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world stock market, us stock market
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4/26/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: SLB
Trailing stops: None issued
Stop alerts issued: None issued
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:
- MSFT hangover cools techs, but SP500 clears resistance.
- Oil blitzes back up toward 120 after what looked like a crack in the oil pan
- Bonds continue their breakout . . . along with the dollar.
- Historic Fed action: stock, bond, dollar market bottomed on one day of action.
- Bulk of earnings season behind us, but economic calendar is jam-packed.
- Will techs and the Big 3 return to lead the week.
Market has to deal with issues but perseveres.
Microsoft sandbagged its current quarter in a 'what is good enough for Apple that is beating us about the head and shoulders is good enough for us' move. Unlike Apple that rebounded nicely and posted an almost 4% gain after its 'disappointing' earnings, MSFT didn't rebound, unless you call finishing $0.23 off its session low during a 6.19% loss a rebound. Thus, unlike Thursday where NASDAQ bounced and broke out over its February high in a key breakout, NASDAQ had to drag MSFT around all session and it lagged rather than led.
It didn't help that RIMM reportedly is having problems with its 3-G BlackBerry for AT&T and it may be delayed. RIMM lost 3% on the session but it was down quite a bit more than that before a nice rebound. In addition, oil surged back up even as the dollar climbed, tapping at $119 once more (118.93, +2.87). Interest rates jumped again as they continued their second breakout in the past two weeks.
There was enough in the mix to sink stocks early in the session and on through midmorning, taking some of the nice glow off of NASDAQ's Thursday breakout. Even with that, the indices held at near support at the 10 day EMA and put in what is becoming a typical midmorning bottom. The indices rebounded after lunch in a straight upside shot that took the indices back up to the opening prices, and in the case of the NYSE indices, to session highs. Enough so that SP500 broke over the key early February high.
It was not a powerful session; we know powerful sessions and are willing to suck up to them at any time, but this was not one. It was, however, a solid session. Volume backed off and breadth was mushy, but the market overcame disappointing news, held near support at the 10 day EMA, and rebounded with leaders bouncing back, and as noted, a new breakout by SP500. The volume was great on the breakout, but it the breakouts are piling up, and that is an excellent development for the market.
TECHNICALLY the action remained, despite the tech losses, in a positive build. The indices were under some pressure on the tech side, but then all slid lower as the session moved from the opening bell. Once more, however, it overcame some disappointing news as it has over the past few weeks (GE, TXN, etc.) and bounced back to squelch the losses. Always like it when the market can look at the bigger picture down the road and overcome near term setbacks.
INTERNALS: Breadth was modest and volume was light. Good to see volume back off on the selling on NASDAQ, but it is always nice to see it jump back up on a rebound move. The lack shows no real buying as stocks rebounded and SP500 broke over the February highs, but it was a non-expiration Friday after a good upside week, and in that situation getting out with a flat to slightly higher session is fine, low volume or not.
CHARTS: SP500 joined NASDAQ and DJ30 in their breakouts over the early February peak making it an official uptrend now for all three of the large cap indices. In other words, they have all made new highs since bottoming on the selloff, surpassing the prior peaks in the 3.5 month base. That is an important technical move for the individual indices and the market overall. As noted above there was no big volume on the SP500's move and that was somewhat disappointing, but you take what you can get when you can get it when recovering form a serious correction.
LEADERSHIP: Well we were not expecting it this week after they broke lower to correct given the dollar's sudden popularity, but the Big 3 (energy, ag, and metals) came right back on Friday DESPITE a stronger peso . . . er. . . dollar. Bonus. That was all the more a positive given tech lagged thanks to the MSFT and RIMM issues. Even then, however, RIMM rebounded to hold near support and thus remains in great shape. Moreover, plenty of leaders continue to form up good bases and are set to breakout while others are testing or starting to bounce back up after testing near support following a breakout move. Very nice. Others simply moved higher, showing no sign of wear and tear (e.g. the transports whether trucking, rails, or shipping). Money continues to move into new areas and also old areas when the opportunity presents itself. Healthy action.
