Monday, November 25, 2013

Temporary Jobs Swamp the Economy

MARKET SUMMARY

- Stocks add to the Thursday renewal of the renewal rally.
- Bernanke's Bluff: His emphasis on creating a higher stock market created wealth, but at the very upper end, and it is not being put to work.
- JOLTS versus Non-Farms: both BLS data, but JOLTS net jobs picture is much dimmer.
- Temporary jobs swamp the economy.
- Bonds and gold suggest Fed has no choice but to pull QE, now sooner than later, but will the Fed have more resolve than China?
- Thanksgiving week is typically higher, but more and more downside possibilities are presenting.

Another move higher as SP500 posts 7 weeks upside, crosses 1800.

DJ30 pushed past 16K on Thursday so it was fitting SP500 pushed over 1800 on the Friday close. Ah, another milestone.


'Well, June, another milestone . . . ' Ward as he ponders Wally heading out on his first solo date. 'Leave it to Beaver'

The two market leading indices pushed to new highs Friday, pulling the rest of the market with them.

SP500 8.91, 0.50%
NASDAQ 22.50, 0.57%
DJ30 54.78, 0.34%
SP400 0.20%
RUTX 0.47%
SOX 0.06%

Volume mixed: -7.8% NYSE, +2.2% NASDAQ

SP500 posted its seventh upside week, something not done since, get this, back in 2007. With all the QE pushed into the markets since early 2009, you have to go pre-crash to get a 7 week run. Now the cynical could look at that and say that suggests the current run is getting old; after all, the stock market crashed starting 2007.


Fed at the crossroads: new chairman but new policies or the same old? QE has NOT worked.

Whether it crashes or not remains to be seen. For now the Fed is still flooding the economy and thus the stock market, with liquidity, though I believe Bernanke really wants to end QE as he realizes that it has not worked to plan. Yes the stock market has surged, but the 'wealth effect,' if any, resides in the top 0.1% of the socioeconomic scale. Sales of yachts, armored automobiles, homes with price tags in the tens of millions are strong, providing most of the consumption in the economy.

Economy is NOT strong.

It is a misstatement to say that the economy is strong. The upper end has concentrated more and more of the wealth as several studies have detailed the financial market gains are in the most part going to the wealthiest with net worth in excess of $10M. We of course have made great money in this stock market run, but you are the exception in the 'ordinary' US citizen.

The 1970's again as Obama gets the second term Carter was denied because of actual media reporting.

This is so very similar to the 1970's and the rolling recessions and rolling stock market of that time. Money was made by the top end, but much of it was simply not put to use given high tax rates, regulations, and uncertainties. Today uncertainties and high regulation are keeping those who have made money from spending it. They are using the virtually free money available to the upper end to make more money, but that money is not being invested in the US. It is, as it was in the 1970's, put away, sheltered, waiting for a better risk/reward climate to return to productive use. Why start a business when you have regulatory risk (the EPA is virtually unfettered in writing regulations over businesses), uncertain insurance risk, uncertain foreign policy risk? If you are ultra-wealthy you can afford to sit it out and wait.

There was an oil boom in the late 1970's just as there is one now. At the same time some areas of the country benefit from that boom, the majority of other industries are stagnant. Auto sales remain rather solid, but the US has a peculiar love for an auto and will sacrifice most everything else to drive a new vehicle. Indeed, new, upscale vehicles are the opiate of the middle class. Give them a nice car to drive and they feel they have 'made it.' The federal government is happy to oblige, underwriting millions up millions of dollars of auto loans. Recall that consumer credit saw NEGATIVE credit card debt but surging auto and student loan debt. Why? Because we have been well-taught that we don't have to pay back government loans.

There are few jobs created, most part-time.

You are told that the economy is creating 184K non-farm jobs per month over the past year. Yet the JOLTS data (jobs created net jobs lost) released Friday, also straight from BLS records, indicates just 150K jobs per month.

And what is the makeup of those jobs? Investor's Business Daily compiled the data and found that since August 2009, post the President's 'stimulus' package, temporary jobs have grown 57% versus 4% gains for all other categories.




But let's go beyond the parsing. Those in the news and economics industry get caught up in indicators here and there. The Administration only looks at the numbers the BLS produces, and those are now at least HIGHLY questionable given the recent revelations about the pre-election sharp unemployment rate decline.

No, the cold, hard, naked, and sobering big picture facts show how this is a non-jobs producing economy. I have stated these figures before, but they are devastating to the argument that a 5 year recovery is gaining speed and indeed is even a recovery.

91.5M working aged citizens are completely out of the workforce. 14M working aged citizens are looking for work but are either out of work or cannot find a fulltime jobs. Thus, approximately 105M people of working age are not working.

41.3% of the US population receives federal government benefits as of January 2013 (Heritage Foundation). That is 128M people, but Heritage notes that most likely undercounts the number as it is based on 2011 census stats. 46.5M people receive food stamps. Growth in the percent of people receiving assistance far exceeds population growth: since 1988, 62% more people receive benefits while the population has grown just 27%. Benefit recipients are growing at more than 2x population growth.



The bottom line:

-The US population is 316M, young and old, working age and non-working age.
-105M WORKING AGE people are out of work.
-One-third of the TOTAL US population is not working.

How can ANYONE argue the economy is good today? In March 2009 when QE started there were roughly 81M people out of the workforce. In the 'recovery,' another 10.5M have dropped out of the workforce. If you look at late 2007, 'just' 78.5M were out of the workforce. The 'recovery' should see people return to the workforce. Not happening.

The result: wealth created (given?) is being hoarded thanks to the economic/government climate.

These stats make my point: any benefits from QE have gone to the very few just as the stimulus benefits went to a few select favorites of the Administration. It is now apparent that the effects/benefits have been the same for the overall economy: none. The money goes to the select and they recover and growth their wealth, but they do nothing with it for now because of such a poor and uncertain economic environment.

By uncertain, I don't just mean the poor economic performance, but the whim of the Administration, particularly now that the filibuster rule in the Senate is gone for judicial appointments and will be gone for even legislation before this is all finished. No one is willing to risk what they were given back in the great stimulus wealth redistribution and the QE bubble creation.


Taper at Christmas or wait until January?

Bernanke sees that QE is not working as hoped and is creating massive imbalances. Yellen sees the same thing. While they will try to keep interest rates low for decades, QE is another story. Whether there is a taper in December frankly depends the level of coordination in the Bernanke to Yellen transition. They know each other well and both believe in money printing at the first sign of trouble, having orchestrated QE together. Thus it is altogether possible that QE, conceived in Princeton under the notion that all money printing is stimulus, will be shelved or 'un-tapered' as early as December. I do believe the Fed is THAT worried about it.

The bond market is already of that opinion. It has in reality been convinced since the summer 2012. For now the Fed has fended off the wolves, i.e. the bond market has bounced three times off of a key level at 2.8% 10 year. The real key is 3%, but if it breaks, it will take no time to get there.

Gold has made that decision as well, and at the same time bonds made it, i.e. the summer of 2012. Compare the gold chart with bonds. Identical.


Can the Fed stick to it?

