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12/5/2015 Investment House Report
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Targets hit: None issued
Entry alerts: EXAR
Trailing stops: None issued
Stop alerts: None issued
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- Draghi do over drives renewed upside.
- Mediocre jobs report beats mediocre expectations, heralded as strong.
- It took 7 years but mission accomplished: mediocre is the new strong.
- Fed Rate hike will be far more than your standard 25BP move.
- Market volatility should not be ignored.
- Friday reversal will have a chance to show if it means anything.
- Overall picture still toppish, but a continued yearend move can make great money.
Sure investors like certainty that the Jobs Report apparently provided, but more than that, they like the easy money Draghi re-pledged.
It took a while but stocks finally warmed to the jobs report beating expectations and almost certainly locking in a December rate hike. Futures were up ahead of the results, then down after the results. For a half hour. Then the bids returned and stocks recovered into the open and indeed into midmorning. Then a test. Midmorning tests of the initial move are always a milestone in a session; if a reversal occurs, it often starts then. This test held and the market rebounded, but it got a boost.
Mario Draghi, the man who failed to deliver in the market's eyes Thursday, came to the mike in New York and did everything he could to undo the Thursday selloff post-ECB. We talk about central banks running out of ammunition to move markets, currencies, etc. Well, Draghi put it all out on the table, going all in with a verbal attempt to drive stocks back up.
"QE is here to stay"
QE can be "calibrated" if needed (i.e. increased at any time)
There is "no limit" to the "size of the ECB's balance sheet" (read we can flood the place with liquidity)
And the kicker: When asked by the former BOE chairman "was today's speech deliberately designed to offset some of the reaction yesterday?," Draghi responded "Not really . . . well, of course."
Music to the market's ears. The Fed can hike and act as it thinks responsible because the ECB is ready to take over our role of printer of mass liquidity. I have said it before: markets don't care where the liquidity comes from, they just want massive liquidity. China? Too secretive and unreliable. The US? Great source but it did the job for 6 years, and despite Draghi's Friday comments, a balance sheet CAN get too big. But the EU. Ah, it can print for a few years and do a fine job of propping up financial markets.
Prop them up indeed. After Thursday where the US stock indices suffered another session of distribution on the week and saw many important stocks break support levels, stocks surged upside, continuing the move and in several cases taking back more than was lost, closing out the market near session highs.
SP500 42.07, 2.05%
NASDAQ 104.74, 2.08%
DJ30 369.96, 2.12%
VOLUME: NYSE -1%, NASDAQ -8%. Not washing away the distribution though not bad, still above average volume on NYSE, slipping to average on NASDAQ.
A/D: NYSE 2:1, NASDAQ 1.9:1. Decent but not in line with the overall market strength or nearly as strong upside as the breadth was on the Thursday selloff.
The move was greatly heralded and perhaps it does reverse the distribution, but the move was not bulletproof. Lower trade, narrow upside breadth, key leadership still a bit stretched. Good response and it does indeed keep the market in the uptrends discussed in the Thursday report, but it was just a start, the stick save necessary to try and take the action the other direction. It did, but now the upside has to score, i.e. drive to higher highs past the October and November peaks AND hold the moves.
Jobs Report beats expectations, locks rate hike.
Non-Farm Jobs: 211K versus 196K expected versus 298K prior (from 271K). September revised to 145K from 137K
Unemployment rate: 5.0% versus 5.0% expected versus 5.0% November
Hourly earnings: 0.16% versus 0.2% versus 0.4% November. 2.3% year/year
Average Workweek: 34.5 versus 34.5 versus 34.6 prior (from 34.5)
Participation: 62.5% versus 62.4%. 94.44M working aged adults not working.
What is not to like? As one trader noted, 'Welcome to America where mediocrity is now viewed as superb.' 211K jobs. You would have thought it was 450K.
Okay, so the perception of mediocre is great. Which one do the numbers support?
The mix of jobs showed the same trend as November: a bit better construction, plenty of low wage jobs, losses in the economy's breadwinner areas
Construction: +46K. Great. Now if housing would stop rolling over.
