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2/28/2015 Investment House Report
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Targets hit: GOOG; MTSN; SPLK
Buy alerts: None issued
Trailing stops: CHUY
Stop alerts: RBCN; SIMO; SINA
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Market Summary Video, Plays and Play Videos, and Play Tables with play annotations will issue Monday, Wednesday and the Weekend.
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If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.
- Friday stocks just don't have the push.
- SP500, DJ30 testing again, NASDAQ starts to test.
- Leaders still solid, some starting to test, others still ready to move higher. Will money stay in for now and rotate or take a pause to let things cool?
- Economic data continues to show its slowdown. Well, now more than just a slowdown with the Chicago PMI.
- GDP again inflated by the forced ACA spending. And, without the massive benchmark adjustments from Q3, it is half of Q3.
- Bullish Sentiment nudges 60%.
- Now it is up to the new leaders and up and comers to step up.
Friday was something of a flop, at least in terms of a market that continues to rise post-new highs. All week the indices traded off as to who would lead, or to put it another way, who would not lead. The move was slowly higher but with no real power. Thus when Friday came, with so much talk about market tops thanks to NASDAQ approaching 5,000 (the old high is 5132 by the way), after three weeks upside the indices turned in an off session.
SP500 -6.24, -0.30%
NASDAQ -24.36, -0.49%
DJ30 -81.72, -0.45%
VOLUME: NYSE +20%, NASDAQ +0.28%
A/D: 1.05:1 NYSE, -1.6:1 NASDAQ. Definitely a large cap move on NASDAQ the past week, e.g. GOOG, AMZN.
The week saw overall gains and NASDAQ pushed toward its March 2000 all-time high. There was no flash, no panache, however, just a half step forward, quarter step backward slog on the week. All indices participated to the upside, it was just very spotty with a very good day followed by a very mediocre day. My how spoiled we have become; every day isn't a run higher. What is this market coming to?
Leaders on the other hand were really hitting it. GOOG, SPLK (outside that Friday reversal, but we banked some excellent gain early session), MTSN, ZBRA, FSLR, LCI, CREE, QRVO, and more. An impressive list of impressive moves. Hey, someone has to make the good moves when the market is creeping higher. Not all stocks creep. You always have the leaders dragging along the dead weight. Last week was exactly that case.
The question is whether Friday was something more nefarious given it was a bigger drop than the other sessions. Our view? Lots of talk of a market top simply had some people skittish and they took some profits. A 'Friday after three weeks upside and a very slow week to top it off so better take some gain' kind of session. Those can dissipate as fast as they show up.
Not to be too cocksure of ourselves, however. As we note later, bulls are 0.5%, barely a gnat's butt away, from hitting 60%. That level has consistently resulted in market selloffs or corrections during the past three to four years. Bulls up, ominous talk of tops - - sometimes it is a self-fulfilling prophecy.
You have to counterbalance that with the facts regarding leadership. Many, many quality stocks have rallied well. Others have broken out of bases, tested, and are rallying well in that rally, pause, rally, pause cycle. Others are what we call 'turning the corner,' coming out of downturns and starting what could be long upside runs just as their predecessors, the current leaders, started with.
As long as money stays in the market and rotates to new leaders as the old leaders stop and rest, the move overall continues. More so if new money comes in.
Even in those situations, however, the market can take breathers or breaks from the upside. This market ended the week taking a breather, at least for SP500, DJ30, and SP400 as they test the 10 day EMA. The other indices paused as well, but it was a 'Friday thing' for them as they moved higher all week then gave up just a bit, and it was just a bit, of ground Friday.
I would say the market is vulnerable to a pullback here even though SP500 and DJ30 just took a three day rest a week back and SP400 has moved up from its weeklong test for just over 2 weeks. They are not extended, in other words, and thus are not precarious. NASDAQ, the clear leader, and RUTX are up without much rest at all. If they rest either the other indices step in to fill the void OR they all decide to take a breather.