We have already heard from the Fed that if it tapers, it can 'un-taper' just as easily. Sounds a LOT like the PBOC. It has tried for a year to wean from continued stimulus, and every time it vows it is finished with it and implements policies, the markets go ballistic and it is dragged back in.


'Just when I thought I was out, they pull me back in.' Don Corleone, God Father Part III

Thus you heard on at least three occasions last week Fed speakers saying that the Fed would stay accommodative with low interest rates for years, implying they would remain accommodative even if QE is withdrawn. The Fed is talking. It is going to taper sooner than later, December or in January. That is a change from my QEternity, but the Fed has stepped up its 'ending QE is not tightening' ads.


THE MARKET

OTHER MARKETS:

Dollar: Faded to the 50 day EMA in its two week test of the break higher. Should continue upside. 1.3549 versus 1.3470 versus 1.3435 versus 1.3541 versus 1.3504 versus 1.3496 versus 1.3456 versus 1.3459 versus 1.3434 euro.

Bonds: Gapped upside, tapped the 10 day EMA, faded some. May try an oversold bounce, but longer term the trend is lower as bonds factor in a Fed taper.

2.80% versus 2.80% versus 2.71% versus 2.66% versus 2.70% versus 2.71% versus 2.71% versus 2.73% versus 2.77% versus 2.75%.

Oil: 94.83, -0.51.

Gold: 1244.30, +0.60. Modest bounce as Gold has hit support and is trying to hold, but thus far it is unable to bounce. A triangle at support the past four months but nothing thus far.


CHARTS

NASDAQ: Bounced for the second session after the decline Monday to Wednesday. Now at the upper trendline of the wedge pointing upwards (tend to break lower). Lower volume upside. Now we see what kind of strength this move has, i.e. can it breakaway from the upper channel line.

RUTX: Recovery high on this bounce off the 50 day EMA test from two weeks back. Mid-channel, higher low, not bad.

SP400: Higher low last week, very close to the upper channel line of its uptrending channel. Pinching off just below the upper channel line, and similar to NASDAQ, an important test this week.

SOX: Held the Thursday bounce off the 50 day EMA and that is about all. Held where it had to at the bottom of the recent 5 week range, sitting in the middle of it. Still more or less weak overall but holding on where it needs to.

SP500: new high as it continued its bounce off the 10 day EMA test.

DJ30: Same as SP500, bouncing off the Wednesday test of the 10 day EMA.



MARKET INTERNALS and STATS

NASDAQ
Stats: +22.5 points (+0.57%) to close at 3991.65
Volume: 1.711B (+2.21%)

A/D and Hi/Lo: Advancers led 1.57 to 1
Previous Session: Advancers led 3.28 to 1

New Highs: 240 (+56)
New Lows: 23 (-11)

S&P
Stats: +8.91 points (+0.5%) to close at 1804.76
NYSE Volume: 532M (-7.8%)

A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Advancers led 2.83 to 1

New Highs: 246 (+89)
New Lows: 114 (-3)

DJ30
Stats: +54.78 points (+0.34%) to close at 16064.77


SENTIMENT INDICATORS

VIX: 12.26; -0.4. Heading toward 2013 lows, but as noted before, VIX can move laterally as stocks move higher.
VXN: 13.65; -0.36
VXO: 11.45; -0.36

Put/Call Ratio (CBOE): 0.94; +0.15


Bulls and Bears:

Bulls resumed their upside move after that week hiatus. Bears are less certain, holding for a third week at the 15.5 level. Still at high levels for bulls and low levels for bears.





Bulls: 53.6 versus 52.6 versus 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Right back up after fumbling a point. That leaves it still quite high.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 15.5 versus 15.5% versus 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Holding steady at the 15.5ish level for the third week. The dive has stopped but no rebound in fear. Likely some next week given the early week selling this week, but it would appear this too will pass.

Background: 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.


THANKSGIVING WEEK


'Gobble, gobble. (snort).' 'I want a f*****g car!'
--'Planes, Trains, and Automobiles', a Thanksgiving classic.


Conventional wisdom is Thanksgiving week is upside. It typically is and with an upside run in place that seems to find buyers when it needs to as funds chase performance to year end, the odds seem to favor continued upside overall.. Indeed, I read an article this weekend that discussed how hedge funds had an average 6% return the back half of the year. They DO need to play catch up and at least make it look a bit better. Strong impetus for a self-created run.

That said, there are more downside plays presenting themselves. After a big run that makes sense. The key is whether they follow through or just again find buyers and continue upside.

Retail is interesting as an example. Charts overall show uptrends. Results are very mixed: Macy's, HD, WSM, FL on one side, ROST, TGT, DLTR on the other. Their charts reflect the divergence in earnings results. Will buyers return to ROST, DLTR, etc? We will see some response this week.

That said, we have a split of new upside and downside on the report. Be prepared, right? Overall you have to lean toward a continued upside run in the holiday season to year end as funds chase performance, but at the same time there are stocks breaking lower as results from the economy are just not that strong. Harsh reality could hit after year end or when the Fed really tapers as investors might figure the economy is not strong enough but the Fed has had to bow out thanks to QE just not fixing the economy (surprise!).

We have some good positions, but if more present this week as they come out of good tests, we won't mind picking them up. A run is a run, and year end runs can be good. So we will watch plays, but we are not going to do much in the way of reports. Giving myself and the staff a break. We will trade; we always do . . . but, no full blown reports. Enjoy the week with family and friends, make some money, try not to worry too much about Congress, the Administration, power grabs, the Fed, weak economic numbers, etc.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 3991.65

Resistance:
3995 is the November 2013 high and the post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
3967 is the October 2013 post-bear market high.
3959 is the upper channel line for the November 2012 to present uptrend.
The 50 day EMA at 3860
3855 is the November low
3838 is the November 2012 trendline
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
The 200 day SMA at 3530
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3475
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1804.76

Resistance:
8.9% over the 200 day SMA, not so extended.

Support:
1775.22 is the October prior all-time high
The 20 day EMA at 1774
The 50 day EMA at 1742
1730 is the September 2013 peak
1713 is the December 2012 up trendline
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
The 200 day SMA at 1645
1627 is the August 2013 low
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high


Dow: Closed at 16,064.77

Resistance:

Support:
The 10 day EMA at 15,913
15,798 the November 2013 high
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 50 day EMA at 15,559
15,542 is the May 2013 intraday high
15,318 is the June closing high
The 200 day SMA at 15,052
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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


Economic Calendar

November 22 - Friday
JOLTS - Job Openings, September (10:00): 3.910M actual versus 3.844M prior (revised from 3.883M)

November 25 - Monday
Pending Home Sales, October (10:00): 1.3% expected, -5.6% prior

November 26 - Tuesday
Housing Starts, September (8:30): 915K expected, 891K prior
Housing Starts, October (8:30): 920K expected,
Building Permits, September (8:30): 932K expected, 918K prior
Building Permits, October (8:30): 932K expected,
Case-Shiller 20-city, September (9:00): 13.0% expected, 12.8% prior
FHFA Housing Price I, September (9:00): 0.3% prior
Consumer Confidence, November (10:00): 72.4 expected, 71.2 prior

