THE BOTTOM LINE -
There is also waning momentum, but this could be a consolidation and pause before there is another up leg. I continue to watch the bearish rising wedge pattern in the S&P indices and Dow charts as it suggests risk to the bulls for a reversal/downside correction.
We have had no 2-3 day period yet of the concerted type selling that would go with a decline significantly profitable for puts. I don't know what news would drive prices lower. But, hey, I never can predict what triggers a countertrend move worth trading - long puts in this case.
As an investor I hope for a continued steady rise, as a trader I am wondering when I might have a put play, after cashing out of calls at levels lower than the recent highs - I always try to exit before I see the whites of their eyes.
THURSDAY'S CLOSING NUMBERS -
The Nasdaq Composite Index (COMP) was up slightly, to 2,178.3, higher by a scant 1.3 points.
THURSDAY'S TRADING -
The 4-week moving average of unemployment claims, a less-volatile statistic, fell to 333,500 from 339,500. The number of people collecting state unemployment benefits rose to 2.755 million in the week ended December 18th, from 2.751 million a week earlier.
These figures in the final two months of the year tend to be volatile as the Department has a hard time to accurately adjust for the way that Thanksgiving, Christmas and New Years holidays fall, resulting in less confidence in forecasting the first few weeks in the new year.
According to survey by Manpower Inc., one of the top two suppliers of temporary staff, 24% of 16,000 employers polled intend to increase their workforce from January through March - this, compared with 20% in Q1 of 2004.
The U.S. is anticipated to have had a 4.4% growth in 2004, better than any year since 1999. According to a survey of forecasting economists, the U.S. economy could grow by 3.6% in 2005, which is (again) more than the 3.3% historical average.
PMI slips -
The Chicago Purchasing Managers Index (PMI) fell to 61.2 in December (below a forecasted 63.0) - this reading marks the second consecutive decline after the Chicago PMI's record high 68.5 reading in October. Within the overall survey, new orders fell to 64.5 in December, after a 70 reading in November. Production rose to 66.8 from November's 68.4. Prices paid fell to 84.4 from 89.8 in the prior month.
The employment index of the PMI survey dropped sharply to 49.1 from November's 60.8 figure, a number that should be viewed in the context of the pronounced tendency to delay new hires being considered from Thanksgiving through December, until the new year.
A Wall Street Journal story on China sent steel stocks lower - their article reported that after buying substantial steel stocks this past year, China may again start exporting steel in 2005. My old firm, UBS (formerly, PaineWebber), estimates that China's steel production grew over 20% in '04 and may increase 14% in 2005. China's domestic demand for steel is slowing, as its blistering economic growth rate of recent years has cooled down some.
The blue chips slipped into the red near the closing bell influenced by continued weakness in Alcoa (AA) on concerns about its upcoming Q4 earnings release.
Another Dow stock, Pfizer (PFE), fell nearly a percent after the WSJ reported prescriptions for Celebrex dropped 56 percent in the U.S. in the prior week. This decline followed the company's admission that a federally funded study found a link between Celebrex, a major sales leader for the company, and a heightened risk of heart attacks/stokes.
Dow stocks Boeing (BA) and United Technologies (UTX) were being watched closely as China clarified its plane buying plans. A spokesperson there told the Wall Street Journal on Thursday that while the country won't approve new deliveries of airplanes for 2005, orders will continue to be signed for delivery in 2006.
Stocks of the UXT and BA got hit on Wednesday on reports China would not allow new plane orders in '05. Also, Continental Airlines (CAL) placed a $1.3 billion order from Boeing - buy American!
A plus for stocks was a continued slide in crude oil prices to below $44, which had been recent support. The February contract fell 19 cents to close at $43.45. Trading will be closed on the New York Mercantile on Friday.
The dollar was down by three tenths of percent against the euro, to $1.364 and was off 0.8% against the Yen, which closed New York trading at 103.06.