Oh my, so much if/then talk with several possible routes. What to do? Execute the plan. We have bought quality patterns as they break upside, whether continuing runs already in place, breaking higher from initial breakout tests, or turning the corner with their first moves. Let them work and when they hit or get close to our logical targets, take some gain. If they continue to work, let them. If they start to struggle or are not keeping up, close them.
We did all of that last week, banking excellent gain on many positions. At the same time we had to close some that just were not performing. Indeed, some good stocks ran into trouble, and that is another indication the move is a bit winded even though some indices put in good mid-stream tests the past two weeks. If they get in trouble, bag them. If leaders start to falter and break support they have not been breaking in their move, close them.
That way you NATURALLY get leaner at the top because typically there are less opportunities at the top as patterns are not forming up as well. The caveat to that, of course, is the situation where the followers have set up and are making their moves just as the rally leaders decide it is time to correct. That still doesn't mean the end of the move UNLESS the money banked when the leaders are sold is NOT put into other areas. You know that because they fail to advance or give up breaks higher rather quickly. In that instance the test is upon us.
This week we still see many plays working higher and setting up nice, nice upside patterns. We have several such new plays on the report. At the same time we see some big movers that led this part of the market rally in the test phase: AAPL, SPLK with that reversal Friday, FEYE, LCI. How they react in their pullbacks will be instructive as will how the new comers perform. Also, don't forget the gaps, the good stocks surging on earnings, e.g. AVGO, FB, HD. How they fill or don't fill their gaps also tells the story.
Thus far most all are holding on, but the response moves to last week's action still have to be made. Like what we see, but won't be surprised if there is some pullback near term. After all, the breakouts to higher highs have really not been tested.
What external forces are working on stocks?
Thursday you saw jobless claims bounce back over 300K as the energy sector layoffs continue. As noted that night, the rebound only continues the trend higher in jobless claims from October, the month QE officially ended.
Friday the news was rather pitiful. Sure the spin was shoveled heavily as the powers that be still try to keep the masses convinced of something that their own intuition and senses are telling them is not the case, i.e. the economy is 'great.'
Signs of greatness?
Chicago PMI, February: 45.8 versus 58.0 expected and 59.4 January
Okay, the lowest read since July of 2009, the first below 50 (contraction) reading since April 2013. Hardly a shot of confidence in numbers that, since October, have tailed off.
Every index outside of supplier deliveries contracted.
Production: 44.8 versus 64.1
New orders: 42.0 versus 61.6 January
Unfilled orders: 41.1 versus 51.9, the second decline in three months.
Employment: 49.8 from 60.1
Okay, why the crappy report? Weather, port strike. Hey, have to blame something and those are in the headlines, easy pickings, stories that the average uninformed person will nod about and think 'that makes sense.'
But does it. Remember my discussion last year in the economic aftermath of the Polar Vortex? How the weather slammed the door on GDP, driving it negative? Really? In the mid-1980's there was a horrible winter, one that impacted most of the country, not for a week but for weeks. It was so bad that icebergs floated in the Mississippi River at Baton Rouge and farther south. Pipes across the south burst, not designed for that kind of sustained cold. GDP was clobbered right? Only if clobbered means solid: 4.5% during the worst that winter could offer.
Moral: It is the economy, not the weather. Always. If our economy is so weak it cannot stand weather that is impacting just a quarter of the country, we have serious problems. Oh yeah, that is right, we DO have serious problems.
Q4 GDP 2nd read
2..2% versus 2.1% versus 2.6%. Hey, beat expectations and the whisper of a 1-handle.
Consumption: 4.2% versus 4.3%. Not bad from the look of it.
Inventories: $88B versus $113B in the first read. Ah, there is part of the problem.
All 2014: 2.4%. Still crappy, but without that 5% in Q3, ugh.
Oh yes, what about that 5% and indeed the 2.2% in Q4? What is the story behind the headlines.
