Another Soft Start and Choppy Morning

MARKET SUMMARY

- Another soft start and choppy morning, but buyers return as growth leads again.
- NASDAQ, SP400 bumping trendline but don't appear afraid of it.
- Hilsenrath WSJ tapering article released after the close. Restates the obvious but will lofty, liquidity driven markets get rattled?
- ECB, South Korea, now Vietnam and Poland cut rates.
- Interesting economic facts: stock market participation, foreclosures, unemployment.
- History repeats: after a 4 year run stock ownership is at its lowest since 1998. The masses miss out and that begs the question what wealth effect?
- After a lull, a huge week for data.

Stocks chopped around in rather violent swings all morning; two up and two down. The indices were mostly positive at the open but by lunch east coast time two big moves took the futures modestly negative. A surge by PCLN could not offset a 29% jump in Chinese loan delinquencies or a Japanese bond market that again closed limit down.

Bernanke spoke in the morning and investors wondered what he would say about the economy. His talk was on prevention of too big to fail problems and only tangentially touched upon what the Fed's policy would be. Those polices were of particular interest to investors given the rumor tweet Thursday about a WSJ tapering article.

Bernanke avoided the area for the most part, stating the obvious: the economy has not fully recovered the jobs lost in the recession. The economy is still struggling with the effects of 2007 and 2008.

No kidding about the jobs. Construction lost 2m jobs and has recovered 200K. Middle tier jobs suffered the majority of jobs losses in the collapse; low tier jobs have replaced them, no small part due to the President's healthcare law that forces companies to hire more low pay workers and work them less in order to reduce costs as much as possible. They are not evil companies not hiring just to hurt people or make the President look bad; they are just doing what they must to compete in the environment the President's law has created. And that means more lower paying jobs with workers working less.

The interesting thing is, even those in that tier of jobs see what is going on. I was talking with a fellow looking for work this past week about jobs and he commented that the companies were hiring more people but working them less. He also said there was no chance for advancement in the jobs anymore, at least nothing significant. He wasn't sure why until I mentioned how the healthcare law worked. You could see the light come on.

That makes you look at the jobs numbers in an entirely new light. When the government boasts of 6m jobs created, just where are those jobs and what do they pay? The majority of jobs lost were from the mid-range. The majority of the replacement jobs are from the low-range with lower hours and little advancement opportunity. After all, if you advance someone far enough they have to work more to earn that higher wage and there you go, potentially getting in trouble with the hours worked.

In any event, given Bernanke did not talk about tapering per the Thursday tweet, the market first jumped. Then it dumped. Another jump, another dump, all before lunch. As lunch started in the east, however, stocks found bottom and rallied into the afternoon, matching morning highs. A good old last hour sprint upside took the indices to session highs to close out the week.

SP500 7.03, 0.43%
NASD 27.41, +0.80%
DJ30 35.87, 0.24%
SP400 0.61%
RUTX 0.92%
SOX 0.89%

Friday volume as trade levels fell. The price moves were solid, however, with NASDAQ and SP400 running back up to their trendlines a day after showing doji at that level. Perhaps they do want to run higher along the trendline as in January and February.

The 'taper article' is out.

After hours the Hilsenrath rumor story was released. As with Bernanke's speech and Q&A, it didn't have much new to offer, but the effect of his stories is that he is accorded some status as the Fed's press mouthpiece.

The article states the Fed has mapped out a winding down strategy, one that will preserve flexibility and manage highly unpredictable market expectations. I will tell you why they are so unpredictable: because given all the intervention, the signposts the market used to be able to read and trust are distorted by years of zero interest rates, bond buying, etc. But I digress.

Timing, as always, is the key. After discussing how the Fed plans to reduce bond buying carefully and in halting steps based upon how the job market is doing vis- -vis inflation, the starting point, i.e. when it starts, is STILL BEING DEBATED. In other words nothing will be coming from the Fed anytime soon.


Reaction to tapering as other central banks ease more.

How will markets react? US futures fell after the news hit. It is official now apparently, even though various Fed officials gave interviews that discussed the need to taper sooner than later. Still, there is the old theory versus reality. Theory means nothing; reality is what you pay for.

