By 8:00, CNBC reported that the fire was out. Enbridge officials assured market watchers that the company stores oil all along the pipeline and at refiners. The pipeline could be shut down for several days without the Midwest suffering supply disruptions. By midmorning, two of the four pipelines had already been reopened.
Another fire had been dampened: the fire lit under equities this week. Sears Holding (SHLD) had done its part in dampening that particular fire, announcing third quarter earnings of $0.01 a share against expectations of $0.50 a share, according to Thomson Financial. Comparable sales dropped at both Kmart and Sears stores, with sales of clothing and lawn and garden supplies declining. Although the company pulled out the expected excuse of unseasonably warm weather, the company also noted increased competition and lowered consumer spending.
Not even the news that Citadel Group would give E-Trade Financial Corp. an
infusion of $2.5 billion in cash reignited the fire under equities. Only a few
Thats the official story of what happened, the one youll hear bandied about on television and in print. Those of us who study charts knew to expect this consolidation, no matter what else happened, expected or unexpected. We couldnt predict that pipeline explosion, but we could predict that one of the inevitable negative news bites that hit the airwaves each day would put out some equity fires today. Yesterday, it might not have mattered, but it was time for consolidation.
Hold on, though, if you think Im calling a bottom. Im not. If big money was doing some buying, they stopped right where a stop could have been predicted, waiting at likely resistance to see how that resistance would be handled. Todays volume patterns showed that some market participants were unloaded stock right where that action could have been predicted, too. This afternoons announcement that Florida was freezing a local governments fund is just one indication of how little we know yet about the extent of the problems caused by the subprime mess. At the same time, the high interest in Freddie Macs (FRE) non-convertible, non-cumulative perpetual preferred stock today, to the tune of $6 billion shows that theres beginning to be an appetite for risk again.
I was thinking by noon yesterday that I wished I were writing yesterdays Wrap instead of todays, because I would have known exactly what to suggest would happen next: a Thursday that would be spent consolidating at the resistance that was approached on Wednesday. I already knew that Fridays action wasnt going to be so easy to predict. That action still isnt.
By yesterday afternoon, prices reached a level at which supply being dumped
matched the supply being absorbed and consolidation occurred. Until that process
is completed, we wont know what happens next. The volume patterns tell us that
there was some selling while the price patterns tell us that the selling was
pretty well absorbed, at least for today. Todays doji at resistance, occurring
on several indices, present possible reversal signals, but signals that will be
another consolidation day results tomorrow.
Annotated Daily Chart of the SPX:
Annotated Daily Chart of the Dow:
Annotated Daily Chart of the Nasdaq:
Annotated Daily Chart of the SOX:
Annotated Daily Chart of the RUT:
Sunday night, CNBC Asia began talking about the yens weakness and the good things that presaged for the yen carry trade. Its still important to watch the USDJPY for guidance.
Annotated Daily Chart of the USDJPY:
Today featured a number of important developments impacting markets. The
revision to the third quarters GDP was released at 8:30 ET, starting off the
days events. As Jim mentioned this weekend, this report has been contradicting
other recent economic reports. Its been showing more strength than those other
reports. Predictions were for this revision to rise to 5.0 percent growth from
the previous 3.9 percent.
Business investments grew, too, being revised higher to 9.4 percent from the previous 7.9 percent. Government spending was revised higher. Previously, the Commerce Department had reported real disposable incomes rising 0.6 percent, but this revision said they declined 0.8 percent.
During the same 8:30 time slot, weekly initial and jobless claims appeared. Initial claims rose 23,000 to 352,000. The four-week moving average rose by 5,750 to 335,250. These numbers are the highest since February and March, respectively. Continuing claims rose 112,000, the most these claims have climbed in almost two years. The four-week average rose 20,500 to 2.59 million, also the highest in almost two years. The insured employed rate rose back to 2.0 percent, with that rate oscillating between 1.9 and 2.0 percent for most of the year.
Octobers New Home Sales followed at 10:00. Those sales were expected to drop to 740,000-753,000 from the previous 770,000. By now, it shouldnt be a surprise that they dropped more than expected, to 728,000. Sales have dropped 23.5 percent in the past year, and median sales prices have declined 13 percent.
Worse, August and September figures were revised lower. Septembers is now figured to be 716,000, an eleven-year low. One bright point was that the new-home inventory fell to an 8.5-month supply at the current sales rate. I saw this report characterized as positive on some print sources, with those sources focusing on the rise in the adjusted annual rate. However, unless Im mistaken, the report was actually a disappointment.
