- No shortage of issues, economic, geopolitical, market, but stocks rally Friday.
- Facing the last third of the year, where the year's outcome is determined.
- Lifecycle of stocks: many extended as stocks enter the run to year end.
- Extended perhaps, but the trends are in place and the recent pullback may be enough to support a year end run.
Nothing keeps stocks from their appointed rounds.
Neither Russian aggression and 'we fear nothing' attitude, weak European data, negative US spending, Brazil entering recession, ISIS slaughters, terror alerts raised to all-time highs, surging food prices thanks to drought (butter just hit an all-time high), and a lack of US strategy to counter any of these problems, could keep stocks from rising the last day of August. Indeed, stocks actually sprinted to the close in a pattern that works 70% of the time on the Friday before Labor Day: finish higher.
SP500 6.63, 0.33%
NASDAQ 22.58, 0.50%
DJ30 18.88, 0.11%
Volume: NASDAQ +2%, NYSE +25%
A/D: 2.4:1 NASDAQ, 2.4:1 NYSE
As you can see, the moves were skewed toward growth: RUTX, SOX, NASDAQ led the move. That has positive implications for the market heading into the last part of the year, one that often has big dips but pleasing recoveries as stocks then run into year end.
Recall that last week our game plan was to lighten up on stocks that were questionable in their patterns, unable to answer the question 'why am I in this?' with a clear statement. Once good patterns that are perhaps still decent, but just started to wander without making a good move.
The reason? The last third of the year starts Tuesday after Labor Day. The market can break upside, it can break downside, or it can continue its trend. You have to be careful of the breakdown, but this year you also have to be somewhat careful of the latter, the continued trend. Why? Because some indices are struggling at resistance, e.g. SP400 and DJ30, while others attempt to recover damage done, e.g. RUTX and SOX.
Over the past two weeks, RUTX made some good strides at repairing damage with its break of the 200 day SMA and then a lateral consolidation yielded a break higher. SOX then formed its own lateral consolidation and gapped out of it Friday. Positives. The Dow bumped into the July high and stalled, but it has not rolled over. Tried, but rebounded. Perhaps it can form its own lateral shelf and break higher as well. MACD has now surpassed the July peak; positive as well.
In any event, we closed positions in stocks that were not behaving properly, i.e. not working on patterns or moving up with the indices that managed to move higher. Maybe they recover and rally if the market does, but they were not performing as desired, and now if stocks do start higher once more in the last third of the year, we can focus on those doing the moving versus those just hanging on, indecisive or not decisive enough about what they want to do.
One major theme to note at this juncture in the market and this time of the year. A first consideration is many leaders are WAY overbought in terms of how far they have rallied in the run. Many are up 5x to 10x from rallies that started two years ago or even less. VIPS, Z, NFLX, QIHU at its peak. Stocks that have risen 2x, 3x are extended. SIMO, TRLA, SNCR, UA. Stocks up 5x and above are way overdone.
Stocks have life cycles just as living beings, and the run the past several years has been the prime of life for many. There is nothing to say that the life expectancies have not lengthened this time, but if they have, a lot of that is due to the easy money policies of our favorite central bank. With Uncle Fed finally working on withdrawing the handouts, it is going to take a LOT of positive views about how strong the economy will be to support the current gains AND add to them with further rallies. In other words, just how strong is the economy? Good enough to keep the monetary policy induced gains and price in even more gains on growth?
Several Dirty Harry lines come to mind. 'Do you feel lucky, punk?' 'A man's [market's] got to know its limitations.' (I tried to figure out how to work in 'Go ahead, make my day' or 'Your mouthwash ain't making it', but couldn't).
Do you feel lucky, punk? A man's got to know his limitations.
'Dirty Harry' -- 1971 'Magnum Force' -- 1973
So we head into the last third of the year sitting on large gains but attempting to recover from a stumble in July to early August (more so for RUTX, SOX). Good efforts are being made, e.g. RUTX and SOX as noted above. NASDAQ and SP500 have moved to higher highs. There is still leadership that can move higher along with new rising stocks attempting to become leaders. If these continue to work, the market can continue to work upside as well.
We have to be focused on those as we watch just how the market performs post-Labor Day. If new money comes in, it is pretty clear that it is moving in as stocks jump. Friday, despite the light volume, saw stocks jump late in the session. Buy programs moved in, placing bets ahead of the start of the last third. That also suggests the upside is not dead yet. It could be the money flies back in for the last third and that the 'correction' in July to August is all we get. Not counting on that, but the market upside trend continues, and while we have to recognize sellers can take over, they have not to this point, and if we get good upside plays making the moves we want, we move in.
Thursday we put several new plays onto the report in anticipation of the holiday weekend with the idea of giving the staff as much time off as possible. Thus we are heading into next week focusing on those plays as well as the nice setups already on the report that we can use to enter if the market decides it is going to rally further. We lightened up some stagnant positions so we can focus on those making the moves toward year end. With that in mind this weekend's report focuses on the solid plays we have ready to go and a few new ones that we found looking ready to move if the money comes in once more.
