Sunday, September 23, 2012

Economy Looks to iPhone Release for GDP Growth

MARKET SUMMARY

- No fireworks. No band. Just volume on quad expiration and the S&P rebalance. Is QE so pervasive it trumps all market influences?
- You know it's a slow day when the iPhone release is the main story.
- Bill Gross succinctly states the state of the bond market.
- Is the economy so desperate the iPhone release is looked to for GDP growth?
- Container shipments increase, cardboard prices trying to rise: anticipating a better Christmas?
- Confidence increases close to 2012 high, driven entirely by investors: this sums up the entire story of the economic 'recovery.'
- Increasing jobs: waiting in line for an iPhone would qualify under the Administration's new rules.
- After last week's fade many stocks are in position to take their turn at the helm while many leaders are problematical if they can add more.

Quite the dull expiration.

We figured that at least the big moves on the ECB agreement and the Fed's launching QE3 would have turned some big funds over, requiring some last minute reshuffling and rolling out on expiration. Then the S&P rebalance would result in some decent intraday swings, at least a late strong move. We waited and waited, but as with the Chicago Cubs fans who have gone from cradle to grave waiting for a World Series victory, the 'fireworks' I talked about Thursday were duds.


Pass those season tickets down to the kids . . .

About the only news out was the iPhone 5 release and the financial stations following the rolling releases across the time zones. Now THAT is news people.



Lined up for the i5: 'professionals,' retail customers, or 'working' under the new welfare rules?

The market was rather dull. There was no volatility spike, no back and forth runs. Even the buy on close orders for the S&P rebalance, while spiking volume, didn't spike volatility.

Thus we had a rather uneventful session with stocks starting higher, losing steam and selling into the afternoon and close, only to bounce after hours as the market on close orders for the rebalance were filled.

SP500 -0.11, -0.01%
NASDAQ 4.00, 0.13%
DJ30 -17.46, -0.13%
SP600 0.33%
SOX 0.13%




But of course it is not just stories about lines waiting to get this new product that, quite frankly, and I don't want to upset Apple users (I was an early adopter of Macintosh BTW), is a catch up device to the Samsung with a bad mapping feature. It is beautiful and from what I have learned about metal milling, the aluminum body is a work of art.

No there are other stories, equally as incredible as those willing to wait in line. First, consider the idea that AAPL's phone is supposedly going to add 1/4 to 1/2% to GDP in Q4 2012 according to a JPM economist.

While the calculations are dubious, the idea is not. If a company envisions and then creates a product that consumers find they desire, the company sells a lot of them and makes money. That is how the PC evolved; no one really needed a PC right? We were all told that when they came out, yet before we knew it, everyone had one. You could not compete without the productivity enhancing device. PC makers literally created their demand by creating the product.


Remember this dinosaur?


What a history.
AAPL has created demand for easier to use computers, better music players, better phones, and now better mobile productivity devices such as tablets. These were visionary products; many people did not realize they wanted them but they realized they needed them. In building these products AAPL created demand for ITS products. That is how capitalism works. As people actually want it and stand in line to get it, there is real GDP impact. Other companies make items to aid the consumer in his experience with AAPL products. More supply to create or meet demands. It has a snowball effect.

Contrast that to government spending. The government decides where to spend the money for stimulus. Education, roads, solar companies, wind farms, algae energy, turtle crossings, etc. Most have the genesis in good intentions. Problem is, profit is not a motivating factor for a government. It wants a result and will spend any money it feels to get it done. Thus you have money going after bad ideas or massive corruption and waste even in good ideas as contractors know the government doesn't really know what it is doing and can take advantage of the situation. Or worse, the government uses sweetheart deals, the old 'friend of the administration' nonsense we see so much of. The result if $600 hammers or as reported this week, over $1B in waste in one part of Medicare alone, this year alone.

How much could it add to the economy? Who knows? What we do know is that if we had more of the type of investment and invention AAPL is accomplishing our economy would be humming. We need to promote investment in new ideas and businesses in the US. That means you have to not threaten to tax more of the potential gains. It means you have to have regulations that don't strangle but encourage ideas and investment from every source.

We did this in the 1980's and 1990's. Taxes were very high and regulations were choking business in the 1970's. Reagan cut taxes, gave investment incentives, reduced regulation and thus dramatically improved the risk/reward ratio. Money was unleashed from everywhere.

That of course means savings in order to fund investment. This is the OPPOSITE of what our government is promoting now. $1T stimulus projects on bridges, deficit spending, monetary policies that ENCOURAGE NO SAVINGS in the private sector have drained the pool of funds used to make dreams and ideas come true. Why no savings? Because the government has reduced interest rates to 0% and wants you to spend it all in some Keynesian demand orgy.
Those running the government forget, or never learned from history, that consumption is an EFFECT of economic growth, not the cause of economic growth. All the more argument to get government out of the way, cut the taking of profits, and let the private sector do what it has done for over 200 years.

It doesn't always work, but it more often does. Facebook was supposed to add so much to the economy by going public because of the millionaires it would create. Then the stock face planted so to speak and that was muted. But still, California unemployment, along with Texas, show 'surging' jobs, at least compared to the rest of the country.


But isn't the government helping by changing the rules on what is work?

You have heard it already: so-called professional line waiters who are paid to wait in line to buy as many iPhones as they can get so they can be re-marketed for a profit above the retail price. Some interviewed say they have a new 'job' as a professional line waiter. Wonder if they are reporting the income?

At least they are being somewhat entrepreneurial, though many waiting in line are just marking time . But, as we learned from the changes the Administration has made to what qualifies as work under the Welfare rules, many, perhaps all, were 'working.'

We know that unpaid house sitting while someone else tries to find a job is considered 'work' under the new rules. So sitting in line for a friend who is working or seeking work should be work. What about reading the newspaper while in line? That qualifies as work when you are at home (educating yourself, looking at the want ads), so why not while on line. What about watching another line sitter's belongings while the other takes a nature break? You bet.

Man, it could be that 1/4 to 1/2 where WAY off. If you factor these in you have a jobs boom, at least in terms of being able to collect welfare. Wow. All of these jobs created just to be lost after a day or two. Well, at least they NOW qualify for welfare because they were out there trying to get a job and even 'working.'

That, of course, is all sarcasm. You have to wonder how much this DETRACTED from GDP in real terms. Supposedly these people waiting in line have real jobs in order to pay for these phones. After all, last I checked Sprint was not taking food stamps for phones. Thus any bump to come in GDP would have to factor in the work days lost while waiting in line. Again I assume those people had jobs. Perhaps they do not but with all of the assistance from government could buy this rather expensive phone. I am very pleased to see these poor people are able to take advantage of the latest technology as they house sit.


OTHER MARKETS

In most cases, the other markets showed more of what we saw all week.

Dollar. 1.2992 versus 1.2995 euro. The dollar closed a bit stronger. But the dollar had already made most of its move for the week. I am looking at the bounce back to the upside. As discussed on Thursday, this is a classic bear flag bouncing back up after a sharp decline. This is the opposite of what we call a bullish flag where a stock or index rallies nicely and then fades back. You can see the flag in June after the strong May to early-June run. Here we have the opposite: A strong break lower from a head and shoulders, a break of support, a test of the next level of support, and a rebound in a bear flag. Note that it has moved up to the 10 day EMA. In a strong downtrend, the 10 day EMA plays the resistance role. If the 10 day EMA is holding, you likely get a series of lower moves down that trendline. That denotes a very strong downtrend. That makes this bear flag bounce up to test the 10 day EMA important.

Note that there is a double layer of resistance from the 10 day EMA and this horizontal resistance line. This makes it an important test and one that you would think would break to the downside, one, because of the technical position for one, and two, because of QE3. There is no reason for the dollar to emerge strong out of this unless every other nation in the basket of currencies against the dollar also reduces the value of their currency through some form of easing or other monetary stimulus.


Bonds. 1.76% versus 1.78% 10 year US Treasury. Bonds maintained a similar position; that is, trying to rebound after breaking lower. They have had some success. A gain in yield means bonds sold, and a decline in yield means bonds rallied. We had a modest rally on Friday that you can see in the chart. Overall there is a similar pattern to the dollar. A head and shoulders, a break down through support, but it has not started that steep decline down the 10 day EMA yet. Indeed, the bonds broke back through the 200 day EMA and this support from the double bottoms on Thursday. It faded. On Friday it gapped below it but reversed. It is not sure whether it wants to make the break. It is very bearish, but it just has not decided.

Why would that be? If we look back on what happened on Friday, there was some Fed speak yet again. It has been a big week of Fed speak even after it has "spoken" with the FOMC decision on the prior Thursday. It is like they are trying to rationalize or justify what they did with everyone else. Of course they need to given that Fisher and others are saying that they shouldn't have done it. There you have it. As I said on Thursday, this is the most divided Federal Reserve we have ever seen. It matches a very divided country. As an aside, I don't buy into the idea that we are more divided now than we have ever been. We are divided, but we have been divided in the past in this country as well.

The thing it is, we have not been divided with such clear issues about our future. It has always been more a matter of the US going on as it always has while we are divided on policy adjustments. Now we have true differences about whether we still hold the capitalist, free enterprise ideas that we were founded upon or if we want to go the route of European socialist and even further than that. That is the difference this time around. But I digress.

Getting back to bonds, there was some idea floated Friday that the Fed would now start buying bonds. It did not say it was imminent, but the idea is out there. The Fed could start buying Treasuries again as it did in QE1 and QE2, and thus bonds saw a little bit of life. Right now the Fed is buying mortgage-backed securities. What is the problem with those mortgage-backed security buys? We are already seeing it. Yes, the rates are lower, and that is bringing down mortgage rates. But the problem is, as Bill Gross tweeted on Friday, "Fed buys mortgages, but banks fail to pass through lower yields to future home buyers." There you have it. This is the same problem we had with QE1 and QE2. The Fed made money virtually free, but the banks were not willing to lend that money out. They maintained very high rates compared to what the Fed had pushed rates to and what the banks were getting. The restrictions on lending were also extraordinarily high. Consequently, very little money was lent.

And, consequently, the money was put into financial markets such as commodities and stocks, and those rallied. Of course we have seen that. It is no secret that March 2009 was when the stock market bottomed with QE1. All of that money went into financial instruments because the economy was in terrible shape and no one wanted a loan. Those that did could not get it. Same thing with QE2. Now the Fed is taking a different tack and going with mortgage-backed securities. The problem is the banks are still not lending the money.

The group that has the hardest time obtaining any loans is ironically the group that is best able to afford them: professionals like doctors and dentists who are self-employed and do not work for the big companies. Their wages have not been falling as much as company wages, thus they have the best ability to get the loan and repay it. But they are the worst in actually being able to obtain the loans. Again we see just good intentions, as we often do with the government or quasi-governmental agencies. They fail even though everyone thinks it is a good idea.


Gold. 1778.10, +7.90. Gold was up modestly on Friday. Looking at the pattern, you can see the opposite of the dollar. Gold has put in a rounded base. It has broken higher, and it is running up the 10 day EMA and using it as support. That is a very strong uptrend. Over the past week it has moved laterally, holding onto all of its gains after the FOMC decision. It is waiting for the 10 day EMA to catch up with it, and it is just about the there. Look what happens when the 10 day EMA catches up with these rallies in gold. It sends it back to the upside anew for the next run. It cannot do this indefinitely; you usually get four or five runs. Here it looks like we have the initial breakout, and then we have 1, 2, 3. So we have more coming before it will need a deeper test. It does not mean the run is over. It just has to rest, recuperate, set up again, and then move out.

Friday it was trying to break higher. It closed off of the high, but it was a solid day for gold, particularly with this setup behind it.


Oil. 92.89, +0.47. Oil continued its recent trend. It has been moving up quite well. As with other markets, it did turn back away from its trend last week, but there are other factors impacting oil that are perhaps not QE3 related. We have noted that over the prior two QE sessions were introduced, oil did fall in the immediate aftermath. Maybe that is the consistency. But there is also the build of 8.1M barrels when just 1.4 was anticipated this week. That means there is more oil out there, and that made the Saudi's announcement that they were producing 10M barrels a day and would produce more of necessary all the more curious.

