Saturday, May 17, 2014

Looks Like Afternoon Short Covering on Expiration Friday


- Growth takes the point as another low volume bounce rally takes a shot at more than a few days upside.
- Big names get some solid bids thrown their way.
- Plenty of off-schedule news but the non-stock story remains bonds.
- Cash piles up to two year highs as fund managers pare back. Just in time for a bounce of course.
- Trying the upside again off of the same support.

Impressive price performance for the growth indices as all indices traded higher on the session. Sloppy start but NASDAQ and its smaller growth allies took the point and led stocks to midday and then what has become a typical afternoon or post-rally test (read collapse). But, there was no meltdown this session as stocks held the test and indeed rallied in the last hour to close out at or near session highs.

Outside of growth areas the moves were up but hardly impressive as the session belonged to growth. Low volume was disappointing (what is new?) but there was plenty of upside.

SP500 7.22, 0.38%
NASDAQ 35.23, 0.86%
DJ30 20.55, 0.12%
SP400 0.57%
RUTX 1.04%
SOX 1.05%

Volume: Lowest trade of 2014 at -22% NYSE, -8.6% NASDAQ. Kind of lacking in power you could say.

A/D: 1.85:1 NYSE, 2.2:1 NASDAQ

Tons of news stories from all areas.

Geopolitics: Russia (a.k.a. Putin) says it is pulling back from the Ukraine border, begging the question didn't Russia already pull back its troops? I guess not, but not to worry, it is doing so now. Then again, US and other observers say they don't see any troop movements. Oh yea, they were already gone, right?

I looked into Putin's eyes and saw his soul. Then I peed myself.

China's PBOC says the yuan will be the reserve currency . . . at some point . . . just as it looks like China's housing market is about to go bust. If the US just had some decent old-fashioned American pro-growth policies in place we could surge ahead of all economies. As it is we are squandering a great opportunity.

When are we going to Saigon? They said we were going to Saigon for some R&R.

Of course when a government faces economic issues it diverts the attention of the masses to aggression of other countries. Thus China enters waters Vietnam claims and starts setting up drilling platforms, etc. Vietnamese citizens are outraged and burn Chinese owned factories and kill Chinese workers at those plants. Perhaps an overreaction, but obviously there is no love lost between the two. In any event, now China is massing troops and equipment at the Vietnamese border. Former ally, not in competition with China and thus an adversary. Russia better watch out who it gets into bed with.

$/yen broke support and the dollar continued to fade, leaving the ball in Japan's court to intervene again (and again) to weaken it as Abe must have.

Bonds keep dancing at key support but yields managed to bounce Monday in no doubt a relief move.

Cash is king: As noted, asset managers have the most cash on the sidelines in 2 years. How appropriate when there is Tepper, Acampora and others saying they are nervous (hey, we were in that group as well), that the market decides to rally. We saw many stocks in position to move, important stocks e.g. GOOG, PCLN, TRIP, AAPL, and we are in all of them again. They still have some important resistance ahead, but stocks showed some support last week and indeed the past few weeks at the same levels. When the big names were ready as well, they moved.

Chart shows one interesting fact: in 2008 and early 2009 cash levels hit their highs and this just as the market bottomed.



SOX was important with a 1+% move along with RUTX. SOX moved back above its trendline after last Thursday's close below the 50 day EMA. That is the reaction the bulls want to see to such a test.

NASDAQ put in a nice break higher off a higher low, now knocking at the 50 day EMA again where it failed the last four times it came within spitting distance over the past 6 weeks. Important level ahead, but if the big boys keep moving as they were Monday, they should push through.

RUTX broke higher off of last week's lower test but intraday reversal off of that test. Running right at the 200 day SMA, its first key test in this move.

SP500 bounced off the 50 day EMA as you would expect. Lagged the other indices but that is no issue as the pattern is strong.

DJ30 showed a rather weak day of upside off the 50 day EMA, but it was not the large cap NYSE stocks' day as bids went to growth and the large caps just followed for the day.

SP400 midcaps made it to the lower trendline and the 50 day SMA. First important test of this run, but the key test is near 1370.


Big names: As noted, the big names on NASDAQ were on the move and they pushed NASDAQ higher. PCLN, NFLX, GOOG, AAPL, TRIP.

Energy: Starting a rebound after a couple of weeks testing, e.g. PTEN, HAL, ATHL.

Utilities: Hit pretty hard, e.g. AEP.


Euro/Dollar: Euro took back some of the late week gains but this is simply a nice easy flag test of the 50 day EMA.

1.3170 versus 1.3698 versus 1.3716 versus 1.3713 versus 1.3702 versus 1.3754 versus 1.3853 versus 1.3914 versus 1.3928 versus 1.3878 versus 1.3875 versus 1.3865

Dollar/Yen: Dollar dove lower to a lower low but reversed to take it all back. Okay, good shakeout at the bottom of the four month range.

102.65 versus 101.49 versus 101.52 versus 101.84 versus 102.27 versus 102.15 versus 101.73 versus 101.81 versus 101.53 versus 101.73 versus 101.68 versus 102.11

Bonds: Fell to the 10 day EMA after a strong run. Testing a bit.