November 27 - Wednesday
MBA Mortgage Index, 11/23 (7:00): -2.3% prior
Initial Claims, 11/23 (8:30): 330K expected, 323K prior
Continuing Claims, 11/16 (8:30): 2875K expected, 2876K prior
Durable Orders, October (8:30): -2.2% expected, 3.8% prior (revised from 3.7%)
Durable Goods -ex tr, October (8:30): 0.2% expected, -0.2% prior (revised from -0.1%)
Chicago PMI, November (9:45): 58.0 expected, 65.9 prior
Michigan Sentiment -, November (9:55): 73.0 expected, 72.0 prior
Leading Indicators, October (10:00): -0.1% expected, 0.7% prior
Crude Inventories, 11/23 (10:30): 0.375M prior
Natural Gas Inventor, 11/23 (10:30): -45 bcf prior

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

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

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Monday, November 18, 2013

New York PMI Flips Negative

MARKET SUMMARY

- Market continues midweek surge on a week that turned some weariness into renewed strength.
- Lots of very interesting news Friday.
- New York PMI flips negative. Does the contrapositive apply?
- Industrial production, capacity stumble.
- Gallup: Christmas spending plans not galloping along.
- Stocks finish a good week, holding or advancing their gains.

Futures rose Friday as stocks set up to continue the new upside advance started Wednesday. Whatever heaviness indices such as NASDAQ showed was swept aside Wednesday with a new strong upside break. It was no one-day wonder; stocks continued higher Thursday and put emphasis on the move Friday. Not all stocks were up but most did a very good job of holding onto the week's gains if they did not add to the advance Friday.

SP500 7.56, 0.42%
NASDAQ 13.23, 0.33%
DJ30 85.48, 0.54%
SP400 0.31%
RUTX 0.43%
SOX 0.70%

Volume mixed: NASDAQ trade -4%, NYSE +19%

Breadth: Again decent on NYSE at almost 2:1, a mediocre 1.5:1 NASDAQ.


THE NEWS

Friday saw many stories hit, most tangentially related to stocks as they dealt with the economy, but there were some stock specific stories.

Banks Downgraded.

Moody's decided it needed to downgrade four banks (JPM, BAC, GS, BK) on concerns their run of gains on free money might be upset if the Fed has to start tapering and as interest rates move higher. Didn't seem to hurt the action all that much.

New York PMI flips.

Empire Manufacturing, November: -2.2 actual versus 4.3 expected, 1.5 prior

Quite the turn of events as it was supposed to triple the 1.5 from October but instead missed by 6.5 points. That was the lowest reading since January 2013. The government shutdown was blamed.

Recall the string had been moving higher and in general PMI readings were stronger. As ECRI and others pointed out, however, the PMI results that are designed to PREDICT ultimate sales are not doing so over the past few years. Not only is the predictability less than accurate, the numbers are actually negatively correlated to sales.

The question that has not been answered is whether the contrapositive applies, i.e. a negative PMI means positive sales. Doubt it.


Industrial production and capacity slip.

Industrial Production, October: -0.1% actual versus 0.1% expected, 0.7% prior (revised from 0.6%)
Capacity Utilization, October: 78.1% actual versus 78.3% expected, 78.3% prior


Gallup: Christmas spending plans curtailed.

A new Gallup poll Friday suggests consumers are not as confident, that retail is not as 'smoking' as Macy's results suggested to some earlier in the week. Macy's pumped up sales with regional promotions that brought in enough volume to offset decreased margins. As we saw last week, others week not so fortunate. Not bad companies, but unable to bring in the sales.

Is it because they are poorly managed as some on CNBC say about any company that cannot make earnings in this economy? We have detailed the decreased buying power that slack wages are losing ground against inflation rates at double the wage gains. That is now showing up in Christmas shopping plans.

A majority of 'average Americans' as polled by Gallup shows they will spend 10% less than in 2012. Moreover, they will spend 19% less than in 2007. In 2007 recall that the financial crisis had started to unfold in September. We are now, according to our leaders, in the fifth year of recovery. Yet, we are going to spend almost 20% less than we spent the Christmas the crisis unfolded. What a recovery!


THE MARKET

There is not a lot of commentary you can add to the Friday action. The indices, and many stocks as well, basically extended the move that renewed itself on Wednesday. All of the misgivings we may have had about NASDAQ's heavy look and churn/distribution was gone with the surge. RUTX, SOX, and SP400 all tested to the 50 day EMA the prior week and reversed after one session. That was apparently enough for the large cap indices as they held their gains, using the tests of the smaller cap indices to their advantage.

New highs on SP500, DJ30 and SP400. A new post bear market high for NASDAQ and a new post-bear market closing high for SOX. The Russell 2000 was left out, but it was not down and out. That index continued its bounce off the 50 day EMA and the bottom of its channel, moving back up in its uptrend.

Leaders showed strong moves on the day while some simply held onto gains. Ending an up week holding gains is not bad. It would be nice to get a test and set up some new buys on stocks that have run and are extended, at least to extended to initiate plays, but the market doesn't want that. Money was ready to come in and it did, ready or not. That pushed stocks upside across the board.

Friday leaders: AMX, AXLL, BABY, KIRK, EDU, GNRC, LNKD, VISN. There are many more but as you can see, leaders crossed many sector boundaries.


OTHER MARKETS:

Dollar: 1.3496 versus 1.3456 versus 1.3459 versus 1.3434 euro. Faded all week but holding the break higher over the 50 day EMA.

Bonds: 2.70% versus 2.71% versus 2.71% versus 2.73% versus 2.77% versus 2.75%. Relief bounce on the week. Still look weak after the three week plunge to support.

Oil: 93.82, +0.07. Lateral move overall the past two weeks after the decline from the September highs. Trying to set up a bounce. Trying.

Gold: 1287.50, +1.00. Modest bounce Wednesday to Friday as gold sold to interim support and is putting in a modest bounce.


MARKET INTERNALS and STATS

NASDAQ
Stats: +13.23 points (+0.33%) to close at 3985.97
Volume: 1.871B (-3.8%)

Up Volume: 1.2B (+291.14M)
Down Volume: 600.04M (-439.96M)

A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Decliners led 1.09 to 1

New Highs: 172 (-13)
New Lows: 46 (-13)

S&P
Stats: +7.56 points (+0.42%) to close at 1798.18
NYSE Volume: 688M (+18.83%)

A/D and Hi/Lo: Advancers led 1.93 to 1
Previous Session: Advancers led 1.9 to 1

New Highs: 242 (-7)
New Lows: 75 (-4)

DJ30
Stats: +85.48 points (+0.54%) to close at 15961.7


SENTIMENT INDICATORS

VIX: 12.19; -0.18. Fading further toward the 2013 range lows. Three days down to end the week. This suggests market selling, but it does not trump some pretty good technical action.
VXN: 13.13; -0.13
VXO: 11.41; -0.52

Put/Call Ratio (CBOE): 0.75; -0.08

Bulls and Bears:

Confidence started to flag just as the market was ready to rise. That is how it works. Even we were getting downbeat on the market but at least we recognize when we are negative and then look doubly at the technical picture to see if it warrants the worry.





