InvestmentHouse.com

Market Stumbles But Does Not Fall

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 14 May 2012 13:51:00 +0000

SUMMARY:

- JPM, JWN stumble, but the market does not fall.
- Still holding support, not getting the big selloff, not getting a big reversal, just holding over support.
- Dollar notches 10 straight gains against the euro.
- Utilities leading the market in a rather defensive turn.
- Michigan still feeling good over the warm weather.
- Market starts the week still in position to roll in the range: it comes down to us (as in the U.S.) versus the rest of the world.

Diamonds May Be Forever but will Dimon Be?

Hi, I'm Plenty. Hi, I'm Jamie
Bond: But of course you are But of course you are
Plenty O'Toole Jamie Dimon of JPM
Bond: Named after your father perhaps? Not after this quarter's performance

They say diamonds are forever, but in the case of JPM, perhaps Jamie Dimon will not be. That is a bold statement. I do not think he will lose his job, but he will subject himself to a lot of scrutiny from the very regulators that he had so much to say against. He left himself open by not taking care of business. Everything he said up to now, unfortunately, will be washed away.

I agree with a lot of what he was saying. Dodd-Frank is not working. It has concentrated more assets and funds into the five largest banks than there was before the financial crisis. Loans are still hard to get. Mortgage refinancing and mortgage applications used to take 30-45 days. Now you are looking at 70. Wells Fargo tells people up front to expect 90 days. It is extraordinarily hard to get money. The regulations are not working. When did you have the problems that JPM showed, it will not be changed anytime soon because the powers-that-be will say, "Look what we told you. You leave those private enterprise, bigwig fat cats up to their own devices, and here is what we get. A $2B loss." But does it really matter? Yes, it is a big hit. A 9% and heading to 10% loss for JPM shareholders is not something they will enjoy, but do we have to call in everybody on the planet to look up their dress and see if there are any cracks there? No pun intended. But that is exactly what will happen, and JPM will be the whipping boy.

The day was spelled out in three charts. JPM gapped down to the 200 day EMA. JWN gapped down almost to its 200 day EMA on its lowered forecast for 2012 and an earnings miss on its supposed e-commerce spending. The SP500 held up. It held over its February 2011 high, and looks ready to at least try trading higher in the trading range.

Greece 'talks' for a new government fail, as if we didn't see that one coming.

There was a significant amount of bad news on Friday, but the market continued to hold support. It was not just JPM, JWN, ESRX, and the usual that we knew about on Thursday night. There were also the talks for a new government in Greece that, oh, somehow failed. As if we did not see that one coming. What are the odds of the various coalitions that barely got 25% each to cobble together some governmental plan? It was a bit crazy to think that would happen without the elections next month. Most people in Greece are against the austerity, so they will go to the polls and vote. That is all there is to it.

China and Hong Kong Having their Issues Yet Again.

"Hong Kong is ours now Bond" said the Mandarin Oriental Hong Kong manager. But is China messing it all up?

It was not just Greece. We still have to worry about China and Hong Kong. They are having issues once again. China saw its industrial production growth at the lowest level of growth since 2009. It came in at 9.3% year-over-year. My goodness. That was versus expectations of over 12%. Loans were dropped significantly. 681B yuan versus 780B expected. Then there is Hong Kong. I loved it in James Bond when he goes into the Mandarin Oriental Hotel in Hong Kong, breaks the place up as usual, and the response is, "Hong Kong is ours now, Bond."

Hong Kong is having some trouble as well. Its GDP growth was 0.4% when it was expected to go up a whopping 1.1%. It has issues. Hong Kong is China's, but is China messing it up? China's is engineering a hard landing. It is not a soft landing, and I do not care what people on CNBC say. Will not be able to engineer a soft landing. They have had unbridled growth. Some people will say China is great no matter what. But there are people who have brought back pictures of the empty buildings and empty homes in Beijing. They just keep building further and further out, creating virtual ghost towns in the city. They keep pumping our deficit money into it. China is using its hard currency to keep building and building.

Now we have commodity prices falling. Remember that China was buying all the copper and steel it could get. Now it is buying gold like crazy. Gold is down so China is buying. That makes sense, and they are doing something smart. There is speculation now that China, this year or next year, will have to dump a lot of its copper and other commodities on the market because it has stockpiled them. It will find it has too many. That could be an interesting thing. Yes, Hong Kong is China's now. I just wonder if the will be able to keep the Chinese end up as the British used to keep the British end up according to Bond.

Looking at the Friday session, it was not a thing of beauty. Futures were down. No question they were going to be down. "Duh" is what we usually term it here in the office. Big declines but big recoveries as well; indeed, surpassing the Thursday afternoon high early in the morning. But it did not stick. Stocks rolled over and skidded south all session. Half went negative and half did not. The gains and the losses all came out in the wash.

SP500, -0.34%; NASDAQ, +0.01%; Dow, -0.27%; SP600, -0.27%; SOX, +0.73%.

This was quite a showing after such bad news. JPM is a Dow component, and to be down just 0.27% is fairly impressive. Not totally impressive, but fairly.

The indices were faced with bad news all week: Greece, Spain, Italy, China, U.S. earnings starting to corrode, and just more lackluster economic data. But the indices held the line at support. They did not go bouncing to the upside, but faced with all of the crud that they had to deal with, this was not too bad. I do not want you to say, "Johnson has gone totally bullish," but you have to recognize strength where there is strength. This is not raging upside strength, but it is relative strength. And relative strength is a relatively good thing when you have so many negatives and the market is still managing to hold support. Yes, it still has something of a rounded top look to it. You can see it on the NASDAQ and SP500, but they are holding key support and there are some stocks moving higher. Not all of them. I will talk about that in leadership because it is kind of a defensive mix.

There are still plenty of stocks that look good and like they want to move up. This coming week the question is whether or not this hold of support turns into a bounce. This question will have to be answered because it was not this week. Thursday it looked as if it might turn into a bounce. Remember, we had the test a couple of days that bounced off of that support, looked good, and there was a lot of buying activity at that support. Then on Thursday it took off to the upside but frittered it away. I think I used the term from Shawshank Redemption, "Like a fart in the wind." In any event, it held and withstood bad news on Friday. I think I have made that point enough. I just wanted to drive it home.

OTHER MARKETS

The other markets had the same trade that they enjoyed (or did not enjoy) all week long. They put money into the U.S. greenback and bonds, took it out of oil, commodities, gold, and anything that had to do with expanding the rest of the world.

Dollar. 1.2919 versus 1.2959. The dollar posted its tenth straight gain versus the euro. It had not done that since 2008. It is a dubious honor, but nonetheless is shows that there is worry in the rest of the world, particularly in Europe with money running back to the U.S. The dollar continues to look solid. It is not breaking out, but it is in something of a pennant pattern after this run from October up to early January 2012.

Bonds. 1.84% versus 1.88% 10 year U.S. Treasury. Bonds rallied yet again. The 10 year is trying to break back to the upside. There was Bernanke talking, the Fed talking, and then what happened here? All of a sudden Europe was a problem again. There was a gap down, a gap up, and a little island reversal. Bonds have been moving higher ever since. Not in a straight line, but they are moving higher. Now they are matching some prior resistance levels. They look in good shape to continue upside because there is nothing to end the fear. We have Greece hanging out there, and nothing will be resolved there until June. We have issues right here in River City. It is capital 'T,' it rhymes with 'G,' and that stands for Greece. You tell me what that one is from.

Gold. 1,584.00, -15.50. Gold was hammered again. It is trying to hold and bounce after getting clubbed on Tuesday and Wednesday. I guess that is a little consolation, but it is nonetheless in a position where it could bounce with something of an ABCD pattern. We will see what happens with gold. It is definitely under pressure, but grudgingly so.

Oil. 96.03, -1.05. Oil had a tough week. It managed to hold the recent lows for the week, however, after careening to the downside the prior week. It is at some support. We will see if it can rebound back to the upside. There is no reason for it to break down. It has some serious support at the 96 level. Then again, there was no reason for it to drop so sharply early in the week. Although there are those darn speculators. I guess they got out of the market. Maybe this president scared all the speculators out of the market, and that allowed oil to fall. Good for him. I am so happy he understands markets and economics so well that he was able to do that. I will sleep better knowing that in the summer we may not have $6 per gallon gasoline. It will just be $5 per gallon.

TECHNICAL SUMMARY

Volume. NASDAQ -13%, 1.7B; NYSE -1.5%, 721M. A quieter session after a lot of back and forth all week long at support. Volume still remains somewhat elevated as it holds support. As noted earlier in the week, that is not necessarily a bad thing. As a stock or index holds support, higher volume shows that buyers are stepping in. It shows a lot of bumping between the sellers and buyers, but as long as it holds that support, that is a positive overall.

Breadth. NASDAQ -1.45:1; NYSE -1.5:1. Breadth was nothing to speak of.

THE CHARTS

SP500. We spent four days kissing the February 2011 peak. It is an important support level for SP500 that has been holding. What we want to see for the upside is a break back higher and then continue the trading range that sits roughly on top of the 2011 trading range that formed just before all hell broke loose in the summer and early fall. That is the thesis, and the fact that the market is holding up in times of bad news remains a positive for SP500. It also remains positive for the

DJ30. The DJ30 is also holding an important level: the twin peaks from July 2011. It is also kissing them, spending time there and trying to bounce. That is a positive. It overcame very negative news from JPM, as did SP500. That is a positive. Again holding up at support, and it looks like it has plenty of bounce ability here. It will not be huge. About 12,800 to 13,250. Not a tremendous range, but we can make money off of individual stocks in that move.

NASDAQ. NASDAQ is the same story. It is holding above the 2011 highs not interim highs, but the highs. It was trying to bounce on Wednesday. It tried on Thursday and gave it up. It tried again on Friday. It may be able to pull it off. There is some relative strength in tech. Although that is an issue. If Europe is in trouble, then techs tend not to perform as well because Europe is such a large buyer of our technology. We will see how it plays out. Well do have another index, three of the large caps, holding up at a key support level.

SP600. SP600 is also holding up at an important support level. It spent six days there with the close from Friday a week ago. It is holding, and we will see if it can bounce. It has that bearish look to it overall. There are those rounded tops and kind of a head and shoulders. Everyone sees that, but those things are very iffy. How many times have we seen the big head and shoulders that everyone spots and nothing happens? As I said earlier, this coming week will be a decision week for all of the indices, SP600 included.

SOX. SOX posted a gain on the day, but it closed well off of its high. It is holding at a very important support level near 395. Varying support at 390-395. The 200 day EMA just happens to be there. This has held its highs and lows and consolidation ranges for quite some time. This has the same head and shoulder-ish rounded top look that SP600 has, so there are the same worries that it could just roll over and die. But it has not done it yet, and it has handled a lot of bad news along the way. It has made it through earnings seasons with a fade, but nonetheless holding support. Hard to complain about this.

I will not complain too much, but it is still worrisome. The patterns are worrisome because you have these rounded tops, but they are holding support in the face of bad news. If the news continues to worsen, they will break down eventually. We are still operating under the thesis that we will have a roll back up in the range. We will look at upside plays, but we will also look at downside plays because we have to. You have to be ready in case the support on any of the indices does not hold. If one or two goes, they likely all go to town. And I am not talking about the better part of down.

LEADERSHIP

Financial. Even though JPM took it in the gut, some others held up very well. WFC was solid indeed. The banks held up well. BAC is still in its downward channel, sitting right on top of the 200 day EMA. They handled the bad news with aplomb, and if they are any indication, than it looks like it could just be a JPM issue, and the rest of the market could bounce to the upside.

Metals. Even commodities were not too bad. FCX did not have a good week, but it did not implode. AKS did not have a good week, but it bounced back at the end of the week. What is the problem with these patterns? They are hideous. These are not great patterns, but they are not necessarily great shorts right now either. It is safe to say that metals are not something that we want to jump into until we see some kind of improvement that would suggest it is time to move in.

Retail. JWN took it on the chin. Then you had BBBY that accelerated to the upside on strong volume. TSCO moved to the upside. It does not look as if those are in too bad of shape. How strange is that? When have some retailers moving just fine while a big-name brand got hit. It looks very specific to the market. As a matter of fact, SBUX is trying to bounce pack up. Curious. We will see if it can make the move. It is up to its 50 day EMA. It, too is trying to make a comeback. It will be an important week for SBUX as it tests. AMZN had a decent week. It bounced back up to its prior gap-up highs on earnings. We will see how it plays out. It does not look like it has a play for us right now, but it could.

Drugs. Drugs are performing fairly well. JAZZ is starting to bounce to the upside. QNM is choppy but a very interesting pattern, trying to move up as well. INCY was breaking to the upside this week off of a nice test. We still have drugs performing. They are kind of defensive.

Utilities. The utility index hit a post bear market high today. That is the DJ15. Utilities are very defensive. They do not move much, and you invest in them when you are going back to basics. People still have to heat and cool their homes, so we will have the electricity. We may not make much money, but at least we will not lose a lot of money. That is the theory. They seem to be performing better.

Techs are being a little weak. Drugs are a little strong. Utilities are stronger. That means that it is a little more defensive. Telecoms are performing a bit better. Some retail stocks look great. That is not so defensive. But metals, commodities look very bad. Financials are in the hunt, but it is still a long hunt for them.

It is a mixed market for sure. We have to look at individual stocks. We cannot say one sector is going to move higher and we can take advantage of it. We have to pick the stocks at a look good. They are still out there. Again, we will have to look both ways for the coming week because we have indices that are sitting at a support level. While we expect them to bounce to the upside and continue the range, sometimes those who expect something can be disappointed. That is our gut (with some intellect) saying that we expect a bounce, but the market will do what it will do. It is at an important level, so if it wants to break down, we will let it. The thing to watch out for is that false break where it breaks and then reverses. We were hoping we would get that on Friday, the break lower below support that reversed. It did not pan out. Maybe it happens in the coming week.

THE MARKET

SENTIMENT INDICATORS

VIX. The VIX has been holding its break above the trendline that started in early April. It came back to totally test the break. Indeed, it went below it, but it held the trendline. It has bounced. Now we have a little double top action. There is serious resistance here. It hit that resistance level in April, in March, in February, and then it used it as support in December and January. This is an important level. We will see if it can make the break higher. Of course that would mean the market would sell. I am not sure that will be the case. We may get another trade back down to this late-April level before it moves higher again.

VIX: 19.89; +1.06
VXN: 21.79; +0.46
VXO: 20.56; +1.46

Put/Call Ratio (CBOE): 1.24; +0.15. Put/Call ratio surging higher as the indices hold support. Sure looks to be a contrary indicator for an upside bounce.

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 38.7% versus 43.0% versus 41.9%. Wow that is a turnaround. Last week we were puzzled by the bullishness persisting but this week as the indices sold to support, and held it, the bulls ran away. Heading for 35%, the key level that turns this to a bullish indication. This is lining up with the put/call ratio. Still over 35% (below which is considered bullish) but dropping fast. Just as the market found support to bounce the bulls ran. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.4% versus 20.4% versus 23.7%. Okay, well the bears, after a big decline two weeks back, continue to hold at low levels. Would prefer seeing them run higher in sync with the bulls fading. They have been divergent by a week or so of late; we will see if they catch up next week. Have to get over 35% to really be a good upside indicator and it is heading in the wrong direction. Thus the contrary worry it stirs. Are investors too complacent with the market facing all of these issues? Below late March, and that was down from the 25% to 26% level it held for weeks. 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.

NASDAQ

Stats: +0.18 points (+0.01%) to close at 2933.82
Volume: 1.719B (-13.05%)

Up Volume: 803.12M (-2.39M)
Down Volume: 903.27M (-256.73M)

A/D and Hi/Lo: Decliners led 1.44 to 1
Previous Session: Advancers led 1.35 to 1

New Highs: 51 (-16)
New Lows: 89 (+27)

SP500/NYSE

Stats: -4.6 points (-0.34%) to close at 1353.39
NYSE Volume: 721M (-1.5%)

Up Volume: 1.11B (-1.13B)
Down Volume: 2.66B (+1.25B)

A/D and Hi/Lo: Decliners led 1.52 to 1
Previous Session: Advancers led 1.7 to 1

New Highs: 84 (-16)
New Lows: 45 (+15)

DJ30

Stats: -34.44 points (-0.27%) to close at 12820.6
Volume DJ30: 148M shares Friday versus 152M shares Thursday.

MONDAY

I said it was an important week in terms of technical action. I will talk about that shortly, but it is also an important week in terms of economic data. On Tuesday we have Retail Sales and CPI. Very important. Empire Manufacturing is also quite important. We will have Business Inventories. Are they rising or falling? Is it because of sales or lack of sales? Wednesday there is Industrial Production and Capacity. There are FOMC minutes as well. Housing Starts will be a big one also. Then on Thursday we will have Philly Fed and the Initial Claims. It will be a big data week.

It will also be a big technical week. We have the indices in position to bounce off support. They did not do it last week. They had a chance on Thursday and they blew it. They had a chance on Wednesday on the NASDAQ and it blew it. Then on Friday they had a chance to sell off but they did not. That shows strength. What we are looking for and what would have been the great scenario was the initial selloff, the big one that undercut and then a reversal. We got a selloff, but it was not big enough. If we get an undercut, we often get that false breakdown. The false move lower that reverses off of support. That is something we have seen over the last few years in this market. That could be very interesting.

If things start negative on Monday, we will not assume they will dive. We do not dive into a bunch of new downside plays on Monday morning if there is a break of support. If it comes back up and tests and fails, then we can start putting our toes in for a few more downside. But we would watch for a reversal. Why? Because we had a bunch of bad news to end the week, and the market still held up.

Earnings have corroded, as I have said before. We are still holding this support. Watch for a break to reverse. If we do not get a break, and let us say the market starts to the upside, then it could mean that it will try to rally. But we would be weary of that just as we were weary of it on Thursday when the market started to the upside. It looked as if everything had held on Tuesday and Wednesday and it was ready to bounce. It did bounce, but then it just fizzled away.

We want to watch and make sure that good stocks hold good moves. If that is the case, we can step in. If this is a breakdown and there is no recovery and stocks that are in position to sell break down and do not come back, then we can move in on them. It is a market of individual stocks. The market will break one way or the other, and that will tell the tale for most of the stocks in the market. That is why we want to see a little confirmation, a little hold with respect to any move up off this support or that breaks below it. We want to make sure a break below fails. They often come back to test, particularly given that it has tried to hold for four days now. We do not want to get too hasty and jump in too quickly.

We will have plays that look upside for the range, and then we will have some that look downside in case there is a break. Yes, the market is once again at one of those points where it has to make a decision. It will make a decision based on what it sees down the road. Economically, if things are going down the toilet, it will tend to break lower. But it does not mean that it has to break lower right now, even if things are heading down the toilet. Remember, last year this thing wound up back and forth for six months from it made a sharp break lower. Here we are just over two months, so we really just started. We have the end of Operation Twist in June, still off a little ways in the distance.

