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4/17/08 Technical Traders Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: MON
Trailing stops: GILD
Stop alerts issued: AIRM; ODFL
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:
- Earnings give, earnings take away, but stocks still recover.
- Philly PMI heads south, but expectations are on the upswing.
- Bond yields start to breakout to a higher range.
- GOOG starts the earnings roller coaster again after hours, but the market acts as if it wants to go up, looking for good earnings to confirm its desires.
Good earnings in the P.M., disappointing in the A.M., but stocks endeavor to persevere.
Wednesday night IBM was the king, reporting strong results and pulling stocks even higher in the after hours trade following the solid Wednesday session. When morning came, however, disappointing results in one form or another from MER, PFE, UTX, NOK, and even RDC (in drilling and lowered its guidance) offset IBM. Indeed, but for IBM the Dow would have opened down 150 points or so.
On top of that the economic data was mostly negative with jobless claims bouncing to 372K from 355K, Leading Economic Indicators at a paltry 0.1, and the Philly Fed exhibiting the aerodynamics of a large stone (-24.9). That didn't help stocks as they opened lower on renewed fears of the credit crunch. Once more they sold off to midmorning, but then recovered with a slow steady climb all afternoon that took the market back to basically flat with the large cap NYSE indices making it to positive. In short, it took the hit and then rebounded to hold the gains from Wednesday.
TECHNICALLY the market performed decently compared to how things looked pre-market after the earnings disappointment. Started lower, tried a recovery early on but that failed. Then it bottomed midmorning and recovered to flat, holding the Wednesday gains. Like a stingy market. Not bad.
INTERNALS: The inside of the market, the guts if you will, looked as you want them to on this kind of session. Flat to modestly lower breadth and lower volume on the selling; significantly lower. Volume may not have been great on the upside, but at least it was not damaging on the downside as the market had to work through some issues yet again. The price/volume action, even if the upside volume is not as strong as you want, is still performing better, showing some accumulation.
CHARTS: The indices all tested lower with SP500 and NASDAQ tapping their 50 day EMA on the lows and recovering. Same story on the other indices though with other support points. All bounced back to hold the lion's share of Wednesdays gains, showing that stinginess you want to see. Good modest pullback after the surge, and that gives the indices a better aim at that next critical resistance at 1390ish on SP500 and 12,750 on DJ30.
LEADERSHIP: Most leaders paused on the session and pulled back modestly. We used that to pick up some positions in MON to start that play. Transports in the form of truckers had some issues as LSTR warned but many in the sector fought back. Overall the action remained positive with AAPL, RIMM in techs holding up well, metals and energy as well. GOOG revved them up after hours with its earnings. We will see if they can really step up and lead the market higher.
THE ECONOMY
Regional Manufacturing mixed as Philly plummets after New York showed improvement.
Earlier in the week we discussed the New York manufacturing report and its surprise return to expansion (albeit marginal at +0.6) versus the -17 expected. While a positive, we noted the proof would be in the coming few months as to whether it started to consistently surpass expectations . . . on the upside that is.
The Midwest is not at that point, however, and the size of the clubbing (-24.9 versus -15 expected and -17.4 in March) casts doubt on the veracity or accuracy of the New York numbers. Of course this report, and no disrespect to Philadelphia, has a very volatile and checkered past. It imploded after Katrina and Rita while the other regions fared much better, even the region hit by the storms. It is more volatile than the others and it does not necessarily correlate with them.
That said, it is hard to ignore a -25 reading even if you want to knock off some points for volatility and general disdain for the report's history. Take 5 points off and you still get -20. That, however, is right in the middle of the range for the past four months. -21 in January, -24 in February, -17.4 in March. Philly is suffering through a serious manufacturing slowdown and the trend is definitely down. Indeed, even the volatility has left over the past four months because the trend has become so pronounced.
There is a wisp of fresh air in the report. The 6-month outlook, after hitting a low of -16.9 in February, has rebounded to 13.7. That puts it on par with the pre-BSC outlook. Why is this key? Because the PMI reports are basically sentiment polls versus hard manufacturing data. Thus how purchasing managers feel about the future is a very important element each month. As with the New York report, you have to see if the sentiment can hold up and build into the next report or two; that would imply overall firming and would be some of the first signs of good news for a recovery from what would be a quite shallow recession. Of course, that is all fantasy at this point as it is just one data point, but it starts the whale watching so to speak.
Bond yields make an important move.
