 600 is a follower now, it is not bad.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Another index showing very nice action, as blue chips tested down toward the June peaks (13,692 to 13,688) and then rebounded to close positive on the session. Volume was lower in remained well below average, but with the initial selling that is what you want to see. As with the S&P 500, it would've been nice to see rising volume as a rebounded to close positive, but this simply indicates the DJ 30 is still in the consolidation mode. The action remains positive, and we still look for break higher from the blue chips.
Stats: +19.59 points (+0.14%) to close at 13778.65
Volume: 213M shares Tuesday versus 236M shares Monday. Another session of low, below-average volume as blue chips continue to work laterally, setting up for the next move higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Crude oil inventories and durable goods orders are on tap is the economic reports for Wednesday. Of the two to durable goods will garner the most attention, but is quite volatile and it is definitely one you have to look at the trend to glean any useful information from. Case in point is that it is expected to fall 3.5% in August versus a 5.9% gain in July.
As seen on Tuesday, however, there is always a potential new story lurking out there that can set the market back on its heels. There was one that may impact the market though its coverage remains spotty. After hours the trucking industry group announced that less cargo was shipped in August than July and that cargo was down 2.2% year to date. They are not extrapolating that to mean a weaker holiday season. Recall that last year trucking cargoes were down heading into the holiday season as well. Sales were not huge, but they were not bad. This presents something of a Greenspan conundrum similar to the overseas shippers reporting huge cargoes versus our domestic carriers. Watching this one closely.
Outside of a rogue the news story, the market remains in very good position to continue its consolidation as it sets up to move higher. Tuesday we saw the energy stocks under pressure early as a result of the BP statements regarding its "dreadful" outlook. As the session wore on, however, we saw the energy stocks hold it in your support in many started to recover, moving back up from that initial downdraft. With that BP news, it may take them a little more time to finish the pullback to test the recent strong moves, but you have to like the action that they exhibited. As noted above, when energy stocks resumed their move higher, this market consolidation will likely be over.
Indeed, some of the screaming leaders of late, e.g. BIDU, look ready to take a breather at this point. What did we see happen when energy stocks took a breather after their strong two-week run? We saw the large-cap techs take leadership in the market. They didn't move the market higher necessarily, but they provided enough leadership to sustain the consolidation. As some of these huge movers such as BIDU test back. We can see the money once again rotates and moved back into the industrials and energy sector. Indeed, as noted above, we saw that happen in stocks such as CMI and TEX.
So, once again, that means we have to be patient, let the stocks complete their pullbacks, and then be ready to move in as they start to break higher once more. Many of the stocks we're looking at right now, and many of the stocks that we are currently in, made great breakouts and are now making the first test of those breakouts. A breakout is an excellent point to enter a stock. The first test of a breakout is also an excellent entry point, because if the stock holds at near support and then starts to move higher on rising volume, that shows us that the big buyers still want the stock, and they are willing to pay a higher price for it. That "proves up" the breakout, making the test an excellent place to enter. Thus we are going to focus on these breakout tests as potential new buys. Given that many leaders have made runs, have pulled back, and it held their support.
Support and Resistance
NASDAQ: Closed at 2683.45
Resistance:
2694 is the November/December/February up trendline
2725 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:
2673 is the early July high
2634.60 is the June peak
The 10 day EMA at 2644
The 90 day SMA at 2597
The 50 day EMA at 2596
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2524
2509 is the January 2007 high
2450 is some price support from November and December 2006
2423 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 1517.21
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 1506
The 90 day SMA is at 1497
1500 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 1485
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:
13,880 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 13,646
The mid-May peak at 13,556
The 90 day SMA at 13,473
The 50 day EMA at 13,431
13,230 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 12,997
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): 99.8 actual versus 104.5 Expected, 105.0 prior
Existing home sales, August (10:00): -4.8% actual (5.50M) actual versus 5.55M expected, 5.75M prior
September 26
Durable goods orders, August (8:30): -3.5% 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): 320K expected, 311K prior
New home sales, August (10:00): 825K 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): 0.1% expected, 0.1% prior
Chicago PMI, September (9:45): 53.0 expected, 53.8 prior
Construction spending, August (10:00): -0.2% 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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