THE ECONOMY
Oil reinvigorated after a brief respite.
Oil tapped at $120/bbl just over a week ago, surging higher in what looked to be something of a near term climax run. It was, but it was very near term. After a quick dip to the 114 level it held and without much of a push it was back up to $119 Friday, jumping $2.87 on the session to $118.93. The dollar moved up during the week and so did oil, defying the 'weaker the dollar, the stronger the oil' relationship. Oil took on a bit more independence to end the week as it went it alone without the dollar falling.
Last week we discussed the tie between oil and food, or more accurately, how our government has made an artificial tie between the two with the anti-free enterprise anointing of ethanol as the solution to our energy problems. Besides the many arguments about how it cannot be the solution or even a small part of it, the fact that oil rose despite a stronger dollar to end the week is even more reason we need to disassociate food from oil by scrapping the ethanol mandate. Why? Because if a rising dollar is not going to break the pressure on food prices because oil is still rising in price regardless of the dollar, then we are going to be stuck with high food prices as long as the tie is there despite reversing one of the major drags on the economy, i.e. the weak dollar.
Food and fuel are two of the primary cost items for any household. It is bad enough that higher energy prices make feed grain and food prices rise simply by raising the price of operating the machinery to grow our food. When you link food costs directly to fuel, however, by making food an ingredient for fuel, you uncork the bottle and the unintended consequences spew out. Ask the ranchers slaughtering cattle right now before they are ready to sell because they cannot make enough money on them at the current prices given the cost of feed. Ask the poultry farmers doing the same. They have to slaughter because they won't make any money now but hope if the herd or flock is thinned prices will rise enough to make it worthwhile to buy the feed to fatten the herd. As one rancher friend put it, get ready for $8/lb ground meat.
Great. Not only is gasoline going to top $4/gallon this summer, but meat and chicken are going to go through the rough. The government tried to pick winners with its ethanol policy and as is always the case, when the market is manipulated by clamping down on one part, it squirts out in other places. This situation has to be rectified immediately to hopefully avert a real disaster ahead that will kill off any attempted economic recovery. The housing issues are bad enough and credit has done its damage. Now government policies are ready to finish off the consumer. We have to buy gas to get to work and we have to eat. Federal policies (or the lack thereof in the case of energy) are making both more expensive and if unchecked that is going to cause the deep recession that it looks like housing and credit could not bring about.
The days of the weak dollar may be over: bond yields rising, gold fall.
Without any help from the administration the dollar is staging its best move against the euro in months. Of course it is coming off the mat to do so given the long and deep slide, but at least it is making the effort. The dollar has not broken its downtrend, not by any stretch. It has not even broken its 50 day EMA having just reached that level Friday and failing to hold a move through it. That leaves it down in the cellar, but trying to find the stairs to climb out.
Bond yields are up sharply the past two weeks with the 2 year yield breaking out over 1.8% to over 2% as its first move. It stalled near 2.2%, and then toward the end of last week it broke out with another key move again, jumping to 2.44% on Friday. Even the 10 year broke higher up to 3.86% though its moves remain modest compared to the short end's surge.
Bonds are telling the same story of the stronger dollar, i.e. there is a recovery taking shape. Some say it is inflation. As discussed a week ago, rising interest rates are not inflation or caused by inflation. Inflation can be part of a rise, but bond yields move higher more for economic recovery reasons than inflation reasons.
Just look at gold. While oil is moving back up in a clear breakout and uptrend run, Gold has formed a head and shoulders top and is getting ready to really tank. It ran to 1000 last month and that was the top. It sold off sharply, rebounded, but made a lower high, rolling back over the pat week. It closed below $900 for the week in a rather amazing reversal from the highs just a month back. It is ready to crash much lower and that is not a sign of inflation. Thus the rising interest rates we see ARE NOT related to inflation, but instead an economic recovery to come.
Creative Fed action turned the tide and is a landmark in central bank history.
The dollar still has a long way to go, but the interest rates are showing it is going to continue higher unless the administration does something really stupid such as attempting to undermine it seeing its recent rise sustain itself.
