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us stock market, trade stock
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4/29/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: None issued
Buy alerts: GLW
Trailing stops: BHP; BRCM; DO; HGT; GME; POT; RIG; SU
Stop alerts issued: BG; DE; ME; NGS; PCU
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:
- Market overall calm before the Fed, but Big 3 are rolling over.
- Money moving out of Big 3, looking for elsewhere to go.
- Consumer confidence up, but near term views dive to join expectations.
- Times are a changing: now investors want Fed to back off rate cuts.
- Looking for emerging leadership in the wake of the end of the Fed easing cycle.
Constructive action on the indices while it is fork time for some leaders.
There was a lot of news Tuesday but the market was mostly stagnant leading up to the Wednesday culmination of the FOMC policy meeting. The Case/Schiller Housing Price index fell 12.7% year/year with San Diego down 19% and San Francisco down 17%. Nevada led the overall decline by state as all of that boom time over the past 15 years craps out, at least for now.
Foreclosures jumped 12% in Q1 over Q4 and were up a mere 112% annually. Earnings were middle of the road with most noting higher prices and slowing sales. There were some bright spots with Office Depot up even with Florida and California sales lower. Of course MasterCard beat its earnings and launched into the ozone. The consumer confidence came out and was better than expected (62.3 versus 61.0) but with current views tumbling down to the expectations range, investors were unimpressed. This is basically a recession level (as was last month) so take the modest move up for what you want. All in all it is too low.
Nonetheless, the market did not drop, at least not any amount of note. Indeed by the close the indices were mixed, hugging flat and on continued low trade. The big mover, the key driver for the session, was oil. The EIA reported demand fell 7% last month, the largest decline since December 2001. People and businesses are cutting their usage back. After another flirtation with $120/bbl, this news was too much on top of the stronger dollar pressuring oil prices, and price is falling again. A second quick failure is typically trouble. Gold has already rolled over (closed at 873, -22.50) from its $1,000/ounce blow off peak, and oil looks ready to do the same here.
More than that, it is taking some other leaders with it. Oil's bubble is popped for the near term, and it splattered on metals, agriculture, and most commodities. It didn't help that the President took aim on any farm subsidies; kudos for that (now in the twilight of his last year), but it was a little added weight on a sector already feeling the heat. There is a movement in many states to get out from under the federal ethanol mandate, and that along with the dollar is putting the hammer on agriculture. All of these sectors headed sharply lower, sporting 3% to 4% losses, and we were lightening up on them with trailing stops. The market overall, however, didn't notice or miss them. Indeed, it continued to set up for the next move as none of the other sectors sold, just continued to firm up and set up for the next move higher.
TECHNICALLY the action wasn't spectacular, but it was the lack of any hiccups in light of the collapsing commodities that was telling. Money is moving out of those areas but not other areas. Intraday the action reflected this: down early then bottomed ahead of lunch and made a steady move higher into the last hour. Once more there was a last half hour selling attempt that took DJ30 and SP500 negative on the session, but overall it was decent low to high action session.
INTERNALS: Very quiet as you would expect. The interesting part for breadth was that NASDAQ was lower (-1.4:1) even as NASDAQ was up. It was all large caps (NASDAQ 100 up 0.54%) as AAPL and RIMM again led the show. Tech, particularly large cap tech, is bulking up for a leadership roll now that the Big 3 are done for now. Volume was lighter on NASDAQ and a smidge higher on NYSE, but both were still very low as the indices do their pre-Fed walk sideways. That is what you want to see: higher volume on the breaks higher (at least on NASDAQ and DJ30) then lower as it tests and consolidates the move.
CHARTS: Very nice pictures on the indices with very tight ranges the past two sessions as they work sideways, taking it easy after last week's jump higher and waiting for the next catalyst. Nice handles forming up on all of the large cap indices. The good action continues both in price pattern and with the volume/price action as well.
