Just Expiration or Just More Buying?

MARKET SUMMARY

- Just expiration or just more buying? Rally kicks into gear again to close out May options.
- After Thursday's economic data splashed cold water on the hot and heavy rally, Michigan Sentiment, Leading Indicators purportedly reignite the upside.
- Sentiment at levels that prompted prior pullbacks in the rally.
- Letting positions ride higher, but after this run the risk/reward is overall obviously lower. Still opportunity, but you definitely have to pick your shots and know your game plan.

An impressive ramp to the close finished the week with panache as the indices ran to new highs with another melt higher, this one to end expiration.

SP500 17.00, 1.03%
NASD 33.73, 0.97%
DJ30 121.18, 0.80%
SP400 0.98%
RUTX 1.11%
SOX 1.37%

Volume rallied 17% NYSE, down 6% NASD but did rebound late. Expiration? Likely. NASD had solid volume all week. Sign of the retail investor returning? Likely not but it is a nice thought that the networks and a few hopeful bullish commentators recycled from the 1990's keep saying.

No, don't get me wrong. There are some retail investors returning. When NASD caught fire and GOOG, NFLX, PCLN filled in for the massive void left by AAPL's rot, the retail investor got interested. The GOOG/PCLN race higher is interesting, kind of like the McGuire/Sosa home run battle. Hopefully we will not have the sad realization that one of their bats (i.e. earnings reports) was illegally juiced. CL? CLX? PG? No sex appeal even in great gains. Throw out LNKD and GOOG, and then mix in MSFT's 'revival,' and you get the retail interest: 'Look Martha, looks as if GOOG is the new QCOM. Remember QCOM up over $200 in a day on its stock split announcement? Those were the days . . .' Toss in some stock splits from CRM and Whole Foods (Is it now known as Half Foods?) and you get some interest brewing. Maybe they return. We are, however, making great money in the interim.

The economic data was blamed Thursday for the market decline. The economic data Friday was credited with the surge. Whatever works as the analysts play pin the tail on the cause of the rally.

Michigan Sentiment topped expectations with the biggest beat ever:
83.7 versus 77.9 expected versus 76.4 prior.

LEI April: 0.6% versus 0.3% expected, -0.2% prior (revised from -0.1%)


OTHER MARKETS
Dollar stronger: 1.2839 vs 1.2887. Should be given the better data.

Bonds dove, continuing their back and forth action, though the trend is clearly lower: 1.94% versus 1.87%. This is also in line with better data, but it also continues the Japan-induced bond selloff.

Oil rallied even with a stronger dollar: 96.02, +0.86

Gold hammered again: 1358.30, -28.60


Juxtapose the economic data reported with what companies said Friday. ADSK, DELL, JCP, JWN all missed big on earnings. Guidance was not great. As the Q1 earnings season winds down the theme is a weakening of earnings growth and the continuing problem of top line earnings misses. While there are many companies that reported solid results all around, it is clear the economy is still not strong enough to produce top line earnings growth. As a consequence, companies are not feeling great about the future, and that continues one of the major problems in the US: continued lack of investment in business and that means continued weak jobs growth, exacerbated by the changes the healthcare law is pushing down on the labor market. But, don't worry, Michigan Sentiment is super.

Not complaining, just looking at the data and all of the major problems and scandals in the US you have to keep your sense of humor to temper your anger and frustration as to what is going on.

But . . . the market was strong. Very solid. Given given the strength we let positions run. No reason to cut them off. The risk/reward for new plays at this level is still, overall, less than ideal. Many stocks are not in buy points, but some money continues to rotate into new areas, and there are individual very good patterns. BIDU for example. This coming week we will see again if the buyers stay in, and if so, we pick up well-positioned stocks that have good risk/reward, i.e. good upside potential versus small downside based upon support.

Still on the road in the Midwest, seeing some of the US and just how much of a recovery this is. Joplin, Missouri has posted a strong comeback from the tornado and enjoyed spending time at the Art Walk held downtown every third Thursday and enjoying some rather unusual burgers and dogs as Instant Karma.

