- After 5 weeks of gain with the geopolitical and economic issues piled on, stocks continue their weeklong decline.
- Little change, still in overall uptrends, heading toward strong support levels.
- Recent leadership mostly holds, some folds, some defensive areas improve.
- Michigan Sentiment dips in March.
- Russia readies to invade East Ukraine using the same 'rationale' it used to invade Crimea: to 'defend compatriots.' Can we invade Russia to defend our 'compatriots?'
- Russia dumping US treasuries, China next.
- EPA audit reveals 90% of transactions improper, prohibited, or in error. And the government wants to run healthcare. Efficiently. Cheaply. For real.
- Letting the test make next strong support and then we see if the trend holds.
A week-plus of testing and likely more this week as the indices seek solid support.
There is really not much to discuss regarding the Friday action as it was the same as seen all week: struggling early in the session, unable to hold, fading toward next support. Sure there were respites such as Wednesday where good upside was posted, but that turned out to be a good day in the midst of a continued pullback to find stronger support.
Not surprising frankly. Five weeks upside, new highs or new post-bear market highs on all indices sans DJ30. That is a long rally leg in the long rally. With that piano on the market's back it was primed for a pullback.
Add to that the ongoing geopolitical tensions in Ukraine that dragged the US, China, and Europe into it, forcing two sharply distinct factions very similar to the old Cold War factions. Back then the only thing the USSR and China had in common was communism. Now they are teaming up to stand against the west and that is a problem for the world.
Both: How long must we shake? Yes, us shorter leaders have to stick together. Heck,
Vladamir is as short as Merkel! Well, yes, so am I . . .
So, the market has had success, it rallied 5 weeks as it continued the long upside run, it was tired and ready to test, then the geopolitical events provided the reason or excuse to sell. China's weak exports, Russia's aggression, still modest US economic data after the cold winter. Thus the indices are testing back to find the next strong support, still a bit lower for the next serious possibility. With the Fed pulling back on stimulus the question is whether the rally based upon Fed stimulus will hold the support it has held time and again on this run or give it up. That depends upon investor perception of economic growth to come. The market should provide some answers at the next support.
Friday stocks sported modest losses heading into the open, a modest positive in this market that rallies low to high or high to low depending upon which way it opens. Stocks surged early, gave it up by midmorning, then rallied right back up. Could not hold, however, and stocks sold back to basically flat ahead of the weekend. Crimea referendum, nice run still in need of a further test, investors just not wanting to get in front of that action with the market still making its fade.
SP500 -5.21, -0.28%
NASDAQ -15.02, -0.35%
DJ30 -43.22, -0.27%
Volume: Faded 7.5% on both NYSE, NASDAQ. A bit of lighter trade on some modest downside after a week of weakness.
A/D: 1.4:1 NYSE, 1.2:1 NASDAQ.
The action left the indices basically in the same position as Thursday, still fading in a test seeking stronger support, likely the same support that held the indices in past tests, e.g. the 50 day EMA or rising trendlines from late 2012. As noted, that is the test that will tell the tale of the tape, the next market leg.
Further escalation in Ukraine and indeed the rest of the world.
Friday we learned that Russia has mobilized troops all across Russia and they are heading west toward the Ukraine border. Putin spoke again, saying this time Russia might have to invade East Ukraine in order to, you got it, 'defend compatriots' just as it said when it invaded Crimea. Putin is taking a page out of history in order to rebuild Russia's power: Catherine the Great conquered Crimea in the 1700's precisely to make Russia a world power via its warm water port. Putin is doing the same thing and that is why he will not, short of being physically forced out, leave Crimea. The rest of the world knows this and Putin and China know the rest of the world will not act to eject Russia.
Further, outside of a military buildup, Putin is preparing in other ways, apparently dumping Russia's holdings of US Treasuries. Friday reports show $104B worth of treasuries were dumped by the week ending 3/12/14. Russia held $138.6B and the smart money says Russia is the one doing the selling.
It is very clear Russia is in this for keeps, betting the west has no stomach to confront his expansion and aggression. Indeed the lack of a swift, cogent, AND force-based response from the west has likely emboldened him and thus his comments regarding East Ukraine. Earlier in the day Friday I likened the tit for tat between the US and Russia as the game of 'who is toughest' played by Clint Eastwood and Lee Van Cleef, two bounty hunters pursuing the same bad hombres in the spaghetti western 'For a Few Dollars More.' Given the US is not really ready for military action, however, that is not the best analogy.