Bulls: 52.6 versus 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Stemmed the climb just a bit.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 15.5% versus 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Faded just a bit after bouncing off the lows from March, April, May and August.

Background: 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

A good 1-2-3 rally to end expiration week, busting the indices to new highs. Many times an upside move in expiration week leads to a bit of weakness at the start of the next week. There are plays in great position and ready to make us money if that is the case. There are plays ready to go and make us money if that is not the case.

It took awhile, but clearly new money hit the market, trying to chase some performance into yearend. That is the yearend rally we talked about in October, and after a pause the move started. New money from the money managers and still $85B/month from the Fed. A pretty powerful combination, and if it continues, either after a pause early in the week or no pause, we want to continue if our plays show the right moves.

Pretty straightforward plan of attack, but with new money hitting and clearly turning back to the buy mode, you don't want to over-think it. Keep an eye on the VIX as it tests the 2013 lows, but if the technical picture remains strong and money keeps putting a bid in the market, it will override the technical picture as VIX does not have to bounce at those lows; it can remain low for quite some time if a steady bid hits the market.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 3985.97

Resistance:
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
3967 is the October 2013 post-bear market high.
3933 is the upper channel line for the November 2012 to present uptrend.
3855 is the November low
The 50 day EMA at 3840
3819 is the early October high
3818 is the November 2012 trendline
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
The 200 day SMA at 3510
3502 is the May 2013 closing high
The 2011 up trendline at 3471
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1798.18

Resistance:
8.9% over the 200 day SMA, not so extended.

Support:
1775.22 is the recent all-time high
The 20 day EMA at 1761
1730 is the September 2013 peak
The 50 day EMA at 1731
1710 is the August 2013 peak.
1704 is the December 2012 up trendline
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
The 200 day SMA at 1637
1627 is the August 2013 low
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high


Dow: Closed at 15,961.70

Resistance:

Support:
15,798 the November 2013 high
The 10 day EMA at 15,773
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 50 day EMA at 15,464
15,542 is the May 2013 intraday high
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
The 200 day SMA at 15,001
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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


Economic Calendar

November 15 - Friday
Empire Manufacturing, November (8:30): -2.2 actual versus 4.3 expected, 1.5 prior
Export Prices ex-ag., October (8:30): -0.4% actual versus 0.3% prior
Import Prices ex-oil, October (8:30): 0.0% actual versus 0.2% prior (revised from 0.1%)
Industrial Production, October (9:15): -0.1% actual versus 0.1% expected, 0.7% prior (revised from 0.6%)
Capacity Utilization, October (9:15): 78.1% actual versus 78.3% expected, 78.3% prior
Wholesale Inventories, September (10:00): 0.4% actual versus 0.3% expected, 0.8% prior (revised from 0.5%)

November 18 - Monday
Net Long-Term TIC Fl, September (9:00): -$8.9M prior
NAHB Housing Market , November (10:00): 55 expected, 55 prior

November 19 - Tuesday
Employment Cost Inde, Q3 (8:30): 0.5% expected, 0.5% prior

November 20 - Wednesday
MBA Mortgage Index, 11/16 (7:00): -1.8% prior
Retail Sales, October (8:30): 0.1% expected, -0.1% prior
Retail Sales ex-auto, October (8:30): 0.1% expected, 0.4% prior
CPI, October (8:30): 0.0% expected, 0.2% prior
Core CPI, October (8:30): 0.2% expected, 0.1% prior
Existing Home Sales, October (10:00): 5.20M expected, 5.29M prior
Business Inventories, September (10:00): 0.4% expected, 0.3% prior
Crude Inventories, 11/16 (10:30): 2.640M prior
FOMC Minutes, 10/30 (14:00)

November 21 - Thursday
Initial Claims, 11/16 (8:30): 333K expected, 339K prior
Continuing Claims, 11/09 (8:30): 2863K expected, 2874K prior
PPI, October (8:30): -0.2% expected, -0.1% prior
Core PPI, October (8:30): 0.1% expected, 0.1% prior
Philadelphia Fed, November (10:00): 11.9 expected, 19.8 prior
Leading Indicators, October (10:00): 0.7% prior
Natural Gas Inventor, 11/16 (10:30): 20 bcf prior

November 22 - Friday
JOLTS - Job Openings, September (10:00): 3.883M prior


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

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

Technorati tags:

Monday, November 11, 2013

Good on Headlines, Not so Good on Internals

MARKET SUMMARY

- Stocks sift through data, rebound.
- Good on the headlines, not so good on the internals. What is new?
- Workers leave the workforce in droves. Are they still workers in that case?
- SP500, DJ30, RUTX look encouraging while NASDAQ looks problematical.
- Quieter week will let stocks do what they want to do.

Last week was a veritable fruit compote of data and reports. For the market, however, it wasn't the restaurant quality or fresh homemade kind with fresh fruits and berries. It wasn't even the name brand canned variety. No, it was the off-brand, 'top value' type where you guess what the piece of 'fruit' is, and the only sure thing you can truly identify is the sliver of maraschino cherry because it is red while everything else is a washed out grayish yellow.


On what planet is this fruit?

Or was it? With this market it is hard to tell what is good and what is bad, at least that is what you would conclude listening to the talking financial station bobble heads Friday. We heard the entire spectrum of a 'much better than expected' to 'bizarre' to 'internally horrid' jobs report. Thursday GDP was heralded as a 'turn' given 1.9% was expected but 2.8% was logged in Q3's first read. Yet, but for a big inventory build and exports jumping while imports faded, key areas of consumer consumption, business investment, and prices (tripled prior readings) were not good.

The stock market was hammered Thursday even with an ECB rate cut as stocks looked to be capitulating to rising churn and distribution on NASDAQ even as DJ30 finally broke to a new high. Was it the headline GDP that pushed it over the edge?

Friday the jobs report headlines, the ones the Fed's Bullard reads, provided a second shock to QE craving stock investors.



First GDP stronger and now jobs. Futures tumbled. But then, lo, they recovered into the open and stocks didn't slow with the bell. They rallied into midmorning, into lunch, into mid-afternoon, then shook off one bar of selling and sprinted higher into the close. The indices took back most and in some cases all of Thursday's loss. Glory be.

SP500 23.46, 1.34%
NASDAQ 61.90, 1.6%
DJ30 167.80, +1.08%
SP400 +1.50%
RUTX +1.94%
SOX +1.17%

But GDP was stronger? But the jobs report swamped expectations, clearly stronger? Why, Santa Clause, why would stocks rally with that news?


Cindy Lou Who from 'How the Grinch Stole Christmas (or in today's PC parlance 'How the generally peace loving yet misguided person felt uncomfortable about another's expression of his religious beliefs so he tried to have them barred from public display during the winter holiday.')

Was it because the market was finally buying into the economic data inexorably getting stronger? After all, the PMI reports are moving higher and higher. Yet, those are sentiment indicators, not hard data. The PMI and ISM are sentiment surveys just as Consumer Confidence and Michigan Sentiment are surveys. People FEEL one thing, they often do another. That is the history of sentiment. Indeed, sentiment is often used as a CONTRARY indicator is it not?

