THE BOTTOM LINE -
The S&P 500 (SPX) is having more of a sideways correction - a "time" correction. The next significant move looks to be up. If they can't take em down, eventually they should have another run as the trend remains up. I am holding some index calls in the Nasdaq 100 (NDX) and will buy QQQ on dips under 36 - the risk to reward ratio from here looks better to me in tech.
FRIDAY'S TRADING ACTIVITY -
The Nasdaq Composite (COMPX) finished down 7 at 2047, but had been higher the day before bucking the trend of the S&P. The key Nasdaq influence was weakness in bellwether Intel (INTC), off almost 2.5 percent on a lowered Q1 sales forecast.
The Dow eked out a gain on the week of 0.1%, while the Nasdaq was up 0.8% - noteworthy as the Index has reversed six weeks of declines.
The Labor Department reported on Friday that its estimate of nonfarm payrolls was that jobs increased by only 21,000 in February, versus an expectation of 130,000. The unemployment rate was unchanged at 5.6%.
While new job creation as risen for six months, the monthly average is around 60,000 and is only half of what is needed merely to stay abreast of population growth - to accommodate newly minted graduates looking for that first big job. The Administration had put out an estimate in early-Feb that job growth would grow by 3% in 2004, or about 300,000 a month.
"Wait until you see the effects of our tax cuts" is a battle cry that is wearing thin. No doubt this all is making the Administration nervous. It's not likely that we will see ads touting job creation anytime soon.
In fact, the Democratic nominee John Kerry was quick to seize on the issue and say that President Bush as "under-delivered". Treasury Secretary John Snow was just as adamant to state that the "The President's tax cuts are working". To add insult to injury, January's payroll report was revised lower by 15,000 (to just under 100,000) and December's gain was cut from 16,000 to 8,000.
However, what is not so great for equities was fuel for the bond market as the 10-year T-note ran up well over a full point (+1 12/32), cutting its yield to 3.8%, the lowest since last summer. Bond market participants took the report as an indication that the Fed would be constrained from raising rates for some time to come.
A bit of breakdown might be of interest here: manufacturing lost 3,000 jobs, making it 43 months of decline - however this was the lowest (loss) in 3 years. The service sector added 46,000 jobs, temporary help services were up by 32,000. Construction jobs fell by 24,000, likely due to severe winter weather. The average workweek held steady at 33.8 hours. Those working are not getting fat however - average hourly wages are up only 1.6% in the past 12 months, the slowest growth in 8 years.
Intel (INTC), as mentioned, lowered its quarterly sales forecast due to ample inventory on hand by its Asian customers. The company now reports expected sales of a range of 8 to 8.2 billion dollars versus a range of 7.9 to 8.5 billion. INTC is of course a major tech influence and also in the Dow 30. However other Dow stocks took up the slack.
McDonald's (MCD) ran up nearly 4% and a new high after reporting a jump in same-store sales. Guess those Big Macs are still big and with very big with Akins diet fans - and bigger waistlines are all around.
JP Morgan Chase (JPM) also hit a new 52-week high and the financial sector is getting fat also. Low interest rates are not impacting what they charge on credit cards and the like, but it sure increases their profit margins or the spreads between what it costs them to borrow and what they can squeeze out of customers.
The chip sector (SOX) was weak on the Intel news, as was Computer tech (XCI) and computer services (GSV). Gold, banking, oil services (also natural gas), and computer hardware were among sectors that gained.
Oh and last but not least, but my least favorite story, Martha Stewart was the focus of a lot of media attention and trading in her company was halted. Interestingly, but I suppose tragically for her, the charges were not insider trading at all, conspiracy, obstruction of justice and lying to the feds - so, the moral of the story is if you get caught with your hands in the cookie jar fess up - you wanted the cookie, but maybe it wasn't the best idea.
MY INDEX OUTLOOKS -
S&P 100 Index (OEX) - Daily chart:
The S&P of course is still stuck in the trading range defined on its daily chart below. There needs to be an advance above 572- 573 on a closing basis to create a breakout. If so, I figure upside potential to be to 590.
The first level of support can be assumed to be at 561-562, at the prior downswing low and in the 558 area, where the OEX bottomed in late-January/early-February. Support in the former area is also implied by the 50-day average.