Eastwood and Lee Van Cleef, bounty hunters, square off in the street in 'For a Few Dollars More.'
China's dog in this fight is interesting. China has thrown in with Russia and has threatened to unload its Treasury holdings as well.
But China is not the world power many attribute to it, and what power it has is going to be drained on domestic issues very soon. The 18+% plundering of exports, even if exacerbated by the Lunar New Year, is huge. The GDP growth is not the 7+% claimed, but is in the 3% range. Inflation is starting to surge, undercutting GDP growth and wages. China is again discussing stimulus to bolster expansion, the same expansion that has led to unoccupied rings around Beijing and several ghost cities. It apparently feels it has to build more of the same in order to keep the masses satisfied. They have had a taste of freedom and if the government cannot produce work, there will be unrest. Even more so, however, if the economy slows into a real recession, the masses will really show their unhappiness.
China is also about to be hit with massive domestic costs. Its cities are so polluted it has artificial sunrises on giant screens. Hey, no UV rays there so no skin cancer. Just throat, lung, eye and other cancers and diseases killing the working class and the next working classes (i.e., the children). China will have to spend huge chunks of its GDP to combat existing pollution and then retrofit to prevent additional pollution. It cannot afford to lose its working class to pollution related diseases.
With massive bond risk now in excess of Ireland (one of the PIIGS) and the start of bond defaults, China is going to have serious credit issues. With exports fading China is going to have trouble funding ambitious stimulus to spur the economy as it tries to keep from killing its working class. China is heading for serious trouble and ultimately, perhaps not in the next few years but eventually, the existing government will fail. That will leave the US, not because of our 'great' economic choices of the past 15 years but more by virtue of default, the main economic power on the planet once again.
China's role in the missing airliner.
One last thing. What is China hiding about the missing Malaysian airliner? Early reports queried whether a Chinese group that was threatening to grab an airplane actually did so. This was denied immediately. Then, after initial vague reports about the aircraft turning sharply west and still sending signals hours after it 'disappeared,' China releases bogus satellite images of junk; poor resolution, impossible to view. Heck, you get clearer images of your house from Google. Then today, after the evidence clearly tells the plane turned sharply west and suffered tumultuous elevation changes, China announces a 'seismic event' was recorded at the last location where the craft's transponder was working, implying either the plan exploded there or that an earthquake caused the plane to go down. Give me a break. And I suppose China believes the sun rotates around the earth. No, I believe China knows that group grabbed the plane and is covering it up. The group could not fly it and it likely splashed down in the Indian ocean on the way to India, Pakistan, or the Middle East; that was the air route they were attempting to take. We will see, but China does not have clean hands here.
Euro/Dollar: A down week for the dollar versus the euro. Most everything else for that matter as the dollar index broke some near support.
1.3907 versus 1.3858 versus 1.3907 versus 1.3870 versus 1.3869 versus 1.3872 versus 1.3857 versus 1.3735 versus 1.3737 versus 1.3730 versus 1.3805
Dollar/Yen: Dollar fell all week against the yen including Friday. Now at a support level as the promising upside was set back at least for now.
101.29 versus 101.67 versus 102.71 versus 102.90 versus 103.24 versus 103.33 versus 103.07 versus 102.31 versus 102.19 versus 101.38 versus 101.82 versus 102.10 versus 102.38 versus 102.16 versus 102.47 versus 102.51 versus 102.35 versus 102.25 versus 102.43 versus 101.86
Bonds: Flat on the day but up big on the week, surging off of an equally sharp decline the prior week. Follow the bouncing bond.
10 year: 2.65% versus 2.65% versus 2.72% versus 2.77% versus 2.78% versus 2.79% versus 2.74% versus 2.69% versus 2.67% versus 2.60% versus 2.66% versus 2.69% versus 2.67% versus 2.70% versus 2.74% versus 2.73% versus 2.75%
Oil: 98.91, +0.65. Ugly Monday to Wednesday plunge to the 50 day SMA. Bouncing modestly Friday, but some damage was done.
Gold: 1379.20, +7.10. Upside week propelled by a big Wednesday. Friday another surge was underway though gold did fade off its high.