This is one of ECRI's point in its recent critiques of the 'recovering' economy. ECRI issued a call five years ago that the US and indeed much of the western economies, were entering into a period of longer term stagnation with mini recessions occurring within periods of slow and even negative growth.

ECRI says the US entered a new recession in 2012 following the recovery of 2010.
Thursday's GDP report at 2.8% does not belie that call and does not indicate the economy is reaccelerating because of the data's history of revisions. During the Great Recession initial readings of 3% GDP growth were wholly wrong and were revised away because of faulty reads on economic data.



The current turn in manufacturing data does not belie that call. Indeed it is part of the faulty data. ECRI pioneered the use of those PMI indicators. The problem is, over the last few years the correlation between those numbers and the targeted goal of those numbers, production levels, has collapsed. Indeed, ECRI says those numbers are NEGATIVELY correlated with production. In other words, when those numbers rise, production is actually falling. This is the case in the US, China, and Germany.

What about the stock markets rising? They are of disconnected because of central bank action keeping rates low and pumping in liquidity to try and create a 'wealth effect.'

Thing is, as we have seen there is not much of a wealth effect. Indeed, there is no wealth effect. Why? Because it doesn't really exist in the first place. People feel good and spend because their jobs are secure, they feel there is growth ahead in their incomes. The stock market plays a role in overall contentment but it does not drive outright consumption. Just look at Michigan Sentiment for November, Friday posting the lowest read since 12/2011:

72.0 actual versus 75.3 expected, 73.2 prior

Add to that the notion that many people view the current stock market with high skepticism, as if it were . . . a bubble not built of real money. And it is not. It is built on the Fed pumping money it conjures. It is not, as the Nobel Prize winner says, no big deal, just a balance sheet entry that is balanced out on the other side by the IOU's and crappy mortgages, auto loans, student loans, and other debts the Treasury is buying via the Fed. The Fed is conjuring money, money that is not used in the economy but is floating the stock market and other financial assets.

The outcome? ECRI, Roubini and others point to what I have pointed to for years: Japan. It is in a 20 year depression now and we are following its footsteps exactly in terms of bailouts of huge institutions that should have failed, government cronies getting direct government assistance, zero percent or virtually zero percent interest rates forever (9 years in the US).


Jobs Report Breakdown

So . . . with that backdrop, what was so bad it was good about the jobs report in terms of causing stocks to rally?

Participation Rate: 62.8% versus 63.2% in September. 35 year low, the lowest since March 1978. That was when the US was in the Carter years and the economy was Les Miserables. Some industries were fine, e.g. the oil industry. It was in a massive boom post the early 1970's oil embargos. We are purportedly in the FIFTH YEAR of recovery and the participation rate is at levels matching the last horrid recession prior to the present one? Are you serious? Does ANYONE with a rational mind think that with these kind of numbers we are in a recovery?

Leaving the Workforce: 932,000 left the workforce in October, the THIRD largest on record. Again, with things SO GOOD, why would anyone leave the workforce? But they are, they are.

91.5M working age, able people are out of the workforce, an all-time record.

Unemployment rate: 7.3% versus 7.2% prior. Typically in a recovery you do see the unemployment rate rise as more people come back to the workforce looking for work but not all find jobs. Well, that is NOT the case in October. It was the worst of times.

Massive defections from the workforce which typically lowers the unemployment rate thanks to a lower denominator: fewer in the pool makes the percentage of those still working larger. UNLESS, however, the number of jobs falls as well. If the number of jobs lost offsets the number leaving the workforce, then the unemployment rate rises. The worst of both worlds: fewer workers, even fewer jobs. That is what happened in October.

The Part-Time effect:

Workweek: Slipping back to 34.4 from 34.5 prior. Heading in the wrong direction for hiring . . . at least for full-time hiring, that is. A stagnant and slipping workweek even as the economy supposedly improves. That is the part-time hiring.

Where the jobs are: Leisure rose 53,000. Retail rose 44,000. Those two equal all the other areas combined. Low pay, part-time jobs, just what this 'recovery' with ACA on top is noted for.

Full time jobs lost: 623,000. After a heralded 691K gain in September, October pushes them out.

GDP averaging 1.7% year/year. Even the most left apologist economist Marc Zandi said Friday this does not support 200K jobs. But, alas Marc, that is the LEAST of our problems.


THE MARKET

OTHER MARKETS:

Dollar: Dollar still surging. 1.3363 versus 1.3424 versus 1.3520 versus 1.3475 versus 1.3518 versus 1.3489 versus 1.3583 versus 1.3735 versus 1.3747 versus 1.3787 versus 1.3802 versus 1.3803 versus 1.3779 versus 1.3783 versus 1.3682 versus 1.3677 versus 1.3528 versus 1.3524 versus 1.3565 versus 1.3544 versus 1.3520 versus 1.3524 euro.

Bonds: Exploded downside. 2.75% versus 2.60% versus 2.64% versus 2.66% versus 2.60% versus 2.62% versus 2.55% versus 2.54% versus 2.51% versus 2.51% versus 2.51% versus 2.52% versus 2.49% versus 2.51% versus 2.61% versus 2.59% versus 2.68% versus 2.73% versus 2.69% versus 2.68% versus 2.66% 10 year.

Oil: 94.58, 0.38.

Gold: 1284.60, -17.90. Selling off again on the news of the week.


MARKET INTERNALS and STATS

NASDAQ
Stats: +61.9 points (+1.6%) to close at 3919.23
Volume: 1.895B (-16.19%)

Up Volume: 1.511B (+1.11B)
Down Volume: 405M (-1.475B)

A/D and Hi/Lo: Advancers led 3 to 1
Previous Session: Decliners led 3.46 to 1

New Highs: 153 (+74)
New Lows: 58 (-2)

S&P
Stats: +23.46 points (+1.34%) to close at 1770.61
NYSE Volume: 736M (-9.25%)

A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Decliners led 3.51 to 1

New Highs: 118 (-2)
New Lows: 112 (+15)

DJ30
Stats: +167.8 points (+1.08%) to close at 15761.78


THE CHARTS

Friday was upside and fairly convincing in terms of SP500 and DJ30 as they were never in any real danger in the first place. SP500 jumped off the 20 day EMA while DJ30 jumped off the 10 day EMA to a new closing high.

RUTX looks great with its bounce off the 50 day EMA. Even SOX looks good with its tap of support at the 50 day EMA and bounce.

NASDAQ and SP400 on the other hand are not that convincing. Their patterns were miming each other's and while they bounced, the move leaves them somewhat in no man's land. NASDAQ is at the upper channel line. It can recover, and if the other indices rally it will likely follow. That is what happens when there is a rotation of leadership; the prior leaders don't necessarily tank, they just lose their mojo, following along at a distance.


LEADERSHIP

The key is how leaders hold the line. Thursday saw many purge but also many hold the line. Friday saw some rebounds, but also some that didn't do anything. Still good patterns, but this week will tell whether the past week was just a hiccup before more upside or whether Thursday was an important downside break.

Big boys: AMZN bounced but less than convincingly. GOOG was up but not convincing as well. AAPL moved up off the 20 day EMA, still in its pattern. It looks as if it wants to make the break, but as with Neo in 'The Matrix,' something is holding it back.

