Saturday, February 17, 2018

The Daily, Part 1 of 3, 2-17-18

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2/17/2018 Investment House Daily
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The REPORT SCHEDULE is as follows:

Market Summary Video, Plays and Play Videos, and Play Table with play
annotations will issue Wednesday, Weekend.

Monday a Market Summary video, new plays, play table annotations.

Tuesday and Thursday reports will contain the market summary, chart links to
view the index charts, and updated play table.

Access to all current videos will remain assessable each day using the play
links in the reports.

If any market circumstances arise where we see additional plays we want to
prepare for the next session, we will of course issue those plays regardless
of the day of the week.


MARKET SUMMARY

- Market moves from low to high, but then back to low.
- Indices show tombstone doji at key levels, many leading stocks do the
same.
- Still some leadership groups look very good, but have to be aware of the
levels being tested and the history of these kind of moves.
- Gold is up on excess spending, and the ideas for raising more revenue are
stupid.
- Being ready for all scenarios gives you the confidence to make your plays.

Was it just expiration and the 3-day weekend (Washington's Birthday; I am
old school in the holiday names)? Or was it 6 days straight up off of and
including the prior Friday reversal? How about the indices bumping what we
considered resistance for this relief bounce? All of the above?

Friday produced another back and forth session. Futures were higher with
DJ30 100+ to the upside, but by the open the gains turned to losses. But at
the open, stocks turned and surged right back up into midday, posting really
nice gains: SP500 +23, NASDAQ +46, DJ +232. That was it. The bids ended,
sellers took over and the gains were given back lock, stock, and barrel by
the afternoon session. Stocks spent the balance of the day trading back and
forth, the indices ending mixed, reflecting that lack of drive.

SP500 1.02, 0.04%
NASDAQ -16.96, -0.23%
DJ30 19.01, 0.08%
SP400 0.22%
RUTX 0.41%
SOX -0.35%
NASDAQ 100 -0.36%

VOLUME: NYSE +9%, NASDAQ -4%. Modestly above average volume on NYSE showing
some churn given the doji. NASDAQ average trade shows no kick up in the
selling. If it had surged, then that would have been bad.

ADVANCE/DECLINE: NYSE 1.4:1, NASDAQ 1.4:1.

Relatively innocuous closes on the day, but the details are very telling,
suggesting the relief move could have topped out.

CHARTS

All of the indices rallied higher and touched or came very close to the
levels we see as very likely peaks for the relief move that then turns back
to test the recent low. A bit too fast getting there, and they may bump at
these levels a bit more before giving up, but it is what it is. They all
showed tombstone doji on the session, and after a furious reversal the prior
Friday and a 6 session surge, that strongly suggests the relief move is
capping out. At the very minimum is suggests a pause. Given the market
circumstances, I would not assume a pause.

SP500: We pegged 2740 to 2750 (61% Fibonacci retracement at 2743) as
resistance with 7262 (upper gap point from early February) as the outside
high. SP500 moved past the midpoint in that gap zone Friday, also moving
past the 61% retracement (2754.42 intraday high). It then reversed to a
tombstone doji. As noted, after such a surge and in this kind of market
with that huge selloff, this suggests a reflex move is at or near its end.

NASDAQ: The same action, just different levels. NASDAQ filled the second
gap lower from early February (the big gap) and moved to 7303, the point of
a small price consolidation in mid-January. Didn't make 7317 (78% Fibonacci
retracement), but it made a game shot at it. After that rise, however,
NASDAQ tossed it back, closing with a tight tombstone doji. After a furious
670 points in 6 sessions recovering from a huge selloff, NASDAQ retraced 70%
of the move and indicates the relief rally is on the edge of the knife.

DJ30: The Dow rallied up to and through the 61% Fibonacci retracement,
hitting 25,432 at the high. That moved DJ30 into the gap down zone from
early February, but it was unable to make it to the upper gap. BTW, the gap
was filled the day after the gap as DJ30 moved higher to test that selloff
only to roll over and sell massively that session. Thus, the gap is filled
and with DJ30 showing a tombstone along with every other index on Friday, it
looks as if the Dow has hit our targets for the relief move and that move
now risks falling back to test that prior low.

