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world stock market, us stock market
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3/21/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: AAPL; ABFS; PRGO
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Stocks rebound on some massive expiration volume, short covering, and the continued strength in the dollar.
- Dollar continues to strengthen as currency market agrees with McTeer that the Fed is finding the right approach.
- Is this the good volatility or the bad volatility?
- Friday was too skewed by externalities to tell the story. That remains for this week, but the market is trying to hold the January lows.
Starts with a 'V', ends with 'E', and describes the stock market last week (and it is not 'vile').
The market showed as many swings as a good March Madness basketball game last week, and they were not your modest half percent jobbers but 2% to 4% jaunts. They were not one-way trips either as the upside and the downside both got their licks in.
Monday there was a whiff of implosion in the air. After selling off to end the prior week, they started lower and went screaming down toward the January lows after the BSC 'deal' ended with no more BSC and a measly $2 takeout price and a weekend emergency cut of the Fed's discount rate. This followed the Fed pushing its Taffy level to $200B and opening the window to brokers. Shocking was the word most heard in response to the BSC deal. As for the other measures, well, they were viewed as actually really positive and very creative. Nonetheless NASDAQ undercut the January low for the second time, and SP500 joined it with its own undercut.
Just when the bottom looked ready to fall out, however, a reversal. Tuesday the market continued the reversal momentum, and then when the Fed announced a 75BP cut in addition to the other measures, well, the market just took off. The indices logged 4+% gains. Down big, up big. But that was not the end. Wednesday you expected a bit of backfilling and that was the situation until it accelerated late and looked more like grave digging than backfilling as the indices gave back three-quarters of the Tuesday updraft. Just when it looked as if the market was going back to the drawing board Thursday saw another upside move, basically recapturing what Wednesday gave up. That move was skewed by expiration and short-covering ahead of a 3-day weekend, but sum total the indices finished out the week holding that super Tuesday move.
That put the market up for the week but it was an airsick inducing ride to get there. Thursday by comparison was rather tame. Stocks were lower early after a stronger than expected jobless claims report (378K versus 360K expected and 356K the prior week) saw continuing claims rise to a 2.5 year high, but futures worked their way back as the dollar kept firming, INTC boosted its dividend, and, well, nothing bad was announced. Even a weak Philly Fed at noon (-9.3 versus -10 expected and -22 prior) held a silver lining to the market as it was not as bad as anticipated. Hey, why not rally?
It did, and the rally picked up more steam as the afternoon progressed. It was expiration Friday (or in this case, Thursday) and volume was already big in the first hour. The three-day weekend added some high octane to the upside as shorts covered ahead of the long weekend. The result was 2% gains on the indices, pushing back up to the Tuesday highs.
TECHNICALLY the action was once again the opposite of the prior session. After closing at the session lows on higher volume Wednesday, the indices closed at session highs on higher volume Thursday. Three sessions of rising volume each session, seeing upside on Tuesday, downside Wednesday, and back to upside Thursday. Intraday it was positive low to high action. For the week it was the same with the market reaching lower and then reversing positive on strong volume. Overall this shows accumulation on the week though the expiration had its hand in that volume increase.
INTERNALS: Breadth was not bad at 2:1 on NASDAQ and 2.7:1 on NYSE, but relative to the week that was pretty mediocre. Volume on the other hand exploded. Indeed, it was elevated all week. There were many reasons for that. Expiration. Liquidation of some commodity, energy, and agri plays. Massive volatility keeping both sides spinning. Overall there was a reach lower and then a surging recovery. Typically that shows the kind of buying at the prior lows you like to see. While there were competing influences last week, you cannot be disappointed with this action if you are looking for a bottom.
CHARTS: As noted, NASDAQ undercut its January low again while SP500 joined it. Then SP500 bolted off that level, something NASDAQ has yet to do. DJ30 and SP600 never really tested that low though they did edge closer than on Monday's dip. They rebounded to near resistance, looked as if they were going to roll over, but then rallied right back up Thursday to that resistance. Held key lows and bounced hard. Promising for the upside.
LEADERSHIP: As the dollar firmed when the belief spread that the Fed had hit upon the right mix of stimulus that was not as inflationary as tossing bundles of money from helicopters (wouldn't that hurt anyway?), the leaders that had ridden the dollar's fall and inflation worries, e.g. agri, energy, commodities, gold, suddenly found their floor cracking. That looked to doom the Tuesday break higher as Wednesday the selling was strong, but Thursday the financials were surging once more and more leadership wannabe sectors started to perform, e.g. some large cap tech, some transports, some medical - a diverse yet nice mix of potential leaders to come. They are developing and will need to step forward over the next week or two if this bounce off the January lows is going to be something more than a short bounce.
