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3/19/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: None issued
Trailing stops: USO
Stop alerts issued: CHK; CLF; DO; HAL; HES; UPL
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http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Expected pullback turns into an afternoon selloff.
- Dollar up 2 days straight. Wow.
- Gold, oil get rocked as Tuesday bounce is turned over.
- Fannie Mae, Freddie Mac capital requirements lowered to 20%.
- Renewed rally attempt to get its serious test.
No one steps up to fill the void of leadership, and pullback becomes a selloff.
As noted Tuesday, it is normal for a pullback after a big gain, and through mid-afternoon the market, while down, was in more of a normal pullback mode. The indices had tested that next resistance, losses were contained, breadth was modest, and volume was tracking a bit lower.
The cracks started showing up in the recent leaders in energy, agriculture, and commodities. After a strong rebound in those sectors on Tuesday as well they were selling hard. A large part of the decline was the strength in the dollar as it posted a second straight session of gains, going out on the session high. As the dollar gains strength, prices in dollar terms fall, somewhat reversing the speculation of higher prices driven by a dollar with no floor below it. Of course that does not explain the magnitude of the declines in some of the commodities (oil fell 4.5%, gold dropped $60); that is due to speculation getting too frothy, and when the window closes some it can close quickly.
The selling got out of hand in the last hour, however, just after last half of the afternoon session rally tried to take hold. That bounce higher gave the sellers a running start, and they did not let up until the close. NASDAQ logged over half its loss in the last 50 minutes. DJ30 lost 180 of its 293 points in that same stretch, SP500 lost 21 of its 32 points. Breadth went from the -1.5:1 range to the -2.5:1 range and volume jumped. It was the hour that made the difference. No new leaders stepped up to take the place of energy and commodity stocks, and that allowed four Dow stocks tied to commodities to produce 40% of the Dow's loss (117 points). The late selling definitely damaged the Tuesday move and the Dow continued follow through. Did not kill it, but damaged it.
TECHNICALLY the action was of course downside, but it was that late burst lower that turned a pullback into a selloff. The market was set to start lower, then the powers that be lowered FNM's and FRE's capital requirements to 20% from 30%. Didn't mean they could go out and collect junk and garbage for loans, but they had to put up less capital to loan, and that could help them theoretically increase their portfolios and thus earnings. That and some solid earnings from MS, GIS, and ADBE helped push negative futures positive and the market opened upside. It sold, failed a rally attempt, sold through mid-afternoon, then really flopped after a late bounce attempt.
INTERNALS: They were typical for a pullback until the late selling that pushed the downside breadth to 2.5:1 and jumped up volume on NYSE. Volume was lower on NASDAQ and actually below average, but as the NYSE indices are the leaders right now, lower NASDAQ volume was not the focus. At least new lows did not ramp up as the indices turned from a modest to more robust pullback.
CHARTS: The indices tapped at their next resistance levels as expected. DJ30 hit the 50 day EMA, SP600 did as well, SP500 waived toward its 50 day, and NASDAQ hit its old trendline. Then they all turned back from there, and the selling snowballed in the last hour. Never good to see distribution on the heels of an upside surge. That shows the sellers jumped right back in and are still exerting strong influence on the market. As noted above, the indices are holding their rebounds and the rally remains intact, but now they have to show they can hold the move in the face of a very strong and opposite response.
LEADERSHIP: As the recent leaders sold, nothing was willing to step up and fill the void. While the recent leaders were cracking on high volume, however, the potential leaders, whiled boxed around some themselves, were basically just using the selling to continue working on their bases. Transports, some telecom, some large cap tech and others are not falling apart, but working on their bases as is the case during a bottom attempt. They hold out some possibilities for a continued move higher, but of course the market has to hold its rally attempt as well.
THE ECONOMY
Dollar is making a move, but it won't last without help.
Did you see gold fall $60 and oil drop 4.5%? Sure you did. As noted, a good impetus for that was the firming and rise of the dollar. Of course a 2-day bump higher in the dollar did not crater the commodities; they were frothy already. It did give them a reason to go ahead and ramp up the selling, however.
The move in the dollar and the contra moves in those areas that have fed off its weakness demonstrate how overdone the dollar trouncing is. This is the problem you create when you have an administration that refuses to stand behind the currency.
This is always a bad idea because it always hurts the economy, but it is even more so now with the strength in the rest of the world and the lack of strength in the US. It was foolish for Greenspan and company to purposefully hobble the US economy and start the cascade of events that gave away our technological advantage over the rest of the world at a time we would need it most. It is equally foolish to pursue a weak dollar policy after we gave away our advantages. We are only compounding the mistakes of the past as more wealth and ideas flee the US for more promising ground.