Professional/Business services: 39.3K
Leisure and Hospitality: 39K
Temp Help Services: -12.3K
The Nitty Gritty Details
1) Persons employed part-time for economic reasons (involuntary part-time workers): +319K to a total of 6.1M workers
This rise accounts for ALL the employed workers increase in the Household Survey (+320K).
2) Manufacturing net jobs for 2015: Still 0. Waiters & Bartenders: +294K
3) Wages for non-supervisors (82% of the workforce) fall while those of supervisors rise, a trend that is now sadly quite old.
4) The majority of jobs created are in compliance areas, i.e. paperwork for regulations such as the ACA, Dodd/Frank, EPA rulings.
Summary: The report is basically more of the same. Jobs created, but mostly lower paying hourly jobs. Construction snapped back from low levels as some projects were finally constructed after delays. On the other hand, still no net manufacturing jobs and other 'breadwinner' jobs areas such as mines are still falling. In the end you have former full-time workers forced to work 1, 2, 3 part-time jobs to try and make what one job made them pre-recession. And still 30% of the entire population are working aged people unemployed. Many of those find it easier, less stressful, and indeed more lucrative in terms of disposable income to collect the multitudinous benefits offered and work some jobs for cash, flying under the radar, making the most of a reverse incentive system.
Who's Afraid of a Measly 25BP Rate Hike?
The Fed can raise the Fed Funds Target range to 0.50% from 0.25% as most expect in two weeks. That is easy. Having an impact to actually effectuate the move to where in reality there is a 25BP increase felt in the market is entirely something else. To actually bring that rate, in the market, up to 0.50% the Fed has to drain some of the $3T in liquidity it put into the system.
Okay, it does that through a reverse repo. With $3T in liquidity out there, how much does it have to take out of the system and force that overnight rate higher? According to the expert in the field, E.D. Skyrm, and without getting deep in the weeds on the calculations, based where the General Collateral level is, to move 25 BP higher it would take between $310B and $800B in liquidity. Not adding that amount, but REMOVING up to $800B from the monetary system.
For comparison, the entirety of QE2 over 8 months was $600B. In order to effectuate an immediate 25BP increase the Fed would have to, if we take the midpoint of the above range, effect an entire QE2 in reverse overnight.
Recall what happened to the stock market in March 2000 when the Greenspan Fed decided to recall the billions pumped into the system starting in early fall 1999 ahead of the Y2K nonevent that at the time was a big unknown. That was the market top. The top for 15 years. Not saying that happens just the same this time, but that amount is 1/6 of what the Fed put in the market removed in the snap of a finger. That is hard to absorb without impact and that makes the Fed decision in less than two weeks incredibly important to the market.
Many view a 25BP hike as a nonevent because they look at such a move in terms of prior 25BP moves. Never before, however, has the liquidity level been so high, thus requiring such large overnight repos to remove the requisite liquidity. If the Fed was going to keep things in relationship to prior hikes, it should perhaps move 5BP, maybe 10BP max. Try explaining THAT to the markets.
Very volatile action Tuesday to Friday. Volatility commands respect as it can signal a change in trend. With the indices near the November and 2015 highs, suggestions of a trend change are critical.
That said, the indices bounced off of the trendlines noted Thursday night. SP500, DJ30 did a particularly good job of doing so, putting in a higher low. SOX looks solid. NASDAQ not bad. RUTX, SP400 lagged in the move as the big names were the most sought after group. Bounced where they needed to bounce, but still have to prove they can sustain and continue this recovery move.
SP500: From on the ropes at the 50 day SMA to a massive reversal back to the late November range. Still not over the late October peak, but a solid rebound to put in a higher low and maintain the trend. First step. Volume was lower but not bad. Good recovery, very important move ahead as SP500 again works toward the October and then the 2015 highs.
DJ30: Similar move as SP500 but on stronger volume as the Dow bounced off the 50 day EMA and back into the middle of the November range. Held the trend, higher low, good volume. Trying to be a leader again.
NASDAQ: Sold to the trend Thursday, held it and the 50 day EMA, rebounded. Volume faded to average; not the strongest bounce but maintaining the trend. On the other hand, same as SP500, DJ30, NASDAQ is still below the early November high and the 2015 highs. Held where it had to, bounced. It will require the big names in order to continue the move, and several are rather extended.