Another figure--the Office of Federal Housing Enterprise Oversights quarterly
house price index--dropped for the first time in thirteen years. It was 0.4
percent lower quarter over quarter. It did increase on an annual basis, but by
the lowest amount in about twelve years. Im not accustomed to watching this
number, but I couldnt help thinking that it was a little late in the housing
slump for this figure to show its first quarterly decline. It reminded me of
Sometimes by the time those crossovers occur, a move
is well underway, and the crossover serves only as corroboration of what one
The last report of the day, the November Kansas Fed Manufacturing Survey, was the third of the four regional reports expected this week. The Kansas districts report isnt as important as some others, and its often difficult to even find mention of the report without going directly to the site of the Federal Reserve Bank of Kansas City. A summary showed modest growth in November, but this districts bank did mention a pick up in new orders and producers expectations for future activity.
Other news for the day was announced by United States Trade Representative Susan Schwab. She said that China had agreed to a full elimination of subsidies that had been given to Chinese companies using domestic rather than imported goods in their manufacturing processes. The U.S. had brought the case before the World Trade Organization, claiming that 58 percent of Chinese exports in 2005 benefited from such subsidies and that the percentage had grown in the succeeding two years.
Company-related news included Credit Suisses decision to cut its estimates for Morgan Stanleys (MS) fourth-quarter earnings. The credit crunch would likely impact MS, the firm reasoned, with less new issue activity. Credit Suisse also expected declines in trading and investment banking, saying that it now expected losses for MS of $0.30 a share rather than $0.20 a share.
Dell (DELL) was just reporting after the close as I finished this report. Initial impressions were that Dell was missing on EPS while reporting higher-than-expected revenue. The stock was getting knocked back. Dell had been expected to report EPS of $0.35, but some analysts were expecting a penny or two higher. Instead, the company reported $0.34 according to early reports. Revenue was higher by 15 percent, to $15.6 billion against expectations of $15.4 billion.
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Of even more possible importance might be two Fed speeches after the close. Fed Governor Mishkin is first on the slate, only 30 minutes after the close. He speaks on Fed communications, according to one source. Fed Chairman Ben Bernankes appearance in Charlotte, S.C. tonight to receive a Citizen of the Carolinas award at the Charlotte Chambers 2007 annual award meeting will include a speech on U.S. regional economies. This report is going to press quickly, so both of these will be after this report was completed.
I couldnt find any information in press accounts in Charlotte or on the Federal Reserve site to indicate whether the Fed Chairman will answer questions, but you can be sure that the financial press will attend to his every word if he does. If he should happen to believe that markets went too far in their interpretation of Vice Chairman Donald L. Kohns discussion yesterday, for example, perhaps he or Fed Governor Mishkin would take the opportunity this week to tone down expectations for the December meeting.
Tomorrow's Economic and Earnings Releases
Tomorrows slate is full, too, although Novembers NAPM-NY and Chicagos PMI
will arguably be the most important releases. Those come at 9:00 and 9:45 ET,
respectively. Chicagos Fed District is one of the most important manufacturing
districts, and its reports will be closely watched. Many feel that its
predictive of the ISM report.
What about Tomorrow?
Todays consolidation at resistance was expected. Equities had surged higher and it was time for them to pause at resistance, for buyers and sellers to sort out which was stronger. Consolidation, while expected, means that buyers and sellers were fairly well balanced today and they havent yet decided which is stronger. How much longer will they be balanced and which will win out the tug of war are the primary questions traders have. The two Fed governors could impact that balance.
I wouldnt be surprised to see those 50 percent retracement levels tested, either this week or next, and upside targets on 30-minute Keltner charts currently suggest they could be, too. Ill be showing those charts below.
However, when markets are particularly weak, a 38.2 percent retracement might be all we get, and I cant emphasize enough right now how jittery markets remain. Bulls should spend some time tonight deciding how theyll protect any gains they might have accrued in case markets head lower again, and bears also need to spend some time assessing what will happen to their portfolios if those 50 percent Fib levels are retested.
Ive mentioned before that I used to trade the forex markets, for a short time,
at least. Many reasons persuaded me not to continue doing so. One problem was
that I found myself trading 24 hours a day. Another was that I often caught the
clean trending move, and then saw my collected profits decimated when I would
try to trade the disorganized pattern that followed. Were still in a period
when trades could be chopped up due to the disorganization of the markets after
such a strong downtrend.
You may think you know which direction the markets are
headed next, but you better have an exit plan in case youre wrong.
Lets look at some levels to watch tomorrow, levels that arise from intraday charts.
Annotated 30-Minute Chart of the SPX:
In addition to the ultimate target and potential resistance on 30-minute closes thats indicated at the top red arrow, this chart also shows potential resistance on 30-minute closes at the top blue channel line.
Annotated 30-Minute Chart of the Nasdaq:
Like the SPX, the Nasdaq also has potential resistance on 30-minute closes at the upper blue channel line.
Annotated 30-Minute Chart of the RUT:
The RUTs blue channel is tending to fall back inside the wider black channel, another sign that its slightly underperforming the other two indices shown on 30-mintue charts. Like those, it has potential resistance also at the upper blue channel line, but this one looks at least as likely to fall to the bottom of that channel as to climb to the top.
