Here is the Deal:
With a benign CPI report the market was set
for a gap higher on the open, but when 9:30 AM rolled around,
the market showed its age. It was a lame gap higher as most
indices were down just after the open. It took until about 10
AM for prices to perk up and start really working higher. Note:
per the article I published last week on intra-day trading
patterns, Tuesday from 10 to 11 AM is an important
inflection point.
The Dow benefited from generous earnings
related moves in individual issues JNJ & KO, while the rest of
the market looked tired after moving higher for 12 of 13
trading days. You have to go back to October 2005 to find a
similar period of strength and that one was followed by six
weeks of choppy sideways price action. With the current run in
mind, it is hard to believe prices will never go down again.
Just remember, moves run their course, sentiment shifts, and
trends change. It just takes time.
After a choppy start the Dow ran on up to
12,790, just 5 points shy of its February high. JNJ and KO were
the big movers adding a combined 23 points to the Dow. We have
seen this kind of price action before during earnings where the
Dow claws higher thanks to one or two stocks reacting
positively to earnings. That said, 12,790 -12,800 is a
resistance area, but the market doesn’t look like it is ready
to give up just yet. If prices are not moving higher by 11:00
AM, it will be more difficult to recover.
The potential is there for a slight new high
and if it gains traction the next stop is 12,860. It won’t take
much weakness to break the very sharp uptrend line. Losing
12,750 will target heavier support at 12,700 and there is still
a nagging need to fill the gap from 12,600. Lately the Dow has
done a good job of filling most of its gaps.
For the first time since Thursday morning we
have seen some weaker price action, but unless or until we see
some real weakness, it is just a little consolidation within a
powerful uptrend. That said, the powerful uptrend is remarkably
extended and overdue for some corrective action, but that has
been the case for close to a week and a half now.
Stocks of interest: The last table in the
report shows the top 28 performing stocks based on their 3, 6,
and 12, month PRS rankings, all 96 or higher.
Here’s why:
The Dow was down about 13 points at the open,
before JNJ opened for trading and added a quick 15 points to
the Dow. The low was 12,707 while it was up 69.56 at its high
of 12,790.02, surprisingly just shy of its February high. The
Dow closed at 12,773.04 up 52.58 points, just 16 off the highs
of the day.
The top of the Dow’s 21-day 2% trading band is
12,757 Tuesday and rising about 25 points per day putting it
around 12,785 or so on Wednesday. This area should provide a
healthy level of resistance for the Dow. It doesn’t mean it
will reverse immediately, but pushing significantly higher from
current levels is unlikely.
The S&P 500 rallied right to the middle of the
Fibonacci target zone (1472 to 1476) Tuesday morning and began
a high tight consolidation. Breaking 1465 – 1467 support should
usher in a correction down near the 1460 level, which is the
main support level for the bulls. Sliding below 1460 and not
quickly recovering will suggest a correction lasting more than
a few hours is underway.
The Russell took the day off after a powerful
run higher. It goes down as a high tight consolidation, which
is technically a healthy pattern after a strong up day. The
fact other indices were up a bit is something to talk about,
but the Russell 2000 is holding fast for now. Only a quick
retreat below serious support at 812 to 815 will alter the
near-term constructive pattern. In short, after running to the
February highs, even under the most bullish assumptions, it
makes sense for the index to do some time at this level before
continuing higher.
The NASD remains just shy of its February
highs, but I am willing to call it close enough. Wednesday will
be interesting for the NASD with INTC trading higher and YHOO
trading lower. Can the tech giant’s strength offset the smaller
giant’s weakness? Stay tuned.
While a few indices made
some nice moves, there were no changes in the trend table. It
will take new highs for any more buy signals to be given.
Detailed Trend Report on Web &
CLX Count and Weekly Signal Counts &
NYSE & NASD 5-day up and down volume charts
Total breadth was -590 while total volume
increased. Tuesday was the first volume increase on the NASD in
four days and that is where the greatest weakness was. Bottom
line, on the first down day in nearly a week, volume increased
making this a weak day internally, especially considering the
Dow closed higher on the day. In short, the day was weaker than
the indices would have you believe.
