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10/02/07 Technical Traders Report Update
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Full report issues Wednesday.
MARKET ALERTS
Targets hit alerts: OMCL
Buy alerts: BIDU; CIEN; FTK
Trailing stops: COP; GRMN
Stop alerts: GRMN; NE; SU
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:
- Sellers take a shot after new money for the quarter is spent, but indices rebound.
- Not many pending home sales, again.
- Stocks rebound after early selling, but looks as if the test of the NASDAQ, DJ30 breakout is not over given action in some leading sectors.
Stocks struggle through post-breakout session.
Monday the new money was pushing and NASDAQ and DJ30 let it push them to a new post-2002 high and a new all-time high, respectively. The leaders of the rally to that point, e.g. metals, materials, industrials, agriculture and tech charged higher, chased by that money. Tuesday the money tap had run dry. Stocks were modestly softer ahead of the open and started basically flat, tried to make something of that softer open. Not a bad thing and indeed that is how most good intraday rallies start. BIDU was upgraded and went on a new tear, helping lead some early (very early) gains.
After a brief bounce on the open, however, stocks started to struggle and slide lower. Pending home sales came out at 10ET, and the record low in that index helped bounce stocks; remember, the mentality with economic news is that fine line between wanting to see continued expansion but also bad enough to keep the Fed in the game. Thus the low pending homes results initially led to a bounce in stocks.
That did not last, however. Energy, materials, metals, agriculture, and industrials - - basically anything that received money Monday - - was under pressure and leading the early downside. Run them up one day, take it back the next. Financials were pretty solid all session, but they could not withstand the selling in the Monday leaders and indeed the leaders for the past few months.
Stocks sold through midmorning and then tried the typical midmorning bounce. It worked for an hour or so, but then they rolled back over and sold into lunch. That second big bottom was what did it. After making a second new low for the session the indices bottomed and started an afternoon recovery. Broke back through the 'hump' in the intraday double bottom, tested and formed a handle, then broke out. Unfortunately that was with about 20 minutes left in the session and it didn't give the indices time to make much of a run. NASDAQ and SP600 finished positive (mid-caps as well) while DJ30 and SP500 were close; very close in the case of the SP500 thanks to the financials.
Technically it was not bad action when you look at the early downside followed by the recovery back to flat or better. Volume was low on the early selling and indeed was lower at the close. That shows no heavy distribution on the session even with stocks were selling early on. DJ30 tapped down at the June peaks and rebounded. NASDAQ didn't even come close to hitting its prior high that it just broke through. There were problems, however. Despite the overall low volume and rebound to flat, there was some distribution in those leaders that were under pressure, i.e. higher volume selling, and many of them could not recover back to flat. They are still in their patterns and trends, but they were getting some selling pressure and some on rising trade.
A lot of this was still first of quarter jockeying as the new money came in and then some profits were taken and indeed some sellers tried their hand. The comeback was good to see, but as noted above some leaders were under pressure and indeed they were lower after hours following the late rebound effort. Given the run into the end of Q3 and the tape painting we saw, we expect to see some more of this jockeying Wednesday and heading into the Friday jobs report. So far stocks are hanging in there even with the distribution in some leaders, but that action, and the sluggishness after hours are a caution flag moving on into the rest of the week.
THE ECONOMY
Pending home sales recovery is still pending.
Ever know how some people just enjoy pain? There is a masochist or two in every crowd. There are many in the markets. Why else would you fret over a report that you know is going to be crappy?
August pending home sales fell 6.5% from July. No real surprise. With all of the sub-prime issues eroding confidence and the credit lock up there weren't going to be many sales. Thus the 6.5% decline was not that huge in and of itself, but it is the cumulative effect that caught everyone's attention. Year over year sales declined 21.5%. The pending sales index hit 85.5, the lowest on record.
Clearly the housing market is not about to stage a miraculous recovery, at least not judging by the late summer numbers. It may have been due for a recovery, but with the credit freeze thrown in over the summer, you could not get a loan if you wanted for awhile. Hard to mount a recovery in those conditions. That pushed a recovery back likely into the spring. Maybe more of a bottom than a recovery; you have to stop bleeding before you can get up and walk around again.
THE MARKET
MARKET SENTIMENT
VIX: 18.49; +0.65
VXN: 21.26; +0.17
VXO: 17.47; +0.8
Put/Call Ratio (CBOE): 1; +0.12. Popped up to 1.0 on the close with a tad bit of selling. Still a lot of hair triggers out there.
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: +6.12 points (+0.22%) to close at 2747.11
Volume: 1.768B (-9.8%). Volume was lower than on the Monday break higher. That was good to see on the early selling as it shows no distribution in the technology stocks. Of course there was no accumulation as the index rebounded positive, but bigger picture the lack of selling volume on the early attempt to take it down was the key.
Up Volume: 1.105B (-387.411M)
Down Volume: 642.704M (+196.763M)
A/D and Hi/Lo: Advancers led 1.45 to 1. Not bad given the relatively weak price gain.
Previous Session: Advancers led 2.5 to 1
New Highs: 131 (+4)
New Lows: 26 (-10)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Up and down but within a very narrow 15 point range. After breaking to a new post-2002 high on Monday it sold off some, but as noted above, it did not even threaten the July peak (2725) on the low (2732) before it rebounded. Not a picture of strength on the session, but given it came back from a selling attempt it is showing a bit of resilience following the breakout move.
SOX (-0.01%) ran up and down as well but closed flat, still below the next resistance at 510, the level it has to clear on the move to make a significant move higher.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -0.41 points (-0.03%) to close at 1546.63
NYSE Volume: 1.273B (-10.38%). Nice drop off in volume as the NYSE indices tested lower and then rebounded, some positive (small and mid-caps), some flat (SP500), but no distribution following the higher volume break upside on Monday.
