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us stock market, trade stock
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5/29/08 Technical Traders Report Update
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MARKET ALERTS
Targets hit alerts: AMSC
Buy alerts: ETN; SINA; VRSN
Trailing stops: MEA
Stop alerts: BIDU; CY; EDU; STLD
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:
- Stocks rise as volatile oil ends sharply lower once again, but still no sharp upside break.
- Rising interest rates, rising dollar, rising profits are market positives.
- Gold is falling into a big correction at best.
- And the niche players (mid-caps, small caps, techs) shall lead.
Oil opens the door for stocks to rise, but they almost trip over the doorstop.
Oil was lower to start the session and even with that and the improvement in Q1 GDP on the second go round stocks were sluggish pre-market. Still that softer open led to some early gains as the indices worked through a volatile first hour and then rallied after oil inventories plunged 8.88M bbl for the week. Yes, rallied on an oil inventory plunge. Why? Because oil could not rally on the inventory decline.
Techs took the point along with a variety of small caps. The commodities, metals, materials, and energy were mixed again as they try to put in another consolidation. Good to see some stocks and sectors taking the point as they do; as noted last night that is the MO for this rally. They rallied higher with NASDAQ moving through its 200 day SMA and SP600 moved to resistance at 1406.
That was the zenith. Even though oil tanked on its close (126.62, -4.41), the second $4 drop in three sessions, stocks could not drive the gains home. Volume was up but mid-afternoon the drive higher stalled and the indices faded back. NASDAQ gave up the 200 day SMA and SP500 fell back below 1400. Good try to clear resistance, but in the end, failure. Not for all, however. NASDAQ 100 moved past the early May high. SP600 moved over the 200 day SMA on the close. Volume was up; there was some accumulation. Thus it was not a great session but a positive one. The economic underpinnings certainly seem to be lining up for stocks. Question is, will they follow?
TECHNICAL. Low to higher on the session, so the intraday action was solid. The afternoon dip to the close, however, took some bloom off the session. Positive overall, but not the really solid session it would have been if NASDAQ held the 200 day and SP500 held over 1400.
INTERNALS: Middle of the road breadth at 3:2; pretty much underscores the mediocrity of the indices overall. Fortunately there are many solid stocks moving well. Volume was up on both NASDAQ and NYSE, actually putting a scare into average on the former. Will need that trade to clear the 200 day SMA and the May peak.
CHARTS: As noted, NASDAQ and SP500 moved through or to resistance on the high but could not hold it. NASDAQ did clear the early May peak on rising trade; good. SP500 is still deep in it, below near resistance and well off the May highs. The Dow is hardly worth mentioning as it is still below its 50 day EMA though it held support at 12,500 and bounced. The interesting moves were in the SP600 as it cleared the 200 day SMA and NASDAQ. They along with NASDAQ 100 and SP400 are trying to lead the market on improving economic underpinnings. That is the key for the market moving ahead.
LEADERSHIP: The metals, commodities, materials and energy sectors are still struggling after the last big move, trying to consolidate to put together another run down the road. Don't look ready to make any serious upside moves just yet. Techs are stepping it up as are biotechs, healthcare, industrials, some financials. As has been the case in the entire rally, the market is finding leaders to step in when the main horses in energy, commodities and friends make their periodic stumble.
THE ECONOMY
Interest rate surge, indicating credit issues are easing and pulling the dollar higher as well.
As discussed recently, interest rates are breaking higher with the 10 year hitting 4.11% Thursday before closing near 4.08%. The gain in rates is due to a rise in real rates. When real rates rise that tells you that there is more credit risk-taking versus running for shelter in bonds. That tells you that the credit freeze has indeed undergone a significant spring melt (now summer?).
