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2/26/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: Took some interim gain on AGU, XTO
Buy alerts: DO; NOK; RIG; SVNT; TKC; USO; YTEC
Trailing stops: None issued
Stop alerts issued: DIA; VLO
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:
- Once more market gets bad news, overcomes it, posts upside.
- PPI shows inflation becoming a problem for the Fed even before it can get the economy moving.
- Consumer confidence rate of decline is a problem.
- Market defies the news, continues its improvement as DJ30 puts out its best three days of the year.
More bad news but more upside anyway.
There was not a lot of positives to take out of the headline news stories Tuesday. PPI jumped past expectations on both the overall and the core (1.0% and 0.4% respectively). That pushed the overall reading to its largest year over year gain in 25 years (7.4%). Earnings were less than helpful as HD missed, TGT was in line, and ODP missed as well. Many more companies reported ho-hum earnings. The Schiller housing market index fell 8.9%, its worst decline in its 20 year history, topping the -2.5% decline in the 1991-92 recession. Big decline; of course, it was preceded by a big, extraordinary run higher. Consumer confidence fell to 75.0, well off the 82.0 expected and the 87.3 the prior month. The dollar fell to an all-time low versus the euro at about $1.50 to 1 euro. To top it off, oil surged to a new all-time closing high at 100.86 after hitting 101.15 on the intraday high.
That was a heavy burden to bear. The market started lower and fell further, meandering all through the first two hours of trade. Then midmorning IBM announced an additional $15B buyback of its shares and word came out that the ABK bailout would include institutions not involved with the sub-prime mess. Despite a litany of negatives far outweighing the positives offered by these bits of positive news, the market latched onto the positives, found bottom, and launched another rally into the afternoon and the close. Technology rallied on the IBM news, financials firmed on the ABK news, and retail followed them higher as the market cobbled together another solid upside move.
TECHNICALLY it was another low to high session as the market sold early then rallied late, fighting off a last hour selling attempt. More bad news yet once more overcoming the negatives to hold the line and rally to solid gains. Market is making a practice of facing down bad news and rallying past it. That is always a sign of backbone.
INTERNALS: Breadth was solid at 3:1 before the last hour took some of the luster off at 2.3:1 NYSE and 1.7:1 NASDAQ. Volume was more interesting as it was up on both NASDAQ and NYSE, the first time they have shared rising volume on an upside session in a week. Of course it was not huge volume, rising to average on NASDAQ, and though NYSE approached average, it did not make it. Some accumulation continues, and that is an overall positive.
CHARTS: DJ30 cleared the 50 day EMA by a hair. It gave it up in the last hour and had to struggle to recapture it on the close. It held it, but it equivocated at that level, indicating it is not a clear and clean break just yet. SP600 moved over its 50 day EMA as well as the blue chips and small chips worked in tandem. SP500 managed to tap its 50 day EMA on the high and faded back. NASDAQ is not close to that level, but just as the other indices already accomplished, it continues to build its lateral consolidation and is breaking higher on better volume.
LEADERSHIP: The same group of leaders were out in front once again (energy, metals, ag, commodities), but Tuesday retail and financials were starting to help, and housing posted gains as well. The move spread out. Not all of these are in great patterns, and thus you cannot include them in the same breath with the early leaders that were in good bases and broke higher, but they are trying to stem the selling and form bases themselves. That is what a rally does, i.e. it buys time for other stocks to improve from their selling, form bases, and move higher. In that respect leadership is looking better each session.
THE ECONOMY
PPI cannot contain energy and food prices.
The overall PPI is screaming higher the past few months led by food and energy that are on breakneck upside runs. Energy jumped 1.5% versus -3% the prior month. Food rose 1.7% after a 1.2% gain the prior month.
PPI is not the consumer price measure and thus it is discounted to a certain extent, but the CPI was no tiptoe through the tulips and the PPI is exploding higher as commodity and food prices launch into orbit. The Fed started to include the overall in its inflation consideration a few months back, and it must be sleeping fitfully at night as price surge.
Fitfully indeed. The Fed is doing what it can to pump up the economy, but as it does inflation has re-emerged as a serious threat before the Fed achieves its goal vis- -vis the economic rebound. Bernanke has a very difficult hand to play out, one that he inherited from his predecessor who left interest rates very low for a very long time. It looked as if Bernanke had successfully tamped out inflation, but the surge in commodities and food over the past 6 months has reignited concerns the core, already showing pressure the past three months, is going to follow it higher. With oil over $100/bbl (closed at 100.86, a new record), there is little room for anything but higher prices.
The Fed cannot control oil prices, but it eventually will try to do so once more because that is the mentality of the Fed. It has already started to factor in food and energy in its inflation decisions even though food is higher because of poor US policy decisions and burgeoning population growth. How will the Fed fight that with interest rates? Nonetheless, the Fed has a mandate to promote the fastest possible growth while maintaining price stability. It cannot and won't ignore the price component indefinitely. Unfortunately its only real weapon is the interest rate barometer, and that won't in itself cure the problem. It will try to use it to do so, but it cannot forestall this kind of price rises.
