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3/06/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CAM
Trailing stops: None issued
Stop alerts issued: ACI; SVNT; TJX; TKC; VIP
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SUMMARY:
- Wednesday weak bounce was a setup for a dive lower.
- Jobless claims improve for the week but don't turn the trend.
- Pending home sales, foreclosures continue their separate trends
- Looking for a few good flush out days.
Short bounce quickly turned over.
After testing the February lows and reversing on Tuesday the market wasted little time in revisiting them and putting in new closing lows. The Wednesday move sure looked rather puny, and its weakness was exposed Thursday as more glum economic news finally did it in.
The news was flying fast on Thursday in preparation for the Friday jobs report and the market was having a hard time putting a positive spin on it. For the past month stocks have managed to hang on and move laterally in a consolidation, shaking off the bad news along the way. That bad news appears to be piling up, giving investors some indigestion at having to swallow a new batch every session.
Thursday there was another plate to eat. Jobless claims were better at 351K, a bit easier to swallow. Same store sales, however, were weak for the third straight month as department stores and even some luxury retailers (e.g. JWN) saw sales decline. There was a definite skew to the discounters as WMT posted a 2.6% increase versus the 1% expected. COST, BLI and a host of other discounters enjoyed nice sales growth. Some took heart at this. As we said last year and earlier this year as discounter sales grew, this is not a sign of a strong economy but one where $100/bbl oil (and $3/gallon gas), job worries, housing worries, and credit issues are worrying consumers, pushing them back to the discounters to buy. It happened in the 2000 recession and it is happening in this one.
Stocks managed to bounce back from that weaker open but then pending home sales and foreclosure stats came out. Pending home sales were flat from December to January but -19.6% year over year. Not a death blow, but the delinquencies and foreclosures jumped, and that really took the air out of the market. Delinquencies rose 5.8% in Q4. Foreclosures rose 6.4% over the same period, up 53.7% from Q4 2006.
That started a long slide all the way to the afternoon session where the market moved laterally and attempted to set up a bounce. It failed once, tried to bounce back to rally again, and then failed in the last half hour. Failed miserably. The indices cascaded lower. Wasn't panic selling, however. Volumes were too low, VIX didn't spike. There is still room to the January lows, and if they are going to set a bottom there is going to have to be more volume and a shot higher in the VIX.
TECHNICALLY, the intraday action was quite bearish. No kidding. An early bounce was crushed by a session long selloff. That selloff only gains strength toward the close. Low to lower to lower.
INTERNALS: Breadth was extremely negative. NYSE -7.5:1. NASDAQ -4:1. The only saving grace of the session was overall light volume. That, however, isn't really a saving grace. When the market is selling this hard low volume isn't going to stop it. You want stronger volume, indeed spiking volume, to go ahead and flush out the market and try to set a bottom. Thus there needs to be some volume in the selling ahead.
CHARTS: The indices quickly returned to the February lows with NASDAQ and SP500 undercutting the Tuesday March lows as well. DJ30 closed spot on that low, still about 400 points above its January low. The break lower past the February lows by all of the indices opens the door to that test. The question becomes whether this selling will be enough or strong enough to set the bottom at or near the July lows. We still have our doubts, but the market showed more moxie than we thought it had given the lateral consolidation move even in the face of the continuing parade of negative data.
LEADERSHIP: The recent leaders in energy and commodities were mixed on the session. The market dives lower and they are mixed, holding their trends even if they were lower on the session. There is still a lot of money in those names. We continue to see firming in other areas such as medical, defense, and surprisingly, trucking. They are not jumping off the page, but trucking is forming up bases and that is a very interesting indication for the economy as these stocks have struggled mightily for a long time but are now showing relative strength. They tend to bottom ahead of the economy; interesting.
THE ECONOMY
Jobless claims give some false hope for Friday jobs report.
Jobless claims were less than expectations and the recent high readings, coming in at 351K (360K expected), down 24K for the week. That got the ever optimistic fired up over the Friday jobs report, but this one week won't be in that report and it in no way turns the current trend. The jobs report will likely not meet even the meager 25K expected.