We have also discussed the past month how some view rising rates as an indication of inflation. Without going into the same dissertation as to why that is wrong, rising interest rates coming out of a recession or significant slowdown indicate better economic activity to come. Instead of putting money into bonds investors and banks are now once more looking to put money into the economy and look for growth returns as opposed to safe low rate interest returns. Rates rise in anticipation of better economic times and more demand for money.
Speaking of more demand for money, the dollar is rising once more, coming off that test of the late April move. Made a higher low and just broke back through its 50 day EMA. The key move is through the early May high. Interest rates are giving the dollar a boost back up; certainly the administration is not as all the President's men remain mute other than the 'we believe in a strong dollar' mime they perform on command.
Second Q1 GDP reports shows profits are back in the game as well.
After drying up in Q4, corporate profits are back in the game with a 3.8% gain in Q1. Corporate profits lead to jobs, capital investment, risk taking; all of the things an economy needs to expand. That fits nicely with the rise in interest rates as money moves out of government bonds and into real growth investments: corporations with money looking to make more money.
Of course they won't do it if the outlook is negative. Economic data continues to troll weakly along, but there are signs of improvement in housing, a credit freeze thaw as noted above thanks in part to innovative Fed action, improvement in business investment, solid consumer spending despite the price increases, solid retail store results and forecasts, transport gains, etc. Lots of anecdotal evidence the economy is trying to turn back up. And of course, stocks are trying to keep the rally going, and stocks are some of the best indicators of future economic activity. Retail is rising (and not just Wal-Mart), transports remain strong, and small and mid-caps along with techs are leading the market. Those are very much tied to the economy and they are leading.
Gold is not glittering, but that is great for the economy.
After hitting over $1000 less than three months back, gold sold off but then made a solid rebound. It fell short of the prior high, however, then sold off again. It dutifully rebounded, rallying once more. Once again, however, it fell short of the prior high and gapped lower. It gapped lower again Thursday (876.40, -24.10). Two lower highs, the last below the interim January peak, high volume gaps lower. Gold is, at best, in a base. At worst (for it), it made a climax run and has a long way to fall.
That is great news for stocks. Gold breaking down is a great indication that inflation is not going to run rampant. Makes sense: if the economy is going to recover, why park money in gold? Advancing economies mean lower inflation pressures as supply meets demand. A thaw in the credit freeze and an improving economy mean no reason to be in safety of gold. They are leaving treasuries as the rise in interest rates shows. Gold's fall dovetails with that.
Oil still in its uptrend, but . . . .
While oil's fall is not necessarily a breakdown as it, despite the two nasty falls, is still in its trend, the gold pattern is a top. Lower highs, massive selling volume. Again, at best it is in a base. What about oil's uptrend? It is still there and as noted over the weekend, and thus it is not in the same position as gold. There are some important factors to consider, however.
First, oil responded badly on good news for the product. When it was reported that oil inventories fell 8.88M bbl last week, oil posted a 3% decline. There is talk of delayed deliveries just coming to port that made traders discount the inventory drop, but there are other reasons that doesn't tell the story. In short, oil reacted to bullish news for the product with a selloff. Recall that energy stocks failed to follow oil as it spiked to $135 just over a week back. That was another indication that oil and the energy sector stocks are overdone.
Second, there are technical indications in the chart that oil is under distribution. It has not put in the toppish pattern of gold, but there are early indications of a coming breakdown. The day after oil spiked to $135 it turned and sold on the strongest volume of the entire run. It rebounded but then gapped sharply lower the following session. Wednesday it tried to rebound yet again, looking resilient as always. Then Thursday it reversed course after good news for the product and closed sharply lower once more, and once again on the strongest volume in the run. Oil is in trouble.
A breakdown in oil would be the goose the struggling stock rally needs. It has come back nicely and continues to show rotation, but it just cannot cope with $130 or $120/bbl oil. If it breaks sharply lower from here it is heading toward $100 and the market would find that quite appealing. It is still in its uptrend and the strength of an uptrend cannot be discounted. It is, however, showing telltale signs the trend is in jeopardy. Combined with the other indications in gold, interest rates, and importantly, the dollar, the day of oil's unending rally is ending.