SP400: The midcaps moved up to tap at the 50 day MA and the 61% Fibonacci
retracement, the levels we pegged for it, and backed off half the move. Not
the tight doji of the large cap indices, but the midcaps have followed the
lead of the large caps all the way.

RUTX: Moved through the 50 day MA's the coincident 61% Fibonacci
retracement, and the November peak. It then turned back with the other
indices. As with SP400, not a tight doji, just hitting the resistance we
cited for it and then fading the move to a still solid session gain. Bigger
picture, however, it has rallied off a massive selloff, retracing over 60%
of the move, but running into key resistance with a pattern that suggests a
turn back down.

SOX: SOX continued its relief move, moving through the 61% Fibonacci
retracement with some authority, but before it got to the November peak at
1342, it pulled up short (1334) and reversed to a loss and a tight tombstone
doji. That is close enough to be concerned that the relief move is ending,
especially given the action in the other indices. With the patterns in many
chips, the relief move does appear in jeopardy.


LEADERSHIP

If you look at the big names that led the relief move as well as many of the
stocks that rallied from fractured patterns, you see action very similar to
the indices. Many big names are very close to pre-selloff highs; sure they
can always pause and continue, but you have to look at the probabilities
taking into consideration not only this recovery, but the bigger picture of
how the market moves. That suggests the nice rally is peaking and a test of
the prior lows is coming.

Still, you cannot discount good moves such as WMT and retail in general that
still shows good setups and strength. Or biotech with stocks such as IMGN,
BLUE still surging from good setups with more in the sector in great
position. Industrial metals are strong.

FAANG: FB jumped midweek with a strong move but could not follow through.
AAPL was a tiger upside into Thursday, but hit the prior trading range and
showed a doji. AMZN rallied to just below the prior highs and tossed a
doji. NFLX surged through Thursday, then showed a tight doji Friday just
below the late January peak. GOOG moved through the 50 day MA's, then faded
off the high. Not bad, but GOOG has lagged all of FAANG and look at the
putrid volume on the way up. At least AMZN and NFLX put in some above
average volume on the advance.

Semiconductors: A few well-positioned (ENPH, MU, QRVO), but most bounced
and look to be running out of bounce road. You have those bouncing for
ruptured patterns (LRCX, KLAC) or sporting head and shoulders or other
topping patterns, e.g. LSI, SLAB, MLNX (yes, we did not have the guts to
hold it). Even NDVA could put in a near term top and test back with the
double top it is showing.

Industrial/Machinery: MMM bounced on low volume the past 1.5 weeks. CAT
looked good on its bounce, but Friday it gapped higher and then sold on the
strongest trade in a week. DE still trying to break higher on good
earnings, but it reversed from a new high. If it fails at the January high,
it has a double top and can fall hard as good news did not hold a good
break.

Software: With an exception or two, definitely soft. RHT posted a super
week. BLKB was up. FFIV looks as if it is topping out with a double top.
VMW is struggling below the 50 day. TTWO ditto. Just lost a lot of pop.

China: Since fading 3 weeks back this group has done nothing. Only BZUN and
perhaps HTHT look decent. BABA struggling, BIDU bounced but has to show
more. Ditto SINA. NTES, SOHU in the toilet.

Drugs/Biotech: Still solid. Lots of good patterns. ARRY is great. IMGN
surging. BLUE moving higher. MNKD, IPXL, CERS quite solid.

Metals: Strong. SCHN, STLD, CENX, AKS. SID still looks interesting.

Retail: WMT had a great Friday. Most other retailers took Friday off after
a solid week. TGT, BBY, DDS, TLRD.