We will be prepared as my sons are because they are Boy Scouts. We will play what the market will give us because we want to take what the market is giving. Right now, that means individual stocks that look good to the upside and look good to the downside.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2933.82

Resistance:
The 50 day EMA at 2990
3000 is the February 2012 post-bear market high
3026 from 10/2000 low
3042 from 5/2000 low
3090 is the mid-March interim high
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
The 200 day SMA at 2739
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1353.39

Resistance:
1357 is the July 2011 peak
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1374
1378 is the February 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
The 200 day SMA at 1277
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 12,820.60
Resistance:
12,876 is the May high
The 50 day EMA at 12,988
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,186
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

May 7 - Monday
Consumer Credit, March (15:00): $21.4B actual versus $11.0B expected, $9.3B prior (revised from $8.7B)

May 9 - Wednesday
MBA Mortgage Index, 05/05 (7:00): 1.7% actual versus 0.1% prior
Wholesale Inventories, March (10:00): 0.3% actual versus 0.6% expected, 0.9% prior
Crude Inventories, 05/05 (10:30): 3.652M actual versus 2.840M prior

May 10 - Thursday
Initial Claims, 05/05 (8:30): 367K actual versus 365K expected, 368K prior (revised from 365K)
Continuing Claims, 04/28 (8:30): 3229K actual versus 3288K expected, 3290K prior (revised from 3276K)
Trade Balance, March (8:30): -$51.8B actual versus -$50.2B expected, -$45.4B prior (revised from -$46.0B)
Export Prices ex-ag., April (8:30): 0.2% actual versus 0.5% prior
Import Prices ex-oil, April (8:30): 0.1% actual versus 0.5% prior
Treasury Budget, April (14:00): $59.1B actual versus $58.0B expected, -$40.4B prior

May 11 - Friday
PPI, April (8:30): -0.2% actual versus 0.0% expected, 0.0% prior
Core PPI, April (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Michigan Sentiment, May (9:55): 77.8 actual versus 76.0 expected, 76.4 prior

May 15 - Tuesday
Retail Sales, April (8:30): 0.2% expected, 0.8% prior
Retail Sales ex-auto, April (8:30): 0.2% expected, 0.8% prior
CPI, April (8:30): 0.0% expected, 0.3% prior
Core CPI, April (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, May (8:30): 8.4 expected, 6.6 prior
Net Long-Term TIC Fl, March (9:00): $10.1B prior
Business Inventories, March (10:00): 0.3% expected, 0.6% prior
NAHB Housing Market Index, May (10:00): 26 expected, 25 prior

May 16 - Wednesday
MBA Mortgage Index, 05/12 (7:00): 1.7% prior
Housing Starts, April (8:30): 680K expected, 654K prior
Building Permits, April (8:30): 730K expected, 747K prior
Industrial Production, April (9:15): 0.5% expected, 0.0% prior
Capacity Utilization, April (9:15): 79.0% expected, 78.6% prior
Crude Inventories, 05/12 (10:30): 3.652M prior
FOMC Minutes, 4/25 (14:00)

May 17 - Thursday
Initial Claims, 05/12 (8:30): 365K expected, 367K prior
Continuing Claims, 05/05 (8:30): 3250K expected, 3229K prior
Philadelphia Fed, May (10:00): 8.8 expected, 8.5 prior
Leading Indicators, April (10:00): 0.2% expected, 0.3% prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Run From the Jobs Report

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 07 May 2012 20:22:00 +0000

SUMMARY:

- Unemployment rate decline touted but most see through it, and most importantly, the stock market doesn't buy it.
- Stocks run from the jobs report, end up right back where the bounce started two weeks back.
- Dollar surges despite weak jobs report, but bonds, oil, and gold act as you would expect.
- Jobs just don't add up, even to 115K non-farm jobs.
- The jobs market is, yes, different this time because the US is different.
- Is this as good as it gets in terms of the recovery?
- Austerity doesn't work? How about Keynesian economics?
- The indices are back to where the bounce started. Unless a recession is coming the indices should hold above the 2011 highs.

Friday was the jobs report, and investors received a gut punch from the results. Stocks took an old fashioned tail kicking as a result. Europe tanked after the US numbers came out. While US futures were not gutted on the news, quickly after the release there was the initial bump higher on the lower 8.1% unemployment rate, but then everyone saw through the numbers. It was a miss with respect to the nonfarm payrolls at 115K measly jobs (and it was not even that much; I will go into that later). The 8.1% was due to a 552K decrease from the workforce. Those people became part of the 88.4M people no longer in the workforce. Stocks turned down premarket and then sold quickly all the way into lunch. It was a fast drop as first, and then the market moved basically laterally all afternoon. It tried a late bounce, but that was horribly rejected late in the session with the indices going right back down to their lows for the closing bell.

Jobs report gut punches the investors . . .

SP500, -1.61%; NASDAQ, -2.25%; Dow, -1.27%; SP600, -1.79%; SOX, -2.1%.

Once again, growth took it in the chops. Although SP500 was not that strong as financials took it in the nether regions, so to speak. I am sticking with that tail-kicking, gut-punching theme. The move pushed the indices right back to where they were two weeks ago when the most recent bounce started. It was a good bounce. They were holding up nicely, but they could not withstand the jobs. Maybe they can start over again, but when you lose these kinds of moves and you quickly come back to the same support levels, it is not that great of action. You are getting that chop that we saw in the spring and then the selloff in the summer of 2011. Operation Twist is scheduled to end in June. As we can see, what happened starting February of 2011, we are getting the same volatile, choppy action now with not nearly the same kind of rise we had out of the August 2010 low. We did not get nearly the same mileage out of the run. That leaves the indices in a precarious position, but that is the way it has been for the past month as they try to get off of this support level. They are having a hard time doing so.

Stocks get an old-fashioned tail-kicking

OTHER MARKETS

The markets overall responded to a weaker economy. The numbers showed fear and weakness. The dollar was stronger because Europe plunged when the news came out from the U.S. Why would it do that? Because the US is Europe's lifeline. We are the people they call when things finally go down. Europe has always called on us. They wanted us to be the place that made the great drugs because we have invention. We allow our companies to spend billions because they can make the money from it. But Europe does not want to pay for it, so they get cheaper drugs. We are a lifeline for drugs and for a lot of things in Europe.

We work hard and make a lot of money so Europe can enjoy the lives it does. But now that is not happening. The world has changed and the governments cannot enjoy the largesse that they have in the past. They cannot employ most of the population and give them these huge pensions. It is ugly. They are finding out what happens when, as Margaret Thatcher said, they run out of other people's money.

Dollar. 1.3083 versus 1.3151 euro. Big bounce against the euro. The dollar was stronger because of that lifeline. Again, if it is bad here, than it has to be worse in Europe. That is what everyone seemed to be buying, so to speak, when they jumped into the dollar.

Bonds. 1.88% versus 1.93% 10 year U.S. Treasury. Bonds surged on fear. Last night I said that they could take off again based on the numbers, and it broke the 1.9 handle. This is crazy. Things are supposed to be getting better here, and we see the bond yields racing higher. If they break over the high from a couple of weeks back, then Katy, bar the door. They will be running, baby, and that is not good. As we saw last year, when they run, that is not necessarily great for the U.S. economy and for the world. It is a fear factor. Bonds should be selling and yields should be rising if the U.S. economy is better, which is not the case. Big money is moving into bonds for safety, and big money from the continent is moving into our bonds for safety as well.

Gold. 1,645.40, +10.60. Gold rose, acting as a fear hedge. Not a huge move, but it held where it needed to hold. It held at the prior lows on five occasions, including the gap point from December. It is still trying to hold up in this range after it broke out of its downward channel and then tested. It has been testing ever since. We had that inverted head and shoulders which got a little sloppy on Wednesday and Thursday. That was kind of surprising. Now we will see if it can make a break to the upside. If this fear trade continues, that would be the case. It sold off because the Fed and the ECB where saying there would be no more stimulus. There may not be anymore stimulus, but if that is the case, the economies will probably crash and gold will take off anyway.

Oil. 98.49, -4.05. Oil was clobbered. It is back below 100. It has not been there since early February. A pretty ugly move on oil. It seems surprising, but then again, when you think about the economies, it is not all that surprising. If things are as bad as the jobs report indicates I will go into this, but you should not believe what you are hearing from the government right now. There is a lot of detail that shows it is hogwash. If you accept that, you can totally understand that oil is falling because Europe is in the toilet. It is probably flushed halfway down to the sewer right now. It could be that the ECRI, which made that recession call back in September of 2011 for the late summer of 2012, could be right. I understand that one report does not make a difference. We saw that the ISM was good. It was good! Weekly jobless claims suddenly tanked out of the blue. But then we have the same problems that we have always had. We will see where it goes. It does not look too promising, but it is not the end of the world after just one jobs reported.

TECHNICAL SUMMARY

Volume. NASDAQ +4.3%, 1.91B; NYSE -3%, 747M. Volume was mixed. That was one of the good things on the session. Even though the indices sold, it was not runaway selling. It was mixed. It is notable that the selling occurred on the growth index and not the more staid, income-centered NYSE.

Breadth. NASDAQ -3.8:1; NYSE -3:1. The advance/decline line started to get a bit ugly. We are getting some numbers skewed to the downside, but volume was not horrible. We can deal with that.

THE CHARTS

SP500. SP500 is back down to where it was two weeks ago and, yea verily, a month ago. It is sitting just below the 2011 peak that was hit in May. It is still holding the breakout, but it has a high on lower MACD, a bounce to a lower high, and it is struggling. It was in good shape. It was holding above that mid-April bounce, sitting right on the 10 day EMA. It looked solid but gave it up. Maybe it will just be a false break and reverse. Maybe, maybe not. It was reason for fear, but it did not break the market. Now we will look at the other indices and see if we change our minds.

DJ30. DJ30 was sitting pretty at the 10 day EMA, and then it fell to the 50 day EMA. It is still holding above the 2011 highs. It fell through this channel that had been moving to the upside. The question is has it put in a double top on lower MACD. It will head down. Is sure looks like it has done that; that would be the technical read on it. But it is holding the 50 day EMA, and that is one of the reasons we did not move into the DIA downside play. But it is there. It is just hanging out, and we have that to worry about. If we get a bit of a bounce and then a crash back through, we could get some more selling. We see the Dow from a pretty good setup to hurting its prospects a bit all in one session.

NASDAQ. NASDAQ broke below the 50 day EMA with a gap. It is trying to hold at the mid-April lows as well as the center of the range from February. NASDAQ does not look that great, obviously. Techs were slammed. Growth is getting hit. It will be an important test for NASDAQ whether it can hold or if it will break below. If it does, it has some gaps to fill. It has these prior highs from 2011 that it wants to hit. One of those is right at 2900, another 50-60 points away. NASDAQ looks like it wants to obviously give back some more.

SP600. SP600 is right back down to where it held in April and again in early April and roughly March. It is getting close. It is selling back down, and it has that head and shoulder-ish look to it. We just have to see how it holds at this key support level coming up that has held four times in the past.

SOX. SOX continued its fade from the 50 day EMA. No surprise there. It is coming back to its low from two weeks ago. It is almost at that level. It is important because this is right at some peaks from late 2011. This is a critical level from October and November 2011 highs to June and July 2011 lows. That is a very critical support level, and stocks will likely test that. It has a head and shoulders setup. Looks like it wants to fall to that level.

With does SOX do for you? We had this big chop in early 2011 that sold off into the 2011 summer eurozone meltdown. We have a head and shoulders here. It never made it back up to the old highs, and it wants to sell back down to this level. It will come down to a key level at the top of that range. That will be the important test for the SOX.

Looking at the SP500, we are seeing the same action that we saw back in 2011. It was in this trading range, and then it broke down when things got really ugly late in the summer in Europe. Now we have a trading range going. This trading range in 2011 lasted for six months. We are just about two months into this one, so we could trend laterally for quite some time. That is why I am saying it is not necessarily a sign of a major breakdown. We are going through the death throes of Operation Twist. The market is trying to decide if the Fed is serious about not coming through with anymore stimulus or if it is just bluffing as it was in the first half of 2011. Remember, QE2 ended in July. It took them awhile to figure out and finally say they would not issue anything else, but they had to because of the eurozone meltdown. They had to come out with Operation Twist.

They desperately do not want to do anything else, but it will if it has to. We have incredible, impossible debt. We have an election coming up where no one will want to do anything to address our debt problems and fiscal problems. The Fed will have to act, but it does not want to because it will be seen as a political move. Poor Mr. Bernanke; what will he do? We are in the death throes of Operation Twist. Similar to 2011, we could see this choppy trading range continue. I would not be too surprised if SP500 pulls down to this early April or maybe the early March lows and holds. That is sitting right on top of the key peaks from the 2011 trading range. If the market anticipates another Fed action, it will not want to sell back down through this old trading range. That is just the way they work.

It looks bad. It IS bad. The economy is not good. But if the market is relying on the Fed to produce some kind of fix for it, then it will try to hold up and wait for that fix to come, and then we get this range-bound trade that we have going right now.

LEADERSHIP

Not everything was down. Techs were hit and some of the recent leaders were hit, no doubt. PCLN was taken down but not sold off. PII was taken down but not sold off.

Healthcare/Drugs. If you really want to get interesting, just look at the drugs, biotech, and health care. They are all holding up just fine. AMGN is doing okay.

Internet. Internet stocks are not doing badly. They held up well on the day. RENN was up on the session. ARBA is holding up just fine, not even paying attention to what is going on. We had problems with high flyers. They were clipped, and a lot of the other stocks that were industrial or energy related got nailed pretty hard. The metals took a good beating about the head and shoulders.

Retail. Consumer stocks are holding up pretty well. YUM was down, but it is still holding its trend. EAT looks fine and did not pay any attention to what is going on in the market.

We still have areas that are holding up just fine. Health care is kind of defensive. Internet is growth. Of course restaurants are consumer related. We still have areas that are in decent shape. That tells us that we can very well have a trading range in the market versus a rollover and selloff right now. The two competing forces right now are whether the Fed will come out with Quantitative Easing (or some other form) and whether the economy will roll over into recession as ECRI predicts. Those are the competing forces right now. That will determine a lot in what happens in November and what happens to our country overall for the next 10 to 20 years. We are in very important historic times. I bet you did not even know it. You learned it here first.

THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Jobs report so full of misleading and worrisome data.

All the players but one in this cartoon are gone, but the game plan apparently remains the same.

With the unemployment rate falling to 8.1% the headlines are already trumpeting the supposed virtues of that number without understanding the implications. Our President was out early in the week bragging about 8.2%; now he will certainly crow louder over 8.1%.

Shrinkage: It isn't just a Seinfeld show plot.

But the 8.1% came from more losses in the workforce, not more jobs, keeping the trend alive that shows since unemployment supposedly peaked, 80% of the decline in the UER is due to workforce shrinkage.

Participation rate: 63.6%. Lowest since 1981
Those who can work but are out of the workforce: +552K to 88,419,000
Those out of work 39.1 weeks or longer: 41.3%
U3 Unemployment (factoring in growth in the workforce per month): 11.6%

The result of the numbers: There is no growth in employment. In fact we are heading in the wrong direction and the PROBLEM is we are deluded into believing exploding the debt and size of government, regulation, and yes, raising taxes has a BENEFICIAL impact on the economy. Common sense tells you that is not the case: if it were such failed or economically crippled societies such as the USSR and Cuba would be economic giants. Yet our populace, aided by a totally despicable news media that now gives Pravda a run for its money, will accept the 'improving' numbers. Well, at least half the US will.

Job Quality is Not Job 1.
Average hourly earnings: 23.38 versus 23.37 in March.
Worse: Negative, i.e. declined, on an inflation adjusted basis.

Part-time jobs continue to rise while full time jobs fall:
812K loss of full-time jobs in April, largest since 3-09
508K new part-time jobs

115K new jobs? Not really. The raw data shows we lost more than that number.

Not content with reducing the labor force to drop the unemployment number, the numbers hanky-panky goes further into the non-farms jobs.

There is a birth/death component (guesstimate) that adds back into the number 'jobs' (though they are not really identified anywhere) based upon the birth rate and death rate. There is an assumed 90K addition to the workforce each month based upon population growth, but the birth/death takes it further and tries to strike a balance between population growth versus declines from death.

This past month the addition to jobs was 206K, much larger than anticipated and much larger than in 2010 and 2011. If that is backed out, there was a jobs LOSS in the 90K range. Wow. Bet you won't see THAT one on the headlines.

Hate to say it, but it IS different this time because the US is different.

My ears always perk up whenever I hear an economist, analyst, trader, or financial reporter say 'this time it is different.' Typically that means sentiment has reached such an extreme level, exuberant or negative, that a turn is in the works.

Thus I write the following with an understanding of what some will interpret it to mean, but knowing that it is based on facts and analysis, not emotions and hyperbole.

This recovery is different from all others in the post-war era, and if we remain on the same track it will remain different. I am not talking different in that we simply decided to take a different route to same destination. This is a different route economically that is showing up in the inability to create jobs. Everyone ASSUMES that jobs must come. No, they don't have to follow. There are policy reasons why no jobs are created here (domestic small companies, our traditional jobs engine, are not doing well enough to create their usual jobs; the large corporations such as GE are creating jobs . . . overseas) as well economic reasons that result from the policy decisions made. The net result is 'no jobs for you' America.

The typical, and indeed unfailing, track for the unemployment rate has repeated recession after recession and recovery after recovery. Unemployment moves higher about the time we figure out we are in recession (usually months after the slowdown started). It continues to rise as the recession progresses at a rather steady pace. Then when it looks as if the economy is improving the unemployment rate suddenly spikes. Why? Because people are encouraged by the better economic numbers and re-enter the workforce looking for jobs. As employment lags the economy, however, they are disappointed and drop out and the rate falls. But the rate typically remains lower after that because jobs are then indeed created (again, they lag the economic recovery), and those re-entering the workforce are absorbed as they find a job.

This recovery, now 18 quarters out from the start of the downturn, has yet to put in one quarter of 4% or better economic growth. Only four quarters have been at 3% or better. Typical US recoveries see 7%, 10%, 12% quarterly GDP growth rates, particularly when the recessions are as deep as this one. In the early 1980's we experienced quarter after quarter of 10+% GDP growth during the recovery. Some apologists for the Administration argue that this recession is worse. Worse than 14% unemployment? Worse than interest rates at 15+%? Worse than inflation in double digits? The late 1970's and the early 1980's were much worse than we have now, yet the recovery was MUCH faster and MUCH stronger.

This recession has continued for so long with so little growth and so few jobs that it is structurally changing the US jobs picture. The President wanted an export economy so his policies benefitted large multinational companies so they could improve their markets to foreign countries. Their exports of goods and services were indeed up. Their exports of US jobs were up as well. GE, a major beneficiary of the Obama economic scheme, lined its bottom line with stimulus dollars, at the same time increasing its foreign workforce by tens of thousands while reducing its US workforce. It also makes a lot of stupid commercials with our bailout money, e.g. the idiotic 'So without your turbines there wouldn't be any Bud?' commercial that even a second grader sees as asinine (it may not be the exact dollars, but the money we gave GE made the profits that make the commercials. Now THAT would be a commercial I would like to see).

Yet the President displays public frustration that the companies he helped make record profits and huge cash stockpiles through his policies that favored this select group won't hire workers in the US. His regulations push new companies to open and IPO in foreign lands. His domestic policies of taxation, regulation, increased cost of business (small business costs up over 1,000% through Obama-era regulations) drive companies away, force them to contract just to stay alive (i.e. lay off workers), or worse just go under.

