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9/27/07 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: FCX; NILE; RIG; TLEO
Trailing stops: PCP
Stop alerts: None issued
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SUMMARY:
- Market rides a higher open to a higher close.
- GDP, new home sales get the headlines, but jobless claims tell the story.
- Quarter end on Friday may lead to some afternoon profit taking in techs and other strong runners, but looking for others to take the point.
Stocks start higher, fight off some selling, hold onto the gains once again.
There was some more pre-market cheer Thursday that propelled the futures higher once again. Foreign markets were up, the final read on Q2 GDP was not bad (3.8% versus 4.0%; core annual PCE 1.4%), and jobless claims were nicely lower, falling below 300K. Stocks started higher and of course started to sell shortly after the opening surge. They did not sell below positive, at least not on NASDAQ. Then the new home sales came out and stank up the place once more and the market bounced. Once more the market showed its 'bad news is good news' face, i.e. bad news keeps the Fed in the game, and thus stocks rebounded after the weak showing in new homes (-8.3%).
It was still up and down. Energy was stronger as oil prices surged on speculation regarding some action against Iran ($82.88, +2.58/bbl), and that helped the energy stocks, but they did not breakout. The markets continued higher, however, with NASDAQ riding those big name techs that have led the move higher. That pushed NASDAQ up near its post-2002 high while SP500 and DJ30 posted gains as well, but they are still in their consolidations and indeed are still in good position to make the breakout.
Technically there was the good and there was the bad. The good was that SP500 and DJ30 continued their consolidations on low volume, still setting to break higher. The bad is NASDAQ and its low volume drift higher. NASDAQ is not breaking out, it is drifting higher on low volume and is now bumping up against the post-2002 high. What is pushing it higher? The big cap techs that are performing so well, e.g. AAPL, GRMN, GOOG that the funds are buying into them ahead of the quarter end in order to put a very nice face on the quarterly reports that will be sent out in October. As the volume shows, however, there is not a lot of conviction there.
That leaves NASDAQ vulnerable to getting slapped down once that window dressing is finished. Maybe it will be energized when it reaches that old high and takes off as new money rushes to the market. Yeah maybe. These low volume tests of key highs tend to come back on you once the driving force that pushed stocks higher fades. Thus we really don't like this rise in NASDAQ. If it were not for the solid patterns in SP500 and DJ30 that are still setting up quite nicely, we would be quite concerned about this run. NASDAQ is likely to give some back after this run, but the real issue is what SP500 and DJ30 will do as NASDAQ comes back. Energy rebounded some Thursday and gave some life to the NYSE indices; if those stocks that rested while the big techs moved higher start to surge once more, the market can easily survive a pullback in the big techs. That is the rotation we discussed a week back.
THE ECONOMY
GDP? New home sales (or lack thereof)? That is old news. Jobless claims are the key.
GDP was lower than the 3.9% expected (3.8%) and the core PCE was a bit higher at 1.4% annually. August new home sales dove 8.3% lower to a level not seen since June 2000. Median prices fell to $225K from $239.5K, hitting the January 2005 low. Inventories are rather huge at 8.2 months. The market did not react much. It was old news and basically as expected.
The more interesting report for the session outside the surging oil was the jobless claims at 298K, much lower than the 320K expected and the 313K the week before. That was the lowest reading in four months and it keeps the trend of solid jobs reports in tact. The weekly reports jumped higher when the massive storms moved through the country in the summer, but they have been back on the decline ever since.
This is very important because the last unemployment report caused a lot of angst. As we said at the time, it was out of sync with the jobless claims, and indeed it was accurately reflecting the prior slowdown in the economy that ended with the Q2 surge. The jobless claims are telling a story of a solid jobs market, and indeed that is reflected in other aspects of the economy. For one, consumer confidence remains high even with all of the issues confronting the economy and the financial markets. The primary driver of confidences in the future is whether a worker feels good about his or her employment prospects. If those are solid, so is confidence and so is consumption.
Thus this sub-300K jobs report shows us that the economy is still producing sufficient jobs to put people to work, and there are many positive ramifications that ripple through the economy. Some people wonder how the economy is not in dire straits at this juncture given all of the issues confronting it, but it continues its expansion, though more modest of late given the credit issues that froze up much of the money in the economy. The credit spreads are starting to narrow again and that is a sign the Fed's liquidity injections are working. The question is whether the Fed has moved in time to prevent any slowdown resulting from that credit freeze. Thus far the more current jobless claims, though still an overall lagging indicator, suggest that the business climate is not rolling over.
THE MARKET
MARKET SENTIMENT
VIX: 17; -0.63
VXN: 20.59; 0
VXO: 16.75; -0.66
Put/Call Ratio (CBOE): 0.85; -0.02
Bulls: 55.6%. Bulls jumped again , up from 53.9% and topping the 55% level considered bearish. Big jumps the past few weeks from a low of 40.6%, the low for this round. Never made the thirties. Hit 56.7% in June. The market peaked about a month later. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 25.6%. Falling, indicating bears are declining. Down from 27.0% last week and 31.0% the week before. It held at 37.4% for 3 weeks prior to that. 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: +10.56 points (+0.39%) to close at 2709.59
Volume: 1.768B (-12.94%). Volume fell well off pace Thursday, the lowest of the week. Not action as it moves up to test the July high as it shows fewer buyers on the way up, and that leaves it vulnerable for a pullback.
