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day trading, Breakout test
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10/18/07 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: BCSI
Buy alerts: CTRP; FREE
Trailing stops: VDSI
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:
- Another good recovery in the face of adversity for the market.
- Jobless claims jump right back up.
- Commercial paper market continues to languish, ensuring a Fed rate cut.
- Leaders are starting to perk up again, suggesting the consolidation is finding a bottom.
Market has every reason to sell, yet doesn't.
The futures were okay Thursday morning, indicating there might just be something to the Wednesday reversal of the reversal (gapped higher, sold off, recovered positive). Then BAC in banking announced results down 31%, twice what was expected. Yes there were non-performing loans involved, but also its trading revenues were quite low, pushing the results down. Nonetheless, investors focused on the mortgage issues, and with that cloud rising over stocks once more the futures tanked.
The jobless claims jumped up to 337K and that certainly did not help things. WMT announced pre-holiday price cuts on 15K items, trying to get ahead of the curve after last year's too little too late price cutting. Many did not know what to make of this so they viewed it negatively. Dominoes pizza said it could not raise its prices unless it wanted to see pizza sales get tossed (couldn't think of a good pizza industry reference).
All of this pushed futures down 10 points and more. Bond yields dropped as well as investors from everywhere rushed into US treasuries, driving the 2 year yield to 3.91% after being near 4.2% not even a week ago. After the headlines about investors fleeing US markets there is nothing like some world turmoil (Turkey, Iran, India) to bring them running back to Uncle Sam. Indeed the Fed funds futures contract (FFF) is now pricing in a 75+% chance of a 25BP rate cut on Halloween (a semi-sweet treat). Good to see the bond market joining the party after just a 24% chance of such a cut shown on Tuesday.
Of course stocks started lower on this news. The market is sluggish and this was just more piling on with bad news. Thus the market continued losing ground, selling through the morning. It tried to bounce three times, once after the Philly Fed came in at a whopping 6.8 (7.0 expected, 10.9 in September) as the bad economic news equals Fed action mindset prevailed. Even that, however, could not push stocks past the morning high that was itself a negative number.
Oil did not help as it moved higher, closing at 89.47, +2.07. Or did it? Energy finally got some energy and came to life. We saw it in the independents last week (e.g. XTO, COG), and then the tar sands plays came back in (e.g. CNQ, SU). Thursday the drillers were back in business as well. With energy leading once more the metals started to perk up as well, and they look like the next group to once more break higher. Coal was strong as well; nothing like $90/bbl oil to make coal look promising, along with solar, wind, geothermal, cow methane, chicken waste, bat guano, etc.
With that leadership the indices finally cracked that morning high as the afternoon session took hold. There was no surge to positive, but a steady solid rally back to flat with techs, yet again in the leadership group, pushed NASDAQ, SOX, and the mid-caps positive.
Technically you have to like this action. Volume was lower on the indices, but it was cooking on the leaders as seen with the high volume in many energy names. The lower overall volume showed no heavy selling this time around as the indices tested lower. The internals were basically flat, so no major market declines.
As for the charts, once more we see the low to high action that gave the market another good downside shakeout to comb the easy sellers out of the market's beard and then some buyers stepped in to pick up shares and drive the indices back up to flat. That closed SP500 with a second nice (and this time tighter) doji with tail in its 18 day EMA. DJ30 showed similar action though its action is still just below the 18 day EMA. NASDAQ gapped lower but then closed near the session high, doing its own version of the shakeout with the breakneck lower open and then the late rally. That kept NASDAQ above the 10 day EMA and easily over its July high breakout point.
Another point to consider is how that 'inside day' or hirami on the candlestick chart from last Thursday and Friday has played out. After Friday, the direction on the next session would set the near term movement for the indices. That move was lower and the indices continued down Tuesday, Wednesday and Thursday, at least until the afternoon. That move has taken the indices to next support on the Thursday low, and now they are setting up to make the move back up.
Leadership was covered above. Energy started to show real strength across all sectors and it looks as if metals are ready to trigger their own upside move as well after this last test. Tech was leading once more as well. NOK announced some really great results, but in all of the crying over BAC's miss that really surprised no one, it flew beneath the radar. That is an interesting mix of leadership and it points to continued world growth and indeed general growth in the US as well given the technology strength.
THE ECONOMY
The commercial paper market throws a few more logs on the rate cut fire.