The historically great economic engine of the US, its small business sector, was crushed in the recession and remains a husk of its former activity simply because the business climate in the US fostered by this President's policies is openly hostile. As a result, the historic creator of US jobs and innovation, the small business, is nowhere to be found in this 'recovery,' and as a result we have no new jobs. It is the height of ignorance to gnash your teeth over companies you helped create piles of cash because they won't go out and spend that money. Why would that be the case? Because the economy is not heading in the right direction and thus those companies want to hoard their cash that they were lucky enough to get. That is so obviously clear yet it is so misunderstood by this Administration.

My last comment above somewhat let the cat out of the bag in terms of the conclusion, but you were already getting to that point anyway, right? Why would there be no hiring with a certain group of companies loaded with cash and others, the smaller businesses, literally dying to get some kind of economic activity going?

'What if this is as good as it gets?' asks Melvin. 'Oh my!' responds another patient.

Either recovery has not started (all Fed liquidity as said before), started but so weak cannot produce jobs (a symptom of a liquidity induced rise), or under these policies this is, as the Jack Nickelson move was called, 'As Good as it Gets.' I posit this recovery is all three.

First, as I have discussed in prior reports over the months, a 2.5% GDP economy is what you get when the central bank floods the economy and financial markets with liquidity. The Obama stimulus never worked. It went to favorite companies, friends of the administration, bundlers, etc., and was here and gone without any economic bump. No, it was the money flood that propped up the economy. You get appreciation in financial assets because the economy is not strong enough to use the money (money velocity remains at record low levels in the US to this day in the 'recovery') and it is put into financial markets. That purportedly creates a 'wealth effect' as Bernanke said he wanted, but as we know from the Greenspan era, the Fed admitted it wasn't even sure if a wealth effect really is supported by the empirical data (recall when the Greenspan Fed asked for people to submit data that would support the theory of a wealth effect? This AFTER it crashed the market and the economy in its quest to forestall inflation that never ever showed a sign of sparking. Ironically this is exactly what the 1929 central bank did.). In any event, asset prices are higher, and all of the excess wealth did create residual economic activity.

Second, even as Bernanke has noted, this is not sustainable economic activity. The massive liquidity injections from QE1, QE2, and the continuing of the money huge Fed balance sheet and money supply levels under Operation Twist (by the way, also tried in 1961) may have kept the economy from dragging bottom (though would it not have been better to let it fall, clear out, and then recover in health?) but that is a far cry from producing sustainable, even close to robust growth. With that kind of environment are the big companies going to spend their money on needless or questionable hires? Can the small businesses who see no growth and are just struggling to stay alive going to go out and hire in those conditions? I have to laugh about the $5K credit for hiring someone; who will hire to get a $5K credit when they have to come out of pocket for even a $25K salary for a new hire, not to mention training costs and other associated non-salary costs? Short answer: no one. Thus the economic activity, as the economists and historical data tells us, is nowhere near the level needed to create enough new jobs. When you realize that the lion's share of the 2.2% GDP read in Q1 was from consumer spending on a warm winter, you see that businesses have even less reason than usual for spending on jobs.

Don't take offense . . . saw it and could not resist.

Third, as noted above, this administration is so blind to understanding what costs are associated with its policies and regulations and the inability of small business to absorb those costs that it fails to realize (or perhaps does realize and is content) that the great economic engine of the US has been terribly damaged, such that if we do not change course within the next year it may never recover. The policies and regulations in place drive business away to open in other countries. It drives innovation elsewhere. It does not provide us and our progeny with the opportunity we have always had: starting our own business with a better idea or a better way. When you regulate as Europe, you become Europe. Europe's greatest crisis right now is not its current debt situation, but the lack of a historical capitalistic, entrepreneurial spirit that we have in the US. If we lose that we are not only Japan, we are Europe.

Austerity they say does not work, citing Europe as the example. But is austerity the issue?

Jared Bernstein, a democratic economic strategist, was on CNBC Friday morning, and to his credit Mr. Bernstein lamented the lower unemployment rate as not a good indication and that there was very little positive in the jobs report.

But, it had to happen, he had to revert to his roots. He went on to say that what the European woes and the weak US jobs report show is that austerity does not work and thus the last thing the US should do is cut spending. So much for rational thought on the subject.

I have discussed this before, but given it is really picking up in the public discourse it is worth discussing again: comparing the US to Europe in terms of austerity is a non sequitur. Europe has no free enterprise, capitalist background. Decades of socialism and government control and regulation has snuffed out or severely retarded the entrepreneurial spark. It is not that people don't want to have their own businesses, it is just practically impossible to create one given the crushing regulation and red tape. Thus it has been replaced by government as the primary spender and employer, and that is why when they talk austerity in the EU there are riots because the largest employer by numbers is the government. Without it there is little hope for any other opportunity.

The US is wholly different. Government growth the past three years is staggering, and on top of 50 years of explosive federal growth things are not well here either. But, we still have that entrepreneurial spirit and history; if we remove the roadblocks, regulations, restrictions, etc., our economy would indeed surge again.

What Mr. Bernstein and others miss is that the huge federal and Fed spending during this crisis has not helped the economy, but HAS PREVENTED it from recovering as energetically and robustly as it normally would. Thus MORE spending is NOT the answer. Indeed federal spending growth rates have far outstripped the rate of climb in healthcare, college, and other costs cited daily as the culprits behind our deficit. No, we just spend too much on too many things the federal government has no business spending on. Cutting federal spending and letting citizens keep more of their earnings would, as it did in the 1960's and as it did in the 1980's, trigger a new wave of entrepreneurism: US citizens are ready, able, and willing to do it on their own yet again.

Now go do that voodoo that you do so wellllll!!

We need the government to get out of the way, remove the obstacles, let us keep our money, and then as Harvey Korman said in 'Blazing Saddles,' do that voodoo that you do so well!

But . . . there is even a bigger issue.

What I kept waiting for the Republican commentator to say was that austerity was not the clear case study in recent economic history. No, what we have a front row seat to is what should be the lead chapter in any Economics 101 textbook: How Keynesian Economics Failed in the Real World Yet Again.

Why are EU governments forced into austerity and why are US states and municipalities (because unlike the federal government they cannot print money) waging massive battles regarding pensions and benefits that can never ever be paid? Because they, unlike Odysseus, ate the Lotus flowers.

They were beguiled to believe that government could provide all necessary goods and services and all the people had to do was go to work and pay their taxes. They would be cared for. As Margaret Thatcher's famous line states, however, 'the problem with socialism is you eventually run out of other people's money.'

I miss the 'iron lady.' She had it right. We have seen that too much government and too much government spending and intervention create catastrophic events. Here in the US we pushed home ownership, Bush, Schumer, Frank, etc. even when it was clearly unaffordable. Then when things started to crumble we spent hundreds of billions, indeed trillions, and all we get is a 2% economy with 115K jobs supposedly created?

No the track record is clear: taxing and spending by the government in places it thinks is best is no substitute for letting the entrepreneurs keep their money and put capital where it wants to flow. Whenever in history we go back to those ideals the US is clearly the strongest country on earth. Kennedy in the 1960's (before Johnson ruined things with the Great Society) and Reagan in the 1980's are recent examples of how well we do when we unleash the US citizen.

THE MARKET

SENTIMENT INDICATORS

VIX: 19.16; +1.6
VXN: 21.1; +1.91
VXO: 18.82; +1.94

Put/Call Ratio (CBOE): 1.07; +0.12

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 43.0% versus 41.9%. Trying to bounce but still well off the recent 44.1% and 48.4% readings three and four weeks back. The stems the full run to the downside, bouncing at the March low. Still over 35% (below which is considered bullish) but dropping fast. Ironic, eh? Just as the market found support to bounce the bulls ran. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.4% versus 23.7%. Hefty decline, indeed below the 21.5% hit four weeks back. How could so much optimism return in just one week of advance? It did, but of course this next move and the jobs report will likely splash cold water on the Bear's loins. That will give you a nasty disposition. Have to get over 45% to really be a good upside indicator and it is heading in the wrong direction. Thus the contrary worry it stirs. Are investors too complacent with the market facing all of these issues? Below late March, and that was down from the 25% to 26% level it held for weeks. 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.

NASDAQ

Stats: -67.96 points (-2.25%) to close at 2956.34
Volume: 1.915B (+4.3%)

Up Volume: 186.03M (-93.07M)
Down Volume: 1.74B (+160M)

A/D and Hi/Lo: Decliners led 3.78 to 1
Previous Session: Decliners led 2.83 to 1

New Highs: 35 (-52)
New Lows: 93 (+25)

SP500/NYSE

Stats: -22.47 points (-1.61%) to close at 1369.1
NYSE Volume: 747M (-2.99%)

Up Volume: 544.6M (-241.62M)
Down Volume: 3.39B (+240M)

A/D and Hi/Lo: Decliners led 3.04 to 1
Previous Session: Decliners led 2.35 to 1

New Highs: 55 (-69)
New Lows: 54 (+13)

DJ30

Stats: -168.32 points (-1.27%) to close at 13038.27
Volume DJ30: 114M shares Friday versus 102M shares Thursday.

MONDAY

Another week and more economic data. It is not quite as important as this past week, but nonetheless significant. On Wednesday we have wholesale inventories. We will see whether or not some of this manufacturing data holds water. Of course this is March, so it will not really apply to what we saw in the ISM for April. But it will have a bearing on the Q1 GDP. We will see if it is written up or written down as a result of inventories. Then when have the initial claims on Thursday, important given the surprisingly precipitous drop this past week. On Friday we have the PPI where the government can tell us that producers are not experiencing any increases in costs. Then we have the Michigan Sentiment where they can tell us that they are still happy because there was no winter up there. That is always a positive for those in the Great While North.

There will still be plenty of earnings out. It is not just a January, April, July, and October event anymore. They are pretty eventually spread out all the way into the following month. We have some significant results still to come. There are also your astronomical issues. Art Cashin noted on CNBC that there will be a super moon tonight. It is 42% larger than normal, and it will impact tides. They will be much higher than normal or much lower depending on what side you are on. And since humans are 70% water, we could have some very strange things going on in our bodies. He notes that this also occurred in September 2011. What do you know? And the Israelis have supposedly called up some emergency troops because there is unrest in the Sinai. You always have that geopolitical intrigue to go along with Fed invention, more spending by the federal government, etc. You get the picture.

As for the market itself, we had significant downside on Friday, obviously. The jobs report was not well received. But I noted earlier that it looks as if this is a case where the indices will trade back down toward those 2011 highs, but unless the ECRI is correct and there will be a recession coming, then they should hold those levels. Maybe anticipating that the Fed has to do something, or maybe just building in more good will for the future. After all, the market has risen quite a ways. While the results are related to liquidity versus economic prospects, they have continued to hold the gains. Last year we got this eurozone meltdown that broke them lower, but now we will get to see if there is some staying power. Yes, the indices may fall back down, but they may just range trade as well, as they did back in 2011. The logical place to do that is right on top of the prior highs. I am looking at NASDAQ. Of course that makes sense for it to try to do that.

The issues? Of course we have the SOX, and it is breaking lower. But it is coming down to a key support level even though it is well within its range. That is okay. It will range trade, perhaps inside of its range. That is pretty much my thesis going forward until we see something different. Things are not beautiful in terms of the indices, but they are not necessarily falling apart. As noted before, there is still significant leadership in health care, drugs, and even internet stocks. Some of the leaders have pulled back, but they still have very good patterns.

We will continue to use pullbacks to look for opportunities to enter into. We may not get them near term. We may have a problem with the market falling further. It was, after all, a pretty ugly decline on Friday. There may be some follow through to the downside. If we get a bounce higher to start the week, we might be able to use that to our advantage and pick up some downside plays and play it back to the support level. In other words, if SP500 bounces up toward the 20 day EMA and then wants to roll back over, we will be able to pick up more downside. We already have some that we picked up this week and others that we are riding lower. We can, again, augment that position to take what the market gives while it trades back and forth. It still has room to come down. That is, if it bounces.

If it continues to sell, we may or may not have some positions that we can move in. We have found some downside plays that we can still enter into. We will just see how things open. A little bounce and then a rollover would be better for the downside. We are looking at a range trade until proven otherwise. That means we see some good stocks that could still make great moves to the upside given a pullback or just completing their bases. We will look for that as well. If we are in the same boat that we were in in 2011, ignoring this eurozone meltdown (of course I cannot say that will not happen again, but we will cross that bridge when it comes), we could have a trading range. From the looks of it, we have a very similar range. It may not have the amplitude of this one, but it is still fairly significant.

Again, we look for trades we can make inside of this movement over the 2011 peaks. That will provide plenty of opportunity for us. We just want to make sure we get good setups and do not chase moves that have already been made or overly anticipate moves. There is that old saying, "let the moves come to you." If they run away from you, then they run away from you. If they set up and get to you, then jump all over them because that is your chance to make some good money.

I will see you on Monday. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 3024.30

Resistance:
3026 from 10/2000 low
3042 from 5/2000 low
3090 is the mid-March interim high
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
The 50 day EMA at 3002
3000 is the February 2012 post-bear market high
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
The 200 day SMA at 2735
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1391.57

Resistance:
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1378 is the February 2012 peak
The 50 day EMA at 1378
1371 is the May 2011 peak, the post-bear market high
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
The 200 day SMA at 1276
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 13,206.59
Resistance:
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 13,009
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,176
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

May 4 - Friday
Nonfarm Payrolls, April (8:30): 115K actual versus 162K expected, 154K prior (revised from 120K)
Nonfarm Private Payrolls, April (8:30): 130K actual versus 167K expected, 166K prior (revised from 121K)
Unemployment Rate, April (8:30): 8.1% actual versus 8.2% expected, 8.2% prior
Hourly Earnings, April (8:30): 0.0% actual versus 0.2% expected, 0.2% prior
Average Workweek, April (8:30): 34.5 actual versus 34.5 expected, 34.5 prior

May 7 - Monday
Consumer Credit, March (15:00): $11.0B expected, $8.7B prior

May 9 - Wednesday
MBA Mortgage Index, 05/05 (7:00): 0.9% prior
Wholesale Inventories, March (10:00): 0.6% expected, 0.9% prior
Crude Inventories, 05/05 (10:30): 2.840M prior

May 10 - Thursday
Initial Claims, 05/05 (8:30): 365K expected, 365K prior
Continuing Claims, 04/28 (8:30): 3288K expected, 3276K prior
Trade Balance, March (8:30): -$49.9B expected, -$46.0B prior
Export Prices ex-ag., April (8:30): 0.5% prior
Import Prices ex-oil, April (8:30): 0.5% prior
Treasury Budget, April (14:00): -$40.4B prior

May 11 - Friday
PPI, April (8:30): 0.0% expected, 0.0% prior
Core PPI, April (8:30): 0.2% expected, 0.3% prior
Michigan Sentiment, May (9:55): 76.2 expected, 76.4 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Post Fourth Straight Gain

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 30 Apr 2012 15:29:00 +0000

SUMMARY:

- Investors focus on consumption, sentiment, and Amazon versus GDP and Spanish downgrades.
- Stocks post fourth straight gain as the indices continue their therapy.
- Approaching the prior highs the indices look better but maybe not good enough.
- GDP misses expectations even though weather driven consumption tops expectations.
- Michigan Sentiment final tops expectations.
- Spain downgraded to a couple of steps above junk as unemployment hits a staggering 24.4%.
- Google now sued by the DOJ. AAPL, GOOG . . . who next? Shades of MSFT yet again.
- End of month Monday, turn of new month may keep the money coming in for now but the indices then have to deal with the recent highs.
- Jobs report may put the move on hold: last time we were at these levels was, of course, the April jobs report and stocks sold afterward.

Uninspired but stocks hold on to a fourth day of gains.

Stocks made it four days in a row on Friday. It was not a huge move, but it was an upside day. Stocks had to overcome various issues. The GDP was not nearly as good as anticipated, although consumption was up. Apparently that is what everyone hung their hats on, as it helped lead to a rally. Earnings were out and they were mixed. We had big earnings from our dear friend AMZN. AMZN exploded to the upside and dragged a lot of retail higher with it. There were some other good results from travel companies and other stocks as well. Everything related to consumers seems to be doing better right now.

It was four out of five for the week, and the market has not done that in a while. It has not been at this level for almost a month. They are approaching those March peaks that were the post bear market highs. We will see what happens when we get there. As noted, investors seemed to hang their hats on the consumption aspect of the GDP, and that dovetailed with the big move from AMZN. Huge gap to the upside. This offset the Spanish downgrade that took it to two notches above junk. Amazing. Unemployment in Spain is 24.4%. Of those people 25 and under who are of working age, there is 50% unemployment. That is impressively bad.

Michigan Sentiment helped out and kept things moving to the upside. It fueled that extra consumption attitude where everyone thinks we will spend our way out of this. Maybe that is the case; it has been helping thus far. When you throw all that liquidity into the market, you have purchasing. What we still have to come back to is that real earnings are negative. A lot of this increase is on paper. There is a lot of money being made by some huge multinational corporations and financial institutions. They are handing out big bonuses, and that is helping to spur some of the consumption. The warm winter also helped drive the consumption aspect of the GDP number.

The indices are approaching those prior highs. Four days of rallying. They managed to hang on and show good effort even in the face of some Thursday selling and a selling attempt late in the session. You have to wonder just how strong they will be when they get back up to those prior highs. That said, they picked up some great positions on the week. We snagged PCLN as it came off of the 50 day EMA. It is rising back up near those prior highs. We snagged stocks such as BBBY that made a good move to the upside. It is not the only one. PII was coming off of its lows, and ISRG was doing the same. We have some great stocks that made moves to the upside. We got some that were not so high already that are starting to move as well.

Looking through the market tonight, there is a dearth of stocks in good position to buy. And I mean a dearth of stocks. We can try to buy some right before earnings, but that is loading up the gun with a couple of bullets, spinning it, and taking your shots. I do not like to do that. We have the jobs report coming out next Friday. It will be a very interesting week with respect to what the market will do. A lot of stocks have moved up just as the indices have moved up. The question is whether they will continue or if it was just a rise on lower MACD that will run out of juice. Those are all questions that will have to be answered. Maybe to start next week we can get a day or two to the upside. It is the end of the month on Monday. On Tuesday we have a new month which sometimes brings in new money. If we get a couple more days to the upside, we definitely want to bank some gain at that point.

With the jobs report, we will have to see. Things have not been good in the weekly jobless claims, and the last report was not that great. Heading into the jobs report, stocks were flat at best before starting to fade into Good Friday. Remember that the market was closed that Friday, but the jobs report came out. Nonetheless, we will focus on the fact that it was a good week for stocks and, thus, a very nice close to a week that was a bit unexpected with the strength to the upside.

On Friday the gains were rather modest. The indices sold back late, but they were never really that strong.

SP500, +0.24%; NASDAQ, +0.61%; Dow, +0.18%; SP600, +0.99%; SOX, +0.17%

In sum, the indices looked better. They were engaged in a little self-help therapy, trying to overcome the recent weakness. They did a decent job. They are approaching those highs. They did decently, but, again, you wonder if it will be good enough. We have Europe that is in so much trouble. Looking at some of the numbers in the U.S. economic reports, you cannot put a lot of faith in what you are seeing. But there are good stocks that are on the move. By golly, we will let them move for us as long as they will.