Up Volume: 1.025B (-251.863M)
Down Volume: 686.315M (-58.426M)
A/D and Hi/Lo: Advancers led 1.41 to 1
Previous Session: Advancers led 1.48 to 1
New Highs: 78 (-5)
New Lows: 41 (-27)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ continued its run higher with another upside gap Thursday. It has made other gaps on the move higher on the back half of September, but it has filled each one. The past two it has yet to fill, but with the lower volume on the move as it bumped at the July high (2725) it is likely to come back and fill those gaps as it takes a breather. The low volume drift higher shows a lack of broad support for the move, and as noted above, that leaves it vulnerable to a pullback from this test of the prior high. As noted Wednesday, this is not breakout action and we really don't like it. Techs have been leaders, but the leading has been accomplished on lower volume. After this week we are expecting something of a pullback from NASDAQ unless something comes along to jump up the volume on another move higher through the old high.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +5.96 points (+0.39%) to close at 1531.38
NYSE Volume: 1.181B (-8.72%). Very low volume, the lowest of the week as the NYSE indices moved higher in their consolidations. Lower volume is okay in a consolidation. As they break higher on stronger volume.
Up Volume: 773.749M (-95.932M)
Down Volume: 392.153M (-16.278M)
A/D and Hi/Lo: Advancers led 2.04 to 1. Solid breadth the small caps once again led the move higher and thus punched up the breadth.
Previous Session: Advancers led 1.86 to 1
New Highs: 123 (+9)
New Lows: 25 (-40)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Low volume as the large caps moved higher, clearing the closing highs in the handle but still below the intraday range. That keeps it in the nice pattern that has formed, still in position for a breakout. Still have to be patient and wait for the actual breakout to come. Volume is at a snail's pace, so something is needed to jar it loose and make the break higher.
SP600 (+0.41%) moved higher again as it continued its bounce off of the Tuesday intraday test of the 50 day EMA. It cleared the 90 day SMA and is in decent shape in its handle, but still is a ways from the breakout move. Small caps need an expanding economy to perform well, and by their lagging the move we can surmise the market is not pricing in a rip-roaring economic expansion ahead.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips moved up to the top of their range, i.e. the Wednesday intraday high, moving on very low volume as well. Similar to SP500, the Dow remains in its handle consolidation, though it is pushing the upside envelope. Don't want to see either index follow the NASDAQ's lead and reach up to the prior highs on low volume. That would be asking for a harder pullback.
Stats: +34.79 points (+0.25%) to close at 13912.94
Volume: 156M shares Thursday versus 206M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Some very important economic data with personal income and spending, the PCE inflation read, Chicago PMI, and Michigan sentiment. Plenty for the market to chew on as SP500 and DJ30 measure for a breakout move and NASDAQ pokes around at the July peak, looking for some volume to push it higher.
As noted above, we are quite skeptical about NASDAQ's move up to the old high given the lack of volume and how extended some of the leaders are at this point. With the quarter end window dressing pushing them higher, when the quarter ends we are concerned that they will need a pullback.
That concern may not be warranted. As these leaders pull back, those that have been resting during the tech rise will be ready to make their moves, e.g. energy. Energy stocks were down Wednesday but were back to the upside Thursday. No breakouts but setting up for one. In short, as the techs pull back we will look for that money to move into other areas that have taken a breather and move them higher. Basically, rotation. Obviously if that occurs we will see SP500 and DJ30 make the breaks higher. We want them to do so on volume to show us the move has more upside strength in it. A great set up but they still have to show us the move.
Given this scenario, even with NASDAQ moving up on low trade, we will still look for those stocks ready to move higher from their nice tests. NASDAQ may face some afternoon selling as the quarter end tape painting comes to an end; that is somewhat expected after those recent runs higher. If the other sectors make the break on volume even as tech slides we will know money is rotating their way, answering our concerns about NASDAQ's low volume rise. That is the beauty of the market; it tells you when to move in just as it did in August when things looked dicey. Stocks were telling us to buy and we did, and we have reaped nice reward as a result. We will continue watching for the next breaks higher that signal time to buy again.
Support and Resistance
NASDAQ: Closed at 2709.59
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:
2697 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
The 10 day EMA at 2664
The 50 day EMA at 2604
The 90 day SMA at 2600
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2527
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 1531.38
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 1513
The 90 day SMA is at 1497
1501 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 1488
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1467
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 13,912.94
Resistance:
13,925 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 13,729
The mid-May peak at 13,556
The 90 day SMA at 13,481
The 50 day EMA at 13,466
13,238 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,013
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): 3.8% actual versus 3.9% expected, 4.0% prior
Chain deflator, Q2 (8:30): 2.6% actual versus 2.7% expected, 2.7% prior
Initial jobless claims (8:30): 298K actual versus 320K expected, 313K prior (revised from 311K)
New home sales, August (10:00): 795K (-8.3%) versus 825K expected, 867K 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
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