MARKET STATS

DJ30
Stats: +19.01 points (+0.08%) to close at 25219.38

Nasdaq
Stats: -16.96 points (-0.23%) to close at 7239.47
Volume: 2.03B (-4.25%)

Up Volume: 925.39M (-644.61M)
Down Volume: 1.06B (+536.34M)

A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Advancers led 2.25 to 1

New Highs: 86 (+6)
New Lows: 30 (-22)

S&P
Stats: +1.02 points (+0.04%) to close at 2732.22
NYSE Volume: 900M (+9.25%)

A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Advancers led 2.24 to 1

New Highs: 78 (+9)
New Lows: 28 (-20)


SENTIMENT INDICATORS

VIX: 19.46; +0.33
VXN: 20.46; -0.39
VXO: 17.38; +0.12

Put/Call Ratio (CBOE): 0.93; +0.01. Elevated all week as the market
rallied. What will be funny is how they all closed downside positions just
as the rebound move peaks.


Bulls and Bears: Not as dramatic a bull drop but significant. 12 points
the prior week, 2.5 the past week. Bears bumped higher off 30 year lows two
weeks back, faded just a bit the week after.

Bulls: 51.9 versus 54.4

Bears: 14.4 versus 15.5

Theory: When everyone is bullish and has put all their capital to work,
where does the ammunition to drive the market come from? There is always
new money to start a new year. After that is used will more money be
coming? That is the question.




Bulls: 51.9 versus 54.4
54.4 versus 66.00 versus 64.7 versus 66.7 versus 64.4 versus 61.9 versus
64.1 versus 64.2 versus 62.3 versus 61.5 versus 63.5 versus 64.4 versus 63.5
versus 62.3 versus 60.6 versus 60.4 versus 57.5 versus 54.3 versus 50.5
versus 47.1 versus 49.5 versus 49.5 versus 48.1 versus 50.5 versus 57.5
versus 60.0 versus 60.2 versus 57.8 versus 50.0 versus 52.5 versus 54.9
versus 51.5 versus 50.00 versus 55.8 versus 50.00 versus 51.9 versus 58.1
versus 58.7 versus 58.5 versus 54.7 versus 51.9 versus 56.3 versus 55.8
versus 49.5

Bears: 14.4 versus 15.5
15.5 versus 12.6 versus 12.8 versus 12.7 versus 13.5 versus 15.2 versus 15.1
versus 15.2 versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4
versus 14.4 versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1
versus 19.0 versus 20.2


OTHER MARKETS

Bonds: 2.873% versus 2.904%. Bonds bounced modestly Thursday and Friday,
making it back to kiss the 10 day MA. If they fail here, the downtrend that
has set up is showing a lot of strength.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.904%
versus 2.913% versus 2.833% versus 2.857% versus 2.8577% versus 2.844%
versus 2.813% versus 2.805% versus 2.707% versus 2.841% versus 2.792% versus
2.713% versus 2.72% versus 2.72% versus 2.66% versus 2.66% versus 2.639%
versus 2.617% versus 2.656% versus 2.661% versus 2.618% versus 2.587% versus
2.535% versus 2.55% versus 2.559% versus 2.551% versus 2.482% versus 2.456%
versus 2.463% versus 2.464% versus 2.405% versus 2.434% versus 2.412% versus
2.474% versus 2.485% versus 2.484% versus 2.501% versus 2.459% versus 2.398%
versus 2.351%


EUR/USD: 1.2411 versus 1.25083. After breaking to a higher rally high
Thursday, the euro dropped hard to the 10 day EMA Friday. Will have to see
if that lasts as a reversal from the high.

Historical: 1.25083 versus 1.2450 versus 1.23528 versus 1.22887 versus
1.22524 versus 1.2273 versus 1.2377 versus 1.24573 versus 1.2502 versus
1.2404 versus 1.2402 versus 1.23832 versus 1.24308 versus 1.24159 versus
1.24340 versus 1.23083 versus 1.22567 versus 1.22169 versus 1.2241 versus
1.2198 versus 1.22698 versus 1.22060 versus 1.20608 versus 1.19507 versus
1.19322 versus 1.19662 versus 1.20313 versus 1.20756 versus 1.20177 versus
1.20573 versus 1.2001 versus 1.1936 versus 1.1936 versus 1.18998 versus
1.18593 versus 1.18628 versus 1.18658 versus 1.18792 versus 1.18408 versus
1.17703 versus 1.1752 versus 1.17798 versus 1.18392 versus 1.17430


USD/JPY: 106.294 versus 106.153. Rebounded off the rip lower Tuesday to
Thursday. Entering a range of prices from August to October 2016.