Tanks are full of oil. There is no need for more oil with the world economies the way they are. There was rumor and some talk from within the administration that it would open the Strategic Petroleum Reserve. But it did not have to because apparently Saudi Arabia agreed to the administration's cajoling and announced massive amounts of production and that it would increase production if needed. But there is no need.

Gasoline prices are over $4 on average in the US, but that is not due to any lack of oil. It is simply because oil prices remain high overall, and there is very little refining capacity. Basically the US has said we do not want anyone refining anymore gasoline in the US. So we had this wait on oil last week. I also posited that perhaps it was because some of the protests against the US were dying down, but they are not really. They are moving to other places the world, but maybe more out of the Mideast for the moment. There is still a lot of trouble there.

Then you have the counterbalancing issues. What are those? Again, note that oil is still high overall in a relative sense. We have reason for that because Iran and Israel are still playing chess, so to speak. In weekend an Iranian from the Republican Guard said that there would be war with Israel, and that Israel wanted war with Iran. He did not know when it would occur, but it would occur. There you have the problem. The old self-fulfilling prophecy that I talk about quite a bit. If people think something will happen, they tend to just let it happen or subconsciously take steps to enable it. In other words, they do not fight it. They do not think it is something that they should avoid because it is inevitable so they will go forward with it.

There have been political gaffes made in the past on inevitability. I remember Clayton Williams in a governor race in Texas said something that was rather shocking for anyone to say at any time, particularly a candidate for the governor of the State of Texas. I will not even repeat it here. It just goes to show you that when people have an air of inevitability, they say and do things that are rather stupid. That is what makes me worried about the Mideast and Israel and Iran. I am also worried about what the US is doing and what we are doing to Israel. We may be forcing its hand in the matter. We may be protesting about Israel going to war, but we are really giving Israel no choice with our lack of support for them with the way things are devolving over there. I do not know if it is intentional or not, but it is the way things are working out.

Oil was down, but I do not think it will stay down for very long. It has broken technically near term. It has bounced back late in the week to the 50 day EMA. It does look like it wants to come down a bit more, but I do believe there will be a shock to it. It will not be a demand shock, obviously. It will be more of a fear-factor thrown in that will damage oil prospects.


TECHNICAL SUMMARY

Internals.

Volume. NASDAQ +31%, 2.36B; NYSE +90%, 1.146B. It was Friday with quad expiration and an SP500 rebalance. That means huge volume. You can't read anything into it as it was just a confluence of external events.


Breadth. NASDAQ +1.55:1; NYSE +1.43:1. Breadth puts it more into reality.


New Highs (NYSE): +160, 306. Decent but off the 500+ that was reported earlier in the week.


THE CHARTS

SP500. SP500 is working laterally in a very tight range over the 10 day EMA. It may have another day or two. Maybe it wants the 10 day EMA to get right up to it as it has done in the past, and then it will break to the upside. The VIX chart suggests there could be some more consolidative action before a move higher. Two to three more days of lateral movement lets the 10 day EMA catch up, and that would roughly coincide with what the VIX is telling us. The point is it has a good break, a good consolidation, and it could go at any time.


NASDAQ. NASDAQ tells similar story. In tried to make the break on Friday with a gap to the upside. It did close positive, but it gave most of the gain back. Break higher, move laterally, the 10 day EMA caught up with it and valuated it higher. Friday was an odd day because of all the extra volume and pressures on the markets. We have to throw it out and see how things go to work on Monday, Tuesday, and Wednesday. The thing is, as with SP500, this is still a solid pattern. It is just showing consolidation, not any real giveback.


SP600. SP600 was up 0.33% on Friday. It spent the entire week fading in a very nice flag. Remember you have the bear flags and then the bull flags. This is a nice bull flag to the 10 day EMA. A reversal on Thursday and it bounced Friday. It could not hold the move and it faded and gave most of it back. It is set up very well to continue higher, sitting to top of the lateral consolidation of just over a week ago, and well above the March and April peaks. It is in excellent position to make a renewed break to the upside.


SOX. SOX continues to lag. It was up modestly on Friday, but it sold off to the 50 day EMA this week. It has simply been unable to move higher. If the rest of the market moves up, it will bounce. The key for it is the August and now September twin peaks that has yet to break through and even challenge its prior high. The chips, the commodity it is, are lagging, even with those that are actually being purchased in quantities and have pricing demand because they go into smart phones and tablets.


DJ20. It would not be complete if I did not look at the pair of the DJ30 and DJ20. The DJ30 was flat on the day, but look at it moving in its own lateral consolidation as well. Looking at the DJ20 transports, we see the Dow moving up again and the transports breaking below the recent lows and also the closing lows from July. It is breaking down as the DJ30 attempts to break higher. That is about as divergent as you can get in the Dow Theory. The only thing more divergent would be if the DJ20 took out these lows from the summer. That would be the opposite of the Dow and would be a very negative signal. As if this is not already negative.

The interesting thing is what the transports are showing. FDX says things are getting worse. NSC said things are getting worse as well. Looking at their charts, they were heading to the downside, obviously not taking the news of the slowing down in the Q3 well. Some of the information we get from the transportation area is just speculation, but there are some hard numbers. Container imports were up 9% in July. In August they said they were up 4.4%. This is the time, believe it or not, when the retails have to start stocking for the holiday season. It is Christmas in the summer. They have to start getting it early because it has to get here from the slow boats from China, literally; get to the ports; be off-loaded; get separated; move out in trucks and trains; and get where they need to be. That cannot happen in a week, so they have to start months in advance. They are stocking right now for Christmas, and it is up over the 2011 levels.

It could be one of those situations where people are just tired of being poor and being in recession and they want to spend some money. That happens. It has happened before in this secular economic depression that we are in right now. They feel better and they buy some, but then we see earnings, wages, and jobs do not keep up. Indeed, they actually lose ground, so they have to go back into hibernation. You cannot keep spending if you do not have it. I said that on Thursday. It is just the way it is. They will spend some and then realize they don't have any more money. Then they have to go back in and batten down the hatches and try to save slowly. Inflation is eating away at their wages as well as wages simply declining overall. It does not help that people cannot find jobs. It is still speculation whether there will be a good holiday season, but retailers are importing more in anticipation of that.

We check the truck lines as well. We did some checks with their volumes, and they are not seeing any pickup yet. They would be a little later. They would be starting about now. We will find out about them in October. One of the things we are learning is that containerboard prices are rising a bit. The question is, are the containerboard prices rising because of demand or are they rising because of inflation? Some of the containerboard companies are saying that it is unusual for them not to have any excess tonnage right now. It is pretty tight. That is why we see the prices rise. Containerboard tonnage available is kind of light.

The question is, is it light because they are being used up or due to lack of production? What has been going on? Do we have a lot of manufacturing going on in the country? No. Every area but Chicago has been negative for at least three months now. We do not have a lot of manufacturing. Could it be that they are just not making as much containerboard either, and therefore volumes have declined and they don't have as much as they did? That would make sense.

There are things moving in this economy. As I reported over this week, the machining is booming with respect to the oil field. There is also improvement in the housing market. HD and LOW are seeing better building materials purchases. People are doing stuff to their homes, and that suggests that they will want to buy stuff for the holidays.

While the economy overall is still in trouble, there are signs of some areas picking up. The thing is, they go both ways. It is not all due just to demand increasing as we see with containerboard. Manufacturing is down, and that means manufacturing containerboards was down as well. That created a shortage of containerboards which bumps up their prices. That does not mean there are more goods being shipped, but there are more goods being imported. There is some influence from that as well. Both are playing a role, and you would be errant in concluding that things were about to take off to the upside or that things were about to roll over a cliff based on these numbers.


LEADERSHIP

Leadership has not changed much, and you can break it down into two big groups. The first group is those stocks that have led the market and performed well in this run higher. I will be touching on a variety of sectors, so do not get upset if I don't name your favorite stock. There is AAPL, obviously. SCSS is doing well, COST has been running well and making money. AMZN is doing the same, running higher. These stocks have performed well, and they have led the rally. But when we were looking around after a week or so of pullback on the indices, these stocks are not giving the feeling of good setups to buy into. After a week we thought we would find a lot of plays out there, but there were not a lot of plays. At least not in a lot of these big names that have led the move higher.

You have to look in other areas that are improving to get better buys. One of those is still industrials, industrial metals and the like. ANR does not have a great pattern, but it has been a big selloff and now it is doing that rounded bottom thing with rising MACD that has led to so many stocks moving higher. What do I say about how rallies work? You get waves of stocks that come in. The early leaders, the ones that follow, the next group, and the next. During all that time, groups are setting up. Eventually the rally does not continue, and those that are setting up and look good never make their breakout and they fade away.

We are watching the industrial stocks because they appear to be making a turn. TC is another in industrial metals. It is making that rounded bottom, rising MACD, and now in a bull flag. It looks ready to move. We also have energy. CIE looks like it is trying to turn to make a break to the upside. DWSN in energy is trying to make a turn back up using the same kind of technical underpinnings. There are others out there as well. JOY is one we have been looking at. It has turned and broke higher, and now it is testing. It looks pretty solid, too.

There are some oldies but goodies that look like they are trying to turn. ISRG in medical is trying to make a move, or at least to turn and put together a move. In retail, I named a bunch of stocks that had moved up and did not seem ready to buy. DLTR looks like it is trying to make a turn. A big break on Thursday. FDO looks as if it might be trying to make a turn as well. These are deep discount retail stores, and they still look good. That tells you that the economy is not that great overall.

You have that bifurcation, yet it is not really a bifurcation. They are just early leaders and other stocks that are trying to step up and become leaders right now. We want to play the ones that are stepping up to try and become leaders as well as those in the mid-range that have been leading but have pulled back a bit and set up new bases and look ready to move once more.


THE MARKET

SENTIMENT INDICATORS

VIX. Once again the VIX is back down to the levels from August and March and then in May and July of 2011. It resulted in a bounce in volatility; in other words, a selloff in equities. When it got to this level in August, there was a selloff and VIX bounced, but it was just a modest pullback in the SP500. That mid- to late-August pullback that yielded the breaks higher.

While the test this past week back to this low suggests that maybe the market has more consolidating to do, we would not read a major consolidation from that. When we look at the charts you will see that it may not be that there is much more consolidation given the nice setup from indices such as SP500. We want to bring that to your attention.

I also want to discuss some other sentiment indicators that I don't usually mention, but they are important. One of them is consumer confidence. Rasmussen reported this week that 40% of those polled believe that the economy is getting better. That is almost matching the 2012 highs. It is just two points off of the 2012 highs in terms of confidence. So confidence is returning. The most interesting aspect of that is that almost 100% of the increase in confidence is from investors. Those who invest are more confident. Why? Because the Fed said it was going to come out with QE. It said it would do whatever it takes in order to make things work, and it is doing that. Stocks rallied in anticipating of the Fed doing something because the Fed, from May and June, had promised it would do something. Stocks rallied in anticipation and they have rallied on the event as well.

If you look outside of investors, they are virtually unchanged in their confidence. That sums up the entire story about the economic recovery. Those in the stock market are more confident because stock prices have rallied. Those who are not in the market pay no attention to the market, and all they see are their paychecks and their job prospects. Some have paychecks, but they have decreased over the past four years. Many others do not have paychecks. They lost them and have been out of work for a long time. They have no confidence change because they don't see any change.

To summarize, all gains have been by investors, and all of those are paper gains thanks to QE printing and driving the indices higher.

VIX: 13.98; -0.09
VXN: 14.44; -0.14
VXO: 12.37; -0.55

Put/Call Ratio (CBOE): 0.8; -0.05

Bulls versus Bears

Bulls: 54.2% versus 51.1% versus. Exploding higher as anticipated last week as the QE decision sunk in. Still below the 60% to 65% bullish levels that flash a warning sign. Nonetheless, a big move up over the past month from 43.6% and that after five at 39%. Undercut 35%, the threshold for bullishness, in early June. You would expect it to rise and it has. Still not at a dangerous level, just working as it should. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 25.5% versus 24.5%. Back down to the 24.5% level that is a sticky level for bears. March and April saw lower lows in the 21% range. On the last run never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +4 points (+0.13%) to close at 3179.96
Volume: 2.365B (+31.4%)

Up Volume: 1.3B (+532.36M)
Down Volume: 1.25B (+220M)

A/D and Hi/Lo: Advancers led 1.55 to 1
Previous Session: Decliners led 1.63 to 1

New Highs: 191 (+94)
New Lows: 28 (+5)


SP500/NYSE

Stats: -0.11 points (-0.01%) to close at 1460.15
NYSE Volume: 1.146B (+89.74%)

A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 306 (+160)
New Lows: 11 (+1)


DJ30

Stats: -17.46 points (-0.13%) to close at 13579.47
Volume: 429M shares Friday versus 118M shares Thursday.


