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8/22/2015 Investment House Report
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Targets hit: PANW
Buy alerts: None issued
Trailing stops: None issued
Stop alerts: None issued
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- DJ30 dives 535 points, 10% off high, joining RUTX, SOX in 'official' corrections.
- China is to blame. Along with Singapore, Brazil and on and on, even the US.
- VIX explodes to biggest weekly gain ever.
- Fed Steadfast: Bullard says we don't look at no stinking markets. But will Fed be forced to QE again?
- Dollar plunging. Hey, shouldn't that make the big stocks happy?
- Oil down due to quantity or demand? Hate to say it, but demand.
- Despite the sharp selloff, still some stocks in really good patterns.
- Likely another selloff early this week, IF the market wants to try and bottom. Even if it does, that does not mean new highs are the next stop.
Find a Scapegoat! It's China! And Hong Kong and Brazil and Indonesia and Turkey and the Koreas . . .
Another explosion at a chemical warehouse in China. Standards are so high over there. And we want to import food from there?
Stocks continued the Thursday selling in a big way. DJ30 dropped 530 points. 40% of the SP500 is down 20% or more ('official' bear market declines). VIX surged past the December 2014 peak and closed over the October Ebola closing high, posting its largest one week advance ever. New lows surged to 612 on NYSE. Breadth -6:1 NYSE. The put/call ratio surged to 1.69. SP500 bombed to the December low, DJ30 is closing in on the August 2014 low, RUTX gapped to a hammer doji at the January 2015 lows.
SP500 -64.84, -3.19%
NASDAQ -171.45, -3.52%
DJ30 -530.94, -3.12%
VOLUME: NYSE +44%, NASDAQ +32%
A/D: NYSE -5.7:1 (after -5.5:1 Thursday); NASDAQ -2.4:1. Hardly blowout negative breadth. NYSE is down broadly for a couple of days, however. NASDAQ's narrower breadth shows it was mostly a larger cap selloff.
Fear? Many denied it, but it was there. VIX exploded higher. Worry? Futures were not bad at all until one of the numerous Chinese PMI reports ('Chinese menu' syndrome economic reports) rolled in at a 6.5 year low. Futures dropped similar to a stone. Many news websites are pinning the tail of the decline on China. Why not? Seems to be one of the themes in politics now, i.e. blame China.
But China is in bad shape. Along with many, many markets and countries. Shanghai crashed 4.3%, breaking the 200 day SMA as it dropped 32% from its peak. Hong Kong fell into bear market territory as well. Bank of America warned of a 'Dow Theory sell signal, key supports broken, semiconductors are breaking lower, and no capitulation.' No fear there.
What about the Fed? Well, Mr. Bullard had to open his mouth and comment so stoically and seriously that the 'Fed doesn't react directly to equity markets.' You can almost see him looking down his nose as the words rolled out. Of course our first reaction was 'really?' QE 1 ends, market rolls over, Fed rushes in. QE 2 ends, stocks roll over, Fed rushes in with Operation Twist and other measures. Stocks stumble again and then the Fed goes whole bore with QE3 and the market surges into October 2014.
Okay, let's pretend 'the Fed doesn't react directly to equity markets.' How about crashing world economies? Surely the Fed realizes markets foretell economic angst ahead. Many markets that imploded already (over 20 and counting as of this week, another one if you want to throw the US in there) are showing economic numbers that justify the implosions. 500K+ in the streets of Brazil's capitol city. Turkey in civil war. The Koreas are heading toward a hot war (really hot if they go nuclear as some are warning). Pretty much all of Asia is heading into economic morass. Will that do?
Don't forget the media outlets. CNBC in the last hour and after showed at each break and return from break graphics of a roaring bear. When they would start talking they had that so serious and somber voice discussing the market selling. Now all we need is some weekend newspapers, Baron's, etc. showing bears on the cover.
I don't know if you would call all of that fear, but the selling is tremendous as nearly all stocks joined the hit list. Sure there were the holdouts, e.g. UBNT, PETX, HLF or others that have been hammered and are at support, already sold out. The most were still pricing in carnage.
So what are the solutions?
Some are calling for the Fed and/or the Treasury Secretary to come out of hiding and actually say something. Some want the Fed to say a rate hike is off the table until there is some resolution of the China implosion. Not sure that would help, but maybe that would be good for a relief bounce.
