Monday, March 18, 2013

No High Yet For SP500


- The string is broken, no high yet for SP500. Pestilence surely to follow.
- Greenspan says no irrational exuberance. Time to get worried?
- Solid NY PMI, Solid Industrial Production and Capacity, but Michigan Sentiment fades and gets the blame.
- The pullback wasn't much of a pullback even with massive expiration volume.
- May get some better entries this week but saying the trend is over doesn't make it so.

Queue the locusts . . .

You know, last week there were locusts in Egypt and Israel for the first time in decades, rising out of Africa and swarming crops. Maybe that was a foreshadowing of Friday's loss in the stock market that broke the string of upside gains? Of course there is a bit of sarcasm there, but with so much attention on daily gains you would think the failure to make a new gain jeopardizes the rally itself.

The horror . . . the horror . . .

The calls for the rally's end have been daily and multitudinous. How long could it go on, how long could those wanting to get in and those who are short endure the move? Maybe they received a bit of a respite Friday as the stock market closed lower for the day. Certainly was not much of a break, however, as the losses were minimal.

SP500 -2.53, -0.16%
NASDAQ -9.86, -0.30%
DJ30 -25.03, -0.17%
SP400 -0.15%
RUTX -0.06%
SOX -1.66%

Ding Dong the streak had ended. Now surely there will be a pullback so everyone can enter and be happy. Ironic, isn't it? Everyone always wants the market to go up, but when it did this time it seemed no one was really happy about it. I read that most hedge funds have underperformed the SP500 this year, caught short literally I suppose, and thus the gnashing of teeth as the market continued moving higher and they had that sinking 'missing the bus' feeling.

But whether they get a modest pullback to use to enter or a deeper and sharper correction post-Friday is very wide open. Indeed it is wide open even if they will get any more pullback than the modest losses Friday showed. The losses were mild and again the small caps were market relative strength leaders. Despite the downside in the market overall, the small cap strength is a longer term positive and belies to a certain extent any notion of a big selloff coming.

Further, much of what we heard ignored some decidedly better economic data on the week. Jobless claims are still not great and are still questionable week to week, but last week's number was not notably misreported and the 365K/week average appears to have been broken. Friday showed some other solid reports as well as the New York PMI beat at 9.2 (6.5 expected); even though lower than the prior 10.0 reading, it is expanding. On top of that Industrial production rose 0.7% versus 0.4% expected (0.0% in January) while capacity jumped to 79.6% from 79.2%, topping expectations.

Who should be blamed for this loss?

No, no, the last report out on the day was the one everyone pointed to and blamed for the loss: Michigan Sentiment preliminary for March dropped to 71.8 when 77.6 was expected and recorded in February. Higher gasoline prices (Thursday's Retail Sales report showed half the gains in retail sales were thanks to higher gasoline prices), higher payroll and Obamacare taxes, and yet, the sequestration and the rather absurd claims made regarding its effect as well as the White House closing are what appear to have spearheaded the decline.

Surely locusts, famine, and plague will follow. Certainly the gloomier blogs were all over the sentiment number, suddenly giving it credence as an economic harbinger that they have never attributed to it before. Industrial production? Not that important. Capacity? No one even cares about that. You get the idea. It was somewhat grim.

But if the pundits are to blame sentiment for the market decline, then should you not blame the causes for that decline? And if you are going to find fault with the causes of the decline, are you not indicting the polices that led to the causes that led to the sentiment decline? Indeed, are you not then indicting the Administration and its policies that fanned higher gasoline prices, the taxes it demanded be increased, and its exaggeration of the sequestration's effects? I don't know about you, but I for one am not going to stand here while these pundits bad mouth the leaders of the United States of America.

Otter defends Delta House at the student court in 'Animal House.'

Of course that is absurd (in some respects; the blame DOES lie with our leaders and their policies), but it makes the point: sentiment is not to blame for the market fall. It was ripe and faded a bit. Not much of a fade at that.


Dollar: 1.3053 versus 1.3008. Stronger overall US data but the dollar weakened and fell to close below the 10 day EMA for the first time this year. Not a major break, but a bit of a change in the steady trend higher.

Bonds: 1.99% versus 2.03% versus 2.02% versus 2.02% versus 2.06% versus 2.05% versus 2.00% versus 1.94% 10 year. Bonds rallied as if the economic data was bad on Friday. Still trending lower but a sharp bounce.

