Indices Rally on Greece Debt Rescue Hopes

By Harry Boxer, The Technical Trader

The stock market indices had a volatile day in a very news-influenced session, particularly on debt news surrounding Greece. The indices gapped up, rallied and then rolled over hard, but held the 3-day rising trendlines, rallied sharply when the story hit that Germany was possibly going to help guarantee Greece’s financial debt problems,

Later on a German Finance minister said no decisions had been reached, and one would likely not be made until till next week, at that point the indices slipped sharply and gave back half their rally within minutes. Later in the session when they could not rally back through key resistance at NDX 1760 and SPX 1075 they rolled over in the last half hour and pared back the gains.

Still, it was a bullish session as the Dow was up 150.25 at 10,058.64, the S&P 500 gained 13.78 at 1070.52, and the Nasdaq 100 was up 18.96 to 1753.84.

Advance-declines were positive by nearly 4 to 1 on New York and by 2 1/2 to 1 on Nasdaq. Up/down volume was 6 to 1 positive on New York on total volume of about 1.2 billion. Nasdaq traded right at 2 billion shares and had about a little less than 4 to 1 positive volume ratio.

TheTechTrader.com board was mostly higher as a result, except for some ultrashort ETFs. Leading the way today, RINO International (RINO) advanced 1.56 to 20.81, Sourcefire (FIRE) 1.36 to 23.63, and Human Genome Sciences (HGSI) 1.30 to 27.06.

The iShares MSCI Brazil Index ETF (EWZ) was up 2.53 to 65.37, Direxion Financial Bull 3x Shares (FAS) 1.51 to 63.33, Direxion Large Cap Bull 3X Shares (BGU) 1.69 to 46.18, and the U.S. Oil Fund ETF (USO) 1.12 to 36.21 on advancing oil.

Chinese stocks were generally firms again, with China Automotive (CAAS) up 72 cents to 15.79, China Agritech (CAGC) up 30 cents to 17.10, Telestone Technologies (TSTC) jumped 47 cents to 14.69, SmartHeat (HEAT) 57 cents to 11.74, and Canadian Solar (CSIQ) 77 cents to 21.43.

Xyratex (XRTX) snapped back 33 cents to 13.26.

In the junior oil sector, McMoRan Exploration (MMR) gained 69 cents to 15.51, and Brigham Exploration (BEXP) 41 cents to 14.82.

On the downside, loss leaders included UltraPro Short S&P 500 ProShares (SPXU) 1.52 to 39.98, Direxion Financial Bear 3x Shares (FAZ) 54 cents to 21.27, Direxion Daily Emrg Mkts Bear 3X Shares (EDZ) 65 cents to 6.13, and Direxion Large Cap Bear 3X Shares (BGZ) 75 cents to 18.79.

Stepping back and reviewing the hourly chart patterns, it was a volatile session with a strong gap-up, sharp pullback, very sharp rally mid-day, followed by a pullback and a last couple-hours trading range, before a late rollover.

Although the indices did back off during the day, they held their rising 3-day channel bottoms & trendlines. That in itself is bullish. However, it remains to be seen how much further we go forward. Overhead resistance at 1768-70 on the NDX and 1079 area on the SPX will be closely monitored tomorrow to see if the indices can make further progress.

Good trading!

Harry

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Evening Update

Relief Rally on Tempered Greece Debt Concerns

Stocks were able to recover Monday’s losses and more as sovereign debt concerns in the Eurozone were eased by speculation that European officials may be nearing a plan to help Greece get its deficit issues in order. The optimism was augmented by a Reuters report that a senior German official said Eurozone governments have decided in principle to help Greece, and the Wall Street Journal reporting that a plan for a loan guarantee by Germany and other EU countries was in the mix. The dollar lost ground versus the euro and most other major currencies, boosting commodity-related issues and aiding the overall advance in the equity markets. In equity news, Coca-Cola Co. matched earnings expectations and bested revenue projections, McDonald’s reported global same-store sales for January that beat analysts’ forecasts, Electronic Arts missed the Street’s profit estimate and issued disappointing guidance, Toyota announced another recall that was widely expected, and Pulte Homes posted a wider-than-expected loss. Treasuries were lower, holding onto losses following an unexpected drop in wholesale inventories.

The Dow Jones Industrial Average jumped 150 points (1.5%) to close at 10,057, the S&P 500 Index gained 14 points (1.3%) to 1,071 and the Nasdaq Composite advanced 25 points (1.2%) to 2,151. In moderate volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares were traded on the Nasdaq. Crude oil rose $1.86 to $73.75 per barrel, wholesale gasoline was $0.04 higher at $1.93 per gallon, and the Bloomberg gold spot price gained $13.63 to $1,076.47 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—dropped 0.8% to 79.76.