With the US economy in economic rollover, and yes, many more were saying Friday that is the case, a delay of a 25BP rate hike will not salvage anything. The economy is staggering under the burden of hundreds of thousands of new regulations and the associated costs the past six years from the ACA to wages to overtime to the EPA, the most recent gut punch being this week's new EPA regulations on methane produced from hydraulic fracturing.
With that, the only thing that helps the market is 1) new QE, or 2) a new administration with new policies. Gee, which is likely to happen first? The only question is when the Fed will admit to the world (as it already knows itself how bad things really are) that it has to step in again and swell its balance sheet by another $1 trillion or so? It does not want to do that, and thus Bullard's comment has some truth. What was implied but not stated was the last part of that statement: ". . . until things look really bad."
Waiting on that is not a great strategy, but looking at stocks, the indices, and the indications noted above, the market could put in a nice relief move off this 'China Syndrome' selling (straight down to China, and ironically, blamed on China) given it has been so unidirectional.
Typically with a selloff as this one that dives into the weekend and shows no short covering move there is a further downside early the next week. That is often the washout that leads to a decent rebound/relief rally.
That move has a lot of uses. We can put some money to work. While we have some positions that are down, they are not large positions as we have sold positions for profit on the way up and closed the majority already. Those that we have can rebound with a single bound on the relief move, and we are looking at playing them with a few more positions on a relief move off of a washout and reversal. We can play some of the stocks that didn't go down in the selling, e.g. HLF, PETX, UBNT . . . not many, but they are showing strength and strength leads. Then after the move runs its course we close upside that is peaking out and then play the downside as it renews itself.
Let the others worry, let them fret. Watch the market, watch the indicators, watch quality stocks, play the moves for what they give and move on to the next when the move peaks out.
Stock indices are snapping support levels on a daily basis. No bottom has even become remotely visible, but they are becoming very stretched downside with SP500 and SP400 catching down, though they still lag, DJ30, RUTX, and SOX.
The 'big' news Friday was DJ30 hitting 'official' correction mode. It is not the first. SOX is off 23% from its May peak. RUTX is off 10.75% from the June high. SP400 is close at -8.25%. SP500 is the relative strength leader at 'just' -7.6%, but it is catching down rapidly.
SP500: -6.3% in a week pushed SP500 to the February low, December 2014 low, and July 2014 peaks. SP500 is dropping to new support levels each session, and early this coming week it could test toward 1920-1905 and then post a major reversal back upside to start a bounce to test the selling.
DJ30: A major plunger to the downside, leading the way lower and thus it is also already near some serious support from the spring and summer 2014. Hugely stretched to the downside with a 10+% decline off the highs and -6.4% for the week. Death crossed, and after a death cross you get a test after a major plunge lower. At key support and as with SP500, significantly oversold. A bounce back to 17,000ish on a relief move is a 50% retracement of this past week's decline.
RUTX: The midcaps gapped lower, filled the gap in the market recovery, then gave it all up. The pattern is a hammer doji at a pretty important support level running through the January and February lows, gaps from the summer 2014. Huge selloff to support.
NASDAQ: Impressively weak, breaking through the November and December 2015 peaks and March 2015 low. Closed in no-man's land between those points on the high and the September 2014 peak on the low. A further decline to that lower support (4600) to start the week sets up a rebound to test the 4800 resistance (closed at 4706).
SOX: Undercut the next support and now looking at the October 2014 low at 552 (closed at 578) as support. Ironically, that is where SOX bottomed on the September/October selloff that year to reverse and rally. Giving up that entire move sets up a relief move but does not speak well for any further upside.
SP400: A massive pair of downside gaps and declines to close at the session lows. Dove through the twin peaks from July and September 2014. Next support is near 1400 (closed at 1423). As with the other indices, another run lower early in the week sets up a rebound.
After a day such as Friday after Thursday leaves little leadership unless you are looking at the downside. Some groups are still in good shape (homebuilders, utilities) as well as some solid stocks, though it is a rather divergent group of individual stocks from various sectors.
A few good patterns: PETX (biotech), ASPS (mortgages), HLF (druggish), UBNT (telecom), even a chip or two (e.g. XLNX).
Homebuilders: DHI is testing its three week breakout surge. TOL is testing a breakout as well.