SOX: Well, it looks as if SOX did put its house in order as we mused Thursday after that downside engulfing pattern. Held the 10 day EMA and bounce, again clearing the October peak. Higher recovery high as chips still hold a leadership position.
RUTX: Held the trendline off the selloff lows and bounced, but at a mere 1.1%, really lagging the large cap indices.
SP400: As with RUTX, held the trendline off the selloff, held the 50 day SMA and bounced. The midcap index also lagged the large cap moves, but it certainly has a good pattern. Plenty of room to move upside out of a good pattern.
Big Names: Some solid continued moves, some good reversals, some so-so moves. NFLX powered higher again on still above average volume. PCLN continued higher as well. GOOG bounced up off the 10 day EMA on even stronger volume. SBUX staged an impressive reversal. FB moved higher but it was one of the so-so moves. AAPL came to life with a strong bounce from the TL and the 50 day SMA on the strongest volume in four weeks. These stocks will need to lead further. AAPL, SBUX, FB, even GOOG still have room to run.
Chips: Still holding their leadership credentials. LSCC showing excellent action, using the pullback to set up its next move. AMD also in a good position after a pullback. SLAB continues its trend. AVGO holding its gap. MLNX looks to be in good position. SWKS is starting a potentially strong run.
Financial: Good recovery. JPM jumping off the Thursday selling with volume. BAC rallying. MA reversing the Thursday selling on volume. TCBI, regional bank, sports a good pattern.
China: Some good pullbacks, some struggling. WUBA in a good test of its surge. NTES still surging. SOHU, SINA attempting to bounce off support. YNDX may try to bottom.
Telecom: LVLT remains in a good pattern to bounce. GIMO still setting up for a move. ARRS continues its gap and run. Some leadership here.
Energy: Still struggling but good patterns are holding, e.g. DO, OIS.
Metals: After a month of fading some look ready to rebound in their range, e.g. AKS, FCX.
Stats: +104.74 points (+2.08%) to close at 5142.27
Volume: 1.846B (-8.35%)
Up Volume: 1.42B (+991.39M)
Down Volume: 450.33M (-1.19B)
A/D and Hi/Lo: Advancers led 1.89 to 1
Previous Session: Decliners led 3.09 to 1
New Highs: 60 (-2)
New Lows: 113 (+27)
Stats: +42.07 points (+2.05%) to close at 2091.69
NYSE Volume: 990M (-1%)
A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 4.28 to 1
New Highs: 39 (+7)
New Lows: 191 (+33)
Stats: +369.96 points (+2.12%) to close at 17847.63
VIX: 14.81; -3.3
VXN: 16.66; -3.06
VXO: 15.31; -3.72
Put/Call Ratio (CBOE): 0.9; -0.22
Recent history: 1 lower after 8 straight sessions over 1.0, 11 of 16.
Bulls and Bears: Bulls continue recovering upside after a slight pullback. Bears hold steady but in a clear downtrend. They did their work during the late summer selling, spurring the rally. They have retraced a good part of those moves but bulls are still not near extreme levels.
Bulls: 41.2 versus 45.4
Bears: 26.8 versus 26.8
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.
45.4% versus 43.3% versus 45.3% versus 46.9% versus 43.7% versus 37.5% versus 36.5% versus 30.2% versus 24.7% versus 26.0% versus 26.8% versus 25.7% versus 27.8% versus 31.6% versus 37.7% versus 40.2% versus 42.2% versus 43.3% versus 49.0% versus 43.7% versus 44.8% versus 49.5
Background: Bulls hit their lowest level in 2015 since the 2008 and 2009 market plummet.
26.8% versus 26.8% versus 28.9% versus 28.1% versus 29.2% versus 31.3% versus 31.2% versus 34.4% versus 35.1% versus 30.2% versus 26.8% versus 27.9 versus 26.8% versus 22.5% versus 18.4% versus 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. Both occurred in fall 2015.
Currencies rebounded a bit but not really showing much confidence in the Friday Draghi comments.