There is activity, about 1.5% to 2% annual GPD activity and of course that comes from the Fed's $85B/month. The notion from some market 'mavens' and purportedly some on the Fed is that the economy can do well even if QE is removed. Some of those on the Fed, I feel, really believe the Fed may be doing more damage than good with the QE and thus want us to believe the economy can get by without QE. Maybe it can; the government is crowding out so much investment that perhaps if QE ended banks would be forced to lend to make money and the balance in the economy would slowly start to be restored. With the healthcare law's impact on the jobs market, with higher taxes, with so many thousands of new regulations burdening people and business, however, any move recovery would continue to be painfully slow and well below our potential.

That makes for an interesting summer of taper and possible ramifications, but the market was not worried about that Friday.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +33.72 points (+0.97%) to close at 3498.97
Volume: 1.806B (-6.52%)

Up Volume: 1.33B (+408.15M)
Down Volume: 462.87M (-547.13M)

A/D and Hi/Lo: Advancers led 2.2 to 1
Previous Session: Decliners led 1.33 to 1

New Highs: 261 (+24)
New Lows: 17 (-10)

S&P
Stats: +17 points (+1.03%) to close at 1667.47
NYSE Volume: 724M (+17.53%)

A/D and Hi/Lo: Advancers led 2.39 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 697 (+122)
New Lows: 105 (+18)

DJ-30
Stats: +121.18 points (+0.8%) to close at 15354.4

BREADTH: Solid bump but not a huge ramp necessarily matching the index gains. 2.2:1 NASDAQ, 2.4:1 NYSE.

VOLUME: Again mixed and flip-flopped. Down 6.5% NASDAQ, up 17% NYSE. Down on NASDAQ but still solid and above average. Not bad. Note that volume was elevated all week on NASDAQ so even though volume faded Friday the overall trade, whether due to expiration or not, was elevated as the index climbed.


THE CHARTS

SP500. Rising toward that upper channel line, and we are letting the SSO play and indeed other plays continue to rally toward that resistance. Again, this does not mean that the index HAS to turn over there. NASDAQ broke through. As seen in January and February, it can slide up the trendline for weeks. So we let it run and pick specific plays.


NASDAQ. Broke through the upper channel line Tuesday, and after hesitating Thursday, powered higher Friday. Lower trade but still above average volume trade. With GOOG, PCLN and NFLX helping lead it higher, NASDAQ is overcoming the slow days for now.


DJ30. As with SP500, the Dow is heading toward its upper channel line, and looks set to test it. Then we see the reaction. Will SP500 and DJ30 reaching that resistance cause a market pullback, or does the money continue to flow in and keep the index running up that trendline.


SP400. Broke through the November trendline, faded to test Thursday, then rallied back up Friday. Back in the channel again, out where a friend is a friend . . .


RUTX. Still moving up and closing in on the November trendline.


SOX. Quick test of the break of resistance through Monday, then a steady move higher, interrupted by the Thursday weakness, but then right back up Friday. NASDAQ and SOX are a powerful combination for the market rally.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.45; -0.62
VXN: 13.3; -0.42
VXO: 12.24; -0.34

Put/Call Ratio (CBOE): 0.81; -0.18


Bulls versus Bears

Bulls continue to rise toward the September 2012 and February highs that marked peaks in the stock market before a pullback. Normal pullbacks, but pullbacks nonetheless.



Bulls: 54.2% versus 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.

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 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

Not as much data, but Bernanke speaks Wednesday ahead of the FOMC minutes release. Earnings slow way down. The market is . . . on its own.

I have said it many times, to the point of distraction it would seem, but after this run the risk/reward is lower right now for generally buying the market. I mean SP500 and DJ30 are near their upper channel lines. They have to break resistance to keep moving, or at least ride up resistance. They can do it no doubt; seen it before. But, they are not in as good of position to buy, say with some SSO, as they were a month back. Obvious.

That makes this market a bit more problematical right now. It can slide higher along the channel line or break higher as noted, but it is hard to gauge how much more upside there is here. You don't want to cut it off by closing positions, but the question is how much more do you buy here.

Ahhhh. This is now what the TV people call a 'stock pickers market.' As if to get the great returns it is typically not. Anyway, it simply puts a premium on play selection and KNOWING what you want from a play in terms of what you can realistically and logically make on it if it works out. You want to have a good exit point as well; have to keep the requisite amount of upside reward to downside risk. They are out there and we will continue to look at them. We just have to recognize that the market and sentiment is at points in past runs where it topped and faded for a consolidation. With that in mind we can look for and enter new plays and still take advantage of any upside. If the market continues upside then our current positions make us more money and our new ones add to that.