Utilities: Oh yes, the excitement surges. Some of the utilities are testing good moves. SO is forming a two week handle to a cup base. PCG is fading to test a key break higher over resistance in its base. Okay, there is good risk/reward here, something you can make money on.
Big names: Sellers started to take down some of the names, always an indication the selling is getting overdone. NKE and UA knifed lower. ULTA sold through the 50 day EMA. GOOG is testing the 50 day EMA. NFLX is at the July gap test. FB gapped to the late June/early July lows and the March and April highs. AMZN is testing the 50 day EMA and the lower gap point from July. PCLN is holding the 50 day SMA on the low. Some selling but some moves to support.
A few more interesting patterns in shape: AAOI, RGEN, CRME, VIMC, COLM, LULU, OSUR, JCOM and more. Even with all the selling, some good patterns survived and indeed used the selling to set up further. Or, they just ignored it.
What does it mean when there are still stocks in good shape? It can mean the selling is not over, that not everything is torn down. It can also mean that that selling is not going to be apocalyptic, that a 10% DJ30 correction, and possibly similar corrections on the other indexes after the first of this week, is enough. It definitely means these stocks are very much worth watching in the context of making us money on a renewed upside market move.
Stats: -171.45 points (-3.52%) to close at 4706.04
Volume: 2.687B (+32%)
Up Volume: 421.97M (+247.36M)
Down Volume: 2.33B (+440M)
A/D and Hi/Lo: Decliners led 2.41 to 1. Surprisingly light. Shows the selling was focused in the bigger names, and as the look at leaders suggested, there are quite a few stocks out there that are holding nice upside patterns even after this selling.
Previous Session: Decliners led 5.25 to 1
New Highs: 15 (-3)
New Lows: 356 (+98)
Stats: -64.84 points (-3.19%) to close at 1970.89
NYSE Volume: 1.3B (+44.44%)
A/D and Hi/Lo: Decliners led 5.69 to 1. Hefty 5+:1 on the downside for a second session. Maybe not a -10:1, but consistently bad last week.
Previous Session: Decliners led 5.5 to 1
New Highs: 0 (-8)
New Lows: 612 (+258). This is getting there. Actually, it is 'there' in terms of acting as an oversold indicator.
Stats: -530.94 points (-3.12%) to close at 16459.75
VIX: 28.03; +8.89
VXN: 30.2; +8.59
VXO: 28.34; +8.36
Put/Call Ratio (CBOE): 1.69; +0.36
Recent history: 9 over, 7 below. Still pretty even, showing no imbalance to the put side.
Bulls and Bears: Bulls fall harder again while bears actually back off their modest rise. Still converging thanks to a decline in bulls, but the bears just will not make a serious move upside, still believing to some degree in the Fed put.
Bulls: 37.7% versus 40.2% versus 42.2% versus 43.3% versus 49.0%
Bears: 18.4% versus 18.6% versus 17.5% versus 17.5% versus 15.6%
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.
40.2% versus 42.2% versus 43.3% versus 49.0% versus 43.7% versus 44.8% versus 49.5% versus 51.6% versus 45.5% versus 47.4% versus 51.5% versus 47.5% versus 51.5% versus 48.5%
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
18.6% versus 17.5% versus 17.5% versus 15.6% versus 15.6% versus 15.6% versus 15.4% versus 15.4% versus 16.5% versus 16.5% versus 15.8% versus 14.9% versus 15.8% versus 13.9%
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): 2.05% versus 2.08%. Continued the Thursday upside gap, moving to a higher high on the rally off the July low.
Historical: 2.08% versus 2.12% versus 2.20% versus 2.15% versus 2.20% versus 2.19% versus 2.15% versus 2.14% versus 2.24% versus 2.17% versus 2.27% versus 2.15% versus 2.19% versus 2.29% versus 2.25% versus 2.23% versus 2.27% versus 2.27% versus 2.32% versus 2.34% versus 2.37% versus 2.34% versus 2.35% versus 2.35% versus 2.40% versus 2.44% versus 2.42% versus 2.31% versus 2.206% versus 2.26% versus 2.29% versus 2.38% versus 2.42%
Euro/$: 1.1362 versus 1.1237. Euro is surging versus the dollar, reaching back toward May and June highs. You would think the large cap multinationals would be so happy. Along with the bald guys on CNBC.