MONDAY

Next week we have plenty on the economic calendar. We are also starting to get closer to earnings season, so we will have warnings. We have already seen several with FDX, BBBY, and NSC. You get the idea. We will have more economic data which could have a bearing even though we are still in that theme of the QE taking over everything else. We do not really know how much we will get out of any individual story. It will have an immediate push, but as far as long-lasting, QE3 rules the roost.

We have consumer confidence on Tuesday along with Case/Shiller. It will be one of those weeks. We are getting the employment report which will be just two Fridays away. We are all starting to warm up and look at it. All of these fall into play. Consumer confidence, new home sales on Wednesday, and initial claims on Thursday. We will also get the durable goods orders for August.

We also get the third estimate of Q2 GDP. It bumped it up to 1.7% last time. Friday will be important as well with personal income and spending, and then the Chicago PMI. It has been the positive holdout. We will also get the final Michigan Sentiment for September on Friday. That is the one that surprised everyone with its big move to the upside. But, as noted with Rasmussen, consumer sentiment is improving but it is all based on investments in the stock market. Gasoline prices are still way too high. It is over $4 on the national average. Jobs are still terrible. It is all the stock market and the euphoria over the Fed launching another QE3. That will mean more stocks on the rise.

Will more stock be on the rise? The indices certainly suggest that that is the case. A nice pullback all week, really losing no ground from the break higher on the QE announcement. That suggests a further move up. The VIX indicates it might take a few more days before it is time, and that would help other patterns set up better perhaps. Then we get a new break. Everyone expects that. Confidence is higher. That means there is always worry about that not happening.

There were issues with some stocks that looked a little shaky on Friday. It was likely just expiration and the SP500 rebalance. AMZN broke a little bit sharper to the downside. It did not break, but it just looked shakier. That was a little worrisome. We saw that in several areas, and we will see how that plays out on Monday and if they can right themselves. There is no reason they should not. There is QE, still good patterns. When we get expiration and rebalance out of the way, then things should work fine. If they don't, we have reasonable stops, so we will be protected in that event.

We could get more of a consolidation, and that would be fine. It would set plays up better and we could look at even more and pick which ones we want to buy as it rallies to the upside. Of course we are anticipating a further rally to the upside because the action suggests that. QE3 is here. The Fed is talking about bond purchases now, so it will keep the money flowing with the pullback that sets a lot of stocks, including the indices, in good position to run back to the upside.

The worry, of course, is the outriders such as the Dow Jones transports that are falling. We could have some more earnings warnings from what we have seen. FDX, NSC, BBBY, INTC, etc. There have been several that have had warnings, and that is obviously not good for the market overall. The question is, will it outweigh QE3? QE3 is a major market driver, but it is not the only market driver. It cannot overcome everything. The market will still have its ups and downs, its ebbs and flows. But with the overlay of QE3, many investors believe -- and in reality, I believe -- that it takes out the possibility of major declines in the market for now. But just as soon as you think that, it breaks and the unexpected and unthinkable happens. But right now there is nothing to suggest that that will be the case, particularly looking at the action of the indices outside of the Dow transports.

Stocks have come back to perhaps pull back to set new buys or are in bases where they could make good runs to the upside. Those are the ones that we want to take advantage of because it moves in waves it is not just a few stocks leading the rally. Sometimes that happens; in the early 1990s it happened, but that is the rarity. When you have this kind of QE, money will go into the big names, of course. We are in a lot of them. But it will go into a lot of other names as well because it has to filter its way into the market. That is why we are seeing a lot of other areas such as the industrial metals and energy start to turn and look back to the upside.

We will continue to look for those plays that are emerging. If we get some good pullbacks, maybe on Monday, Tuesday, and Wednesday on some of those stocks that have been in the lead and they give us a new entry point, we can pick those up for a continued move to the upside. I will see you on Monday.

Have a great weekend!


Support and resistance

NASDAQ: Closed at 3179.96

Resistance:
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3134 is the March 2012 post-bear market peak: broken, not forgotten.
The 20 day EMA at 3126
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high
The 50 day EMA at 3056
3042 from 5/2000 low
3026 from 10/2000 low
3024 is the gap point from early May
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
The 200 day SMA at 29168
2910 is the March 2012 low
2900 is the March 2012 low


S&P 500: Closed at 1460.15

Resistance:
1499 from January 2008
1539 from June 2007

Support:
1440 from November 2007 closing lows
The 20 day EMA at 1438
1433 from August 2007 closing lows
1425 from May 2008 closing highs
1427 is the August 2012 peak
1422.38 is the prior post-bear market high (March 2012)
The 50 day EMA at 1410
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
The 200 day SMA at 1354
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1266 is the June 2012 base low


Dow: Closed at 13,579.47
Resistance:
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,175
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,971 is the early July 2012 high
The 200 day SMA at 12,823
12,754 is the July intraday peak
12,716 is the April 2012 closing low
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak


Economic Calendar

September 25 - Tuesday
Case-Shiller 20-city, July (9:00): 0.8% expected, 0.5% prior
Consumer Confidence, September (10:00): 63.0 expected, 60.6 prior
FHFA Housing Price Index, July (10:00): 0.7% prior

September 26 - Wednesday
MBA Mortgage Index, 09/22 (7:00): -0.2% prior
New Home Sales, August (10:00): 380K expected, 372K prior
Crude Inventories, 09/22 (10:30): 8.534M prior

September 27 - Thursday
Initial Claims, 09/22 (8:30): 380K expected, 382K prior
Continuing Claims, 09/15 (8:30): 3270K expected, 3272K prior
Durable Orders, August (8:30): -5.1% expected, 4.1% prior (revised from 4.2%)
Durable Orders -ex Transports, August (8:30): -0.3% expected, -0.6% prior (revised from -0.4%)
GDP - Third Estimate, Q2 (8:30): 1.7% expected, 1.7% prior
GDP Deflator - Third, Q2 (8:30): 1.6% expected, 1.6% prior
Pending Home Sales, August (10:00): 1.0% expected, 2.4% prior

September 28 - Friday
Personal Income, August (8:30): 0.2% expected, 0.3% prior
Personal Spending, August (8:30): 0.5% expected, 0.4% prior
PCE Prices - Core, August (8:30): 0.1% expected, 0.0% prior
Chicago PMI, September (9:45): 52.8 expected, 53.0 prior
Michigan Sentiment - Final, September (9:55): 79.0 expected, 79.2 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags:

Monday, September 17, 2012

Stocks Ride the QE3 Momentum Higher

MARKET SUMMARY

- Stocks ride the QE3 momentum higher in the face of daunting economic data, but close well off the early highs.
- On confusing stock market rallies with economic turns.
- Mortgage yield/Treasury yield spreads compress to a record low, just as Ben wants. But will the money get to where he wants it?
- Marc Faber: Fed will destroy the world.
- Retail sales headline jumps, take out autos and gas, it slumps.
- CPI surging, pushing the biggest gain since July 2009 on food and gas. But we don't eat and drive, right?
- Industrial production flops and Capacity posts a major backtrack in August.
- The outrider: Michigan Sentiment surges as stock market rises and inflation expectations fall.
- Manpower reports rather shocking numbers.
- Gasoline at an all-time high for this time of year.
- It would appear our image in foreign eyes is no better.
- Stocks pull back late in the session ahead of the weekend. Will a test similar to the prior Thursday rally ensue? Need a bit of backfilling for some better buys.

Stocks Spring in the Arab Fall.

Remember the old commercial about the kid who leaves Santa the cheese for a snack and receives a copious amount of Christmas booty? 'Ah the power of cheese' the commercial says. Despite outbreaks of violence at 20 US facilities around the world in what is dubbed the Arab Fall (also called the US Foreign Policy Slumber), stocks continued their rally on Friday. Ah, the power of . . . liquidity?


Ahh, the power of . . . Liquidity?

The stock indices finished well off of their highs but still logged impressive gains on top of the Thursday blowout (the second straight Thursday surge) as some sectors that sat out the Thursday surge played catch up (e.g. semiconductors).

SP500 5.78, 0.40%
NASDAQ 28.12, 0.89%
DJ30 53.51, 0.40%
SP600 0.94%
SOX 1.19%

This week saw SP500, NASDAQ, DJ30, SP600, and SP400 (mid-caps) all break to new post bear market highs, the latter two moving to new all-time highs. DJ20 transports have put in an impressive 7 session run, but for all the work, they are still well off their post-bear market highs hit in July 2011. Transports are up, but they are not confirming the Dow 30's new high. Semiconductors? Well, they look ready for a continued move up, but they were stuck in the gate. They finally broke higher and Friday traded to a new recovery high . . . only to fade and close below the early August peak. Strong overall, but still a few bugs in the system.

The Immediate Impacts of QE3.

Of course the big news continued to be the FOMC and its open-ended QE3 that started (and I repeat, started) with $40B/month in purchases of MBS added to its ongoing Operation Twist. Friday you could see the immediate impact of the action as the spread between mortgage rates and US Treasuries hit all-time lows. It won't take much more of this before the US 30 year mortgage is, in the market's pricing mechanism, AS SAFE AS Treasuries!

Confusing a liquidity rally with economic growth?

As Friday trade was ready to get underway and as stocks were up, particularly industrials ready to gap higher after somewhat of a surprising lukewarm response on Thursday,

Economic growth did not occur with the prior two QE binges, and it won't occur with this one. As I have reported before, and it is reporting versus opining, it won't create economic growth. History shows excess liquidity from loose monetary policy does not create growth, it just facilitates it when the right policies are put in place. Sure Bernanke used some lofty rhetoric Thursday about helping the middle class and creating jobs, but economic history shows liquidity itself does not do this and Bernanke knows it. Here it is again: liquidity keeps the economy afloat, from grinding to a halt. It is the super grease applied in the hope the economy can keep stumbling along until the President abandons his socialist agenda or is replaced and Congress can actually hold a vote on a budget, the fiscal cliff, or anything other than a vote to adjourn.

Of course there are those who think more with their emotions than with whatever head they have, and on Friday they were emotions and mouths were running faster than their brains. There is one certain balding fellow who has an MO of talking himself into a frenzy and then spouting off. You can see the adrenaline kick in and his speech shift gears as he feels the rush. Well, he bowed down to Bernanke Friday and said Ben was working for those without jobs. That was just the warm up.



Cramer works himself into a froth Friday morning.

BAC, CAT, JOY, FCX were all declared buys. Never mind BAC was up 18% in a week and was going to gap higher, just below the March peak. Cramer declared China has turned and India is coming back. He reiterated his buy on KO in the crescendo to the bluster. Why? Apparently because stock prices are turning along with or ahead of foreign markets. Also apparent: he is the type of emotional response person the Fed expects its 'wealth effect' polices to work on.

Once again there is confusion between a liquidity driven rally and an economic driven rally. Typically stocks do presage economic recoveries. In this instance they do not. Stocks have rallied, in some cases indices to new all-time highs, off the March 2009 lows. New all-time highs suggest things are great economically. The facts show, however, they are not.

Two quarters of barely 4% growth in the entire recovery that started in 2009. 1.5% average economic growth the past year. Unemployment in reality over 11% and the jobs that have been created are massively skewed to the lowest end of the pay scale. We are still 4.6M jobs in the hole from when the recovery supposedly started. US workers are making their lowest incomes in 17 years with the median income dropping 4% in four years. 8.7M people added to the disability roles in 2012 alone. US citizens in poverty have jumped to 15% of the population. 1 in 7 citizens are on food stamps. US competitiveness has fallen from number 1 to number 7 in 4 years.

