Today's Market WrapUp 04.05.2007 Mon Tue Wed Thu Fri Goldberg Archive Important
Long Term Trendlines Threatened
There are several important sector and stock long term trendlines that are being threatened. When a well established long term trendline is broken, it tends to be more technically important than those trendlines that are less clearly established and/or of shorter duration. In over 7 years the up trendline of Toll Brothers (TOL) has been intact but touched 5 times. It is being threatened at the present time and a break of this long term trendline would be important and bearish to Toll Brothers and the other homebuilders.
Toll’s homebuilder brethren have a clear bearish neckline and measurement principle objective of 280. However at the present moment the homebuilders are oversold and the neckline at about 550 has not been broken. So for the moment, there is not nearly as good an entry point as when the homebuilders rallied back to their neckline in early 2007 when there was “the selling opportunity of a lifetime.”
With five touches in three years, the Dow Jones transportation index is in an important long term uptrend which is alive and deserves respect. A break of this trend will be important when and if it happens.
We mustn’t forget the importance of Cisco, and its wide and important trading range. The chart below is a long term monthly chart. A break into new recent year high ground would solidify the potential staying power of the bull market. Above 30 is where Cisco was only during the period of a known and accepted bubble. A foray back into this territory would need to be respected. In these times of low volatility and bullish sentiment, it is almost impossible to suggest that a break below 17 would paint a scenario where Cisco goes back to about 10. So this will not be a discussion for this month. At 29 in late 1998, Cisco took a rest prior to making a parabolic run to above $80 in 2000. This level served as resistance in late 2003 and early 2007.
The corresponding timeframe chart on the Nasdaq, I’ve sketched tangent lines corresponding to the angles of ascent during the late 1990’s bubble. Similar to Cisco, it is tough to consider the recent high of 2,550 as of technical significance because of the fact that on the way up, the Nasdaq barely had a cup of coffee on its way past 5,000. Still, numerically speaking, a significant rise of the Nasdaq above 2,550 would be reclaiming ground known and accepted as bubble territory.
Look at the volume traded in the lower half on the chart. The current trading volume on the Nasdaq exceeds the trading volume that occurred during a known and accepted stock market bubble. Similarly, the long term trends of the Dow Jones Industrials’ trading volume are quite thought provoking. Whereas in 2000 the weekly trading volume of the DJIA 30 averaged 500 million shares, it now trades over 4 times as many! This is quite remarkable. I don’t know the long term price implications of such increases in trading volume, but it doesn’t smell too good to me. The one definite conclusion is that if price is determined on the margin, then price is not being determined by long term investors. Accordingly, it’s a “Pro’s” market and long term “investors” should know that they are not “investing.” Not in this market.
Returning to Cisco, it trades about one billion shares per month, and there are 6 billion shares outstanding. If you do the simple math, it is apparent that Cisco turns over 2 times per year. A with most technology stocks, statistically most of the people at the yearly proxy meeting should be strangers. It’s the same situation with the S&P 500 stocks where volume is trading about 20% above the long term trend, while the index is trading at a lower level than it was in 2000.
And while we are on the subject of trading volume, as of Wednesday evening the S&P 500 is trading at an 11.5 billion per week rate this week. In the context of the last few months, this is anemic volume and is similar to the volume that occurred before the last mini-crash in late February. So while long term volume trend is up, the short term volume trend is down.
Finally, whether the sub prime debacle will impact upon the entire consumer loan industry will probably be determined by the technical chart of important industry leader, Countrywide Financial Corp. (CFC). A break of long term support at about $29/share would indicate a long term target price of mid-teens. But similar to Toll and the other homebuilders, CFC is now oversold and in a tricky corrective pattern.
Finally, the most important technical trendline that is being threatened is the trend of long term interest rates. We’ve seen this chart before and it is no less important now. Interest rates are likely to be headed higher. Since 2005, each low in the long interest rate has been higher than the previous low.
In the shortest of timeframes as of Wednesday evening the interest rate appears to be overbought and due to drop in the next few days. (Unless, in the paradox of technical analysis, it “breaks out.”)
Today’s Market Current daily stock market trends continued today as the market pushed higher on anemic volume. In four trading days this week, S&P 500 stocks have traded 8.8 billion shares, and this was the lowest per day rate since the week before the mini-crash when it traded 8.6 billion in four trading days. The week of the mini-crash, the S&P 500 traded the most shares ever. The bond market continued lower and interest rates higher today and this is suggesting a short term breakout of sorts. Tomorrow is market-important unemployment data which should affect the short term behavior of the bond market and determine if the breakout is a real one or just a bond bear trap. Once again, the $HUI gold bugs index is trading at a critical level where it is threatening to move from a difficult and somewhat frustrating corrective pattern into its long term Wave 3 up. If there is a reason for skepticism, it is in the fact that during this year gold stocks have tracked all stocks. This is clearly illustrated with the overlay of this year’s $HUI action with that of the S&P mid cap index. The correlation looks too good to believe that this is a result of chance or coincidence or even precious metals fundamentals. It makes one question if riding gold stocks is the same as riding in the same boat as all stocks.
Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
INFORMATION |