Historical: 1.1237 versus 1.1132 versus 1.1032 versus 1.1080 versus 1.1110 versus 1.1154 versus 1.1165 versus 1.10448 versus 1.0966 versus 1.0906 versus 1.0953 versus 1.0978 versus 1.0936 versus 1.0983 versus 1.1058 versus 1.1092 versus 1.0977 versus 1.0992 versus 1.0927 versus 1.0944 versus 1.0927 versus 1.0825 versus 1.0836 versus 1.0880 versus 1.0946 versus 1.1005 versus 1.0999 versus 1.1157 versus 1.1032 versus 1.11069
$/JPY: 122.06 versus 123.39. Diving again after plunging through the 50 day EMA Thursday.
Historical: 123.39 versus 123.79 versus 124.39 versus 124.44 versus 124.32 versus 124.41 versus 124.15 versus 125.08 versus 124.36 versus 124.74 versus 124.78 versus 124.31 versus 123.99 versus 123.89 versus 124.15 versus 123.99 versus 123.56 versus 123.26 versus 123.79 versus 123.89 versus 123.96 versus 123.88 versus 124.31 versus 124.07 versus 124.13 versus 123.78 versus 123.38 versus 123.42 versus 122.76 versus 121.29 versus 120.66
Oil: 40.29, -0.69. Still sliding lower below the 10 day EMA. No sign of a bounce yet to even test the break of the January low and then the March low.
Perhaps the demand shows why there is no bounce thus far.
Gold: 1159.90, +7.30. A third sharp move upside takes gold to its next resistance.
Stocks closed hard on the lows Friday with no attempt at a relief move. That is considered an indication that the selling is not over as no one even bothered to cover shorts ahead of the weekend. Often what you see with such a sharp, vicious plunge is stocks down again early the following week as they seek a flush out. I know, I know, that is so pat, so standard a call. But, it works. It worked last year and it has worked on so many selloffs over so many years past.
Interestingly, as pat as that move appears, as many times as it has happened in the past, it always seems that investors, traders, HFT programs, etc. know it is the case that transpires, but their emotions get the best of them and thus the action plays out again and again, similar to 'The Matrix' trilogy. Or, the Fed and its QE rounds.
Mr. Bullard haughtily commented the Fed does not pay direct heed to financial markets. Okay, if you want to believe that you can. It may not pay heed to them, but all during the recovery each time a QE program ended and the markets rolled over, the Fed rushed in with new QE. The economy just wasn't quite ready to head out on its own. Thus we had the series of QE's to keep asset prices inflated, keep people feeling better, and hope the economy would catch up.
Well, here we are at another point where QE has run out and ever since the market has stumbled, and now is rolling over. It would seem that IF the economy was ever good enough to take the training wheels off, the Fed missed that opportunity as now the economy is struggling either under its own lack of traction given the hundreds of thousands of regulations strangling business, the latest the new EPA methane regs, as well as the rest of the world tanking.
Think about those regulations and the self-imposed economic strangulation they bring. The rail industry is struggling for survival now that the coal industry is shut down. Thousands upon thousands have lost jobs directly from coal or indirectly through those servicing the coal industry and communities. Now we are going to see the same in the oil industry as the administration attempts to strangle that form of fossil fuel in favor of uneconomical solar, high-priced and high mortality wind and who knows what is next.
Look at Germany. It was the 'most solar' country on earth with billions in subsidies to convert entire cities to solar, or at least as much as possible. It didn't really work for industrial cities, more like a Mayberry from the old 'Andy Griffith Show.' What happened? It realized that the industry cost more for power, that it didn't really create any new jobs because it was not profitable enough, and that it destroyed large numbers of jobs because other industries were force out of business and also the economic activity slowed to an extent that other businesses went under as well. Germany ended all its subsidies, went back to fossil fuels, and is now a world economic powerhouse again.
Lesson learned, but of course not here. We are smarter and can do it better. Just as the administration apparently feels it is smarter than prior socialists and indeed communists (there are self-avowed communists in the administration; just ask or look as they are not ashamed of it) and can 'do it right this time,' they feel they can do solar better than others, including Germany.
Back to the market.
A conflagration of bad news for stocks and a fairly incredible selloff the past two sessions, particularly on the Dow, has DJ30 joining SOX and RUTX as 10%+ losers. 530 points on a day is impressively bad, even more so as the second day of an impressive 2-day drop.