Where is the money? The Fed liquidity and the close to $1T in stimulus went to large corporations, financial institutions, and overseas (remember part of the stimulus was to give Brazil money to drill in US owned waters?). Banks get to borrow money for nothing and then choose whether to lend or sock it away in guaranteed returns. They have chosen to do the latter and many STILL are losing money. Administration initiatives and policies were geared to help the large multinational exporting companies and friends, not the small businesses who rely on the US economy and US wages for their prosperity, the businesses that create the majority of US jobs and create our wealth.

The blather was absurd and wholly unsupported by the facts. Yes liquidity is powerful. Open-ended buying of MBS (and soon Treasuries, corporate debt, small business debt, etc.) has profound effects on stocks . . . and the dollar, and gold, and retirement accounts, those living on fixed incomes (we are tossing the retirees to the wolves), etc. But IT DOES NOT MEAN the economy is strong or that China or India are back because some industrial stocks are responding to the liquidity rush.

The question is, will the money get to where Ben wants it?

It also does not mean that the money gets to the middle class as Bernanke opined or the unemployed as Cramer spluttered. Since 2009 the Fed has been very generous with its money. The Administration claims it has created millions of jobs and that the economy is headed in the right direction. Yet look again at the statistics cited above. Has the money moved to those needing it? The empirical evidence of the status of the average US citizen shows it has not.

Contrary to the Administration's stump speeches and daily press briefings touting how it is focused on the middle class and the need for a vibrant, healthy middle class, its policies have left them in shambles. Yes it was bad to begin with but in four years things have turned dramatically worse. There is a reason the above stats show 4 years as the benchmark. That roughly coincides when this 'recovery' supposedly started and when the President took over. In that period the plight of the middle class has worsened while the VERY groups vilified have indeed prospered under these policies. Handouts do not lift they impoverished; they ensure they do not rise because they are trained to take handouts versus take the risks necessary to prosper, i.e. get more education, start a business, etc.



Marc Faber: The Fed's policies will destroy the world.

Faber emphatically stated Friday that "the fallacy of monetary policy in the US is to believe this money will go to the man on the street. It won't. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols."

A Mayfair economy is one that benefits the already well to do. That is EXACTLY what we have seen since 1999 even with the 'reforms' of Dodd/Frank, the banking regulation law that has managed to concentrate more assets in the five largest banks than before and will, as many economists are predicting, drive small banks out of business.

Things are not getting better for workers, for the middle class.

In the meantime, Manpower reports that 72% of the companies surveyed are NOT planning on any hiring anytime soon. Why? Because of the ongoing uncertainty with healthcare costs (we still don't know the costs even though we have passed it to see what is in it as Pelosi advised), the economy, the election, and most often cited, the fiscal cliff that will raise taxes in 7 areas at last count, including the AMT, healthcare, marginal income tax rates.


Waiting for a job fair as companies refuse to hire.

On top of that, for the first time in history gasoline prices at this time are above $4/gallon. Yes those energy and foreign relations policies certainly are working in our favor right now.



Gas tops $4/gallon on average in the US in September for the first time ever.

The terrible thing is, as the dollar further implodes thanks to the open-ended QE3, oil prices will only rise and thus gasoline prices, because oil is denominated in dollars. Every barrel we import rises in price as the dollar declines. It is a vicious cycle where the same people who have lost out the last four years continue to lose out.

With the CPI for August surging 0.6% overall (and that INCLUDES food and energy because those are the most relevant costs right now Mr. Bernanke), the largest surge since June of 2009, it does not look as if inflation is under control. That made the Michigan Sentiment Survey surge in September laughable. Why? Because the survey showed inflation expectations FALLING. How wrong can that be, and thus what a misguided report to use for any barometer of economic health. Remember this, consumers may feel good, but if their incomes are falling as they have been and credit as tight as it is despite the Fed's liquidity measures, they cannot keep spending even if they want to.

The Arab Fall as viewed abroad.

It always seems to be the case when we focus on our internal problems and design policies to address them we do so in a vacuum, pretending nothing else will impact what we do internally. Of course that is never the case as it almost always occurs that just when the Fed or Administration takes an action for a planned result, something occurs elsewhere to throw a monkey in the wrench as John McClain in 'Die Hard' would say.



The Arab Fall and attacks against US embassies and interests abroad is now something we have to respond to and spend money on. This when we don't have any money. Our enemies know we are in a precarious economic position; you only have to read a paper or scan the internet to know that. As our economic policies the past four years have damaged not helped the middle class, our foreign policy is revealed as failing as well, at least in the eyes of other nations.

German news outlets concur Obama's 'be nice to them, they will be nice to us' has failed.

Liberal leaning news outlets:

"Four years ago, Obama pledged to seek reconciliation with the Muslim world. Now, it is doubtful whether he has succeeded. The US and its European allies now have to ask themselves how much support they still enjoy in the countries of the Arab Spring."

Conservative leaning news outlets:

"US President Barack Obama's Middle East policy is in ruins. Like no president before him, he tried to win over the Arab world. After some initial hesitation, he came out clearly on the side of the democratic revolutions. In this context, he must accept the fact that he has snubbed old close allies such as Israel, Saudi Arabia and the Egyptian military. And now parts of the freed societies are turning against the country which helped bring them into being. Anti-Americanism in the Arab world has even increased to levels greater than in the Bush era. It's a bitter outcome for Obama."


OTHER MARKETS

Dollar. 1.3316 versus 1.2981 euro. It has officially broken above the 1.3 euro level, but we call it breaking below because it is a weakening of the dollar versus a strengthening. No doubt that the QE announced on Thursday had a lot to do with the Thursday and Friday declines that pushed it through an important support level and down to the next important support level, but the trend was already in place at least a month before that. It topped out in late July, putting in something of a head and shoulders, and it has rolled over and broken down.

The big break came just over a week ago on the Friday after the ECB announced that it had agreed to its deal. That plunged it through an important support level that was marked in part bit March 2012 peak. It has already taken out this range of resistance and is at the next level. It is, however, now a series of declines. There will be rebounds to test the levels that have been broken, but the dollar is in a significant downtrend, and there is nothing right now to prop it up. The Fed has embarked upon an announced, open-ended QE. It is not only open-ended as to time; it is open-ended as to amounts and as to what assets the Fed will interact with in order to achieve its policy goals which are purportedly to assist the middle class. Everyone talks a good game about the middle class, but talk and even the policies promulgated thus far have done nothing but drive the middle class further into its own depression hell.


Bonds. 1.87% versus 1.74% 10 year US Treasury. Bonds were gapping, screaming to the downside with a 13 BP decline. These are incredible moves. It gapped below the mid-August double bottom lows at the 200 day EMA. There was a gap up at that point back in May. It has totally given that up, and it has broken that support. As Bill Gross stated on Friday, "Buy a house, buy gold, buy assets." He has been selling bonds on this rally, and now he has basically sold out of bonds, maybe shorting them.

Bonds are heading lower and, as noted, Bernanke is getting what he wants in the mortgage-backed security buying as the spread between mortgages and US Treasuries is the lowest it has ever been. Indeed, it is not much further before mortgage-backed securities -- mortgages themselves --could be as "safe" as US Treasuries in terms of their yields. That is almost incomprehensible. That means Joe down the street is as good of a risk as the US government. That is a startling prospect, but that is exactly what the market is telling us based on the movement on Friday.


Gold. 1772.80, +0.70. Gold continued its uptrend, but it was nothing compared to Thursday and the Thursday prior when the ECB announced its agreement. Gold is leaping higher, testing, leaping higher, and testing. It is closing in on the prior highs at about 1920 from September 2011. It has interim highs ahead of that around 1792 to 1800, and those will be the next resistances. Gold backed off from a high at 1780 on Friday, so it is feeling a bit of the repulsion at this level. It has had a tremendous run over the past month and a half anyway. A little triangle at the bottom of the pattern and then an explosive move upside. It has had a long run. It could move up a little bit more, but it is starting to feel the resistance, and it will most likely post at least one of these flag tests. After this kind of run, you might expect something more along the lines of this lateral pennant pattern that formed before the break higher.

Is there anything to make gold go down? Not really. The Fed has open-ended buying. The tension around the world with US interests in embassies and now the embassies of other countries is exacerbating the fear and the push into gold. The question is whether it will continue such massive runs. Likely not, but we could see steady gains as inflation rallies. The CPI jumped up 0.6%. Even though that was in line with expectations, it was the biggest gain since June 2009. Craziness is out there, but the Fed says all of this is transitory, of course, and does not mean anything. Does anyone really believe that right now?


Oil. 99.00, +0.69. Oil closed well off of its high. It is being driven a lot by fear with respect to what is going on in the Middle East, but it is also driven by the dollar's decline. Every barrel of oil it marked in dollars, and thus every decline in the dollar increases the price per barrel of oil that we import. It will not get better anytime soon because the dollar continues to fall and inflation continues to rise. Thus oil will most likely rise.

It broke out this week above the 200 day EMA after three weeks of toiling laterally below that resistance. It was a strong break on Thursday, of course, as the dollar plunged, and a continued moved on Friday. Although, as noted, it did close well off of its high. It is in a resistance range from November through January of 2011 and early 2012. That is a point it will likely have to work through and get up to the lows of the high range from February and March. That puts it right at the late-April/early-May high near 106. It is right at the century mark. It has a little room to run higher, but the point is that it is steadily working its way higher as the dollar falls and tensions rise in the rest of the world, particularly in the oil-producing regions.


TECHNICAL SUMMARY

Internals.


Volume. NASDAQ +1.96B; NYSE +8.5%, 792M. Another upside day with some expanding volume. That is always a good sign. The indices did close off of their highs, so it was not a clean, pure move to the upside. There was some selling pushing the indices back to the downside, and that shows the VIX action. There could be a little top on this move after two huge surges over the past week. It is a big move with a breakout. Markets like to test breakouts, particularly when there is nothing to drive the market since we know what the Fed will do.

That does not mean it will not continue to rise. It simply means that the Fed has acted, the news is out, and the big surge is in. Now it is a matter of consolidating and rallying just as you would expect in a normal uptrend. The point is that we could get a bit of a pullback similar to what I showed earlier when discussing the VIX, and that provides buying opportunities.


Breadth. NASDAQ +1.8:1; NYSE +2.2:1. Breadth was not fantastic on Friday. Decent, solid, and unspectacular.


New Highs. NYSE: +133, 536; NASDAQ: 253. There was a new level of highs on the NYSE not seen in about a year. That increased even further on Friday. The NASDAQ is nowhere near that level. The big move on the NYSE was due to the small cap index and the mid-cap index punching into new all-time high territory. There are many more stocks on the SP400 and SP600 than the SP500, of course. There are many more small stocks than there are large cap stocks. It is just the nature of the game. In any ecosystem, there are fewer of the biggest predators. That is why we see the new highs perform so well. It is good news to see the small and mid caps performing. It belies the economics we are seeing.


THE CHARTS

SP500. SP500 has moved to a new post-bear market high. It closed nicely higher, but it gave back almost twice as many points as it made on the session. That just means that it may be a little tired after two huge rallies in one week. It may want to pullback just as it has done on these previous pullbacks when VIX got down to the level where it is now.


NASDAQ. NASDAQ held more of its gain. Of course it has been a little bit behind the other indices. It is due for some catch up. It broke above its March peak on Thursday, and it extended the move on Friday on more volume. It may want to come back and test a bit as well. It looks solid, but every big move usually gets tested. With the Fed out, big moves may not be as plentiful, but there will still be steady inputs of money into the market because a lot of funds will want to play catch up through the end of the year.


SP600. There was a new high here. It closed somewhat off of the high, but it was almost a 1% gain. Very strong and solid. It is continuing the move. This has been quite a blast higher over the past three weeks, and if the rest of the market wants to take a pause, it could do so as well. But I do not see anything stopping the momentum.


SOX. SOX is a bit different. It broke through the August peak early, but it could not hold the move. Even though it gained the most at 1.2%, that has not broken it out of its pattern. Still a double bottom with handle. It tried the breakout and was rebuffed on Friday. It still looks pretty good, but it is notably lagging as is the DJ20. Obviously all is not well, and the analysis is interesting.