OTHER MARKETS

There was a bit of impact in other markets, but maybe it was not what would be expected.

Dollar. 1.3251 versus 1.3239 euro. If the U.S. numbers were as strong as the market seemed to indicate, you would have thought the dollar would rise. But it did not. As much trouble as there is in Europe, the dollar still went down on Friday. Spain got cut two notches, and now it is two notches above junk, and yet the dollar declined. What is going on?

Bonds. 1.93% versus 1.95% 10 year U.S. Treasury. Bonds managed a modest gain. Bonds were stronger. Indeed, they were stronger intraday at 1.88% yield on the low. Perhaps bonds were a bit worried about the GDP number. Maybe not that much, as they bounced down from their highs.

Gold. 1,664.80, +4.20. Gold had another upside session. Gold is worried about something, and it has been eking higher. But it is still below the 50 day EMA. It reached lower several times over the past week and a half, and it found support and rallied up. Now it is back at the nemesis. It failed the last four times it has hit the 50 day EMA, but it has remained in this lateral move. It is forming a rounded base after breaking out from this downward wedge. It broke out, it gave it up, but it held the trendline and has moved laterally. It is forming a base, a rounded bottom, and an inverted head and shoulders is setting up. From the look of it right now, gold is anticipating a break to the upside. Something may happen. Maybe the indices break lower and gold breaks higher. We will have to see.

Oil. 104.85, 0.30. Oil was up on the session. It was a decent week for oil overall. It was not huge to the upside, but note the trend. After bottoming in early April, oil is slowly moving higher. It did break through the 50 day EMA. As with gold, oil broke out from a range and then tested the range. It looked as if it would fail, but it moved back up. It has not broken higher yet, but it sure looks like it wants to do that.

TECHNICAL SUMMARY

Note that the internals were much more subdued this past week versus what we saw in the day to day volatility and the back and forth action from mid- to late March and early April.

Volume. NASDAQ +1%, 1.76B; NYSE -3.2%, 690M. The volume was mixed on this move to the upside. It did not tell us much. Some days were higher; some days were lower. No clear, definitive statement that the buyers were totally back in and ready to run stocks to the upside. That said, volume was stronger on this move than it has been in prior moves, and that is a positive. It shows there was some buying and, as we saw in many of our key stocks that make good moves to the upside, there was good volume this past week.

Breadth. NASDAQ +1.8:1; NYSE +2:1. Breadth was blas , and that is what you would expect given the rather lackluster gains on the indices. Nothing that significant. The session itself was not too significant other than the fact that the indices avoided rolling over after three upside days.

THE CHARTS

SP500. SP500 did have three upside days and then a fourth added on Friday. Not much, and it put it right into the teeth of some resistance, this interim peak from mid March, and also what we will call twin peaks from late March and early April. It is just below those levels, but it has to get through this interim level first. That is the problem with success at this point. The indices were in trouble, they have been getting boxed around since mid March, and they bounced back and forth in day to day volatility. They had a pretty good slide, and then they were back and forth all through the first half of April. Then they caught a bid this past week and moved to the upside, rescuing themselves by moving back above the 50 day EMA. They are not out of the woods by any stretch of the imagination.

SP500 still shows a weak MACD. It is approaching the prior highs and MACD is lagging. Volume has been up and down, but it has been a bit better. It is trying to heal itself and continue the run; indeed, that is what it did. The most significant question we have to deal with is what will happen when it bumps up against these March and early April highs that were the post bear market highs. As we will see, that is an issue with just about all of the indices.

DJ30. DJ30 posted a very modest gain, but it was nonetheless up for the fourth session as well, having recovered the 50 day EMA early in the week and rallying to the upside. It cleared an interim peak, and that is important. It still has serious work ahead, however. It made a nice bounce, no question, just as SP500 did , but now it has real work to do at the twin peaks spanning March into early April. In any event, you have a selloff, a recovery, and now the lick log. Will it be able to break through, or will it roll over in a more significant fashion? This is a classic downside set up. We just have to see if it makes the roll to the downside. Note that MACD is trying to come back, but we also note that it is lagging considerably where it was in mid March when stocks were just a little bit higher than they are now. It has the same issues. What will it do when it reaches that level?

NASDAQ. NASDAQ shows the same picture. A gap to the upside on Wednesday with the strong earnings from AAPL, and then a gap to the upside on Friday with strong earnings from AMZN. It cleared this interim range from early April, and now it is sitting right below. NASDAQ is now at these interim peaks. It is at a gap up point and, interestingly, a point where NASDAQ gapped up and then gapped down. It had two really great earnings reports from two important NASDAQ stocks. That has brought it back up to this interim gap point. As with the other indices, we will see this week whether AAPL as any more gas in the tank. It has put some really good earnings out on the table. The market has rallied very nicely, coming back from an ugly gap lower below a key support level. It has rallied and it is trying to heal itself. There is a big test ahead this week.

SP600. The small caps are important to the economy, as we have heard ad nauseam. They are back up to those prior highs from the bear market. This is where it gets interesting in terms of the potential head and shoulders pattern. A four-day rally. It overcame this little hump that could have been a right shoulder, and now it is back up to a key level. As with the other indices, this is where it will have to earn its pay (or not).

The small caps look good. They have held with a little double bottom at support and are bouncing. If they can lead, that would be huge for the market overall. But they have not answered that question yet. They have rallied well, and now they have to continue. They may to want test a bit first, move laterally, and then break higher. If they do that, it is a very solid move. The small caps will be an important index to watch over the next week as the large cap indices (SP500, Dow, and NASDAQ) bounce up closer to their highs. Will the small caps fill in and provide that strength?

SP400. SP400 is even closer to its prior highs than the small caps. It has moved through that February flat top, and now it is looking at the twin and even triple peaks from March. This will be an important index to watch as well. It may not be as economically sensitive as the SP600, but it is more significant with respect to the domestic economy than the large cap indices because the large caps are the companies that deal with international and overseas operations. Those are the places getting all the jobs. We are talking about the U.S. rather than that export economy that really will not do it for us; it has only produced pathetic gains in economic terms. We need the small and mid caps to do the lifting. Thus we will be watching these two indices this week.

SOX. SOX still looks very weak. It did bounce without a doubt, but it had also broken below its March low and its April low. It has recovered back into the range, but it is still below some very significant levels, not to mention the 50 day EMA. This is an important index to watch in the coming week as well. Semiconductors tend to lead or give the indications downside a bit earlier than the rest of the indices.

LEADERSHIP

Note that the week saw mostly leads from retail in stocks like AMZN AAPL, PCLN and EXPE. It was travel, internet shopping, bricks and mortar, or those companies that supply consumer goods. They were the market leaders, but that is not to say there were not leaders elsewhere.

Some of the financial stocks did just fine. STT had a good week and moved up to a prior high. JPM still looks halfway decent, sitting on the 50 day EMA, but it just does not go very far. Nonetheless, you get the point. There are some significant possibilities for additional moves, but overall there are darn few plays out there to the upside. Perhaps that would be expected given the action in the indices. They were up, coming back from some pretty significant selling and weakness, particularly if you look at NASDAQ. It made it back up, but it was struggling.

Thus a lot of the stocks have rebounded from troubling patterns. A lot of semiconductors have rebounded, but you do not really want to buy into them at this point. After four days to the upside, we have stocks such as PCLN that ran quite well to the upside. They are approaching old highs and, as with the indices, they will have to show something here. But they had great weeks. Then we have other stocks that rebounded but are still struggling somewhat. There are more than a few of those out there. One example in the semiconductors is NVLS. It bounced back up, but it is at some resistance and has a series of tops that it has to face.

The leadership is something you would expect. We have had some good moves on the week. There are still stocks in position to move higher, although many of those have already made the break. But there are still a few out there. But, as noted on Thursday, there was not going to be a lot of buying to do on Friday. There may still not be a lot of upside buying to do because there are just not that many stocks in good position to buy. At least not stocks that we want to buy that have good enough trading volume or good enough option spreads. It is getting hard to find those stocks. Of course we will come up with a few, but when you couple it with the fact that there are earnings, that makes is difficult to locate them as well.

There many stocks to the downside that we can look at, and we will be looking at more of those. But as we saw this past week, a lot of these stocks bounced to the upside such as RL. It had broken down, it was heading to fill the gap, but a funny thing happened along the way: It reversed and rallied Wednesday through Friday. It is still in trouble. It is at this down trendline and could easily roll back over. That is just what I am talking about. Some stocks that broke, tried to recover and did a decent job, but still have a hard road to hoe in order to get back above the prior highs and hit new rally highs. That will be the dilemma of the market this week and maybe into next week. We have the jobs report coming, and the market has four days to the upside. At the minimum, it would probably want to test ahead of that number.

THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

GDP at 2.2% saved by the 'Consumer Spring in Winter', but nothing else in the report looks terribly positive.

GDP- 1st read, Q1 (8:30): 2.2% actual versus 2.5% expected, 3.0% Q4 2011

1. Warm weather: April in February
2. An extra day in the quarter (Leap Year)
3. Supposed jobs surge

AND 2.2% IS ALL WE GET???

Inventories: In Q4 they added 2.2% to growth. In Q1 just 0.59%.

But . . . Consumption (the consumer) rose 2.9%, topping expectations. This was the part of the report the news people jumped on. Yes things are weak but not the consumer. No doubt the consumer spent, aided by that non-winter.

BUT . . . 29% of the gain was from sub-prime auto loans as the government tries to sell the cars its two kept companies manufacture. Yes, sub-prime is back. Anyone who can crawl into a GM or Chrysler dealership qualifies for a loan. Likely his dead grandmother as well.

Business investment: -2.1% versus +5.2% in Q4. The first decline in 3 years!

Key points:
1. Consumer saved the quarter but how long will that last? Wages adjusted for inflation are negative. Just how much buying was pulled forward by warm weather?
2. At 18 quarters from the collapse the economy has yet to produce a quarter of 4% GDP growth and we are supposedly in recovery. FOR THE FIRST TIME EVER, the US has not had a 4% or better GDP quarter in SIX YEARS.
3. US Debt to GDP ratio stands at 100.8% (more debt than GDP output) as of 3/31/12.

Big Problem: ECRI's recession call looks more and more likely. It said recession by late summer. It is on track.

Michigan Sentiment Tops Expectations

Michigan Sentiment - Final, April (9:55): 76.4 actual versus 75.7 expected, 75.7 prior (76.2 March Final)

What can you say? It was a warm spring in the frozen north.

Spain on the brink: unemployment explodes, debt downgraded.

Hard to imagine: Unemployment at 24.4%, an all-time record.

Workers 25 years and younger: 50% unemployment rate.

Debt: BBB+, outlook negative. Just two more notches to junk!

What this means for the US:

US Sues Google, and AAPL, and . . .

The FTC hired a top gun lawyer on its antitrust case against Google. That means the government is ready to proceed with a lawsuit against Google.

In 1998 the US took on Microsoft because it was successful. That was the beginning of the end of the tech rally. When government attacks success, the success is at least truncated.

MSFT came up with a good product and good marketing and garnered most of the market. AAPL has produced such successful products it has changed markets and captured large shares. These are not monopolies; they were not created by the government. Indeed AAPL almost FAILED, took no government money, and then re-invented markets to become the greatest tech company today. That success makes it a target in this administrative environment.

This Administration is hostile to business, at least business its friends don't run.

THE MARKET

SENTIMENT INDICATORS

VIX: 16.32; +0.08
VXN: 17.52; -0.31
VXO: 15.68; -0.07

Put/Call Ratio (CBOE): 0.85; +0.02

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 41.9% versus 44.1% versus 48.4%. The fade is turning into a full out run (stampede?) as the bulls leave the optimistic arena. Still over 35% (below which is considered bullish) but dropping fast. Ironic, eh? Just as the market found support to bounce the bulls ran. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 23.7% versus 21.5%. Unable to push higher to match the bull's retreat. Have to get over 45% to really be a good upside indicator, but do you think it will move over 35% anytime soon given how high the indices are? Does not seem likely, does it? Back where it was in late March, and that was down from the 25% to 26% level it held for weeks. 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.

NASDAQ

Stats: +18.59 points (+0.61%) to close at 3069.2
Volume: 1.762B (+1.03%)

Up Volume: 963.62M (-286.38M)
Down Volume: 776.35M (+289.29M)

A/D and Hi/Lo: Advancers led 1.81 to 1
Previous Session: Advancers led 1.57 to 1

New Highs: 143 (+46)
New Lows: 30 (-2)

SP500/NYSE

Stats: +3.38 points (+0.24%) to close at 1403.36
NYSE Volume: 690M (-3.23%)

Up Volume: 2.02B (-640M)
Down Volume: 1.48B (+180M)

A/D and Hi/Lo: Advancers led 2.1 to 1
Previous Session: Advancers led 2.18 to 1

New Highs: 203 (+31)
New Lows: 12 (-3)

DJ30

Stats: +23.69 points (+0.18%) to close at 13228.31
Volume DJ30: 110M shares Friday versus 107M shares Thursday.

MONDAY

Some serious economic data is on tap. Monday is Personal Income and Spending along with Chicago PMI, both very important data given the import of the consumer and given how manufacturing led the economic recovery. Tuesday is the ISM. Very important as well; will it follow the regions lower? Construction Spending, well, not so important. Wednesday is ADP, important as the pre-jobs warm up. Thursday is Challenger layoffs, and, of course, Initial Claims. Friday it's the nonfarm payrolls, and with the Initial Claims number less than good there is room for disappointment for the second month (or more accurately, second year). Of course it the results are jumbled because we simply trust what our government gives us anymore.

Important week for data and for market action. The indices rebounded but have a serious test of the prior highs ahead of them. Many stocks that rebounded and aided in this move are also in position where they could roll back over. There are some seriously good stocks out there: PCLN, ISRG, PII, BBBY, and EBAY. They are all performing well and moving up. We are happy to have them on board, but then we get back to the market and indices such as the SOX and SP600 and whether they will be able to follow through to the upside.

With the jobs report, we may get a pause. Maybe a little nervousness ahead of the report given a four-day run. There is the end of the month on Monday and the beginning of a new month on Tuesday. Sometimes that brings in new money. That could be offset by the jobs report looming. We have had a good run thus far. We can expect a little test back at some point this week.

One thing to keep in mind is that we were close to this level when we had the last jobs report. That would have been on April 5, and that was the Friday that the market was closed. Stocks bounced a bit and then faded a bit ahead of the number, closing slightly lower just before the jobs report. Now we are back there again, and now we have another jobs report to deal with.

If we get some more upside, we will be more than happy to bank a little gain. We have not had a huge move, but we have had a decent move. We can bank some gain on positions that we have taken and that have run back up after some of the chop from late March and early April. I remain skeptical as to whether the market can continue given the economic data. I do not think it is nearly as strong as we are being led to believe by some of the reports. Looking at the data, it is difficult to see where the strength is coming from. But those are my opinions, and the market does what the market does.

Right now we have a good rally and some good leadership stocks. There are not that many to buy right now. Do not be disappointed if we do not have a lot of upside plays. It is just the nature of the beast. Again, we had the chop, the selloff, and now a rebound back to the upside. The quality stocks held support and are bouncing nicely. A lot of the market is in trouble after a good move to the upside and need to test. The ultimate question is whether this lateral move that started in late January turns into a nice consolidation that breaks to the upside. Indeed, what we have right now is just a little lateral move trading in a range, and it could break out to the upside.

Overlay that with the economy and the economic data weakening somewhat, and that throws it into question. But that is all it does, so we just make good plays and good decisions. We are wading through earnings season. There are always landmines in earnings season. As we have seen, some stocks blow up and some stocks run up. That is the way it is. Often that is why we get out of at least part of a position ahead of the results, and we will continue to do that next week as well.

There are landmines everywhere. There are possibilities of catastrophe with possibilities of a new breakout. The market is, as always, a game of probabilities. We will continue to look for plays that give us good probabilities in these conditions. That is what we want to play. Pure and simple, you look at each play as a probability: the amount of money you can make for a good pattern versus the amount of money you stand to lose if it goes against you. Obviously, you want to have much more money to the upside than potential loss. That is the way the game is played. Thus if we do not get those good probability plays, then we will not make the plays. Since we do not have scads of those to choose from after a four-day rally, there simply will not be that many upside plays until we get a bit better development in the market either moving higher, clearing resistance, and coming back to the U.S. or failing and rolling over.

We have had a good week, and we will see if we can bring more positives next week that will make us a bit of money on our upside plays before the market decides to fall, if, in fact, that is what it does. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 3069.20

Resistance:
3090 is the mid-March interim high
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3026 from 10/2000 low
3042 from 5/2000 low
3000 is the February 2012 post-bear market high
The 50 day EMA at 2995
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
The 200 day SMA at 2730
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1403.36

Resistance:
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1378 is the February 2012 peak
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1374
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1274
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 13,228.31
Resistance:
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 12,969
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,161
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

April 24 - Tuesday
Case-Shiller 20-city, February (9:00): -3.5% actual versus -3.4% expected, -3.9% prior (revised from -3.8%)
Consumer Confidence, April (10:00): 69.2 actual versus 69.5 expected, 69.5 prior (revised from 70.2)
New Home Sales, March (10:00): 328K actual versus 318K expected, 353K prior (revised from 313K)
FHFA Housing Price I, February (10:00): 0.3% actual versus -0.5% prior (revised from 0.0%)

April 25 - Wednesday
MBA Mortgage Index, 04/21 (7:00): -3.8% actual versus 6.9% prior
Durable Orders, March (8:30): -4.2% actual versus -1.7% expected, 1.9% prior (revised from 2.4%)
Durable Goods -ex Transports, March (8:30): -1.1% actual versus 0.5% expected, 1.9% prior (revised from 1.8%)
Crude Inventories, 04/21 (10:30): 3.978M actual versus 3.856M prior
FOMC Rate Decision, April (24:30): 0.25% actual versus 0.25% expected, 0.25% prior

April 26 - Thursday
Initial Claims, 04/21 (8:30): 388K actual versus 373K expected, 389K prior (revised from 386K)
Continuing Claims, 04/14 (8:30): 3315K actual versus 3300K expected, 3312K prior (revised from 3297K)
Pending Home Sales, March (10:00): 4.1% actual versus 0.5% expected, 0.4% prior (revised from -0.5%)

April 27 - Friday
GDP-Adv., Q1 (8:30): 2.2% actual versus 2.5% expected, 3.0% prior
Chain Deflator-Adv., Q1 (8:30): 1.5% actual versus 2.2% expected, 0.9% prior
Employment Cost Index, Q1 (8:30): 0.4% actual versus 0.5% expected, 0.4% prior
Michigan Sentiment - Final, April (9:55): 76.4 actual versus 75.7 expected, 75.7 prior

April 30 - Monday
Personal Income, March (8:30): 0.2% expected, 0.2% prior
Personal Spending, March (8:30): 0.5% expected, 0.8% prior
PCE Prices - Core, March (8:30): 0.2% expected, 0.1% prior
Chicago PMI, April (9:45): 60.0 expected, 62.2 prior

May 1 - Tuesday
ISM Index, April (10:00): 53.0 expected, 53.4 prior
Construction Spending, March (10:00): 0.5% expected, -1.1% prior
Auto Sales, April (14:00): 5.4M expected, 5.1M prior
Truck Sales, April (14:00): 5.7M expected, 5.7M prior

May 2 - Wednesday
MBA Mortgage Index, 04/28 (7:00): -3.8% prior
ADP Employment Change, April (8:15): 170K expected, 209K prior
Factory Orders, March (10:00): -1.8% expected, 1.3% prior
Crude Inventories, 04/28 (10:30): 3.978M prior

May 3 - Thursday
Challenger Job Cuts, April (7:30): -8.8% prior
Initial Claims, 04/28 (8:30): 375K expected, 388K prior
Continuing Claims, 04/21 (8:30): 3300K expected, 3315K prior
Productivity-Preliminary, Q1 (8:30): -0.6% expected, 0.9% prior
Unit Labor Costs, Q1 (8:30): 3.0% expected, 2.8% prior
ISM Services, April (10:00): 55.5 expected, 56.0 prior

May 4 - Friday
Nonfarm Payrolls, April (8:30): 162K expected, 120K prior
Nonfarm Private Payrolls, April (8:30): 167K expected, 121K prior
Unemployment Rate, April (8:30): 8.2% expected, 8.2% prior
Hourly Earnings, April (8:30): 0.2% expected, 0.2% prior
Average Workweek, April (8:30): 34.5 expected, 34.5 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Indices Close Mixed on the Week

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 22 Apr 2012 22:38:00 +0000

SUMMARY:

- A bit more expiration volume as indices close mixed on the day, mixed on the week.
- Large cap indices still holding the 50 day EMA, still in decent shape. Of course small caps and semiconductors are still in not so decent shape.
- AAPL effect? Large cap, big name leaders testing and weighing on the markets, but other stocks look solid as the big leaders make very normal tests of very strong runs.
- First week of earnings sees 85% of S&P reporting beating estimates.
- Headlines say German business sentiment helping the euro versus the dollar while the ongoing EU sovereign debt crisis said to help US bond markets. All the while European bond yields and CDS rates climb.
- French elections and their impact on France. A preview of the US?
- A fall from the highs then two weeks of lateral movement. The next move should be close to showing itself.
- Market still looks heavy as some leaders fade, but many quality stocks still on the move.
- AAPL earnings and an FOMC meeting could provide the market the information it needs, of course on top of Europe's troubles, French elections, earnings, economic data . . .