The notion of a sharp Thursday and Friday decline followed by a further blow down Monday and or Tuesday is not a pretty picture. Looking back at the accounts, however, we have trended out of positions and were surprised at how much cash we have been in. That naturally occurs when you take partial profits a couple of times on a position and sell out of positions with trialing stops that start to break support. Of course we do have some newer positions that are hurting but ones that at this point we are not going to do much about given the massive oversold condition and SP500, DJ30 and others at or close to next support. We likely do better staying with them, letting the flush out occur, then augmenting them with some new upside to ride a rebound, relief or otherwise.
Friday we took some more PANW gain as that stock was attempting to firm after approaching support. Again, may get more downside next week, but if PANW, torched on the week, is an example, then after some more fear early week the bounce move is set. It does not hurt that there are still a surprising number of stocks in position to bounce right now, or need just a bit more to be ready.
Perhaps Friday was not a capitulation, but investors, traders, funds, etc. notched down the big name leaders, and that is always a good indication of the move maturing, particularly when coupled with such sharp declines. We did not buy into more positions Friday, but we have found several potential rebound plays for this week after the market gets this leg lower out of its system either Monday or Tuesday.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4706.04
4751 is the January 2015 lower high
4774 is the January high
4811 is the November 2014 peak (intraday)
4815 is the December 2014 prior market peak
The March lows at 4843 and 4825
The 200 day SMA at 4912
4912 the mid-April China dip
The June low at 4974
5008.57 is the early March 2015 post-bear market high
5042 is the March 2015 high
The 50 day EMA at 5048
The lower trendline is at 5123
5120 is the April 2015 post-bear market high
5132.52 is the 3/2000 all-time high
5150-5160 is the June peak range
5164 is the June prior all-time high
5232 is the July 2015 all-time high.
4641 is minor support
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
S&P 500: Closed at 1970.89
1991 is the July 2014 high
2011 is the September prior all-time high
2046 is the July closing low
2062 is the January 2015 lower high
2076 is the all-time high from November
The 200 day SMA at 2078
2079 is the intraday all-time high from November
The 50 day EMA at 2088
2094 is the December 2014 high, the prior all-time high
The lower channel line at 2103
2115 is the late March lower high
2119.59 is the February intraday prior all-time high
2126 was the April prior all-time high
2130 is the June 2015 peak
2135 is the May 2015 all-time 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 16,459.75
16,506 is the March 2014 peak
16,589 is the December 2013 all-time high
16,632 is the April 2014 all-time high
16,736 is the penultimate all-time high from May 2014
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
17067 is the December 2014 low
17,068 is the early July 2014 peak
17,152 is the mid-July post bear market high
17,351 is the September 2014 all-time high.
17,515 is the early July closing low
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to present trading range.
June low at 17,715
The March low at 17,718
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
The 50 day EMA at 17,629
The 200 day SMA at 17,819
16,333 is the August 2014 low
16,026 is the April 2014 low
August 25 - Tuesday
Case-Shiller 20-city, June (9:00): 5.0% expected, 4.9% prior
FHFA Housing Price I, June (9:00): 0.4% prior
New Home Sales, July (10:00): 507K expected, 482K prior
Consumer Confidence, August (10:00): 92.6 expected, 90.9 prior
August 26 - Wednesday
MBA Mortgage Index, 08/22 (7:00): +3.6% prior
Durable Orders, July (8:30): -0.8% expected, 3.4% prior
Durable Goods -ex tr, July (8:30): 0.5% expected, 0.8% prior
Crude Inventories, 08/22 (10:30): +2.620M prior
August 27 - Thursday
Initial Claims, 08/22 (8:30): 272K expected,
Continuing Claims, 08/15 (8:30): 2239K expected,
GDP - Second Estimate, Q2 (8:30): 3.1% expected, 2.3% prior
GDP Deflator - Second, Q2 (8:30): 2.0% expected, 2.0% prior
Pending Home Sales, July (10:00): 1.0% expected, -1.8% prior
Natural Gas Inventor, 08/22 (10:30): 53 bcf prior
August 28 - Friday
Personal Income, July (8:30): 0.3% expected, 0.4% prior
Personal Spending, July (8:30): 0.4% expected, 0.2% prior
PCE Prices - Core, July (8:30): 0.1% expected, 0.1% prior
Michigan Sentiment - Final, August (10:00): 93.0 expected, 92.9 prior
End part 1 of 3
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