Monday, October 29, 2012

Stocks Wade Through a Week of Less Than Solid Earnings


- Stocks wade through a week of less than solid earnings and come out . . . still wading.
- Another test of support, another hold. NASDAQ, SP600 still look ready. SP500, DJ30 still look indecisive.
- "Kind of odd" Q3 GDP report hits 2% 3 years and 4 months after the recovery started.
- Dormant federal government spending erupts, adding to GDP (0.7%) for the first time since Q2 2010.
- Japanese 'stimulus' limps in at a measly $9.4B.
- Even more layoffs announced. UBS to lay off one-sixth of workforce, Bloomberg selling a small fraction of terminals. Even with free money the financial sector is not prospering.
- US debt to GDP tops 100% in September.
- Next week crammed full of data, more earnings, jobs, and Halloween.
- Some nice pictures in the market. Let's see if they convert to nice moves, and of course, money in our pockets.

A test, a recovery, status quo heading into the weekend.

It could have been an ugly session. AAPL and AMZN missed. Japan's promised stimulus turned out to be nothing more than a squirt gun trying to put out a high-rise fire; $9.4B? Really? Q3 GDP rose 2%, but it was juiced 0.7% by the sudden appearance of government spending. Take that out and you are back at 1.3%. Thus far, 2012 GDP is trending less than 2011. The US debt to GDP ratio hit 102.4% as of Q3. Not great news.

But despite the recent market weakness and the less than palatable news, the market was not tanking. AMZN and AAPL were apparently forgiven their sins. I suppose if any stocks will be forgiven it would be them.

Pope gets more than he bargained for in hearing Michael Corleone's confession. Same with investors re AAPL and AMZN?

Futures were down but at 7:00ET started a recovery that took them back close to fair value. As AMZN and AAPL recovered, futures recovered. Of course in this market the open is hardly the end of the story. It has shown a penchant the past several weeks to find a way to losses after starting with gains. Such is the MO of a weak market.

And on Friday after an early bounce off of the open took stocks positive . . . they lost the move yet again. By lunch they were negative with NASDAQ below the 200 day SMA, SP600 at the 200 day SMA and SP500 and the Dow even closer to the 1400 and 13,000 levels, respectively, that many are closely watching as support.

Of course that was not the end result. Stocks bounced, NASDAQ recovered the 200 day SMA and the indices closed mixed on the session but basically at the flat line.

SP500 -1.03, -0.07%
NASDAQ 1.83, 0.06%
DJ30 3.53, 0.03%
SP600 -0.43%
SOX 0.49%

In the end there was basically status quo. Another day of testing support by all indices. NASDAQ and SP600 still look very nice for a bounce; they just are having a hard time making it happen. Perhaps it is SP500 and DJ30 holding them back. While holding just over the support many are eyeing, they don't have the same look to their patterns. Either SP500 and DJ30 are holding NASDAQ et al down, or NASDAQ et al just have a failure to launch.

About all you can say is that the indices worked once more at holding support and in so doing they overcame more dissatisfying data and left themselves in position to rebound. Thus far the catalyst to launch a rebound is elusive, but in surviving (at least in terms of holding support in a rather 'normal' test) at support the indices show a bit of backbone with the ability to absorb bad news and not totally collapse.


Dollar. 1.2937 versus 1.2946 euro. The dollar continued to show resilience, closing the week higher though still stymied just below the 50 day EMA and an overall bearish pattern.

Bonds. 1.76% versus 1.83% versus 1.77% 10 year US Treasury. Goodness gracious the bond bouncing ball continues. After gapping below the 200 day SMA Thursday bonds gapped back above that level Friday. The volatility shows the confusion in the bond market, one of the most manipulated there is right now. Perhaps it can hold the line and break higher from this narrowing pattern. That, of course, would not be a very good indication for the economy, but then again, with all of the manipulation does the bond market indicate anything right now other than whether Europeans are using the US as a safe haven or not?

Gold. 1711.60, -1.40. After breaking the 50 day EMA Tuesday, gold worked laterally Thursday and Friday, tapping at the 50 day on the session highs but showing no inclination to move back through. Okay, it was a good test, fell through the 50 day but is trying to hold at some support at 1700. Expect it to hold most of the prior move but it can test further here.

Oil. 86.28, +0.23. Oil tried to hold as well as it too worked laterally Thursday and Friday after the early week declines. 84 is support and it is reaching that way intraday then rebounding to close. Might try a bounce next week but the pattern looks weak given the high levels of product and the shutting down of business ahead of the fiscal cliff.