THE MARKET
MARKET SENTIMENT
VIX moved down to the October levels when the market topped and the initial response has been a market selloff, particularly on DJ30. The trick still is how the other indices hold on this test.
This is also a test of the credit facilities the Fed has incorporated and if they can hold sway with spiking oil prices. The Fed 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: 18.14; -0.93
VXN: 21.28; -0.96
VXO: 18.59; -1.08
Put/Call Ratio (CBOE): 0.86; +0.04
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: 37.9%. Have to love this drop. Over the weekend we discussed how there was a lot of pessimism relating to this rally and its longevity, and this nearly 10 point weekly decline is an indication that the bulls remain very skeptical, and that is always good for the market. Down from 47.3% last week and 46.0% the prior week. A continuing rise from 44.4%, 40.9%, 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: 32.2%. Continued the gains from the prior week though not in the dramatic fashion of the bulls. Up from 30.8% last week and 29.9% the prior week. That makes three of the last four weeks to the upside for bears. 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: +21.62 points (+0.87%) to close at 2508.32
Volume: 1.948B (+4.6%). Rising volume though still below average. There is some accumulation ongoing in techs once more.
Up Volume: 1.27B (+225.464M)
Down Volume: 602.52M (-176.25M)
A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Advancers led 1.06 to 1
New Highs: 92 (+28)
New Lows: 87 (-16)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
Rallied through the 200 day SMA (2514) but could not hold the move to the close. It did clear near resistance at 2500, taking it over the early May peak; a necessary move but not the coup de gras. NASDAQ is doing what it has to do, and it is providing some needed leadership at the right time as the commodities, energy, and friends struggle.
NASDAQ 100 (+0.95%) continued higher on rising trade, moving through the early May peak and toward the 2050 May high. Not a powerhouse but doing the job for now.
SOX (-0.41%) struggled, but it did not give up ground. It is measuring the 200 day SMA once more and is in position to take it on after this higher low.
NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +7.42 points (+0.53%) to close at 1398.26
NYSE Volume: 1.229B (+1.98%). Rising but still below average volume.
Up Volume: 747.977M (+30.414M)
Down Volume: 471.65M (-1.023M)
A/D and Hi/Lo: Advancers led 1.58 to 1
Previous Session: Advancers led 1.35 to 1
New Highs: 65 (+17)
New Lows: 72 (-20)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
Rallied through 1400 to 1406 resistance and stalled there, fading to close just over the early February peak. It is a hard task trying to get all of the large caps rounded up; if you get the financials upside then energy and materials are slow. With interest rates moving higher and gold falling we will see if the large caps can at least tag along with the other indices.
SP600 (+0.81%) rallied to a new closing high for the rally off the March lows, clearing and holding the 200 day SMA on the close. It gave up half of its gains on the close, but showed the start of an important move if it can keep the upside break alive. Tied to the economy, and the continue advance to new rally highs is a solid positive for the market and the economy overall.
SP600 Chart: http://investmenthouse.com/ihmedia/SP600.jpeg
SP400 CHART: http://investmenthouse.com/ihmedia/SP400.jpeg
DJ30
Up but no help to the market. Gave back more than half its gains on the close and stalled below the 50 day EMA and importantly, right below the key 12,750 level (hit 12,726 on the high). Volume was lower as it tried the early April peak and stalled. There is just no punch to the Dow. As with SP500, maybe it can find the strength to tag along.
Stats: +52.19 points (+0.41%) to close at 12646.22
Volume: 206M shares Thursday versus 213M shares Wednesday. No volume on the move higher.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
It is Friday, but there is no shortage of economic data as personal income and spending, PCE, Chicago PMI, and Michigan sentiment all hit the wire. They will follow a surprise upside earnings report from Dell. The right data can add to the market gains . . . along with a continued decline in oil.
