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money investment, investment help
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5/19/08 Technical Traders Report
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MARKET ALERTS
Targets hit alerts: EXM
Buy alerts: BBD; ITU; SLT; VIP
Trailing stops: CRM; CSIQ; DRYS; DSX; EXM; OTEX; SNDK
Stop alerts: ANSS; CRM; MAN; SNDA; SPWR
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http://www.investmenthouse.com/alertttr.html
SUMMARY:
- Market was looking good again but then reversed a good gain . . . again.
- LEI posts a second positive month. Seemed to work for the market.
- Some profit taking rattles the rally and now we see how the leadership holds the line and if new leaders can step up.
Market spurts higher, squanders the advantage.
After holding its gains nicely to end the week the market picked up where it left off with a soft open and a nice morning rally. The move took NASDAQ further past its 200 day SMA as SP500 and DJ30 joined in on the move. A second consecutive upside LEI appeared to be the catalyst or at least was credited with the assist on the early surge off of a soft open.
As has been the case in this rally, however, once a key resistance level was met, threatened, or breached, the sellers came in and sold. Profit taking for sure after an upside week last week continued on, and some sellers in the mix still, selling when the market makes a solid surge. SP500 gave up the break over the 200 day SMA. DJ30 barely hung onto the break, but with the low volume and the roughly 90 points given up off the high, the close above the 200 day SMA was not that convincing. NASDAQ, safely breaking above its 200 day SMA last Thursday put some mileage on it only to slip back and close squarely on that level.
SNDK was blamed as it announced that higher oil prices were biting into discretionary spending and thus its profits. Get used to hearing that one. It is likely quite true, but everyone is going to use it as a reason for sandbagging earnings and outlooks. It may have been a reason to sell, but as noted above, this rally has shown this break higher then reverse course intraday several times along the way. Most recently was last Wednesday, but it did it the second day of the month and the last day of April. Rather commonplace and thus far, the market has continued to come back. It will now have the opportunity to do it again.
TECHNICAL. Good old low to high, but then back to low, though not all negative, on the close. The bouncing ball continues even as the market trends higher in this rally. Still volatile action that has many uncomfortable, but that is what you want, i.e. a decent level of discomfort to keep a rally moving, slowly pulling money into the market as it overcomes obstacles. It looks as if SP500 is reversing again, unable to take out the 200 day SMA, but then after some testing it comes back to take out some resistance. As noted, it will have the chance to do it again, and the important thing for the market is how far it comes back and how hard, i.e. does the big money start dumping stocks?
INTERNALS: Quite solid on the rally and then, of course, turned flat on the flat close. Modestly lower on breadth for both major exchanges and lower volume on both as well though NASDAQ trade was still above average; it was not a clear pause as volume remained elevated on the reverse off the highs.
CHARTS: As noted, the large cap indices took out the 200 day SMA but then the SP500 gave it up and DJ30 clung to it on the close. NASDAQ was clinging as well as it was way out in front of the 200 day but techs turned negative and it slipped back. Again, there is still resistance to clear, and again it has surged only to give it back up. A recurring theme, and thus far the market has held, recovered, and then moved on through.
LEADERSHP: Techs, transports, materials, commodities . . . they were all out early once more, posting some further solid gains after already solid gains last week. Large cap tech was more of the exception, moving up but not the outsized moves of the other sectors. Then there were some reversals in the strong movers (e.g. shipping) that did not hold up very well or even broke some near support. Others (rails, metals, energy) reversed as well, but they did not break trends. They were not posting great moves at the close, but they did not upset their trends. They will have to do so and we will see how well they hold up and can continue to rally in their trends. Tech was sluggish, but its fade was typically on lower trade than the shippers or the metals, and that was a very interesting, and positive, aspect of the fade from the early gains.
SUM: Basically the market had its cage rattled a bit after a solid week of gains that moved the large cap NYSE up to resistance at a key level in the 200 day SMA. NASDAQ moved up on through that level on the close and SP500, DJ30 made the move intraday Monday. As is often the case when an index breaks below support, there is some more selling and then a rebound after the initial selling as the shorts cover some positions. Not all, but some. Then the move continues after that bounce. Same on the upside: a break through resistance, a spurt higher, then some selling as some gains are taken in. The key now is whether the NYSE indices can continue higher after another retrenchment below this level and finish off this resistance point. NASDAQ will be important as will NASDAQ 100 and SP400. The latter is a bit overdone to the upside here so more than likely it pulls back near term before moving back up. After these runs, that is not out of the question and if volume remains in control, that overall healthy technical action.
THE ECONOMY
April LEI posts another modest gain.