Banks: Big day as interest rates shot higher. JPM jumped 4.5%. BAC 3.7%. TCBI 3%. Some are in good patterns such as TCBI. Not all are.

Industrial machinery continues its travails. CMI looks ready to roll over. CAT is languishing at the bottom of its range as is DE.

Oil and gas: Good recovery as SPN jumped, PTEN bounced off the 10 day EMA. SLB bounced back over the 20 and 10 day EMA on strong volume.

Biotechs: Wounded. CELG is threatening a big breakdown. GILD bounced from the 50 day EMA but is pensive.

Still many solid individual names scattered across many sectors and many stocks that have rallied and are ignoring the selling: ATK, CCMP, FSLR, GNRC, TCBI, TITN, TSCO, ROST, COST, KORS. CAMP may try to pull it back.


SENTIMENT INDICATORS

VIX: 12.9; -1.01. VIX is still in the upper part of the lower range. What the heck does that mean? It can still slip some more if the market wants to continue Friday's bounce, hit the 2013 range bottom, and then the stage would definitely be set for some give back.
VXN: 14.67; -1
VXO: 12.75; -0.09

Put/Call Ratio (CBOE): 0.86; -0.06

Bulls and Bears:

Another 3 point jump in bulls and a further decline in bears pushes the divergence to very complacent levels. Last week I said the levels were dangerous. They added flashing 'danger' lights this week.





Bulls: 55.2% versus 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Backed off a hair form the sharp climb. Still a bit over-baked, but has been higher when selling bouts started in earlier moves.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 15.6% versus 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Bounced off the lows from March, April, May and August.

Background: 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

It would be hard to top the past week in terms of data dumps. It will be by contrast data light. Fed-speak will not lighten up, however, as the FOMC members and presidents buck for position ahead of Yellen taking the reins. Everyone listens to every word, puckers or unpuckers their posteriors based upon the comments, but knowing that it is really the head person who makes the decision. Thus Yellen will be in control and make the decisions. The new fear: she actually ADDS to stimulus as some are suggesting she will have to do. Apparently not all of the analysts at the big financial houses buy into the recovery talk. Indeed most of them likely KNOW it is all sitting upon a throne of lies.


No, not talking about President Obama, though . . .

It is good the market has most of the earnings and the heavy hitting economic data at its back. Now it can make the move it wants. NASDAQ has not made it to the 50 day EMA or the lower trendline, but RUTX and SOX have. Will that be enough or will NASDAQ need to make the pilgrimage as well? It would certainly clean out the pipes so to speak and allow for a new advance.

SP500 and DJ30 certainly look good and RUTX showed great action. Perhaps simply rotation in the market and a new rally ensues. We certainly have and found more good potential entry points on some good-looking stocks. We also found some stocks ready to roll over. But you can always find those in the market, and this one is not weighed down with patterns that look ready to crack open to the downside.

So, with $85B still in the bank thanks to a GDP and jobs report that were better on the face but not so solid on the inside (the throne of lies?), perhaps the market will find its 'just right' bowl of porridge.

Could be, but I like to worry sometimes and this is a good time to do it. VIX can fall a bit more, i.e. a market bounce, and then be set to rock upside. Bullishness is too high, bearishness too low. NASDAQ looks suspect. Enough to at least keep you honest.

I still don't like it, but I have not liked it before on other tests and the move continued on at an $85B/month clip. The idea is to check your emotions as soon as you can. We dumped several positions last week early and some more later. Some were shakeouts, but we are not too proud to get back in on a good pattern if it presents. That may just happen, and when good stocks make good moves, well, you know.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 3919.23

Resistance:
3922 is the upper channel line for the November 2012 to present uptrend.
3967 is the October 2013 post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
3819 is the early October high
The 50 day EMA at 3814
3801 is the September 2013 high.
3797 is the November 2012 trendline
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 200 day SMA at 3491
The 2011 up trendline at 3460
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1770.61

Resistance:
1775.22 is the recent all-time high
8.7% over the 200 day SMA, not so extended.


Support:
The 20 day EMA at 1747
1730 is the September 2013 peak
The 50 day EMA at 1719
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1695 is the December 2012 up trendline
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
1627 is the August 2013 low
The 200 day SMA at 1630
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high


Dow: Closed at 15,761.78

Resistance:
15,798 the November 2013 high

Support:
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 10 day EMA at 15,625
15,542 is the May 2013 intraday high
The 50 day EMA at 15,381
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
The 200 day SMA at 14,953
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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


Economic Calendar

November 8 - Friday
Nonfarm Payrolls, October (8:30): 204K actual versus 100K expected, 163K prior (revised from 148K)
Nonfarm Private Payr, October (8:30): 212K actual versus 110K expected, 150K prior (revised from 126K)
Unemployment Rate, October (8:30): 7.3% actual versus 7.3% expected, 7.2% prior
Hourly Earnings, October (8:30): 0.1% actual versus 0.2% expected, 0.1% prior
Average Workweek, October (8:30): 34.4 actual versus 34.4 expected, 34.4 prior (revised from 34.5)
Personal Income, September (8:30): 0.5% actual versus 0.2% expected, 0.5% prior (revised from 0.4%)
Personal Spending, September (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
PCE Prices - Core, September (8:30): 0.1% actual versus 0.1% expected, 0.1% prior (revised from 0.2%)
Michigan Sentiment, November (9:55): 72.0 actual versus 75.3 expected, 73.2 prior
JOLTS - Job Openings, September (10:00): 3.883M prior


November 13 - Wednesday
MBA Mortgage Index, 11/09 (7:00): -7.0% prior
Export Prices ex-ag., October (8:30): 0.3% prior
Import Prices ex-oil, October (8:30): 0.1% prior
Treasury Budget, October (14:00): -$120.0B prior

November 14 - Thursday
Initial Claims, 11/09 (8:30): 330K expected, 336K prior
Continuing Claims, 11/02 (8:30): 2862K expected, 2868K prior
Trade Balance, September (8:30): -$38.8B expected, -$38.8B prior
Productivity-Preliminary, Q3 (8:30): 2.0% expected, 2.3% prior
Unit Labor Costs, Q3 (8:30): 0.8% expected, 0.0% prior
Natural Gas Inventories, 11/09 (10:30): 35 bcf prior
Crude Inventories, 11/09 (11:00): 1.577M prior

November 15 - Friday
Empire Manufacturing, November (8:30): 4.3 expected, 1.5 prior
Industrial Production, October (9:15): 0.2% expected, 0.6% prior
Capacity Utilization, October (9:15): 78.3% expected, 78.3% prior
Wholesale Inventories, September (10:00): 0.3% expected, 0.5% prior


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

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

Technorati tags:

Monday, November 04, 2013

Will Bernanke Act as a Lame Duck?

MARKET SUMMARY

- New month, not much new money, no real change, not a bad thing.
- Fear of falling: Market has paused so it must be ready to fall.
- FOMC language stronger PMI readings add to fear of taper, but will Bernanke act as a lame duck?
- Rotation is occurring as new stocks attempt to turn the corner and rally.