Well, you already know that. After the final Q3 read and the robust consumption that drove it, we pointed out that over 2% of the move was due to forced spending on the ACA. That is right, people buying polices because they had to, or paying the fine instead. It is counted the same. Also, there were massive revisions in the estimates of savings versus spending, and that spending was written much higher, also pushing up GDP to absurdly inaccurate levels.
What about Q4? That 4.2% looks good. Obviously that 'gasoline bonus' is helping consumers spend more on creature comforts.
That is true IF forced spending on the ACA is a creature comfort. Indeed, in Q4 spending on ACA was even HIGHER. $21.4B for healthcare versus 20.4B in Q3.
$21.4B = 18% of all spending on goods and services in Q4 was for healthcare. Massive increases since the ACA has taken effect.
You should also take a look at this weekend's Investor's Business Daily article on how spending is forced and thus mandatory, but people buying the required policies are not using them because . . . as I wrote before, they CANNOT AFFORD TO PAY THE DEDUCTIBLE after they pay the premiums.
This is the biggest fraud, the biggest rip off the US citizens have suffered. By merely living in the US the Congress and Executive say you have to purchase something whether you need it, want it, or otherwise. The Supreme Court backed them by saying it was a tax, thus also opening the door to unlimited federal interference by just saying any regulation forcing you to buy something is just a tax. In order to provide voters with insurance funded by others, the government is forcing the transfer of what will be trillions of dollars from those who earn it to those who don't. Nothing new there, just the SCALE of the fleecing is staggering.
Greenspan speaks again.
Ever ready to call reality in the true sense AFTER he left the Fed , Friday Alan Greenspan stated what we all know, at least those who do the math and make even a cursory study of history: the Fed's actions, not the economy, were the main drivers in the massive price expansion in financial assets since the bottom in early 2009.
The economy, he says, is 'extraordinarily weak, tantamount to the last stages of the Great Depression.' He is concerned that a problem arises when real rates start to rise.
If Greenspan would admit that his keeping rates so low for so long contributed to the housing crisis and financial collapse, he would have SO MUCH more credibility. Saying yes we learned at that time if you kept rates artificially low the market would bubble, his current comments would turn more heads. As it is, it makes interesting, well after the fact, 'I told you so' from someone who never told it was so.
The other investment:
The buybacks and dividends were humming last week. Friday alone saw some impressive ones:
Buybacks: GPS $1B! ROST 1.4B! URBN $20M (slacker)
Dividends: GPS +5%; ROST +17.5%
As discussed earlier, there is no real damage to the charts. They all had 'their day' last week on different days, each taking turn. Overall, however, the move slowed and by Friday some tests were ongoing. All are hold above the 10 day EMA for now, all are holding breaks higher. The key we still feel is NASDAQ and its move toward 5132 from March 2000. That is the moth to the flame right now, and the indices, though slowing, still are in good enough shape to regroup and take NASDAQ close to that level. In our view that will be the near term topping mechanism, but we cannot assume that must be the case.
Stats: -24.36 points (-0.49%) to close at 4963.53
Volume: 1.868B (+0.28%)
Up Volume: 751.97M (-348.03M)
Down Volume: 1.15B (+365.51M)
A/D and Hi/Lo: Decliners led 1.61 to 1
Previous Session: Advancers led 1.26 to 1
New Highs: 118 (-36)
New Lows: 33 (+8)
Stats: -6.24 points (-0.3%) to close at 2104.5
NYSE Volume: 864.7M (+20.18%)
A/D and Hi/Lo: Advancers led 1.05 to 1
Previous Session: Decliners led 1.17 to 1
New Highs: 99 (-23)
New Lows: 30 (+8)
Stats: -81.72 points (-0.45%) to close at 18132.7
VIX: 13.34; -0.57
VXN: 14.62; +0.29
VXO: 13.28; -0.16
Put/Call Ratio (CBOE): 1.02; 0
Bulls and Bears:
Bulls: 59.5% versus 56.6% versus 52.5% versus 49.0%
Galloping to the 60% level that has spawned corrections in this market rally.
