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world stock market, us stock market
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10/09/07 Technical Traders Report Update
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Full report Wednesday.
MARKET ALERTS
Targets hit alerts: GOOG; TRMB
Buy alerts: BCSI (bonus); EGOV; HLIT; OMCL; PCP; SOHU; VIP
Trailing stops: FNDT
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:
- Market hems and haws into FOMC minutes, then sparks up a rising volume gain.
- FOMC minutes show the cut was not based upon jobs, & that more cuts are likely.
- The move is starting to spread out, giving the breakouts longer life.
Market takes a liking to the Fed's thought process.
Early on the futures were higher in some slop-over from the foreign markets that were up after a flat Monday session in the US. NFS in the railroad sector was the latest rail (along with the truckers) to warn about its quarter. Monday Ryder warned the slowdown was outside of the housing and construction sectors. Seems the US transports are struggling at the same time the overseas shippers are rocketing higher (as our plays show). More fuel to the argument the world is growing faster than the US. As the FOMC minutes showed in the afternoon, that was the Fed's take as well. More on that later.
Oil was higher (80.26, +1.24) though it started the session lower to flat. Stocks started modestly higher to flat then sold off and wandered laterally right at the flat line into lunch. Then a couple of sell programs hit ahead of the FOMC minutes and they took the market into negative territory. There was a lot of talk that the Fed minutes would show a divided Fed on the rate cut, and given the rebound in the jobs report and the backward revisions to August it was assumed the Fed would be reluctant to cut anymore. Thus the selling into the minutes.
Not the case. The minutes were viewed as positive because the Fed is dealing with reality versus tilting at abstract views as to whether inflation will get out of control or not. The market liked it and posted a solid rebound. NASDAQ bounced over 20 points from the low to the afternoon high while SP500 and DJ30 broke to new all-time highs and closed at the session high. Volumes were higher, though after Monday that was no mean feat. Breadth was solid on NYSE (2.3:1) but ho-hum on NASDAQ (1.3:1). Better internals but once more no blow out.
Technically the market was ready to move again after a low volume test Monday after the solid break higher Friday. Started modestly higher, fought off the dips, then closed at session highs, with a Fed assist of course. Take 'em any way you can get 'em. Nice high to low action once more.
Volume was up, though as noted it would be hard to be lower than the Monday Columbus Day slumber. Breadth was decent to nondescript. Mixed and rather sleepy internals.
As for the charts, SP500 and DJ30 broke to those new highs with NASDAQ pushing to a new post-2002 high. NASDAQ continued its leadership, sort of, though its percentage gain was lower. It is a bit tired. It rallied when the other indices couldn't get their thumb out of certain parts of their anatomy, and its leaders are tired. AAPL, GOOG, RIMM, AMZN have run a long way. The first three gapped higher Tuesday and then they finished lower. After a strong run that is an indication of a tired stock, and as they are the leaders of the NASDAQ, that means a tired NASDAQ. Thus SP500 moved up 0.81%, DJ30 0.86%, but NASDAQ just 0.59%.
Leadership reflected this. Again, AAPL and RIMM gapped and then faded to negative. GOOG gapped and showed a doji on the candlestick chart. After a long run that is an indication a stock is a bit tired. At the same time the energy stocks showed some stirs of life while metals, materials, industrials, and agriculture took off. After slumbering for three weeks as NASDAQ rallied, these stocks are well rested and are surging higher again. FCX and TEX were up nicely (along with a passel more of our plays) after those two were mentioned by Jon Johnson on CNBC in the morning. Coincidence? Ha! Cramer would take credit for it so why not us?
In sum, NASDAQ looks a bit tired, but that does not mean it rolls back down. With SP500 and DJ30 finally stepping up to lead NASDAQ, after taking its turn at the front of the breakaway group, can rotate to the rear and draft behind the other indices, letting them do the work for a change. The overall move was not powerful, but once more it was up and new highs were hit on rising volume. You may not find this market under the dictionary definition of power, but it is certainly doing the right things to continue its move higher despite the plethora of naysayers trotted out every day on the financial stations.
THE ECONOMY
Fed indicates it is going to cut.
I understand that Bernanke is a relatively new FOMC chairman compared to Greenspan who was around so long some thought he knew Alexander Hamilton personally, but just because many were used to Greenspan's purposeful obfuscation, that does not mean Bernanke is hard to figure out. The pundits sure are making it seem that way.