If Bush would expand upon what he said last week then the dollar would firm even further. He needs to tune out his father's James Baker schooled advisors and actually pursue a stronger dollar policy. The weaker dollar has done what it can do, and the dollar wants to rise again, but it won't if the Bush administration continues business as usual with respect to its dollar policy.
THE MARKET
MARKET SENTIMENT
VIX: 29.84; +4.05. Bounced up to close near the 30 level that too many are putting emphasis on. The 'normal' range of volatility is 20 to 30 with 20 being low and 30 being high. In unusual times such as market selloffs, however, to indicate a bottoming process volatility needs to jump well past that level, on into the 40's or higher. VIX has come close twice, but even on the selling this week it did not broach even the prior highs at 37.5.
VXN: 31.28; +2.83
VXO: 31.77; +4.21
Put/Call Ratio (CBOE): 1.21; +0.21. Almost three weeks above 1.0 as the ratio continues to sport a downside bias, and overall that is more bullish for stocks.
Bulls: 31.1%. Massive decline from 41.9%, one of the largest declines we have ever seen. The bulls and bears were eye to eye in mid-February. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. 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: 43.3%. Another massive move, up from an already high 36.6%. 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 has blown past 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: -58.3 points (-2.57%) to close at 2209.96
Volume: 2.296B (-4.31%). Volume faded back below average as NASDAQ sold, holding out something of a silver lining for NASDAQ, but its pattern is still a work in progress to say the least.
Up Volume: 322.078M (-1.874B)
Down Volume: 1.952B (+1.754B)
A/D and Hi/Lo: Decliners led 2.35 to 1. Not too bad but it was much worse than during the early afternoon.
Previous Session: Advancers led 3.28 to 1
New Highs: 44 (+7)
New Lows: 201 (-28)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ reached up to tap the old trendline on the high (2281) and then turned back hard, giving up over half the Tuesday gains. It made it up to the top of the March range and has faded back into the pack, holding just over the January low at 2200. As noted, still a work in progress as the large cap techs, down 2.5% themselves Wednesday, try to form up and provide some leadership.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -32.32 points (-2.43%) to close at 1298.42
NYSE Volume: 1.974B (+1.26%). Volume was up and remained well above average as the NYSE indices tried to move higher but then rolled over. Never good to see volume ramp higher immediately after a strong surge as it shows the sellers were stronger than the upside.
Up Volume: 340.22M (-1.513B)
Down Volume: 1.621B (+1.528B)
A/D and Hi/Lo: Decliners led 2.52 to 1
Previous Session: Advancers led 8.12 to 1
New Highs: 23 (-5)
New Lows: 96 (-40)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tapped at the 50 day EMA but came up about 8 points short of that level then it rolled over. Right back in the middle of the recent range where it made two quick lows at the January low and bounced. Needs to hold somewhere along this range to keep this bounce attempt alive, but it could also muddle along here in this range and continue trying to build a base. After any hold here the key move is whether it can break above the 50 day EMA that stalled it out since late 2007.
SP600 (-2.58%) tried the 50 day MA itself, where it failed three times in February by the way, and turned tail itself. Very similar pattern to the Dow and SP500, and thus it too looks to try and hang onto the bounce and rebound or just continue the basing process.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow ran into the 50 day EMA (12,415), tried to move through, and then turned back down. Pretty much as expected but for giving back 70% of the move thanks to that late dive lower. DD, XOM, CVX, and AA accounted for 40% of the Dow's loss, all tied to commodities. All look as if they can sell even further, meaning there is likely some more downside for the Dow before it can attempt to revitalize its break higher. Its rebound rally from two weeks back, unlike SP500 and NASDAQ, remains in tact complete with follow through. Now it has to find the strength to hold it.
Stats: -293 points (-2.36%) to close at 12099.66
Volume: 328M shares Wednesday versus 367M shares Tuesday. At least volume was the lowest in a week though still above average.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
Initial jobless claims, leading economic indicators, Philly Fed. Two important economic indicators, one worthless sandwiched in between. Likely not much that will provide the market much support to turn the close at the lows.
Momentum was upside at the close Tuesday as shorts covered and it was down at the close Wednesday as sellers took their shot in a move that was held as much momentum as Tuesday. Definition of volatility. The commodities look ready to sell further Thursday, and the market could very likely find itself without any leadership yet to fill the void.
Lots of potential negatives, but that will at least clear up whether this rally attempt has anything left in the tank. Talk about looking for a silver lining. With other stocks trying to set up for an upside move, if the indices again hold the lows, showing stickiness at that level, that is a positive as the basing continues without moving lower.