It could be the Fed feels things are about to get out of control, perhaps not in the US but the rest of the world.

The ECB cut rates. Australia cut rates. Japan is in a whole separate league of monetary policy with $75B in bond buys per month and a bond market that has come uncorked.

South Korea pulled a surprise cut.

Vietnam cut rates Friday late. Poland cut rates.

New Zealand intervened in its currency market to devalue. Chile said it may intervene as well.

The US bond market, while not bouncing off the walls, just sold back sharply this week, pulling a round trip and more from the past two weeks where bonds surged back up. The LAST THING the Fed wants to see is a US bond market getting away from it with rates rushing to the upside and the Fed unable to rein them in.

If stock investors get a sense the Fed is worried about losing grasp of bond yields, the rally starts giving back gains. It is, as shown on Thursday, still just a liquidity driven market.


OTHER MARKETS

Dollar stronger again: 1.2977 versus 1.3033 versus 1.3156. A significant and rapid decline.

Bonds sharply weaker: 1.89% versus 1.81%: 1.76%: 1.78%: 1.76%: 1.74%; 1.63%; 1.63%; 1.67%; 1.67%; 1.67%; 1.72%; 1.69%; 1.70%; 1.69%; 1.71%; 1.69%; 1.70:; 1.72%; 1.69%; 1.72%; 1.79%; 1.81% 10 year Treasury. 1.81% vs 1.76%

A round trip and more on bonds as they sell off in the currency war turmoil.

Oil off: 96.04, -0.35

Gold crushed: 1436.60, -32.00


US Stock ownership at another record low.

US stock ownership at its lowest rate since 1998. At 52% ownership is the lowest since the Gallup poll began in 1998, 1% lower than last year's 53%. In 2007 just before the crash, 65% owned stocks.

Shockingly to all of those expecting an influx of money from the retail investor, only 17% said they were more likely to invest in the stock market. Money is a factor. With tepid and low quality job creation to replace those jobs lost in the huge collapse, even those working at jobs again do not have the money to invest. No money, no stocks, no 'wealth effect.'



Greece unemployment: New record at 27%. Ages 15 to 24: 64.2%, up 5% month/month. Austerity does not work WHEN the populace does not have the entrepreneurial spirit such as the US. In the US when the government cuts back on spending, stops taking so much in taxes, and reduces regulation, we create new businesses and grow the economy.


Foreclosure filings at a 6 year low in the US (Bloomberg). Yes, but what happens when the mortgage companies end the self-imposed moratorium?


IRS targets groups it doesn't like. Tea Party and Patriot groups were forced to provide voluminous amounts of information, much more than typical, in attempting to gain tax exempt status during the 2012 election. As if the IRS does not stifle economic activity enough in this country, it is prosecuting an ideological vendetta and using unconstitutional power to do so. Oh yes, and thousands of more agents are hitting the streets to enforce the healthcare law.



TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +27.41 points (+0.8%) to close at 3436.58
Volume: 1.673B (-6.9%)

Up Volume: 1.31B (+414.69M)
Down Volume: 370.82M (-537.64M)

A/D and Hi/Lo: Advancers led 1.95 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 203 (+20)
New Lows: 23 (+1)

S&P
Stats: +7.03 points (+0.43%) to close at 1633.7
NYSE Volume: 574M (-7.72%)

A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Decliners led 1.83 to 1

New Highs: 485 (-156)
New Lows: 52 (+1)

DJ-30
Stats: +35.87 points (+0.24%) to close at 15118.49

BREADTH: Very decent on NASDAQ at 1.95:1 but the NYSE fumbled at a mere 3:2.

VOLUME: Down 7% to 8% on the indices as they rallied. Friday.


THE CHARTS

SP500. After the Thursday pause a nice rally to close the week at a new closing high. Lighter trade but it was Friday after a good run. Still room in the range but also still creeping higher above the 200 day SMA where it gets wobbly.


NASDAQ. Came right back from that Thursday tombstone doji at the trendline and put in a higher high, trying to crack the upper channel line. It is attempting, for now, to ride higher along that uptrend line.


DJ30. Taking a back seat but following along nonetheless. As with SP500, still plenty of upside in the channel but also almost 11% above its 200 day SMA.