Dow member Coca-Cola Co. (KO $54) reported 4Q EPS of $0.66, matching the estimate of Wall Street analysts, with revenue increasing 5% year-over-year (y/y) to $7.5 billion, above the $7.2 billion that the Street expected. The company said it had strong worldwide unit case volume growth of 5%, driven by international volume growth, but North American volume declined 1%. Shares were nicely higher.

Fellow Dow component McDonald’s Corp. (MCD $63) reported January global same-store sales—sales at stores open at least thirteen months—rose 2.6%, versus the 1.4% analyst estimate, as sales in its Europe segment, as well as its Asia/Pacific, Middle East and Africa unit were both up 4.3%, while sales in the US were down 0.7%. Shares were higher.

Electronic Arts Inc. (ERTS $16) reported fiscal 3Q EPS ex-items of $0.33, two cents below the Street’s forecast as revenues fell 23% y/y to $1.35 billion, matching the expectations of analysts. The video game software maker said it is growing market share in its packaged goods business—publishing of video games—and its digital businesses continue to grow rapidly. Shares came under solid pressure, closing nearly 9% lower, after ERTS issued 4Q and 1Q EPS guidance that missed analyst expectations, and its initial fiscal full-year 2011 sales and EPS outlooks also fell short of expectations.

Toyota Motor Corp. (TM $75) rebounded in Asia and was higher in the US after it expectedly announced that it will recall about 437,000 of its new Prius and other hybrid cars to fix braking issues, adding to the over 8 million vehicles that have been recalled recently, due to unintended acceleration. However, following the announcement, Moody’s placed TM’s senior unsecured long-term credit rating on review for a possible downgrade.

Pulte Homes (PHM $11) reported a net loss of $0.31 per share, compared to the loss of $0.19 per share that the Street had expected. PHM said the results included significant charges for goodwill, land, mergers, and mortgage repurchases, which were partially offset by income tax benefits. Excluding these charges, PHM said its results would have been approximately breakeven. The company said its revenue increased 6% y/y to $1.7 billion, compared to the $1.5 billion that the Street forecasted. PHM said its net new home orders increased 113% y/y to 3,748 homes and closings rose 13% to 6,200 homes, but average selling price fell 7% to $258,000. Despite the miss, shares finished nearly unchanged.

Wholesale stockpiles surprise to the downside

Wholesale inventories unexpectedly fell, decreasing 0.8% in December month-over-month (m/m), versus the Bloomberg consensus, which called for a 0.5% advance, and November’s 1.5% increase was revised to a 1.6% advance. Petroleum inventories increased 3.6%, computer equipment jumped 6.6% and professional equipment gained 2.5%. However, automotive inventories fell 2.5%, apparel dropped by 3.6%, and farm products decreased 4.5%. Sales rose 0.8%, bringing the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—to 1.12 months from 1.14.

Tomorrow’s scheduled testimony by Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee has been postponed due to inclement weather in the nation’s capital. However, the Federal Reserve will release the prepared text of Mr. Bernanke’s testimony at 10 a.m. ET.

Treasuries headed lower following the inventory report and remained in negative territory with the yield on the 2-year note gaining 6 bps to 0.83%, the yield on the 10-year note 8 bps higher at 3.64%, and the yield on the 30-year bond up 7 bps to 4.58%.

Conflicting Greece aid reports garner attention

Speculation of a potential Greek deficit relief plan was fanned early in the day following European Central Bank President Jean-Claude Trichet’s decision to leave a gathering of policymakers in Sydney, Australia prematurely in order to attend an EU summit on Feb. 11, where leaders will confer on the nation’s plans to reduce its deficit. However, the ECB said the plans were purely because of logistics and Trichet changed his plans in order to catch a connecting flight so he did not miss the summit, which he had already been scheduled to attend. Elsewhere, citing a senior German coalition source, Reuters reported that Eurozone governments had agreed in principle to help Greece with various options under consideration, but German government spokesperson Ulrich Wilhelm released a statement saying that no such agreement had been reached. Adding to the drama, late in the day, the Wall Street Journal reported that Germany, along with other EU countries, are considering a plan for a loan guarantee for the troubled country.