For the first time since late 2006 posted a back-to-back gain. At 0.1% it was not a huge indication of strength, but as seen in 2002, this is how moves in the LEI take shape. Just as in other more leading indicators you start to see a firming and then a turn. The prior 5 months were hardly a turning point with -0.5% to -0.2% readings, but when you look a bit longer term you see some firming. From March 2007 through September 2007 there were 4 upside months and three downside months, alternating back and forth. Not a surge, just firmer Jell-O.
The LEI lost a lot of luster after the last recovery took off and the economic move grew elderly. It appeared to lag the actual economy, 'predicting' what had already happened. Its strength is at turns, not in the meat of a run. It starts to show variances, and that is what you hone in on. The back and forth action in first half 2007, the dump lower for 5 months, and now improvement in the numbers as there is firming in other areas. That suggests, and suggest is the key word, that 6 months down the road things will improve.
We are awaiting the next read from ECRI out at the end of this week to see if it reflects the same improvement. ECRI has suggested we skirt a recession but the high energy prices are creating a drag on the consumer. How the recent spike in gasoline and diesel impacts the Index will be very instructive given the LEI positive readings.
THE MARKET
MARKET SENTIMENT
VIX is down at the October levels where the market peaked and started the sharp correction that pushed the indices into bear markets. This will be an important test for the indices: if the relationship is broken there may be some retrenchment but it should not lead to a wholesale dive that this level presaged in late 2007.
Keep in mind, however, now that the Fed has entered the game with its credit facilities that actually work, the correlation with VIX that set up during the correction is broken. Volatility and hence VIX can decline and hold at low levels for a very long time and have no bearing on any continued rally.
VIX: 17.01; +0.54
VXN: 21.09; +1.09
VXO: 12.86; -4.4
Put/Call Ratio (CBOE): 0.85; 0
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: 46.0%. Continuing the rise, up from 44.4%, slowing a bit as the week prior they jumped from 40.9%. The rally is having its impact, pushing bulls higher, up from 39.1% and 37.8% where it held for a few weeks. Fell to 30.9% in mid-March as the low. 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: 29.9%. After rising the prior week the bears turned south, falling from 32.3%. 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: -12.76 points (-0.5%) to close at 2516.09
Volume: 2.146B (-5.58%). Volume was lower but still well above average as NASDAQ rallied higher but then closed down a half percent. Not great action as NASDAQ has not totally put the 200 day SMA to bed. Indeed, it is right back there after the Friday and Monday pullback. Time to hold the line.
Up Volume: 861.447M (-274.149M)
Down Volume: 1.379B (+272.771M)
A/D and Hi/Lo: Decliners led 1.38 to 1
Previous Session: Decliners led 1.34 to 1
New Highs: 82 (+4)
New Lows: 96 (0)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
As noted, time to hold the line with this test back to the 200 day SMA (2516). Volume is up the past three sessions as NASDAQ has moved through the 200 day and is testing it. It is not a done deal, the break above this level that is. This is where the rubber meets the road, we hit the licklog, etc. as this point represents the August 2007 interim lows and of course the 200 day.
NASDAQ 100 (-0.72%) rallied to next resistance near 2050 and then reversed to close down even more than NASDAQ. Still comfortably above its 200 day SMA, but it is at the next level, up at 2000 and the rising 10 day EMA (1997). Want to see it hold here and continue to lead the market.
SOX (-0.79%) managed to hold its move over the 200 day SMA as well, but it gave up an 11 point gain on the SNDK news. If oil is finally hitting demand then the rally dies and we go into recession for sure. Oil does need to retrench, and without crushing demand and sending us into recession. Slippery slope and kudos to SNDK for being the first to go ahead and use a ready-made excuse.
SP500/NYSE
Stats: +1.28 points (+0.09%) to close at 1426.63
NYSE Volume: 1.15B (-12.54%). Volume was quite light, still below average and below last week's levels. Thus the failure at the 200 day SMA was not that surprising and the reversal was not that damaging. Has to hold near here and make another try, i.e. reload.
Up Volume: 584.266M (-29.944M)
Down Volume: 554.881M (-108.862M)
A/D and Hi/Lo: Decliners led 1.12 to 1. Flat.
Previous Session: Advancers led 1.12 to 1
New Highs: 167 (-7)
New Lows: 61 (-4)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Jumped through the 200 day SMA (1428) clearing it by 12 points and looking, from a price standpoint, solid. Without that trade is was susceptible, and when the leading techs turned over, SP500 and its low volume did not have much of a chance at holding. It didn't, and once more SP500 will have to hold somewhere around the 10 day EMA (1412) or the 18 day EMA (1403) or the February high at 1396 as it regroups.