The 10-year T-note rallied strongly after the release of the Chicago Purchasing Managers Index. It advanced 17/32 to 99 29/32, to yield 4.26%, down from 4.31% on Wednesday.
MY INDEX OUTLOOKS -
In the week just ending, as of the Thursday (12/30) close, the S&P 500 (SPX) has continued to trade sideways to slightly higher and has not broken out of a tight narrowing range signified by the two trendlines (upper and lower) that narrow into a thin pie shaped pattern.
This "wedge" type formation is often considered to be technically bearish as the price range contracts. Trading is going through a kind of compression as the bulls can still take the index somewhat higher but the rate of upside momentum slows. This is often a market ripe for a selling if some perceived negative news comes into the picture. Meanwhile the trend is still up - no question there - but the market feels like its pausing and waiting for new influences.
Resistance implied by the upper trendline is at 1224-1225. If 1225 is pieced, there could be a run to as high as 1245-1250 before SPX is at a major extreme again, which is when it trades at around 3.5% over its 21-day moving average.
Very near support is at 1203-1200. If 1200 is penetrated, I anticipate next support at 1192 and more key/major support coming in down in the 1173-1l70 area.
My sentiment indicator suggests one recent one-day bearish extreme in the week just past, through Thursday. Typically when there is a cluster of such days and when the 5-day average goes over 2, it signifies at least a warning that sentiment is at the kind of bullish, what me worry, kind of extreme often associated with at least interim tops. However, I don't suggest acting on any one sole indicator, but this one bears watching.
NOTE: Seen above is not the well-known PUT/CALL ratio; i.e., total daily equities AND Index option puts divided by total Index and Equities options call volume.
I EXCLUDE Index option daily volume figures (e.g., OEX) and so have to enter these figures into my own database and there is therefore no "symbol" I can give you for this chart. My way of doing the calculation takes out some Index option activity related to hedging, to better gauge speculative activity and conviction among traders - daily equities call versus put volume is then an even more useful measure of market "sentiment".
You'll notice also that CALLS are divided by puts to get a whole number and to make the overbought and oversold levels ("extremes" of bullishness or bearishness) read at the upper and lower ends of the charts like seen with the Stochastics or RSI indicators.
S&P 100 Index (OEX) - Daily chart:
The S&P 100 (OEX) is maintaining a bullish (chart) pattern, but the same explanation given for the S&P 500 (SPX) pertains exactly to the OEX - more so, as the bearish wedge pattern is more defined. What I will watch for as to a bearish development is whether the S&P 100 can hold above the prior 12-month high at 573. The longer it does this, the more likelihood of another up leg to, or near, the 600 level.
Near resistance I calculate at 580. If OEX goes above this level, a next target is 590, where the Index would be again rather far above its 21-day moving average (not shown), a moving average daily length setting useful in gauging extremes.
Near support is implied by the prior high around 573; then, if exceeded, around 567. I peg the most significant or key technical support in the 560-558 area. A close under 560, suggests further downside potential to 548-550.
The OEX has been going up and its RSI trend has been lower in terms of this indicator's various highs. This kind of divergence is often a sign of an impending reversal EXCEPT in very strong trends - in very strong moves, such a divergence will become one of the few instances where this pattern is not a useful warning - or, the lag time will be too long to be useful to position in puts. Nevertheless, it's something that keeps me watchful.
Dow 30 Average (INDU) - Daily:
No further comment on the wedge pattern in the Dow 30 (INDU) chart, just note that it's like the S&P charts. The most recent INDU consolidation could be setting the stage for yet another spurt higher. A short-term key is for the Dow to hold above 10800, keeping this average's chart quite bullish.
The prior 12-month highs in the 10730-10750 area bears watching - this should now "become" support if what we are seeing is really the Dow's next up leg. 11,000 is a next upside objective in INDU if the aforementioned support areas continue to find buying interest. Key lower support is at 10600. A close under here would be bearish. Major support is just above 10400, around 10425.