Summary. Small caps and mid-caps are performing well, and that would suggest that the economy will perform well down the road. Of course the NASDAQ, SP500, and the Dow are performing well. Large caps get the money in these kinds of situations. Not all of it, but they are automatic buys for a lot of fund managers. They look at certain names and put money into them when the Fed or some other force says "buy stocks." That is just what they are doing. The interesting feature is that the DJ20 is nowhere near its high, and the SOX is nowhere near its highs either. They are lagging. Those are two very economically sensitive sectors. Semiconductors are commodities, and they go into everything. Some are in more demand because of the mobile revolution with the iPhone, Samsung, and the tablets. They are in great demand, but they are lagging overall, as are transports. Very important. But look at FDX. It has warned that things are not totally rosy. I have talked to a lot of trucking, transport, and shipping companies. They are doing nothing ahead of the fiscal cliff because they want to see the outcome.

It is very telling that the two important economically sensitive areas are lagging substantially, even as some of the economically sensitive areas are moving higher. Why would the small caps and mid-caps be performing if the economy will not do that great? Remember what I said last week: The market turned in 2009 when the Fed finally put together all of the pieces of its puzzle in terms of aid. The last pieces involved buying mortgage-backed securities and the debts and paper of small companies. That provided the impetus that turned the market. I believe the runs we are seeing in the small caps and the mid-caps are based upon a belief that the Fed will accomplish similar types of stimulus specifically related to them as part of its steps to drive employment higher.


LEADERSHIP

It is not so much what stocks were moving up; everything is getting a bid. It is how they reacted on Friday after the Thursday surge and an additional move on Friday to end the week.

A lot of stocks such as AAPL that have jumped and gapped higher but then posted a doji on the day. AAPL is one, AMZN is one, and GS is another. SCSS is surged higher. It has been a great two weeks. They reached near the prior peak and faded off the high. We booked some gain. BAC is a similar story. They are not reversing or falling over, but they may be a little tired now. If you factor in the VIX and its action on Friday and what happened the last time the VIX got to this level, we could be due for a pullback. As noted, that would not be a bad thing.

There is some amount of weakness in the drug sector which has been one of the stronger defensive areas. It is a little bit weak now. Utilities are a bit weak, as well. They are defensive. They have been down, and they were down on Friday. They bounced on Thursday when everything moved, but Friday told more of the tale after the euphoric rush was over. Utilities are a bit defensive and a bit weak. I am not saying that drugs are breaking down or utilities are breaking down; they are just lagging. That has been the case of late when the appetite for growth areas in the market resumed. We saw that in June and July. Drugs had led the way higher, but when the rally in June occurred when most of the market moved higher, the drugs based out and tended to consolidate more.

There are defensive areas under some fire, but that simply shows you that the buying is broad and looking for growth areas versus playing defense because of the economy. The economy had a lot of those drugs and health care stocks looking good because the economy did not look good. With the promise of stimulus and now stimulus here with more liquidity, the prospects for the rest of the market look good or even better, so that is why those stocks have jump back up as funds rush to get money to work and some play catch up before the end of the year.


THE ECONOMY

Retail sales headline jumps, take out autos and gas, it slumps.

Retail Sales, August (8:30): 0.9% actual versus 0.7% expected, 0.6% prior (revised from 0.8%)
Retail Sales ex-auto, August (8:30): 0.8% actual versus 0.8% expected, 0.8% prior



Take out Gas and Autos and you get a 0.1% gain versus 0.4 expected and 0.8 prior (revised from 0.9).
As you can see, gasoline was a large part of the increase: consumers may be buying less but the price is higher and sales are measured in overall money spent, not units.

This is the fifth expectations miss in six months.


CPI surging, pushing the biggest gain since July 2009 on food and gas. But we don't eat and drive, right?

CPI, August (8:30): 0.6% actual versus 0.6% expected, 0.0% prior
Core CPI, August (8:30): 0.1% actual versus 0.2% expected, 0.1% prior

Biggest rise since June 2009


Motor fuel up 9%, food 0.2%, rent and housing 0.3% each. Fortunately no one needs gas or food so we can strip that out and get a tame 0.1% reading. All is well. Print away.


Industrial production flops and Capacity posts a major backtrack in August.
Industrial Production, August (9:15): -1.2% actual versus -0.2% expected, 0.5% prior (revised from 0.6%)

Largest 1 month decline since 3/2009, ironically when the first QE kicked in.

Capacity Utilization, August (9:15): 78.2% actual versus 79.2% expected, 79.2% prior (revised from 79.3%)

Lowest level of the year and a big drop at that.




THE MARKET

SENTIMENT INDICATORS

VIX. The market rose on Friday. It rose on Thursday, of course, but on Friday it posted some fairly decent gains. But look what happened to volatility: It rose as the market rose. Typically, they move inversely. In other words, as fear rises, volatility will rise, and the market falls. Looking at the chart, volatility rose 3.27% on Friday as the market rallied. Look where volatility rallied from. This is the old low that I have been talking about from April of 2011, March of 2012, and this August. It bounced off of those levels each time it has hit them. It is interesting that volatility moved higher on Friday even as the stock market moved higher, because that is an abnormal type of move. The fact that it is bouncing off of this support level is noteworthy. I am suggesting that the stock market is ready to fall based on this, if this relationship remains true.

Looking at what the SP500 did last time the volatility index hit this level and bounced, it was just a modest fade. That fade formed, broke through, and it looked like it was in trouble. But then it reversed two Thursdays ago with the ECB agreement. Volatility rose off of the support level, but SP500 faded just modestly. So, yes, while the market may be in for a bit of a pause based upon this (caveat: if that relationship holds true), it may not be much of a pause. That would give us more of a buying opportunity that we would like to see after that Thursday surge followed by furthered Friday gains. We had some great positions moving into that surge, and we are happy about that. But you always want to take advantage of more gains when they show up. If you get a pullback with something like the VIX bouncing and the SP500 fading a bit, you want to be ready for that and use it to your advantage.


Bulls versus Bears

Bulls: 51.1% versus 51.0% versus. Edging higher as investors waited on the Fed. This will no doubt soar next week as the FOMC decision and the marekt surge are factored in. Then you have to worrk about the 60% to 65% bullish levels that flash a warning sign. A big move up over the past month from 43.6% and that after five at 39%. Undercut 35%, the threshold for bullishness, in early June. You would expect it to rise and it has. Still not at a dangerous level, just working as it should. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 25.5% versus 24.5%. Spent two weeks at 24.5%, down from 27.7% six weeks ago. Bulls were not buying it, but they will be next week. Never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +28.12 points (+0.89%) to close at 3183.95
Volume: 1.959B (+6.03%)

Up Volume: 1.58B (+170M)
Down Volume: 424.11M (-20.46M)

A/D and Hi/Lo: Advancers led 1.82 to 1
Previous Session: Advancers led 2.54 to 1

New Highs: 253 (+34)
New Lows: 23 (+4)


SP500/NYSE

Stats: +5.78 points (+0.4%) to close at 1465.77
NYSE Volume: 792M (+8.49%)

A/D and Hi/Lo: Advancers led 2.2 to 1
Previous Session: Advancers led 3.77 to 1

New Highs: 536 (+133)
New Lows: 11 (-2)


DJ30

Stats: +53.51 points (+0.4%) to close at 13593.37
Volume: 185M shares Friday versus 119M shares Thursday.


MONDAY

Next week we have more economic data, of course. September is always considered the worst month for the market. It tends to drop more in September than any other time, but we had a rousing start thanks to external forces upon the market. Frankly, trends and patterns in the market during different times of the year always have to take second chair to external forces that matter such as the policies from Congress and the administration and the monetary policy and asset purchase movements of the Federal Reserve.

Nonetheless, we still want to check out the data because it tells the rest of the story, as Paul Harvey used to say. It tells what likely happens when the Fed stimulus, even though it is there, is no longer effective at effectuating the plans for the Fed and, vicariously, Congress. Why? Congress would not have gone on break if it did not know that the Fed would act. There was the Schumer admonition to Bernanke, "Get to work Mr. Chairman," and he fell right into their hands. Since Bernanke figured they would not act, he acted. If he did nothing, then they may have had to act. That is how it works. These elected officials are there to get elected again and again and again instead of going home after a couple of terms. They will not address something if they feel it is unpopular and would inhibit their chances of reelection. I am telling you what you already know, but it is worth pointing out every once in awhile.

The data starts on Monday with Empire Manufacturing. It is expected to be negative but to improve. Why? Michigan Sentiment improved, so everyone thinks things must be getting better. But, as I talked about earlier, it was bogus. They feel like inflation expectations are down when inflation is running higher. In any event, it will be important to see since it is a regional manufacturing report.

We have a bit of housing outlook on Tuesday. It is nothing major, or at no one will really pay attention to it. Who cares about their current account or the TIC index and how many countries are actually buying our securities? On Wednesday we have the housing starts and building permits for August. That will be huge. Existing home sales will be huge as well. On Thursday we have the jobless claims as always. We will also have Philly Fed, and that is quite significant. With Empire Manufacturing, that will give us a pretty good idea of how the manufacturing sector is faring after its slowdown over the past several months.

We have some economic data, but we already have the Fed out. It is not quite time for earnings yet, so the market will be working in the way a market typically ebbs and flows. As noted earlier, with the VIX where it is and trying to bounce and the fact that we have had two huge surges in a week, we may get a little pullback. Maybe not as long like the two and a half week pullback we had most recently, but maybe a three, four, or five day turn (maybe not even that long) before a renewed move back to the upside.

Stocks could always come out of the gate running next week. They may try to make that move to the upside with funds feeling their oats, so to speak, and wanting to get out and play catch up toward the end of the year. A lot of funds were very negative about the market. As I often say, you can have your feelings based on what the economy and the action of stocks tell you, but you ultimately cannot let your feelings get in the way of what the market is doing. Your feelings can get you ready and have you on edge as you should always be. Do not ever assume anything in the market; as soon as you do, you will get killed. They get you ready, but you have to check them at the door when the market starts showing you things or individual stocks are saying "buy me" or "sell me." That is all there is to it. We are not smarter than the market. We can be in position, but we have to do what the market does. You are not ever smarter. You cannot tell the market what to do, but you can anticipate its moves and know how it has been moving. Then when it makes that move, you make the play because you are ready. That is why we look at all of this.

What we need now is a bit of a pullback, no doubt. We could use a test as the VIX may be indicating. The pullback lets us get some positions on stocks that jumped ahead or gapped away on Thursday or Friday. There are still good stocks out there, but they are extended, and we want to let them come back and get better entry points.

The question that always arises is, can we still look at the stocks that have run a long way? Sure you can. If they set up in this kind of environment with the Fed in the back of the market pushing, stocks that have run high can always run higher. You just want to get a good buy. You do not want to jump in because Cramer or someone on Friday was saying you need to buy BAC or CAT. BAC moved huge. CAT is up for two weeks, and it gapped to the upside on Friday. Not a good time to buy. Do not get carried away like they are. The problem with listening to these guys is that they get emotional and they tell you to buy at the wrong times. Check your emotions at the door, know what a good buy is, and know the stocks you want to buy. When they set up, you can buy them. In this environment with the Fed putting a bid in the market, you will be able to buy on pretty much every dip. The Fed is there, and the money fund managers will be coming in to push stocks higher toward end of the year.

Find stocks that you like. That is what we do every day. We make plays on the ones in good position. We always have the ones that we would love to play, but a lot of them are not in position right now. They will be after a pullback, however, and we can put more money on the table with respect to those in new plays. Or if they got away from us before, we can initiate totally new buys on them. I will see you on Monday. Try not to get down from all the news around the world.

Have a great weekend!


