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10/11/07 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: BIDU; MA; SLT
Buy alerts: CMED; EDU; RVBD; GMKT
Trailing stops: GTI; CMTL; CPHD; DRYS; SNDA; CIEN; DSX; FLIR; ALXN
Stop alerts: CTRP; ICE; OMCL; NVDA; PCP; TLEO; WFR
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http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Strong early surge turns into a strong reversal to the downside, at least for NASDAQ.
- Trade deficit hits a 7 month low, federal budget deficit hits a 5 year low.
- Higher exports to push Q3 GDP to 3% to 4% growth
- Techs still have some froth to blow off the top, and we are looking for some softness to set up new buys on some seriously good stocks.
Honey, that is a reversal.
Futures were up decently and the foreign markets were partying. Same store sales were up 1.7%, not the things great months are made of, but that did not seem to bother investors. The FOMC minutes were benign and jobless claims were a mere 308K, hammering the last few nails in what was left of the 'weak jobs' argument following the initial August negative jobs report. Weaker sales apparently meant more Fed action to the market while low jobless claims indicates the consumer will have the confidence to buy heading into the holidays. AAPL had its price target raised to $190, and someone bumped GOOG's target to $800 or something like that. Surely good times were here for all.
It certainly was enough to send stocks surging higher on the open. Same store sales seemingly sucked with lowered guidance not only from the traditional laggards (e.g. AEO, LTD) but also the leaders from the past few years (e.g. TGT, JWN, JCP). Again, however, that was viewed as a negative leading to a positive, i.e. more Fed rate cuts. Stocks started higher, even the retailers, and then when oil inventories were lower by 1.7M bbl versus the +1M expected stocks jumped even higher. Didn't make a whole lot of sense outside the energy sector, but that is what happened. AAPL, RIMM, GOOG and friends were all up once more even though they have already put in strong runs.
The indices all hit new post 2002 highs with SP500 and DJ30 putting in all-time highs. Retail, technology, energy, metals, china, shipping; you name it, it was running higher. Volume was running higher, hitting 1.9B on NASDAQ near lunchtime. Finally some accumulation on some real volume.
Ironically, our office had a major computer glitch in the morning. Everything looked to be running just fine ahead of the open and then a crash took it all down. Some foreshadowing?
Perhaps. Tech, at least the leaders that had amassed stellar runs the past month, was tired. We noted Wednesday night it was likely to test after this great run it has put in. It was rallying as if driven but when JPM came out midday, issuing a report that questioned whether BIDU could live up to its earnings, it was as if some kid yelled the emperor had no clothes and everyone suddenly woke up. A shudder went through the NASDAQ as BIDU, one of the horses pulling the wagon train higher, stalled after a big run in the morning. Indeed we had a position in BIDU and we took some gain off the table on that initial run into lunch. It had topped out some and was backing off so we locked in some solid gain. Almost as soon as we did the story hit and it reversed BIDU. It went down like it was shot in the knee and that rattled all of tech. Large cap techs, the leaders in the move higher, quickly followed suit.
NASDAQ swung almost 80 points from high to low on the early afternoon to last hour swan dive. Sell programs that were set on hold while the market ran higher were released to do their thing. It took about 5 seconds for all of them to conclude that the big techs had run too far for their own good and the sell orders hit. The result was a suffocating sell off in the afternoon that showed only 8 scattered upside bars on the candlestick chart, 4 of those coming in the last 40 minutes when the market bounced in relief from the harsh selling.
The other indices tossed back some good gains as well, but they were not hammered as hard as techs. Techs led the move higher, posting the most consistent gains though some other sectors (shipping, metals) did just as well. Techs were not the sole whipping boys, but they were the primary target and thus NASDAQ was worked over much more than the other indices, NASDAQ 100 even more so.
Technically it was a reversal session on high volume, and you never like to see those. There was strong upside to open the session, pushing the indices to new post-2002 and new all-time highs on SP500 and DJ30. SP600 and SP400 bumped new highs early though they failed to push on through. Then there was strong downside as well. NASDAQ took the brunt, and the NYSE indices did not escape, though they managed to bounce up off their lows and near support. It was no picnic, but they ended up looking pretty decent.
As for the internals, volume surged, the first big improvement in NASDAQ volume since the end of the selling. Of course it was on a session that saw NASDAQ reverse 80 points and post an impressive loss, and thus a negative connotation. NYSE volume moved higher but it was just average itself; some distribution but nothing like NASDAQ. Breadth was bad on NASDAQ (-2.3:1), not so bad on NYSE (-1.6:1).