Up Volume: 711.898M (-430.161M)
Down Volume: 546.293M (+275.108M)
A/D and Hi/Lo: Advancers led 1.38 to 1
Previous Session: Advancers led 3.48 to 1
New Highs: 106 (-106)
New Lows: 7 (-2)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 started flat, traded lower and tapped the June highs on the low, using those to bounce back up and hold just below the all-time high hit in July (1556). The financials propped it up all session as they filled in where the energy, metals, materials and industrials did not. A bit of money rotation continued into financials given the belief that the Fed is in for the count. Unlike NASDAQ and DJ30, SP500 has not made the break to that new high. If the financials continue to rally it will, but they have run a long way the past few weeks and may need a bit of a breather before making the break. Overall SP500 remains in good position to make the break.
The small cap SP600 (+0.78%) again was the percentage leader. It has gobbled up big chunks of ground the past three weeks as it rallied off the bottom of its base and then broke out Monday from its handle consolidation. Tuesday it was leading the way again, rallying in positive territory all session. It is still off its high but looks ready to make a run at 450. Likely won't make that break all in one move, but after a breather at the peak it will be ready. The small caps are important as they need an expanding economy to thrive. As the market looks down the road many months, the small caps are suggesting an improving economy after the first of the year.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow struggled as many of its industrial components were in the group of stocks that were under pressure on the session. It managed to trade positive only briefly, and that was early in the session. It was unable to rebound along with the other indices and closed well off its high. On the low it tapped just below the July intraday peak (14,022) then rebounded. A quick test on lower volume. Now it needs to hold in this general area and make the move back up to continue the breakout.
Stats: -40.24 points (-0.29%) to close at 14047.31
Volume: 169M shares Tuesday versus 205M shares Monday. A significant drop in volume as some of the Dow stocks came under pressure.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
ISM services and oil inventories are on tap for Wednesday, but they are not really going to move the market. There will be more earnings news as we approach earnings season and the market will also be looking toward the Friday jobs report already. Monday saw the new money push stocks higher, Tuesday saw some of those same stocks sell back, some on rising trade.
The latter is stirring talk of topping in those stocks. There was more money put into financials versus the materials and friends. As noted above we have to watch those that suffered some higher volume selling; they need to continue holding support. Indeed if they were not holding near support we cut them today. Most others rebounded nicely with the market so we let the live another session. Wednesday is another day, and they will have to prove themselves once more.
We don't want to sound alarmist. This is the first of the quarter and money is moving. There will be more jockeying, more of the ups and downs seen Tuesday, as the money finds the investments it wants to start Q4. The dollar was a bit stronger Tuesday and that was reason to impact these stocks that have surged on the weak dollar. When we look at the patterns we see on many of our positions and stocks we are looking at, they still look to be in super position despite the Tuesday action. Many of these stocks are making the first test of recent breakouts, and that is typically a good position for them to be in. Thus we will be cautious given some of the higher volume seen in certain stocks, but we are also looking for these stocks to consummate their patterns and break higher once this money shuffle runs its course.
Given that there is some money movement that also means opportunity in other stocks and we are looking at more sectors and potential emerging leaders as money is moved their way. For example, after the large cap techs led the recent NASDAQ move higher, now we see some expansion of the move into more NASDAQ stocks as well as some small to mid-cap names. That can provide a new wave of stocks that are ready to run higher and continue the breakout for the indices or push some of the laggards higher as well.
Support and Resistance
NASDAQ: Closed at 2747.11
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2738 is the November/February up trendline
2725 is the July high
2700 is the November/December/February up trendline
2673 is the early July high
2634.60 is the June peak
The 10 day EMA at 2695
The 50 day EMA at 2619
The 90 day SMA at 2606
2531.42 is the February high (post-2002 high); 2525 intraday
The 200 day SMA at 2531
2509 is the January 2007 high
2450 is some price support from November and December 2006
2425 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 1546.63
Resistance:
1553 intraday high from March 2000 is the all-time index peak
Support:
1541 is the early June high.
1539 is the mid-June intraday high
1534 is the early July high
The 10 day EMA is at 1526
1505 is the July 2006/March 2007 up trendline
The 90 day SMA is at 1498
The 50 day EMA at 1494
1490.72 is the early June closing low and early August peak.
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1468
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 14,047.31
Resistance:
7.7% above its 200 day SMA (13,038). When it gets near 10% it starts to struggle.
Support:
The July high at 14,022
13,975 is the old channel line
The 10 day EMA at 13,860
The August high at 13,696
The mid-June high at 13,689
The early June high at 13,676 (closing), 13,692 (intraday)
The early July peak at 13,671
The mid-May peak at 13,556
The 50 day EMA at 13,528
The 90 day SMA at 13,498
13,248 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,038
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.
October 1
ISM index, September (10:00): 52.0 actual versus 52.5 expected, 52.9 prior
October 2
Pending home sales, August (10:00): -6.5% actual, -12.2% prior
October 3
ISM Services, September (10:00): 55.0 expected, 55.8 prior
Crude oil inventories
October 4
Initial jobless claims (8:30): 310K expected, 298K prior
Factory orders, August (10:00): -2.8% expected, 3.7% prior
October 5
Non-farm payrolls, September (8:30): 100K expected, -4K prior
Unemployment rate (8:30): 4.7% expected versus 4.6% prior
Hourly earnings (8:30): 0.3% expected, 0.3% prior
Average workweek (8:30): 33.8 expected, 33.8 prior
Consumer Credit, August (3:00): $9.5B expected, $7.5B prior
End part 1 of 3
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