Expiration comes and goes leaving the market basically unchanged from Thursday.

The stock indices finished expiration Friday mixed, and they also finished the week mixed. SP500 and the Dow were to the upside while NASDAQ was to the downside on the day and the week. It is as if the markets did not know what to key off of for the week and on Friday. There was a bit more expiration volume. It kicked up, but there was not a lot of volatility. Looking at the intraday chart, there was a gap to the upside and then a rally through lunch that was given away in the afternoon. Rather typical expiration action, particularly when you have had some of the fireworks earlier in the week such as on Thursday.

There was better German sentiment, and that was said to bolster some of the other markets such as the euro versus the dollar. There were also earnings. MCD was in line and showing good U.S. sales. MSFT beat. ETFC beat by almost 50% as perhaps the retail investor is returning. Those numbers benefited the individual stocks, but outside of that there was not much of a coattail effect. Of course when the likes of SNDK, RVBD, and TPX all reported earnings that missed, there was a counterbalance. There is also that ever-present EU sovereign debt issue hanging there. It was said to impact the U.S. Treasury, sending them to the upside.

We have some news out of Europe that supposedly is hurting U.S. markets, and other news is supposedly helping U.S. markets. Then you have a mixed bag in the States. You get a mixed bag overall in the indices both on the week and on the session.

SP500, +0.12%; NASDAQ, -0.24%; Dow, +0.50%; SP600, +0.57%; SOX, -2.38%; NASDAQ 100, -0.4%.

Obviously the large caps were leading to the downside as the NASDAQ 100 topped the overall NASDAQ's decline.

It was a week that left the indices undecided. The large caps are still holding above the 50 day EMA, working laterally after that fall two weeks ago. The smaller caps and the SOX are struggling below the 50 day EMA after their fall. That was three weeks ago with a two-week lateral move. We had that initial decline, and we have had a two-week lateral move. No resolution yet, but there were some events that may precipitate more interesting action in the week or two ahead.

OTHER MARKETS

Dollar. 1.3215 versus 1.3122 euro. The U.S. dollar was down. The German business confidence supposedly helped the euro versus the dollar. Okay, I guess we can buy into that. The dollar did fall, but it held its lower trendline and the 200 day EMA. Very interesting. It is in quite an interesting pattern that could lead to an upside break. As with the rest of the market, it is equivocal right now, but it is setting up some support. That support has been steady. We will see if it can bounce.

Bonds. 1.96% versus 1.96% 10 year U.S. Treasury. Bonds were basically flat on the session, and the 10 year was actually flat. Bonds were higher and yields were lower on the week. That is the sovereign debt issue that was discussed on Friday in some other headlines. Some headlines were saying that the German confidence was helping the markets. Others said that the ongoing European sovereign debt crisis was hurting markets in Europe and helping some markets in the U.S. while stalling out equity markets. Even the headlines are contradictory, but of course you know that. It can even be contradictory within the same news source. There are different writers with different takes, and you are left scratching your head over a mishmash of opinions.

Bonds were up nicely on the week. There is no issue with respect to the allure of U.S. bonds thanks to the ongoing problems in Europe. We had the big jump in bonds when we had one of those weaker bond auctions in Europe a couple of weeks ago. We supposedly had better bond auctions this past week from Spain and Italy. But U.S. Treasuries are still holding their gains. Even though these bond auctions were termed successful, we saw interest rates on the continent continue to rise. As they continue to rise, we see our interest rates fall because money is being moved into U.S. Treasuries. We also see credit default swap rates on the rise in Europe. The spreads are widening, and that means risk. The market makers have to widen those spreads to hedge their bets.

In any event, bonds had a good week in the U.S., at least holding their gains from the moves higher two weeks back.

Gold. 1,643.00, +1.60. Gold was virtually flat. It continues its now rather tight lateral move. It is a trading range after the breakout and then the failure in late February. That was after the Bernanke talk where it was perceived that there would be no Quantitative Easing. This was after the Bernanke talk two weeks earlier where it was perceived that there WOULD be Quantitative Easing. The sum total was, with the FOMC minutes and Bernanke's subsequent talk, they said we may have to wait for QE3. Notice that I did not say they had scrapped plans for QE3. If you look at gold, it is just working laterally in a range and biding its time to see if the Fed will move once again.

Oil. 103.83, +1.56. Oil was up on the day. It remains in this range, but it continues to hold its bid as well. There are too many issues out there for it not to.

TECHNICAL SUMMARY

Volume. NASDAQ -3.8%, 1.89B; NYSE +17.5%, 894M. Volume was mixed, most likely due to the same thing that pumped up volume on Thursday: expiration. Of course it did not impact the market evenly. That could be good given that NASDAQ sold. You would like to see volume contract a bit if you are playing the upside. Volume was up as the SP500 (and the small caps, for that matter) posted a gain. You want to see that upside volume that shows more buyers than sellers. Again, all of this was likely just an expiration distortion, so we cannot put too much into it.

Breadth. NASDAQ +1.45:1; NYSE +1.9:1. Breadth was a yawner.

THE CHARTS

SP500. SP500 is still holding above the 50 day EMA. This is a two week lateral move over this level after the fall three weeks ago that undercut the 50 day EMA but then managed a relatively quick recovery. Higher low, putting in a higher bottom above the March low. The trend is still in place, it just looks heavy. Yes, it is over the February peak, so there is really no head and shoulders here. At least not a classic one. There is a two week lateral move over the 50 day EMA that we are still going through. It has the look of a lower high trying to set, but it has not yet.

MACD is lower, no doubt. The day to day volatility was there at the top. Up one day, down the next, up, and then back down again. It could not make the move, and consequently it fell away from the high. Now it has bounced along. It is basically the same story: Up a day, down a day, or up one day and down two days. You get the picture. But it has not broken yet. It does not look good. It looks heavy, but it has not broken. You can say that about all of the large cap indices.

DJ30. The Dow has a more classic head and shoulders trying to set up. Maybe it is a double head and shoulders. It is still above its 50 day EMA as well. It sold off sharply, hit the trendline and bounced, and then it just moved itself laterally over those past two weeks, similar to SP500. Heavy, yes. It still has the same problems. Lower MACD. This one put in a lower low versus the SP500 which put in a higher low. It has a lower MACD, a lower low. It has bounced but is below the prior peaks, and it looks to be running out of gas. You name it. Again, it has not broken down. It does not look great because some of the leaders that have pushed it higher thus far are struggling, but it is hanging in there.

NASDAQ. NASDAQ is the same story. It is holding the 50 day EMA for the past two weeks. Third test to this level after that decline off of the new post bear market highs. MACD put in a lower high here as well. It did put in a higher low, so it still has the trend in place. As with SP500, it simply is not that powerful looking. The major point is that they are holding support, and we have no follow-through to the downside. Follow through is everything. You can have patterns that look weak or you can have patterns that look great. If they can never follow through in the direction of the apparent trend, or the trend change that wants to take place, then it is as good as if it never happened.

NASDAQ is struggling, but some of its main components are struggling as well, such as AAPL. It is down to its 50 day EMA (that it perfectly normal, by the way). GOOG is falling down to its 200 day EMA. PCLN is in a modest two week decline as well. With those horsemen in a bit of trouble, it is understandable that NASDAQ will experience some downside as well. But as with its main component, AAPL, NASDAQ is still holding its 50 day EMA. It looks to be something of a periodic test of that after a nice, long run up the 10 day EMA and 20 day EMA until peaking in late March. Now it is in a 50 day EMA test. Nothing unusual about that at all, as I discussed earlier in the week.

SP600. The SP600 never made the break through their 50 day EMA. They have tried but failed. The small caps potentially have a head and shoulders setting up. As I said, those are important patterns, but a lot of times they set up and then never do anything. They dissipate and the move continues. We will see. It is up to leadership to help lead the small caps (and, indeed, the market) to the upside, even if the big leaders that led the move higher have to take a breather for awhile.

SOX. SOX struggled. It put in a lower low on this pullback, dropping 2.4%. It is still holding just above the early-March lows, so it has not really broken out of the range. It is trying. It put in a higher low and now a lower low. You could say it has put in something of a head and shoulders. It certainly looks like it wants to fill the gap from mid January. There are several gaps starting from early January on. It could easily move back and fill those. Of course, that would pressure the rest of the market to come back and test a bit more. Will they break down as the stocks make a further and deeper test? Not necessarily. We will talk more about this when we look out to the coming week. Suffice it to say that the week ended with the large cap indices holding support. They look as if they are weaker, but the selling has not been able to follow through. The growth indices the SOX and SP600 never did break back above the 50 day EMA, and they have toppish looks to them.

You have heavy looks on the large cap indices that could fall further but have not. Then you have toppish patterns on the smaller indices. They have not broken down either. It looks a lot like they are going to, but none of them have yet.

LEADERSHIP

The question we have to ask: Is this something of an "AAPL effect"? AAPL makes up a large percentage of the SP500 and the NASDAQ's movement. When AAPL fades, they fade as well. As noted, there are other large cap stocks that carry a lot of weight that are struggling after nice moves. PCLN is one. GOOG is another. Others are performing well. MSFT announced earnings and gapped to the upside. It is no slouch when it comes to it is impact on the NASDAQ either. But AAPL is huge, and as it fades it tends to impact the trade overall. We can understand that, and there is no intuitive problem with it. The thing is, there are still a lot of stocks holding up really well that can move these indices higher. Or at least that could offset what we are seeing from AAPL and friends. Of course those are big stocks, and they do sag the market when they move. It takes a lot more of the smaller stocks to fill in the gaps, but it looks to be doing so.

What do I mean? SBUX was down a bit this week after it announced its earnings, but it still looks solid. UA has put in a five-week lateral move, and then it started a break higher on Friday. PII announced good earnings and gapped higher. ISRG had blowout earnings again, gapped to the upside, and it helped move things. Of course there is the old, stodgy standby KO. It announced good earnings and gapped to the upside as well. These are not necessarily going to all lead the market higher, but they are definitely helping to offset some of the sag from the bigger names. And they are holding the indices up at that near support. There are still many other stocks that are good looking right now and can move. UA and SBUX definitely look as if they can continue. Then there is PII after its breakaway gap. It can continue as well.

We are finding stocks that look good all around the market. TITN is another one. This does not mean that they will necessarily be able to offset any heaviness in the indices. But when we put this "AAPL effect" into perspective, you can understand why the indices are fading as some of the leaders pull back. You can also understand why there are still a lot of stocks out there that look good and are moving up even though the indices are pulling back. They just do not have the market cap of AAPL and friends to move the index higher. But they are helping offset or blunt some of the impact of the moves from AAPL, CMG, PCLN, et cetera.

Is this necessarily when we look at the indices negative patterns? I went through all the reasons that they looked bad. But again, they are still holding up with no follow through. That is important. Seeing how some of the leaders are sagging and pulling things back but a lot of other stocks are still positive, that suggests that this is exactly what is going on. Thus, once AAPL and company finish their pullbacks, they will be in decent buying shape. The other stocks that have helped hold the index up by moving higher during this should likely continue to do so. Maybe we get a synergistic effect and really get something good going. Of course, as soon as I say that things will crack because there are some issues ahead. But you have to do the analysis and look at leadership and where they all stand to come up with our game plan for what the market may do and how we will react.

THE ECONOMY

French election and its ties to the US elections.

The socialist candidate in France is leading current president Sarkozy by 6% to 16% depending upon the poll. France is the second strongest economy in Europe behind Germany. Its bond yields are on the rise as are its credit default swaps rates. Its credit rating is on downgrade watch from S&P and Moody's is likely to follow. Compared to Greece, Spain and Italy, not many appear worried about France. If the socialist is elected (voting starts Sunday) and implements his policies, that will change rapidly. This is very instructive for the US for those who will take a look at history.

The socialist platform Hollande espouses? Increase government spending, increase taxes, decrease immigration. In our lifetimes (at least for most of us) we have seen firsthand the failure of socialism and communism as economic systems. Yet as happens about every thirty years or so, capitalism is blamed. Without capitalism, US capitalism, Europe would not have lasted this long. One example: the US invented the vast majority of the drugs that Europe and other parts of the world demand to receive at lower prices, forcing the US to subsidize the world's cheaper miracle drugs. Without the capitalist system where risk taking and invention are rewarded, there would be no such drugs. Another example: but for the wealth created by capitalism, Europe would have had no defense against the USSR as its socialist systems could not produce enough wealth to fund their own defense.

Keynesian economics stating that government spending will create supply and demand is simply empirically wrong. The most recent proof is quite clear, the massive spending from the 'stimulus' bill and the massive liquidity poured into the system by the Federal Reserve. If it worked we would have millions upon millions of jobs created here in the US given the massive government spending.

Yet, this economic 'recovery' is the worst since the Great Depression. Seventeen quarters out we average 2.4% GDP growth with just four quarters at 3% or better, none over 4%. The last reading of 3% (Q4 2011) and that was mostly made up of inventory buildup (inventory building is not good if sales are not growing); remove the inventory build and that GDP read was below 2%. The low end of historical US trend growth is 3%; when emerging from recessions we typically have 7% to 11% GDP growth per quarter for many quarters. Adjusting for inflation, sales and wages are not only flat, they are down. Once more we proved that massive government spending does not work, yet what do many want here: more taxing for more spending. If this worked, the USSR would be here today and an economic superpower.

France's socialist tendencies have kept its growth hobbled for decades. The French socialist candidate's 'solutions', however, are going to smash down on the accelerator and race France off the economic cliff. France cannot support its own spending; there is no way it, the second strongest European economy, can support the other countries or even help Germany stave off the Continent's economic woes given it is apparently, based on the current voter polls, set on committing economic suicide.

Cross the Atlantic to the US. What is the difference here? The only difference is our heritage of entrepreneurship and fervent individualism. That is rapidly losing its power in the face of 47% of the voting population paying no income taxes and an entitlement state where those receiving government benefits average MORE disposable income than those making the average US income. Are they going to vote to have to work for effectively less pay than they can get for not working? They are not bad people, but if you pay someone not to work, he won't work. When your education system through 3 decades of federal intervention has failed to inculcate the necessary values and norms of a free, self-governing society, what do you get? Many kids in high school do not even know why we are a separate country, that many of the reasons we revolted from England and King George are present here today in the laws and regulations promulgated by our federal government.

In my day if you had less you went out and worked hard to have more. Now you turn to the government, and not even for a job but a handout, a grant, a subsidy. Kennedy was a democrat and he reminded us we do not look at what our country can do for us but what we can do for our country. How things have changed when the entitlement society grew to equal the entrepreneur portion of our society. Tocqueville wrote of this long ago, and in this election it could all come true.

If nothing is done, the US will, on autopilot, follow France and Europe off the cliff with automatic tax increases in 2013 (Bush cuts expire), no cuts in entitlements (thus increasing our $60T entitlement burden), continued governmental corruption and waste (the latest example in the GSA scandal), and if not overturned by the Supreme Court, the complete domination of the citizenship thanks to the 2010 health care act. Of course those are just the automatic impacts; those in power will actively work to further regulate every aspect of society through executive orders and regulations promulgated by the EPA and other non-elected officials, Congress be damned. The Supreme Court will change dramatically and the recent 5-4 decision allowing us to maintain firearms outside a militia will be reversed. Again, Tocqueville warned of this, as did Ben Franklin, Ronald Reagan and many others, throughout our history. Given we do not learn from economic history, it is not surprising we did not learn this lesson either.

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX: 17.44; -0.92
VXN: 20.17; -0.82
VXO: 17.54; -0.89

Put/Call Ratio (CBOE): 0.88; -0.12

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 44.1% versus 48.4%. Fading more abruptly after bouncing to 50.5% recently. Still not excessive either way but is fading off relatively high levels from February. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.7% versus 21.5%. Rebounding after the surprise decline last week. Now bulls and bears are congruent in their heading, i.e. bulls lower, bears higher. Was 23.6% a month back and that was down from the 25% to 26% level it held for weeks. 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.

NASDAQ

Stats: -7.11 points (-0.24%) to close at 3000.45
Volume: 1.891B (-3.81%)

Up Volume: 826.13M (+70.5M)
Down Volume: 1.09B (-120M)

A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Decliners led 1.66 to 1

New Highs: 63 (-6)
New Lows: 36 (-16)

SP500/NYSE

Stats: +1.61 points (+0.12%) to close at 1378.53
NYSE Volume: 894M (+17.48%)

Up Volume: 1.91B (+560M)
Down Volume: 1.88B (-870M)

A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 1.44 to 1

New Highs: 112 (+39)
New Lows: 31 (-9)

DJ30

Stats: +65.16 points (+0.5%) to close at 13029.26
Volume DJ30: 212M shares Friday versus 140M shares Thursday.