There are so many saying the Fed is not going to cut. Maybe it should, maybe it shouldn't, but as we discussed last night, everything it has said and the continuing economic data shows it is going to cut on Halloween. Thursday was even more evidence of that.
The Fed is tuned into the commercial paper market because companies have to be able to place their paper in order to finance operations. The CP market has been in the toilet. A month ago good companies could not get interest in a sheet of its paper in a public toilet that ran out of toilet paper three days prior.
The market has improved some, but it still stinks. Thursday the latest data came out and it was 'better' but it was still -$11.87B, up $1.8B from last week. The market has tried to bottom the past few weeks, but last week's data shows, along with bond yields, that money is again seeking safety in the US treasuries versus commercial paper.
That simply means the Fed has even more incentive to cut rates to improve psychology and again attempt to loosen up the credit markets. The economy cannot function without liquid, active credit, and commercial paper is a large part of that credit market. Thus the Fed has even more reason and/or incentive to lower rates on Halloween.
THE MARKET
MARKET SENTIMENT
Some of our 'indicators' in the form of other pundits are starting to call for a further sell off in the Dow and by implication the rest of the market based on their view of the technical action. Every time the market rallies and then faces some difficulty, correcting back to test while some ominous stories circulate, these market indicators start predicting a meltdown. Doesn't matter that the action is orderly and somewhat contained, or that leadership continues to look very solid. A week of selling and the sky is falling. Thursday night we perused several of these indicator pundits, and they were starting to call for the next drop. Maybe they will be right this time, but this fits in with the rest of what we are seeing with the pullback's progress and how leadership is responding. Of course, not all sentiment readings are in line with this as the bulls/bears shows below.
VIX: 18.5; -0.04
VXN: 22.14; +0.12
VXO: 18.32; -0.38
Put/Call Ratio (CBOE): 0.79; -0.15
Bulls: 62.0%. Up from 60.2% the prior week and continuing the streak higher and well above the 55% level considered bearish. Fourth week above that level, an indication that the market is getting overdone. 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. On a steady climb from a low of 40.6%, the low for this round. Never made the thirties. Hit 56.7% in June and now it has blown past that. The market peaked about a month later. For reference it bottomed in the summer 2006 near 36%, and 35% is considered bullish.
Bears: 19.6%. Falling below the 20% threshold, continuing the sharp drop. 21.5% the prior week and down 25.0% the week before that. It peaked at 37.4% on this move. Closer to the 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: +6.64 points (+0.24%) to close at 2799.31
Volume: 2.031B (-5.37%). Lower but still above average as NASDAQ gapped lower then recovered. No heavy selling on the downside or buying on the upside, just solid trade.
Up Volume: 1.207B (+1.207B)
Down Volume: 772.461M (+772.46M)
A/D and Hi/Lo: Decliners led 1.05 to 1
Previous Session: Advancers led 1.11 to 1
New Highs: 51 (+13)
New Lows: 83 (+14)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower in sympathy with the other indices given the financial news, but made that recovery once more to close with a gain on the session. Shakeout to the downside, then some buyers return and take it back positive. NASDAQ has spent a week moving laterally in this test following the breakout that started the new quarter. It looks to be getting close to resolving this pullback but we have to see other stocks step up to pull some of the load. As noted, the leaders that got the index here are extended and breadth has been narrow. Some new blood would be nice.
SOX was up (+0.09%) but it still is mired in its range and well below resistance at 510. It is not contributing much to the market efforts at this point other than the odd semiconductor performing well.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -1.16 points (-0.08%) to close at 1540.08
NYSE Volume: 1.269B (-10.74%). Lower and still below average volume on NYSE as the indices tested lower and rebounded. Nice orderly pullback.
Up Volume: 594.029M (-102.647M)
Down Volume: 66.269M (+66.267M)
A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Advancers led 1.06 to 1
New Highs: 88 (+27)
New Lows: 61 (+12)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 shows a very nice pattern with another reach below the 18 day EMA on the low and then a recovery. It could not close positive as it did Wednesday, but it showed very nice price/volume action and a tight doji on that near support at the 18 day EMA. Holding at the June twin peaks and giving nice shakeouts of the sellers as it does. It is starting to lay off the distribution (the selling volume never jumped above average by the way), and that is a positive for the consolidation.