The charts show NASDAQ's gap, run, and dive to the close without much of a bounce back. SP500 and DJ30 sold but they also bounced nicely off of near support. It was an impressive (a.k.a. ugly) reversal, but the breakouts remained intact on the close. DJ30 slipped below its early October high, but it was close enough; give it the benefit of the doubt with that rebound, okay? Of course this was just day one of any selling, and if it lasts for a few sessions the breakouts will not hold.
Leadership was in techs early, but it was also in energy, metals, and agriculture. Investors started to take gains on techs, particularly the big runners, but energy and metals still looked promising even after the selling. We are not saying the non-techs were immune; this selling was pretty widespread once the sell programs were allowed to trigger, but when you look at hundreds of patterns you see the collateral damage outside large tech was sympathy selling for the most part. Thus that leaves some promise of continued money rotation into these other areas that are just starting to move up again as the cash comes out of some of the big tech names.
What we have to look at is whether it was a one-day wonder or something more systemic. It very well could be a one-day event for the NYSE indices that lagged NASDAQ on the move. NASDAQ was tired, it went far led by just a few. When they gave it up the index was naturally scrambling. On the other hand, energy held up pretty well as noted after it came to life once again Wednesday after a three week or more hiatus. Metals showed the same action and they surged this week. They are just getting going with a new move, and that means the NYSE indices could find themselves holding up nicely with this leadership (oil closed at 83.08, +1.78).
Thus we could see a few days or more of weakness on NASDAQ as its extended leaders make their tests, but even with the Thursday selling, there were sectors that held up relatively well, still in position to continue their new moves that just started.
THE ECONOMY
Budget deficit hits a 5 year low.
The deficit was $168B in the 2007 budget year that ended September 30. That was 34.4% lower than in 2006 ($248B). The administration reports that this pace will eliminate the deficit by 2012. Of course if the federal government, and that is both the president and the Congress, would curtail spending there would be no deficit. Of course, until they try to raise taxes by 20% on everyone 15 years from now there won't be enough of an outcry by the taxpayers to make a change. When they do try to hike taxes that much then the younger taxpayers paying for all of us old folks will refuse and there will be tax revolt. That will be too late. We need a tax revolt now before the problem gets to the point of no return as it will in 15 years. Won't happen, however, because we have turned to a 'what can my country do for me' society from a 'what can I do for my country' society.
Of course, as usual, I digress. The key point of this is that the deficit is falling even without any spending restraint. That is the sad thing. The economy is throwing off massive revenues that have pushed the deficit as a percent of GDP to 1.2%, well below the average of the past four years, and also well below the average for the past 50 years. Politics calls for ranting about deficits and the need for tax hikes, but reality is that the tax cuts have generated more revenue than expected (as always), and if Congress and the administration were just 25% more efficient, there would be no deficit.
But of course, the federal government, no matter who is in charge, will never look to get its own house in order before raiding our pockets. It would prefer to see all of those tax dollars coming in and tax even more. Historically that will increase revenues for a year. Then the investments go elsewhere, the economic growth engine idles, and revenues fall. Spending never went down so the deficits climb again. Kind of ironic how the Feds rail about raiding the so-called social security trust fund, yet they have no hesitation in raiding our trust funds when they overspend. No one begrudges paying for the necessities set out in the Constitution, but everyone gets angry when the see the list of wasteful spending and the corruption of the benefits in the federal programs. Latest case in point is the relief for Katrina and Rita and all of the graft and black market activities that went on with government money. The answer? Raise taxes of course.
Jobless claims fall toward 300K, putting to rest the jobs worries.
As if the revision to the August payroll report from -4K to +89K was not enough, the weekly jobless claims reports continue to show the steady improvement in the jobs market. Last week claims fell to 308K from 320K, less than the 315K expected. Pretty solid action. Good jobs levels, expanding manufacturing, falling deficits, the Fed feeling maternal toward the economy; doesn't sound like a recipe for an economy in trouble.
Another drop in the trade deficit indicates a stronger Q3.
Once more exports rose thanks to a weak dollar and that narrowed the trade gap down to -$57.6B from the -$59.0B in July. And July was revised lower to boot. Of course, with our oil hunger and with oil over $80/bbl, it is highly unlikely our exports would ever rise to the level that would end our trade deficit, this despite the fact that the US exports more than any other country. We just don't export oil and thus we don't get that nice goose to the bottom line.
