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us stock market, top stock pick
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2/14/02 Technical Traders Update Report
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Technical Traders Report Subscribers:
Happy Valentine's Day!
MARKET ALERT SERVICE
Subscribers to the current reports can sign up at the following link:
http://www.investmenthouse.com/alertttr.htm
SUMMARY:
- Indexes try, but are unable to crack resistance.
- Weekly jobless claims better as inventories fall again.
- Can Dell get the techs revved up again?
- Subscriber Questions
- Team Trades
Bumping into resistance.
The indexes jumped right up to resistance in the morning after a brief dip. One try. Two tries. Three tries and . . . you are out. For 2.5 hours they made three runs at the ceiling. Then a rumor came out that INTC was not going to meet its quarter. Rumors are common before option expiration Friday, and whether this one was true or not did not matter. It had its originator's desired effect as the SOX, a big leader of late, turned and dove lower taking the Nasdaq with it. Maybe it was just a rumor, but it was a reason to sell when the indexes were hesitating at resistance.
The Dow was showing good momentum, and it still had the best session of the big three. Even at the high it was not going to be enough for a follow through session. As it is, the index sold off, bouncing from 9960 in the last hour to close at 10,000 on slightly higher NYSE volume. On the high it tapped just below the 200 day MVA (10,074.72) but then it turned and ran.
The candlestick chart is a loose doji; after a run up from 9600 to over 10,000, such a candlestick pattern can indicate that the move is topping out. This is particularly true when the doji occurs below resistance. Further, the higher NYSE volume mitigates the slight gain on the session given the candlestick pattern. Instead of an accumulation day (higher volume on a gain) it looks more as if the market churned right below support. Churning occurs when an index makes a move up but then stalls as volume climbs. The higher volume and small price movement means buyers and sellers are evenly matched; as fast as stocks are bought they are sold. In short, after the buyers led the move higher, sellers have caught up.
Volume was up but not heavy (still below average), so the churn was not obvious. Unlike Tuesday's doji below the simple 50 day MVA that occurred on lower volume, this volume was higher. Thus we see some churn here and that is a warning sign. With the Nasdaq and S&P distributing today, the Dow's leadership may not be enough. Last night we said the Nasdaq could become a drag on the Dow. Today's INTC rumor hurt both indexes as INTC sits in a prominent role on each.
Nasdaq and S&P showing slight distribution.
The Dow may have churned, but the Nasdaq and S&P showed a bit of distribution as they closed lower as volume edged higher. Similar to the Dow, these indexes tapped at resistance on the highs (three tries), but were unable to make the break. When a stock or index takes three shots at a resistance point and cannot break over it, that means it is going down to the next level. That is what they did today. It was not a massive breakdown as volume did not shoot higher, but it was a clear problem with resistance and it has the look of a rollover after a low volume assent. Also, any distribution before a follow through session is trouble for a rally. The Nasdaq has now shown two such sessions since it started this rally last Friday.
THE ECONOMY
Weekly jobless claims fall again. Jobless claims fell again, down to 373,000 versus expectations of 380,000 and 381,000 the prior week. That continues the drop in jobless claims and keeps them below the 400K level that is considered recessionary. Continuing claims rose, however, after falling for three weeks. Continuing claims are somewhat tricky; they drop as unemployed fall off the roles or give up working.
Inventories for December fell 0.4% versus expectations of a 0.5% decline and November's revised 1.2% drop (from -1.0%). This marks the eleventh straight monthly decline in inventories. Ultimately inventories will be used up. Indeed, for 2001, inventories were reduced by 5.9%. Still, there was a massive inventory problem after business spending dried up as the money supply did the same courtesy of the Fed. As of yet, there has been no trigger to start business buying even as inventories continue to whittle away. Inventories can continue to fall, but until business needs to buy more, there is not need to really ramp up production. Therein lies the fallacy of just saying 'inventories are falling so the end to the slowdown will inevitably come.'
THE MARKET
Appears to be running out of steam at nearer term resistance instead of trying to forge higher. The indexes gave it a try, but no volume rushed in to support the move. Then the sellers came in and reversed the tables with the Nasdaq and S&P closing lower on slightly higher volume.
Dell announced earnings after hours and they were in line with expectations. Revenues were slightly better at $8.06B versus $7.98B expectations. It is interesting that Dell's 17 cents was a GAAP number versus the same period 2001 that was 18 cents but pro forma. To us, this was a solid report. Dell said that the consumer was the big item in Q4, but business was not that bad. Still, Dell stated that Q1 revenues would drop 3% to 5%, and that reflects that the consumer won't be buying as many PC's in the quarter after the holidays.
Will Dell perk the Nasdaq back up? Did not look that way after the close with Nasdaq futures lower and the QQQ drifting lower late in the after hours session.