Consumer confidence increases the speed of decline as expectations tank.
The 75.0 reading is not in and of itself a recession indicator, but the rate of decline is picking up speed, and that is a consideration in whether recession clouds are building. This seven point decline is the second big decline in three months and suggests that the consumer is losing confidence at an accelerating rate and a reading in the sixties is starting to get recessionary.
Expectations are another indication. They fell to 57.9 from 69.6, a massive decline and the lowest measure in over 17 years. Jobs expectations fell; not as breakneck as confidence overall, but over the past four months and of late coincident with the rise in weekly jobless claims to 350K, worries about jobs have increased. This is the key component with respect to consumer confidence and whether the consumer continues to buy or holes up.
The sum of the data.
This data suggests that though the market has firmed and is continuing its rebound off the January lows, presumptively anticipating better economic times than the data is showing now. That is typically the case. Some of these leading indicators, however, suggest that we keep an eye out for trouble as this rally continues. It has not been a rip roaring powerful rally with surging buy side volume. It has scratched its way along and has managed to move higher on low volume. There are some great movers; we have bought into many strong stocks running higher. We simply need to keep our heads on straight and not be overly beguiled by the gains. The weak economic data is of the nature that indicates the economy is not wholly healed, and that, along with the technical shortcomings of the rally, leave it somewhat suspect. Not so much so that we are not participating, but if the selling volume jumps it is a good idea to be nimble.
THE MARKET
MARKET SENTIMENT
VIX: 21.9; -1.13
VXN: 25.95; -0.72
VXO: 23.23; -0.79
Put/Call Ratio (CBOE): 1.06; +0.12
Bulls: 41.6%. Big bounce back to positive as the market rebounded from the early February selling. Up sharply from 36.7% that put the bulls and the bears eye to eye. Didn't make the 35% range considered to be bullish for the market. Down 20 points from the 56.5 ten weeks back. A move into the lower 40's is a decline of significance, but it needs a bigger move is to 35% which is a big bullish indication. It is just about there. Moreover, with bears surging over 35%, they are making that 'kiss' that is quite bullish (even more so if they cross over one another). For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 33.7%. Equivalent decline in the number of bears, down from 35.6%. It was a good surge from 32.6% the prior week, and that followed a nice move from a low of 19.6% on the last rally. It is over 30% and indeed over 35% the prior week, meaning it is in the range that means business. Big move after falling to a low of 19.6% on this round. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that 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: +17.51 points (+0.75%) to close at 2344.99
Volume: 2.331B (+8.77%). Volume was up to average on the session as NASDAQ moved through near resistance at the 18 day EMA. Again a modicum of accumulation in the techs.
Up Volume: 1.591B (-130.734M)
Down Volume: 686.617M (+289.268M)
A/D and Hi/Lo: Advancers led 1.77 to 1. Decent breadth though down from the 2:1 on Monday.
Previous Session: Advancers led 2.03 to 1
New Highs: 65 (+7)
New Lows: 89 (-35)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ made a higher low and moved through the 18 day EMA in its four week lateral move off the January low. It is well behind the NYSE indices that are already at or above the 50 day EMA, but it continues to improve and put itself into the position to follow them with a move of its own.
SOX (+1.76%) continued its bounce off the January and February lows, making its own move toward the 50 day EMA as well. That will be the key point for it on this move once more. Providing some support to the NASDAQ as it tries to break free this recent range.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +9.49 points (+0.69%) to close at 1381.29
NYSE Volume: 1.537B (+1.51%). Volume was up, but it just won't pick up significantly at least make a run at average. Instead it moves up on below average volume, hardly an endorsement of the move.
Up Volume: 1.108B (-188.613M)
Down Volume: 413.106M (+210.004M)
A/D and Hi/Lo: Advancers led 2.34 to 1. Another nice day of breadth as the small caps continued to work well with their elders.
Previous Session: Advancers led 3.33 to 1
New Highs: 93 (+10)
New Lows: 71 (-13)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
The large caps continued their break higher, rallying to the 50 day EMA on the high, but unlike DJ30, could not make the break through. SP500 faded back from that test after coming within a whisker of the early February high. Solid price move to the next resistance point where it will take a pause if does not get more volume to drive it on through after this nice bounce. Not a bad move but still lacking in volume. That keeps it on the probation list.
SP600 (+1.05%) rallied through its 50 day EMA similar to DJ30, tapping at the February peak on the high before the late market pullback brought it down from that level. The move makes a higher high as the small caps continue to improve.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Modestly rising volume as the blue chips broke above the 50 day EMA, tapping at the early February peak on the intraday high. Got its life from the IBM buyback and surge, but you take it where it comes. There is resistance at 12,750, and DJ30 is right there again as it was in early February when it failed and continued lower. Showing more strength this time around. That said, this is a key point for the life of this move.