That rise in exports and the narrowing gap, however, indicates that Q3 GDP will be better than expected. We think it will be a lot better than expected, running more along the lines of the high side of 3% and possibly 4%. Credit crisis, mortgage meltdown, high oil prices, and a litany of other issues, and yet the economy will show another 3+% gain. That shows things are working (as does the tax receipts). Sounds like our usual time to come in and screw things up from the executive and legislative side of the economy. It is always amazing how strong economic performance can be couched in such negative ways. The numbers show that household wealth is at an all-time high, something the tax receipts (and they certainly don't lie because no one overpays taxes on purpose) corroborate. Yet we are supposedly falling into the abyss.
THE MARKET
MARKET SENTIMENT
VIX: 18.88; +2.21. Volatility jumped as you would expect, but it was also way down from those August highs (as you would also expect given the rally). Note how volatility has made a higher low above a key range formed in May and June. Something to watch a the market recovers from this selling and rises again. Ahead of the last market sell off in July and August, volatility climbed as the indices hit new highs. That is typically a warning sign, a 'swim at your own risk' placard.
VXN: 22.42; +2.69
VXO: 18.94; +2.65
Put/Call Ratio (CBOE): 0.91; +0.01
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: -39.41 points (-1.4%) to close at 2772.2
Volume: 2.544B (+29.84%). Highest level since the selling, and of course it was on a reversal session. There was buying ahead of the reversal as volume was running significantly hotter ahead of the turn for the day, but in the end volume did not shrink back as the afternoon selling ramped up. As Detective Fish said in 'Barney Miller' after discovering he ate hash-laced brownies, first time it felt good in years and it was illegal. Well, first time volume was good in months and it was on the downside.
Up Volume: 542.665M (-643.836M)
Down Volume: 1.976B (+1.229B)
A/D and Hi/Lo: Decliners led 2.36 to 1. Breadth was quite narrow on the way higher as NASDAQ rallied over the past few weeks and then it expanded when it sold. That is of course the opposite of what you want to see.
Previous Session: Decliners led 1.11 to 1
New Highs: 52 (-69)
New Lows: 46 (+17)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped to a new post-2002 high and moved up from there only to give it all back and more with an afternoon high to low splat down to the 10 day EMA. Of course it did hold and bounce up off the 10 day; some life despite the massive swing and higher volume selling. Will it mean the index holds there (2760)? Nah. NASDAQ was extended and needed a rest. A few more sessions of selling . . . with declining volume . . . would go a long way to making this look like a profit taking bout after this initial day of reversing on strong volume. Still well above the July high breakout point and thus has some room to give back and test before it gets into trouble, as long as that volume backs off as it does.
SOX (-2.26%) was in the toilet before the session started with downgrades of SNDK, INTC and NVDA. It was looking ugly before this and the selling took it back below the 50 day EMA. Chips are down.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -8.06 points (-0.52%) to close at 1554.41
NYSE Volume: 1.518B (+30.7%). Volume came within a gnat's butt of average as the NYSE indices suffered some selling of their own. Some distribution but there was also a lot of buying early in a lot of industrials, so it was not all downside trade as the up/down volume shows.
Up Volume: 618.321M (+114.09M)
Down Volume: 879.555M (+245.599M)
A/D and Hi/Lo: Decliners led 1.61 to 1. Pretty darn tame, particularly when you look at NASDAQ. NYSE has showed the opposite action: broad on the upside moves, narrower on the downside. That still puts a good outlook on these indices.
Previous Session: Decliners led 1.09 to 1
New Highs: 83 (-41)
New Lows: 21 (+10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Surged up to a new high and then had to give it up after NASDAQ started to sell off and the sell buttons hit all across the market. Not really carnage on the chart, however, as SP500 tapped the 10 day EMA on the low and cut some losses. That also kept it right at the breakout point from the July high and still in quite solid position. What it does from here price and volume wise will tell us if this was a 1-day wonder or something building to the downside.
SP600 (-1.19%) surged up and tapped at its all-time high but then reversed and sold. Unlike the other indices, even NASDAQ, SP600 did not bounce into the close, instead closing right on the 10 day EMA. Hey, it held near support. That is about all it did, but it also remains in striking position of the old high, and if this turns into just a consolidation it is in position to make the move higher.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Rallied to a new high itself but of course that did not last as it put in a 183 point reversal of its own to close negative. Volume moved up to average for the first time since late September and all of that Fed action. It did bounce nicely off the low to close at the 10 day EMA near support. That puts it below the early October high but still in solid position to move higher after this intraday reversal.