MONDAY

With that in mind, we can look at what is coming up next week. We start with looking at the economical calendar. It is fairly full. It does not really get rolling until Tuesday. Although, over the weekend we have the French election which will be quite important in the outlook on the market overall.

We have Case/Shiller, Consumer Confidence, and New Home Sales on Tuesday. We have a triumvirate of important reports. Then on Wednesday we have Durable Goods. It is always interesting to see where they are trading. They have been volatile of late, back and forth. Then we actually have an FOMC two-day meeting that we will get the results from. We will get the next look at the psyche of the Fed. Thursday we have Initial Claims and Pending Home Sales. On Friday we have another revision of Q1 GDP. It is expected to come down somewhat along with the Michigan Sentiment final for April.

We will have Europe, the scheduled economic data, and the earnings reports as well. Thus far, earnings have been coming out pretty well. Of the SP500 stocks that reported this week, 85% have beaten the street on their results. Not bad. We will have 400 or so report this coming week. It will be very busy. We do not like earnings season for stocks that we have because it makes it very difficult to play them. We make decisions about whether we want to ride them through the results or not and how much we want to ride through. We decide if we want to take some profits, for example. Or if they are not performing well and we just do not feel good about the pattern we can close them.

We also love earnings season because, on stocks that we feel will do well and we keep some positions, they have a great run like on PII. We also can play off of the moves that result from earnings. An example again is PII. It gapped to the upside in a breakaway move. It has had a nice test. It could put in a pennant and continue to the upside. We have played those quite frequently, the continuation gaps whether up or down. They tend to make us money as we leverage more into winners that are showing positive patterns and continue to the upside. We will be looking to play stocks such as that. In other words, we will still be looking to play the upside move for several reasons I have talked about before.

There is no question we have the day to day volatility that has come into the market. It started at the peak in late March. We had gaps to the upside followed by immediate selling. That was followed by immediate buying and immediate selling. Day-to-day, things got choppier, and then the market sold off in early April. But it did not break. It has moved laterally since. Two weeks laterally with the large cap indices holding support. As noted before, MACD is lower. Some leadership is falling. It does not look that strong, but there has been no downside follow through. As noted, we think this might about the "AAPL effect" where some of the leaders that led the move to the upside are obviously pulling back but have not sold off. AAPL at the 50 day EMA just as the NASDAQ is at the 50 day EMA. Coincidence? Not really. Not when you look at the percentage of AAPL as relates to the NASDAQ.

We have this pullback and it is holding. Things do not look great, but we have other stocks that look just fine in the leadership area. While the market looks heavy and some of its leaders fade, there are many quality stocks out there that can offset at least on a temporary basis and hold the market in place. We can make money off of those. Then when stocks such as AAPL decide to move back up move its 50 day EMA, if that is going to be the case, then it will bring the market right back up.

I want to reiterate that this is a normal move. You had a long, lateral base in AAPL. We had July through December, and then a breakout. Now we have had a run of the 10 day EMA and 20 day EMA. We have had four to five bounces, and then we got the fade to the 50 day EMA. That is so normal in action. MACD put in a higher high as it was moving up. Yes, it tailed off at the end, but it has made its pullback. Now we will see if it can break to the upside.

This reminds me of PCLN, a stock that we got into awhile back. It put in a base from April into January. Just a regular trading range, and then a breakout and test. We were fortunate. We were watching it, we got into it, and it ran beautifully for us. Now PCLN is coming back to test as well. Some people say it has put in a mini head and shoulders. It has. We will see if it comes back to the 50 day EMA as well and holds that. If it does, we could very easily be moving into new positions on PCLN. Maybe on this bounce we get the run to 1000 that we have been looking for.

I do not want people coming away from this saying, "Well, Johnson is off his rocker. He is super bullish now." I am not super bullish; I am concerned about what is ahead for the market. I am concerned about what is ahead for the economy. Very concerned. But I also cannot let my feelings about what I think may be happening in the economy overall bias what I am seeing in the market. What I am seeing from AAPL and others is totally normal action, so I cannot let my gut feelings about the economy color what is going on. The economy has pulled back, and these stocks have pulled back. But the regional reports in manufacturing have not flipped negative, so I cannot say we will have a recession. Yes, ECRI says we will, and I have a lot of faith in ECRI. But I also have a lot of faith in what stock charts are telling me. If they think money will flow back in from the Fed, then they could go up.

Maybe we will find out on Tuesday that that is not the case. We will have AAPL's earnings and we will have the Fed on Wednesday. Those are some pretty powerful stories coming out in the market. If we have a negative reaction to AAPL's earnings and/or the FOMC decision and the statement, then things could get ugly. As noted, the indices are holding up at support for now. It would not take much to shove them over the edge if things got really ugly, however. Any big story can still hurt the market. But that has been the case for months upon months. We see good stocks in position as the other stocks pull back. Those other stocks that are pulling back are still not really harming themselves. I think it would be a bit much to jump to the conclusion that the market will crumble and crater from here.

I am apprehensive, but I always am. I am even more apprehensive now given the action that I see. It looks like rounded tops. We have volatility, lower MACD, some internal volatility. I am cautious as can be. But when I see good patterns and I see totally normal action in some really strong, powerful stocks that are still showing that they are strong and powerful, I am not going to automatically clam up or jump ship. We will get more information, and we will definitely see where this market is going over the next week or so. We have some major news coming. What I see now does not automatically say that we will go lower.

I hope that is clear. I have tried to make it clear over the past two nights and explain what some of the volume and volatility is that we have been seeing. I hope that you understand that, while I am cautious, I still see positives that would be positive in any market that you looked at. If you see that, you cannot ignore it, just as you cannot ignore obvious negatives as well. We are at a crossroads, yes. These stocks that are pulling back could break down, but if they can maintain their strength and their trend, they could also continue right back up. We will find out more over the next week or two. That is the way it always is. But we just have to act when the market says act. If we do that, we will be in good shape.

Have a great weekend, and I will see you next week.

Support and Resistance

NASDAQ: Closed at 3000.45

Resistance:
3042 from 5/2000 low
3026 from 10/2000 low
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3000 is the February 2012 post-bear market high
The 50 day EMA at 2990
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 200 day SMA at 2725
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1378.53

Resistance:
1378 is the February 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1371
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1273
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 13,029.26
Resistance:
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,297 is the April 2012, post bear market high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
The 50 day EMA at 12,940
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,147
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

April 16 - Monday
Retail Sales, March (8:30): 0.8% actual versus 0.3% expected, 1.0% prior (revised from 1.1%)
Retail Sales ex-auto, March (8:30): 0.8% actual versus 0.6% expected, 0.9% prior
Empire Manufacturing, April (8:30): 6.6 actual versus 17.5 expected, 20.2 prior
Net Long-Term TIC Fl, February (9:00): $10.1B actual versus $102.4B prior (revised from $101.0B)
Business Inventories, February (10:00): 0.6% actual versus 0.5% expected, 0.8% prior (revised from 0.7%)
NAHB Housing Market Index, April (10:00): 25 actual versus 29 expected, 28 prior

April 17 - Tuesday
Housing Starts, March (8:30): 654K actual versus 700K expected, 694K prior (revised from 698K)
Building Permits, March (8:30): 747K actual versus 710K expected, 715K prior (revised from 717K)
Industrial Production, March (9:15): 0.0% actual versus 0.2% expected, 0.0% prior
Capacity Utilization, March (9:15): 78.6% actual versus 78.5% expected, 78.7% prior (revised from 78.4%)

April 18 - Wednesday
MBA Mortgage Index, 04/14 (7:00): 6.9% actual versus -2.4% prior
Crude Inventories, 04/14 (10:30): 3.856M actual versus 2.791M prior

April 19 - Thursday
Initial Claims, 04/14 (8:30): 386K actual versus 375K expected, 388K prior (revised from 380K)
Continuing Claims, 04/07 (8:30): 3297K actual versus 3275K expected, 3271K prior (revised from 3251K)
Existing Home Sales, March (10:00): 4.48M actual versus 4.62M expected, 4.60M prior (revised from 4.59M)
Philadelphia Fed, April (10:00): 8.5 actual versus 10.3 expected, 12.5 prior
Leading Indicators, March (10:00): 0.3% actual versus 0.2% expected, 0.7% prior

April 24 - Tuesday
Case-Shiller 20-city, February (9:00): -3.4% expected, -3.8% prior
Consumer Confidence, April (10:00): 69.5 expected, 70.2 prior
New Home Sales, March (10:00): 320K expected, 313K prior
FHFA Housing Price Index, February (10:00): 0.0% prior

April 25 - Wednesday
MBA Mortgage Index, 04/21 (7:00): 6.9% prior
Durable Goods Orders, March (8:30): -1.9% expected, 2.4% prior (revised from 2.2%)
Durable Goods -ex Transports, March (8:30): 0.5% expected, 1.8% prior (revised from 1.6%)
Crude Inventories, 04/21 (10:30): 3.856M prior
FOMC Rate Decision, April (24:30): 0.25% expected, 0.25% prior

April 26 - Thursday
Initial Claims, 04/21 (8:30): 373K expected, 386K prior
Continuing Claims, 04/14 (8:30): 3300K expected, 3297K prior
Pending Home Sales, March (10:00): 0.5% expected, -0.5% prior

April 27 - Friday
GDP-Adv., Q1 (8:30): 2.6% expected, 3.0% prior
Chain Deflator-Adv., Q1 (8:30): 2.2% expected, 0.9% prior
Employment Cost Index, Q1 (8:30): 0.5% expected, 0.4% prior
Michigan Sentiment - Final, April (9:55): 75.7 expected, 75.7 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Fade asTwo-Day Bounce Falters

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 16 Apr 2012 15:21:00 +0000

SUMMARY:

- Two-day bounce falters and stocks fade leaving some indices at support, others grasping.
- China GDP rumor a complete miss as GDP misses expectations.
- Internals continuing to match prices in their day to day volatility.
- CPI continues to advance, eating up real earnings.
- Bank earnings lavished with praise but who couldn't make money borrowing for 0% for a guaranteed 3% or better?
- Michigan Sentiment falls on energy concerns, but expectations are still quite good.
- The mixed Friday finish (in terms of support) hold out some upside possibilities, and earnings could rally stocks, but if not, the indices certainly look heavy.

Just a little Friday nervousness or prepping for a downside week ahead?

The market was pensive Friday, at least early on. The China GDP rumored to ring up a 9 handle did not even make expectations. It fell to 8.1% versus the 8.4% expected and the 8.9% in February. A cool three-year low. It dampened the animal spirits, the market lost its bid, and it fell. After a two-day rebound off the five-day decline, stocks lost a bit of nerve ahead of the weekend. More nervousness before the weekend, than we thought would pop up given many issues were already gone with North Korea's missile breaking up right after launch. Not a lot of excitement out there. Maybe there is a worry about Europe over the weekend. It continues to struggle, no doubt. We found out that the Spanish banks borrowed a surging 227B euro, up from 152B. That basically matches the Italian borrowing, which is not a good sign. The banks are cash strapped. They need help, and there is your nervous trade in the U.S. given Europe is such a big partner with us.

Stocks were having a bit of trouble pre-open. Futures started lower and continued down into the bell. They tried a little bounce, but it did not last for long. Michigan Sentiment came in weaker than expected at 75.7. That was off from 76.2 in March. Expectations were still good, so things kind of washed. I will talk more about CPI and other economic issues, but I will note that, thanks to the rise in inflation, real earnings were down -0.4%. That is significant. It is hard to continue to spend when your earnings go the other way.

The market had a tough day of it. It has been down pretty hard, it rallied pretty hard for a couple of days, and Friday it was down again with losses over 1%. That day to day volatility remains.

SP500, -1.25%; NASDAQ, -1.45%; Dow, -1.05%; SP600, -1.38%; SOX, -1.82%.

A down day again, and significantly so. What does this mean? I have talked about day-to-day volatility with bigger upside moves and downside moves. They are becoming more frequent. You have an up day and a down day, or two up days and a few big down days. And they are large; the advance/decline line is swinging in big numbers. We are not seeing 2:1 or 1.5:1, but big moves. That internal volatility, the price volatility, as well as the rounded tops in the patterns are still worrisome and it looks as if they could turn lower once more. They certainly did that on Friday, but it was also a mixed market as to how they closed, at least in terms of support. SP500 and NASDAQ held the 50 day EMA. On the other hand, the SP600 and the DJ30 either fell back from or broke through the 50 day EMA. SOX fell back from its 50 day EMA, and that is an important one for the rest of the market.

OTHER MARKETS

Dollar. 1.3076 euro versus 1.3194 euro. With worries about Europe once again, the dollar moved up. It was getting a little money thrown its way. It is holding up quite well, trying to set up and bounce again. Trouble in Europe spells stronger dollars. That helps us out on our import prices, and it helps us on inflation. We are not importing as much inflation because that drives the prices price of oil down. That is always helpful given we fail to produce here, and we prefer to pay extraordinary amounts overseas and send our money elsewhere. But that is another story altogether. Kind of.

Bonds. 1.99% versus 2.06% 10 year U.S. Treasury. More trouble in Europe means more money to U.S. bonds. Yeehaw, here we go. The irony of it is that trouble in Europe could ultimately lead to the Fed being a little more lenient with its Quantitative Easing stance. It is perhaps a double push for bonds running them to the upside.

Gold. 1,660.00, -20.60. As the dollar rose, gold had a tough time of it. It closed sharply lower on the day, but it is still in this lateral range. It is interesting. Gold broke above the prior range, and now it has been bouncing around laterally ever since. It has almost set up another range within a range. I did say "almost." The way it is trading is very interesting. Still stretching out laterally.

Oil. 102.84, -0.85. Oil prices were lower. Oil is still holding decently. It has a big flag pattern that formed off of the breakout from the prior four-month trading range. It has broken down into that range, but we will see if it makes the break upside. It is running into resistance. It has bumped into the tops of that prior base. It is having a bit of trouble, and that will help. It helps us all because we do not have as much outlay for oil. Of course, $103 is not that much lower, but I suppose that every bit helps.

TECHNICAL SUMMARY

Volume. NASDAQ, +0.75, 1.458B; NYSE +0.73%, 691M. Volume edged to the upside on Friday the 13th, but it was not much. Not a huge jump in volume, but we have definitely seen more volume on the down days than on the up days. That is just the way it has been. That shows, net/net, more selling than buying right now. We will look at the charts in a moment and see how that all ties in.

Breadth. NASDAQ, -3.5:1 versus +2.8:1 Thursday; NYSE -3.3:1 versus 4.6:1 Thursday. Breadth is the same situation I have talked about with the day-to-day volatility. On NASDAQ, the up day on Thursday was not as strong as the down day. NYSE was not as sharp a decline, especially when compared to the 4.6:1 on Thursday. It is a bit of a mixed picture. The overriding picture is the size of the moves. We are up over 3:1 and 4:1, when we were lucky to get above 2:1 prior to this recent bout of volatility.

THE CHARTS

SP500. You can see the five days down and the two-day bounce back above the 50 day EMA. Now a fall back to the 50 day EMA. Down, up, and then a key test here. Very key. If it holds, that is great; it can then move back to the upside. On the other hand. It has that rounded pattern to it with declining MACD. It would go against my feelings and what the stock market is generally telling us that it would continue to the upside. On the other hand, it has not changed its character because it refuses to give up the 50 day EMA on any consistent level. A lot of traders are calling for Dow 1327 as the next support. That would it right at the late-January peak. We will see. It definitely looks bearish to me, but my feelings do not move the market. We are setting up and preparing ourselves along the lines that we will be able to take advantage of a fall if we get it.

DJ30. DJ30 was down. It fell back through its 50 day EMA. Two days up, now back through the 50 day EMA and coming up to this trendline. It has a confluence. You have a horizontal support, and you have this trendline advancing to the 12,800 level. We will see what happens next week. I am not holding my breath for this one to hold. There is a little head and shoulders action. We picked up some DIA puts on the day as the index fell back away from the 20 day EMA and back through the 50 day EMA.

NASDAQ. NASDAQ is another index that has not changed its character. Yes, it is down to the 50 day EMA for the first time in about four months, but it is holding. It bounced off of that level, it faded on Friday, but it is still above the 50 day EMA. It can still make its move, but it is very similar to the SP500 in that it has this one hump, the second hump, and then trying to put in a higher low. NASDAQ has AAPL, PCLN, and GOOG. Of course GOOG did not help today with that strange stock split it put out on Thursday. Nonetheless, they are performing well and holding the index higher. We will see whether NASDAQ can be the holdout and the index that makes the difference to the upside again, or if it just holds out and then cracks and falls and drops with everything else.

SP600. SP600 showed similar action kind of. The small caps were already below the 50 day EMA. They bounced up and could not retake it, and then they faded from that level on Friday. They did not even get back up to the February peaks that we were looking at for a potential head and shoulders. Maybe we have a lower shoulder and it just rolls over. We will probably be looking at an IWM play to the downside. That would be a small cap put play on that ETF.

SOX. SOX is doing the same thing that SP600 is. It rallied up to the 50 day EMA, virtually stalled there, and then rolled over on Friday. It did not make the February peak either. That does not mean it will not fall just because it did not make it back up to that level. Not at all. It has put in a bear flag below the 50 day EMA break. It looks like it wants to fall back to the downside. That would not be good for the market. Where the SP500 goes, a lot of stocks tend to move with it.

LEADERSHIP

Metals. Metals were struggling. BHP has set up a downtrend. Look at these triangles, one stacked on the other, heading to the downside. Looks like it is rolling back down right now. FCX bounced sharply on Thursday, and it was backing off on Friday. But it has not necessarily shown that it is rotating back down. If China will be weak, it suggests that we will have weakness again in FCX.

The steel stocks did a little backtracking. AKS was down on the day, but that was after a good rebounded up through Thursday. They are not out of the picture completely. It is mixed in metals right now. Some to the upside and some to the downside. Overall they are struggling. They would have to pull something out of the hat to really get things turned back around.

Technology/Semiconductors. AAPL is having troubles. It broke through the 20 day EMA on the close for the first time in quite some time. GOOG had its strange two for one stock split. It issued a third class of shares that gave no voting rights. The owner said they would not dilute their power at all. It is kind of a two for one, but not really. We will call it the revenue miss that resulted in that 4% decline on the day. That sounds good.

Semiconductors are having a bit of trouble. LRCX was putting in a lower high and a lower MACD. It is struggling a bit. NVLS is holding the 50 day EMA. It is trying to make a stand, very similar to the stock market indices as well. SNTC fell back from a bear flag test of the 10 day EMA.

Financial. Financials reported some good earnings. They did not have great results on the session. JPM was down -3.6%. Still above the 50 day EMA, however, so maybe it will just retrench a bit. WFC is talked about by some analysts as supposedly the greatest bank ever seen. The talk is that it is making all the rights decisions and doing the right maneuvers. But come on. A trained monkey could borrow money for 0% and then turn around and get a 3-5% return on bonds. It is tough out there for those banks. WFC was down, but it is also still above the 50 day EMA. STT is at the 50 day EMA as well. It is trying to hold on to support and break back to the upside.

Financial Services. Money is flowing into some financial areas. MA was up 1.5% on the day. V was up 1.75% with a good two-day bounce going in. DFS looks like it wants to make a break higher as well. All these credit services are doing just fine.

