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us stock market, trend trading stock
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2/12/02 Technical Traders Update Report
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Technical Traders Report Subscribers:
MARKET ALERT SERVICE
Issued target hit alerts for the DJX calls and IMNX (a nice 28%+ gain).
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes try to hold on to rally.
- Indexes and many stocks right at resistance.
- Economic news comes again tomorrow: retail sales
- Subscriber Questions
- Team Trades
Indexes hang on: was it a weak effort or a strong effort?
As expected, the indexes had trouble with this resistance. The Dow banged into it and pulled back; the Nasdaq and S&P never made it to their respective near term resistance levels. All indexes finished slightly lower, but all made major moves off of the lows to salvage even those small losses as Monday's rally did not slop over into the early trade.
So, the indexes predictably sold as they approached key resistance, a sign of weakness once again in the face of adversity. The S&P 500 and Nasdaq failed right at their recent down trendlines, the perfect set up for a continued round of selling. The Dow broke over its short term down trendline Monday, and tested it again on the low today; it is right at resistance in the form of the simple 50 day MVA, however, the point we anticipated it would have a problem.
On the other hand, the indexes demonstrated some strength after opening significantly lower and selling from there. Somewhat surprisingly they gave a solid recovery to positive territory and session highs before last hour selling brought them back into negative territory to close. Given the weak start and the close proximity of resistance, the fact that the indexes came back and avoided real selling is significant to a degree. It keeps alive the possibility of a follow through session Wednesday through Monday as the indexes more or less took a day of rest though it was a working rest as they had to fight back and fight to hang on all session.
Nasdaq, S&P, and many individual stocks now at their down trendlines.
The indexes pretty much gave us what we were looking for three sessions back: a rally back up to resistance. We made some nice gains on the DJX and OEX options. Volume was not able to keep pace, trailing off on the rise making this look very much simply like a relief bounce after 5 straight down sessions. The Nasdaq and S&P are showing doji's at the top of the run and right at resistance, with Nasdaq volume rising by about 100 million on the slight down session.
Individual stocks in the Nasdaq and elsewhere are showing similar patterns: the doji at the down trendline. BRCD, QCOM, PMCS, SMTC, EXTR, IBM are just some examples of this pattern that is predominant in many techs today.
This certainly makes it appear as if stocks are ready to turn lower and sell some more after bumping into the down trendline resistance. While we are looking at several of these and indeed some index puts on the OEX and QQQ, we want to be cautious here. As noted, today was not a hard selloff; stocks rallied to shave off a lot of red. If they had tested resistance, turned lower, and finished at the bottom of the intraday session on stronger volume, the signal would be clear. What we want to see now is perhaps another test of resistance and a reversal once more or just more selling. With AMAT somewhat beating the street after hours, it looks as if stocks will test resistance one more time. Heck, it might even spark that follow through on high volume. Okay, that is a stretch, but it is important to keep your mind open to all the possibilities because as soon as you are convinced you know the answer, the question is changed.
THE ECONOMY
It is so darn quiet on the economic front that there has not been much to say. Today we had a preview of Wednesday's retail sales numbers and they remained very solid as they have more or less the entire recession. The week of February 1 saw chain store sales (i.e., sales without autos) up 2.1%. Year over year they rose 4.1% for that week. The consumer keeps on doing what the consumer does best: consume.
Still, it is not the case where we can relax and say all is well because the consumer is going to yank us out of this recession. The consumer buys when it sees a deal; in a recession that is 0% financing or Wal-Mart dropping prices. WMT is raking in the money while traditional retailers suffer; typical in a recession that discounters do better.
Just because people are buying toilet paper, CD's, auto parts, electronics and some clothes from WMT, however, does not mean that consumers are ready to go on spending binges and take on more debt for bigger items. As we have said before, it does not matter how cheap money is if you cannot qualify for a loan because your debt load is too high. The consumer will most likely keep on spending, but as we have seen all along, the consumer is keeping the recession milder. Consumers are not making up for the lack of business spending, and because there is not a lot of unsaciated demand to blast spending to new heights, consumers probably won't make up that difference in the future. There needs to be something to get the other side of the equation spending as well. Congress would prefer to fight than help us.
THE MARKET
Ran into trouble at resistance. Prime spot to turn and sell off. Sold down some, but did not crater. Indeed, the indexes rallied from the lows to cut losses significantly. The big question the rest of the week is whether the indexes try to follow through to the upside off of this day of rest or just turn and renew the selling. There has not been much to change the perspective other than prices getting lower the past two months. With the economy improving, however, sometimes taking some air out of the ball is all it takes to start the buying again.
VIX: 23.51; -0.03. No movement, but the S&P moved very little itself. Still at the lower end of the range and not much of a signal right now. It climbed to near 30 in late January, but the quick fall after that does not indicate an extreme level was hit.
VXN: 45.45; -0.96. Volatility fell on a session when the Nasdaq sold off; you would expect the reverse to happen. This index is not showing any real fear at these levels either.
