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3/26/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: CHT; FSLR; GOOG; LIFC; USO
Trailing stops: None issued
Stop alerts issued: None issued
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SUMMARY:
- Economic data continues to weaken but the market goes about its consolidation nonetheless.
- Dollar may have had its post-Fed run, in need of help.
- February durables flop though improve from January, and New home sales fall after first rising more than expected. Economic is crappy; that is a given.
- ORCL results tarnishing a good upside building session.
Market gets that next good consolidation session despite more news of weakness.
The market is suffering through the hell of weak economic data as a Chinese friend of mine would say. After suffering through weak confidence and housing price drops, February durable goods sales were weak and new home sales slid lower (though it took a revision to accomplish that). Oil surged (106.30, +5.08) as inventories edged higher while gasoline and distillates fell hard at -3.3M and -2.2M respectively. Of course, the ECB again said it was not going to cut rates, and by its mandate it really can't do much else but hold the line, but that didn't do the dollar any good. It slid back for the third session, and that gave commodities and energy-related stocks another boost as a lower dollar means higher prices as they are raised to account for the dollar's sag.
The early data gave the market no mood to rally, but even before its release futures were lower as the market is sluggish and starting to test the run higher off the March lows. Thus it was hard to view the action as negative given the volume was light, the losses were modest, the indices held above near support, and some new leaders were stirring again. In short, it was pretty much what we expected and what the market needed, i.e. a quiet session of testing that avoided any increase in selling volume.
TECHNICALLY the action was just what you want to see. Yes it was lower on the session, but after starting low and selling lower, it did manage to run off of the lows to varying degrees depending upon the index you looked at. In any event the action was a move lower but a modest recovery after tapping support.
INTERNALS: Breadth was modestly lower, matching the session. As for volume, it wasn't easy to slide in below the Tuesday trade but it did. More very low turnover as market pauses after its move higher. That is exactly what you want on a test. Didn't think there was any way it would turn in lower than Monday or Tuesday, but there were no sellers ready to come in.
LEADERSHIP: Despite the losses in the indices there was leadership developing and moving higher yet again. With the dollar falling, commodities and energy related sectors were moving higher with some recovering all of their sharp losses from just a week back. Some techs moved again, albeit modestly, along with some telecom and biotech shaping up. Financials tested modestly along with homebuilders and construction related stocks. Like how leadership continues to shape up, but with energy prices surging again that may work to truncate the moves in other areas for the very reason energy is coming back, i.e. lower dollar that translates into higher inflation from imported goods, and those include oil.
THE ECONOMY
Dollar struggles and it is back to the same old pattern.
The dollar showed a nice bout of strength following the widespread acceptance of the Fed's rush to shore up the economy and the credit situation. At the time we said the dollar would need help or slide back to its old weak ways. Sure enough the dollar is falling once more as the bloom wears off the Fed's action, the ECB holds tough on rate cuts, and the dollar stands alone with no support from our government. Maybe the Fed's actions will save the economy and start a new economic surge that brings the dollar back to strength, but that is not going to happen near term. The same pressures on the dollar are still there, and the dollar is responding in the same manner.
Durable goods slow their fall.
Orders for items lasting 3 years or more fell 1.7% in February, much better than the 4.7% decline in January but horrible compared to the 0.8% gain expected. Machinery fell 13.3% and no one can really remember when it fell that much. Computers jumped 10%. Better. Business spending and auto purchases fell 2.6% and 2.7% respectively. Durables are in line with the rest of the economy, i.e. in bad shape.
New home sales beat expectations.
Remember when John Kerry voted for the war after he voted against it or something like that? Well February new home sales were lower than January, but after they were higher. That result is due to revisions in January to 601K from 588K. With the February sales at 590K, sales beat expectations but fell from January.
Whatever. Home sales remain weak though falling at an ever so slower pace, at least slower than 4 and 5 months back. Inventories held at 9.8 months, still a multi-decade high as sales are at a 13 year low. Prices are just 7% lower from March 2007. They need to drop more to clear out that 10 month inventory. The Schiller index showed a big drop last month; maybe that is a sign of things to come.
For now that is in the 'remains to be seen' category. At some point we all know the market will improve. That 'point' is the key. The other data in the sector show some signs of slowing the fall but the new home sales are not there yet. Some day prices will drop enough to mop up the inventory, but with such a long run in housing, the downside is typically extended. That means it may take longer for the worm to turn this time around (that is a technical real estate term of art).
THE MARKET
MARKET SENTIMENT
VIX: 26.08; +0.36
VXN: 29.75; +0.68
VXO: 27.2; +0.9
Put/Call Ratio (CBOE): 1.04; +0.08. Back over 1.0 on the close after a 2-day hiatus. Still plenty strong for the upside bounce to continue given the backlog of 20 consecutive days above 1.0.
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: -16.69 points (-0.71%) to close at 2324.36
Volume: 1.903B (-8.59%). Didn't think it was possible, but volume came in even lower, just what you want for a consolidation.