THE ECONOMY
Dollar continues to strengthen even with a mute administration.
While I have a lot of issues with Clinton Treasury secretary Ruben, he certainly did have the knack for when to goose the dollar to get the market all jazzed up. You get the feeling that Treasury secretary Paulson could do the same for the dollar and thus the economy; everyone respects his opinions and what he has accomplished. Problem is, the administration Paulson works for won't let him loose to show us.
We have hashed and rehashed the Bush administration's failure to support our currency, thus foisting inflation upon us via a weak currency, not to mention higher priced food through its ethanol initiative (a.k.a. boondoggle). But for now it appears as if the dollar has hammered out a floor for itself with this last round of initiatives from the Federal Reserve, namely the tenfold increase in the Taffy auction amounts, the slashing of the discount rate to make borrowing pay for those using it, opening the discount window for many types of collateral, resisting the calls to buy the garbage collateral outright but instead require 28-day swaps with treasury notes, and not letting major financial institutions fail but also not letting them benefit from bad decisions (e.g. BSC getting ram-rodded to go under for $2/share).
Fed ramps up its attacks on the problem, and the market likes it.
The combination of all of this told markets the Fed was not your father's Fed that would use interest rates and threats to try and solve complex financial issues, or even the Bernanke helicopter Fed everyone thought this current Fed was. No, it is one that actually has some creativity and is willing, much like John Winger and Russell Ziskey in 'Stripes', to learn.
It also told the world markets that the Fed was going to fight the financial crisis but not abandon its fight on inflation at the same time. Instead of cutting the Fed Funds rate to 1% and leaving it there for a couple of years, Bernanke has shown that he can find other ways to fight a problem, ways that put money where it is needed without just using the blunderbuss of interest rates. Just look at the results of the first week of allowing brokerages to come to the discount window: $28.8B was borrowed, indicating there was a real need to get this money, and that now the institutions are walking right up and using it now that they don't have to go to a member bank to work out an loan arrangement, something a lot of banks didn't want to do. Just look at what the Fed had to promise JPM to take the BSC portfolio: a bye on the first $30B of bad debt. Talk about a needed facility for the financial institutions and brokerages.
Now we have our doubts if he will be able to fight off inflation. After all it has reared up again quickly and the current crisis is not over. Moreover, the Fed has cut rates massively and it cut again Tuesday. It has not held off on cuts once it started. The Taffy and other measures are great aids to get money to where it is needed, but it will have to work fast so the Fed can sop up some of the excess liquidity the rate cuts are throwing into the system. As with actually coming up with innovative mechanisms to fight the financial crisis, whether it works fast enough is a grand experiment as well.
The immediate cumulative impact of all the Fed has done is to send both oil and gold down 10% in a week as the inflation speculation backs out of those prices along with the upward pressure an ever-falling dollar provided. As we noted last week, however, while the Fed has demonstrated the creativity and ability to fight the problem without tossing money from the sky, it can only do so much on its own if the administration continues its soft dollar policy. The Fed is strong, but if the administration won't authorize the Treasury to join in the effort to raise the dollar's value, the Fed's efforts will be truncated in their results. Problem is, with the Fed's actions having success that will likely at best keep the administration mum on the dollar, and at worst cause it to say something stupid that directly undermines the Fed's efforts. We can only hope it doesn't thwart what the Fed has tried hard to affect.
THE MARKET
Those who have taken my classes know what I mean when I talk about volatility and the change of seasons. Just look right now at the weather. Winter and its rather predictable cold fronts and weather patterns is starting to give way to spring. With that change of season the warm and cold weather patterns start to collide, producing major changes in weather. The Midwest has been drowned by flooding rains as a result of this change, this volatility in the weather. Our hearts and prayers go out to those people. We all have struggled with floods, tornados, fires, cold blasts, droughts across the country, and they are often associated with changes in the seasons. The more violent, the more change in the offing.
The market is a living, dynamic being as well. It moves along in its trends (its seasons), moving higher in an uptrend with steady bounces up off of support or moving lower below resistance in rather steady decline. Then when the buyers or sellers lose strength they fight with the other side of the market for control. That fight turns the steady rise or fall into back and forth struggles where you see the market surge one direction only to turn and move just as violently in the opposite direction. The furies are evenly matched overall, but on any given day the buyers or the sellers can run the table.