Many labor over what the Fed is saying and is going to do, parsing the data and Fed comments, then extrapolating conclusions of what the Fed is going to do next. Many are concluding there won't be another rate cut. That is simply wrong.
The Fed laid out exactly our argument from the weekend as to why the Fed will cut rates at the next meeting. It was no great feat of deductive reasoning, just reading what the Fed is saying and what it has done thus far.
More particularly there was no debate on the FOMC as to cutting and cutting by 50 BP. The Fed stated that without the rate cut it feared significant declines in growth and jobs ahead. Indeed, it lowered its growth forecast for 2007 and all of 2008, stating that there would be no firming until 2009. That goes hand in hand with our reasoning that the Fed already viewed US growth at below potential even before the housing and credit issues really took root in the summer. Now that they have hit, the Fed is really worried about below trend growth and it said so. Plenty of reason right there that the Fed will cut again.
When the Fed cut, many pointed to that jobs report as triggering the decision. As we said at the time that only gave the Fed more cover to do so; the Fed knew it was lagging and represented the slowdown in the economy in late 2006 and early 2007. Moreover, the Fed was as skeptical as we were as to accuracy of that report. The Fed is worried, however, about a weakening trend in employment, and that is another reason the Fed is more inclined to cut than not.
Many want to read more into this statement than there is, e.g. saying of course there was unanimity in the 50 BP cut as the Fed wants to put on a good face when it makes major moves. No doubt about that, but that still does not change the fact that there was complete agreement on ALL issues and that the Fed's discussion looked much further down the road than the recent data. The Fed is truly concerned that this credit crisis could lead to a recession and stated explicitly that it was better to be more lenient and stave off a recession than stubbornly fight inflation at any cost.
The handwriting is on the wall as far as the minutes were concerned: the Fed is leaning to cut again at the next meeting and likely again before the year end.
THE MARKET
MARKET SENTIMENT
VIX: 16.12; -1.34
VXN: 19.42; -0.83
VXO: 15.45; -1.04
Put/Call Ratio (CBOE): 0.81; 0
Bulls: 56.5%. A second week above the 55% level considered bearish. The theory is that when too many investors or advisors are bullish then most of the money is in the market and there is nothing ready to come in off the sidelines to drive prices higher. Up from 55.6% last week and on a steady climb 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: 25.0%, down from 25.6%. Bears continue their decline, falling steadily just as bulls have risen steadily. Down from 27.0% three weeks back 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 in August, 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: +16.54 points (+0.59%) to close at 2803.91
Volume: 1.891B (+24.24%). Volume was up nicely, pushing close to first of quarter levels though well off the Friday post-jobs trade. All of this is still below average and the Tuesday move was below 2B shares, the de facto strong volume level.
Up Volume: 1.186B (+329.621M)
Down Volume: 678.952M (+95.612M)
A/D and Hi/Lo: Advancers led 1.38 to 1. Pretty stinky breadth again as the large cap techs had a hard time holding gains and the rest of NASDAQ was not out in front, leading the market. Interestingly, overall NASDAQ topped NASDAQ 100 (0.37%) in percentage gain.
Previous Session: Decliners led 1.34 to 1
New Highs: 134 (+26)
New Lows: 17 (-5)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher on rising volume, continuing the move from last week that pushed it to a new post-2002 high. Pretty much a 45 degree climb angle over the past three weeks as the large cap techs pushed NASDAQ higher. With the other indices breaking out and NASDAQ a bit extended, we would not be surprised to see NASDAQ slow its advance and even test some as the other indices rally and play catch-up to NASDAQ's gains.
SOX (-0.89%) was again a laggard, falling to the recent lows and then rebounding to cut its loss in half. Big deal. Still down when everything was up.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +12.57 points (+0.81%) to close at 1565.15
NYSE Volume: 1.188B (+40.2%). After an incredibly weak volume session Monday volume 'surged' higher. It still did not make it past the prior volume peaks this month. In short, no strong volume.
Up Volume: 887.761M (+649.774M)
Down Volume: 283.195M (-315.141M)
A/D and Hi/Lo: Advancers led 2.28 to 1. Not bad even with the small caps being relative laggards on the session.
Previous Session: Decliners led 1.95 to 1
New Highs: 170 (+104)
New Lows: 10 (+1)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 broke to a new high on the session, doing so on stronger though still below average volume. The financials came to life, namely GS, and with some energy and metals moving as well the large cap index got the next kick in the pants it needed to continue the move higher. Good to see it moving relatively stronger than NASDAQ here as that shows us the move in the market is spreading out.