SP600 (-0.14%) also sold but also managed to recover some ground to close flat. It tapped the 50 day EMA on the low for the second session as it too is shaking out some sellers as this key support level. This is where it needs to make a stand and try the rebound to take on the old high at 445. May not do it on the next run, but that should put it in a better position to give it a shot.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Simmered down some after that high volume up and down Wednesday session. It remained below the 18 day EMA (13,919) but it did come back from the early selling to close basically flat. Not in as great a position as the other large cap indices, but hanging in there and will likely go the way they go.
Stats: -3.58 points (-0.03%) to close at 13888.96
Volume: 205M shares Thursday versus 315M shares Wednesday. Calmed down significantly after that high volume Wednesday session when many of its components reported good and not so good earnings.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The scheduled economic data is in the book for the week and the Fed is likely to be quiet as it is within 2 weeks of its Halloween meeting where it will treat the market with another rate cut. Earnings will thus continue to be the focus, and even those will slow down on Friday. That is okay as the Thursday after hours tape had GOOG's earnings along with a surprise by AMD. GOOG was all over the map after hours but found its groove in the later trade, rising 10 clicks over the close. Not a blowout by any measure; the sticking point was the hiring with abandon at Google. It is in the search business and one can only suppose management thinks that means searching for more employees. I mean come on; they bought Double Click yet the feel the need to hire another Double Click on top of that?
As noted above, we see some 'old' leadership coming back to life. Energy is working for us again and metals look ready to start back up as well. There is plenty of leadership in position to lead or take up the leadership mantel, and we are going to continue looking for those stocks and picking them off as the move up just as we have been doing. There are many negatives associated with the economy; we would list them but you hear them every day on the financial stations as well as the mainstream news stations. A lot of worry, yet the market continues to set up and leaders continue to break higher.
We don't want to outthink ourselves here; if the market shows us strong stocks making good moves from good entry points, we need to act upon that. Thus we are going to continue to point out those stocks that are ready to move, and if they move, we will move as well.
Support and Resistance
NASDAQ: Closed at 2799.31
Resistance:
2887 from a September 1999 peak
2920 from an October 1999 peak
Support:
2778 from a July 1999 peak
The 10 day EMA at 2778
2758 is the November/February up trendline
2725 is the July high
2712 is the November/December/February up trendline
The 50 day EMA at 2681
2673 is the early July high
2634.60 is the June peak
S&P 500: Closed at 1540.08
Resistance:
1541 is the early June high
The 10 day EMA is at 1546
1553 intraday high from March 2000 used to be the all-time peak
1556 is the July intraday high
1576 is the Thursday intraday high.
Support:
The 18 day EMA at 1539
1539 is the mid-June intraday high
1534 is the early July high
The 50 day EMA at 1516
1514 is the July 2006/March 2007 up trendline
The 90 day SMA is at 1502
1490.72 is the early June closing low and early August peak.
The 200 day SMA at 1476
1475 from peaks in December 1999 and January 2000
Dow: Closed at 13,888.96
Resistance:
The 18 day EMA at 13,919
The 10 day EMA at 13,962
14,010 is the old channel line
The July high at 14,022
14,088 is the early October closing high
14,198 is the Thursday intraday high.
Support:
The 50 day EMA at 13,708
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 90 day SMA at 13,565
The mid-May peak at 13,556
13,295 is the July 2006/March 2007 up trendline
The 200 day SMA at 13,132
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
October 15
NY Empire State Index, October (8:30): 28.74 actual versus 14.0 expected, 14.7 prior
October 16
Net foreign purchases, August (9:00): -$63.9B, $19.2B prior
Industrial production, September (9:15): 0.1% actual versus 0.1% expected, 0.2% prior
Capacity utilization, September (9:15): 82.1% actual versus 82.1% expected, 82.2% prior
October 17
CPI, September (8:30): 0.3% actual versus 0.2% expected, -0.1% prior
Core CPI, September (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Housing starts, September (8:30): 1.191M actual versus 1.285M expected, 1.327M prior
Building permits, September (8:30): 1.226M actual versus 1.3M expected, 1.326M prior
Crude oil inventories (10:30)
Fed Beige Book (2:00)
October 18
Initial jobless claims (8:30): 337K actual versus 315K expected, 309K prior
Leading economic indicators, September (10:00): 0.3% actual versus 0.3% expected, -0.8% prior (revised from -0.6%)
Philly Fed, October (12:00): 6.8 actual versus 7.0 expected, 10.9 prior
End part 1 of 3
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