The weekly jobless claims have risen not fallen since the last report that saw a 17K decline. Thus by extrapolation you would anticipate another weak report. Not that 25K isn't a weak report. It is just likely overstating the reality. The trend is still down because jobs lag the economy and we have seen lower and lower economic data. That means we have not seen the bottom of the jobs market yet because we have not seen the bottom of the economic data yet.
Again, how the market reacts at the January low is the key.
That puts all the more emphasis on what the market does at the January low. Was the month spent moving laterally and attempting a base going to prove fruitful or was it just a shelf for the market before a sharp break below the January lows? If it holds either with or without an undercut after another spike lower that gets the sentiment indicators flying higher, then it just might do it. As noted, there is some new leadership trying to set up to move higher and lead. ANY attempt at a bottom needs good stocks in position to rally. Many attempts in the 2000 to 2002 selloff failed because there was no leadership at the ready to step in. How these stocks hold up on a spike down to the January lows will help tell the tale.
THE MARKET
MARKET SENTIMENT
VIX: 27.55; +2.95. Up but hardly spiking as it hits the early March peak. If this is going to get to bottom-forming levels it is going to have to ignite on up to the forties.
VXN: 29.99; +2.47
VXO: 30.5; +3.49
Put/Call Ratio (CBOE): 1.27; +0.13. Seven sessions over 1.0 on the close. The ratio is where it needs to be.
Bulls: 42.0%. Basically moving laterally, up slightly from 41.6%. That followed a big bounce back up the prior week as the market rebounded from the early February selling. Hit 36.7% two weeks back, the low for this selling round. 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 eleven 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: 36.4%. Bulls might be heading up, but bears are still growing in ranks, up from 33.7% the prior week when the bulls and bears stared at each other. Bears are chasing the bulls right now; another dip and they may cross, a very bullish indication. Up sharply 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: -52.31 points (-2.3%) to close at 2220.5
Volume: 2.199B (+2.5%). Volume was up but hardly blowout as NASDAQ sold lower. Not the kind of spike needed to help set the bottom.
Up Volume: 311.574M (-1.152B)
Down Volume: 1.877B (+1.095B)
A/D and Hi/Lo: Decliners led 4.05 to 1. Pretty ugly downside.
Previous Session: Advancers led 1.01 to 1
New Highs: 41 (-10)
New Lows: 337 (+152)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Techs sold off and just eclipsed the Tuesday intraday low on the close. It is just 20 points off the January low and ready to take that out on Friday. Want to see a blowdown on volume and fear.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -29.36 points (-2.2%) to close at 1304.34
NYSE Volume: 1.616B (-0.18%). Big price drop, but volume dropped as well, so not the fear you want to see. Likely to spike up as it heads lower toward the January low, however.
Up Volume: 87.889M (-925.343M)
Down Volume: 1.524B (+926.561M). 17:1 downside to upside volume. Trying to remember last time I saw that.
A/D and Hi/Lo: Decliners led 7.55 to 1. Now that is extreme.
Previous Session: Advancers led 1.3 to 1
New Highs: 36 (-2)
New Lows: 307 (+166)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 undercut the Tuesday intraday low as well, posting a new closing low for the year as it undercut the January low at 1310. It is now 34 points off the January intraday low, just another Thursday from that level.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
DJ30 sold down to the Tuesday intraday low, not quite able to take it out on the close. As noted that opens the door to the downside and the January low (11,634). The attempt upside had no strength to it and it rolled over easily. Volume was low, however, back below average. Need to see the fear driving volume higher to really shake out the market on the next selling to the January low.
Stats: -214.6 points (-1.75%) to close at 12040.39
Volume: 283M shares Thursday versus 304M shares Wednesday. Needs higher volume on the selling to clear out the pipes.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
The jobs report is what most are focusing on Friday, but as noted above, with all of the economic data still heading south, there is worse to come. Thus even if it meets or beats expectations, something less likely given the rise in weekly claims during February, we know it is still going to get worse as jobs follow the economic data lower.