Stats: +22.58 points (+0.5%) to close at 4580.27
Volume: 1.216B (+2.01%)
Up Volume: 1.03B (+398.95M)
Down Volume: 297.19M (-352.58M)
A/D and Hi/Lo: Advancers led 2.38 to 1
Previous Session: Decliners led 1.93 to 1
New Highs: 89 (+42)
New Lows: 27 (-16)
Stats: +6.63 points (+0.33%) to close at 2003.37
NYSE Volume: 616.7M (+25.63%)
A/D and Hi/Lo: Advancers led 2.38 to 1
Previous Session: Decliners led 1.35 to 1
New Highs: 157 (+47)
New Lows: 10 (-1)
Stats: +18.88 points (+0.11%) to close at 17098.45
VIX: 11.98; -0.07
VXN: 12.71; +0.06
VXO: 10.87; +0.1
Put/Call Ratio (CBOE): 0.96; -0.34
Bulls and Bears:
Bulls bounce sharply: 52.1% versus 49.5%
Bears flop below the 16 to 17 range that held: 15.1% versus 16.2%
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: 52.5% versus 49.5%
49.5% versus 46.4% versus 50.5% versus 55.6% versus 56.5% versus 56.6% versus 60.6% versus 57.6% versus 60.2% versus 61.4% versus 62.6% versus 62.2% versus 58.3% versus 57.2% versus 55.1 versus 55.7 versus 54.7 versus 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: 15.1% versus 16.2%
16.2% versus 16.2% versus 17.1% versus 16.2% versus 17.2% versus 15.1% versus 15.2% versus 16.1% versus 16.3% versus 17.2% versus 17.4% versus 17.3% versus 18.3% versus 19.4% versus 20.6% versus 19.7% versus 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.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4580.27
4616 is the lower November 2012 trendline
The 10 day EMA at 4539
4486 is the July 2014 high
The 20 day EMA at 4499
The 50 day EMA at 4431
4372 is the March 2014 high
The August low at 4321
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak. Key level.
The 200 day SMA at 4229
4131 is the March 2014 low
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.
3968 is the February 2014 low
3946 is the April 2014 intraday low
S&P 500: Closed at 2003.37
1991 is the July 2014 high
The 10 day EMA at 1989
1989 is the December 2012 up trendline
The 50 day EMA at 1960
1934 is the lower trendline from 11/2012
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The 200 day SMA at 1879
The December and January highs at 1848
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
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
Dow: Closed at 17,098.45
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
The 10 day EMA at 17,005
The 50 day EMA at 16,843
16,736 is the penultimate all-time high from May 2014
16,341 is the May low
16,334 is the August 2014 low
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
The 200 day SMA at 16,444
16,257 is the January 2014 low
16,179 is the November 2013 peak.
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
August 29 - Friday
Personal Income, July (8:30): 0.2% actual versus 0.3% expected, 0.5% prior (revised from 0.4%)
Personal Spending, July (8:30): -0.1% actual versus 0.1% expected, 0.4% prior
PCE Prices - Core, July (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Chicago PMI, August (9:45): 64.3 actual versus 54.8 expected, 52.6 prior
Michigan Sentiment -, August (9:55): 82.5 actual versus 80.0 expected, 79.2 prior
September 2 - Tuesday
ISM Index, August (10:00): 57.0 expected, 57.1 prior
Construction Spendin, July (10:00): 1.0% expected, -1.8% prior
September 3 - Wednesday
MBA Mortgage Index, 08/30 (7:00): 2.8% prior
Factory Orders, July (10:00): 11.0% expected, 1.1% prior
Auto Sales, August (14:00): 5.8M prior
Truck Sales, August (14:00): 7.4M prior
September 4 - Thursday
Challenger Job Cuts, August (7:30): 24.4% prior
ADP Employment Chang, August (8:15): 220K expected, 218K prior
Initial Claims, 08/30 (8:30): 300K expected, 298K prior
Continuing Claims, 08/23 (8:30): 2525K expected, 2527K prior
Trade Balance, July (8:30): -$42.0B expected, -$41.5B prior
Productivity-Rev., Q2 (8:30): 2.6% expected, 2.5% prior
Unit Labor Costs, Q2 (8:30): 0.5% expected, 0.6% prior
ISM Services, August (10:00): 57.9 expected, 58.7 prior
Natural Gas Inventor, 08/30 (10:30): 75 bcf prior
Crude Inventories, 08/30 (11:00): -2.070M prior
September 5 - Friday
Nonfarm Payrolls, August (8:30): 220K expected, 209K prior
Nonfarm Private Payr, August (8:30): 200K expected, 198K prior
Unemployment Rate, August (8:30): 6.1% expected, 6.2% prior
Hourly Earnings, August (8:30): 0.2% expected, 0.0% prior
Average Workweek, August (8:30): 34.5 expected, 34.5 prior
By: Jon Johnson, Editor
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