Put/Call Ratio (CBOE): 0.80; +0.02. Slight rise on the action at resistance. Still hovers in the high end of the range as it did all along the rally up off of the September bottom. We had that one reading over 1.0; usually it takes more than one to turn things around. On further selling we might get such a reading, but if the indexes sell further we would have to start over again looking for a follow through session, etc. When it comes down to it, the indexes and indicators are not in the best position for a rally to bloom.
Nasdaq
Never made it up to resistance at 1875. In fact, it started lower and had to fight to recover lost ground. It did, but sellers came in late and shaved off 17 points, pushing it negative for the session on slightly higher volume.
Stats: -12.45 points (-0.7%) to close at 1834.21.
Volume: 1.620 billion (+3.5%). Very slight distribution, but we are not reading too much into that as volume remained well below average as the index tried to carry the previous two session rally higher. Still, with down volume ahead of up volume, it was not a great to see volume ticking higher on renewed selling; that is the opposite of the action you want for a rising market.
Up volume: 630 million
Down volume: 970 million
A/D and Hi/Lo: Decliners pulled ahead by 92 stocks (1.05 to 1).
New highs: 71 (-13)
New lows: 39 (-13)
The Chart: http://www.investmenthouse.com/cd/$compq.html
It was a tough session, gapping lower 17 points and having to fight just to get even. It managed to do that with an hour left, hitting the 10 day MVA (1852.47) but then selling back down to finish between support and resistance. Indeed, it did not really challenge any resistance, not reaching the March 2000 down trendline (right at 1850 for Wednesday's action) and not contesting the bottom of the November consolidation range at 1875. The slight rise in volume on the weak tap toward the March 2000 and January down trendlines is a sign of weakness, but again, the selling floodgates did not open. From the technical pattern we do not anticipate the Nasdaq to turn the trend at this juncture, but it might find support again roughly 60 points from here at the very recent February low (1772). We can play an aggressive put down to that point, but it would be aggressive.
Dow/NYSE
Ran into resistance at the simple 50 day MVA once again as it did in early February and turned south. It did not, however, tank, rallying well after the initial selling. Volume faded once again. This keeps alive the chance that a follow through could come this week.
Stats: -21.04 (-0.2%) to close at 9863.74.
NYSE Volume: 1.101 billion (-5.5%). Volume faded even further below average on the slight selling. No distribution; a day of rest as the Dow held below resistance but above some support.
Up volume: 443 million
Down volume: 650 million.
A/D and Hi/Lo: NYSE decliners took over, but by just 34 issues (1.02 to 1). No major selling today.
New highs: 97 (-21)
New lows: 31 (0). Good that new lows held below 50 for the third straight session.
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow started lower as well as a negative mood cancelled out any follow through to Monday's continuation rally. Still, after the first 40 minutes, the Dow had hit its session low (9811.64) and started its struggling climb up to 9906.02, just below the simple 50 day MVA (9918.01). It ran out of steam at that point and some sellers came in during the last hour to push it back down to close. Still, on the low it held above the 18 day MVA (9803) and the January down trendline (now at 9775). It would not give up the gains today and fought back to preserve them. Not bad. Not a great show of strength, but it gave it a chance to catch its breath without major damage. Tomorrow it may test the resistance and sell a bit lower as well. If volume stays low and it rests again, it has a better chance of giving a follow through. The Dow has been outperforming the other two indexes (not much of a laud), and it is in the best shape to make a follow through as it is above its January down trendline; still, the simple 50 day MVA has been a consistent roadblock for the last month. If the selling increases on higher trade, look for another test of 9500.
S&P 500:
The big caps also started the session lower, testing close to support at 1100 (1102.98 on the low) but then rallying to test the 18 day MVA (1112.99) on the high. As with the Dow it did not give up lower support but used it to fight back up to the close before some late selling pushed it slightly negative on lower NYSE volume. At the close it is riding just above the January down trendline and the September 2000 down trendline (both at 1104). It was a day it could have sold off but did not. Still, it is right at the point of its down trendline after a very light volume move higher; much like the Nasdaq it is in a positions to move right back down with a slight push. Another day of rest above 1100 would be a signal it is going to try something to the upside to follow through to last Friday's start of this rally. Nothing has changed at this point other than the selling from the highs; thus we are looking at some aggressive OEX puts, but we want to see some volume selling come in and then we can look to take it down toward 1075 again.
Stats: -4.44 points (-0.4%) to close at 1107.50.
Volume: NYSE volume continued to fall, coming in still below average at 1.101 billion (-5.5%).
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
The first economic news of the week hits with retails sales for January out before the open. Today's chain store sales won't be factored into those, so if we see a good improvement that could help try and turn the tide of thought that the economic recovery won't be all that great. They are expected to come in slightly negative; if they can pull a positive number, the fact that chain store sales are rising from there would be a very good sign that the consumer is still not going turtle.