The roots of the recovery go back, to the day, to the Fed's series of actions of opening the discount window to non-primary dealers, taking other forms of collateral as swaps, hugely jumping the amount of funds available to swap, and stepping in to quickly rectify the BSC run on the bank. This showed the markets this was not your Greenspan's Fed, i.e. one that would just cut rates again and again and again as the cure to any ailment. Indeed, it showed the Fed could fight the problem, successfully, without having to cut rates any further.
With that realization the bleeding stopped that day. It was not an immediate upside rocket shot, but the floor was built, and the dollar has spent the past 6 weeks setting up a bottom, breaking higher to end the week.
That makes the Bernanke Fed's action some of the most significant and important moves in Fed history. It affected liquidity without endless rate cuts. Sure it slashed rates, but that was part of the process of figuring out what worked. At first the swaps were ridiculed. We said at the time they did what was needed, i.e. get money where it was needed. On balding blow hard bloviated nightly that the government had to step in and buy all of the mortgages as the only way to stop the bleeding. No, that bailout blathering was wrong. There was simply not enough money and the window was too discriminatory in the first attempts so as to let those really hurting take advantage of it. Once that was fixed by opening the window, the fix was in. The Fed was seen as able to affect liquidity and solve serious problems without an indiscriminate flooding of liquidity across the world via rate cuts.
The results were immediate. The dollar stopped its slide. Bond yields firmed. The stock market bottomed on that day. Those who called Bernanke an amateur were half-right and half-wrong. Sure he did not get the politics, but the reason he was installed as Fed chairman, i.e. his brains and ability to think outside the box, became apparent when he did finally get the politics. Once he realized how the system works with the political overlays he crafted a policy that solved the problem. That makes this historic. It is one of the extremely rare occasions a government agency solved a problem without burning down the house in order to save it. Kudos to Chairman Bernanke.
We can lament the Fed did not do this quickly enough without gutting the dollar with those initial rate cuts, but it was in uncharted waters and it took a bit of time to figure out what the right fix was. When it decided and acted, however, the impact was immediate.
THE MARKET
MARKET SENTIMENT
VIX: 19.59; -0.47. Volatility gapped lower tow weeks back as the market gapped higher. It has whittled away lower and is near the level of the late December when the market put in an interim peak. You could say that is a red light for the market, but the relationship has been broken given the Fed action. Indeed the market is making a key break higher at this point.
VXN: 23.34; -0.38
VXO: 20.52; +0.12
Put/Call Ratio (CBOE): 0.9; -0.01
Bulls: 39.1%. Up significantly this time, rising above last week's 37.8% where it held for a few weeks. Has now crossed back above bears, the usual positioning of the two. Fell to 30.9% in mid-March. The indicator did its job with the dive below 35% and the crossover with the bears. 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: 35.6%. Sharp decline as the market makes a rally attempt stick for now, up from 38.9% last week and 38.5% and 37.5% the week before. 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: -5.99 points (-0.25%) to close at 2422.93
Volume: 1.998B (-13.9%). Lower volume as NASDAQ sold down to near support and bounced. That is what you want to see, i.e. no distribution even in the face of some negative news from MSFT. During the week volume was a big positive with the best trade in a month on the NASDAQ breakout.
Up Volume: 884.712M (-772.242M)
Down Volume: 1.099B (+451.515M)
A/D and Hi/Lo: Advancers led 1.29 to 1
Previous Session: Advancers led 1.81 to 1
New Highs: 18 (0)
New Lows: 34 (-25)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Good week for NASDAQ. After gapping higher two Fridays back and then having to deal with TXN's earnings disappointment on Tuesday, NASDAQ broke out above the February high on Thursday on strong volume. Friday it had to deal with the MSFT earnings but then it recovered for a modest loss on low volume that held the breakout. In short, NASDAQ is acting quite nicely, stepping through the earnings minefield with deft expertise.
NASDAQ 100 (-0.31%) had already broken out and was just extending its move on Thursday. Friday it had MSFT and RIMM to deal with and it did so. Not bad action at all.