Interest rates are holding an upward bias ever since the last few Fed moves that showed it was not just a rate cutting body but an old dog that did in fact have a few new tricks it could trot out to entertain the pundits. Even at that, the 2 year bond moved up near 1.8% and held that range for the past month.
The 2 year has now broken higher from that range, bolting to 2% in short order. Just as with stocks that is a breakout move, prompted by the idea that the Fed is indeed going to have to back off from cutting rates in order to deal with inflation data that continues to rise. The Fed Funds Futures contract has dropped to basically a 25BP cut and just a few percentage points chance of another 25 at the next meeting.
So does this mean inflation is showing up in interest rates? Not totally. Higher rates also forecast better economic outlook. For now they are viewed as inflation moving into the financial arena given the upward price data, and given the slowing economy that is no doubt part of the equation. At the same time you see transport stocks breaking out (and UPS did not implode despite lowering guidance), techs forming up, and continued strength in commodities and materials and the improving stance of the market overall. That indicates there is a tentative move toward recovery in the market, and the bond market is part of the market.
THE MARKET
MARKET SENTIMENT
VIX: 20.37; -0.16
VXN: 24.2; -1.35
VXO: 22.15; +0.21
Put/Call Ratio (CBOE): 0.94; +0.94
Bulls: 37.8%. Barely budged up as the market faded last week, up from 37.4%. Fell to 30.9% in mid-March. The indicator did its job with the dive below 35% and the crossover with the bears. They remain in crossover mode even with the rise in bulls as bears edged higher yet again. 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: 38.9%, up a fraction from 38.5% and 37.5% the week before as the bears are still skeptical of a potential bottom in the market. Heading back up toward the 44.7% peak, but not likely to make it there of course. Still pessimistic even as the indices form up a bottom and leadership improves. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. 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: -8.28 points (-0.35%) to close at 2341.83
Volume: 1.824B (-13.54%). Volume fell back well below average on the test of the strong Wednesday move. That is what you want to see as price/volume action remains decent, but it is also worth noting that volume remains low overall.
Up Volume: 716.638M (-1.095B)
Down Volume: 1.087B (+816.771M)
A/D and Hi/Lo: Decliners led 1.47 to 1
Previous Session: Advancers led 2.76 to 1
New Highs: 49 (-12)
New Lows: 106 (-16)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Gapped lower, tested the 50 day EMA (2330) on the low and then rebounded to recoup more than half of its losses on the close. Quite an orderly shakeout in the bigger picture and a good point for NASDAQ to hold, take a breather, and then take on the resistance at the early April peak and then the February peak at 2420. GOOG was helping the techs out after hours, particularly the large caps such as AAPL, RIMM. Shaping up for a showdown at that resistance, and that is fine because that is what it has to do.
NASDAQ 100 (-0.33%) showed the same kind of action with a test of the 10 day EMA intraday and a rebound to cut the losses. Still in good position to take on the early April high (1886).
SOX (-0.74%) showed good action as well, undercutting the 90 day SMA but tapping and holding the 10 day EMA on the low and rebounding to close just over the 90 day. Great set up for the next move higher as it works its way off the bottom of its long decline.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +0.85 points (+0.06%) to close at 1365.56
NYSE Volume: 1.228B (-14.81%). Back to the same range of low volume of the past three weeks with the exception of the Wednesday break higher.
Up Volume: 628.938M (-616.322M)
Down Volume: 585.422M (+391.718M)
A/D and Hi/Lo: Advancers led 1.03 to 1. Great upside breadth Wednesday, pancake on Thursday, just as it should be with a flat NYSE.
Previous Session: Advancers led 5.11 to 1
New Highs: 121 (-15)
New Lows: 76 (-3)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Tested modestly lower, waiving at the 50 day EMA (1351) on the low then recovering in the afternoon climb to post a modest gain on the session. Like it holding its gains from Wednesday and coming back after some more 'issues' with the financials. That keeps it in the game to take on the April peak (1387), the late February peak at 1388, and the early February peak at 1396.
SP600 (-0.33%) tested lower intraday as well, tapping at the 50 day EMA then recovering to hold the 90 day SMA on the close. Very solid shakeout action as it rests after making the higher low and jumping off that level.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Scratched out a gain thanks to the afternoon recovery and some help from IBM. Undercut the 90 day SMA (12,590) modestly, then rebounded to show a doji over the 90 day, keeping it just below the key 12,750 level. Lower volume; just resting after the nice Wednesday surge. It is set to take on that level.