A relief rally was a given at some point. Pauses at various intervals while
bulls and bears sort out their relative strengths is another. Next direction is
not a given. A move toward 1484-1490 on the SPX or a decline toward 1441-1443
appears equally likely.
Play Editor's Note: We are still willing to consider adding bullish positions but we want to see more of a dip. The markets just produced their biggest two-day (Tuesday-Wednesday) rally in almost five years so we don't want to chase it right here.
Constellation Energy - CEG - cls: 98.60 chg: +0.44 stop: 94.45
CEG is starting to bounce, as it should, since shares are near the bottom of its bullish trend higher. However, we remain wary due to the stock's recent relative weakness. You could launch new positions now but you might want to use a tighter stop loss near $96 or $96.50. We would suggest readers wait for a rally above $100 or 101 before initiating new positions. If you're feeling conservative then readers might want to raise their stop loss toward $96.00. The trend remains bullish. Our target is the $107.50-110.00 range.
Picked on November 20 at $100.56
Energizer - ENR - close: 112.39 chg: +2.46 stop: 107.85*new*
ENR is starting to look healthier again. The stock out performed the markets today with a 2.2% gain and broke through the 50-dma again. We would consider new bullish positions here although some readers may want to wait for a new relative high over $113. We are adjusting our stop loss to $107.85. Our target is the $119.00-120.00 range. The P&F chart points to a $157 target.
Picked on November 26 at $112.75 *triggered
Flowserve - FLS - cls: 93.29 change: -0.12 stop: 88.45
We didn't get much movement out of FLS today. There was a late morning rally attempt but it ran out of steam under $94.50. We are still bullish on the stock and would still consider new positions here. However, more conservative traders may want to wait for a rally over $95.00 before initiating positions. Our target is the $99.50-100.00 range. The P&F chart has a $108 target.
Picked on November 25 at $ 93.04
Gilead Sciences - GILD - cls: 45.76 change: -0.07 stop: 41.74
If you look at the daily chart on GILD the early morning spike higher and pull back almost looks like a short-term top. However, if you study the intraday chart GILD looks poised to climb higher again tomorrow. We remain bullish on GILD but we're not suggesting new positions at this time. More conservative traders may want to adjust their stops toward $42.50 or $43.50. The 50-dma and the $44 level should be short-term support. Our target is the $47.00-48.00 range. More aggressive traders may want to aim higher.
Picked on November 13 at $ 43.11
Synaptics Inc. - SYNA - close: 59.04 chg: -1.31 stop: 52.95
All we needed was another 24 cents. SYNA hit an intraday high of $61.26 midday. Our target is the $61.50-62.00 range. Our concern now is that SYNA may have topped and shares could easily consolidate back toward the $56 region. We're not suggesting new positions and more conservative traders may want to exit early now.
Picked on November 26 at $ 56.55 *triggered
ExxonMobil - XOM - close: 88.59 chg: +0.67 stop: 82.99
It was a volatile session for crude oil futures but oil stocks were generally higher. Shares of XOM managed to hit new two-week highs and breakout over the 100-dma. We remain bullish on XOM but shares are nearing potential resistance at $90.00 and its 50-dma. More conservative traders might want to adjust their stops toward $84.00. We are leaving our stop under the 200-dma. Our target is the $92.50-95.00 range. More conservative traders may want to lock in some gains near $90.00. More aggressive traders might want to narrow their exit range to the $94-95 zone.
Picked on November 13 at $ 86.75
ESSEX Property - ESS - cls: 101.49 chg: -0.08 stop: 105.55
ESS is still consolidating sideways near the $100 level but remains under short-term resistance at the 10-dma. Given the market's recent strength we would hesitate to open new positions. However, a new relative low would change my mind. Our target is support in the $94.00-93.00 range. The P&F chart is much more bearish with a $78 target.
Picked on November 20 at $101.75
Harley Davidson - HOG - cls: 47.01 change: -1.01 stop: 50.01
HOG pulls back after challenging resistance near $48.00 yesterday. Shares lost 2.1% today. We would still consider new bearish positions here but readers might feel more comfortable waiting for a breakdown under $46.00 again. Our target is the $41.00-40.00 range. The P&F chart is bearish with a $38 target.
Picked on November 27 at $ 46.48
Express Scripts - ESRX - close: 68.26 chg: +0.12 stop: 62.45
Target achieved. ESRX continued to rally and hit an intraday high of $69.62. We were targeting a move into the $69.50-70.00 range. The stock continues to look bullish but we'd wait for a dip back toward $66 before considering new positions again.
Picked on November 13 at $ 64.67
Today's Newsletter Notes: Market Wrap by Linda Piazza and all other plays and content by the Option Investor staff.
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