Oil: 93.45, +0.42. 93.03, +0.51. Cracked above the 50 day EMA but nothing definitive. Trying to work back toward 100 and the scale is tipped in that direction, but not decided just yet.

Gold: 1592.60, +1.90. Still bumping its head at the 20 day EMA, unable to move through.



Stats: -9.86 points (-0.3%) to close at 3249.07
Volume: 2.174B (+32.56%)

Up Volume: 784.99M (-285.01M)
Down Volume: 1.57B (+1.005B)

A/D and Hi/Lo: Decliners led 1.2 to 1
Previous Session: Advancers led 2.02 to 1

New Highs: 226 (-20)
New Lows: 15 (+1)

Stats: -2.53 points (-0.16%) to close at 1560.7
NYSE Volume: 1.234B (+108.8%)

A/D and Hi/Lo: Decliners led 1.09 to 1
Previous Session: Advancers led 2.13 to 1

New Highs: 514 (-127)
New Lows: 67 (-3)

Stats: -25.03 points (-0.17%) to close at 14514.11

BREADTH: Back to flat as you would expect.

VOLUME: Huge volume as it appears the market saved it all up for expiration versus spacing it out during the week. The shorts were waiting until the last minute to see if they could get a better deal. They didn't.


SP500. So close to a new high, but was not happening Friday. Modest decline, still trending higher up the 10 day EMA and still room to the upside to the upper channel line. It has done this move before, e.g. in January and February. The big volume spike? Ignore the volume behind the curtain at least for Friday; all expiration as the rally continued and the shorts had to do something.

NASDAQ. Down but also easily holding the trend up the 10 day EMA. Still room to the upside of the channel. Some big names are acting as a drag but some techs are trying to push NASDAQ.

DJ30. Close to bumping the upper channel on Thursday then backed off to close modestly lower Friday. Nice run still in progress despite the horrific 0.17% loss.

SP400. So it took a day off? Still working steadily up the 10 day EMA.

Russell 2000 small caps: Virtually flat with a doji, easily holding the 10 day EMA and still with room to run. The small caps showed leadership to the upside last week as well as relative strength Friday. Good for the market and the economy.

SOX. Busted in the chops but there are still some chips that are looking very good despite the SOX and its domination by a few big names. Even with the 1.66% loss SOX is still trending higher in the middle of its channel.

SUMMARY: A bit of a loss that broke the upside string, but it was indeed just a bit of a loss. The indices are all trending higher though they are in the upper half or higher of their uptrend channels. DJ30 is close and the other large cap indices are closing in. The small and midcaps, however, have some catching up still to do, and they were providing the leadership later in the week so they may finish closing the gap this week. The market is due a test at some point, but based upon the action so far, it is not really showing it is ready to test. I suppose you could try and extrapolate from SOX; it does tend to lead downside, and thus you simply use good stops and don't try to buy everything in the market.


Big names. A flip in this category. AAPL broke upside through its 20 day EMA while AMZN, GOOG struggle for a change.

Technology. A good week though soft Friday. STX, SWI, VSH look good and some more chips such as MLNX and ASML are set up well.

Energy. Some good moves and others setting up , e.g. CRR, DWSN, OII. Still like how MPO is setting up.

Drugs/Healthcare. A good week for many stocks such as CELG while others are setting up, e.g. AMGN, VRTX, SNSS.

If techs decide to start leading this market gets some serious upside going.



VIX: 11.3; 0
VXN: 12.03; -0.3
VXO: 10.97; -0.28

Put/Call Ratio (CBOE): 0.85; +0.12

Bulls versus Bears

Whatever was lower bears and raising bulls the prior week gave up for this week as the bulls surged and bears flopped. Not at extremes on the bulls but moving that was fast while the bears a very near an extreme and that is not good for the market. So in terms of some psychological indicators the market is getting toppy.

Bulls: 50.00% versus 44.2% versus 46.3% versus 48.4% versus 52.6% versus 54.7% versus 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6. Over the September 2012 level. Last time the market hit that level SP500 corrected 9% over the next two months. 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: 18.8% versus 21.1% versus 21.1% versus 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%. Summary: 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.


Lighter on the economic data this week but there are housing starts and existing home sales along with Philly Fed and . . . an FOMC rate decision. After the minutes from the last meeting, you can expect that Wednesday's statements will be closely scrutinized. If anything looks amiss the market is primed to give back ground in its channel.