Historical: 106.153 versus 106.782 versus 107.77 versus 108.669 versus
108.669 versus 108.797 versus 108.88 versus 109.33 versus 109.58 versus
108.651 versus 110.001 versus 109.46 versus 109.50 versus 108.77 versus
108.84 versus 108.601 versus 109.411 versus 109.033 versus 110.159 versus
110.159 versus 110.70


Oil: 61.55, +0.38. Rebounded Wednesday to Friday, moving just past the 50
day MA's. Rebounded, but it was a sharp break lower. Key is whether it can
hold the move, rest, then continue higher.


Gold: 1356.20, +0.90. Big surge Wednesday, then flat and lateral into the
weekend. Strong break higher as inflation fears are up given the continued
and accelerated profligate US spending, spending they are thinking saddling
on the average US citizen with a $0.25/gallon gasoline tax.

It is telling that supposedly conservative Fox Business commentators are
calling the idea 'intriguing' instead of saying 'hell no!' We have taxes
that are supposed to pay for infrastructure improvement and maintenance.
Why do we then have 'decaying' infrastructure and need to dramatically hike
taxes to pay for what we were supposedly already taxed for?

I don't have a problem with user fees such as on toll roads (and thus avoid
those 'bridges to nowhere' that everyone pays for but hardly anyone uses),
but a gasoline tax, given the reality of our transportation system that is
individual vehicle based, it is a very cruel tax. Several groups have put
the pencil to paper regarding the impact of such a tax, and the average
impact seen would negate 60% of the tax reform cuts for individuals. But
that is okay for the likes of Senator Corker who didn't want to do anything
at all to individual tax rates, happy to see the Obama tax hikes remain a
yoke around the average citizen's necks. He doesn't have to pay the
Obamacare increased costs; he has his Senate care and will have it until he
dies. How can they say they represent us, understand our problems, when
they are above them and don't have to experience them? Colossal asses.

Here is an idea, we just passed a pro-growth tax reform plan that will,
despite what the democrats, economics ignorant republicans, no longer free
press, and other big government backers say, generate more revenue than
expended. Why not let that work?


TUESDAY

Market is closed Monday for Washington's Birthday, and that could be bad for
US investors and traders. The rest of the world will be open, and it could
be that they get the jump on the US in selling and that could have US stocks
opening lower Tuesday. That is speculation, but it is a possibility.

While the relief move, or whatever you want to call it, still remains intact
as of Friday, the indications are and the history suggests it is ending and
a test of the prior low is coming in the near future.

Therefore we took some gain Friday on several positions, let positions still
working well continue, and if the market hesitates Tuesday, we are going to
close the upside outside of those strong areas such as biotech, and have
downside plays ready to go. Indeed, it may be that even the biotechs,
metals, retail have issues if the rally has run its course and starts the
test of the prior low.

As a refresher, historically when a market peaks and then reverses as
violently as stocks did three weeks back, they rebound over the course of a
few weeks, then fall back down to test the prior low. Often that test
undercuts the prior low and really shakes out the weaker hands that got in
late, bought too high, and don't have the stomach for getting burned again
(as is usually the case because they always come in late). Once they are
gone, the people left are the stronger holders and they use the violent
shakeout to start buying. Then a new rally begins.

That seems so pat, so easy, but even so, the fear and greed combination
works time and time again in history. Many people are talking about it now
as well, jumping on the 'test' bandwagon. Of course late last week many
changed to the 'this new rally is here' chant just in time likely for this
leg to end.

That shows why this works: in the heat of the battle most players, even the
veterans, lose sight of the big picture, what they know to be the likely
scenario. When stocks are getting slaughtered in a sea of red, redemption
requests are surging, and margin calls are peppering the accounts, even the
seasoned traders and managers succumb to their emotions. Their algos read
the headlines and sell, then the managers take over after the initial
selling, but then someone panics again and the downside resumes. The run to
the sea is on.