SP600 (-0.22%) moved through its 200 day SMA as well only to turn and give it up as well. The mid-cap 400 (-0.31%) has surged up ahead of its 10 day EMA and a test of that (868, 13 points from the close), would be a normal test after such a run.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
DJ30 roved above its 200 day SMA as well, and though it managed to hold onto that level to the close it gave up roughly 105 points from the high. The blue chips basically matched the early March intraday high (13,133) then retreating. As with SP500, it had no volume to push it on this second try at the 200 day (13,013) and the outcome was the same as the last attempt that was . . . at the start of May. Stocks such as IBM faded to the 10 day EMA, making nice tests, setting up for the next move. It would help to get some assistance from financials, something SP500 needs itself. Still in a nice position to make the move with the higher low at near support, and if this just was a test after a probe of the 200 day SMA, it is still ready to make the break.
Stats: +41.36 points (+0.32%) to close at 13028.16
Volume: 193M shares Monday versus 249M shares Friday. Didn't get the volume to push it and thus another move over the 200 day SMA was spit back.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
MONDAY
After hanging onto last week's gains Friday the market did that again Monday. Of course it gave up very nice gains in doing so. That is called searching for a silver lining. In reality the action, while disappointing, was not a rollover or train wreck in progress. There is the VIX issue that many are watching and the overall lack of NYSE volume, but there is also a good run higher in progress with the mid-cap 400 leading the way, many solid sectors posting strong gains the past two weeks, and actual, verified above average volume on NASDAQ. The nice run higher is its own enemy as it begs for a bit of a give back in those leading areas (transports, commodities), and if the leaders pullback the market tends to do so as well.
There are still stocks moving up into position to try for a leadership role, and if they go ahead and step up while the current crop takes a breather then we could see continuing success upside, maybe not with the entire market, but with those sectors. Money has continued to rotate in the market, and some more of that now would demonstrate the rally's solid underpinnings.
As is always the case with this rally, there are some very solid positives and enough negatives to keep everyone on their toes and guessing. With SP500 and DJ30, and indeed now NASDAQ, all toying with the 200 day SMA but struggling to get through or hang on, that only heightens the concern. Every time you try important resistance in a recovery it is an important juncture, and as noted, there are enough concerns to keep everyone wondering. Some are adamant it goes up from here, others that it goes down from here. But of course the market has the final word. Thus we watch how the indices respond here, but if the good patterns continue to form that is a longer term positive for the move higher.
Support and Resistance
NASDAQ: Closed at 2516.09
Resistance:
2540 from November 2007 low
2576 represents a range of interim peaks and troughs from May 2007 into December 2007. At least 8 in that period.
2617 is an old trendline from summer 2004/summer 2005
2618 from a June 2207 peak. As it is coincident with the above trendline it grows in significance.
2668 to 2673 from November/December 2007 interim peaks
2720 (July 2007 peak), 2724 (December 2007 peak) are key resistance points
Support:
The 200 day SMA at 2516
2500 from interim August lows.
The 10 day EMA at 2493
The 18 day EMA at 2466
2451 is the August closing low
2419 is the January 2008 peak and the early February peak
The 50 day EMA at 2409
2392 is the April 2008 peak
2386 is the August intraday low
2378 is the mid-February peak; 2379 from the October 2006 peak
2370 from the April 2006 peak
The 90 day SMA at 2352
2340 from the March 2007 low
2305 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
S&P 500: Closed at 1426.63
Resistance:
The 200 day SMA at 1428
1429 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
1446 from the December low
1460 is the February 2007 peak
1481 represents several peaks and lows ranging from April 2007
Support:
The 10 day EMA at 1412
1406 is the August and November 2007 closing low
The 18 day EMA at 1403
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 50 day EMA at 1382
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1359
1338 is an ancient trendline
Dow: Closed at 13,028.16
Resistance:
The 200 day SMA at 13,013
13,092 is the December 2007 intraday low
13,133 is the May 2008 high
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:
The 18 day EMA at 12,876
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
The 50 day EMA at 12,715
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,500
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.
May 19
Leading Economic Indicators, April (10:00): 0.1% actual versus 0.0% expected, 0.1% prior
May 20
PPI, April (8:30): 0.4% expected, 1.1% prior
Core PPI, April (8:30): 0.2% expected, versus 0.2% prior
May 21
Crude oil inventories (10:30): 176K prior
FOMC Minutes, April 30 (2:00)
May 22
Initial jobless claims (8:30): 371K prior
May 23
Existing home sales, April (10:00): 4.85M expected, 4.93M prior
End part 1 of 3
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