Support and resistance

NASDAQ: Closed at 3183.95

Resistance:
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3134 is the March 2012 post-bear market peak: broken, not forgotten.
3101 is the August 2012 high
The 20 day EMA at 3091
3090 is the mid-March interim high
3076 is the late April 2012 high
3042 from 5/2000 low
The 50 day EMA at 3029
3026 from 10/2000 low
3024 is the gap point from early May
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2910 is the March 2012 low
The 200 day SMA at 2905
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2866 is the July 2012 closing low
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2810 is the low in the shoulders
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range


S&P 500: Closed at 1465.77

Resistance:
1499 from January 2008
1539 from June 2007

Support:
1440 from November 2007 closing lows
1433 from August 2007 closing lows
1425 from May 2008 closing highs
1427 is the August 2012 peak
The 20 day EMA at 1424
1422.38 is the prior post-bear market high (March 2012)
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
The 50 day EMA at 1399
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
The 200 day SMA at 1349
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1266 is the June 2012 base low


Dow: Closed at 13,593.37
Resistance:
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,087
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,971 is the early July 2012 high
The 200 day SMA at 12,785
12,754 is the July intraday peak
12,716 is the April 2012 closing low
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak


Economic Calendar

September 10 - Monday
Consumer Credit, July (15:00): -$3.3B actual versus $10.0B expected, $9.8B prior (revised from $6.5B)

September 11 - Tuesday
Trade Balance, July (8:30): -$42.0B actual versus -$44.0B expected, -$41.9B prior (revised from -$42.9B)

September 12 - Wednesday
MBA Mortgage Index, 09/08 (7:00): 11.1% actual versus -2.5% prior
Export Prices ex-agriculture, August (8:30): 0.4% actual versus -0.3% prior
Import Prices ex-oil, August (8:30): -0.2% actual versus -0.4% prior
Wholesale Inventories, July (10:00): 0.7% actual versus 0.3% expected, -0.2% prior
Crude Inventories, 09/08 (10:30): 1.994M actual versus -7.426M prior

September 13 - Thursday
Initial Claims, 09/08 (8:30): 382K actual versus 369K expected, 367K prior (revised from 365K)
Continuing Claims, 09/01 (8:30): 3283K actual versus 3300K expected, 3332K prior (revised from 3322K)
PPI, August (8:30): 1.7% actual versus 1.2% expected, 0.3% prior
Core PPI, August (8:30): 0.2% actual versus 0.2% expected, 0.4% prior
FOMC Rate Decision, September (24:30): 0.25% actual versus 0.25% expected, 0.25% prior
Treasury Budget, August (14:00): -$190.5B actual versus -$192.0B expected, -$134.1B prior

September 14 - Friday
Retail Sales, August (8:30): 0.9% actual versus 0.7% expected, 0.6% prior (revised from 0.8%)
Retail Sales ex-auto, August (8:30): 0.8% actual versus 0.8% expected, 0.8% prior
CPI, August (8:30): 0.6% actual versus 0.6% expected, 0.0% prior
Core CPI, August (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Industrial Production, August (9:15): -1.2% actual versus -0.2% expected, 0.5% prior (revised from 0.6%)
Capacity Utilization, August (9:15): 78.2% actual versus 79.2% expected, 79.2% prior (revised from 79.3%)
Michigan Sentiment, Preliminary September (9:55): 79.2 actual versus 73.5 expected, 74.3 prior
Business Inventories, July (10:00): 0.8% actual versus 0.4% expected, 0.1% prior


September 17 - Monday
Empire Manufacturing, September (8:30): -3.0 expected, -5.9 prior

September 18 - Tuesday
Current Account Balance, Q2 (8:30): -$125.6B expected, -$137.3B prior
Net Long-Term TIC Fl, July (9:00): $9.3B prior
NAHB Housing Market , September (10:00): 38 expected, 37 prior

September 19 - Wednesday
MBA Mortgage Index, 09/15 (7:00): 11.1% prior
Housing Starts, August (8:30): 772K expected, 746K prior
Building Permits, August (8:30): 800K expected, 812K prior
Existing Home Sales, August (10:00): 4.58M expected, 4.47M prior
Crude Inventories, 09/15 (10:30): 1.994M prior

September 20 - Thursday
Initial Claims, 09/15 (8:30): 375K expected, 382K prior
Continuing Claims, 09/8 (8:30): 3292K expected, 3283K prior
Philadelphia Fed, September (10:00): -5.0 expected, -7.1 prior
Leading Indicators, August (10:00): 0.0% expected, 0.4% prior


By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags:

Monday, September 10, 2012

Dollar Tanks, Gold Soars

MARKET SUMMARY

- Where we stand now: a look back at the stimulus rally.
- Dollar tanks, gold soars, all on what the Fed will or won't do.
- Non-Farm Payrolls weak, as unemployment rate hits 11.2%, both despite failing attempts, again, to make things look better than they are.
- INTC pulls its guidance, sparking the tablet/PC debate anew, but PC's won't die.
- Stocks at a new high on presumed liquidity. Entries are more taxing here, but a bit of a pullback to start the week will help.

You can't fight the Fed . . . as long as it delivers.

The recent action, indeed the entire move off the June low, has demonstrated the old adage 'you cannot fight the Fed.' When the Fed gets in its collective mind it wants to bring about a result, it will stay at it until it, as another Fed adage that I discovered (as many others have as well), it goes too far. Right now the Fed is focused on the new 2012 slowdown that has the US, in my view, already in recession. Its concern is, ironically, a lagging indicator, employment. At this stage in the 'recovery' (a.k.a. renewed meltdown), things are so bad, the jobs situation has been so negative for so long, the Fed is viewing jobs as a leading indicator for everything else. Basically the Fed feels that if jobs don't get better, nothing is going to get better because the US worker psyche is so damaged. Thus everyone, the Fed and Fed-watchers, were anxiously awaiting the Friday August jobs report.


IBD chart on real versus reported unemployment.

This was an important economic data point, one that many are saying will force the Fed to finally deliver upon its promise of more stimulus 'if the conditions warrant.' At 96K new jobs and unemployment falling to 8.1% thanks to a mass exodus of disappointed job seekers, likely the 'conditions' are ripe for action. Think about it. Typically unemployment RISES in a recovery as more people look for work. The jobs market is SO bad (and as a corollary, the benefits if you don't work are at the highest ever), people are simply giving up looking altogether. Perhaps that is what Bernanke is talking about when he urges the government to take fiscal action. Not likely, as that is a more subtle aspect of economics (if you pay someone to do something, they will do it), but it is a fiscal issue that needs to be addressed. Okay, just one paragraph and I am already digressing. Going to be one of those reports I suppose.

Bigger Picture Assessment.

If you step back and look at the rally thus far, aside from Thursday (heck, even including Thursday), you see a rally based upon the promise of more liquidity. Back in June, our entire premise for the rally was the promise to add more liquidity to the system. Technically stocks held good position even through the mid-June selling. That told me that the market was not rolling but was setting up for a new move, a move at the time I relayed to you was based upon the hope, that later turned to promise from Bernanke himself, of more stimulus.



I Ben Bernanke, do promise more stimulus. You can trust me. More is on the way. How much? Oh, about this much . . .

Along the way the Fed convinced Mario Draghi of the ECB that only US-style QE would work for Europe. Geithner started sowing those seeds over a year ago with his trips to Europe where, at first, he was almost booed off the Continent. The Euros believed this was a US centered problem and they were just feeling the side effects. As the European economies turned to road kill, however, the ECB dogma turned, primarily with the retirement of Mr. Trichet. With him went the remaining vestiges of inflation fighting as the ECB's prime directive.


What about the prime directive, Jim?

With Draghi the focus turned to preserving the EU and the euro. As we found out in July, that meant, at least to Draghi, 'at any cost.' The markets loved it. Now Europe was biting the apple of QE, or at least promising to. Everyone waited for Merkel and Germany to issue the usual 'Nein!' post-haste. It didn't come. Oh yes a few lower officials protested, but Germany appeared to acquiesce to Draghi's bold statements.

Then came the August FOMC meeting. No stimulus was announced, but this was just days after Draghi's bold statements. The Fed had cover to look tough, to be bold, to . . . stay the course. A rather bizarre July jobs report also gave the Fed some room to tap dance as the BLS turned a negative actual jobs print into a jobs gain thanks to truly astounding variations in the birth/death rate and seasonal adjustments for the month of July, adjustments not made in about forever for the month.

Thus when Jackson Hole and Bernanke's typical Friday speech at the 'symposium' (a.k.a. trout fishing trip) rolled around just last Friday, he offered no further QE, just the wink and a nod that more was coming.



Oh, you didn't see that wink and nod? You thought the speech was identical to what he has said over the past several weeks? Man, you must have missed it because the market certainly saw something in that same text and delivery we have seen before.

This is, however, what is really meant by 'coordinated' central bank action. Draghi would take a new tack for the ECB. This would allow the US Fed to lay low, keep its powder dry, to provide advice on a plan that has 'worked' while Draghi changed the mindset in Europe. The old 'good cop/bad cop' routine on a global economic level.


Whose the best cop now Jimmy?


Robert Patorelli plays a very disturbed police officer in 'Striking Distance.'

Then the past week Draghi and company leaked the plan for bond buying a day before the ECB voted on it. The markets responded nicely. Then in a twist from the norm, when the plan was released on Thursday, markets surged on the news versus the rumor. SP500 and NASDAQ broke to new post-bear market highs and they held them. All indices surged. Friday, not so much. A weak-kneed jobs report puts the Fed right back in the stimulus play, and while gold surged, the stock indices hesitated. Perhaps a bit hung over from the Thursday party, but still expecting Fed stimulus.

But not so fast. Everything and I mean everything regarding stimulus at this point is just a promise. Draghi's bold statements, while not overtly challenged by Germany, are just statements at this point, Thursday vote or no. Why? Because the German high court still has to rule on the bond buying issue, the opinion due next Wednesday.

Surprise, surprise (as Gomer Pyle used to say), that is the day before the FOMC September rate decision meeting concludes. Once again the ECB goes first, then the US Fed. This time there may be a different script, a change in the good cop/bad cop routine. No one appears to be factoring a German chop block on Draghi's ECB designs. The Germans have been uncharacteristically quiet post-whatever it takes comments. Perhaps German officials are simply laying low, avoiding the political heat, and letting the court do the dirty work.

If the German court drops the hammer on 'whatever it takes,' then the Fed is front and center. It will be forced to act. Stimulus promise becomes stimulus delivered, regardless of Friday's jobs report that most people are saying has forced the Fed's hand this coming week. No, the real force may be the German court which, by all legal arguments, should find that the bond buying is against the German charter. Of course, the 'not so affordable healthcare act' should have been struck down here in the US but a political court, claiming it was not political, found a way to support it (and stick us all with unlimited tax liability for just being a citizen, as we shall see unfold in the years to come). So, the law is no guarantee when courts, the arbiters of the law, are involved.

And your meaning is . . .

So, you are asking yourself (or are sending off an email to me right now), what the hell does all of that mean for the market? It means that this entire rally off of the June low, including last Thursday's super surge that took SP500 and NASDAQ to new post-bear market highs, is still all driven on the PROMISE of stimulus (funny, when I typed that I typed in 'inflation;' Freudian slip I suppose. No, I guess that was really a Milton Friedman-like slip.).

There is still no stimulus in the bank so to speak, and thus this rally on the hope and dream of more Fed QE and indeed ECB QE is vaporous. Yes China has announced additional stimulus to build rails and roads (railroads?) and the horrid US jobs report could very well be the 'additional data,' of the crappy sort, that pushed the Fed to act. But for now it is all hope and change, er, hope and dream stimulus. Perhaps, just perhaps, that is why stocks waffled Friday. Nah; gold surged on the session so gold traders are thinking QE and the resultant currency diminution and inflation.


Stimulus will still come. The Administration wants it.

One way or another, however, despite the reality of just a promise of stimulus, the markets are likely to get their stimulus. The jobs report, despite being spun as a drop in the unemployment rate (thanks to the exodus of almost 400K people from the ranks of looking, a.k.a. hoping, for a job), there was nothing good in this report. It was easily bad enough to warrant stimulus. Perhaps that is what the Administration wanted so it did not go too far in toying with the numbers to make it look better. After all, stimulus at this point has much more impact on financial markets and the so-called 'wealth effect' than anything the Administration can do in the few months ahead of the election. So, let a worse number out, get the Fed to act, blame Congress and the republicans for doing nothing and forcing the Fed to act, and hope that that is enough so there is not a change in November (how is that for a play on 'hope and change'?). Sometimes I crack myself up. Sometimes.


THE MARKET ACTION.

All of this culminated with that strong Thursday surge in stocks that saw stock indices hitting new post-bear market highs as well as gold hitting a new recovery high. Many undercurrents are at work. Stocks love the liquidity promised by Draghi and the Fed. They are running on that hope. Gold loves inflation and weaker currencies, both the likely and real result of more QE by the Fed. It is all one big party . . . until it ends.