A no change day that shows some change.

The new month happened to start on Friday and as such it was more of a whimper. Not really a whimper, but more of the same for the large cap indices, i.e. a continued test of the last leg higher now that they have hit new highs, post-bear market or all-time, or have reached the top of their ranges. If new money was hitting the market, not that much was put to work Friday.

SP500 5.10, 0.29%
NASDAQ 2.33, 0.06%
DJ30 69.80, 0.45%
SP400 0.12%
RUTX -0.41%
SOX -0.33%

That left SP500 and NASDAQ and even SP400 in fairly decent tests of their last moves. RUTX small caps and SOX are, in our view, problematic at this point. RUTX led to the upside but now it looks as if it is passing the torch as we see some industrial stocks, lesser known biotechs and others coming off of long bases while energy continues to produce more leadership support as more money flows into oil related sectors. It could simply be rotation taking place, and of course rotation in the market, as with your tires, keeps your trip going longer.

SOX remains problematic, however, and it does tend to be a market leader. A good recovery last week, but a recovery to resistance yet again. Still trending higher, but not just blasting its way ahead.


A pause means fear.

At these levels, of course, when the market doesn't rise the fear that it is going to fall does. After all last week saw the FOMC remove language about the negative impact of fiscal tightening on the economy. Perhaps it didn't see it as that negative after all. Heck, it didn't even mention the government shutdown. Of course that led many to the somewhat logical conclusion the Fed is willing to overlook negatives to get to tightening.

That seemed rather apparent in Mr. Bullard's statement from Friday where he talked of the employment picture improving and 'the most powerful' case for tapering if it continued to improve. Talk about a willingness to disconnect from reality. Unemployment is lower because of 90+M people leaving the workforce, not because of the 'millions' of part-time jobs (are there really millions?) the President brags about creating (or saving or is it just converting from full-time?). But of course there is 'no evidence' that the ACA has impacted the jobs market at all . . . unless you are or were formerly in the jobs market looking for a job. In any event, that Bullard could make that statement only adds to the chorus who want to add 'jackass' to the long line of credentials behind his name.

Then there was Plosser saying the Fed missed a great opportunity to taper in September, because he did talk of the shutdown and the increase in the debt limit as hindering the Fed from acting now. It had a window, but chose to close it. Plosser seems to think now the Fed has to wait for another good opportunity.

It appeared some investors felt that was shown with the Chicago PMI on Thursday and the ISM on Friday. Both beat expectations and continued the gains.



Of course the private Markit survey now covers the US, and it saw a 12 month LOW in October for manufacturing growth rates at 51.8 versus 52.8 in September. Hmmmm. Markit is well-respected; at least it was still above 50 and showing expansion.

WMT apparently doesn't feel things are so great: it is started its holiday promotions a month early. Kids had barely finished throwing up their Halloween sugar gorge when Santa appeared with list in hand at Wal-Mart. Well, not really; it is online only, but the holiday spirit is the same: money.



Apparently core inflation at 1.7% (low) is overcoming 0.9% real wage growth year/year, tens of millions unemployed and out of the workforce, and legions of newly minted (read converted) part-time workers now understanding they have to have two jobs. No longer is it a case of a 2-job marriage; now it is a 4-job marriage.


THE MARKET


OTHER MARKETS:

Dollar: Continues its upside move. 1.3489 versus 1.3583 versus 1.3735 versus 1.3747 versus 1.3787 versus 1.3802 versus 1.3803 versus 1.3779 versus 1.3783 versus 1.3682 versus 1.3677 versus 1.3528 versus 1.3524 versus 1.3565 versus 1.3544 versus 1.3520 versus 1.3524 euro.

Bonds: Still selling hard. 2.62% versus 2.55% versus 2.54% versus 2.51% versus 2.51% versus 2.51% versus 2.52% versus 2.49% versus 2.51% versus 2.61% versus 2.59% versus 2.68% versus 2.73% versus 2.69% versus 2.68% versus 2.66% 10 year.

Oil: 94.61, -1.77. Plunging toward the summertime lows.

Gold: 1313.10, -10.60. Continued its selling on the FOMC might taper after all worries.


MARKET INTERNALS and STATS

NASDAQ
Stats: +2.34 points (+0.06%) to close at 3922.04
Volume: 1.912B (-14.03%)

Up Volume: 1.01B (-80M)
Down Volume: 911.92M (-208.08M)

A/D and Hi/Lo: Decliners led 1.43 to 1
Previous Session: Decliners led 1.61 to 1

New Highs: 98 (-11)
New Lows: 53 (+3)

S&P
Stats: +5.1 points (+0.29%) to close at 1761.64
NYSE Volume: 697M (-2.92%)

A/D and Hi/Lo: Decliners led 1.2 to 1
Previous Session: Decliners led 1.54 to 1

New Highs: 496 (-89)
New Lows: 134 (+6)


DJ30
Stats: +69.8 points (+0.45%) to close at 15615.55


SENTIMENT INDICATORS

VIX: 13.28; -0.47. Still suggesting some selling/more testing to come.
VXN: 14.76; -0.12
VXO: 12.03; -0.51

Put/Call Ratio (CBOE): 0.92; +0.02


Bulls and Bears:

Not as huge a surge as the prior week, but you cannot keep that pace up. Still a big jump in bulls and commensurate decline in bears. Getting dangerous.





Bulls: 52.6 versus 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Backed off a hair form the sharp climb. Still a bit over-baked, but has been higher when selling bouts started in earlier moves.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 16.5% versus 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Bounced off the lows from March, April, May and August.

Background: 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

Bullishness is quite high. VIX is at lows that have, for all of 2013, indicated a pullback was coming. Not a big selloff, but the kind of pullback seen as NASDAQ would fall and test its 50 day EMA. Not major but a significant pullback in the continuing trend.

Add onto that the usual fears that associate with a peak, e.g. the Fed is now going to taper thanks to stronger manufacturing data and a misread (has to be willful right?) of the employment (or lack thereof) data.

Then there is SOX still below its trendline and the Russell flagging. Leaders in the last move are tired and need a test or recycling.

So of course the selloff theme is now stronger even as investors and advisors are bullish. That throws up two caution flags moving ahead and as you know, the size of our portfolio is already smaller as we have taken quite a bit of gain and have closed several problematic positions. A bit leaner heading into what looks to be a pullback that will be a bit more than the 2-week lateral sidestep thus far.

At the same time we see stocks forming up off of long bases, bases a year and more in length. Indeed for the most part those are the plays we are looking at this week. We still have some great earnings gap/surge tests in progress that we will play if they show the moves, but it is very interesting and somewhat exciting for the upside to come to see these other stocks breaking higher off of long bases. Market rallies need new blood to come forward, and there are patterns out there doing just that.

Timing, is of course, the key. As noted in the start, there is nothing really different Friday from the rest of the week: still testing, SOX still struggling, RUTX getting a bit more ragged, and the same question: is this the extent of the test, i.e. NASDAQ tapping the upper channel line it broke and continuing higher, or does NASDAQ again, after reaching this level, fade back toward the 50 day EMA? The latter no doubt keeps the trend in place and provide great opportunity . . . once it is over. It is just that the market has not made that move yet, AND there is a character change in that NASDAQ actually broke through and has held for two weeks.