What you want to happen is go ahead and have a weak report and get the selling up along with the volume, VIX, undercut the January lows, and then see if it can make the rebound, led by some quality stocks.
This selling was inevitable; the test had to come at some point. The fact that the market put in 6 weeks in between the January low and what looks to be a dive to that point in progress is a good sign. The market tried to consolidate and did so with some bad news buffeting it on a daily basis. That and some leadership setting up in some new areas at least allows you to make a case for a try at a bottom somewhere around the January lows.
There is always a debate about whether the low needs to be undercut or if it needs to hold. Some say if it is undercut it will have to head lower again. Not really. It can undercut it and scare the remaining fecal matter out of everyone and that is what sets the bottom. That is a traditional double bottom. In 2002 there was definitely an undercut of the summertime low that was the first leg of the double bottom and that worked to set the recovery. The March test lower was not part of that, just a consolidation; the double bottom occurred prior to that.
Thus don't panic if the indices eventually undercut the January intraday lows on further selling. That is just part of the process, and it acts to better set the bottom as the shakeout is more complete. What is really the key is what the market does in the aftermath, i.e. will it give a follow through session to the reversal a week or so after the reversal day, i.e. a strong upside move on strong, rising volume. Will good stocks then show up with breakouts at that time or within a couple of weeks after that? That will tell the real tale on any rebound off of a test of the January lows.
Support and Resistance
NASDAQ: Closed at 2220.50
Resistance:
2252 is the early February low
The 10 day EMA at 2282
2286 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2340 from the March 2007 low
2370 from the April 2006 peak
2378 is the mid-February peak
2379 from the October 2006 peak
2386 is the August intraday low
The 50 day EMA at 2387
2419 is the January 2008 peak
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
2574 is the August 2004/April 2005/October 2005/March 2007 up trendline
Support:
2221 is March low
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
S&P 500: Closed at 1304.34
Resistance:
1317 is an ancient trendline
1317 is the early February low
1325 from May 2006 peak prior to the summer 2006 correction
1368 is the high in this recent lateral consolidation
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1375
1396 is the January 2008 peak
1406 is the August and November 2007 closing low
1417 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
The 200 day SMA at 1467
1475 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
Support:
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 12,040.39
Resistance:
12,070 from the early February 2008 lows
12,050 from the March 2007
12,250 from late March 2007 lows is stretching
12,307 is the 10 day EMA
12,518 is the August intraday low
The 50 day EMA at 12,569
12,573 is the mid-February high
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
13,264 is the 200 day SMA
Support:
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.
March 3
Construction spending, January (10:00): -1.7% actual versus -0.8% expected, -1.3% prior (revised from -1.1%)
ISM Index, February (10:00): 48.3 actual versus 49.0 expected, 50.7 prior
March 5
ADP Employment survey, February (8:15): -23K actual versus 15K expected, 119K prior (revised from 126K)
Productivity revision, Q4 (8:30): 1.9% actual versus 1.8% expected, 1.8% prior
Factory orders, January (10:00): -2.5% actual versus -2.5% expected, 2.0% prior (revised from 2.3%)
ISM Services, February (10:00): 49.3 actual versus 47.5 expected, 44.6 prior
Crude oil inventories (10:30): -3.05M bbl versus +3.2M prior
Federal Reserve Beige Book (2:00)
March 6
Initial jobless claims (8:30): 351K actual versus 360K expected, 373K prior
Pending Home sales, January (10:00): -1.5% prior
March 7
Non-farm payrolls, February (8:30): 25K expected, -17K prior
Unemployment rate, February (8:30): 5.0% expected, 4.9% prior
Hourly earnings (8:30): 0.3% expected, 0.2% prior
Average workweek (8:30): 33.7 expected, 33.7 prior
Consumer credit, January (3:00): $7.0B expected, $4.5B prior
End part 1 of 3
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