Stats: +1.83 points (+0.06%) to close at 2987.95
Volume: 1.779B (-3.99%)

Up Volume: 859.69M (-160.31M)
Down Volume: 947.54M (+33M)

A/D and Hi/Lo: Decliners led 1.39 to 1
Previous Session: Advancers led 1.38 to 1

New Highs: 42 (-4)
New Lows: 62 (+4)

Stats: -1.03 points (-0.07%) to close at 1411.94
NYSE Volume: 629M (-0.94%)

A/D and Hi/Lo: Decliners led 1.43 to 1
Previous Session: Advancers led 1.48 to 1

New Highs: 96 (-26)
New Lows: 38 (-4)


Stats: +3.53 points (+0.03%) to close at 13107.21

Volume: -4% NASDAQ, -1% NYSE. Volume remained above average but was lower as NASDAQ dipped then recovered. High volume all week at the 200 day SMA, and as noted before, that is not bad as it shows buyers stepping in to support the index at that level. Higher volume on NYSE as SP500 tested closer to 1400 and rebounded again. There are buyers stepping in here as well.

Breadth. NASDAQ -1.4:1, NYSE -1.4:1. Lagged the rebound but note that SP600 closed down almost one-half point, so the small caps lagged and there are more small caps than large caps in the market. What does it mean? Not a darn thing; it is tracking the action and is not showing any kind of divergence.


SP500. Another day reaching closer to 1400 (1403 on the low) and then rebounding to flat. SP500 is attempting to hold that support and could indeed bounce. The pattern is not as good as NASDAQ, however, as it has those three tops and this is the first drop from those tops. It can always show renewed strength and blow through those with ease, but it has yet to show anything along those lines. Yes holding above 1400 is the first step, but it is also the MINIMUM step it could take. Much more work to be done.

NASDAQ. Another test, reaching below the 200 day SMA this time then rebounding to hold that support. Volume remained solid so it looks to be a good shakeout. Nice pattern and with AAPL and AMZN on the rebound it looks good to bounce.

SP600/SP400. Similar to NASDAQ, SP600 held steadfast at the 200 day SMA all week, tapping at it again on the Friday low and rebounding. Very nice pattern here as well, just needs a catalyst. SP400 midcaps are solid as well, holding over the 200 day SMA with three intraday reaches lower last week, rebounding each time as buyers stepped in.

SOX. Second day of a bounce but all it could do was make a run at the falling 10 day EMA and then fade back from that. Note how the 50 day EMA rallied up to the 200 day in September but never broke it. The 50 day has turned down and now the 10 day, 20 day, and 50 day EMA are all trending down. The 200 day SMA has just edged over this past week. It could be just about to get much uglier for SOX. Of course it has not been a garden of daisies the past two months as it fell from 408 to 360, a slight 12% decline. Still holding at the 78% Fibonacci, however, and if it double bottoms at that level it is a very good technical entry point for an upside move.

DJ30/DJ20. Same as SP500, testing toward 13,000 (13,040 on the low) and rebounding yet again. Holding support, not giving up, but not as nice a picture as NASDAQ.

DJ20 bounced for a second day but could not hold a move over the 50 day EMA. It is making the move higher and as noted Thursday, needs to continue the move from here toward the top of the range near 5225.


Big names. AAPL reached to its 200 day SMA and reversed 13 points. AMZN gapped upside and surged almost 7%. EBAY started back up. IBM is even trying to turn.

Technology. Very mixed bag. SSYS in hardware is surging. RAX is at the 50 day EMA and is showing signs it wants to turn. Some chips are surging; most are not. CYMI holds its explosion upside. SLAB gapped through the 50 day EMA on its results.

Financial. Struggled all week, trying to bounce midweek but ending with a Friday decline. JPM gapped lower and did not recover. BAC is trying to hold at 9.00 support. Regionals are still stronger, e.g. STT.

Industrials. Looking better, bouncing after holding support Thursday. CAT bounced. JOY looks super as it jumps off the 50 day EMA. DE bounced off the 20 day EMA test. GNRC is still surging.

Retail. Wild week for retailers. BWLD imploded. PNRA gapped upside. PII is holding support, trying to bounce. COST rebounded from its selloff but faces the 50 day EMA in a bear flag. LULU is trying to hang on at the 200 day SMA. All over the map.

Homebuilders. Hanging in after a week that showed a bad response to good earnings results. PHM and KBH tested further Friday but managed to recover. LPX held nicely at the 10 day EMA as materials still look solid.


First read Q3 GDP: "Kind of Odd"

That is how Bloomberg reported the 2.0% GDP reading Friday morning.