That said, as noted, we are lighter already on this move. That is a natural process of buying on breaks and then having logical targets within a projected move. You automatically are lighter when it starts to run out of gas. VIX is at the turn level. Sentiment is too bullish. Many leaders broke near support and many more look tired. It certainly looks as if a pullback of the ilk seen on this entire run is due.

Yet, it is year end and as Hans said in 'Die Hard' when his safe-cracker said he would need a miracle, it's Christmas, it's the time for miracles. The market likes to run into the year end. That, along with the $85B/month and Santa Yellen Clause are a strong impetus for more upside.

Still, even in times of relative market bliss it still ebbs and flows at least in some image of normal ups and downs. It is trying to work off its overbought condition with a lateral move; it can be done. But the VIX and sentiment have caution signs out.

That is why this weekend we are looking more at stocks coming off long bases, making the break, and now making that initial test. Less to lose and a lot more to gain, at least for the moment, versus a stock that has run well and is a bit extended.

So, we look for buys because overall the conditions are right, but we also acknowledge that sentiment and volatility suggest, as they have on prior tests in this same run, that a test is coming. The latter has to show itself; there can still be a last, orgy-like rush higher in this run toward year end. That won't end well, but it can make us some nice money on the run, we cash out, then enjoy candy and nuts at Christmas.

In short, we recognize the risks, see the good plays, and if the latter present the old 'buy me!' moves, we move in and play the MARKET versus OUR BIAS.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 3922.04

Resistance:
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
The 10 day EMA at 3915
3906 is the upper channel line for the November 2012 to present uptrend.
3819 is the early October high
3799 is the September 2013 high.
The 50 day EMA at 3792
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 200 day SMA at 3471
The 2011 up trendline at 3450
3295 is the June 2013 low selloff
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1761.64

Resistance:
Down to 9.4% over the 200 day SMA, not so extended.


Support:
The 10 day EMA at 1753
1730 is the September 2013 peak
1710 is the August 2013 peak.
The 50 day EMA at 1709
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1691 is the December 2012 up trendline
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
1627 is the August 2013 low
The 200 day SMA at 1624
1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high


Dow: Closed at 15,615.55

Resistance:
15,659 is the August 2013 peak
15,696 is the September 2013 peak

Support:
15,542 is the May 2013 intraday high
The 10 day EMA at 15,528
15,318 is the June closing high
The 50 day EMA at 15,316
15,050 from the August 2013 interim recovery high
The 200 day SMA at 14,905
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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


Economic Calendar

October 28 - Monday
Industrial Production, September (9:15): 0.6% actual versus 0.3% expected, 0.4% prior
Capacity Utilization, September (9:15): 78.3% actual versus 78.0% expected, 77.9% prior (revised from 77.8%)
Pending Home Sales, September (10:00): -5.6% actual versus -1.3% expected, -1.6% prior

October 29 - Tuesday
Retail Sales, September (8:30): -0.1% actual versus -0.1% expected, 0.2% prior
Retail Sales ex-auto, September (8:30): 0.4% actual versus 0.2% expected, 0.1% prior
PPI, September (8:30): -0.1% actual versus 0.2% expected, 0.3% prior
Core PPI, September (8:30): 0.1% actual versus 0.1% expected, 0.0% prior
Case-Shiller 20-city, August (9:00): 12.8% actual versus 12.4% expected, 12.3% prior (revised from 12.0%)
Business Inventories, August (10:00): 0.3% actual versus 0.2% expected, 0.4% prior
Consumer Confidence, October (10:00): 71.2 actual versus 73.1 expected, 80.2 prior (revised from 79.7)

October 30 - Wednesday
MBA Mortgage Index, 10/26 (7:00): 6.4% actual versus -0.6% prior
ADP Employment Change, October (8:15): 130K actual versus 125K expected, 145K prior (revised from 166K)
GDP-Adv., Q3 (8:30): 2.5% prior
Chain Deflator-Adv., Q3 (8:30): 0.6% prior
CPI, September (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
Core CPI, September (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Crude Inventories, 10/26 (10:30): 4.087M actual versus 5.246M prior
FOMC Rate Decision, October (14:00): 0.25% actual versus 0.25% expected, 0.25% prior
FOMC Rate Decision, October (14:15): 0.25% expected, 0.25% prior

October 31 - Thursday
Challenger Job Cuts, October (7:30): 19.1% prior
Initial Claims, 10/26 (8:30): 340K actual versus 335K expected, 350K prior
Continuing Claims, 10/19 (8:30): 2881K actual versus 2850K expected, 2850K prior (revised from 2874K)
Personal Income, September (8:30): 0.4% prior
Personal Spending, September (8:30): 0.3% prior
PCE Prices - Core, September (8:30): 0.2% prior
Chicago PMI, October (9:45): 65.9 actual versus 55.0 expected, 55.7 prior
Natural Gas Inventor, 10/26 (10:30): 38 bcf actual versus 87 bcf prior

November 1 - Friday
ISM Index, October (10:00): 56.4 actual versus 55.0 expected, 56.2 prior
Construction Spending, September (10:00)
Auto Sales, October (14:00): 5.4M prior
Truck Sales, October (14:00): 6.5M prior

November 4 - Monday
Factory Orders, August (10:00): 0.3% expected, -2.4% prior
Factory Orders, September (10:00): 1.8% expected,

November 5 - Tuesday
ISM Services, October (10:00): 54.0 expected, 54.4 prior

November 6 - Wednesday
MBA Mortgage Index, 11/02 (7:00): 6.4% prior
Leading Indicators, September (10:00): 0.6% expected, 0.7% prior
Crude Inventories, 11/02 (10:30): 4.087 prior

November 7 - Thursday
Challenger Job Cuts, October (7:30): 19.1% prior
Initial Claims, 11/02 (8:30): 335K expected, 340K prior
Continuing Claims, 10/26 (8:30): 2863K expected, 2881K prior
GDP-Adv., Q3 (8:30): 1.9% expected, 2.5% prior
Chain Deflator-Adv., Q3 (8:30): 1.4% expected, 0.6% prior
Natural Gas Inventor, 11/02 (10:30): 38 bcf prior
Consumer Credit, September (15:00): $11.0B expected, $13.6B prior

November 8 - Friday
Nonfarm Payrolls, October (8:30): 100K expected, 148K prior
Nonfarm Private Payr, October (8:30): 110K expected, 126K prior
Unemployment Rate, October (8:30): 7.3% expected, 7.2% prior
Hourly Earnings, October (8:30): 0.2% expected, 0.1% prior
Average Workweek, October (8:30): 34.4 expected, 34.5 prior
Personal Income, September (8:30): 0.2% expected, 0.4% prior
Personal Spending, September (8:30): 0.2% expected, 0.3% prior
PCE Prices - Core, September (8:30): 0.1% expected, 0.2% prior
Mich Sentiment, November (9:55): 75.3 expected, 73.2 prior
JOLTS - Job Openings, September (10:00): 3.883M prior


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

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

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