Stats: +1.22 points (+0.01%) to close at 12620.49
Volume: 216M shares Thursday versus 269M shares Wednesday. As with NYSE, volume fell right back into the range it traded the entire month outside the GE session to the downside and the INTC session to the upside.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
No scheduled economic reports for Friday. Wow. That doesn't mean the Fed fellows won't be speaking, but they have been speaking all week and investors are taking it in stride even with the weakening economy and inflation worry talk.
The focus remains on earnings, and after hours GOOG slammed expectations and the whisper on earnings per share and revenues. It was up $75 after hours, spurring other tech stocks higher.
Now the way things are working of late, the solid after hours earnings get blunted by the morning earnings news. The market, however, continues acting as if it wants to continue higher. GE broke up an easy consolidation of the rally, but the earnings worm turned and now earnings are driving it right back up. The earnings are starting to provide an upside catalyst, and GOOG may be the final weight on the scale that flips the indices through the next and very key resistance level.
We have picked up positions all along the way and will continue to look for them here given the pullback from the Wednesday move kept stocks from becoming too extended to chase. Of course an upside gap after GOOG's results is quite likely, and that always makes it harder to move in, particularly on Friday. We will continue to look at good stocks, however, and if there is a break higher we can always look to take some partial positions on a test after the open, and then see when we can take some more.
That is pretty much our game plan when we have this kind of strength in leaders that continue to move higher after basing, pullback, or test scenarios. On a strong gap we will also likely have the chance to take some nice gain and we will do that, again as we always do when we get great strong moves in a stock for several days. Friday or not, the market is overall showing increasingly positive action and the ability to recover from adversity. Thus when we see good stocks in good patterns we are ready to participate in the moves.
Support and Resistance
NASDAQ: Closed at 2341.83
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
2392 is the April 2008 peak
2419 is the January 2008 peak and the early February peak
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2538
Support:
2340 from the March 2007 low
The 50 day EMA at 2330
2293 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2261 is late March higher low
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
S&P 500: Closed at 1365.56
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1375
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
1420 is a longer term trendline from the August 2003/September 2004 lows
1433 from a pair of August 2007 lows and December mid-month intraday low
Support:
The 50 day EMA at 1351
1325 from May 2006 peak prior to the summer 2006 correction
1324 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 12,620.49
Resistance:
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
13,092 is the December 2007 intraday low
The 200 day SMA at 13,097
Support:
The 90 day SMA at 12,590
12,573 is the mid-February high
12,518 is the August intraday low
The 50 day EMA at 12,456
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
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 14
Retail sales, March (8:30): 0.2% actual versus 0.1% expected, -0.4% prior (revised from -0.6%)
Retail ex-autos (8:30): 0.1% actual versus 0.2% expected, -0.1% prior (revised from -0.2%)
Business inventories, February, (10:00): 0.6% actual versus 0.6% expected, 0.9 prior (revised from 0.8%)
April 15
PPI, March (8:30): 1.1% actual versus 0.6% expected, 0.3% prior
Core PPI (8:30): 0.2% actual versus 0.2% expected, 0.5% prior
NY Empire state Index, April (8:30): 0.6 actual versus -17.0 expected, -22.2 prior
Net foreign purchases, February (9:00): $72.5B actual versus $60.0B expected, $57.1B prior (revised from $62.0B)
April 16
CPI, March (8:30): 0.3% actual versus 0.3% expected, 0.0% prior
Core CPI (8:30): 0.2% actual versus 0.2% expected, 0.0% prior
Housing Starts, March (8:30): -11.9%; 947K actual versus 1.01M expected, 1.075M prior
Building permits, March (8:30): 927K actual versus 970K expected, 984K prior
Industrial production, March (9:15): 0.3% actual versus -0.1% expected, -0.7% prior
Capacity utilization, March (9:15): 80.3% actual versus 80.4% expected, 80.4% prior.
Crude oil inventories (10:30): -2.3M actual
Fed Beige Book (2:00)
April 17
Initial jobless claims (8:30): 372K actual versus 375K expected, 355K prior (revised from 357K prior)
Leading economic indicators, March (10:00): 0.1% actual versus 0.1% expected, -0.3% prior
Philly Fed, April (10:00): -24.9 actual versus -15.0 expected, -17.4 prior
End part 1 of 3
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