In international economic news, Germany’s trade balance came in smaller than expected, as imports rose 4.5%, more than economists surveyed by Bloomberg had forecasted, offsetting a surprising 3.0% increase in exports, above the 0.1% rise forecast, and the fourth-consecutive monthly gain. As well, the final reading of consumer prices in Europe’s largest economy were left unrevised as expected at a 0.8% increase y/y and a 0.6% decline month-over-month (m/m). Elsewhere, the UK’s trade deficit came in larger than anticipated, rising to 7.3 billion pounds ($11.4 billion), with imports moving 5.2% higher m/m while exports advanced 4.5% m/m.

Tomorrow’s US economic calendar will yield the trade balance for December, forecast to narrow to -$35.8 billion from -$36.4 billion in November, as well as the MBA Mortgage Application Index.

On the international front, economic reports will include industrial production from France, Italy and the UK, employment in Australia, and China will release CPI and PPI.

GS in Bearish Digestion

By Mike Paulenoff

All of the action in Goldman Sachs (NYSE: GS) off of the Jan 29 low at 147.81 has the right look of a sideways bearish digestion area that is developing below multi-month breakdown support at 160, which when completed should resolve itself in a new downleg that projects to 145 at a minimum but has an overshoot target at 140-138. My work argues that strength in GS (if any materializes) into the 157-159 area will be used to exit long positions and/or to put into place protective option positions ahead of the anticipated decline.

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Two Day Update

by Larry Levin


In our normal updates we simply discuss the market moving events and leave our trading details out of it. Today, however, I would like to touch on the virtual trading roomâ?Ts (VTR) two-day accomplishments.

Friday's monthly job-loss event caused a few sharp moves in the market, first down then sharply higher. On this day the VTR calls netted +22.25 points on 19 trades: 13 winners and 6 losers. The first trade of the day was a fast loser, but that was followed by nine consecutive winners. The end of the day was quite choppy and in this time the VTR calls lost a little back to the market.

One of our star traders was down 20.00 points in the morning but staged a huge reversal as the market volatility increased. The swing from low to high was 110.00 points that netted him about +90.00 by the close, $4,500.

Today's market was slow overall; however, the early portion of the day was fairly active. The VTR calls netted +20.50 points on 12 trades: 10 winners, 1 loser, and 1 break even.

The VTR is using a good combination of algorithm trades, One Time Framing directions, old school support and resistance levels, but mostly our volume chart. Our volume chart shows the actual trades made in real time, buys or sells, on the bid or at the offer, with the exact size. In other words, we can see inside the bars.

One example that is emblematic of many of these trades would be watching the market drop to a support level while seeing the selling volume decrease. Of course this can accelerate at any time, so traders may wait a bit to put on a long trade. If the market turns up, that's good; but how good? It helps to see inside the chart, so when the VTR sees a huge buyer lifting the offer, they join him. This strong buying at a specific price after support has held (or resistance when selling) has recently led to many fast winners.



Previous Day's Trading Room Results:

Trade Date: 2/8/10

E-Mini S&P Trades*
(before fees and commissions):

1) OTF buy @ 10:40am at 1065.50 = +.50, +.75 & +1.25 (3 lot)

2) VA buy @ 1:36pm at 1061.50 = -1.50 (1 lot)

3) Algorithm positions (11)

4) Reading the Tape positions (8) combined Secret's, Algo, & Reading the Tape total +20.50



Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

By Mike Paulenoff

This week's Charts of the Week cover the overall equity market via the S&P 500 and then look at the dollar (via its ETF, the UUP) and commodities such as gold, silver and agriculture that are impacted by the dollar (via their ETFs such as the GLD, GDX, SLV, DBA and DBC).

The S&P 500, after peaking at 1150 in mid-January, fell to 1071.58 on January 29, but rallied back towards 1103-1104 resistance and couldn’t get through last week. It was a week replete with growing concerns that some European countries, including Greece, Portugal and Spain, might not be able to handle their mounting debt. A new downleg commenced from that 1103-04 area, hitting its low at 1044.50 Friday afternoon before a bounce to 1066.

Is the bounce a start of a new up leg or the end of a decline from 1150 to 1044? My suspicion is that it is not, that this is a failed rally and the first down leg. The 50- and 20-day moving averages are now accented to the downside, the 20 sharply so and is now below the 50, which is not a good sign from the near-term momentum perspective. The closer the 20-50 combination gets to 1103-1104, the more powerful the resistance area will be, so that this week if the rally continues from 1066 and can manage to get close to 1100, let's be aware of how powerful the resistance is at 1104-1103.

