- 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%
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.
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
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)
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)
Stats: +69.8 points (+0.45%) to close at 15615.55
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.
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
Next major resistance is around 4100 as NASDAQ hits 13 year highs
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
Down to 9.4% over the 200 day SMA, not so extended.
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
15,659 is the August 2013 peak
15,696 is the September 2013 peak
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
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
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