GDP-Adv., Q3 (8:30): 2.0% actual versus 1.9% expected, 1.3% prior
Chain Deflator-Adv., Q3 (8:30): 2.8% actual versus 2.0% expected, 1.6% prior

There are several notable numbers in the chart.
Inventories down.
Nonresidential investment down (and negative).
Structures down (and negative).
Software and equipment flat, this continuing the quarter after quarter decline from much more substantial levels.
Exports down (and negative).
Imports down (and negative).

The odd part:

Government up (and positive). The 3.7% was spearheaded by a 9.6% gain in government spending. After eight quarters of declines spending suddenly jumps in the last GDP report ahead of the election. It was the biggest gain in that spending in 3 years.

The spending added 0.71% to GDP versus taking out 0.15% in Q2. Remove that and you get a push at 1.3%.

Perhaps the government is already factoring in a GDP construction and repair bounce post-Sandy?

The sad part:

Disposable income fell to 0.8% in the quarter versus 3.1% in Q2.
Business investment negative. No investment, no growth, no jobs.

The trend:

Even with the bump higher to 2%, GDP 2012 is trending lower than 2011, and 2011 is much lower than 2010.

Wall Street Woes. More layoffs announced, financial services not servicing anyone.

Bailouts, buyouts, free money. Even with that help during the financial crisis and indeed continuing even to today, many banks and large firms are unable to make money without the help. I wish I could borrow money for nothing and buy guaranteed assets with part of it and fund my trading with the rest. How cool would that be?

Apparently it is not enough for everyone. UBS announced it will sack 10,000 employees or one-sixth of its workforce. My goodness. As pointed out Thursday, layoffs are surging.

Kimberly Clark (KMB) is dropping 1,600 workers.
Newell Rubbermaid (NWL) announced late Friday it was cutting 10% of its workforce or 2,000 workers.

Bloomberg reports fewer terminal sales.

Bloomberg terminals can do just about everything and they are definitely priced as if they can do just about anything. Still, the big firms all have them, several of them.

There has been a somewhat noticeable decline in sales this year. In 2011 13,763 terminals were sold. Thus far in 2012 a stunning 1,000 have been sold. Unreal.

This is just about the most telling statistic we have seen. This is considered a tool for the financial business and those in the financial business are cutting this from their budget. Talk about a fear of what the future holds. Shockingly low.



VIX: 17.81; -0.31. Holding at the 200 day SMA in a three day test of the Tuesday gap through that level. This pattern still suggests VIX could rise toward those prior highs near 21 and that would indicate a further stock market pullback. This is not the primary indicator you use, but it is certainly one to factor into the equation.
VXN: 19.58; -0.7
VXO: 17.88; +0.34

Put/Call Ratio (CBOE): 0.99; +0.14

Bulls versus Bears

Bulls: 41.5% versus 45.7% . Down from 54.2% five weeks back when the first downleg in this selling started. That is a fairly sharp decline. Not at levels considered bullish (35%), but getting darn close in a hurry. Never came close to the 60% to 65% bullish levels that flash a warning sign. Background: Undercut 35%, the threshold for bullishness, in early June. 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: 27.7% versus 25.5%. Hung at 25% for close to two months. Now it is moving up some. Just some. Has to get to 35% to be significantly bearish to suggest an upside rally. 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.


The economic data this week is stacked like cordwood. Personal income, Consumer Confidence, Chicago PMI, ISM, Jobs. A few earnings reports, several hundred, will be submitted as well. Then China, Japan, Europe, and frankly stories from anywhere else in the world. Add to that the election countdown and hurricane Sandy and where it will track and ultimately land.

So, just you average week in the markets.

The market setup up, despite all of the data and the intrigue it suggests, is pretty simple. NASDAQ along with the small and midcaps show nice patterns and setups to rebound upside. SP500 and DJ30 are holding support but don't evoke warm upside feelings. They may follow a rally by the growth indices but something has to change for them to lead to the upside.

We are going to be ready for upside plays given the look of NASDAQ and the growth indices. A play on NASDAQ and a play on the Russell 2000 are already on, and we plan to augment them with additional plays on individual stocks. Not all of those are on NASDAQ or the small and mid-cap indices, mind you, but any upside move next week leans heavily on those indices and if they can react upside off of some good looking patterns.

Of course given NASDAQ and company are at important support and that SP500 and DJ30 are at support but don't look all that powerful, some downside is in order as well. If the indices fail at this support, the next major support after the initial break of the trends, then they likely have further to fall as they seek bottom. In that situation having downside ready to go is important. We have some and there are some more we will look at if there is a break.

