Monday, December 30, 2013

Dollar, Bonds Go Somewhat Rogue


- Stocks gap then fade as anticipated as the dollar, bonds go somewhat rogue.
- Bonds move over 3%, highest since 7/2011.
- Dollar goes schitzo intraday.
- Fund flows see $50B for 2013, but that is a drop in the bucket.
- The market rally is still in place but some worrisome action to end the week needs to be resolved.

Early rally fades, gives a chance to take some gain.

As indicated Thursday night, the stock market was set to fade some following an almost two week move higher. Stocks even gapped higher to start Friday, performing pretty much to script. We used the action to bank some gain as planned.

The move may have been doomed to suffer a downside session from a technical standpoint anyway, but there was just cause for some investor trepidation nonetheless.

To wit, the dollar traded in a wide range, selling off sharply against the euro. It managed to recover much of the loss but still lost ground. The weakness kept oil rising along with gold. In general commodities and the hard assets all performed better and indeed are establishing solid patterns. This begs the question, why is the dollar weaker if the Fed is tapering because a stronger economy?

Bonds were an issue as well with the 10 year trading over 3% (3.01% on the close) and at its highest level since July 2011. The 30 year hit 4.63%, its highest since May 2011. Of course that action broke the TLT below its August low, support that has held on four occasions since.

Thus, whether technical reasons or some volatile trade in the dollar and bond markets, perhaps both, stocks struggled on the session with all but SP400 and SOX closing lower, albeit modestly lower.

SP500 -0.62, -0.03%
NASDAQ -10.59, -0.25%
DJ30 -1.47, -0.01%
SP400 0.07%
RUTX -0.13%
SOX 0.02%

Volume improved but still well below average.

The Charts.

Thursday saw the growth indices rally but failed to hold much of the move. RUTX, SP400, and SOX showed doji, suggesting they were tiring. Friday they gapped and then faded to those modest losses.

Perhaps there is more weakness ahead next week before New Year's on Wednesday. The Friday action was not hard downside though NASDAQ did put in a modest downside engulfing pattern. There is no reason technically for stocks to abruptly truncate the Christmas and beyond rally, but the volatile bond and dollar action, if it continues, will indeed put investors on the sidelines. When they uptrend doesn't have its steady stream of bids, even if they have been just enough to keep the trend moving higher, the Friday action will repeat itself. If sellers decide to enter, then the action picks up downside speed.


Some big names definitely felt selling pressure Friday. TWTR is the poster child for this last leg of the rally, surging from 40 to 75. Friday it was slapped around, dropping 13% off a Thursday gap to a hanging man doji. As TWTR weakened it took other social media stocks with it.

Other 'names' struggled as well. NFLX thudded to the 20 day EMA in one move. PCLN fell through its 20 day EMA on rising volume. TRIP broke the 50 day EMA. WFM cracked and sold on rising, above average volume.

Not all names sold. GOOG easily held position. AAPL finished its 10 day EMA test. STX paused but didn't sell off.

Indeed, some sectors benefit from the dollar's weakness against the euro and the volatility in it and bonds. Energy looks much better. Metals and materials are stronger. The harder assets are getting funds pushed their way as interest rates breach a key level and the dollar acts up. Kind of worrisome to see the reserve currency so volatile. So, money moved to hard assets.

We used the early action to take some gain on positions that started higher but started to stall. Many were tickling near the target and the gap higher early gave some cover to take gains and indeed better gains. We also sold some stocks that were lagging, taking the loss now to offset some of the gains for the year. Doesn't do much given the big gains we have this year, but since they were down we took them as they wouldn't do us as much good in 2014.

Next week

This weekend we are looking at plays in energy, some hard substance such as metals, and perhaps some drugs. Don't forget the AAPL play; it is testing the 10 day EMA and could be in great shape to move higher this week. We also have some downside plays to consider; retail has enjoyed a nice run but some look as if they are ready to take a breather, and if so we want to use that to make some fairly easy money.

We will see what transpires with the dollar and bonds. If they remain volatile that will squelch bids from the money that is just now returning to market. Reports are that $50B moved into stock funds in 2013, but that is just 13% of the money that moved out the prior 5 years. Hey, it's a start. It is also the way it usually works: the average Joe's put in their money near the end of the line. Still, it is a small amount compared to what left the market, so it is not really a situation where you can say the retail investor is fully committed to stocks. Of course sentiment is still very high as reported Thursday, high enough to be extreme.