Ahhh. There it is. I said it. When the market gives back ground here, it does so inside its channel. Look at the index charts: they are all nice steady trends higher. Any selling, unless it is an out and out gutting that drives straight downside, occurs in the context of those channels.

The question you have to know for yourself is whether you let positions or some positions to the upside remain if the market starts to fade further. The channel is not huge but it is big enough to get uncomfortable riding all positions on a test. Typically we keep some of the really strong patterns (as long as they hold up well) and get rid of some that were problematic or had performed but then stumbled. We can pick them up at the bottom of the channel if it holds.

Of course this is not a prediction the indices roll over this week. There are still many great setups out there and sectors that have new stocks on the move whether from energy or chips to healthcare to tech many stocks are still finding money pushed their way and are in accumulation patterns or are breaking higher even as some stocks test. That has been the strength of this move, and we will see if it continues and can keep pushing stocks higher and thus the indices to and through or along their upper channel lines.

If that does not happen we can enter some more downside with some DXD and others to play any channel fade. The irony of the past week is that we banked some very good downside gain even as the market continued upside.

Now if the coming week starts soft we will watch leaders and the emerging stocks and see what kind of entries they provide. If they do not set up then the market likely continues its test. A bit more softness for a day or two won't hurt, and as long as the patterns hold, that kind of dip can lead to some really good entry points as the trend continues. Just because some are jumping on Friday as some kind of tell as to the market's next move, all Friday was for now is a pause in a nice trend higher

Support and resistance

NASDAQ: Closed at 3249.07

3294 is the upper channel line for the November 2012 to present uptrend
3321 from April 2000
3401 is the May 2000 closing low

3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 50 day EMA at 3162
3156 is the November 2012 up trendline
3134 is the March 2012 post-bear market peak
The 2011 up trendline at 3132
3130 from some January 2013 lows
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
The 200 day SMA at 3033
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
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2838 from the July 2012 lows

S&P 500: Closed at 1560.70

1576 from October 2007, all-time high
1580 is the upper trendline in the channel

1556 from July 2007
1539 from June 2007
1531 is the recent high
The November up trendline at 1509
The 50 day EMA at 1507
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
The 200 day SMA at 1424
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 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
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak

Dow: Closed at 14,539.14

14,610 is the upper channel line for the trend off the November low.
Now 9.7% above its 200 day SMA, still leaving DJ30 room to run before it gets too top heavy on this run and has to test.

14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
The 50 day EMA at 13,948
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 200 day SMA at 13,254
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,716 is the April 2012 closing low
12,524 is a range of support from early 2012 and summertime 2012
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

March 15 - Friday
CPI, February (8:30): 0.7% actual versus 0.5% expected, 0.0% prior
Core CPI, February (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Empire Manufacturing, March (8:30): 9.2 actual versus 6.5 expected, 10.0 prior
Net Long-Term TIC Fl, January (9:00): $25.7B actual versus $64.2B prior
Industrial Production, February (9:15): 0.7% actual versus 0.4% expected, 0.0% prior (revised from -0.1%)
Capacity Utilization, February (9:15): 79.6% actual versus 79.4% expected, 79.2% prior (revised from 79.1%)
Michigan Sentiment, March (9:55): 71.8 actual versus 77.6 expected, 77.6 prior

March 18 - Monday
NAHB Housing Market , March (10:00): 48 expected, 46 prior

March 19 - Tuesday
Housing Starts, February (8:30): 910K expected, 890K prior
Building Permits, February (8:30): 924K expected, 904K prior (revised from 925K)

March 20 - Wednesday
MBA Mortgage Index, 03/16 (7:00): -4.7% prior
Crude Inventories, 03/16 (10:30): 2.624M prior
FOMC Rate Decision, March (24:30): 0.25% prior
FOMC Rate Decision, March (14:00): 0.25% expected, 0.25% prior

March 21 - Thursday
Initial Claims, 03/16 (8:30): 345K expected, 332K prior
Continuing Claims, 03/09 (8:30): 3065K expected, 3024K prior
FHFA Housing Price I, January (9:00): 0.6% prior
Existing Home Sales, February (10:00): 5.00M expected, 4.92M prior
Philadelphia Fed, March (10:00): -3.0 expected, -12.5 prior
Leading Indicators, February (10:00): 0.5% expected, 0.2% prior
Natural Gas Inventor, 03/16 (10:30): -145 BCF prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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