Stats: +114.7 points (+0.91%) to close at 12684.92
Volume: 291M shares Tuesday versus 288M shares Monday. Modest accumulation continues on the blue chip index, though a lot of the trade was on the IBM buyback news.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
Durable goods, new home sales, and the start of Bernanke's two-day testimony to Congress. Could be some interesting tap dancing given the slow economy and rising inflation. Thing is, will the market care? It has shown a penchant for hearing the bad news and then turning a negative into a positive.
After DJ30 moved to 12,750 and SP500 tapped the 50 day EMA, however, it may be ready to take a break, retrench just a bit, then take on those levels. This is one of the next important milestones in the rebound. When you have to dig out of a hole there are many such milestones, and after a couple of good upside sessions it is in position to take a personal day.
Even with the improving rally at this point that has some very solid leadership, it is still on probation given the light trade on the move higher, and these resistance points for DJ30 and SP500 are a natural point for the sellers to try something. Of course they have made a few tries on this move higher though none of them were serious. How they respond as the indices continue to try these levels will tell the next chapter in this rally off the January low. Again, because of the low volume, the move remains suspect and susceptible to sellers re-emerging. The economic data as discussed earlier, is still deteriorating in a way that suggests further economic slowing. With the low volume move higher, is the market really rebutting that data with a rally out of the recession? These moves are always susceptible if the sellers return in force because the buyers were not in force on the move higher.
That said, leadership remains solid and improving. After some of these strong moves they will be ready to take a breather similar to the indices, particularly with Bernanke speaking the next two sessions. He cannot say a whole lot more than he has said with respect to the Fed's readiness to act on economic weakness, and thus most of the risk in the address is that he will say something to mitigate the Fed's eagerness to forestall further economic slowing. We thus will likely see a bit of retracing of the moves that will set up some better buy points. We will be ready to move in as they pullback to support and hold.
Support and Resistance
NASDAQ: Closed at 2344.99
Resistance:
2370 from the April 2006 peak
2378 is the mid-February peak
2379 from the October 2006 peak
2386 is the August intraday low
2419 is the January 2008 peak
The 50 day EMA at 2422
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
2540 is the November closing low
2550 to 2540 from May/June consolidation and the November lows
2562 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2340 from the March 2007 low
The 18 day EMA at 2336
2315 to 2300 from old peaks
2284 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2252 is the early February low
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
S&P 500: Closed at 1381.29
Resistance:
The 50 day EMA at 1387
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1414 is a longer term trendline from the August 2003/September 2004 lows
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1473 is the June/July 2006 up trendline
The 200 day SMA at 1473
1475 from peaks in December 1999 and January 2000
Support:
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
1368 is the high in this recent lateral consolidation
1325 from May 2006 peak prior to the summer 2006 correction
1317 is the early February low
1316 is an ancient trendline
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1270 is the January intraday low
1255 from June 2006 lows
Dow: Closed at 12,684.92
Resistance:
12,743 is the November low
12,768 is the February 2008 peak
12,786 is the February 2007 peak
12,845 is the August closing low
13,050 to 13,000 range
13,092 is the December low
13,250 from price points from June through December 2007
13,303 is the 200 day SMA
Support:
The 50 day EMA at 12,650
12,573 is the mid-February high
12,518 is the August intraday low
12,250 from late March 2007 lows
12,050 from the March 2007
12,070 from the early February 2008 lows
11,670 is the May 2006 intraday high; 11,642 closing
11,634 is the January intraday low
11,317 is the March 2006 peak
11,228 from a July 2006 peak
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
February 25
Existing home sales, January (10:00): 4.89M actual (-0.4%) versus 4.80M (-1.8%) expected, 4.91M prior (revised from 4.89M)
February 26
PPI, January (8:30): 1.0% actual versus 0.4% expected, -0.3% prior
Core PPI (8:30): 0.4% actual versus 0.2% expected, 0.2% prior
Consumer Confidence, February (10:00): 75.0 actual versus 82.0 expected, 87.3 prior (revised from 87.9)
February 27
Durable goods orders, January (8:30): -4.0% expected, 5.2% prior
New home sales, January (10:00): 600K expected, 604K prior
Crude oil inventories (10:30): 4.2M prior
February 28
GDP, Q4 2nd iteration (8:30): 0.8% expected, 0.6% prior
Chain deflator, Q4 (8:30): 2.6% expected, 2.6% prior
Initial jobless claims (8:30): 350K expected, 349K prior
February 29
Personal income, January (8:30): 0.2% expected, 0.5% prior
Personal spending, January (8:30): 0.2% expected, 0.2% prior
Core PCE, January (8:30): 0.3% expected, 0.2% prior
Chicago PMI, February (9:45): 49.5 expected, 51.5 prior
Michigan sentiment final, February (10:00): 70.0 expected 69.5 prior
End part 1 of 3
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