My cycle work also suggests a downturn. While the shorter 20-22 day cycle indicates the market is due for some kind of a rally, the longer 18-20 week cycle, which has been very reliable, has peaked. So we're going to be cautious of key resistance, first at 1085-90, and next at 1104, and then at 1120, especially on rallies that don’t have particularly high-quality advance-decline work or that have poor up/down volume statistics.

While the equity markets look lower, the dollar continues to rally. The ETF we trade for the dollar is the PowerShares DB US Dollar Bullish (UUP), which is based on the DXY or the Dollar Index, a basket of currencies that is about 55%-60% based on the euro-dollar.

The UUP broke out at around 22–22.20, which looks like an inverted head and shoulders pattern. The upside target, using a measured move, is somewhere in the 24.20–24.50 area, and that's purely from a technical perspective and assuming normal market conditions.

But this is not a normal market, but one instead where you get news every few hours it seems that some other country's CDS's are blowing out. Amidst crisis conditions in Europe, the dollar is being looked at as the currency of choice -- the flight-to-safety currency. And supposing more dominos fall in Europe and the ECB says it's coming to the rescue, where could the dollar index go in that scenario?

Applying Fibonacci retracement levels to the entire move down since November 2008 from 27 down to 22, a 50% retracement would be 24.56, which is right in the area of the measured move off its base. A 62% Fib retracement would put the UUP at 25.20.

A rising dollar certainly has implications for gold and other commodities. Looking at gold via the SPDR Gold Shares (NYSE: GLD), last week we had a major trend break, though gold recovered with the equity markets in the last hour on Friday from 102.28 in the GLD to 104.82. Is this the beginning of something new on the upside? I doubt it, because this looks to me like gold has built a pretty big top over the course of Nov '09-Feb '10.

It looks to me as though the GLD, with its 200-day at 99–99 3/4, probably will have to loop down and test 100. The 100-level is not only the prior high before it broke out and took off in the final up leg, but it also represents, or is close to, the prior-rally peak back in February '09.

Looking at the Market Vectors Gold Miners ETF (GDX), you can see on the condensed chart going back to October 2008 that a major trend break has taken place in the GDX. It looks like a significant top is in place above 45. On Friday it broke 40 intraday, but managed to close at 42.40 or so. If it rallies to 45 you have to either get out or perhaps even go short. A lot would depend on the dollar. This is not a particularly healthy chart and probably it's going to break this level and may end up somewhere in the 36 to 34 area.

Another metals chart to watch is iSharesSilver Trust (SLV), which has really gotten hurt and looks like it has a big top on it. So, silver, as well as gold and gold mining are all impacted significantly by the dollar, which is being accumulated based on a growing crisis that could get a lot larger and a lot wider.

The PowerShares DB Agricultural Index (DBA), which looked like it could be on the verge of breaking out to the upside mid-January, also has gone straight down as the dollar has gone up. It has broken some serious support that suggests it's going significantly lower, to 22.60-.50 and maybe 22-21.90.

The PowerShares DB Commodity Index (DBC), which is the industrial metals side, too, has had a hard time. It moved up with the stock from March 2009 and peaked in the first week of January 2010, and appears to follow the movements of the S&P 500 fairly closely.

In order to get any traction on the upside, the DBC really has to get back above 23.30 (the prior high was 23.80 – 23.85), but the price structure is below the 200-day moving average at 23.02, and the 20- and 50-day are pointed down sharply.

Based on this DBC Index, my sense is that the aluminums and coppers of the world are in trouble, which is probably a reflection of China as well. While it seems like everyone is expecting China to flip the lights on and stop restrictive lending, the commodity index charts are telling us that China may not be the engine of growth this time around or at least for a little while, which could have major impact on commodities, commodity-based stocks, and the dollar as well because the dollar keeps going up.

One more chart, the Claymore/MAC Global Solar Energy ETF (TAN), shows a massive up move between November 2009 and January 2010, but the TAN has given it all back and is sitting on very important support at 8 roughly down to 7.90. If that level breaks, the TAN will probably have significantly more weakness down to 6, and eventually retest the low from March ’09 at 4.67.

If that's the case, then this will be a repudiation of global alternative energy initiatives. The money won't be there to invest in solar energy, and more importantly, perhaps, oil prices will be collapsing as well, dampening alternative energy incentives and the price of the TAN.

So, we've covered the S&P 500 Index, the UUP and how the dollar is impacting the commodity industry. For me, I’ll be looking to sell rallies in the S&P unless 1104 or 1103 is taken out. I’ll be looking to sell rallies in the commodity industry and I’ll be looking to buy bids on the dollar.

See our video chart analysis of the charts discussed above.

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