Sound familiar? All last fall and on into the fourth quarter the market moved up and down as the long uptrend started running out of strength. The sellers became more pronounced with the late summer high volume selloff followed by the low volume recovery. Then more strong volume as it sold off in November only to bounce sharply into early December. Strong downside moves juxtaposed with surges back to the upside. The run had already topped in October, however, as it made a lower high. The result was the 6 month selloff the market is currently in.
Now the market is bouncing back and forth again with strong upside followed by strong downside, then repeating the process. This is characteristic of the double bottom pattern, also known as the 'scare them out' pattern because of its violent moves. That would indicate that this is 'good volatility,' i.e. the kind that comes at the next season of change after a turn to the downside. As noted last week and indeed over the past couple of months, this is certainly a rather modest overall pullback, as harsh as it may seem, for a recession after a 4+ years of economic prosperity. Thus, despite the attempt at bottoming here as evidenced by the return of volatility as a double bottom tries to hold, this is no done deal. New leadership still has to emerge; it is trying, but it is not there yet, at least in numbers. The bounce holds promise, but it is not there either. Still things to prove, but taking the right steps.
MARKET SENTIMENT
VIX: 26.62; -3.22. Hit just over 35 on the high for the week. Combined with the January move spike to 37.50 that may be enough. Would have preferred to see more.
VXN: 29.05; -2.23
VXO: 27.51; -4.26
Put/Call Ratio (CBOE): 1.1; -0.11. Twenty days above 1.0 on the close. As noted last week, plenty of days to support a move higher.
Bulls: 30.9%. Bulls continue to fall as bears continue to rise, down from 31.1% last week. That week saw the bulls and bears cross paths, a very bullish indication. This reading follows a 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 and have crossed. 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: 44.7%. Bears are rising still, up from an already freakishly strong 43.3% last week. That was a surge from an already high 36.6% the prior week. 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). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: +48.15 points (+2.18%) to close at 2258.11
Volume: 2.728B (+18.82%). Massive spike in volume on expiration Thursday after trade lagged all week. Hard to call it accumulation given it was expiration. Sure want to see more volume on the upside if NASDAQ can continue this move and break through the March highs next week.
Up Volume: 2.26B (+1.938B)
Down Volume: 437.085M (-1.515B)
A/D and Hi/Lo: Advancers led 1.99 to 1. Pretty bland after this past week.
Previous Session: Decliners led 2.35 to 1
New Highs: 33 (-11)
New Lows: 265 (+64)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
A wild week for NASDAQ as it gapped to a new 2008 and correction low on Monday only to gap higher Tuesday and rally to the March highs that mark the current range. Almost gave it up Wednesday and rebounded Thursday to close out the week near those highs. NASDAQ is not the strongest of the indices, but it has tested and undercut the January lows, and indeed it has already tested that undercut. After the Wednesday and Thursday action it is attempting a higher low, and that often precedes the breakout form a range. Lots of resistance to clear through 2340 or so, but it has to make the start off of this higher low as the first step.
NASDAQ 100 (+2.12%) has not shown any relative strength vis- -vis NASDAQ, but there are some large cap techs such as Apple and RIMM that are ready to break higher, and we suspect that if NASDAQ is successful in making its move from here, the large cap techs will be the leaders.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +31.09 points (+2.39%) to close at 1329.51
NYSE Volume: 2.769B (+40.29%). That is one massive volume spike, the highest volume since the January low when the indices touched down and then produced the massive intraday reversal (2.8B).
Up Volume: 2.1B (+1.76B)
Down Volume: 642.086M (-979.195M)
A/D and Hi/Lo: Advancers led 2.73 to 1
Previous Session: Decliners led 2.52 to 1
New Highs: 15 (-8)
New Lows: 116 (+20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Saw a new low for the year on Tuesday and then reversed, managing to hold at the early February closing lows. It has made a double bottom off of the January lows and is trying to break through the first level of resistance. Unfortunately the resistance runs on up to the 50 day EMA at 1352) as the first real test on the move. Then it still has to get past 1400 to really prove itself as a sustained move. Okay, okay. Digging out of a hole is work; one step at a time. Last week it surged off the test, managed to reverse a selling attempt, and enters next week trying to make the next step higher.
