9/26 - Mapping the Market - Trade Prospector Daily Notes
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Another attempt fizzles - we now sit at key support
In spite of Friday's impressive bounce from Intel induced hell, we're about to revisit those levels -- not in all stocks, but at least in the major indices. Continued concerns over earnings (EK came up short today and was savaged to the toon of about 20%). The malaise of the market was so depressing today that even the news that the Supreme Court refused to hear the DOJ's anti-trust case against MSFT and was shipping it back to the Appellate Court (where it belongs - at least in our opinion) couldn't help MSFT hang on to its early gains. This would normally have been a +5 or even +10 day for MSFT on that news. Today it was up about +5 at one point, but closed a pitiful +1 7/16.
Market participants seem to be simply dismayed at the myriad factors. One analyst we heard today used the term "the 4 Es" -- energy, euro, economy, and earnings. That pretty well sums up the mass of concerns wearing on everyone.
On the energy front, crude oil futures gapped open to $32/barrel and whipsawed through the day finally closing about flat.at $31.52. But they're up 30 cents in afterhours trading. But as we noted last night, natural gas (unaffected by crude oil prices) was staging a potential breakout higher. Indeed, natural gas shot higher at the open this morning and stayed there. It pegged a new high at $5.57 (a full five cents higher than the previous high) before settling down to close at $5.44 (+0.02). It is up almost seven cents in afterhours trading. Likewise, electricty (also generally unaffected by crude oil prices) also moved higher.
On the Euro front, inspite of the G7 jumping in to try to stabalize the beleagered currency, there are continued concerns that slowing European economies will continue to pressure the Euro. The Euro FX rate was up 0.8 cents today. There is also concern about a kind of balancing act involving the Euro. Too much stabalization and returning value to the Euro could spell problem for the US stock market as European funds (currently investing US stocks) is pulled back to Europe. While an excessively weak Euro would spell continued problems for corporate earnings (at least for those corporations that failed to properly hedge their foreign currency exposure -- which seems to be the majority of them).
On the economy front, there is growing concern that rising energy costs will inexorably have inflationary effects. While it seems doubtful at this point that we'll see another rate hike out of the Fed, there are mutterings and worries about possible recessionary impacts.
On the earnings front, Kodak (EK) cut loose this morning with an earnings warning resulting from rising material costs and foreign exchange losses that cost them over 20% of their market share. They were savaged to the tune of about 14 1/2 points (24.6%). Beating out EK on a % loss basis, was Lexmark (LXK) which also offered profit warnings and took a 29.4% hit. This reinforced fears about more earnings warnings on the horizon and the continued impact of higher energy costs and foreign currency issues, and those fears helped to tank the DJIA almost 200 points at its intraday low.
The combined drag was too much for the NDX and SPX and both of them rolled over and closed in the red.
We're looking for the market to potentially go lower, but probably give us a run into the end of the week to benefit the funds end of quarter window dressing. So looking for a potential reversal at support is important.
Looking at the action in the indices:
The DJIA broke its 200 DEMA to the downside and kept going. It finally settled just above the 10600 support zone which represents both a previously tested support and its weekly trend line. A break of this level, especially if it goes below the one month low of 10567 would indicate a possible trend reversal. Next level support is 10600, 10567, 10336, 10000.
The NDX was in no shape to break above its DS today and ultimately wound up breaking below its 200 DEMA. But its probability boundaries held as did its one year 50% retracement (3558). The next key support is its low from Friday and its weekly trendline support, at 3500-3505, then 3342.
The SPX made a valiant attempt to challenge its DS (1449.6), but failed to achieve it and ultimately fell below its 200 DEMA. It too fell, temporarily finding support at its second lower stop and bouncing to come within a fraction of its 200 DEMA, but finally being dragged down and to within a point of its long term probability boundary. It closed near its second lower stop and one year 38% retracement levels. Next key support is its Friday low and weekly reendling support at 1420-1421, then 1413-1414, and then 1400.
The COMPX's next support is the Friday and 7/31 low of 3600, followed by the 8/3 low of 3521.
The SOX broke below both its trendline and its 8/3 low and set a new quarterly low. The next major support zone is 820-822. There are several minor support zones before that, but if it breaks below 820, the semis could suffer some real carnage.
The BTK remains in the best shape of the indices. It is still above its 10 and 20 DEMAs. Primary support is in the 746-751 zone.
Looking at the index futures:
The S&P futures bounced off with a fraction of its DS this morning and sank quickly. It congested for about an hour above its BP1 before falling off the cliff again. It then found support for about a 1/2 hour above its first lower stop and just before 1pm managed to stage a rally attempt. The attempt failed about an hour later short of its previous day's close. It finally found some support at its second lower stop, tried to rally back to its first lower stop and failed, and ultimately closed below the second lower stop at 1442.76. It is trading back up at its second lower stop at 1445 currently afterhours. Primary support is 1436.
The NDX futures did a little two step bounce after the open and ran up and slammed into the wall near its DS before selling off. They first found temporary support at the intraday low, then when a bounce to 3700 failed, they fell and found support at the first lower stop and bounced again to assualt the 3700 level twice. Failing again, they sold off even lower to find support at its one week low. Primary support is at 3589-3600.
The VIX moved up again today back above the 7/28 high which was a benchmark level until Friday's Intel induced opening plunge made the Acapulco cliff divers look like some junior high school dive team. The combination of increasing VIX, oversold conditions on the major indices, and the end of the quarter, makes tomorrow a potential mid-week V bottom candidate. The index put/call ratio jumped from yesterday's 0.8 to 0.91 today (Friday was 1.36 and Thursday was 1.4). The equity only ratio bumped up to 0.54 from yesterday and Friday's 0.49 (Thursday was 0.63).
Assuming the market does find its short term bottom, and short of another Intel-like catastrophe, potentially very profitable reversal plays are likely to abound either this week. So keep your eyes on the SR landscape for opportunities. Note that window dressing activities are likely to push already beaten down stocks lower and stocks that have been strong higher as funds are reallocated. Note that IBM is one of the stocks whispered as potentially going to offer earnings warnings. If they or a similar company come out this week with a warning, expect all bets to be off and the market to drop like last Friday.
However, more Intel like earnings warnings are also possibly on the horizon. We therefore continue to suggest playing the market cautiously. Profit from the exuberant upswings, but also be poised to protect your profits and profit from the downswings when momentum fades.
Here's how the indices stack up relative to their recent short term highs:
DJIA -760
NDX -554
COMPX -570
SPX -104
SOX -305
BTK -49
We're still looking for significant fundamental improvements in underlying market structure, higher volume, and some real breakout action to pull more sidelined cash back into the market, before a sustainable long term rally seems likely.
Be a pessimist. Protect your profits but take whatever upside the market gives you. At this point, you're better off trading stocks rather than owning them. But if you must (or do) own them, protect your profits with trailing stops (be religious about them) and/or option based hedges.
Trade carefully and well.
Volume cranked up today -- not as much as Friday, but within 70 million shares of Friday's volume on the NYSE in the wake of the triple digit selloff in the blue chips. The DJIA fell 177, the NDX closed down 40, and the SPX closed down 12 on 1.83 billion vs. 1.77 billion shares on the Nasdaq and 1.1 billion vs. 977 million shares on the NYSE.
-- There were charts attached but they can't be posted here - but can be seen at 3mtinc.com -- |