The good thing about this week is that the indices are at an important level and will need to fish or cut bait. The bad thing about this week is it is before the election, packed with data, and that data is back-end loaded with the jobs report to end the week. Even so, there are great patterns out there, and if they show the right stuff we will pick up some positions.

To those on the East Coast: do not take the storm lightly. Better to be over-prepared for nothing than under-prepared for a calamity. The winds won't be the bad part; the water from rain and the storm surge is what to worry about. If it knocks out power for 5 days have enough supplies (water, food, sanitation) to cover it. If you can early vote, do so.

Have a great weekend!

Support and resistance

NASDAQ: Closed at 2987.95

2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
3024 is the gap point from early May
3026 from 10/2000 low
3042 from 5/2000 low
The 50 day EMA at 3060
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

The 200 day SMA at 2975
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

S&P 500: Closed at 1411.94

1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
The 50 day EMA at 1427
1433 from August 2007 closing lows
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

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
The 200 day SMA at 1377
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
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 13,107.21
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,303
13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 200 day SMA at 12,976
12,971 is the early July 2012 high
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

October 24 - Wednesday
MBA Mortgage Index, 10/20 (7:00): -12.0% actual versus -4.2% prior
New Home Sales, September (10:00): 389K actual versus 385K expected, 368K prior (revised from 373K)
FHFA Housing Price I, August (10:00): 0.7% actual versus 0.1% prior (revised from 0.2%)
Crude Inventories, 10/20 (10:30): 5.896M actual versus 2.860M prior
FOMC Rate Decision, October (14:15): 0.25% expected, 0.25% prior and 0.25% now.

October 25 - Thursday
Initial Claims, 10/20 (8:30): 369K actual versus 375K expected, 392K prior (revised from 388K)
Continuing Claims, 10/13 (8:30): 3254K actual versus 3237K expected, 3256K prior (revised from 3252K)
Durable Orders, September (8:30): 9.9% actual versus 8.0% expected, -13.1% prior (revised from -13.2%)
Durable Orders -ex Transports, September (8:30): 2.0% actual versus 1.0% expected, -2.1% prior (revised from -1.6%)
Pending Home Sales, September (10:00): 0.3% actual versus 2.4% expected, -2.6% prior

October 26 - Friday
GDP-Adv., Q3 (8:30): 2.0% actual versus 1.9% expected, 1.3% prior
Chain Deflator-Adv., Q3 (8:30): 2.8% actual versus 2.0% expected, 1.6% prior
Michigan Sentiment - Final, October (9:55): 82.6 actual versus 83.1 expected, 83.1 prior

October 29 - Monday
Personal Income, September (8:30): 0.6% expected, 0.1% prior
Personal Spending, September (8:30): 0.4% expected, 0.5% prior
PCE Prices - Core, September (8:30): 0.1% expected, 0.1% prior

October 30 - Tuesday
Case-Shiller 20-city, August (9:00): 1.7% expected, 1.2% prior
Consumer Confidence, October (10:00): 72.5 expected, 70.3 prior

October 31 - Wednesday
MBA Mortgage Index, 10/27 (7:00): -12.0% prior
ADP Employment Change, October (8:15): 140K expected, 162K prior
Employment Cost Index, Q3 (8:30): 0.5% expected, 0.5% prior
Chicago PMI, October (9:45): 50.4 expected, 49.7 prior
Crude Inventories, 10/27 (10:30): 5.896M prior

November 1 - Thursday
Challenger Job Cuts, October (7:30): -70.8% prior
Initial Claims, 10/27 (8:30): 375K expected, 369K prior
Continuing Claims, 10/20 (8:30): 3249K expected, 3254K prior
Productivity-Preliminary, Q3 (8:30): 1.6% expected, 2.2% prior
Unit Labor Costs, Q3 (8:30): 1.1% expected, 1.5% prior
ISM Index, October (10:00): 51.0 expected, 51.5 prior
Construction Spending, September (10:00): 0.8% expected, -0.6% prior
Auto Sales, October (14:00): 5.3M prior
Truck Sales, October (14:00): 6.3M prior

November 2 - Friday
Nonfarm Payrolls, October (8:30): 125K expected, 114K prior
Nonfarm Private Payrolls, October (8:30): 125K expected, 104K prior
Unemployment Rate, October (8:30): 7.9% expected, 7.8% prior
Hourly Earnings, October (8:30): 0.2% expected, 0.3% prior
Average Workweek, October (8:30): 34.5 expected, 34.5 prior
Factory Orders, September (10:00): 4.5% expected, -5.2% prior

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

Jon Johnson is the Editor of The Daily at

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