5-day NYSE up volume continues to act poorly
and fails to confirm higher highs in the indices. This is one
of those things that doesn’t mean a while lot the day it first
happens, but it builds up over time and this one has been going
on for a while now.
The Dow’s 5-day RSI is up to 84, the highest
since December 2006. Needless to say, the record setting nature
of the rally continues. The 5-day TRIN on the NYSE is below
4.2, which is remarkably low signaling an overbought condition.
I find this one interesting considering the poor action of
5-day NYSE Advancing volume, which is used in the TRIN
calculation.
The lack of overall selling persists. This has
left directional volume highly skewed to the upside. This being
the case, we should remain alert for a one to three day
consolidation, which is common once these sorts of extremes are
reached. Tuesday may actually be the first day of a correction.
Should an important support level break and stay broken; the
potential for a more serious overbought pullback remains.
We got good CPI numbers and some healthy
earnings, but internally Tuesday was never close to being like
Monday, which was impressively strong. Tuesday’s action looks
like the end of a run as we saw minor new highs on
significantly reduced internal action. The market looked very
tired on Tuesday and the good news failed to produce a
significant rally. When good news no longer pushes the market
higher it tells us a lot has been discounted.
The futures have sold off a little in reaction
to some earnings after the close. With little economic news on
Wednesday, all eyes are on earnings and the subsequent
reactions. I am very curious to see what happens once the
current extremely steep rally is broken. Odds are that happens
on Wednesday and we have options expiration on Friday.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow 12,790, 12,863
SPX 1472, 1475, 1485 Fib extension
NASD 2530, 2543, 2570
NDX 1841, 1852 (high), 1856 (fib) 1877 (minor Fib)
NYSE 9625, 9647, 9689
RUT 2K at new highs: 838, 847
Most obvious Chart Support levels:
Dow 12,,580, 12,480, 12,350, 12,270, 12,180, 12,136,
12,000
SPX 1460, 1448, 1436, 1413, 1397, 1373, 1362,
1340 (50% retracement)
NASD 2507, 2480, 2455, 2425, 2400, 2385, 2335, 2316
NDX 1829, 1808, 1795, 1775, 1755, 1738, 1695 (Fibonacci
38% & Nov 06 lows,)
NYSE 9574, 9470, 9400, 9350, 9280
RUT 2K 826, 816, 811, 803, 790, 760
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
NDX, YHOO down, INTC up, LLTC up. Earnings are
going to have an impact for the duration of the week. YHOO
hurts for Wednesday while GOOG’s report on the 19th
will carry some weight too.
S&P 500 (SPX) Trading
>> 3-16-07: With strength on the open
it made sense to hold off on the SDS purchase for an hour or
so. The SDS bottomed at 60.55, well below the 60.80 I am using
as an entry price. We have a full position in the SDS with an
entry of 60.80. 3-20 we added another 50% position to the SDS
when the SPX pushed above 1407.
100% @ 60.80 + 50% @ 59.60 = Avg cost 60.40.
The SDS closed at 54.77
CBEY has run from 28.90 on the 28th
to a high of 35.10 on Monday. It gave back 30 cents on Tuesday.
So far, it is holding the rally and that looks good.
ICLR rec Long 01/24 @ 39.53 stop 34
close, Target >46, closed at 43.33
CBEY rec Long 02/20 @ 31.31, stop 28 close, Target >38,
closed at 34.57
3-30 > Long-term Put AAPL October 100 Put
Entry @ $12.00 | AAPL closed at: $90.35
AAPL quickly gave back the bulk of Monday’s
market driven gains. With IBM reacting negatively to earnings,
that could impact AAPL on Wednesday. AAPL reports on the 25,
after the close. Est = 63¢
**
PRS Open Actives making noise:
No noise today.
Best Performing Issues
The table below shows all stocks with three
month, six month, and twelve month PRS rankings of 96 or
higher. 28 stocks that made the list and a bunch more are right
on their heels. The last prices are as of about 1 PM Tuesday.
While JSDA is the best of the best having risen over 147% over
the past three months, the average gain for a stock with a
3-month PRS of 90 is 25%.
Jim Patterson
Editor
Tactical Trading Outlook
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