The current rally is trying to salvage itself and make the next break higher, all without the help from the NYSE large caps. There are some going bullish on the financials; if they are correct then the market will indeed receive a needed boost. As it is right now, the small and mid-cap indices as well as techs, all growth areas, are providing the leadership as the 'hard stocks' turn choppy. That is a positive in that there is rotation, and it is a positive in that these stocks are economically sensitive growth stocks. If they breakout and rally that is a strong indication the credit issues in the economy are over.
Critical time for the market as the rally has flagged and needs a catalyst. Falling oil and diving gold are two important factors. Dell earnings may prove useful. Spending will be very important as will Chicago PMI. Michigan sentiment may have a Friday impact, but we know sentiment is at recession levels. It lags the recovery so for the underpinnings of a recovery it is not as important outside of tomorrow.
Though the rally remains on the edge of a knife right now, there are still good stocks that are in position to make us money, and that is as good an indication as you can get. It also means we need to focus in on those stocks and when they make a solid move so they can indeed make us money. The tricky part now is the volume; it has improved overall but we have passed on some stocks that jumped but had no volume behind them. If this is a true breakout move by the NASDAQ 100, SP600, etc. we need to see the stocks move on volume. With the index patterns improving we expect that will come, though we have to figure with summertime trade levels we won't get blowout trade. We can live with that, and more importantly, we can make money with that.
Support and Resistance
NASDAQ: Closed at 2508.32
Resistance:
The 200 day SMA at 2514
2540 from November 2007 low
2552 is the May high
2576 represents a range of interim peaks and troughs from May 2007 into December 2007. At least 8 in that period.
2618 from a June 2207 peak.
2624 is an old trendline from summer 2004/summer 2005
2668 to 2673 from November/December 2007 interim peaks
2720 (July 2007 peak), 2724 (December 2007 peak) are key resistance points
Support:
2500 from interim August lows.
The 18 day EMA at 2472
2451 is the August closing low
March 2008 trendline at 2435
The 50 day EMA at 2425
2419 is the January 2008 peak and the early February peak
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 2356
2340 from the March 2007 low
2315 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
S&P 500: Closed at 1398.26
Resistance:
1406 is the August and November 2007 closing low
The 200 day SMA at 1426
1432 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 18 day EMA at 1397
The 10 day EMA at 1397
1396 is the February 2008 peak
1387 is the April 2008 intraday high
The 50 day EMA at 1384
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1360
1339 is an ancient trendline
Dow: Closed at 12,646.22
Resistance:
The 50 day EMA at 12,691
The 18 day EMA at 12,732
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
The 200 day SMA at 12,986
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:
12,573 is the mid-February high
12,518 is the August intraday low
The 90 day SMA at 12,510
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 27
Consumer Confidence, May (10:00): 57.2 actual versus 61.0 expected, 62.8 prior (revised from 62.3)
New home sales, April (10:00): 526K actual versus 520K expected, 509K prior (revised from 526K)
May 28
Durable goods orders, April (8:30): -0.5% actual versus -1.5% expected, -0.3% prior
May 29
GDP, Q1 preliminary (8:30): 0.9% actual versus 0.9% expected, 0.6% prior
Chain deflator, Q1 (8:30): 2.6% actual versus 2.6% expected, 2.4% prior
Initial jobless claims (8:30): 372K actual versus 370K expected, 368K prior (revised from 365K)
Crude oil inventories (10:30): -8.88M actual versus +800K expected, -5.3M prior
May 30
Personal income, April (8:30): 0.2% expected, 0.3% prior
Personal spending, April (8:30): 0.2% expected, 0.4% prior
Core PCE, April (8:30): 0.1% expected, 0.2% prior
Chicago PMI, May (9:45): 48.5 expected, 48.3 prior
Michigan sentiment, revised May (10:00): 59.5 prior
End part 1 of 3
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