Healthcare/Medical. Health care as been getting money all along. It was down a bit on Friday. It tried to rally. CELG faded but is still in a very good pattern. ESRX looks as if it wants to continue to move to the upside. ARAY posted a nice 1.5% gain on Friday when most of the market was lower. Money is still working its way into the health care/medical area.

Chinese. China is still looking good even with the lower GDP. YNDX held quite well on the day. It still looks as if it wants to break to the upside. BIDU was flat. It did not go up much. It could not hold the gain on the early part of the session, but it was still a solid end of the week for BIDU. You have to like that.

There was bad news on the Chinese economy, and yet the Chinese stocks are still showing good movement and good relative strength. Perhaps that is a positive. We will see bottoming in the Chinese stocks. It is showing signs that that is what it wants to do. It has been down for a long while. Very interesting. These Chinese shares that are traded in the U.S. could give us some insight into just what the Chinese stock market will do.

THE ECONOMY

CPI rise cutting wages to negative growth.

While prices are still considered 'in control' with a 0.3% overall CPI rise, in line with expectations and less than February's 0.4%, a steady price rise has its impacts.

Particularly true when the core keeps rising. Even taking out gasoline (up 1.7%), the core is closing in on the overall CPI's gains. Not a good sign at all as the pressure for some more serious inflation spikes is there.

Of course inflation has very deleterious effects on citizens. As prices clime real wages have to rise more in order for consumers just to stay even. Real wages are not keeping ahead, they are not even keeping even. No, they are again negative, now 4 out of the last 5 months.

Real wages fell 0.4% in March and there is nothing to suggest they will start gaining ground. The consumer loses in so many ways. Prices are up while staying in cash you see your wealth decline just by holding the same number of dollars. Then you have to take those dollars that are worth less and pony up more of them to pay for goods and services. The consumer quickly gets decimated in an inflationary environment.

THE MARKET

SENTIMENT INDICATORS

VIX: 19.55; +2.35
VXN: 21.44; +2.1
VXO: 19.28; +2.51
Put/Call Ratio (CBOE): 0.96; +0.1

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 48.4% versus 50.5%. Back to where it was three weeks ago as Bulls more or less flat line just as the market flat lines. Not excessive, not low, not telling us much. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.5% versus 22.6%. Bears are fading and bulls are fading. Do you call that apathy? Was 23.6% three weeks back and that was down from the 25% to 26% level it held for weeks. Getting a bit worrisome but nothing screaming a major dive is coming. 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.

NASDAQ

Stats: -44.22 points (-1.45%) to close at 3011.33
Volume: 1.458B (+0.76%)

Up Volume: 199.1M (-990.9M)
Down Volume: 1.28B (+1.016B)

A/D and Hi/Lo: Decliners led 3.48 to 1
Previous Session: Advancers led 2.77 to 1

New Highs: 57 (+7)
New Lows: 39 (+17)

SP500/NYSE

Stats: -17.31 points (-1.25%) to close at 1370.26
NYSE Volume: 691M (+0.73%)

Up Volume: 472.95M (-2.717B)
Down Volume: 3.02B (+2.685B)

A/D and Hi/Lo: Decliners led 3.28 to 1
Previous Session: Advancers led 4.62 to 1

New Highs: 46 (-16)
New Lows: 30 (+13)

DJ30

Stats: -136.99 points (-1.05%) to close at 12849.59
Volume DJ30: 141M shares Friday versus 119M shares Thursday.

MONDAY

There is a heavy economical calendar starting on Monday with Retail Sales. Seeing how the afternoon earnings are negative yet again for consumers, how will they be able to maintain their consumption? They were down for three to four months in a row (inflation adjusted), bounced to flat, and now are down back to -0.4 after Friday's report. We are losing buying power as we go forward. That is not great for retail sales, but March could still have been positive. We had an early Easter, and they were saying they were getting good sales. When you couple that with the warm weather, we could have a nice report. We saw that in the Same Store Sales.

Empire Manufacturing will be important. It is out before the market. Then we have the usual housing news out on Monday as well as on Tuesday. There is Production and Capacity on Tuesday. Then on Wednesday we have basically nothing before Thursday's Jobless Claims, the Philly Fed, and Existing Home Sales that day as well.

There are some important reports, no doubt. The market needs some good news to keep going. Why? It looks top heavy to us right now. There are many reasons: The rounded patterns, the falling MACD, the day-to-day volatility of the prices, as well as the internals. And there are some key stocks in the market that are still heavy. We are not necessarily seeing crashes lower, but we are having trouble holding on to gains. Perhaps earnings can be the silver bullet that pushing the indices back to the upside once more before they fall. After all, we were looking for a little more bounce than the two days that we get Wednesday and Thursday. It is a bit disappointing that we are not getting a further setup. Then again, things typically are not perfect setups in the market.

We can expect some more volatility right now, bouncing back and forth as the market tries to determine where it wants to head. Again, my gut tells me it will head lower now with these setups. As noted, we picked up some downside plays on Friday from the DIA, for instance. We are looking to play to the downside. If things start off rocky next week, we will not hang around much longer with the upside. We have expiration coming on Friday. We have to keep that in mind. We have earnings coming out every day. They will pick up speed. We have to keep that in mind as well. There are many pitfalls and possible rescues out there for the market. Right now, I am not sure if the market will take them positively. But it would be a change of character if it started taking things on the negative side.

Again, the market has not broken necessarily. We have some indices in serious trouble (like the DJ30), but the overall leader has been NASDAQ, and it has not broken its 50 day EMA. Perhaps we get salvation yet again with bids coming back to the market. We can handle that, no problem. We just do not expect it. Then again, the market is in a state of change right now. It looks like it wants to transition to the downside. Even in those situations, you will get sharp upside moves as we saw on Wednesday and Thursday. Some good news will come out, the market will be a bit too oversold, and it will need to bounce. At these times before a new trend is established or the old trend reestablishes itself, then you need to watch out for the change. But we are getting a bunch of volatility right now, and that can lead to the ultimate change. It has not done it yet.

Again, people keep coming back and buying this market because they think things are getting better. If that is what they want to think, so be it. Whatever the market does, the market does. We are hedging some of our bets right now because the indices do not look that great. We have some leading stocks that have been peeling back, and money has been shifting a little more defensively. And then we have that doggone increased volatility from day to day.

We will see more next week. We will see if it does fall. We have a bunch of good upside positions in good shape. As long as they hold, the upside has a very good possibility. But if they start to crack again, we will have to take care of those positions and expand the downside as we have been doing. Have a great weekend, and I will see you on Monday.

Support and Resistance

NASDAQ: Closed at 3011.33

Resistance:
3042 from 5/2000 low
3026 from 10/2000 low
3134 is the March 2012 post-bear market peak
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3000 is the February 2012 post-bear market high
The 50 day EMA at 2985
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 200 day SMA at 2719
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1370.26

Resistance:
1378 is the February 2012 peak
1422.38 is the Post-bear market high (March 2012)
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1369.51
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1272
1267 is the December 2011 peak
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 12,849.59
Resistance:
12,876 is the May high
The 50 day EMA at 12,925
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 200 day SMA at 12,131
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

April 10 - Tuesday
Wholesale Inventories, February (10:00): 0.9% actual versus 0.5% expected, 0.6% prior (revised from 0.4%)

April 11 - Wednesday
MBA Mortgage Index, 04/07 (7:00): -2.4% actual versus 4.8% prior
Export Prices ex-ag., March (8:30): 0.5% actual versus 0.5% prior
Import Prices ex-oil, March (8:30): 0.5% actual versus 0.0% prior (revised from -0.1%)
Crude Inventories, 04/07 (10:30): 2.791M actual versus 9.009M prior
Treasury Budget, March (14:00): -$198.2B actual versus -$193B expected, -$188.2B prior

April 12 - Thursday
Initial Claims, 04/07 (8:30): 380K actual versus 355K expected, 367K prior (revised from 357K)
Continuing Claims, 03/31 (8:30): 3251K actual versus 3350K expected, 3349K prior (revised from 3338K)
PPI, March (8:30): 0.0% actual versus 0.3% expected, 0.4% prior
Core PPI, March (8:30): 0.3% actual versus 0.2% expected, 0.2% prior
Trade Balance, February (8:30): -$46.0B actual versus -$53.0B expected, -$52.5B prior (revised from -$52.6B)

April 13 - Friday
CPI, March (8:30): 0.3% actual versus 0.3% expected, 0.4% prior
Core CPI, March (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
Michigan Sentiment, April Preliminary (9:55): 75.7 actual versus 76.1 expected, 76.2 prior

April 16 - Monday
Retail Sales, March (8:30): 0.3% expected, 1.1% prior
Retail Sales ex-auto, March (8:30): 0.6% expected, 0.9% prior
Empire Manufacturing, April (8:30): 17.5 expected, 20.2 prior
Net Long-Term TIC Fl, February (9:00): $101.0B prior
Business Inventories, February (10:00): 0.5% expected, 0.7% prior
NAHB Housing Market Survey, April (10:00): 29 expected, 28 prior

April 17 - Tuesday
Housing Starts, March (8:30): 700K expected, 698K prior
Building Permits, March (8:30): 710K expected, 717K prior
Industrial Production, March (9:15): 0.2% expected, 0.0% prior
Capacity Utilization, March (9:15): 78.5% expected, 78.4% prior (revised from 78.7%)

April 18 - Wednesday
MBA Mortgage Index, 04/14 (7:00): -2.4% prior
Crude Inventories, 04/14 (10:30): 2.791M prior

April 19 - Thursday
Initial Claims, 04/14 (8:30): 375K expected, 380K prior
Continuing Claims, 04/07 (8:30): 3275K expected, 3251K prior
Existing Home Sales, March (10:00): 4.62M expected, 4.59M prior
Philadelphia Fed, April (10:00): 10.3 expected, 12.5 prior
Leading Indicators, March (10:00): 0.2% expected, 0.7% prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Ended First Quarter Strong

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 02 Apr 2012 03:55:00 +0000

SUMMARY:

- Nondescript end to a strong first quarter for the market.
- Window dressing never showed up. Maybe the funds have what they want already.
- Spending rises but incomes again are negative when inflation and taxes are considered. Economists have a special phrase for this: burning the candle at both ends.
- Chicago PMI misses but still over 60. The region is worried about a cost 'tipping point,' however.
- Gasoline? We don't need no stinking gasoline? Michigan Sentiment just fine, easily beating expectations.
- Jeff Immelt to remain 'neutral' in the 2012 election campaign. A little late for that.
- April tends to be a good month. Here's to looking for new money and not many earnings warnings.

If that was window dressing the market needs a new designer.

If this was a window dressing Friday to end Q1, the market likely needs a new interior designer. It was a very nondescript session with the indices trading around the flatline all day long. Maybe that was not a bad thing as the market closed out on the best Q1 since 1998. The market rose even as the economic data weakened somewhat in the start of yet another new year. We saw that in 2010, 2011, and now we see weakening data in 2012. The market as it was in 2011, however, is not paying any heed to it. At least not yet.

This is a testament to the power of printing money. The world central banks have printed trillions upon trillions of dollars (Not all dollars, of course, because the European nations would not print dollars. But you get the point). The world is awash in liquidity. It is enough to pay for many, many major items from the past as I noted in one of the early alerts today. It could pay for World War II, Desert Storm, the Space Race, and many other things in the aggregate. We are not talking about just matching the cost of World War II; we are talking about aggregating many expensive events over the history of man.

When you print money, many things can happen. In 1999 the NASDAQ rallied 70% in just part of the year because of liquidity pumped into the system by the Federal Reserve. As the commercial says, that is the power of cheese (one of my favorite series of commercials). The power of liquidity shows itself again and again in financial markets. However, it just does not have the strength to push for lasting economic growth in the world economies. That is the rub we have moving into Q2 of 2012. Will the liquidity finally lead to a solid catch in the economy? In other words, can the economy do what Ben Bernanke says it cannot right now; that is, survive without the Fed's liquidity? That is a big question for Q2. It was not able to do it in Q2 of 2011. We will see if it is different this time.

Looking at the charts, the market still looks like it has some upside power to it. Since Mr. Bernanke has made it clear that the liquidity stays in place, then the market has room to run. The velocity of money is still virtually zero in the United States, so there is not much turnover or fear from him that there will be inflation. That is a double-edged sword because zero velocity means that there is not much activity either the activity needed generate that multiplier effect on money.

We start of Q2 looking good. If we back off and look at Q2 in April of 2011, it started decently and faded mid-month as earnings were getting seriously underway. But then it sprinted to a new rally and post bear market high by the close of that month. It knew that QE2 was going to end in June, but it still managed a rally. Operation Twist will end in June; will the market pull the same action? With a dip it still managed a good run. Or is it out of gas? As the chart shows from last April, it is fully capable of running. Why would the market not be fully capable of running here when Operation Twist is coming to an end when we know that Operation Twist is not as potent as QE2?

The intuitive outlook for the coming quarter seems to be good at least through April. There is the old adage, "Sell in May and go away." We will see how that plays out. If the liquidity is there, the market will probably find a way to move higher. When the economy is not really doing anything and the Fed adds a lot of money, that inflates asset prices. It does not go into the economy; it just goes into the financial markets. That is what we have seen ever since March of 2009. It has been a series of strong runs based on liquidity injections by the Federal Reserve. If the Fed keep the money flowing, the market overall will likely continue to move. The thing that could stop it is if we have some serious economic issues this summer. ECRI still has its recession call. The market does not seem to be showing it. Then again, the market was strong into April of last year and even into May and June before it finally rolled over. Again, that is the power of liquidity.

It looked as if the market was going to start out with some really vigor. Futures were up nicely heading into the morning bell, but it could not last. They sold off in the morning. They turned negative but managed an afternoon rally. It was a bounce. There was a bit of buying, but it certainly was not a nice surge to the upside.

SP500, +0.37%; NASDAQ, -0.12%; Dow, +0.5%; SP600, -0.26%; SOX, +0.41%.

Very mixed with some growth moving up. Other growth was moving down. Some of the old standby stocks that got pretty much bludgeoned over the week manufacturing, energy managed a modest recovery. That helped boost the Dow and the SP500.

A pretty quiet day for the indices overall and not much window dressing. Perhaps that means the funds already have the stocks that they wanted to put in their quarterly reports. Maybe that means we will get some buying with the new Q2 coming next week. That would be an interesting turn. It would be logical as well because you often get new money coming into the market to start a new quarter, and it can get some nice upside. With the market set in pretty good position to move higher, we could definitely see a bounce next week.

OTHER MARKETS

Dollar. 1.3343 versus 1.3285 euro. The dollar traded a bit lower. A little ABCD pattern, and now an ABCDD pattern, so to speak, with a double bottom. Maybe it will try to make a break to the upside. If the economy is recovering, there should be a stronger dollar. If Europe goes off the deep end, there should be a stronger dollar. There is a little tension here. If Europe recovers, the dollar gets a bit weaker. But if the U.S. recovers quickly, the dollar should be stronger. You will have that back and forth tension. Overall the dollar is maintaining an uptrend. It is trying to put in a higher low, and it has a short term ABCDD pattern that could send it to the upside.

Bonds. 2.21% versus 2.15% 10 year U.S. Treasury. Bonds had a hard time on Friday. A week of bond auctions saw varied acceptance of the bond issues. This is a pretty grotesque turn lower on Friday. It looks like bonds have been repulsed. Bonds should sell some if the economy is stronger. It just makes sense. And it if Europe will be stronger, why not? Bonds lost buyers when money was attracted to Europe because the EU said they were raising their bailout fund to over $1T U.S. dollars. That would be 700B euros from 500B euros. With that comfort level on the continent, bonds took a hammering. Now they broke down from their triangle. As you can see, they tested and they are breaking lower now. It looks as if perhaps the bond rally is over. The question is will money no longer chase the bond funds? PIMCO's bond ETF that matches its major fund that a lot of people do not have the scratch to buy into had a successful open on the stock market.

Gold. 1,669.10, +14.20. Gold managed a gain. It was definitely a back-and-forth week for gold as it tests the breakout from that channel. It has been moving laterally more or less the past three weeks. It is unable to make any headway but holding its ground when everyone says it will sell off. It bounced back to the upside. It is trying to put in a higher low. It is not a pretty pattern, but it is holding where it needs to. Gold is trying to figure out just what the market wants to do. As it works on that conundrum, it works laterally in its pattern.

Oil. 103.04, +0.26. Oil closed basically flat. Oil broke below its consolidation of the November-February trading range and breakout. It tapped the 50 day EMA on the Friday high and faded. It looks like it may have broken near term and wants to test a bit lower. There are rumors about possibly tapping into the Strategic Petroleum Reserves in Europe as well as in the U.S. Saudi Arabia is also saying that it has more oil than it knows what to do with and that it will start pumping it. It sees no rational reason why oil is at the price it is. It will crank up production and try to drive the price down. Obviously oil will take a bit of a hit when that happens.

If you remember, back in the early 1980's Saudi Arabia decided it was going to punish some of the other OPEC members who were cheating on their quotas and not doing what Saudi Arabia wanted them to. It pumped more and more oil, and it drove price down to $9 a barrel. That virtually destroyed what little was left of the U.S. domestic oil industry at the time. And it brought a bunch of OPEC countries into line because they had no money anymore to spend on the grand projects hatched out during the 1970's when oil prices spiked. Maybe Saudi Arabia will try to do that again. Sure sounds like they want to do that.

It is just in the nick of time for us as the EPA has effectively now prohibited any new coal plants from being opened in the United States. President Obama (when he was Senator Obama) was talking about a Cap and Trade program that would make it virtually impossible to start a coal plant. He said you could do it, but you would go bankrupt because you would have to pay so much to set off your carbon. He could not get that through Congress, so now King George Obama has just decided that he would appoint his knight at the EPA to do it. That is exactly what happened. They could not get it through Congress, so they just write an executive order in a massive usurpation of power. Our forefathers went to war over this kind of nonsense, but it seems like this country has no stomach for sticking up for the things that have made them great. I know I will get some heat for that, but it is absurd what we are willing to take.

In any event, oil may be going down a bit. Maybe. Places like Ohio where 90% of the power comes from coal-fired plants will have a problem. It seems like a very strange thing to me. The President is so married to his agenda on this. Ohio is a must-win state for the President, yet he is going to drive the price of energy in Ohio through the roof. This primarily affects new coal plants, but there will be no real reason to mine a lot of coal anymore. If there will not be any new coal plants, you will have problems. If you look at the stocks of companies like BTU, you see how it is getting slaughtered, breaking down out of a triangle, and now it is in a downtrend. You can see the handwriting on the wall. It seems very strange to put the coal companies in too great of harm before the election. Maybe that is what they are planning on, but it seems odd to me that you would do this to a key swing state. But I am not a politician. I just look at things, see what makes sense and what does not, and try to make money off of it.

TECHNICAL SUMMARY

The internals were rather nondescript on Friday.

Volume. NASDAQ 1.7B; NYSE +2%, 746M.