I suggested last week that I would hold puts unless there is a close above 572 as an exit or stop point. Given my "bottom line" assessment of the way the market is holding up here, I would let my stop take me out. I am not assuming necessarily that there will be a breakout and new up leg. We could still be at the top end of a trading range here - further market action is needed to determine.
OEX - Hourly:
On the hourly chart its apparent that OEX is locked in a tight range between 572-573. The intersection of the hourly up trendline is at 566. Is the market coiling for a move through upper resistance? Stay tuned. The trend is remains up until and unless there lower downswing lows are seen on sell offs.
Most significant technical support comes in at 558. If 566 was penetrated, I would exit any puts and look at calls at that point, especially if the two stochastic model pairs on the hourly chart, both get to their lower extremes.
Dow Industrials (INDU) Daily:
Charles Dow called this kind of sideways pattern a "line" formation - also called a "rectangle" these days, a pattern that is usually assumed to be a price consolidation pattern.
Most often, consolidations after such a good-sized run up will resolve themselves by another up leg at some point. It was noteworthy that the 50-day moving average was not broken given the weakness seen Friday.
Key resistance has to be assumed at the prior highs just above the 10,700 area. If this upper resistance area is penetrated, upside potential could be to the 11000 area.
Support in the 10400-10435 area is the lower end of the rectangle. A decisive downside penetration below 10400 gives me a downside objective to around 10200 to 10100.
The other thing about rectangular formations is that the longer they go on, the stronger and longer is the next price swing, up or down. Stay tuned.
Dow Index - Hourly (DJX):
When we look at the hourly chart, there is more of downtrend apparent unless there is move to above 106.5 basis the Dow Index or DJX. There is a downtrend channel that can be drawn also that projects a lower end of it to around 104.60.
However, the trend that exists is still that lows are climbing, or crawling?, up an up trendline still, a pattern which is not broken unless there is an hourly close below 105.50.
Summing up, DJX needs to get, and stay, above 106.50-107 to suggest a renewed upswing. Below 105.50, the up trend is faltering and I would look for 104.60 as potential lower support. A tough market to trade as the trend stays muddy!
Nasdaq Composite (COMP) Index - Daily & Hourly:
The Composite has not managed yet to break out technically and the same pattern of lower rally highs is still the pattern.
A close over 2060 would suggest the trend might get back into gear on the upside. 2100 would then loom as the next key upside resistance. Key support is at 1990-2015. A close below 2000 would suggest downside potential to around 1900, but that is the lowest projection I have currently.
A pretty mixed picture still. Where are those jobs? The next key economic influence will likely be Thursday's retail sales report in the week ahead.
Nasdaq Composite (COMP) Index - Daily:
We did see the Composite climb back above the center moving average and maybe the last touch to the lower envelope line will proved to have been a high potential buy point for Nasdaq index calls such as in the Nas 100 (NDX) options. Another close above 2050 in the Composite would convince me better.
2150 is my maximum upside potential if a rally does get going. I can't see fundamentally what is going to keep a rally like this going with IT spending so sluggish in the U.S. Another rally on expectation only could happen, but my best guess is that the market continues to trade in a relatively narrow range - and the trend stays more sideways than not.
NOTE: Use of the Moving Average Envelope Indicator was discussed
in my Trader's Corner article -
Nasdaq 100 tracking Stock (QQQ)- Daily:
QQQ has not managed to get back above the lower boundary of its uptrend channel and this prior support line is still acting as resistance. As long as this continues, the possibility of another downswing exists for sure. A close over 37.50-38 would put prices back into its uptrend channel and would be bullish technically.
I could say the same as last week - with the Q's under 37, downside potential is to 35-35.50.
Nasdaq 100 tracking Stock (AMEX:QQQ)- Hourly:
The hourly chart below presents what could be a bearish downtrend channel if QQQ can't get above the upper boundary line around 37. The lower end of this hypothetical channel intersects currently in the 35 area. A move to below 36.25 would suggest downside potential to the lower end of the channel, at 35-34.75.
If short QQQ stock I suggest bumping buy liquidating stops down to 37.30 from 37.70. I would exit shorts and take profits on a move to the 35.25 as I figure good buying interest at 35 and the Q's might not get there.
Good Trading Success!