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us stock market, trend trading stock
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9/26/07 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: FLIR
Trailing stops: BIDU; SLB; EXM
Stop alerts: ATW
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 try a higher open, almost give it away before an afternoon rescue.
- Durable goods orders dragged lower by transports; business investment falls.
- Quarter end approach is running some leaders artificially higher, but still many stocks setting up for breaks higher.
Market gets an afternoon save.
The durable goods orders were much less than expected (-4.9%), but that did not stall the market. Indeed, futures moved higher after the weaker report as the market appears to be adopting a "bad news is good news" attitude given that the Fed has started a rate cutting campaign. Well, maybe not a campaign, but that is what investors are hoping for, if the economic numbers continue to sag. It did not hurt that GM and the UAW reached an agreement that was viewed as favorable to the carmaker. It was at a minimum, a good offset to the durable goods orders.
Stocks open higher with oil recovering and energy stocks moving up as well, but then the oil inventories released at 10:30 ET, an hour into the session. Inventories rose 1.8 million barrels versus the expected 2.5 million barrel decline. That sounded as if it should be good news for the market, but the energy stocks sold hard on the report and the indices followed them lower. Many strong leaders that gapped higher, rolled over and gave back their gains with the overall market.
Heading into the afternoon stocks were ready to give back their very nice morning gains, and it looked as if they could close lower on rising volume. With a couple of hours left in the session, whoever, stocks were thrown a lifesaver. The New York Times reported that Warren Buffett, Bank of America, and Wachovia were in talks to acquire 20% of Bear Stearns.
The market has been looking for a bailout in the financial sector, as fears remain that some hidden skeletons will still emerge. The fact that investors are ready to come in and acquire positions in some beleaguered financial institutions is the B12 shot that the financial sector needed. Indeed, the market needed it as well. They used the report to spring back to life, and test the previous session highs. S&P 500 in DJ 30 actually broke a new session highs on the news. They do not hold the move to the close, but he gave the market enough of a list to close with some decent gains. Tuesday night we talked about rogue stories that may upset the nice consolidation underway, but this rogue story was on the other side of the ledger, and it actually helped the market when it needed it. Not the best action as it took the big story to turn the market back up, will take it.
Technically, the action wasn't all that great, certainly not as good as that the prior sessions in this consolidation. Stocks started out strong, with many gapping higher out of the gate. After weakening following the oil inventories are report, they surged higher once more. S&P 500 in DJ 30 did not break out of their consolidation ranges, though they were bumping up near the top of the range. NASDAQ gap higher and was trading about 11 points from its July closing high at its peak. After that surge, however, stocks lost their bid and spent the next four hours selling off, coming within a whisker of turning negative.
The gap higher than sell off the flat is not the best intraday action you can have. It shows the early excitement, the buyers had was overrun by sellers using the gap higher to move in. It's a composite story in the beleaguered financial sector to bounce it back, and it did just that, holding most of those rebound gains into the close. That left the indices higher on the day with some better volume that you still feel that the market was saved by the bell on Wednesday. There were still some solid leadership, but a lot of the recent leaders gapped higher to 52 week highs and then rolled over to close flat or lower on the session. These strong movers (e.g. BIDU) are ready to take a breather.
In sum, the end result was not bad action as the indices came back in the afternoon and closed higher with some stronger volume on NASDAQ. Again, it was not bad action, but it was clearly not as constructive as the prior sessions in this consolidation is it needed someone to throw a rope to hold positive. As for leadership, there were those that gapped higher in rolled over as discussed above, but there was also continuing good action in other sectors. For example, energy was selling early, but it too came back, holding the test of near support. That key leadership group remains set up to move higher and help propel the indices to a breakout.
THE ECONOMY
Durable goods remain volatile, but falling business investment is a concern.
Durable goods dropped 4.9%, much lower than the 3.5% expected in the 6.1% gain in July. That's largest decline since a 6.1% drop in January. Year-over-year, however, that is a 5% growth rate. Moreover, when you dig deeper, you see the decline was led by transportation, sporting an 11% decline after rising 21% over the prior two months. Civilian aircraft fell 41%. Takeout transportation in order for still down by 1.8% compared to a 3.4% gain in July. Year-over-year growth less transportation is a much weaker 1.6%.
While the number is volatile and thus he can discount any one month in and of itself, there is a trend developing in business investment, and that trend is disturbing. After a 0.9% gain in July, it was down 0.7% in August. There were declines in June and May, and you have to go back to April to find a positive 2% gain. Those are just numbers. The trend is the key here. It is negative over the last four months, and it is down 1.2% year-over-year.
We saw business investment slacken in the second half of 2006, and thus we had the mid-cycle slow down that resulted in the very weak GDP growth rates exhibited through Q1 2007. We are returning to those negative growth rates, and if it continues, is going to be hard for the economy to push forward moving into the end of the year. Balance sheets remains strong so you would think that corporations would continue to spend as the year progresses. Thus far, however, the trend is lower, and we're not hearing a lot from corporations that suggest they're ready to start opening the coffers once more. This is a key aspect of the economy moving forward, and we want to see this investment rate move higher starting with the September and October numbers.
THE MARKET
MARKET SENTIMENT
VIX: 17.63; -0.97
VXN: 20.59; -0.21
VXO: 17.41; -0.44
Put/Call Ratio (CBOE): 0.87; -0.27
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: +15.58 points (+0.58%) to close at 2699.03
Volume: 2.031B (+7%). Rising volume up to 2B though that still kept it below average. Good to see some solid trade on the upside but as noted above, NASDAQ was in the process of giving back its gain on that volume until the BSC news story hit and bounced all indices higher. Thus we don't want to place too much emphasis on this volume.