That is important because right now the big decision ahead is whether the economy is going to recover with the aide of the Fed and its different and rather inventive approaches and the 'stimulus' in the form of adding $170B to the debt. As with the first stimulus package in 2001, this one won't even stimulate a dog in heat. Thus this is a real test of Bernanke's outside of the box thinking: in spite of the fiscal waste of money, will his methods work? Former Dallas Fed president McTeer says that Bernanke has experimented and has come up with the right mix now. He also made a humorous comment after a Bear Stearns economist blamed Bernanke for all the problems today, saying he was on the Fed when these policy decisions were made. McTeer said Greenspan would be glad to know he was no longer responsible for them.
We said back before this test that this would be the lick log for the market and the economy. If it holds the economy is looking brighter whether the data does at this point or not. Look at the transports; rails and trucks are looking good. Wish there were more, but you take what you can get, and transports are very, very economically sensitive. With diesel fuel hitting $4/gallon, something has to be shaping up if it they are building in higher earnings ahead.
So we see where this test takes the market. Volatility is extreme as the two furies of the market fight it out, and day to day swings are again bruising investors. It looks as if the commodity train is going to pull into the basing station for now, but if this pullback holds, that will give those other sectors trying to form some bases, e.g. large cap tech, telecom, transportation, technical instruments, and even some industrial sectors a chance to complete their patterns. It is interesting to note that many typically recession-type stocks (BUD, CHTT, PG) are not performing well. Again, this is an inflection point for the market with as many saying that a bottom is forming as saying there is deeper selling to come. Intuitively it would seem the rather mild overall selloff thus far does not dispel the excesses in housing and the freeze up in credit, but the market makes that decision.
As for new plays, there are some downside that look ready to continue lower, but there were strong moves in energy Tuesday that looked ready to continue higher. There are some downside positions we are going to look at regardless of how hard things sold Wednesday because they can make us a nice gain even if the recent lows hold again; fast in, fast out. We are also watching upside patterns develop and need to be ready; if the prior lows hold, a bounce upside could be powerful once again and these could be ready to lead. In short, the market is all over the map day to day but is still holding the January lows. It will make a decision before too long and we can make some money in the interim on some quick moves while we wait for the bigger picture to finish developing.
Support and Resistance
NASDAQ: Closed at 2208.96
Resistance:
2216 from August 2005 peak
2221 is March low
The 10 day EMA at 2234
2252 is the early February low
The 18 day EMA at 2253
2281 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2338
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
2419 is the January 2008 peak
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
Support:
2202 is the January intraday low
2175 from the December 2004 peak
2168 is the March 2008 low
2158 from May 2006
2164 From August 2006
2134 from August, September 2006
2100 from June 2006
S&P 500: Closed at 1298.42
Resistance:
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
The 10 day EMA at 1308
1317 is the early February low
The 18 day EMA at 1318
1320 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
The 50 day EMA at 1353
1368 is the high in this recent lateral consolidation
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
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
Support:
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1272.66 is the March 2008 low
1270 is the January intraday low
1260 from July 2006
1258 to 1255 from May and June 2006 lows
Dow: Closed at 12,099.66
Resistance:
The 10 day EMA at 12,131
The 18 day EMA at 12,181
12,250 from late March 2007 lows
The 50 day EMA at 12,415
12,518 is the August intraday low
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
Support:
12,070 from the early February 2008 lows
12,050 from the March 2007
11,731 is the March 2008 low
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 17
New York Empire Index, March (8:30): -22.0 actual versus -5.0 expected, -11.7 prior
Net Foreign Purchases, January (9:00): $62.0B actual versus $60.0B expected, $56.5B prior
Industrial production, February (9:15): -0.5% actual versus -0.1% expected, 0.1% prior
Capacity utilization, February (9:15): 80.9% actual versus 81.3% expected, 81.5% prior
March 18
Housing starts, February (8:30): 1.065M actual 995K expected, 1.071M prior (revised from 1.012M)
Building permits, February (8:30): 978K actual versus 1.02M expected, 1.061M prior (revised from 1.048M)
PPI, February (8:30): 0.3% actual versus 0.3% expected, 1.0% prior
Core PPI (8:30): 0.5% actual versus 0.2% expected, 0.4% prior
FOMC policy statement (2:15): 75BP cut in Fed Funds and Discount rate
March 19
Crude oil inventories (10:30): +133K actual versus 2M expected, 6.177M prior
March 20
Initial jobless claims (8:30): 360K expected, 353K prior
Leading economic indicators, February (10:00): -0.3% expected, -0.1% prior
Philly Fed, March (12:00): -18.0 expected, -24.0 prior
End part 1 of 3
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