Bonds (10 year): 2.27% versus 2.33%. After bombing lower Thursday on Draghi's comments, bonds rallied back, on Draghi's comments.
Historical: 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 2.23% versus 2.27% versus 2.26% versus 2.27% versus 2.28% versus 2.32% versus 2.32% versus 2.35% versus 2.33% versus 2.24% versus 2.23% versus 2.22% versus 2.19% versus 2.15% versus 2.17% versus 2.09% versus 2.03% versus 2.06% versus 2.09% versus 2.03% versus 2.07% versus 2.03% versus 2.03% versus 1.98%
EUR/USD: 1.0872 versus 1.0948. Dollar comes back after the euro exploded higher on the ECB decision.
Historical: 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 1.0659 versus 1.0642 versus 1.0669 versus 1.0751 versus 1.0821 versus 1.0740 versus 1.0725 versus 1.0754 versus 1.0742 versus 1.0878 versus 1.0860 versus 1.0963 versus 1.1012 versus 1.1015 versus 1.10979 versus 1.1030 versus 1.1047 versus 1.1049 versus 1.1017 versus 1.1108 versus 1.1339
DXY0: Recovered a very small portion of the Thursday losses.
USD/JPY: 123.15 versus 122.49. Bounced off the bottom of the four week trading range/handle to the August to November cup base.
Historical: 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 122.98 versus 123.55 versus 123.44 versus 123.20 versus 122.67 versus 122.56 versus 122.85 versus 122.90 versus 123.16 versus 123.16 versus 121.76 versus 121.58 versus 120.98 versus 120.77 versus 120.62 versus 121.10 versus 120.34 versus 120.36 versus 121.10 versus 121.46 versus 120.71 versus 119.925
Oil: 39.97, -1.11. Hmmm, oil was down but stocks were up. That is not supposed to happen according to the television pundits. Oil broke lower but held the three week support even as OPEC raised its quota limit basically in an admission there was rampant cheating. It tried to put its quota at the level it believes is being produced. Oil, already weak, sank.
Gold: 1084.10, +23.00. Blasting off from a seven week selloff to lower lows even with the Fed set to raise rates. ECB liquidity, i.e. massive liquidity somewhere in the world, keeps the markets happy.
Big move down, big move up. Lots of volatility below the prior highs. The large cap indices are bucking as they hit resistance. As of yet the bids keep returning. Perhaps enough to take them to those 2015 highs in the last dart of a yearend run. Perhaps. Even if they get there the new year will prove problematic.
Consider: QE ended in October, stocks dipped with the help of the Ebola scare but then surged back up. Even so they put in a rounded top and sold hard. They have recovered but have yet to take out those prior highs. On top of that the Fed is set to hike rates in a declining economy, jobs report notwithstanding, and, if the Fed wants to actually increase the rates in reality, it has to remove hundreds of billions in liquidity. Factor in the Fed typically hikes into recessions, the longer term picture is not that great.
So, we don't make prognostications that the market will be at X price on Y date, we just take what it gives. We have some upside plays and downside plays currently working. This week will give direction if there is a yearend rally continuation. We are going to look at some more upside plays to take advantage if the Friday move takes hold and continues into next week. Heck, we are still looking for PCLN to move up to the early August high and perhaps even fill that gap lower from early November.
I always say I am not smart enough to know when the market will top or bottom, but I have a pretty good idea of when the risk and reward are in the right place. Right now the market is lining up on either side, thus the volatility. It is an important inflection point from here up to the prior highs.
Thus you have to view the upside as a year end run versus some new breakout. If the latter happens, great; we make a ton of money. If the former happens (and with this recent action that is still an 'if'), we make some good money to close out the year. If the volatility breaks the market lower, we take profits on our remaining upside positions and pick up some more downside. That downside is likely to be rather large and the dominant play for the first part of 2016. That is about as far as anyone can see and say without getting properly called out for BS.