Stats: -15.02 points (-0.35%) to close at 4245.4
Volume: 2.178B (-7.67%)
Up Volume: 1.11B (+567.45M)
Down Volume: 1.07B (-750M)
A/D and Hi/Lo: Advancers led 1.22 to 1
Previous Session: Decliners led 3.09 to 1
New Highs: 82 (-4)
New Lows: 27 (-8)
Stats: -5.21 points (-0.28%) to close at 1841.13
NYSE Volume: 567M (-7.65%)
A/D and Hi/Lo: Advancers led 1.37 to 1
Previous Session: Decliners led 2.04 to 1
New Highs: 63 (-20)
New Lows: 90 (-4)
Stats: -43.22 points (-0.27%) to close at 16065.67
As noted, little change in the indices from Thursday to Friday though the large cap indices did bleed a bit lower while the small and midcaps posted modest gains. Overall they look heavy and in need of a further pullback to more important support. The issue, as noted earlier, is whether they hold that move and continue upside. Recall the late January dive through that support, however; did that create the fissure the sellers will use?
NASDAQ: Slipped just below the upper channel line from 11/12, holding at the intraday low from early March on that invasion gap lower. Can still put in a higher low here and continue the move and solidify its strength by holding the breakout from the channel from late 2012. If not, the 50 day EMA is 37 points south, the lower trendline is about 95 points lower. I would be surprised if NASDAQ was able to fend off a further test toward that support, but if NASDAQ wants to hold here, no complaints.
SOX: Holding still at the 20 day EMA after failing to take out the middle trendline from 11/2012. SOX is at some support for sure, and if NASDAQ holds, SOX holds (likely more vice versa). Likely it tests as well toward the 50 day EMA still 15 points lower and coincident with the lower trendline from late 2012.
SP500: Slipped further after the big Thursday flop, holding at the lower support form the twin peaks spanning December and January. Likely comes back further to test the 50 day EMA and/or the trendline from late 2012 at 1822, 19 points away.
RUTX: Back and forth each session but trending down for the week even with a modest gain Friday. Managed to hold the 20 day EMA but right at the late January peak. Not bad, still solid, but also likely to test the 50 day EMA and lower trendline that have merged.
DJ30: The Dow failed to reach a new high, started to test and looked solid Wednesday, holding the trendline with a doji. Thursday was the key move, a crash through the trendline and the 50 day EMA in one move. Tried to recover the 50 day Friday, did it intraday, but then rolled over to close at the session low. Does not look well, and next support is 15,900, another 165 points lower, hardly an afternoon's conversation.
Leadership was sloppy and sluggish, but as with the indices, no major changes with many holding next support or even nearest support.
Internet: VIPS tested the 20 day EMA on the low and bounced positive. QIHU is showing a nice doji with tail at the 20 day EMA. SFUN shows a doji at the 50 day EMA. Z surged off a midweek 200 day SMA test. Still life in this group.
Some good names are holding at the 50 day EMA: SCTY, GOOG, SWI.
Some big names are struggling, e.g. NFLX, PCLN, CRM.
Some big names jumped, e.g. GMCR
Drugs/biotechs: Some big names are really in trouble (CELG, GILD) some are just sluggish, e.g. BDSI, and some look pretty darn good, e.g. XON, NEOG, . Noteworthy is that they are not jumping upside as they did when the market last sold and investors turned defensive.
Techs: Some solid but very mixed. CRAY rallied over 3%. YY is holding over the 20 day EMA. SWI is solid at the 50 day EMA as noted.
Speaking of defensive, truly defensive names were up on Friday: CL, CLX.
Financials: It is worth noting that some financials, a group that contributed to leadership in late February, are under some pressure, e.g. GS, JPM. Others are hanging in such as WFC. Many are not that exciting to trade but they are an important aspect of the market.
VIX: 17.82; +1.6
VXN: 18.89; +1.42
VXO: 17.22; +1.68
Put/Call Ratio (CBOE): 0.79; -0.25
Bulls and Bears:
Bulls still moving higher though again at a slower pace: 55.1 versus 54.6 versus 53.5 from 46.5 and 41.8 before that.
Bears surging back upside: 17.4 versus 15.1 from 17.2 for two weeks and 17.4 for three weeks prior to that.
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.
Bulls: 55.1% versus 54.6%
53.5% 46.5% 41.8% 45.9% 53.1% 57.6 56.1 60.6% 61.6% 60.0%
58.2% 57.1% 55.7% 53.6% 52.6% 55.2% 52.6 49.5 42.3% 45.4 46.4% 44.3% 42.3% 37.1% 37.1% 38.1% 43.3%.