SP400. Riding up the November trendline, coming right back from the Thursday pullback.


RUTX. Nice break to a new high after a day off Thursday.


SOX. A third solid upside session in a row as SOX breaks free from the November trendline. It is just over 8 points from the prior recovery high post-bear market.


Summary: NASDAQ moved past the doji and looks as if it wants to glide along the upper channel line. SP400 looks as if it wants to do the same along its November trendline. SOX put in a solid week and the NYSE indices are following along well. Good run, most expect a test, but they can just slide higher up the trendline. The reaction to the 'tapering article' will tell more as well.


LEADERSHIP

Some are saying the market is setting up for a new pullback because they see stocks that have rallied well and are ripe. Those stocks may indeed pull back some. But, this market has also shown that when leaders pullback, money goes to new stocks and new leaders. That is the difference between this market and prior runs.

Perhaps it does top out. One fellow is saying PCLN is in a double top. I say it is breakout from a cup with handle base. I am not smart enough to know if it has topped but I will know when I can play it again and make money. Right now I feel that will be an upside play.

AAPL is in a good pullback. STX is testing a breakout. AMCC is in great position to continue higher.

As long as this market produces stocks in great position to run and then they break higher, the rally continues. When investors fear liquidity is leaving, they will sell. That may happen this week. It may happen in a month. We just need to play good stocks when they set up and then if things change, we protect our money, sell out when needed, and then play the other side if it develops.



THE MARKET

SENTIMENT INDICATORS

VIX: 12.59; -0.54
VXN: 14.34; -0.15
VXO: 11.63; -0.77

Put/Call Ratio (CBOE): 0.75; -0.25


Bulls versus Bears

Big spike in bears over 50%, pushing those September levels where the stock market struggled and faded into November. Bears higher as well; they are not as sanguine about the gains, indeed even more pessimistic.



Bulls: 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5% versus 52.0% versus 49.5% versus 47.4% versus 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. Has hit a soft patch. Higher then rolling over below the January and February highs. That market hiccup ahead of and to the Jobs Report. Now back up so . . . probably hangs over 50. 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: 19.8% versus 18.8% versus 19.6% versus 20.6% versus 20.6% versus 19.4% versus 19.6% versus 18.6% versus 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.


MONDAY

Earnings are on the wane but after a week that saw less economic data, this week there is piling on. Retail sales on Monday, PPI, Production, Capacity, Chicago and Philly PMI, Housing starts, Michigan sentiment. Friday is also expiration (Saturday really, but you cannot trade Saturday).

In addition to the economic data there is a ton of political intrigue and the usual (it seems) geopolitical issues. The IRS targeting conservative groups in one of the worst breaches of authority by an agency that is already unconstitutional in the exercise of its mandate. Republicans are demanding hearings and they should do it. As Juan Williams, a liberal said last night, this is not a party issue but an American one where such a powerful entity is targeting people on their beliefs.

Of course, the Department of Homeland defense is already doing that; if you are in a conservative group you are considered a potential domestic terrorist.

Then there is Benghazi. When the first hints of a cover up appeared I told many readers this was going to be a huge scandal. It has all the earmarks now. Then on Saturday, the White House briefs SOME reporters in private in what was first called 'off the record' but changed (a la the Benghazi attack talking points) to 'deep information' briefing under the requirement that no sources be cited. So, off the record was right. Then a press conference where only certain media is invited. The death of the US as a liberty loving country occurred when the press abdicated its role and decided to not cover news relating to one person and on issues that would potentially damage that person. It could be democrat or republican. When the press starts investigating or reporting, or NOT, based solely on the person, the topic, and its effect on its favorites, liberty is lost. Hello Pravda.

Okay, okay. I digress. But I am mad. We should all be mad this is happening. It damages our institutions. It makes businesses worried. When they are worried they don't spend. That impacts the economy, and stocks pick up on that first. So anyone reading this report should be burning up the phone and the keyboard calling and writing their Congressional reps.

Stocks ended the week refuting any weakness shown earlier. NASDAQ blew past its Thursday doji and SP400 is not recoiling from its trendline. SOX is stellar.