Bears: 14.1% versus 14.1% versus 15.2% versus 16.3% versus 16.3% versus 17.4%. Holding at the lows as bears remain absent. Too complacent and now with bulls at 59.5%, could be trouble.
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.
56.6% versus 52.5% versus 49.0% versus 53.1% versus 49.0% versus 48.0% versus 50.5% versus 56.4% versus 52.5% versus 49.5% versus 51.5% versus 53.4% versus 56.5% versus 56.4% versus 55.5% versus 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5% versus 47.5% versus 48.0% versus 52.5% versus 57.6% versus 56.1% versus 52.5%
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
14.1% versus 15.2% versus 16.3% versus 16.3% versus 17.4% versus16.3% versus 15.2% versus 14.9% versus 15.8% versus 14.9% versus 14.8% versus 13.9% versus 13.8% versus 14.9% versus 14.8% versus 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1% versus 15.1% versus 15.3% versus 15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2%
Background: Over 35% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.
Bonds (10 year): 1.98%
2.04% versus 1.96% versus 1.98% versus 2.06% versus 2.09% versus 2.11% versus 2.08% versus 2.14% versus 2.03% versus 1.99% versus 1.98% versus 1.99% versus 1.95% versus 1.94% versus 1.81% versus 1.77% versus 1.78% versus 1.68% versus 1.67% versus 1.76%
Oil: 49.79, +1.50. It looks as if oil would make the break, then fell Thursday. A decent Friday recovery keeps it in the range. Now we see if it can use that as leverage.
Gold: 1213.10, +3.00.
$/JPY: 119.63 versus 119.48 versus 118.86 versus 118.95 versus 118.78 versus 119.08 versus 119.04 versus 118.70 versus 119.34 versus 118.83 versus 118.915 versus 120.26 versus119.48 versus 118.62 versus 118.987 versus 117.56 versus 117.21 versus 117.58 versus 117.52 versus 117.40 versus 118.30 versus 117.54 versus 117.88 versus 118.45
Broke higher late in the week, moving up off the 50 day EMA.
Euro/$: 1.1197 versus 1.1195 versus 1.1362 versus 1.1337 versus 1.1385 versus 1.1379 versus 1.1366 versus 1.1398 versus 1.14 versus 1.1390 versus 1.1409 versus 1.1294 versus 1.1315 versus 1.1324 versus 1.1318 versus 1.1474 versus 1.1387 versus 1.1481 versus 1.1336 versus 1.1290 versus 1.1318 versus 1.1287 versus 1.1375 versus 1.1263 versus 1.1204 versus 1.1366 versus 1.1590 versus 1.1550 versus 1.1543 versus 1.1609 versus 1.1789 versus 1.1764 versus 1.1832
Jobs week and many are looking for jobs as the savior of the economic face. GDP was halved and that is generous given the reasons. Durable goods orders, jobless claims, Chicago PMI were so-so to downright crappy. The trend lower since QE ended is almost frighteningly uncanny.
There is also the DHS funding dust up and that raises the ghosts of shutdowns or budgeting disputes past. I for one and not a person who feels we need to pass a budget just to avoid a shut down. Only in government are you told that we have to spend money no matter what it is on. They could 'fund' the DHS to play pick up stix all day long and that would be fine with many of our leaders because government did not shut down. After all, if it did we just might not miss it. Cannot have that.
That is all, as the late great Leonard Nimoy playing Mr. Spock would say, 'sauce for the goose.'
Sauce for the goose, Saavik. The odds will be even. 'The Wrath of Kahn'
The real story is how the indices handle the slower upside last week and the start of the test. That will be dictated by how those leaders handle their tests. AAPL still looks good on its test, good enough to enter as it bounces. Others have enjoyed big moves and they need a breather. Some are taking it and the quality of their tests tells that tale.
It is also about those on the rise, trying to muscle into the upside. If money flows their way while the others test, the market holds its moves.