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 17.4% versus 15.1% 17.2% 17.2% 17.4% 17.4% 15.3% 15.1 15.3% 15.2% 15.2% 14.0 14.3 14.3 14.4 15.5 15.5% 15.6% 16.5% 18.5 21.6% 20.6% 18.6% 20.6% 21.6% 22.7% 23.7% 23.8% 21.6%.
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.
We will see what the weekend brings in terms of the Crimean 'join mother Russia' referendum and the west's response, whether RussPutin invades East Ukraine as well, trying to carve out a name in history for himself, e.g. Vladimir the Great or Vladimir the KGB, or Once a KGB agent always a KGB agent.
No one really knows how low the market can go if Russia moves again, this time on East Ukraine. Of course, that likely means it intends to take all of Ukraine. If the west decides to do something with forces, all bets are off. Dangerous and sadly we just don't have our best team to handle that kind of crisis.
Outside of a new invasion and a hot war the market remains a bit top-heavy, not as extended thanks to a week of pullback, but still with room to fall. There is cushion to fall and still maintain the uptrends; that is a benefit of a good run that breaks to higher highs, i.e. room to test.
Patience is still the word. We made some downside money on GILD, taking some off the table Friday. For more downside there likely needs to be a rebound that fails, so we let what we have continue while we see where this test finds support.
During that time of course the leaders need to be watched, looking at new positions setting up. The strong use downturns to setup new moves. There are stocks doing just that as noted: QIHU, IDCC, SWI, RBCN, SQM, WUBA, Z, SCTY, GOOG, SFUN, YOD, CRAY. Many. If lots of stocks are holding support, using the selling to prep for the next move, that bodes well for a new break higher once the market releases enough worry or, as they said this past week, the 'froth' is worked out of the system.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4245.40
4246.55 is the January 2014 peak
4257 is the upper channel line for the November 2012 to present uptrend.
4277 is the March lower gap point
4289 is the July 2000 recovery high
4372 is the March 2014 high
The 50 day EMA at 4208
4154 is the November 2012 trendline
4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
The 200 day SMA at 3858
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.
S&P 500: Closed at 1841.13
1849.44 is the recent all-time high.
The 50 day EMA at 1831
1821 is the December 2012 up trendline
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
1768 is the December 3013 low
The 200 day SMA at 1737
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
1657 is the late August upper gap point
1654 is the June 2013 peak
1646 is the October 2013 low just before the surge into early 2014
1627 is the August 2013 low
Dow: Closed at 16,065.67
16,589 is the December 2013 all-time high
16,296 is a lower trendline off the 11/2012 low
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 50 day EMA at 16,127
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 200 day SMA at 15,620
15,542 is the May 2013 intraday high
15,318 is the June closing high
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
March 14 - Friday
PPI, February (8:30): -0.1% actual versus 0.2% expected, 0.2% prior
Core PPI, February (8:30): -0.2% actual versus 0.1% expected, 0.2% prior
Michigan Sentiment, March Preliminary: 79.9 actual versus 82.0 expected, 81.6 prior
March 17 - Monday
Empire Manufacturing, March (8:30): 5.4 expected, 4.5 prior
Net Long-Term TIC Fl, January (9:00): -$45.9B prior
Capacity Utilization, February (9:15): 78.5% prior
Industrial Production, February (9:15): 0.1% expected, -0.3% prior
Capacity Utilization, February (9:15): 78.5% expected, 78.5% prior
NAHB Housing Market , March (10:00): 50 expected, 46 prior
March 18 - Tuesday
Housing Starts, February (8:30): 915K expected, 880K prior
Building Permits, February (8:30): 955K expected, 937K prior
CPI, February (8:30): 0.2% expected, 0.1% prior
Core CPI, February (8:30): 0.1% expected, 0.1% prior
March 19 - Wednesday
MBA Mortgage Index, 03/15 (7:00): -2.1% prior
Current Account Bala, Q4 (8:30): -$87.6B expected, -$94.8B prior
Crude Inventories, 03/15 (10:30): 6.180M prior
FOMC Rate Decision, March (14:00): 0.25% expected, 0.25% prior
March 20 - Thursday
Initial Claims, 03/15 (8:30): 330K expected, 315K prior
Continuing Claims, 03/08 (8:30): 2883K expected, 2855K prior
Existing Home Sales, February (10:00): 4.60M expected, 4.62M prior
Philadelphia Fed, March (10:00): 2.0 expected, -6.3 prior
Leading Indicators, February (10:00): 0.3% expected, 0.3% prior
Natural Gas Inventor, 03/15 (10:30): -195 bcf prior
By: Jon Johnson, Editor
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