Support and resistance

NASDAQ: Closed at 3498.97

Resistance:
3521 is the August 2000 low.

Support:
3455 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low
3343 is the November 2012 up trendline
3321 from April 2000
The 50 day EMA at 3307
3227 is the April 2000 intraday low
The 2011 up trendline at 3203
3197 is the September 2012 post-bear market high
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
The 200 day SMA at 3125
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
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 1667.47

Resistance:
1673 is the upper trendline in the channel

Support:
The November up trendline at 1699
1598 is the April 2013 high and former all-time high
The 50 day EMA at 1597
1576 from October 2007, the prior all-time high
1556 from July 2007
1539 from June 2007
1531 is the recent high
1499 from January 2008
The 200 day SMA at 1478
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
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


Dow: Closed at 15,354.40

Resistance:
15,460 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 14,840
The 50 day EMA at 14,714
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
The 200 day SMA at 13,716
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
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): 0.1% actual versus -0.3% expected, -0.5% prior (revised from -0.4%)
Retail Sales ex-auto, April (8:30): -0.1% actual versus -0.2% expected, -0.4% prior
Business Inventories, March (10:00): 0.0% actual versus 0.3% expected, 0.0% prior (revised from 0.1%)

May 14 - Tuesday
Export Prices ex-ag., April (8:30): -0.5% actual versus -0.3% prior (revised from -0.2%)
Import Prices ex-oil, April (8:30): -0.2% actual versus -0.1% prior (revised from -0.2%)

MBA Mortgage Index, 05/11 (7:00): -7.3% actual versus 7.0% prior
PPI, April (8:30): -0.7% actual versus -0.5% expected, -0.6% prior
Core PPI, April (8:30): 0.1% actual versus 0.1% expected, 0.2% prior
Empire Manufacturing, May (8:30): -1.4 actual versus 3.5 expected, 3.1 prior
Net Long-Term TIC Flows, March (9:00): -$13.5B actual versus -$13.3B prior (revised from -$17.8B)
Industrial Production, April (9:15): -0.5% actual versus -0.2% expected, 0.3% prior (revised from 0.4%)
Capacity Utilization, April (9:15): 77.8% actual versus 78.3% expected, 78.3% prior (revised from 78.5%)
NAHB Housing Market Index, May (10:00): 44 actual versus 44 expected, 41 prior (revised from 42)
Crude Inventories, 05/11 (10:30): -0.624M actual versus 0.230M prior

May 16 - Thursday
Initial Claims, 05/11 (8:30): 360K actual versus 330K expected, 328K prior (revised from 323K)
Continuing Claims, 05/04 (8:30): 3009K actual versus 3005K expected, 3013K prior (revised from 3005K)
CPI, April (8:30): -0.4% actual versus -0.2% expected, -0.2% prior
Core CPI, April (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Housing Starts, April (8:30): 853K actual versus 970K expected, 1021K prior (revised from 1036K)
Building Permits, April (8:30): 1017K actual versus 950K expected, 890K prior (revised from 902K)
Philadelphia Fed, May (10:00): -5.2 actual versus 2.5 expected, 1.3 prior
Natural Gas Inventor, 05/11 (10:30): 99 bcf actual versus 88 bcf prior

May 17 - Friday
Michigan Sentiment, May (9:55): 83.7 actual versus 78.5 expected, 76.4 prior
Leading Indicators, April (10:00): 0.6% actual versus 0.3% expected, -0.2% prior (revised from -0.1%)

May 22 - Wednesday
MBA Mortgage Index, 05/18 (7:00): -7.3% prior
Existing Home Sales, April (10:00): 4.98M expected, 4.92M prior
Bernanke Testimony (10:00)
Crude Inventories, 05/18 (10:30): -0.624M prior
FOMC Minutes, 5/1 (14:00)

May 23 - Thursday
Initial Claims, 05/18 (8:30): 348K expected, 360K prior
Continuing Claims, 05/11 (8:30): 3005K expected, 3009K prior
FHFA Housing Price Index, March (9:00): 0.7% prior
New Home Sales, April (10:00): 425K expected, 417K prior
Natural Gas Inventories, 05/18 (10:30)

May 24 - Friday
Durable Orders, April (8:30): 1.6% expected, -6.9% prior (revised from -5.8%)
Durable Goods -ex transports, April (8:30): 0.5% expected, -2.9% prior (revised from -1.5%)

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

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

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