VIX: 22.89; +0.47. Slight rise on a slight fall in the S&P. Still very low volatility in options, indicating no real anxiety even as the market started to roll over.
VXN: 42.22; -2.25. Big drop in volatility given that the Nasdaq gave up its gains and showed signs that it was ready to roll back down. Volatility has been depressed for quite some time, and it never gave a really solid indication that any rally would have legs.
Put/Call Ratio (CBOE): 0.91; +0.15. Unlike the VIX, the put/call ratio showed a jump in pessimism about the market as put buyers were more active as the indexes hit resistance and struggled. We also have to factor in that Friday is a triple witch expiration, and the higher volume in options is not uncommon. Still, a ratio is a ratio regardless of the volume, and there were more puts traded today on a slight loss in the Nasdaq and S&P. A quick selloff could give us the second 1.0+ reading in three weeks and that would be a better base to start another sustained rally upon.
Nasdaq
Hit 1875 and turned over on a slight increase in volume. The SOX did not provide support today after an early rally. The INTC news took out that support and it could not recover even when it was clear it was just a sell motivated rumor.
Stats: -15.79 points (-0.8%) to close at 1843.37.
Volume: 1.677 billion (+4.8%). The second slight gain on selling in three sessions. Volume was below average once again, so that takes some of the sting away. Still, distribution before a follow through in an attempted rally is usually the death of that rally. Given that down volume was better than 2 to 1 over up volume, the signs are not good.
Up volume: 479 million
Down volume: 1.171 billion. Down volume ran away from up volume, belying what looked to be a small overall volume gain.
A/D and Hi/Lo: Decliners took the lead again at 1.56 to 1 (advancers led 1.38 to 1 Wednesday).
New highs: 93 (+4)
New lows: 45 (+14)
The Chart: http://www.investmenthouse.com/cd/$compq.html
The techs tried 1875 three times but could not get any buyside volume. The rolled over and faded 30 points to close near the session low. 1875 was the next resistance level, representing the November consolidation range. It is significant resistance, and it slammed the door shut today. It was not a total reversal as volume did not ramp way up; still, looking at the up to down volume, the sellers were well in control once the index took three strikes at 1875. Now it looks like a ride back down to test the recent support at 1772 (1775 is some support). The Nasdaq was not leading on the way up, and it took the sharpest u-turn today. It does not look as if it will get much help from Dell tomorrow, and NVDA is getting taken apart after hours. It looks like a rollover.
Dow/NYSE
Not as dramatic as the Nasdaq, but problems with resistance nonetheless. The Dow gave back 50 points - - it was not a powerful day anyway. It could still hold near this level for another shot at the 200 day MVA as the churn was not that severe.
Stats: +12.32 (+0.1%) to close at 10,001.99.
NYSE Volume: 1.251 billion (+2.2%). A slight rise, but still below average volume. As the up/down volume shows, even with the session gain, it was not a buyer's session.
Up volume: 519 million
Down volume: 732 million.
A/D and Hi/Lo: NYSE decliners took a small lead at 1.10 to 1 (versus advancers leading 1.74 to 1 Wednesday). Selling was not broad on the NYSE, and that is another indication that the Dow might be able to hold near term support and try again.
New highs: 137 (+8)
New lows: 50 (+9)
The Chart: http://www.investmenthouse.com/cd/$indu.html
The Dow continued its move higher but ran right into the 200 day MVA (10,074.72) and could not make the break. A lot was made of the fact that the Dow closed over 10,000. Well, 9992 to 10,000 is some resistance, but it really kicks into gear at 10,125, and then at 10,200 to 10,300. There is a lot of resistance at that level from the summer 2001 trading range, and the Dow was not ready to take it on just yet. As noted, the A/D line was not bad, and though there was churn, it was light. The Dow may try to find near term support (50 day MVA, simple, at 9925.53). The 50 day MVA simple is backed up by the late January, early February interim top. If the Dow is going anywhere to the upside, it needs to hold there or at 9750 to make a higher low and then run through the 200 day MVA on to 10,200.
S&P 500:
The S&P ran right up to resistance in the form of 1125 (price consolidations and the 50 day MVA at 1124.24) and peeled back to show a doji on the close. NYSE volume rose slightly (but remained below average) on the turn, indicating slight distribution among the big caps. Again, the NYSE A/D line was not bad and the distribution was not rampant. The S&P has near term support at 1100 (the September 2000 down trendline is there; the January down trendline is right at 1102; October tops there). As with the Dow, if the big caps can hold and make a higher low at 1100, the upside move looks more promising. The distribution is some trouble, however, and selling below the trendlines opens it up to 1075.
Stats: -2.03 (-0.2%) to close at 1116.48.
Volume: NYSE volume edged higher to 1.251 billion (+2.2%) as the S&P turned over. Some distribution.
