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Index Wrap

Digestion

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       12-06-2001           High     Low    Volume Advance/Decline
DJIA    10099.14 - 15.15 10169.44 10079.77  1.4 bln   1572/1539
NASDAQ   2054.27 +  7.43  2065.69  2037.64  2.1 bln   2068/1558
S&P 100   596.77 -  0.93   599.97   595.56   Totals   3640/3097
S&P 500  1167.10 -  3.25  1173.35  1164.43
RUS 2000  482.23 +  2.81   482.80   478.72
DJ TRANS 2619.40 +  6.91  2643.24  2596.81
VIX        25.09 +  0.30    25.66    24.63
VXN        48.39 +  0.95    48.99    47.76
TRIN        1.09
Put/Call Ratio       .80

Contact Support

Mixed Jobless Claims, mixed retail sales, and the awaiting of mid- quarter updates from SUNW and INTC provided merely a toothpick following yesterday's bullish feast. Today was a day for digestion. Waiter - check please!

I'll save the long-winded speeches tonight except to note the factors listed above are not as bullish as investors are taking them to be, largely thanks to the bullish spin provided by brain- dead media types.

One example before we move on. The facts: Expected initial jobless claims were for 460K. Actual was 475K - a larger then expected number. Last month was even larger at 493K. The news headline: Initial Claims declined by 18K. You be the judge.

Closely tied to it was Continued Claims that fell by 349K from the 4.1 mln last reported. As Austin Passamonte rightly pointed out in the Market Pulse today, benefits have a time limit. When the benefits run out, the recipient falls off the list. The decline has nothing to do with 349K previously unemployed people finding new jobs, as the unemployment figures will surely point out tomorrow. However, seasonal hiring for the holidays will make a dent in that number too. Continued reports of layoffs threaten that the condition will worsen before we hit economic bottom.

Until that bottom, long live the equity bubble! So where to from here? Let's roll out the charts early tonight since that is where the meat is.

Dow Jones Industrial chart (INDU):

Beginning with the daily Dow chart, I'll just say it. The candles look bearish. Just because volume was huge yesterday and still large today does not mean the move was not a result of panic buying - fear of missing the train while evading economic reality. While I was really looking for a doji candle today, the red "golf club" formation shows a bit more bearishness than plain indecision. When you couple that with a penetration of, then fall back through the 200-dma, along with the upper Bollinger band and the 50% retracement level (not shown), it looks more like a top than a bottom. The mid-day penetration of the 200-dma that was met with selling pressure tells us that bulls may be reaching exhaustion. Only time will tell.

In defense of the bulls though, daily stochastics, choppy as they are, are pointed up for now. Also adding to the bulls' defense is the support found in the 60/30 charts around 10,075. Meanwhile, the stochastics fell indicating that today was a day of consolidation following yesterday's ramp job, err, I mean big gains for no reason at all. That short-cycle stochastic can fall while the price remains steady shows that bullish sentiment remains intact. Bears ought to take note that they didn't get much traction today either.

NASDAQ-100 chart (NDX):

The NASDAQ is exhibiting some of the same characteristics except that it handily broke through its 200-dma yesterday - gapped right over it and held today. In technical terms, that leaves a gap that bears are begging to fill in the short run. By filling that gap, 2 things are accomplished. First, support is tested at previous resistance. By default, the 200-dma is tested too. Both of those could easily combine for big support and the next good call-buying opportunity, absurd as it sounds given the over- extended market. But that's just it. Even in it's choppy condition, the daily stochastic doesn't show that the NASDAQ is overbought (yet). Bulls get the nod on the shorter-term 60/30 charts too. Why? Support at 1700 held as bears got no traction, even as the stochastics were falling. I don't yet see a put play in sight.

And what of the INTC guiding revenues higher? More spin unlikely to have any affect on the markets. INTC went from $6.2-$6.8 bln to $6.7-$6.9 bln. There is $100 mln overlap on both sets of numbers and they offered very little guidance for Q1/02 - not much to take away in the 30 minutes during which the call lasted. Similar situation for SUNW. Dan Niles was right - "Not as good as people think".

S&P 500 chart (SPX):

SPX, the real gauge of the market and choice of professional traders suggests (surprise!) a similar situation - consolidation with bulls out of steam for today, but bears unable to gain traction. I can't help focusing on the daily chart that shows overhead resistance probably hard as a rock at the convergence of the 200-dma, 50% retracement bracket, and upper Bollinger band at roughly 1170-1175. The lack of any notable pullback following yesterday's gains and the bullish daily stochastic are going to duke it out with the tri-fecta resistance noted above.

60/30 setups here too show intraday support as stochastics cycle down - perhaps scalpable for the next bullish daytrade.

Hello. . .Irresistible Force? Meet Immovable Object.

And what of the VIX? Not much to tell as it backed up slightly to 25.09, still plenty of worry for the wall in which bulls can climb.

Bull should be thrilled with the resilience. They should also be thrilled that money is unwinding from bonds a rapid clip to feed equities. Keep an eye on the bond values. If the recovery is for real, both bonds AND equities should simultaneously rise. It is a fallacy that one must always gain at the expense of the other. One other point on the bonds - rates are telling us that investors are expecting some sort of inflation in the future and certainly no more rate cuts from the Fed when it meets next week, though that too may change with the cautious twitchiness of the market.

Gold too is showing some rising firmness and long-term ascending support from its lows in late march of this year. That is another potential sign of inflation.

Frankly, it puts me in a quandary. Does industrial overcapacity and more layoffs make and keep deflation as a very real component of the economy for the next few years? Or does the flood of Fed- induced liquidity cause too much money to chase too few goods, thus causing IN-flation?. For those chuckling at the latter question, remember, that is exactly what the Fed has done to stocks and the housing market - make and preserve the bubble at any cost. That is the inevitable result of huge liquidity, and nothing prevents it from spreading to goods and services.

Back to the subject - bulls still hold the upper hoof even though there is another clear disconnect between equity prices and returns. Near-term chart candles held steady even as stochsatics cycle down, which might set us up for the next set of call entries - still scalping only. Yet these toppy signals (all stopped hard at resistance) may indicate a bear-feeding is about to ensue. Anybody have a coin?

I'd still trade only small amounts of capital, and then only on scalps. Long-term direction has too many mixed signals to call it accurately right now.

See you at the bell!

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