It didn't end Friday, but it was not a party either. Stocks were understandably a bit hung over but managed, in most cases, to move modestly further to the upside. Futures were up early in the session and opened higher, but then it was a struggle through most of the day. Indeed, until the last hour, stocks traded in a very narrow range with modest gains to losses on some of the indices. Late in the day a bump higher took SP500 to a session high, and it closed with a very decent gain on the session and to close out the week.

SP500 +0.4%
NASDAQ +0.02%
Dow +0.11%
SP600 +0.49%
SOX -0.82%

No big losses at all, but just a stall. A hangover, as it were. The markets have a big week next week with the FOMC decision for September as well as the German high court's ruling on whether bond buying is legal under the German constitution. Stocks were understandably indecisive on Friday, although they were hardly in the mood to give anything serious back. We may get a bit of a pullback to start the week as they ponder what will happen at the German high court and with the US Fed. Again, I do not think that will stall the moves. I do believe that there is enough to continue the move, based on everything I have outlined above, if the Fed makes its move to the next Quantitative Easing.


OTHER MARKETS

The other markets mostly performed as you would expect if there will be Fed action. That would have its implications on various markets.

Dollar. 1.27991 versus 1.2637 euro. The dollar was hit hard. It put in something of a toppish head and shoulders pattern, and it is breaking to the downside. It is tough. When you are the reserve currency and you fall, everything that you buy increases in price. Why? Because everything is priced in your currency, so it is a double whammy if you are the reserve currency. Although it gives a lot more flexibility and options with printing money, it does have its drawbacks. Now every barrel of oil will cost more. Every ton of ore will cost more. If it is priced in dollars, it will hurt. Not that we would escape it if we were not the reserve currency; if your currency falls in value, things will be more expensive. It is just more notable and very painful for us because we have that double whammy. As the dollar falls, you will see what it did to other commodities in a moment.

The dollar tried to hold at the upper support and failed rather horribly. Makes you wonder what will happen if the Fed actually does announce this week that they are going with Quantitative Easing.


Gravity's a b**ch, isn't it?


Bonds. 1.66% versus 1.67% 10 year Treasury. Bonds were strange on the day. Typically with the jobs report being weak and economic data being weak, bonds tend to rally because investors move into them for safety. If the Fed is going to initiate bond buying in another Quantitative Easing round, bonds should improve as well because they will be buying bonds.

Here is something to consider: what will Quantitative Easing look like in this round? Will it be just another round of the Fed purchasing treasuries? That is like Operation Twist on a grander scale. Kind of. At least this bond buying would inject more liquidity, which is what the market really wants. What I am hearing and what I have talked about before is that the Fed may want to focus on buying mortgage-backed securities with the goal of driving mortgage rates down to basically 0. That will force people to refinance and bring more money into the economy. A lot of people have refinanced over the past few years, and there has been a drop off in that. Remember a lot of the commentators said that houses can no longer be used as piggy banks. Everyone has done their refinancing, and they have tapped out their equity. If you drop rates more, you can get more people to refinance and maybe make some more money every week. Voila, you are in better shape overall. More money going into the economy, in other words.

Bonds may not be rallying on this news similar to what they did last week when Bernanke spoke at Jackson Hole conference. Maybe this week the bond market, which is supposedly smarter money, is saying it will be mortgage-backed securities that the Fed will focus on versus out-and-out buying of bonds. Interesting -- I hope. Hopefully I did not put you to sleep with that.


Gold. 1740.10, +34.50. Gold surged. Screaming to the upside. A clear breakout, a test of the breakout, and now on a full-fledged run to the upside. Lowering the value of the currency makes gold rise in price, and it also increases the odds of inflation. We already have a lot of money in the system, and we already have a huge amount of debt. It makes sense that gold would anticipate inflation rising from that. Gold is surging to the upside, and I do not see a top in mind. Looks like 1800 or so from that February-March peak will be the next point to shoot for. There is a little bit of resistance when it reaches that level.


Oil. 96.42, +0.89. Oil was up on the day. It did not break the 200 day EMA. It is moving laterally. As the dollar fell, naturally the oil rose even though the economic outlook for the US and the rest of the world stinks. Nonetheless, when the dollar falls, oil prices will rally because oil is dominated in dollars. We are still looking for a breakout. A nice cup with handle of sorts, a little inverted head and shoulders at the bottom. We are looking for a breakout, and we will see if it can deliver.


TECHNICAL SUMMARY

Internals. It was not as vigorous a day on Friday. As noted, it was a bit hung over.

Volume. NASDAQ -9.5%, 1.7B; NYSE 623M. Note that it is an elevated volume on NASDAQ. We have seen volume push in to the upside over the last week. Volume was down on the NYSE as well.


Breadth. NASDAQ +1.4:1; NYSE +2.1:1. Breadth backed off. Positive breadth and still overall positive volume. As the buyers have definitely moved in, some shorts have covered.


THE CHARTS

SP500. There is a lot of short interest typically down at the bottom of a selloff, and short covering drives the rally higher. As this juncture, there is a lot of pessimism even with the market at its highs because it was all driven by stimulus. There was concern as to whether the ECB would follow through with any stimulus. They are still concerned about that. The German court as not ruled, as we know. There is also a lot of awareness of economic weakness and problems facing the country such as the fiscal cliff. There was a lot of pessimism even though stocks were up at the prior highs.

There was quite a bit of short interest, and this could be a short squeeze, but it is also overall buying. We saw strong breadth on Thursday. It was 3.8:1 on NYSE and 3.4:1 on NASDAQ. It was fairly broad buying pushing the indices higher. SP500 is now in a new post-bear market high. It is looking solid, although it likely will come back and test. It may be a little pensive ahead of the FOMC meeting this week.


NASDAQ. After NASDAQ broke to that new post-bear market high on Thursday, it did stall on Friday. It was not a major stall; just a little doji, and likely a continuation doji. Again, we could get a pullback to test the break. It is right at the old highs, so it does not have a lot of room to give. A little pause would not be unusual to start the week. Frankly, it just depends on where investors wake up. Do they believe that more stimulus is coming and want to put money in ahead of the FOMC? Or will they be pensive and wait for the German high court and the FOMC to deliver the news?

That is where we are now. We have a breakout, and indicators point to the upside. Although you always have some backfilling and testing.


SP600. SP600 showed the same type of action. It broke to a new closing high. It moved to a new post-bear market high, intraday and closing, on Friday. Continuing the move, continuing the breakout and looking quite solid.


SOX. SOX backed off on Friday, but it has that good pattern with the double bottom with handle. A great break to the upside on Thursday, but it backed off on Friday. The INTC news came out. It cut its Q3 revenue estimates, and it withdrew its full year revenues and gross margin estimates.

We have a problem with INTC. It is suffering from the PC market as is DELL and HPQ. I do not think the PC market will die, but it is shifting. Tablets are out, and a lot of people have those. A lot of companies cannot use tablets, however. In our group we cannot use tablets because they do not have enough horsepower to run the trading software that we need along with the high-intensity graphics and the volume of data that we get. We need the high-speed processors and lots of RAM in order to run those.

DELL makes a PC tablet with a screen that you can flip, and you can load it up with the best processors and RAM there is. It is a high-performance machine in a tablet package. And maybe the MSFT version coming out later in the year will be decent. But you cannot use an iPod or the Samsung tablet for anything that takes serious computer power. We looked into it, and all of the trading platforms laughed when we asked about using a tablet. But I digress.

My point is that the PC market is in contraction, no doubt. But there will be some kind of merging of the tablets and the PCs because the tablets simply do not have the power right now to do what we need. They are great for people just sending emails and a few pictures. For serious stuff, we need the PC chips. INTC is down; I am not saying I would invest in it. But that explains where we are and why the chips were down, so to speak.

I still like the pattern here. Why? What goes into phones, tablets, and basically everything? Different kinds of chips. There are other stocks that performed well, even though INTC, a PC-based chip maker, is struggling.


LEADERSHIP

As noted on Thursday, stocks basically went up.

Energy. Even energy stocks were going back up. A lot of that is due to it dollar heading down. I don't want to spend a lot of time jumping into stocks, but I want to point out that there are stocks moving. HAL in one. We had even looked at it in this reversal. Being foolish, we did not jump in after the big reversal at an important level. Blame me on that one. Others spotted it and I said we should hold off. CVX looked a bit weak, but it has bounced back up to a new rally high. Energy looks good.

Financial. BAC is one we have played because it was a great entry point with a great price point. It is performing well. Second position on this one, running to the upside, looking very strong as it moves higher. It is not the only one. Even the financial service companies look good. JPM is another big bank doing well. MS is running higher, moving through the 200 day EMA. Financials of all strips are doing well. Why? Because there will be more money put into the system. More money in the system means they make more money.

Technology/Telecom/Semis. Techs are not bad as well. AAPL is just going with the flow. It is not leading at the moment, it is just rolling on momentum. Although it did hit a new closing high. A lot of stocks are already up, but there are others that look like they might be able to make a turn. LVLT is more in the communications market. That is where we are seeing those still with room to turn to the upside. Another is APKT. It looks like it might be ready to turn and move. They are out there, but a lot of techs have already run to the upside pretty well.

Surprisingly, JNPR has made a turn and it is breaking to the upside. MSPD broke down on us last time, but it looks to be setting up a double bottom with rising MACD. We will keep an eye on that. There are still possibilities that we can look into and maybe pick up something. CREE is another. It has potential to the upside in the tech, telecom, and chip areas.

Retail. Retail continues to look good. More money hopefully means more wealth effect, I guess. RL is breaking to the upside quite nicely. LULU had an explosive move as its earnings came in. Not terribly great but better than expected. They are moving higher as well.

Healthcare/Drugs. We have seen the health care and drugs perform. They are still looking good. Maybe it is still just turning the corner. It might be something we can buy into. LCAV is trying to break back to the upside. That is interesting. SVNT it also interesting, coming off of a flag pattern. They are out there. They are moving again, and we were into some of them. Obviously they have been running well for us. They were starting to perform better when things got a little bit dicey as the SP500 traded up to these other highs and backed off. We saw defensive plays start to perform again. Thursday and Friday the general market overall performed, but it took these stocks higher with it. It also shows another indication that there was broad buying in the market.

Metals. With inflation comes asset price increases and financial price increases on commodities. FCX surged to the upside. What a big move. AA put in two strong days. Really a strong day on Friday, rising almost 4% when a lot of the market was waffling on that session. The metals are surging, anticipating inflation and a lower dollar. As the dollar fell, copper and aluminum jumped to the upside.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

So much more to the Non-Jobs report than the headlines.



NONFARM PAYROLLS, August (8:30): 96K actual versus 130K expected, 141K prior (revised from 163K)
Nonfarm Private Payrolls, August (8:30): 103K actual versus 144K expected, 162K prior (revised from 172K)

Only 52.2% of companies added jobs in August, the lowest since February 2010.
4 out of 5 months of less than 100K jobs this year.

UNEMPLOYMENT RATE, August (8:30): 8.1% actual versus 8.3% expected, 8.3% prior

Participation: 368,000 more people left the work force, driving the participation rate to 63.5% from 63.7%, the lowest in 31 years.

BUT, the US civilian population (outside of prisons) has grown 186K/month to 243.5M in August, an all-time high.

REAL UNEMPLOYMENT RATE: 11.2% to 11.7% depending upon whether you use a steady participation rate (the first number) or the 3 decade average (the second number).

Since 1948 there have been 82 months of unemployment greater than 8%. 43 of those months (52%) have occurred under Obama.


Hourly Earnings, August (8:30): 0.0% actual versus 0.2% expected, 0.1% prior

Average Workweek, August (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)


Mark Zandi on CNBC
There was talk of conspiracies at the BLS on CNBC, mostly in mocking tones. Mark Zandi, the supposedly unbiased, independent economist scoffed at the idea of data manipulation, saying there is a formula used to calculate the numbers and thus there is 'no way' they can be manipulated.

Of course, that is assuming the data input in the formula is correct, and indeed that is the POINT Mr. Zandi.

Yes we all know that 2 + 2 = 4. We know 2 is constant. But, what if you define 2 as some other number? You then alter the result EVEN IF THE FORUMLA IS THE SAME.

When the BLS makes seasonal adjustments you would assume it does so in a rational manner. As seen in July, there was no rational manner. It did not correspond to any adjustments in the past 20 years, even in those years where July 4th fell at the same time as it did this July. Same for the birth/death rate. It was a factor of 10 above any other July over the past decade and more.