Up Volume: 546.995M (-772.854M)
Down Volume: 1.34B (+606.38M)
A/D and Hi/Lo: Decliners led 1.31 to 1
Previous Session: Advancers led 1.68 to 1
New Highs: 37 (+2)
New Lows: 93 (+1)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Showed relative strength, i.e. it did not lose as much as the other large cap indices. Losses were modest on all. What was key was the tap at the 50 day SMA on the low (2306) on low trade and an afternoon rise to cut the losses. That pushed it back below the 50 day EMA (2335) but no big deal. After 4 upside sessions out of 5 this is a very gentle, orderly test, setting up the next break higher as NASDAQ takes on the most recent peaks from February (2364, 2378) where it can change is character if it takes them out and puts in a higher high.
NASDAQ 100 (-0.40%) continued its nice action, easing back to test the 50 day EMA on low volume, bouncing off its low to cut its losses. Nice formation of a handle here, setting up the next break higher. Very nice action. Now we have to see what ORCL does to it, but this is a very nice test up through the Wednesday close.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: -11.86 points (-0.88%) to close at 1341.13
NYSE Volume: 1.43B (-3.26%). As with NASDAQ, even lower volume, just what you want on a test.
Up Volume: 447.412M (-454.767M)
Down Volume: 974.425M (+404.557M)
A/D and Hi/Lo: Decliners led 1.36 to 1.
Previous Session: Advancers led 1.92 to 1
New Highs: 25 (-8)
New Lows: 31 (+10)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 continued its stall at the 50 day EMA (1352) but held the 50 day SMA on the close. What karma. The 50 day EMA is an important point for SP500 as it failed there in late February. Breaking back through on some volume would be the next milestone before SP500 takes on the last peak, the late February high at 1388. As with NASDAQ that would work to change the character in a definite way. For now SP500 is fading back on low volume, but it is contained and orderly.
SP600 (-0.45%) is setting up very nicely as well, testing the 50 day EMA on the low and rebounding for a modest loss, starting something of a lateral move over that key level. As with the other indices it is setting up nicely.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Faded back with the rest of the indices, holding smack on the 50 day EMA at the close. Low volume test, just what you want to see as the blue chips test the run off the March lows, stalling some at 12,500 resistance but holding the 50 day EMA. Textbook pullback thus far.
Stats: -109.74 points (-0.88%) to close at 12422.86
Volume: 235M shares Wednesday versus 237M shares Tuesday. Nice lower trade as the Dow tests support and consolidates for the next run higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
THURSDAY
The usual Thursday suspects are on tap (jobless claims) along with the final Q4 GDP reading, expected at 0.6%. At least the economists don't think the economy started a recession in Q4. Just more of the same, though the jobless claims are closely watched given they have a more leading view on the consumer and his or her spending (paycheck in hand versus worry of a pink slip).
A perfect time for the market to continue its test. Don't want it to rush; just take its time and dip back, scare a few out, and set up the next move higher.
There definitely will be the opportunity to dip back and scare a few out on Thursday what with Oracle coming in light on revenues and in the conference call stating it saw some slower sales ahead. That had the large cap techs under significant pressure after hours as ORCL dropped 9% and it makes up a lot of the NASDAQ weighting.
We will see how the selling shakes out. The market has weathered a lot of bad economic news, figuring the worst was out now that the Fed was in for a pound or more. The ORCL news will set that back some, however, because some had viewed the techs as somewhat immune to those issues, ready to grow once more.
Volume will likely jump Thursday after three sessions of very low trade given the ORCL news. The key is whether it explodes higher and the indices jerk lower with big point losses or if they again hold tough and fight off the news. We will watch for the early shakeout to see how many run for the exits and then which ones step up. If the recent character holds we will see some buying dips versus selling out. We will use that as an opportunity to move into some stocks that enjoyed good runs and use the Oracle news to sell back some.
Support and Resistance
NASDAQ: Closed at 2324.36
Resistance:
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 50 day SMA at 2310
2285 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
The 18 day EMA at 2275
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 1341.13
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:
The 50 day SMA at 1341
1325 from May 2006 peak prior to the summer 2006 correction
The 18 day EMA at 1327
1322 is an ancient trendline
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 12,422.86
Resistance:
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:
The 50 day EMA at 12,423
The 18 day EMA at 12,284
12,250 from late March 2007 lows
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): 5.03M actual versus 4.86M expected, 4.89M prior
March 25
Consumer confidence, March (10:00): 64.5 actual versus 73.4 expected, 75.0 prior
March 26
Durable goods orders, February (8:30): -1.7% actual versus 0.8% expected, -4.7% prior (revised from -5.3%)
New home sales, February (10:00): 590K actual versus 580K expected, 601K prior (revised from 588K)
Crude oil inventories (10:30): 88K actual versus 133K prior
March 27
Q4 GDP final revision (8:30): 0.6% expected, 0.6% last Q4 iteration
Initial jobless claims (8:30): 371K expected, 378K prior
March 28
Personal income, February (8:30): 0.3% expected, 0.3% prior
Personal spending, February (8:30): 0.1% expected. 0.4% prior
Core PCE inflation, February (8:30): 0.1% expected, 0.3% prior
Michigan sentiment, March revised (10:00): 70.0 expected, 70.5 prior
End part 1 of 3
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