SOX (-0.07%) took a breather after a nice breakout move Wednesday and Thursday. It also reached lower Friday and then rebounded to flat, showing the same resilience as NASDAQ overall. Provided some much needed support to the market and still some upside room before the next resistance at 402 (closed at 391).
SP500/NYSE
Stats: +9.02 points (+0.65%) to close at 1397.84
NYSE Volume: 1.28B (-11.79%). Volume never made it over average last week as the NYSE indices moved higher. Price/volume action was solid with rising volume on upside sessions and declining on downside sessions, but it just did not show a lot of power. That was up to NASDAQ and fortunately it pulled the weight for the market. Given that metals, energy and agriculture were struggling last week, the lower volume on NYSE, where most of these reside, was not a bad thing.
Up Volume: 871.376M (-76.324M)
Down Volume: 394.963M (-98.692M)
A/D and Hi/Lo: Advancers led 1.65 to 1
Previous Session: Advancers led 1.74 to 1
New Highs: 37 (+10)
New Lows: 10 (-5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 was down early along with the other indices, but it recovered and moved through the February peak, holding that to the close. Even without a lot of trade it made the breakout, joining NASDAQ and DJ30 before it. It lacked volume so the move is a bit suspect, but with NASDAQ and the Dow already paving the way with some solid volume SP500 gets credit for at least know when it should tag along. If the Big 3 continue to recover and financials show the strength they did to end last week, SP500 may finally get its volume.
SP600 (+0.98%), while not making a break over the early February high, did make a significant move of its own as it cleared, on a closing basis, the late February and April peaks. It is lagging still but it is following. A breakout over the February high bodes well for the economy. Good to see NASDAQ breaking out as that shows growth areas anticipating growth, but a small cap move would be nice.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips continued higher with their breakout over the early February high at 12,750. It tested the prior week's breakout early in the week and indeed on the lows each session, but it managed to recover each session. Not a lot of volume and it had to deal with MSFT's earnings disappointment but still finished higher for the session and the week. Good break and a hold of that break, and now it has the 200 day SMA at 13,075 to deal with next.
Stats: +42.91 points (+0.33%) to close at 12891.86
Volume: 240M shares Friday versus 249M shares Thursday. Never got the serious trade last week though it was up on the upside sessions showing some modest accumulation. Even with the MSFT earnings issues volume was lower than on Thursday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
Plenty of earnings remain though the bulk of the announcements are in the books. Thus far the indices have stepped right through the season and broke out to boot. You can only hope the shank of the season does not reach around and bite the move on its . . . behind.
The week is loaded with economic data and the Fed's policy meeting. Consumer confidence, regional and national manufacturing, personal income and spending, jobs report. Heavy duty data. The Fed is up for a 2-day meeting with its announcement on Wednesday. The Fed Funds futures indicate just a 25BP rate cut. There are, of course, divergent views on what the Fed should do. Some say it has to slow down for fear of inflation, while others say if it talks too tough on inflation the market will gag.
Inflation is an issue, but it is not the biggest issue. The recovery attempt by the stock market, interest rates (doing the Fed's work for it), and the dollar are in their early stages. Too much tough talk is not good. Just the right amount is what is needed, not a reversion to the bad cop by the Fed. Just look at gold: off 10% from its highs - for the second time. It has formed a head and shoulders base, ready to break lower. That tells anyone willing to listen that inflation is not about to be the issue it was threatening to turn into. A huge positive to go along with a strengthening dollar. The dollar's rise, if it can sustain, works to reduce inflation immediately in terms of stemming the tide in the price rise of dollar-based commodities.
Last week the market saw the triumvirate, the Big 3, stumble as the dollar strengthened and bounced off the bottom of its six week base. Happened as well in March when the dollar sold but then immediately bounced. At the end of the week, however, they were on the rise even as the dollar rose. After a 2-day sharp pullback they bounced. We will see this week if it is more than just a relief bounce. We will be ready to move into more positions if they show increased volume on the rebound. With a rising dollar, a continued strong gain puts a whole new light on those stocks, that is, it shows they are powerhouses on their own and not driven higher just when the dollar weakens.