SP600 (2.47%) held above the January lows on its test, making a short double bottom above that level and then surging higher with the market. Trying a double bottom of its own with a big hole to dig out of. The first move is over the 50 day EMA (368), but we also note that is where it failed three times in February. If it can move over that level it is going to try the key 380 resistance level.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The Dow is the leader on this rebound attempt, testing somewhat but holding above the January low with a short double bottom as well and breaking higher to next resistance at the 50 day EMA (12,413) where it too failed in February. This is a key test for the Dow, and after running from it like a scalded dog Wednesday, it was right back in the game on Thursday. That and the 12,500 level are the next resistance to take out, and then a move to the key 12,750 will tell the tale of this move. That marks 5 separate bottoms and tops over the past eight months; pretty thick ice the Dow has to break through to show this is a real bottom. First step: get over 12,500 this week.
Stats: +261.66 points (+2.16%) to close at 12361.32
Volume: 508M shares Thursday versus 328M shares Wednesday. That is some expiration trade.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
The market is coming off a holiday weekend, but importantly it held the gains made off of the test of the January lows last week, at least on NASDAQ and SP500 where there were full tests. As noted last week, that is enough for the rest of the market. It also saw DJ30 hold its initial rally attempt and provide a follow through of that rally.
That is what is required for the start of the move. Now it needs to make the next step and break through next resistance. It needs more leadership to step up as it does, and there is leadership developing as seen last week though it is scattered across several sectors and not too deep. Good to see it developing outside of one or two areas, but the patterns still need work for most of the market.
Further upside will buy it time as the current leaders try to forge the way as the last group struggles in a correction given the change in market conditions, namely the strengthening dollar. This coming week will tell much about the commodities, ag, and energy as it will about the market overall.
Every step at this juncture tells us something about the character of the move, but during the process it is next to impossible to tell if the overall process will succeed. With many of the sentiment indicators at levels that support a solid rally, the makings of a somewhat classic double bottom bottoming pattern, and a very active Fed, the ingredients for a solid rally are in place. Leadership will have to really take hold over the next few weeks, however, for the move to sustain itself. Many moves from 2000 to 2002 failed due to tepid leadership. Again, there is promise now, but there is no clear influx of the next batch of leaders.
In any event, we have picked up some of those early breaks higher from other sectors as they moved higher last week, and we will continue to look at them this week. The first stocks to break higher from bases in a new move tend to run a long way if the overall move pans out. Thus you want to be on board with them as they make their breaks.
We are still skeptical that this pullback and fist attempt at bottoming will ultimately succeed. The 2000 selloff turned into a very solid summer rally with many bullish attributes, but that died on Labor Day and that was just the start of the selling. For the size of the housing bubble and the impact of the credit freeze, this first attempt at bottoming appears to be quite tame. In the bear market from 2000, SP500 fell over 700 points, basically halving its value. A 300 point dip here hardly seems commensurate with the economic problems.
But, of course, the Fed was in early, then not, then back in. Perhaps that will be sufficient given this is a credit crisis and has large psychological aspects. If the Fed can trowel in the salve as it did the past week, then maybe the market will catch itself after a short decline as the one suffered thus far. Even if not, we are likely to get a really tradable rally off of this pattern . . . if it can make it past the next stage after this initial surge off the lows. This week will tell that story, and we are looking to play the move as it unfolds, even if it is just a month or two in duration.
Support and Resistance
NASDAQ: Closed at 2258.11
Resistance:
2282 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 50 day EMA at 2335
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:
The 18 day EMA at 2253
2252 is the early February low
2221 is March low
2216 from August 2005 peak
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 1329.51
Resistance:
The 50 day EMA at 1352
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:
1325 from May 2006 peak prior to the summer 2006 correction
1320 is an ancient trendline
The 18 day EMA at 1319
1317 is the early February low
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
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 12,361.32
Resistance:
The 50 day EMA at 12,413
12,518 is the August intraday low
12,573 is the mid-February high
12,743 is the November low
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,786 is the February 2007 peak
12,845 is the August closing low
Support:
12,250 from late March 2007 lows
The 18 day EMA at 12,200
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 24
Existing home sales, February (10:00): 4.86M expected, 4.89M prior
March 25
Consumer confidence, March (10:00): 75.0 expected, 75.0 prior
March 26
Durable goods orders, February (8:30): 1.0% expected, -5.3% prior
New home sales, February (10:00): 580K expected, 588K prior
Crude oil inventories (10:30): 133K prior
March 27
Q4 GDP final revision (8:30): 0.6% expected, 0.6% last Q4 iteration
Initial jobless claims (8:30): 378K prior
March 28
Personal income, February (8:30): 0.3% expected, 0.3% prior
Personal spending, February (8:30): 0.2% expected. 0.4% prior
Core PCE inflation, February (8:30): 0.2% expected, 0.3% prior
Michigan sentiment, March revised (10:00): 71.0 expected, 70.5 prior
End part 1 of 3
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