Up Volume: 1.277B (+85.051M)
Down Volume: 744.741M (+60.158M)
A/D and Hi/Lo: Advancers led 1.48 to 1. Remains modest as the action is still in the fewer large caps than the index overall.
Previous Session: Decliners led 1.26 to 1
New Highs: 83 (+38)
New Lows: 68 (+9)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher on the back of some of the strong large cap names that have helped pave the way higher. It has cleared the early July interim peak it hit on the way to the new post-2002 high at 2725. On the high it was 26 points off that peak, 11 off the closing high. It gapped and threatened to give it back before the afternoon news story reinflated the bid. Really don't like this action. It was not really a breakout move. Volume was higher as the index gapped over the last resistance before the peak, but nothing about the move was strong outside the gap and some rising trade. Maybe it will lead the rest of the market higher from here, and with SP500 and DJ30 still in excellent patterns, that just may be the case. NASDAQ has certainly shown the leadership of late as the industrial leaders have had to take a breather the past week.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.21 points (+0.54%) to close at 1525.42
NYSE Volume: 1.294B (-2.65%). Volume faded as the NYSE indices moved higher, but no issue with that as the action was consistent with a continued solid consolidation, a.k.a. handle to their bases.
Up Volume: 869.681M (+320.944M)
Down Volume: 408.431M (-353.841M)
A/D and Hi/Lo: Advancers led 1.86 to 1. The small caps were back in the game and that helped bump breadth.
Previous Session: Decliners led 1.45 to 1
New Highs: 114 (+58)
New Lows: 65 (+18)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Started higher, moved up to the top of the consolidation range on the high (1530ish) then gave some back before settling with a very solid session. Lower volume as the large caps trade once more in the tight consolidation range. The BSC news gave it an afternoon goose and kept the nice lateral move alive. Still a very solid set up for the break higher out of its cup with handle base spanning July to present, and we are just being patient to see if it can deliver and take on the prior high at 1556.
SP600 (+0.72%) matched the blue chips in percentage terms as it ran up to the 90 day SMA to close. Nice tap at the 50 day EMA on the Tuesday low and a rebound to close over the 10 day EMA, then a bounce off the 10 day EMA Wednesday. As with the other indices, a nice set up for a break higher though it did test lower than the other indices.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips cleared the highs in its consolidation Wednesday but ended closing at the prior highs in the handle. No breakout, but good action once more. Volume was lower and still below average, basically what you expect to see as a stock or an index works through its handle. Looking solid and looking ready to make the break, but we have to wait for the move. It looks as if it is just a matter of time before it makes the breakout move.
Stats: +99.5 points (+0.72%) to close at 13878.15
Volume: 206M shares Wednesday versus 213M shares Tuesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The economic data continues to heat up with the final read on GDP, initial claims, and new home sales. Initial claims have taken on more emphasis since the weak jobs report; the two are not matching up. This is all a warm up for the personal spending and income and PCE inflation gauge on Friday.
There are also other factors at work of course. It is quarter end and it is time for window dressing, a.k.a. tape painting, to make the portfolios look good when the quarterly statements are sent. Thus the strong gapping action in some of the leaders as the week unfolded, e.g. MON, AAPL, GRMN, BIDU. They already started to look tired, at least the techs did, on Wednesday, and they are likely to test back form this strong jump as the bids fade into the weekend.
As for other factors, we saw some more supports added to the market though we somewhat derided its affect earlier. We all know the Fed stepped in with various cuts and liquidity injections, the most storied being the 50 BP cut in the Fed Funds rate. The weakening economic data on the heels of that report is making Bernanke look fairly sage once more, but you have to ask the question if it was fast enough to have the desired effect. That was a major prop. Wednesday the BSC 'bailout' is being viewed as another prop as it shows investors willing to move into beleaguered sectors, an indication that smart investors see them as a buying opportunity rather than something to run from. The GM news also is a step in the right direction for US manufacturing in order to better compete globally. These are pieces of the recovery puzzle falling into place.
Looking at the indices you see by their patterns that they are taking the view that the pieces are falling into place. There are still many serious issues facing the market; we could go through the litany, but frankly we have done it before and it is somewhat depressing. That, however, is the point. The market seems to do best when things appear worst. The indices are setting up for upside breakouts even with all of the bad news swirling, building upon the factors outlined in the prior paragraph. They have not made the break higher yet, but they certainly are setting up and look to have the intent to do so.
With the large cap techs ready to take a breather along with other surging sectors such as shipping, it will be up to the other sectors to step up once more and lead. Energy continues to set up with another test lower and recovery, and as noted before, when they start higher the market will get a boost. Same with the machinery (DE, CMI, TEX, CNH) and other industrials that have taken a moment to consolidate. They look ready to move at any point, and when they do the indices will try the breakout. When the large cap techs fade that money may just go right into these areas once more and send them higher. We are ready for that move, but it has to show itself. May still be a few sessions away but again, it is setting up well, particularly on SP500 and DJ30.
Support and Resistance
NASDAQ: Closed at 2699.03
Resistance:
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:
2695 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
The 10 day EMA at 2654
The 50 day EMA at 2600
The 90 day SMA at 2599
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2525
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 1525.42
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 1509
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 1487
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1466
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 13,878.15
Resistance:
13,920 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 13,688
The mid-May peak at 13,556
The 90 day SMA at 13,477
The 50 day EMA at 13,448
13,235 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,005
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): -4.9 actual versus -3.5% expected, 6.1% prior (revised from 5.9%)
Crude oil inventories (10:30): +1.8M versus -2.5M expected, -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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