That doesn't mean they won't have pauses or pullbacks, but as seen in January and February, they can rally up their trendlines for a long time. Friday they shows flashes of that.

The question now is whether the 'taper' article has any impact. Stocks tend to overreact to such stories, but when the move is driven totally by liquidity, that is understandable.

If there is weakness things are trickier. The market has met any pullback with buying on the dips. If the market is worried about the Fed tapering, even if it knows it won't happen soon based upon, if you believe it, the Hilsenrath article, investors may decide not to enter on the dip next time.

So, we have been taking gain on the upside as stocks hit logical targets. We have already banked great gain on many positions, but the newer ones are not there yet. Thus we have good stop loss points in place. If there is selling, given the unknown if stocks will come back this time given a possible change in the landscape, it is best to honor those and then if things hold up, buy back in.

There are still MANY stocks in great position to buy. That can, of course, change rapidly if the news is bad enough. Given what the article said, i.e. nothing really new, the market may not view it as anything significantly new. After all, the Fed minutes talked of this kind of taper and the market is hitting new highs yet again.

Thus be logical and reasonable. Keep good stops and be ready to buy in again if stocks sell but then recover. If they don't that is a different story and we will play it. If stocks hold up, we can continue to look for opportunity because, as noted there are still many excellent buy possibilities.


Support and resistance

NASDAQ: Closed at 3436.58

Resistance:
3436 is the upper channel line for the November 2012 to present uptrend

Support:
3401 is the May 2000 closing low
3321 from April 2000
3318 is the November 2012 up trendline
The 50 day EMA at 3271
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 2011 up trendline at 3197
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
3104-3112 from August and mid-October peaks.
The 200 day SMA at 3110
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
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 1633.70

Resistance:
1662 is the upper trendline in the channel

Support:
1598 is the April 2013 high and former all-time high
The November up trendline at 1592
1576 from October 2007, the prior all-time high
The 50 day EMA at 1570
1556 from July 2007
1539 from June 2007
1531 is the recent high
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
The 200 day SMA at 1471
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
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 15,118.49

Resistance:
15,360 is the upper channel line for the trend off the November low.

Support:
14,888 is the April peak and prior all-time high
The November up trendline at 14,775
The 50 day EMA at 14,597
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
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
The 200 day SMA at 13,657
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
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


Economic Calendar


May 13 - Monday
Retail Sales, April (8:30): -0.3% expected, -0.4% prior
Retail Sales ex-auto, April (8:30): -0.2% expected, -0.4% prior
Business Inventories, March (10:00): 0.3% expected, 0.1% prior

May 14 - Tuesday
Export Prices ex-ag., April (8:30): -0.2% prior
Import Prices ex-oil, April (8:30): -0.2% prior

May 15 - Wednesday
MBA Mortgage Index, 05/11 (7:00): 7.0% prior
PPI, April (8:30): -0.5% expected, -0.6% prior
Core PPI, April (8:30): 0.1% expected, 0.2% prior
Empire Manufacturing, May (8:30): 3.5 expected, 3.1 prior
Net Long-Term TIC Fl, March (9:00): -$17.8B prior
Industrial Production, April (9:15): -0.2% expected, 0.4% prior
Capacity Utilization, April (9:15): 78.3% expected, 78.5% prior
NAHB Housing Market Index, May (10:00): 44 expected, 42 prior
Crude Inventories, 05/11 (10:30): 0.230M prior

May 16 - Thursday
Initial Claims, 05/11 (8:30): 330K expected, 323K prior
Continuing Claims, 05/04 (8:30): 3005K expected, 3005K prior
CPI, April (8:30): -0.2% expected, -0.2% prior
Core CPI, April (8:30): 0.2% expected, 0.1% prior
Housing Starts, April (8:30): 970K expected, 1036K prior
Building Permits, April (8:30): 950K expected, 902K prior
Philadelphia Fed, May (10:00): 2.5 expected, 1.3 prior
Natural Gas Inventor, 05/11 (10:30): 88 bcf prior

May 17 - Friday
Michigan Sentiment, May (9:55): 78.5 expected, 76.4 prior
Leading Indicators, April (10:00): 0.3% expected, -0.1% prior

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

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com