As noted all week, stocks from several sectors continue to improve. The China plays worked well for us last week with SOHU and CTRP shooting higher. Our large cap tech worked just fine. Transports great.
With the indices creating their own triumvirate with the SP500 breakout the test this week will be if the moves can hold with all of the economic data, earnings, and the Fed. The Fed does not need to get too tough or hawkish; the interest rate rise is doing its work for it and gold prices are going to roll over big time, indicating inflation is not as big an issue. If it watches markets and if it is as smart as I made it out to be above, then it should be in on this and play a cool hand ('Cool Hand Luke' is on).
Two key areas: large cap tech recovering from the MSFT earnings to hold its breakout and continue its breakout. Second, the triumvirate holding near support and continuing the Friday bounce. Commodities are likely to struggle if the dollar continues to rise. We have to accept that and be ready to close them out of near support does not hold. Indeed, if you feel uncomfortable, and there is reason to be as many rose on the dollar decline, take the rest off the table (we have already banked some gain on most of these positions) and see where they land. Nothing wrong with that. Ag is a different story from commodities, and energy showed Friday it can move higher even without a dollar decline. Heck, even metals did that as well so we just have to see how they shake out. On another run higher after the pullback last week, take some more gain.
With a question mark around commodities and energy, we will look at them for possible new buys, but also continue to branch out as we have been doing, putting on plays from other rising sectors. Money was moving last week and if it continues there will be new breakouts from other areas. We will look at those. We will also look at the Big 3 as well; they came back nicely from the last money rotation round and they are testing near support and bouncing. Don't diss a winner.
Support and Resistance
NASDAQ: Closed at 2422.93
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2530
2596 is an old trendline from summer 2004/summer 2005
Support:
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
2379 from the October 2006 peak
2378 is the mid-February peak
The 90 day SMA at 2375
2370 from the April 2006 peak
The 50 day EMA at 2347
2340 from the March 2007 low
2298 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 1397.84
Resistance:
1406 is the August and November 2007 closing low
1421 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
The 200 day SMA at 1438
Support:
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 90 day SMA at 1368
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1357
1327 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
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
Dow: Closed at 12,891.86
Resistance:
The 200 day SMA at 13,075
13,092 is the December 2007 intraday low
13,250 from price points in second half of 2007
13,563 is the late December peak
13,780 is the early December 2007 peak
Support:
12,845 is the August closing low
12,786 is the February 2007 peak
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,743 is the November low
12,573 is the mid-February high
The 90 day SMA at 12,543
The 50 day EMA at 12,534
12,518 is the August intraday low
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 29
Consumer Confidence, April (10:00): 62.0 expected, 64.5 prior
April 30
ADP Employment, April (8:15): -55K expected, 8K prior
Q1 GDP first read (8:30): 0.4% expected, 0.6% prior
Chain deflator (8:30): 3.0% expected, 2.4% prior
Employment cost index, Q1 (8:30): 0.8% expected, 0.8% prior
Chicago PMI, April (9:45): 48.5 expected, 48.2 prior
Crude oil inventories (10:30): 2.4M prior
FOMC policy statement (2:15): Futures say a 25BP rate cut. Key will be in how inflation hawkish the Fed is.
May 1
Initial jobless claims (8:30): 342K prior
Personal income, March (8:30): 0.4% expected, 0.5% prior
Personal spending, March (8:30): 0.2% expected, 0.1% prior
PCE core inflation, March (8:30): 0.1% expected, 0.1% prior
Construction spending, March, (10:00): -0.5% expected, -0.3% prior
ISM Index, April (10:00): 48.0 expected, 48.6 prior
May 2
Non-farm payrolls, April (8:30): -80K expected, -80K prior
Unemployment rate, April (8:30): 5.2% expected, 5.1% prior
Average workweek, April (8:30): 33.7 expected, 33.8 prior
Hourly earnings, April (8:30): 0.3% expected, 0.3% prior
Factory orders, March (10:00): 0.4% expected, -1.3% prior
End part 1 of 3
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