So, as pat and hackneyed as it appears, these patterns play out again and
again, regardless of our great technology and the confidence we are smarter
this time. I know; you have to fight your emotions all the time and hold to
what the facts show. I am always amazed at some of the bipolar blowhards
that show up on the financial stations. You know who they are. On days
when the market is strong, they are gushing that you should buy everything,
talking about their dogs or anything that pops in between the ears, chiding
those who actually have a plan. On down days, and I have seen it the day
after one of those up days and the talk that the sky is the limit, they are
almost morose, saying the market is just fickle right now, that selling will
come so get your buy list ready. But what? Didn't they just say the day
before to buy everything, that you were a fool for not owning them? This is
what you are up against and you have to see through it. Don't ignore it;
use it to illustrate the kind of emotion that plays in the market and makes
people make emotional decisions.

You will still slip up and make a bonk move from time to time (e.g. closing
the MLNX downside), but that is okay. I allow myself one bonk move as
something of a test case on a potential direction change. I don't mean it
to be a bonk move, it just goes that way. A position starts to break the
wrong way, it is not the end of the session but it is showing some
persistence, so I make the move. Then I see if the move holds and how I
will handle the rest of the positions. If it shook me out, I shake it off.
Bonk move. Flush it. You played your plan without emotion and you can't
let that emotion slip back in if the market then shows you acted too soon.
That happens. Remember when I said patience more often than not rewards
you? It helps to remind yourself of that, particularly in this volatile
market, and that gives you control over your emotions as well.

In any event, the setup in the indices and many stocks warrants prepping for
the possibility the relief move is topping out. Part of containing your
emotions is being prepared mentally and have a plan and plays in hand
tailored to the possible scenarios the market throws at you. See it, act,
play the plan. You will have enough work sticking to the plan, and there is
something empowering about a plan that makes you money and does a solid job
avoiding losing money. It reinforces good behavior and it keeps you from
missing out or worrying about missing out as that is a surefire way to make
emotional blunders that kill your returns.

Have a great weekend!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 7239.47

Resistance:
7240, the upper gap point from early February 2018
7506 is the January 2018 all-time high
7300 from a modest mid-January consolidation
7317 is the 78% Fibonacci retracement


Support:
The 50 day EMA at 7090
6918 - 6980 are price points from November/December 2017
6914 is the late November all-time high
6796 is the early November 2017
6641 is the October high
6630 is the February 2018 selloff intraday low
The 200 day SMA at 6583
6477 is the September intraday high
6461 is the July 2017 prior all-time high
6450 is the early September high
6341.70 is the all-time high from early June.
6300 is the mid-June interim high
6205 is the late May all-time high
5996 is the recent May 2017 low
5937 is the all-time high from April
5915 is the tops of the March to April 2017 range
5910 is the lower gap point from mid-April
5800 from the February consolidation lows


S&P 500: Closed at 2732.22

Resistance:
2744 is the 61% Fibonacci retracement of the selloff
2751 from early January 2018
2762 is the upper gap point from early February
2808 from the mid-January consolidation. Some support, not that strong.
2850 from a January 2018 gap point
2873 is the January all-time high

Support:
The 50 day EMA at 2710
2694 is the mid-December peak
2597 is the November 2017 high
2584 is the upper channel line from the March 2009 uptrend channel
The 200 day SMA at 2547
2532 is the February 2018 intraday selloff low
2491 is the August all-time high
2480 the late August and early August highs
2453.46 is the June prior all-time closing high
2409 is the July 2017 closing low
2406 is the all-time high from May 2017
2401 is the March 2017 all-time high
2352 is the May 2017 low


Dow: Closed at 25,219.38

Resistance:
The 61% Fibonacci retracement at 25391
The lower gap point from February at 25,521
26,000 from mid-January consolidation
26,439 is a gap point from the January high
January 2018 all-time high 26,617

Support:
The 50 day EMA at 24,989
24,835 is the mid-December consolidation range
23,608 is the early November high
23,602 is the early November 2017 high
23,360 is the intraday low form the February selloff
The 200 day SMA at 22,893
22,420 is the September high
22,179 is the August 2017 all-time high
22,086 is the mid-August lower high
21,681is the July prior all-time high
21,638 is the July 2017 closing high
21,529 is the June 2017 high

End part 1 of 3
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