Stats: -63.57 points (-0.45%) to close at 14015.12
Volume: 235M shares Thursday versus 163M shares Wednesday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Retail sales and PPI are out in the morning before the open. Michigan sentiment is released a half hour into the session. Retail sales are key after that 1.7% growth in same store sales but you have to remember to look at auto sales because they are such a variable month to month. In addition, look at the gasoline sales; prices are lower, but they are not cheap. We still have to put a lot of our disposable income down the tank.
After hours Thursday ATI in the steel sector warned and was clipped 10% in late evening trade. US steel stocks were already weaker and that just plows them under. In contrast, many foreign steel issues are still positive. As with tech in the late 1990's, anything foreign is to be snatched up without question.
Of course with EU central bankers spouting off how it is better to fight inflation as the primary concern over whether you crash your economy in the process, you have to wonder how long that can last. Europe is showing signs of weakness even as there is this tough talk. Shades of 2000 only across the pond? Our Fed was too engrossed in fighting inflation that may someday possibly show up to realize it was strangling the 'white hot' (excuse me while I reach for the airsick bag) economy to death. Europe is in danger of doing that as the economies show some bumps yet the monetary policy boys ignore the French president and continue fighting inflation. That, unfortunately, is another tradition in Europe with respect to its economies, at least with respect to 'old Europe', e.g. France, Germany.
Too bad it is Friday; it makes a read on what Thursday actually meant harder to gauge. There was enough hard downside Thursday to warrant plenty of caution on Friday. We took quite a few positions off the table and we will do the same Friday if they cannot find any relief heading into the weekend. Some positions rolled over hard and we will look to see if they can rebound, i.e. if they were caught up on a net of selling whose focus was the NASDAQ.
If there is a bounce that suggests the action was more of a sharp profit taking session. Oftentimes in a bull run there are sharp quick corrections in the leaders that have run a long way. Thursday some big names such as AAPL, GOOG, and RIMM sold hard but they also rebounded nicely off of their session lows to hold above near support. Typically they would suffer more weakness after such a run higher even if it was a short bout of profit taking.
What we are going to be looking at closely for new positions is how the other sectors that just started to move higher once more after a good rest perform. Energy, metals, smaller tech, some medical; a pullback can give us some nice entry points for when this bout of selling ends. It is Friday and thus we may not get as clean a read as we want, but if they are holding support and the selling volume fades we will be interested. We won't be loading the boat yet, however; given it is Friday, you want to wait and see how the new week is treated before getting too aggressive. Friday can mask the selling with a relief bounce. As with a break higher after a pullback, you have to see if there is confirmation. With selling this harsh on day one, we want to see if there is renewed selling after a modest relief bounce. If it doesn't show and solid leaders in good position to move higher actually do so, then we can accumulate some positions.
Support and Resistance
NASDAQ: Closed at 2772.20
Resistance:
2778 from a July 1999 peak
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
The 10 day EMA at 2760
2753 is the November/February up trendline
2725 is the July high
2705 is the November/December/February up trendline
2673 is the early July high
The 50 day EMA at 2657
2634.60 is the June peak
The 90 day SMA at 2620
The 200 day SMA at 2543
S&P 500: Closed at 1554.41
Resistance:
1556 is the July intraday high
Support:
1553 intraday high from March 2000 used to be the all-time peak
The 10 day EMA is at 1548
1541 is the early June high
1539 is the mid-June intraday high
1534 is the early July high
1510 is the July 2006/March 2007 up trendline
The 50 day EMA at 1509
The 90 day SMA is at 1500
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 1473
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 14,015.12
Resistance:
14,088 is the early October closing high
The July high at 14,022
Support:
The 10 day EMA at 14,006
13,990 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 13,655
The mid-May peak at 13,556
The 90 day SMA at 13,532
13,270 is the July 2006/March 2007 up trendline
13,121 is minor support from the April peak
The 200 day SMA at 13,094
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): 0.1% actual versus 0.3% expected, 0.2% prior.
October 11
Initial jobless claims (8:30): 308K actual versus 315K expected, 317K prior
Trade balance, August (8:30): -$57.6B actual versus -$59.5B expected, -%59.0B prior (revised from -%59.2B)
Crude oil inventories (10:30): -1.7M actual versus +1M expected, +1.1M prior
Treasury budget, September (2:00): $111.6B actual versus $100.0B expected, $248.2B prior (revised from $56.2B)
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): 0.5% 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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