LEADERSHIP: The rotation continues and it is definitely out of commodities and related stocks. Money is coming out of the Big 3 (energy, agriculture, metals) in buckets as volume jumps as the sectors sell. Gold broke down and is diving lower, and now the others are following it. At the same time money is not leaving the market. There is accumulation, though very subtle and quiet, in other areas of the market, notably technology and growth. Thus the selling is limited as other sectors remains solid or indeed set up for moves. The large cap index charts are solid and are setting up for the next catalyst to send them higher. There is an FOMC decision in the way that could result in some air pockets, but you have to like how this is setting up, particularly with the negative 'it has to roll over here' comments you hear on the financial stations.
THE ECONOMY
Who needs a measly 25BP?
The Fed is widely anticipated to cut the Fed Funds rate 25BP on Wednesday, but after some hefty chopping on the last couple of meetings and the good job of implementing new policies and facilities that injected liquidity directly where it was needed, many are asking 'why bother?' Stock investors, bond investors, banks, even people on the street are asking why should there be more cuts at this point?
The dollar is on the mend, bottoming in mid-March when the Fed came back from its creative thinking 301 course. Gold is plummeting, closing at 873, down over $22 on the session and getting clubbed as it breaks down from that peak. That suggests the inflation fears that were fanning gold higher as the Fed appeared content to pull a Greenspan and cut until the cows came home or we totally collapsed our currency, are dissipating after the Fed hit upon its combination of methods to get money where it is needed without using the oft-cited Bernanke helicopter approach. That tells you gold was driven by fears of what might happen given the policies in place, and when those policies were changed, the need for the puffed up gold price ended.
Thus, the Fed is getting the movement it wants from the stock market, from the M&A market, from corporate liquidity, gold, and now even energy and commodities as they respond to the improvement in the dollar that came about . . . thanks to the change in policy. So, the word should be, DON'T SCREW IT UP with any big cuts.
Of course the Fed doesn't want to go too far and start talking of inflation worries as a reason it is not going to cut rates or otherwise take a harsher stand on inflation. It can stop cutting without having to trump up an excuse. It can be truthful: with its innovative policy moves it has put the needed liquidity where it is needed and it doesn't have to use the sledgehammer of rate cuts to affect its goals. If the Fed would do that its decision would be warmly welcomed and its credibility would jump.
THE MARKET
MARKET SENTIMENT
Plenty of talk on the financial stations about a failed rally with SP500 bumping 1400 and not getting through. The idea is the market is trading in a range and it has topped out at the top of the range and will therefore roll back over. The technical action, however, belies that assumption or belief.
VIX: 20.24; +0.6
VXN: 23.87; +0.22
VXO: 20.52; +0.73
Put/Call Ratio (CBOE): 1.08; +0.1.
Bulls versus Bears:
This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market doesn't have the cash to drive it higher.
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: +1.7 points (+0.07%) to close at 2426.1
Volume: 1.745B (-0.52%). Continued low, below average volume as NASDAQ works laterally the past three sessions following its Thursday breakout over the February peak. Just what you want to see.
Up Volume: 987.701M (+89.28M)
Down Volume: 736.7M (-76.909M)
A/D and Hi/Lo: Decliners led 1.42 to 1. The large cap NASDAQ 100 was in the lead; thus the negative breadth even with the gain.
Previous Session: Advancers led 1.19 to 1
New Highs: 15 (-15)
New Lows: 46 (-2)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ was just fine on the session. It continues its tight lateral move after breaking over the February high last week, a move made on solid, above average volume. Thus NASDAQ is showing good price/volume action and leadership as well, key elements in its continued recovery off the lows and in the current rally. Individual techs appear to be under accumulation, and the index pattern suggests that as well.
NASDAQ 100 (+0.54%) started to break higher Tuesday once more, led by AAPL, RIMM, but volume did not break higher with it. It has the 200 day SMA at 1959 and some price resistance from 1990 to 2000. Would like to see a pause and then a break higher with overall NASDAQ, but it is making its own way now.
SOX (+0.19%) continued laterally for the third session as well, moving in its own tight range, consolidating its solid Wednesday and Thursday surge. Nice rest, forming a handle and setting up the next move higher toward resistance just over 400 but bigger resistance up at 425.
SP500/NYSE
Stats: -5.43 points (-0.39%) to close at 1390.94
NYSE Volume: 1.228B (+1.6%). Volume edged higher but was still below average as the NYSE indices lost a bit of ground. Hard to call this distribution given the continued very low, below average trade.