I peg near resistance at 10900 and more significant resistance and potential selling pressure coming in around 11,000.
The 21-day stochastic, a longer length setting, doesn't too often "hang" up in an overbought area for so long. The longer it goes this way, the higher the probability that the next 200 point move will be down rather than up.
Probabilities are useful, but every so often the exception happens and someone gets "7's" on 7 rolls of the dice. A hot hand, a pretty hot market as the second up move now looks like it could equal the extent of the first spurt from the 9800 area to 10400. The same rally distance would make a target on this second stage advance to the 11000 area.
Nasdaq Composite (COMP) Index - Daily chart:
The Nasdaq chart and indicator patterns are similar to the S&P and Dow - the Index is bullishly holding above its old high and the continuing advance is mis-matched by the Relative Strength Index (RSI), which has been trending lower. But, hey, if any particular pattern or divergence ALWAYS was predictable in what it supposedly forecast, this wouldn't be the stock market! The Market does the unpredictable enough to keep us humble.
The key area to judge the strength of this uptrend is likely the old highs in the 2150-2153 area. The longer the Nasdaq Composite (COMP) stays above its prior peak, the more it looks like this rally has staying power. I estimate next resistance in COMP at around 2200-2210. Above 2200, the Index would not reach a real extreme before the 2260 area, at my upper moving average envelope or trading band.
2100-2105 is likely near support, an area of likely buying interest on a dip. If the Index fell below 2100, I don't see major support coming in until the 2030-2050 area. The Composite would fall back to its longer-term trend or rate of ascent in this area, at its up trendline.
Nasdaq 100 (NDX) Index - Daily and Hourly:
Hard to tell if the Nasdaq 100 (NDX) Index is building a minor top - a Head and Shoulders top is suggested at this point - or is consolidating by going sideways until its ready for a next move up. I rate the chance of a substantial upswing, say to the 1700 area, as less probably than a move lower, such as to around 1550.
This Index answers: "don't give me odds"! The objective key will be the direction of the breakout above the well-defined trading range that has developed over the past few weeks, between 1630 and 1580 and best seen on the hourly chart.
Near resistance we'll define as 1630-1635; then, if exceeded - "resistance" is not the right term, rather a next potential upside target - to 1680.
Support is at 1580-1585. Major support, as implied by the highlighted (green dashed) trendline, is around 1510.
NDX options may offer a trading opportunity on a breakout above or below it's well-defined past month price range, by buying calls on a move above 1630 or puts on a close below 1585. Of course, the professionals selling you these options have been looking at the same charts and any move above/below this range will cause a jump in the premium required by the seller (of the option).
There have been profitable strategies based on NDX staying between 1630 and 1580. At this juncture, the fact that the Index has been locked in this relatively narrow range for some weeks now suggests to me a break out move is coming. The indices, unlike individual stocks, are far less likely to go on for many weeks in such narrow ranges.
The bottom like is also that both the daily and hourly charts remain bullish in their patterns absent breaking support. We should assume that the rectangle pattern (trading range) on the hourly chart is a consolidation for a further move higher in the direction of the trend - but, I want to let the Index move first.
Nasdaq 100 tracking Stock (QQQ) Daily chart:
Not much change to report with QQQ. It has resistance in the 40.5 area, then potential next resistance up at the trendline at 41.24-41.40. The recent rally is reminiscent of a bearish flag - a sharp rally, followed by a gradual creep back up - this pattern implies or suggests another downswing ahead, perhaps to 39-39.15.
Near support is around 39, then in the 38.30 area, at the intersection of the up trendline, a key support technically - this price level is where the Q's "should" be if the stock was maintaining its average rate of price increase, which is what a trendline shows visually.
Unlike the other indexes, the RSI has matched price action, as it hit a double top also, then likewise trended sideways to lower.
Have a Happy New Year and...