Last week was just the start of a possible test. We get more into it this week. Upside plays at the ready of the move continues or money otherwise rotates. We have banked some good gain, look to do the same again if given the opportunity, and also have good logical stop points in place (keeping things logical in honor of Nimoy). As I said earlier, play the plan either in buying, taking gain, or closing positions.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4963.53
5132.52 is the 3/2000 all-time high
The 10 day EMA at 4931
4815 is the December 2014 prior market peak
4811 is the November 2014 peak (intraday)
The 50 day EMA at 4781
4774 is the January high
4751 is the January 2015 lower high
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
4566 is the lower gap point from late October
4563 and 4567 are the January lows
4547 is the December low
The 200 day SMA at 4540
4486 is the July 2014 high
4372 is the March 2014 high
The August low at 4321
4316 is the lower gap point from October 2014
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak
S&P 500: Closed at 2104.50
2161 is the December 2012 up trendline
2094 is the all-time high
2098 is the lower trendline from 11/2012
2079 is the intraday all-time high from November
2076 is the all-time high from November
2062 is the January 2015 lower high
The 50 day EMA at 2061
2011 is the September prior all-time high
The 200 day SMA at 1994
1991 is the July 2014 high
1972 is the December 2014 low
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 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
Dow: Closed at 18,132.70
18,104 is the December all-time high
17,991 is the early December interim
17,923 is the January 2015 lower high
The 50 day EMA at 17,779
17,351 is the September 2014 all-time high.
The 200 day SMA at 17,197
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
17067 is the December 2014 low
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
16,736 is the penultimate all-time high from May 2014
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
16,341 is the May low
16,334 is the August 2014 low
16,257 is the January 2014 low
16,179 is the November 2013 peak.
15,855 is the October 2014 low
15,739 is the December 2013 low
February 23 - Monday
Existing Home Sales, January (10:00): 4.82M actual versus 4.95M expected, 5.07M prior (revised from 5.04M)
February 24 - Tuesday
Case-Shiller 20-city, December (9:00): 4.5% actual versus 4.3% expected, 4.3% prior
Consumer Confidence, February (10:00): 96.4 actual versus 99.6 expected, 103.8 prior (revised from 102.9)
February 25 - Wednesday
MBA Mortgage Index, 02/21 (7:00): -3.5% actual versus -13.2% prior
New Home Sales, January (10:00): 481K actual versus 470K expected, 482K prior (revised from 481K)
Crude Inventories, 02/21 (10:30): 8.427M actual versus 7.716M prior
February 26 - Thursday
Initial Claims, 02/21 (8:30): 313K actual versus 290K expected, 282K prior (revised from 283K)
Continuing Claims, 02/14 (8:30): 2401K actual versus 2400K expected, 2422K prior (revised from 2425K)
CPI, January (8:30): -0.7% actual versus -0.6% expected, -0.3% prior (revised from -0.4%)
Core CPI, January (8:30): 0.2% actual versus 0.1% expected, 0.1% prior (revised from 0.0%)
Durable Orders, January (8:30): 2.8% actual versus 1.7% expected, -3.7% prior (revised from -3.3%)
Durable Goods -ex tr, January (8:30): 0.3% actual versus 0.5% expected, -0.9% prior (revised from -0.8%)
FHFA Housing Price I, December (9:00): 0.8% actual versus 0.7% prior (revised from 0.8%)
Natural Gas Inventor, 02/21 (10:30): -219 bcf actual versus -111 bcf prior
February 27 - Friday
GDP - Second Estimate, Q4 (8:30): 2.2% actual versus 2.1% expected, 2.6% prior
GDP Deflator - Second, Q4 (8:30): 0.1% actual versus 0.0% expected, 0.0% prior
Chicago PMI, February (9:45): 45.8 actual versus 58.0 expected, 59.4 prior
Michigan Sentiment -, February (10:00): 95.4 actual versus 94.0 expected, 93.6 prior
Pending Home Sales, January (10:00): -3.7% prior
Pending Home Sales, January (10:00): 1.7% actual versus 2.4% expected, -1.5% prior (revised from -3.7%)
End part 1 of 3
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