Up Volume: 507.342M (-117.16M)
Down Volume: 712.961M (+142.055M)
A/D and Hi/Lo: Decliners led 1.4 to 1
Previous Session: Advancers led 1.37 to 1
New Highs: 13 (-21)
New Lows: 17 (+5)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 tested back Tuesday, falling back below the February peak (1396), but that was no big deal as the break over that level was on low volume and lacked any real punch. The test was nice with continued below average volume and a tap at the 10 day EMA (1382) on the low before bouncing up modestly after an intraday test lower. Nice easy test that is, similar to NASDAQ, setting up the next move higher but for now waiting on the FOMC to issue its next edict.
SP600 (-0.89%) of course faded back as it is not leading but following. It bumped its early February peak on Monday then slipped back. Still in position to follow though we doubt it is going to assume leadership from this pattern unless the money heading out of the Big 3 comes this way.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
The blue chips faded as well, but there was no damage done as DJ30 tapped toward the 10 day EMA (12,767) but never threatened it. Never gave up the breakout over the February peak either. Low trade once more as DJ30 mirrored the other indices (or they mirrored it) and just took it easy for the session given the FOMC decision on Wednesday afternoon. Still room to the upside to run once it makes this test and gets the next catalyst to send it higher.
Stats: -39.81 points (-0.31%) to close at 12831.94
Volume: 218M shares Tuesday versus 222M shares Monday. Nice low volume as the blue chips test, more of what you want to see.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
WEDNESDAY
The monthly ADP employment index, GDP, Chicago PMI, and crude oil inventories fill the docket Wednesday morning, giving investors plenty to think of well before the 2:15ET FOMC decision is announced. The past three sessions the indices have traded in a quiet, narrow range. This amount of information along with the FOMC could create a bit more volatility though typically the session is quiet ahead of the decision.
Monday we discussed how this was still a recovery rally from a bear market selloff, and leadership would tell us a lot about its health. Tuesday saw the improving dollar put more pressure on the Big 3 and high volume rollovers in all three of those sectors. They are somewhat a victim of their own success having run hard and fast and for now investors are running out of them. It is important to note, however, that the damage was basically limited to those sectors; the rest of the market is acting fine. Those leaders need to be replaced, however, and while the likes of AAPL and RIMM are up and making us money, they don't make up the entire market. Chips overall continue to look better, but individual solid patterns are hard to come by. Techs are firmer as well, but a lot of quality patterns remain an issue.
They are developing, and they have given us some plays and we are looking at more to set up for us and give us opportunity. The money is not leaving the market and that is of course a positive, and it is showing in the index patterns as they hold their gains ahead of all of the economic data and the FOMC decision, setting up for another move higher. Lots of data this week and the market is going to go through its gyrations dealing with it. During all of that, however, we will continue to look for stocks poised to move higher and pick them off as they make the break higher.
Support and Resistance
NASDAQ: Closed at 2426.10
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2527
2598 is an old trendline from summer 2004/summer 2005
Support:
2419 is the January 2008 peak and the early February peak
The 10 day EMA at 2398
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 2371
2370 from the April 2006 peak
The 50 day EMA at 2353
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 1390.94
Resistance:
1396 is the February 2008 peak
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 1435
Support:
1387 is the April 2008 intraday high
1382 is the 10 day EMA
The 90 day SMA at 1366
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1362
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 12,831.94
Resistance:
12,845 is the August closing low
The 200 day SMA at 13,064
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:
12,786 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 50 day EMA at 12,558
The 90 day SMA at 12,535
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): 62.3 actual, 61.0 expected, 65.9 prior (revised from 64.5)
April 30
ADP Employment, April (8:15): -60K expected, 8K prior
Q1 GDP first read (8:30): 0.5% 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): 47.5 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): 360K expected, 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): -0.7% expected, -0.3% prior
ISM Index, April (10:00): 48.0 expected, 48.6 prior
May 2
Non-farm payrolls, April (8:30): -75K 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): 0.2% expected, -1.3% prior
End part 1 of 3
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