So we avoid the BS moniker and take what the market gives. The upside risk/reward is less, but if the move continues into yearend we make very good money nonetheless. Monday may show some giveback of the Friday move; that is normal after a good move higher Friday. Then we see how the bids return.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5142.27
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
5100 from the April peak and early May peak
5042 is the March 2015 high
5008.57 is the early March 2015 post-bear market high
4999 is the October upper gap point
The 50 day EMA at 5009
The 200 day SMA at 4975
The June low at 4974
4920 is the lower gap point from mid-October
4912 the mid-April China dip
4910 is the July 2015 closing low
4837 is the late August 2015 rebound high
4828 is the late August peak
The March lows at 4843 and 4825
4815 is the December 2014 prior market peak
4811 is the November 2014 peak (intraday)
4774 is the January high
4751 is the January 2015 lower high
S&P 500: Closed at 2091.69
2094 is the December 2014 high, the prior all-time high
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
2079 is the intraday all-time high from November 2014
2076 is the all-time high from November
The 200 day SMA at 2065
2062 is the January 2015 lower high
The 50 day EMA at 2055
2046 is the July 2015 closing low
2040 is the March 2015 closing low
2011 is the September prior all-time high
1994 is the late August recovery peak
1991 is the July 2014 high
1989 is the last August closing high
1972 is the December 2014 low
1913 is the early September 2015 closing low testing the bounce from the August selling
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.
1872 is the September 2015 test low of the August low
1867 is the August 2015 low
1862 is the October 2014 closing low
Dow: Closed at 17,847.63
17,978 is the November 2015 peak
18,110 - 18,120 from December 2014, July 2015 peaks
18,289 from February 2015
18,351 from May 2015 and the all-time high
The March low at 17,786
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
June low at 17,715
The 200 day SMA at 17,581
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
The 50 day EMA at 17,456
17,351 is the September 2014 all-time high.
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
16,933 is the September 2015 recovery peak
16,736 is a prior all-time high from May 2014
16,670 is the December 2014 peak and the recent August 2015 relief bounce peak.
16,665 is the late August 2015 closing high. Key, key level.
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
16,117 is the October 2014 closing low
16,058 is the early September 2015 low
16,026 is the April 2014 low
December 4 - Friday
Nonfarm Payrolls, November (8:30): 211K actual versus 196K expected, 298K prior (revised from 271K)
Nonfarm Private Payrolls, November (8:30): 197K actual versus 185K expected, 304K prior (revised from 268K)
Unemployment Rate, November (8:30): 5.0% actual versus 5.0% expected, 5.0% prior (no revisions)
Hourly Earnings, November (8:30): 0.2% actual versus 0.2% expected, 0.4% prior (no revisions)
Average Workweek, November (8:30): 34.5 actual versus 34.5 expected, 34.6 prior (revised from 34.5)
Trade Balance, October (8:30): -$43.9B actual versus -$43.0B expected, -$42.5B prior (revised from -$40.8B)
December 7 - Monday
Consumer Credit, October (15:00): $18.6B expected, $28.9B prior
December 8 - Tuesday
JOLTS - Job Openings, October (10:00): 5.53M prior
December 9 - Wednesday
MBA Mortgage Index, 12/05 (7:00): -0.2% prior
Wholesale Inventories, October (10:00): 0.1% expected, 0.5% prior
Crude Inventories, 12/05 (10:30): 1.177M prior
December 10 - Thursday
Initial Claims, 12/05 (8:30): 269K expected, 269K prior
Continuing Claims, 12/05 (8:30): 2167K expected, 2161K prior
Export Prices ex-ag., November (8:30): -0.3% prior
Import Prices ex-oil, November (8:30): -0.3% prior
Natural Gas Inventor, 12/05 (10:30): -53 bcf prior
Treasury Budget, November (14:00): -$56.8B prior
December 11 - Friday
Core PPI, November (8:30): 0.1% expected, -0.3% prior
PPI, November (8:30): -0.1% expected, -0.4% prior
Retail Sales, November (8:30): 0.3% expected, 0.1% prior
Retail Sales ex-auto, November (8:30): 0.3% expected, 0.2% prior
Business Inventories, October (10:00): 0.1% expected, 0.3% prior
Michigan Sentiment, December (10:00): 91.6 expected, 93.1 prior
End part 1 of 3
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