The Chart: http://www.investmenthouse.com/cd/$spx.html
TOMORROW
Friday is triple witching options expiration, and some of the increased option activity today was most likely a result of that. Tomorrow we could see volume rise on the expiration session; that may mask the true action, though if the indexes continue to sell and volume rises significantly, you cannot write that off as just expiration volume.
Dell and NVDA are not providing any help after hours. NVDA is getting ripped while Dell is slightly up. PPI is out first and then Michigan sentiment is released again. They might help, but let's look at the bigger picture of what the market is showing.
It sold off after some significant distribution, and last Friday it started its second rally attempt during this selling. Cyclicals were leading first, and then some techs (SOX primarily). Volume was weak on the rally up. Then when the indexes started to encounter some resistance, the Nasdaq started to distribute slightly. The regrouped and rallied to the next resistance level. Today they bounced down from that level on slightly higher volume, showing some more distribution before any follow through on the attempted rally. That is usually trouble. The distribution was not major, so it was not a totally clear signal. Still, there is not a lot out there to change the character from the selling; there definitely has not been a strong accumulation session to show that the big money was back in the buying game. The chips were setting up better, and today they were making some good moves. We got turned over, however, when the INTC rumor hit and the selling could not be overcome.
That paints a pretty negative picture, but the point is that there has not been a change in what we have been seeing of late. Rally attempts occur in downtrends and hope springs eternal when they do. This rally attempt has had little to show for the big names. The smaller stocks, however, have continued to buck the market and we continue to pick up winners that give us a nice return over a couple of weeks. We have had to eat some of them (but in smaller bites, using trailing stop losses and stop points), but they are outperforming the market.
Tomorrow is going to be a tougher read with the options expiration volume. We are looking at some downside plays to go along with JNPR, BRCM and some others taken today, and we will see how the volume comes in and how they deal with support levels to determine just how far we are going to take them. In this market and with puts in general it is best to make them quicker hitters, grabbing the big part of the faster move lower and not risk them running back up on you and eating away your time in the option.
Support and Resistance
Nasdaq: Closed at 1843.37.
Resistance: The bottom of November consolidation at 1875. The 50 day MVA at 1905.34. After that the 200 day MVA at 1930.50. The 1934 to 1941 range represents the top of the November consolidation. After that we look at the simple 50 day MVA (1951.28) 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 1116.48.
Resistance: The 50 day MVA (1124.24) and price consolidations at 1125. Then 1150 and the 200 day MVA at 1160.58.
Support: 1100 provides some support as the September 2000 and January 2002 down trendlines are there. 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 10,001.99.
Resistance: Still not free of the price consolidations at 9992 to 10,000. Then the 200 day MVA (10,074.72) where it was turned back today. The January high at 10,300 level is last, but the resistance starts at 10,200 (June, July and August 2001 trading range).
Support: The simple 50 day MVA (9925.53) was resistance and may now act as support on a test lower. The January down trendline at 9750. 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% actual versus -0.2% expected and +0.2% prior (revised from -0.1%).
Retail Sales ex. Auto (8:30): +1.2% actual versus 0.2% expected and +0.7% prior (revised from -0.1%).
2-14-02
Business Inventories, December (8:30): -0.4% actual versus -0.5% expected and -1.0% prior.
Initial Claims, 2/9 (8:30): 373K actual versus 380K expected and 381K prior (revised from 376K).
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: What is a normal course issuer bid, and how might it affect the price of a stock?
A: A company makes a normal course issuer bid when it wants to buy back its own shares. The bid is filed with securities regulators outlining the amount of stock the company proposes to buy over a given period of time. The company is not bound to do so, and typically the bid will be for more stock than is actually repurchased. Consequently, when you see a reference to a normal course issuer bid, what you are dealing with is a repurchase where the company intends to cancel the shares. Such action can increase share value as there will be fewer outstanding after the repurchase, so it can be seen as a good thing. On the other hand, the money used for repurchase is no longer available for capital investment.
TEAM TRADES
Despite the rally and the look as if the markets were going to open stronger on the HWP earnings, we were also looking at quite a few put plays that looked to perform to the downside regardless of what the rest of the market did. One of those was JNPR, a former high flier that has been in a nasty downtrend for the past two months. The stock had rallied back up to the down trendline, but then started rolling down once again. It started down again today and we did not waste much time getting in on it. It broke below 12.50, our entry point, and went to just below 12.20. The alert was issued as it bounced up from that level and it then moved up to 12.40. The March puts were trading at 5.40 by 5.60 and we slid in at the ask given the narrow spread. The stock then dropped pretty hard to 11.40, reflex bounced to 11.75, but that is all it had. It spent the rest of the session edging lower and lower, though not by much. At the close it was down to 10.92, and the puts last traded at 6.50.
End Part 1 of 2
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