The formula is what the formula is. It is the age-old idea of garbage in, garbage out, however, where the issue arises.


Secular Change in Employment?

Part time workers are becoming the norm.

As of August, 8M additional workers were classified as part-time compared to the start of current recession/depression 4 years back.

An additional 5.2M part-time workers are considered marginally attached to the workforce, working part time.

Total: 13.2M part-time workers who want more work on top of 12.5+M completely unemployed gives you 25.7M unemployed versus the U6 report of 14.7M 'underemployed.'



Meaning: The employment market is shifting from full employment to part-time, contract work. The legal practice is already turned this way before the depression. Document reviews are mostly conducted by contract attorneys working for large companies that manage document reviews for large law firms. More cost effective because lower hourly rates, limited benefits.

Can the Fed do anything about this? No.



THE MARKET

SENTIMENT INDICATORS

VIX. When volatility was down at the March 2012 and the May 2011 lows in mid August, the talk was that a major selloff was coming. Even on Tuesday of last week we heard some of the brokers saying a major plunge was coming and to get out of the market now. Volatility did run higher, and the market did fade, but it was just some. It was not a major fade. There were some spikes in there; it did not look good necessarily. There was that reversal session on SP500, the selloffs on these two sessions, but they were always followed by upside recoveries.

If you get too wrapped up in the VIX, you can get burned. I know people got burned doing that. We even had some short positions. We take short positions as a hedge when we are at these highs, but our plays are still predominantly upside because of the good technical action overall and some good leadership. Nonetheless, a lot of people went deeply short, and they are getting squeezed to say the least.

While the VIX did hit that low and bounced, it is nowhere near the prior bounces, and it has already reversed sharply.

VIX: 14.38; -1.22
VXN: 15.44; -1.57
VXO: 13.37; -1.31

Put/Call Ratio (CBOE): 0.74; -0.12

Bulls versus Bears

Bulls: 51.0% versus 48.9% versus 43.6%. Five weeks and up from 39%. Bulls are felling pretty solid now. Another 10 points and not that great, but 10 points is a long way from here and the market can run quite a bit in that interval. Undercut 35%, the threshold for bullishness, in early June. You would expect it to rise and it has. Still not at a dangerous level, just working as it should. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 24.5% versus 24.5% versus 26.6%. Down from 27.7% five weeks back. Still above the May lows so still some room to work with, i.e. room for the indices to rally. Never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


NASDAQ

Stats: +0.61 points (+0.02%) to close at 3136.42
Volume: 1.708B (-9.63%)

Up Volume: 842.23M (-807.77M)
Down Volume: 883.8M (+640.01M)

A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Advancers led 3.38 to 1

New Highs: 159 (-34)
New Lows: 30 (0)


SP500/NYSE

Stats: +5.8 points (+0.4%) to close at 1437.92
NYSE Volume: 623M (-6.17%)

A/D and Hi/Lo: Advancers led 2.16 to 1
Previous Session: Advancers led 3.79 to 1

New Highs: 307 (-14)
New Lows: 13 (-1)


DJ30

Stats: +14.64 points (+0.11%) to close at 13306.64
Volume: 142M shares Friday versus 108M shares Thursday. Elevated volume on the week for the Dow as well.


MONDAY

There is a veritable cornucopia of economic news out next week. It starts slow but builds rapidly. On Wednesday we have the pricing. Wholesale, import and export prices. It will be important to look at those with the dollar's action. This will be delayed, but it will be good to see what the trend is because we know where the trend is going right now.

Thursday brings another initial claims, PPI, and then there is the big decision from the FOMC. I checked the site, and it is saying Thursday when it usually comes out on Wednesday. We will make sure we know what is going on with that. Why do we think it was moved back? Because the German high court decision is due on Wednesday the 12th. What has been the pattern lately? Europe first and the US second. That way the US can try to keep its powder dry. If the German court comes back with a "nein," that means the US will have to act because the markets will react negatively to that. We will need some kind of backstop, and I believe that is how the Fed sees itself right now.

Friday will be an important session. Not only trading post-FOMC and German high Court, but there are retail sales for August. Very important. Consumer prices for August are also very important. Not to mention industrial production and capacity utilization. Then throw in Michigan Sentiment, not to mention inventories for businesses. They will not be building because of production; they will be building because of lack of sales. We know manufacturing is down across the nation.

We have a HUGE week of data. What does it all mean? Looking back at the markets, we had a big breakout on Thursday and a little continuation on Friday. Maybe a bit of softness, a little bit of indecision ahead of the Wednesday and Thursday important announcements from the German high court and the FOMC. I don't believe it will be anything where the market turns tail and runs. I don't believe we will see any kind of major reversal occur off of this breakout move. Too many indices are strong, and a lot of stocks are high right now. They could use a test, though, and that test could be the pause that refreshes, particularly if there is liquidity coming. Liquidity answers all prayers in financial markets.

We have a breakout, and we may have a test. Then we have a resumption. We were buying on a lot of these days. The market was down, but remember that it would not give up. I came out before it broke to the upside and said we had these reversals, but they have not been given up. We keep seeing patterns in stocks saying "pick up some interest." So we did, and we are glad. Thursday the market gapped higher and ran, and we were not able to get as many positions as we wanted to. We got some, and we are happy to have those. Friday was an even worse day because we did not get any real giveback from the market. We could use a pullback to get some actual plays. We bird-dogged a few of them when talking about the leaders, but it is pretty thin out there when looking for stocks in position to buy right now. We will likely get a pullback off of this good move, and that will give us positions we can take once they do that.

As for Monday, this will be a time for patience. We will have a few plays on the report to look at, but we would like to see two or three days of indecision and maybe a little pullback to give us better entry points. We can even buy some before the news comes out on Thursday. Why? Frankly, I think the Fed has to act whether it wants to or not. If the German high court rules against the bond plan, then the Fed has to act. If the German high court rules for it, that is fine, but then the US economic data was so bad on Friday, I think it still has to act.

Bernanke is much more political than other Fed chairman have been, and he wants to keep his job. He knows if the Republicans win he will lose his job. He will not pause for one second in thinking about whether to push forth new stimulus. The best way for him to keep his job is to keep the current party in power. Since they cannot impact the economy that much before the election, then they will impact what they can: The stock market through liquidity. Liquidity has an immediate effect, and it will have an impact on the stock market. At least the Obama administration could say that the stock market is up. We all know it is because of liquidity, but we are smarter than most. The masses think that the stock market is up so things must be good. They do not understand that it is all made of paper and debt. Maybe they do. Maybe I am just jaded in my years of doing this.

To summarize, there are not a lot of great buys right now. We had a great break to the upside, and it will still probably go higher. We need better entry points. We need a bit of a pullback. There are some stocks that look good and are ready to move higher. We can enter those if they continue. But overall, we would like to see stocks come back and test a bit and maybe give us the opportunity to buy into what we could not buy into on Thursday or Friday thanks to those gaps and runs that never came back.

With that in mind, we will be patient. And we will be happy that we bought stocks when the market was waffling just because the stocks were saying, "buy me." We bought them because that is what you do. You might think that things do not look right, it is too high, and there are so many negatives in the world. But if the stocks are saying "look at me," you better pay attention and at least put some money to work. That is what we were doing. We did not back up the truck, but we were putting some money to work. We already have some great upside positions that continue to work for us as well.

With a little pullback, we can exit out of the upside that gapped and ran. We are just looking for a better exit point on a lot of those. We can use this to pick up some upside as the market turns back higher on the news of the German court and/or the US Fed putting forth stimulus. I made the call, and we will see if we get it now.

I will see you on Monday. Have a great weekend!


Support and resistance

NASDAQ: Closed at 3136.42

Resistance:
3134 is the March 2012 post-bear market peak: broken, not forgotten.
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high
The 20 day EMA at 3062
3042 from 5/2000 low
3026 from 10/2000 low
3024 is the gap point from early May
The 50 day EMA at 3005
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2910 is the March 2012 low
2900 is the March 2012 low
The 200 day SMA at 2889
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2866 is the July 2012 closing low
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2810 is the low in the shoulders
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range


S&P 500: Closed at 1437.92

Resistance:
1440 from November 2007 closing lows

Support:
1433 from August 2007 closing lows
1425 from May 2008 closing highs
1427 is the August 2012 peak
1422.38 is the prior post-bear market high (March 2012)
The 20 day EMA at 1408
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
The 50 day EMA at 1389
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
1344 is the February 2011 peak
The 200 day SMA at 1342
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1266 is the June 2012 base low


Dow: Closed at 13,306.64
Resistance:
13,331 is the August 2012 post-bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,297 is the April 2012, prior post bear market high
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 13,014
12,971 is the early July 2012 high
12,754 is the July intraday peak
The 200 day SMA at 12,735
12,716 is the April 2012 closing low
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak


Economic Calendar

September 4 - Tuesday
ISM Index, August (10:00): 49.6 actual versus 50.0 expected, 49.8 prior
Construction Spending, July (10:00): -0.9% actual versus 0.5% expected, 0.4% prior
Auto Sales, August (14:00): 5.0M prior
Truck Sales, August (14:00): 6.0M prior

September 5 - Wednesday
MBA Mortgage Index, 09/01 (7:00): -2.5% actual versus -4.3% prior
Productivity-Rev., Q2 (8:30): 2.2% actual versus 1.8% expected, 1.6% prior
Unit Labor Costs - R, Q2 (8:30): 1.5% actual versus 1.4% expected, 1.7% prior

September 6 - Thursday
Challenger Job Cuts, August (7:30): -36.9% actual versus -44.5% prior
ADP Employment Change, August (8:15): 201K actual versus 143K expected, 173K prior (revised from 163K)
Initial Claims, 09/01 (8:30): 365K actual versus 373K expected, 377K prior (revised from 374K)
Continuing Claims, 08/25 (8:30): 3322K actual versus 3300K expected, 3328K prior (revised from 3316K)
ISM Services, August (10:00): 53.7 actual versus 52.4 expected, 52.6 prior
Crude Inventories, 09/01 (11:00): -7.426M actual versus 3.778M prior

September 7 - Friday
Nonfarm Payrolls, August (8:30): 96K actual versus 130K expected, 141K prior (revised from 163K)
Nonfarm Private Payrolls, August (8:30): 103K actual versus 144K expected, 162K prior (revised from 172K)
Unemployment Rate, August (8:30): 8.1% actual versus 8.3% expected, 8.3% prior
Hourly Earnings, August (8:30): 0.0% actual versus 0.2% expected, 0.1% prior
Average Workweek, August (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)


September 10 - Monday
Consumer Credit, July (15:00): $10.0B expected, $6.5B prior

September 11 - Tuesday
Trade Balance, July (8:30): -$44.0B expected, -$42.9B prior

September 12 - Wednesday
MBA Mortgage Index, 09/08 (7:00): -2.5% prior
Export Prices ex-agriculture, August (8:30): -1.4% prior
Import Prices ex-oil, August (8:30): -0.3% prior
Wholesale Inventories, July (10:00): 0.3% expected, -0.2% prior
Crude Inventories, 09/08 (10:30): -7.426M prior

September 13 - Thursday
Initial Claims, 09/08 (8:30): 369K expected, 365K prior
Continuing Claims, 09/01 (8:30): 3300K expected, 3322K prior
PPI, August (8:30): 1.2% expected, 0.3% prior
Core PPI, August (8:30): 0.2% expected, 0.4% prior
FOMC Rate Decision, September (24:30): 0.25% expected, 0.25% prior
Treasury Budget, August (14:00): -$134.1B prior

September 14 - Friday
Retail Sales, August (8:30): 0.7% expected, 0.8% prior
Retail Sales ex-auto, August (8:30): 0.8% expected, 0.8% prior
CPI, August (8:30): 0.6% expected, 0.0% prior
Core CPI, August (8:30): 0.2% expected, 0.1% prior
Industrial Production, August (9:15): -0.2% expected, 0.6% prior
Capacity Utilization, August (9:15): 79.2% expected, 79.3% prior
Michigan Sentiment, September (9:55): 73.3 expected, 74.3 prior
Business Inventories, July (10:00): 0.4% expected, 0.1 prior


By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: