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world stock market, us stock market
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12/18/07 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: ESLR; GME; YGE
Trailing stops: MA
Stop alerts: CF; POT
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:
- ECB changes its historical stripes and world markets manage a rebound.
- ECB throws caution to the wind and $500B at the banking system.
- Housing starts at a 16 year low, but appear to be slowing month over month.
- Market rebound to face challenges of more earnings issues and the Fed auction results.
Market rallies off of more central bank action, almost gives it away but recovers.
After a couple of ugly sessions that not so much saw a swarm of sellers but a complete lack of interest by the buyers, stocks were ready to start higher again Tuesday. There were some earnings reports from some key names such as GS and BBY. Housing starts were at a 16 year low monthly rate but showed again a slowing decline. Important news indeed, but it had to step back and let the biggest kid on the block pass by: central banks. Once more a central bank stepped into the picture, and we are not talking about a quarter point rate cut as the US, Canadian and UK banks delivered on the last round. No, the ECB, in a rather dramatic change from its past actions and indeed its recent commentary from its head Mr. Trichet, dropped $500B into the banking system overnight. That is a lot of coin. The ECB appears serious in its attempt to keep its expansion going even if it means bailing out those that helped create the problem.
Stocks gapped higher on this rather no-nonsense approach to the credit issues across the banking systems. Then almost immediately, they started to give it back. They gave it all back as the indices when from solidly positive to negative by lunch on the east coast. There was a lack of buyers for a week prior and the market dropped on low volume. Stockholders used the early strength to sell along with some short sellers taking advantage of another bump higher thanks to the world's central banks. This time, however, there was an upside response. It took an afternoon rally to get back to and surpass those morning highs, but they did that and they did it on rising volume as well. One thing you can say: at least stocks recovered this time instead of diving like stones. Again, volume was a bit better this time around as buyers showed up after the 3-session buyers strike. Better but hardly out of the woods.
Technically things improved along with stock prices. The intraday action looked hauntingly familiar through lunch, that is higher to lower, but this time the buyers came in and pushed it back up to close at session highs. Not a pretty, clearly upside session, but in this market it has to dig itself out of the hole it is in, and that is typically not an elegant picture.
Internals: Volume was up and that was a positive on a rebound that carried the indices back to positive. It was low on the selling and higher on this recovery. That is what you want to see, but it does not tell the entire story. Breadth was weak with modest 3:2 gains on both exchanges. That has the look of short covering as the stocks that were hammered recover and the move is not broad. Volume can also signal short covering as well; strong trade in a few beaten down stocks as they rebound to resistance is not bountiful buying ready to send the market higher. All rallies start with short covering so you don't want to totally discount it, but with the weak position of the indices, we have to see a lot more covering.
Charts: NASDAQ and DJ30 are key to watch from here as they moved up to their 200 day SMA Tuesday and stalled or faded back. SP500 did bounce up off of its 2006 trendline after undercutting midday. That is about all you can say about the technical action: it was a bounce from some pretty ugly selling. It was pretty much what we expected as noted in the Monday report: more selling, a rebound on short covering ahead of the FOMC announcing its auction results.
Leadership: Some solid stocks bounced back similar to the markets after testing lower intraday. As with the indices, that is a good thing to see, but it is not the whole answer right now. There was some real damage done on Monday when many broke near support. There were recoveries Tuesday but not all leaders came back, ready to move higher. That is a reflection of the further weakened market conditions after the holiday rally failed or at least is in some serious pain. It also means the market has to come up with something to get investors back to buying with some consistency, and while central bank action is helping, it is not delivering decisive upside strength.
THE ECONOMY
ECB takes a proactive stance, but this time it is not to fight off some hint of future inflation.
The US Fed is trying to take the precision bombing approach, targeting the credit problem at its source with market-based auctions and swap lines with other world banks. It is trying to dance past igniting inflation with just nominal interest rate cuts to go along with its auction strategy. It remains to be seen if this works with the kind of force needed. The results of the Monday auction, the first of four scheduled, will be released Tuesday. Perhaps it will be strong and help solidify credit further. Maybe. We note, however, that there was no dramatic improvement in spreads, LIBOR, etc. after the auction. There was improvement, but it was not more than before the auction took place.
The ECB took the other approach, blasting the credit market with a shotgun approach. As our discussion from last week indicated, the ECB is historically a scrooge when it comes to loosening up the monetary policy strings. Many a promising expansion lies wrecked in the wake of rate hikes made to head off some feared, not real, but feared inflation. Up until last week the head of the ECB, Trichet, barked about inflation potential as the ECB refused to follow the BOE in cutting rates.
Then late, late Monday the ECB drops $500B in the lap of the EU banking system. You almost have to as 'what the hell is going on?' Did someone over there open the books with respect to the sub-prime and credit issues and realize there was a problem? Or maybe Trichet had some Bernanke-like counsel with business and financial leaders in the private sector about slowing conditions due to the credit logjam. Or perhaps the EU wants to lower the euro's value vis- -vis the dollar. The action definitely added to the dollar's strength and the euro's recent softening. With the ECB, however, who really knows. The reaction was certainly surprising as it was out of character and hints at more extraordinary cooperation.
It represents the first coordinated action among major central banks following the action in the months after the 9-11 attacks. It shows they are serious about trying to abort a major economic slowdown spanning multi economies. It also suggests that there indeed was a lot of wheeling and dealing ongoing in the background. You can almost bet that part of the agreement was predicated upon getting the dollar stronger and the euro a bit weaker. That is indeed is underway. Basically it is another step in trying to forestall a significant slowdown. The question remains, however: is it enough in time to avoid a significant slowdown? More data will come starting Wednesday.
Housing starts hit a 14 year low.
Housing starts fell 3.7% in November, but that was not a new low in starts as September was revised lower. Now that is a victory: changing old stats to show better results. No, that is all part of record keeping: as better data comes in you use it.
As for the data, it shows that housing hit a peak in January 2006 and it has not yet hit a bottom. Now THAT is some insightful commentary. Most said that the continued loss shows no bottom in the market. That is true, there is no bottom yet by any means. Yet the rate of decline has definitely slowed over the past three months. Hardly a trend and the majority of commentators dismiss it, but when watching for trends to end it is too easy to ignore modest signs of change. It starts subtly, and even after the data strengthens most dismiss any signs of improvement because they are so beleaguered they cannot see the changes. That is exactly how we noted the economic recovery of late 2002 and early 2003 was starting when most were not even noticing improvement. Same with the market bottom in October of 2002: we saw early leaders setting up accumulation bases, and after the initial spurt dubbed a bear market rally by most, the early 2003 market dip was actually a solid base-building period. We were heavy buyers and caught EBAY, TSCO, and the like as they led the new charge higher.
The point: don't dismiss subtle change. Some won't view the market as better until starts are at levels comparable with the last boom. We all know that is foolish; the bottom is the key. The housing start market has leveled off twice over this year but the bottom dropped again in September, setting a new low in the decline. At the same time, however, mortgage rates have declined and there are more applications each week and not only for refinancing. The housing market likely still has 6 months of work before it puts in a bottom, but the attempts to set up plateaus shows a slowing of the rush to the bottom.
THE MARKET
MARKET SENTIMENT
VIX: 22.64; -1.88
VXN: 26.79; -1.1
VXO: 25.08; -1.5
Put/Call Ratio (CBOE): 1.02; -0.11. Five of six sessions show a close above 1.0. Just over half way there to start showing the downside betting is getting a bit extreme on this down leg. Of course, that means likely more downside to come before the market can attempt a sustained upside attempt.
Bulls: 53.3%. Uncool. Up from 49.4% as bulls continued their run higher, bouncing before it got to 45% as we wanted (hit 40.6% on the low for the last round of selling). It spent 5 weeks above the threshold 55% on the last spike higher. You have to go through the process of wringing out the bulls with a decline of significance, a.k.a. a move into the lower 40's. 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: 25.6%. Also uncool, falling from 27.6%. That is down from 29.0% after one week at a higher level, jumping from 26.6% the week prior. Up from 22.2% 5 weeks back after bouncing up and down over 20 for several weeks. It is still significantly above the threshold 20% considered bearish. Fell to a low of 19.6% on this round. Bearishness peaked at 37.4% on this move and it fell to 18% in August. 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: +21.57 points (+0.84%) to close at 2596.03
Volume: 2.01B (+5.28%). A 2B day on NASDAQ but that is still well below average. About all you can say is that volume rose on an upside session after a weak showing on the two downside sessions. That is a positive but a rather modest one looking at the overall technical picture.
Up Volume: 1.35B (+1.152B)
Down Volume: 627.922M (-1.025B)
A/D and Hi/Lo: Advancers led 1.52 to 1. Pretty lackluster given the heavy downside breadth.
Previous Session: Decliners led 3.82 to 1
New Highs: 48 (+2)
New Lows: 355 (+25)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped higher, tested lower, then rallied back to close near the session high. It tested the 200 day SMA (2600) twice, once on the open and again in the afternoon when it recovered from the midday dip. The end result was a big doji with tail that tested near the November low (indeed as noted in an intraday alert, that appeared to trigger the rebound from the early selling) and then recovered but could not take out that key resistance level. The run at the 200 day SMA off of this doji will be the next key test for NASDAQ. Maybe, and it is a big maybe, it can form a double bottom here.
NASDAQ 100 (+0.43%) struggled all session, leading the downside and then just tagging along on the afternoon recovery. As with NASDAQ, when it tapped near the November lows it rebounded on stronger trade.
SOX (+0.22%) showed a doji on the candlestick as well, holding just over the November lows. Watch out. SOX looks as if it is about to form the second leg of a double bottom. It has not done so yet, but you have to watch it in conjunction with NASDAQ. And, as with the housing data, you don't want to ignore subtle signals even when your intellect tells you 'no way.' Very interesting.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.08 points (+0.63%) to close at 1454.98
NYSE Volume: 1.493B (+3.77%). Volume moved back up to average, indeed making the best showing since the Fed's 'second day' announcement of auctions and swaps. Likely just short covering action given the weakness of the financials still, but keeping an open mind about it given the NASDAQ and SOX patterns.
Up Volume: 975.042M (+712.188M)
Down Volume: 498.67M (-657.454M)
A/D and Hi/Lo: Advancers led 1.63 to 1. The small caps surged higher but breadth was still mediocre.
Previous Session: Decliners led 4.37 to 1
New Highs: 23 (-5)
New Lows: 370 (-17)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps undercut the early 2006 up trendline but it recovered as well to hold that level and post a gain on rising volume. Hard to read a lot into this move though if it does hold it will have made a higher low above the August and November lows. We will see.
SP600 (+1.55%) was the upside leader after it undercut its November low, in the process of moving to a new low since its last all-time high. It then reversed and posted a solid gain on the session. Its pattern as well holds the potential of a double bottom.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips struggled on the session, selling off after a stronger open, testing near the August interim lows and then rebounding for a positive close. Volume was lower as it reached up to tap at the 200 day SMA (13,309) on the high before fading back to close. Not a very strong showing and quite a muddled pattern. About all you can say for it is the same as SP500: trying to make a higher low but not showing much strength in the attempt.
Stats: +65.27 points (+0.5%) to close at 13232.47
Volume: 233M shares Tuesday versus 243M shares Monday. No volume on the rebound, even less than the light selling trade. There may not have been much dumping on the selling, but even less buying on the Tuesday bounce.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Crude oil inventories are out but the bigger stories involve more earnings news and the results of the Fed's Monday auction. FITB (bank) warned and PALM was selling on its after hours results. Not going to get any lift from earnings expectations on Wednesday. Of course some solid GS and BBY earnings on Tuesday could not translate into gains for those stocks though BBY did recover to flat after a selloff intraday.
As noted earlier, the financial markets are not showing a tremendous additional benefit from the Fed auction, at least from what we can see, but if it was widely subsidized then the stock market will appreciate that. The market is looking for something to show it that the Fed's actions, now combined with what the European central banks are doing, can clear out the clogged credit arteries and revitalize economies before it is too late. As indicated last night, it looked as if Bernanke's Fed was too late, but with the help of coordinated central bank action things can happen faster.
There are also the potential double bottoms in NASDAQ, NASDAQ 100, SOX and SP600. Basically if financials are not heavy in the mix there is a rudimentary double bottom trying to set up. A long way from any confirmation of that action, and leadership took some blows to the midsection Monday, but we don't want to ignore it because of a preconceived notion that the market has fallen and can't get up.
Thus it is still a time to exercise caution with respect to any upside. A day of reversal off the November lows is promising but it is not a confirmation of any market turn, particularly with the financials still under pressure and a definite lack of buying interest of late. We are hearing talk of managers sitting pat into year end and thus the lack of upside. We will see. Even some of the financials, even those in the most reviled areas such as mortgage finance, e.g. FRM and FNM, are showing life and are actually improving their patterns over the past week after looking like refried beans. Signs yes, but very early, and again, unconfirmed.
With that in mind we are still going to look for some strong leadership caliber stocks that are forming up as well along with the NASDAQ, NASDAQ 100, SOX and SP600. We were nibbling some Tuesday after the test lower and we will continue to do so as long as those indices forming up continue to do so. Leaders took some hits Monday, but many still held up. If the selling doesn't drag them it makes them stronger. Those showing great relative strength in the selling have proved they have strong support. They will continue to improve if these patterns in the indices continue to do the same. If NASDAQ fails and rolls over on stronger volume at the 200 day SMA, that cements the weakness, and we will look for downside opportunity, especially if the market puts in another couple of sessions trying to move upside before it fails.
Support and Resistance
NASDAQ: Closed at 2596.03
Resistance:
The 200 day SMA at 2600
2634.60 is the June peak
2673 is the early July high
The 50 day EMA at 2668
The March up trendline at 2707
2725 is the July high
2753 is the November/December/February up trendline
2778 from a July 1999 peak
2834 is the October interim peak
2861.51 is the October peak
Support:
2550 to 2540 from May/June consolidation and the November lows, and that level held on the Tuesday low
2525 is the February closing high
2524 is the August 2004/April 2005/October 2005/March 2007 up trendline
2451 is the August closing low
2386 is the August intraday low
S&P 500: Closed at 1454.98
Resistance:
1459 is the February peak
1475 from peaks in December 1999 and January 2000
The 50 day EMA at 1483
The 200 day SMA at 1487
1490.72 is the early June closing low and early August peak.
1530 to 1535 are the June twin peaks
1534 is the early July high
1539 is the mid-June intraday high
1541 is the early June high
1548 is the July 2006/March 2007 up trendline
Support:
1447 is the June/July 2006 up trendline
1440 - 1437 from January and March peaks
1438 is the November low
1430 from the August interim lows
1425 is some minor support.
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low
Dow: Closed at 13,232.47
Resistance:
The 200 day SMA at 13,309
The 50 day EMA at 13,412
The 90 day SMA at 13,479
13,655 is the July 2006/March 2007 up trendline
The early July peak at 13,671
The early June high at 13,676 (closing), 13,692 (intraday)
The mid-June high at 13,689
The August high at 13,696
13,750 is where it stalled in early December
13,930 is the late October peak
The July high at 14,022
14,088 is the early October closing high
14,198 is the October intraday high.
Support:
12,845 is the August closing low
12,786 is the February peak
12,743 is the November low
12,518 is the August low
12,250 from late March lows
12,050 from the March 2007 low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
December 17
Current account, Q3 (8:30): -$178.5B actual versus -$183.0B expected, -$188.9B prior
NY Empire State Index, December (8:30): 10.3 actual versus 21.0 expected, 27.4 prior
Net Foreign Purchases, October (9:00): $114.0B versus $15.4B prior (revised from -$26.4B)
December 18
Housing starts, November (8:30): 1.187M actual versus 1.175M expected, 1.232M prior (revised from 1.220M)
Permits, November (8:30): 1.152M actual versus 1.150M expected, 1.170M prior
December 19
Crude oil inventories (10:30): -722K prior
December 20
GDP, Q3 final (8:30): 4.9% expected, 4.9% prior revision
Deflator, Q3 (8:30): 0.9% expected, 0.9% prior revision
Initial jobless claims (8:30): 335K expected, 333K prior
Leading Economic Indicators, November (10:00): -0.3% expected, -0.5% prior
Philly Fed, December (12:00): 6.0 expected, 8.2 prior
December 21
Personal income, November (8:30): 0.5% expected, 0.2% prior
Personal spending, November (8:30): 0.7% expected, 0.2% prior
Core PCE Inflation, November (8:30): 0.2% expected, 0.2% prior
Michigan sentiment, December revision (10:00): 74.5 expected, 73.5 prior
End part 1 of 3
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world stock market
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