10 year: 2.54% versus 2.51% versus 2.50% versus 2.54% versus 2.61% versus 2.66% versus 2.62% versus 2.60% versus 2.59% versus 2.59% versus 2.61% versus 2.59% versus 2.67% versus 2.69% versus 2.70% versus 2.67% versus 2.68% versus 2.69% versus 2.73% versus 2.71% versus 2.72% versus 2.64% versus 2.62% versus 2.64% versus 2.62% versus 2.65% versus 2.69% versus 2.68% versus 2.70% versus 2.73% versus 2.79%

Oil: 102.65, +0.64. Today several stories talked of finally getting some relief at the gas pump. This of course two weeks after oil bottomed and is bouncing back toward 105. So, there won't be much of a respite with respect to lower priced gasoline.

Gold: 1294.10, +0.80. Still a very tight lateral pattern at the 200 day SMA. Nice setup.


Stats: +35.23 points (+0.86%) to close at 4125.81
Volume: 1.57B (-8.67%)

Up Volume: 1.19B (+150M)
Down Volume: 394.8M (-279.72M)

A/D and Hi/Lo: Advancers led 2.23 to 1
Previous Session: Advancers led 1.56 to 1

New Highs: 38 (+27)
New Lows: 56 (-26)

Stats: +7.22 points (+0.38%) to close at 1885.08
NYSE Volume: 522M (-22.09%)

A/D and Hi/Lo: Advancers led 1.85 to 1
Previous Session: Advancers led 2.07 to 1

New Highs: 112 (+21)
New Lows: 58 (-24)

Stats: +20.55 points (+0.12%) to close at 16511.86


VIX: 12.42; -0.02
VXN: 15.1; -0.15
VXO: 11.64; -0.29

Put/Call Ratio (CBOE): 0.81; -0.08

Bulls and Bears:

Bulls continue the move: 55.1% versus 55.8% versus 54.7%. A bit of a fade, but just a bit. Never hit an extreme yet.

Bears fade yet again: 19.4% versus 19.7% versus 20.6

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 55.8 versus 54.7
51.6 versus 50.5 versus 54.6% versus 50.5 versus 54.7% 52.0% 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: 19.4% versus 19.7% versus 20.6%
21.7% versus 20.6 versus 18.6% 18.6% 17.5% 17.4% 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.


Growth moved to the lead for a session but the low volume indicates there was not much participation and that the move, for now is yet again, another relief move. Not going to fret over that too much; such is the market right now and volume or not, there are some important stocks that set up moves and are now making the moves.

The big test is how these leaders and 'name' stocks that broke higher sustain their moves as they approach potential right shoulder tops in head and shoulders patterns. PCLN, NFLX, TRIP are examples. They have power and can fly, but they are going to need to show that power.

We picked up several positions on this move as they were making the bounce they set up during that back and forth of the past several weeks that found support at the prior lows. Again, now we see what kind of strength they have at those prior peaks.


NASDAQ: Closed at 4125.81

4131 is the March 2014 low
The 50 day EMA at 4135
4246.55 is the January 2014 peak
4277 is the March lower gap point
4289 is the July 2000 recovery high
4328 is the lower November 2012 trendline
4372 is the March 2014 high
4424 is the upper channel line for the November 2012 to present uptrend.

4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
The 200 day SMA at 4005
3991 is the prior November 2013 high and the post-bear market high.
3968 is the February 2014 low
3946 is the April 2014 intraday low
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 1885.08

1886 is the December 2012 up trendline
1883.57 is the early March high.
1897 is the all-time high hit in April 2014 and is giving way.

The 50 day EMA at 1866
The December and January highs at 1848
1837 is the lower trendline from 11/2012
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
The 200 day SMA at 1787
1775.22 is the October prior all-time high
1768 is the December 3013 low
1738 is the February 2014 low
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

Dow: Closed at 16,510.80

16,589 is the December 2013 all-time high
16,632 is the April 2014 all-time high
16,848 is a lower trendline off the 11/2012 low

16,506 is the March 2014 peak
The 50 day EMA at 16,410
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 15,887
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
15,340 is the February 2014 low
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)

Economic Calendar

May 21 - Wednesday
MBA Mortgage Index, 05/17 (7:00): 3.6% prior
MBA Mortgage Purchas, 05/17 (7:00)
Crude Inventories, 05/17 (10:30): 0.947M prior
FOMC Minutes, 4/30 (14:00)

May 22 - Thursday
Initial Claims, 05/17 (8:30): 305K expected, 297K prior
Continuing Claims, 05/12 (8:30): 2700K expected, 2667K prior
Existing Home Sales, April (10:00): 4.66M expected, 4.59M prior
Leading Indicators, April (10:00): 0.5% expected, 0.8% prior
Natural Gas Inventor, 05/17 (10:30): 105 bcf prior

May 23 - Friday
New Home Sales, April (10:00): 415K expected, 384K prior

May 24 - Saturday
Durable Goods -ex tr, April (8:30)

By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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