The market does have issues to deal with, but that is nothing new. We said that after the holiday rally all bets were off. The trend is still upside and there are still very solid stocks in great position to move or are in great ongoing moves. If the dollar and bonds settle down the rally can easily continue through this week. If not, the new year may receive a cold response from the buyers.

A prediction? Maybe that is what it is. I am not in the prediction business. Sure you look at the data and trends, but they often don't extrapolate to the markets, at least us human's interpretation of the data vis- -vis the markets. The market weighs and sums up all the data; whether we get it or not is not the market's concern. That is why we always have theories here in the office but we also know the market doesn't give a flying flip about our theories. That is why we look at patterns and let them do the talking, and being ready to move when they make the moves is the key, upside or downside. As noted, we have added some downside this week given the dollar and bond markets and the technical move up to this point. Just being prepared; we will see which way the market breaks.



Dollar: 1.3749 versus 1.3690 euro. Moved up to 1.39 euro intraday as the dollar sold hard but did recover some ground.

Bonds: 3.01% versus 2.99% versus 2.98% 10 year. Broke support.


Stats: -10.59 points (+0.25%) to close at 4156.59
Volume: 1.233B (+5.84%)

Up Volume: 516.27M (-90.56M)
Down Volume: 701.41M (+179.2M)

A/D and Hi/Lo: Decliners led 1.07 to 1
Previous Session: Advancers led 1.11 to 1

New Highs: 213 (-91)
New Lows: 15 (-2)

Stats: -0.62 points (-0.03%) to close at 1841.4
NYSE Volume: 386.54M (+3.63%)

A/D and Hi/Lo: Decliners led 1.08 to 1
Previous Session: Advancers led 1.12 to 1

New Highs: 253 (-112)
New Lows: 87 (+3)

Stats: -1.47 points (-0.01%) to close at 16478.41


VIX: 12.46; +0.13
VXN: 14.51; +0.58
VXO: 10.93; -0.29

Put/Call Ratio (CBOE): 0.73; +0.08

Bulls and Bears:

Bulls and Bears continued to diverge this week: Bulls 60%, bears 14%.

These are, as reported the prior three weeks, extreme levels. The timing is the key. They are showing excessive bullishness that leads to corrections, but the moves typically occur a few to several weeks after the levels are hit.

Thus as the market is trending higher in a Holiday rally, you let the trend move run its course, but on the other side of the rally in early 2014 you have to keep the extreme bullishness in mind: when everyone is in, where does the ammunition to drive the market come from? It is not an exact science, but it is part of the picture, a bearish weight on the scale of the market's current position. After the holiday rally runs its course this could play a key role in a pullback.

Bulls: 60.0 versus 58.2 versus 57.1 versus 55.7 versus 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%. Getting even more extreme . . .

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

Bears: 14.0 versus 14.3 versus 14.3 versus 14.4 versus 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%. Held steady basically for the third straight week. Seems bears fall after each three weeks. Frankly, how much more can it fall? Further, I suppose.

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.


NASDAQ: Closed at 4156.59


The 10 day EMA at 4109
4046 is the upper channel line for the November 2012 to present uptrend.
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
The 50 day EMA at 3986
3931 is the November 2012 trendline
3855 is the November low
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 200 day SMA at 3630
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
The 2011 up trendline at 3522
3521 is the August 2000 low.
3502 is the May 2013 closing high
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 1841.40

New high.

The 10 day EMA at 1820
The 50 day EMA at 1781
1775.22 is the October prior all-time high
1746 is the December 2012 up trendline
1730 is the September 2013 peak
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
The 200 day SMA at 1676
1657 is the late August upper gap point
1654 is the June 2013 peak
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 16,478.18


The 10 day EMA at 16,241
16,175 is the November all-time high.
The 50 day EMA at 15,877
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
15,318 is the June closing high
The 200 day SMA at 15,273
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

January 2 - Tuesday
Initial Claims, 12/28 (8:30): 333K expected, 338K prior
Continuing Claims, 12/21 (8:30): 2875K expected, 2923K prior
Construction Spending, November (10:00): 0.8% expected, 0.8% prior
ISM Index, December (10:00): 56.9 expected, 57.3 prior
Natural Gas Inventor, 12/28 (10:30): 177 bcf prior

January 3 - Wednesday
Crude Inventories, 12/28 (11:00): -4.731M prior
Auto Sales, December (14:00): 5.7M prior
Truck Sales, December (14:00): 7.1M prior

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

Jon Johnson is the Editor of The Daily at

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