SP600 (+0.60%). Outside of SOX, the small caps were the laggards even with the metals moving once more. The mid-caps were great, rising 0.84%. Both, however, are still looking for new all-time highs as they follow the large cap indices higher. We were looking for the smaller caps to make the surge higher with the large caps, but seems investors are not yet convinced the US is going back into a significant expansion just yet.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips broke higher along with the SP500, this time clearing the congestion range marked by surge to start the quarter. This was the move it needed to show, and though volume was still light overall you cannot complain about the gains and the rising volume on the upside moves. There may not be a ton of buying in the market overall, but what there is shows that buyers are stronger than the sellers.
Stats: +120.8 points (+0.86%) to close at 14164.53
Volume: 176M shares Tuesday versus the bottom dragging trade on Monday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The last round of Fed data is out, though we will get more individual commentary this week for sure given the quiet time starting next week. Poole was out Tuesday opining that the housing slump could continue for several more quarters but that it would moderate in the near term. Then he throws out that the economy was possibly not in the dire straits many economists believed. All of this 20 minutes before the FOMC minutes were released. Maybe trying to mitigate the rather dovish minutes. Poole has turned more hawkish over the past 8 months after serving a stint as the Bernanke mouthpiece right before the Fed went on pause, explaining in his comments before the pause as to why the Fed was going soft on the inflation story.
In any event, we can expect some more Fed-speak the rest of the week as the Fed tries to create the illusion it desires heading into the quiet time. The minutes were pretty bullish for the market, at least the way the market took them, and the Fed, as with Poole, may try to rein in expectations a bit given the market's reaction on Tuesday.
Fed commentary can always set the market back on its heels or push it forward, but with the action the indices and the leadership are showing, we are looking for the market to move ahead, particularly now that the metals and other industrial related stocks that were consolidating are once more finding buyers. With the money shifting some from the big techs and toward these sectors as well as some smaller technology and NASDAQ stocks, the market will find fresh legs to further the breakouts.
With that in mind we will continue to move into stocks that are making key breaks higher from bases, tests, consolidations and the like, i.e. those with the fresh legs. At the same time we are letting current positions run higher for all they are worth, using the breakout as others rush into the market to push our positions higher. We really like how many stocks are starting to move higher out of consolidations, and that will not only give us more opportunities but also keep this market moving higher.
Support and Resistance
NASDAQ: Closed at 2803.91
Resistance:
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2778 from a July 1999 peak
2749 is the November/February up trendline
The 10 day EMA at 2745
2725 is the July high
2702 is the November/December/February up trendline
2673 is the early July high
The 50 day EMA at 2646
2634.60 is the June peak
The 90 day SMA at 2616
The 200 day SMA at 2539
S&P 500: Closed at 1565.15
Resistance:
New high once again.
Support:
1556 is the July intraday high
1553 intraday high from March 2000 used to be the all-time peak
1541 is the early June high
1539 is the mid-June intraday high
The 10 day EMA is at 1544
1534 is the early July high
1510 is the July 2006/March 2007 up trendline
The 50 day EMA at 1505
The 90 day SMA is at 1499
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 1472
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
Dow: Closed at 14,164.53
Resistance:
8.3% above its 200 day SMA (13,078). When it gets near 10% it starts to struggle.
Support:
14088 is the early October closing high
The July high at 14,022
The 10 day EMA at 13,988
13,980 is the old channel line
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 50 day EMA at 13,622
The mid-May peak at 13,556
The 90 day SMA at 13,523
13,260 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,078
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 9
FOMC Minutes, Sept. 18 (2:00):
October 10
Wholesale inventories, August (10:00): 0.3% expected, 0.2% prior.
Crude oil inventories (10:30): +1.1M prior
October 11
Initial jobless claims (8:30): 371K prior
Trade balance, August (8:30): -$59.0B expected, -%59.2B prior
Treasury budget, September (2:00): $100.0B expected, $56.2B prior
October 12
Retail sales, September (8:30): 0.2% expected, 0.3% prior
Retail sales ex-autos, September (8:30): 0.3% expected, -0.4% prior
PPI, September (8:30): 0.4% expected, -1.4% prior
Core PPI (8:30): 0.2% expected, 0.2% prior
Business inventories, August (10:00): 0.3% expected, 0.5% prior
Michigan sentiment, Oct. preliminary (10:00): 84.0 expected, 83.4 prior
End part 1 of 3
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