The biggest story will be AMAT's treatment after its earnings release that beat the street by 2 cents with revenues in line. Way off last year, however, and the stock at first was getting hit hard after hours. Then it stated that it appeared revenues had bottomed and new orders rose for the first time in 4 quarters. It also said new orders for this quarter would rise 10% to 15%. That turned the stock from losses to close above its regular session close. Other chip equipment makers enjoyed gains, but they were mostly recovering what was lost on the announcement of AMAT's earnings.
With AMAT's, NTAP's and other earnings looking a bit better than expected, we expect to see a bit of a pop in the morning to once again test that resistance. What happens at that point is key. If they turn hard and volume ramps up, most likely the rally is over. Now they can test that level and bounce around, drop a bit and then rally back over them. What we are going to watch for is the bigger picture; let them gyrate and get it out of their system and see what the bigger trend that takes over is. It is important at these inflection points not to jump on the first move over or under an important level. Let the noise settle out, the trend establish itself, and then move.
Maybe the earnings news and some good retail numbers will be enough to end the correction and give a follow through session. We doubt it would happen tomorrow without another day of rest; still, while it is important to anticipate, as we said, we let the market shake out and show us the direction, then act even if it is not what we thought it would do.
Support and Resistance
Nasdaq: Closed at 1834.21.
Resistance: March 2000 and January down trendline1855. Then the bottom of November consolidation at 1875. The 50 day MVA at 1909.85. After that the 200 day MVA at 1932.37. The 1934 to 1941 range represents the top of the November consolidation. After that we look at the simple 50 day MVA (1953.94) that stopped the index in late December.
Support: Turned at 1772 last Friday, below some support at 1775. The November gap up point is 1745. 1743 would be a 50% retracement. Support at that level looks to be anywhere from 1700 to 1750.
S&P 500: Closed at 1107.50.
Resistance: 1112 could pose some resistance. After that the 50 day MVA (1124.81) and price consolidations at 1125.
Support: 1100 provides some support. After that, 1078 to 1080 continues to hold; it has been growing as a support level with each successful test. There is a jumble of prices in a range from 1075 to 1050, perhaps the reason this 1080 level has held well for now. 1050 was tested twice in October, holding both times. That is right at the 50% retracement (1060).
Dow: Closed at 9863.74.
Resistance: The simple 50 day MVA (9918.01) is where the index stopped in January and early February. Then the price consolidations at 9992 to 10,000. Then the 200 day MVA (10,080.16). The January high at 10,300 level is last.
Support: The January down trendline at 9775. Then 9691 to 9750, the bottom of the November, December and January range. 9500 was tested on the January intraday low, and it seems the level is continuing to act as good support. After 9500 there is a very congested trading range from 9125 to 9500. A 50% retracement is 9181.
Weekly Economic Calendar (All times Eastern). The figures are the consensus expectations, not ours.
2-13-02
Retail Sales, January (8:30): -0.2% versus -0.1% prior.
Retail Sales ex. Auto (8:30): 0.2% versus -0.1% prior.
2-14-02
Business Inventories, December (8:30): -0.5 versus -1.0% prior.
Initial Claims, 2/9 (8:30): 376K versus 376K prior.
Export Prices ex-ag., January (8:30): -0.4% versus -0.4% prior.
Import Prics, ex oil, January (8:30): -0.3% versus -0.3% prior.
2-15-02
PPI, January (8:30): 0.2% versus -0.7% prior.
Core PPI, January (8:30): 0.1% versus -0.1% prior.
Industrial Production, January (9:15): 0.0 versus -0.1% prior.
Capacity Utilization, January (9:15): 74.3% versus 74.4% prior.
Mich Sentiment-Prel., February (9:45): 94.3 versus 93.0 prior.
SUBSCRIBER QUESTIONS
Q: Can you please explain how you place trailing stop losses once a play moves into the money, both for stocks and for options? Thanks! Your newsletter continues to be the best I have found for salient and timely market analysis and choice of plays. Keep up the great work!
A: Thank you! When a stock runs into the money we will move up our stop losses to protect our gains the best we can. When it first starts to move up and makes a good move off of the support or resistance level that we are playing, we move the stop up to just below that point. That usually puts our stop near our buy point; below it by a dollar or so (depending upon the price of the stock) just so we don't get taken out on an intraday dip below that level. After it starts to log greater gains, we move it up, again looking for another level of potential support such as the 18 day MVA. We always try to find some point that looks like plausible support that we can move the stop up under if we intend to hang onto the stock and let gains build but want to also avoid a problem if the stock does start to fail for some reason.
When the market is choppy and undecided as it is now, if we get far into the money and are close to our target, we will go ahead and move it up to protect those gains even if support is not really there. If a stock is making a hard run up and comes close to our target but does not reach it, we move it up to preserve, particularly if it is showing signs of wearing out on the move. Remember, our target is set at a point of resistance or where we have found stocks to usually run out of steam on the upside. In a choppy market, if we are close we will protect positions as opposed to having the stock run out of gas and turn on us.
End Part 1 of 2
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