Breadth. NASDAQ -1.1:1; NYSE +1.4:1. Breadth was nothing. Mixed market and mixed internals. Nothing too extreme one way or the other. It was a week that showed a bit more volume. Maybe to the upside and maybe to the downside. It is hard to tell necessarily. Stocks were bouncing back on some higher volume on one session, while on another session they sold on higher volume and then rebounded on lower trade. It was mixed without a doubt. When you are at highs for a rally, you have to watch when volume gets a little waffley on you. Then you might start stealing some of the gold out from the bank and end up leaving yourself with nothing except running on fumes and paper money at the top. That may be a poor analogy, but hopefully you get the point. If you have high volume at the top, you are slowly emptying the bank of all the goods, and you have a collapse.

The market is still moving higher. Volume is hard to read, as noted. You basically have to go with what the patterns and the leaders are showing you. They are still moving upside, even though some leaders are struggling, of course.

THE CHARTS
SP500. Overall the market is still showing good action and leaders are still showing good action. SP500 is holding above the 20 day EMA and, indeed, holds above the 10 day EMA as it tests the breakout from weeks back above the prior bear market high from the summer of 2011. It is holding up just fine.

DJ30. The Dow is moving back up to test its recent peaks. Making a higher low at the 20 day EMA. This is nothing major. These are not power moves, but just lateral consolidations, making higher lows, and trying to set up for yet another break to the upside. Again, not necessarily powerful, but it is not showing that it is rolling over and changing its character.

DJ20. The Dow transports closed basically flat at the 20 day EMA. As with the DJ30, trying to set up a little pennant or triangle to break to the upside.

NASDAQ. NASDAQ pulled back on the session. It closed at the 10 day EMA. Maybe it looks a little top heavy right now, but it continues its trend. As with SP500, no character change. It is still trending to the upside. A lot of people are buying put insurance because they think the market is going to fall. If enough think it will fall, maybe end up with a self-fulfilling prophesy. There are a lot of people out there that are very bullish as well. Maybe that is what they are playing into.

April will be an interesting month no matter what. We have earnings, we have the action from last year with the end of QE3, and we know that Twist will be ending soon. It will be an interesting month. It just has not changed its character yet, so we have got to sick with what the market is doing right now.

SP600. SP600 is also holding onto its breakout above the summer 2011 highs, riding right along the 10 and 20 day EMA. It had just a little pullback to test that Monday move, and it is still set up to make a break higher.

SOX. The SOX is trying, but it is struggling. It has still not made a break over its post bear market high hit in 2011, but it is holding the 10 and 20 day EMA as it continues to put in higher lows. Things may be slowing. The market may look tired, but it has looked tired before on this run. It continues to move. No character change yet, but it could be coming. We always keep our eye on the door. You have to know where the exit is. But until it shows us that, we have to stick with what is going on. We will also be smart and take care of positions along the way.

LEADERSHIP

There are some broad categories in leadership that are still struggling.

Industrial Machinery. CAT still has a toppish pattern.

Energy. Energy struggled for the past three weeks as well. CVX is not looking great. Not necessarily rolling over, however. Energy has been knocked around, but it is not out for the count. It is struggling, no doubt.

Metals. Metals have had a tough time, but they are not completely broken down. FCX was able to bounce up Thursday and Friday, coming up to test the bottom of this lateral consolidation. We will see what happens. Down, yes, but not out. These are the stocks that are causing the issues with the market overall. They are not performing right now. While they are not breaking the market down necessarily, they are definitely taking the steam out of it, making it difficult for the market to hold its position, and, of course, to advance its position.

Financial. Financials have held up admirably. GS has a doji at the 20 day EMA. Looking solid. This is representative of the large financial institutions. It should be; they can make money, borrow it for nothing, and buy bonds to get a guaranteed return. They should all be looking good and making money.

Retail. Retail is still holding as well, but we do see some issues that are worrisome. RL is moving laterally. It is not necessarily breaking down. It just looks kind of top heavy. WFM broke lower on Thursday. It is trying to recover, but it is having a struggle, showing a doji on Friday. Retail is a huge area, and there are all different sorts of retail. PCLN is making a 10 day EMA test. It is very orderly. Definitely a market leader. We still have some great retail stocks in great shape. Some of them are just looking a little heavy. Retail has been a very important leader in this market.

Spending was up again in February, so the consumer still seems to want to spend for now. I do not know how long it can do it with the housing market still showing lower and lower prices and the income flat at best when adjusted for inflation. You cannot keep spending forever. For now, however, it is holding all the retailers to the upside.

Healthcare. Drugs tend to look fairly decent right now. They have a little bit of buying. A lot of the medical has some bids under them. They have caught fire this week during the Supreme Court argument when it looked like Obamacare might be overturned, particularly the healthcare plans such as HUM or AET. They had good surges on the week, particularly on Thursday. There is some movement, but that is hard to peg because it is related to the arguments and the Supreme Court case. That could all change in a couple of months.

There are still stocks in good shape, but we will have to stick to some real quality names in good position like AMZN. Nice buy area. BIDU looks like it is also in a nice buy area. Big names in good buy points are where we want to stick. Then if we see some of the non-household names in beautiful patterns, then we can go with them as well.

THE ECONOMY

Personal Income, February (8:30): 0.2% actual versus 0.3% expected, 0.2% prior (revised from 0.3%)
Personal Spending, February (8:30): 0.8% actual versus 0.6% expected, 0.4% prior (revised from 0.2%)
PCE Prices - Core, February (8:30): 0.1% actual versus 0.1% expected, 0.2% prior

Spending rose the most in 7 months. A bit of pent up demand is evident in these numbers and somewhat corroborated by the Michigan Sentiment Survey Final for March. Gasoline prices are an issue, but not enough to overcome the desire to spend some.

Or is it? As with retail sales data, spending is based on dollars spent, not the number of goods and services bought. Thus is something, oh say spiking gasoline prices took a larger part of a consumer's take home pay, well that would be considered an increase in spending even if the consumer cut expenditures on other items in order to pay for the gasoline needed to get to work, the grocery store, and yes, to the gas station.

The question is how long can increased spending can last? Adjusted for inflation and taxes, incomes are negative three of the last four months. Consumers lost a lot in the financial meltdown and thus savings are tapped. Houses, the largest asset, are still losing value. Thus buying power comes from wages, and with real wages struggling to hold flat against inflation, at some point the money runs out. Oh yes, there is that stock market wealth effect brought about purposefully by Mr. Bernanke and company: make people feel wealthier and they act wealthier. At least, until as the Talking Heads sang in 'Once in a Lifetime: after the money's gone.

Chicago PMI, March (9:45): 62.2 actual versus 63.0 expected, 64.0 prior

The news out of Chicago looks good with another 60+ reading even if it was a miss and just off of February's 10-month high.

Or does it? New orders fell sharply to 63.3 from 69.2. Employment dropped to 56.3 from 64.2, the largest decline since 2-2009.

Some sub-indices did rise: Prices jumped to 70.1 from 65.1. Inventories jumped to 57.4 from 49.6, the biggest jump since 12/2010.

Down in key areas, up in areas you don't want up. At this stage of the game, given the economic data, rising inventories is not good. As reported Wednesday, inventories are surging. Durables inventories hit the highest levels since the records have been kept, rising 26 straight months. This recovery is built on inventory building, but as ECRI and other data show, sales are overall lower. Disconnect.

Key: Respondents note that the "tipping point for oil prices and impact on raw materials and Total Cost of Operations is fast approaching." Translated: prices are almost at the point of stalling the expansion.

Michigan Sentiment - Final, March (9:55): 76.2 actual versus 74.3 expected, 74.3 prior preliminary.

Highest showing since 2-11 as gasoline prices are not damping enthusiasm thus far in the great north. The irrepressible consumer coming out of a long recession. As noted above in the spending and incomes, you can spend . . . as long as the money holds out. As Sissy (Debra Winger) said in 'Urban Cowboy' "Wes said the $5,000 will get us deep into Mexico." Lovely thought.

Oh really? That is akin to saying a top intelligence officer defected, divulged all he knew to the enemy, aided the enemy's attempts to overthrow the defector's former country, and then wanted to settle down as a 'citizen of the world.'

Give me a break. This man was Obama's lapdog during the massive stimulus boondoggle that netted GE billions of dollars in true tax subsidies (not the investment tax credits the oil industry receives) right out of the taxpayer's pockets. Let me check, do the history books now say China was neutral in the Korean war?

Pucker up big boy . . .

Maybe, however, it is true. Charles Gasparino is reporting that Immelt is dissatisfied with Obama and even though GE received billions in true subsidies Immelt thinks Obama's use of class warfare and theories of big government economic salvation are appalling. As Gasparino says, that a CEO who benefitted from billions of dollars in subsidies worries about the President's overall economic agenda and long-term economic impact is an important commentary on the administration.

This is all very interesting, but the damage has been done and if Immelt's goal as the article reports was to moderate the president's left-leaning economic agenda, all he did was give the administration photo ops and the appearance that big business was behind is central government economy ideas.

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX: 15.5; +0.02
VXN: 17.19; -0.08
VXO: 14.66; +0.01

Put/Call Ratio (CBOE): 0.97; -0.07

Bulls versus Bears

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 50.5% versus 48.4%. Well, turning right back up and gunning for the 51% peak hit a month back. Plenty of bullishness on the financial stations, even calls of Dow 17,000. Bullish sentiment is returning. Again, it is not excessively bullish. They are off the 55+ level even near the highs as investors get a bit pensive. Bigger picture that is good for the upside. That was the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 22.6% versus 23.6%. Down further from 26.6% three weeks back and having held at 25% to 26% for weeks. Still not excessive either way. Solidly lower after spending weeks at 30%ish. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: -3.79 points (-0.12%) to close at 3091.57
Volume: 1.774B (+2.48%)

Up Volume: 1.04B (+336.92M)
Down Volume: 766.77M (-273.23M)

A/D and Hi/Lo: Decliners led 1.16 to 1
Previous Session: Decliners led 1.38 to 1

New Highs: 94 (+27)
New Lows: 16 (-10)

SP500/NYSE

Stats: +5.19 points (+0.37%) to close at 1408.47
NYSE Volume: 746M (+1.91%)

Up Volume: 2.42B (+950M)
Down Volume: 1.21B (-1.07B)

A/D and Hi/Lo: Advancers led 1.39 to 1
Previous Session: Decliners led 1.54 to 1

New Highs: 120 (+65)
New Lows: 11 (-22)

DJ30

Stats: -3.79 points (-0.12%) to close at 3091.57
Volume DJ30: 171M shares Friday versus 136M shares Thursday. Some end of quarter volume.

MONDAY

April be tends to be a good month for the market. It has been up 43 times versus 19 or something like that. It is more than a 2:1 ratio. Although it is not the best month, it tends to be a good month. We have a lot hitting next week, culminating with the employment report on Friday. That will be important because we are seeing more and more people disappearing from the workforce. That could bring the unemployment rate down even more, even though there are not really more jobs. There are just fewer people working. Tax revenues are down as noted earlier in the week. Over the same period as last year, tax revenues are down. How can unemployment rates be dropping if tax revenues are down unless the jobs being created are crap? I hate to use that kind of tough language in this family-oriented video.

The SP500 is in shape to move. We have quality stocks such as AMZN in position to break higher once more. AMZN is hardly extended because it joined the rally late. It had to get its act back in gear, and it has done just that. There are other stocks in the same position. We will be looking at those as our ticket to ride in April.

No one knows for sure if it will be another positive month for April. But it is surely set up to start that way. We still have to deal with the jobs report on Friday. We still have to deal with earnings. We will start to see announcements, and I am still worried that earnings could be a catalyst to the downside. Expectations are that earnings are not as good this quarter as they were in the prior three years with easier comparisons.

We will see how it plays out. Certainly stocks are in position to move. It is just a matter of whether that new money hits and the bids return and send them higher. On Friday we were willing to see if that new money was going to push some stocks that were on the bubble to the upside. We will get that opportunity this week. We have some good stocks in position, and the indices are in position to move.

As my Little League coach of many years ago liked to say, "You can lead a horse to water, but you can't make him drink." Heady stuff I suppose for a bunch of 11 year olds. We will see if the market will take a drink.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 3095.36

Resistance:
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3042 from 5/2000 low
The 20 day EMA at 3046
3026 from 10/2000 low
3000 is the February 2012 post-bear market high
The 50 day EMA at 2950
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
The 200 day SMA at 2699
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1403.28

Resistance:
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
The 20 day EMA at 1391
1378 is the February 2012 peak
1371 is the May 2011 peak, the post-bear market high
The 50 day EMA at 1360
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1266
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 13,145.82
Resistance:
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
The 50 day EMA at 12,891
12,876 is the May high
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 12,086
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

March 26 - Monday
Pending Home Sales, February (10:00): -0.5% actual versus 0.5% expected, 1.9% prior (revised from 2.0%)

March 27 - Tuesday
Case-Shiller 20-city, January (9:00): -3.8% actual versus -3.8% expected, -4.1% prior (revised from -4.0%)
Consumer Confidence, March (10:00): 70.2 actual versus 70.1 expected, 71.6 prior (revised from 70.8)

March 28 - Wednesday
MBA Mortgage Index, 03/24 (7:00): -2.7% actual versus -7.4% prior
Durable Orders, February (8:30): 2.2% actual versus 2.8% expected, -3.6% prior (revised from -3.7%)
Durable Orders -ex Transportation, February (8:30): 1.6% actual versus 1.0% expected, -3.0% prior (revised from -3.2%)
Crude Inventories, 03/24 (10:30): 7.102M actual versus -1.160M prior

March 29 - Thursday
Initial Claims, 03/24 (8:30): 359K actual versus 350K expected, 364K prior (revised from 348K)
Continuing Claims, 03/17 (8:30): 3340K actual versus 3385K expected, 3381K prior (revised from 3352K)
GDP - Third Estimate, Q4 (8:30): 3.0% actual versus 3.0% expected, 3.0% prior
GDP Deflator - Third, Q4 (8:30): 0.9% actual versus 0.9% expected, 0.9% prior

March 30 - Friday
Personal Income, February (8:30): 0.2% actual versus 0.3% expected, 0.2% prior (revised from 0.3%)
Personal Spending, February (8:30): 0.8% actual versus 0.6% expected, 0.4% prior (revised from 0.2%)
PCE Prices - Core, February (8:30): 0.1% actual versus 0.1% expected, 0.2% prior
Chicago PMI, March (9:45): 62.2 actual versus 63.0 expected, 64.0 prior
Michigan Sentiment -, March (9:55): 76.2 actual versus 74.3 expected, 74.3 prior

April 2 - Monday
ISM Index, March (10:00): 53.0 expected, 52.4 prior
Construction Spending, February (10:00): 0.5% expected, -0.1% prior

April 3 - Tuesday
Factory Orders, February (10:00): 1.4% expected, -1.0% prior
FOMC Minutes, 3/13 (14:00)
Auto Sales, March (14:00): 5.5M prior
Truck Sales, March (14:00): 5.9M prior

April 4 - Wednesday
MBA Mortgage Index, 03/31 (7:00): -2.7% prior
ADP Employment Change, March (8:15): 213K expected, 216K prior
ISM Services, March (10:00): 56.9 expected, 57.3 prior
Crude Inventories, 03/31 (10:30): 7.102M prior

April 5 - Thursday
Challenger Job Cuts, March (7:30): 2.0% prior
Initial Claims, 03/31 (8:30): 355K expected, 359K prior
Continuing Claims, 03/24 (8:30): 3355K expected, 3340K prior

April 6 - Friday
Nonfarm Payrolls, March (8:30): 200K expected, 227K prior
Nonfarm Private Payrolls, March (8:30): 215K expected, 233K prior
Unemployment Rate, March (8:30): 8.3% expected, 8.3% prior
Hourly Earnings, March (8:30): 0.1% expected, 0.1% prior
Average Workweek, March (8:30): 34.5 expected, 34.5 prior
Consumer Credit, February (15:00): $14.0B expected, $17.8B prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Rise After a 3-Day Pullback

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 25 Mar 2012 16:36:00 +0000

SUMMARY:

- Stocks rise after a 3-day pullback, ending 'losing streak' and keeping the same action in place, just don't generate any pre-weekend excitement.
- Oil, gold jump ahead of a weekend as weekends now have to factor in rising geopolitical issues.
- There they go again: European bond yields screaming back up.
- KB Homes demand plunges, New Home Sales drop versus the expected rise, and large revisions to prior data are discouraging.
- Lots of data next week but watch for earnings warnings thanks to higher prices, tougher comps (remember FedEx).
- Market character has not changed so we look to play more emerging leaders while tending current leaders that may be losing the mojo.

No change at all as market shakes of negatives to rally back from a weak open.

The market did what you would expect it to do in an uptrend after a three-day pullback: It bounced on Friday. It ended the "losing streak" that I heard talked about before the open. Yes, the market was in a three day, horrid losing streak where it had rallied and retraced roughly a third of the move off of that last low and was holding over support. That left it in position to what? End its losing streak, I guess. It was preposterous. Listening to the financial stations you will get that kind of nonsense. It is totally out of perspective. They say "Today oil is surging" or "Today oil is plunging." It all depends on whether it is holding the trend or breaking the trend. You get the idea.

Stocks bounced as we would expect them to do after a three-day pullback given that they are still in this uptrend. Everything was normal. Nothing changed as of Friday. Of course, the bounce was rather anemic. It did not do a lot to change the situation, particularly on SP600 as it is still below the prior bear market high. It has yet to make a breakout that will stick above that prior peak. It is in position to move, making a higher low; but it has done that before as well. Maybe MACD will pick up the pace and it will make the break. Again, on Friday it did not do anything to change the character of the market. That in itself did not answer a lot of questions.

Looking at the action on the day, the futures were all over the map. They were down but moving higher up toward the flatline before the open. But they sold off sharply when the news came out that New Home Sales for February were worse than expected. There were some pretty ugly revisions. They did not make the headlines, but I think the market saw some of that. It did not last for long, however. Look at that reversal doji. A big reach lower, a reversal, and volume picked up on the move. Voila. The bids came back in on the dip, investors rallied stocks once more on a pullback. This is very instructive. You see the dip, the reversal, the rally. Note how it made it up to these prior levels, stalled a bit, and then burst through.

Often it will not come up and touch it; they will stall and consolidate before they get there and then explode through there. That is exactly what happened. It came back to test sitting right on top of that early session double top. It does not matter if it was premarket or not because that is where the trade was. It formed those pyramids higher for the rest of the session, riding up the 15 minute moving average. A nice spurt at the end of the day did not hurt at all.

It was not a grand day. There were relatively modest gains.

SP500, +0.3%; NASDAQ, +0.15%; Dow, +0.27%; SP600, +0.98%; SOX, +0.26%

NASDAQ 100 was down, meaning the large cap tech stocks were not performing that well. AAPL had an interesting day. The BATS exchange IPO was out. It was trading its own stock on its own exchange, and it was trading for 0. Not the day they expected. There were some other mixups as well. On that exchange, on the day of your IPO, AAPL sold at $452. That triggered the circuit breakers and the trades were cancelled, but it was a travesty for the IPO and for the company. Before the day was over, they stopped trading and just pulled the IPO. Those poor son of a guns. But it was not a good day. The BATS exchange was referred to as the "bats-it" exchange after that, if you get my drift. It was comical in a sad way; you had to feel sorry for them.

The market moved to the upside. Nothing grand, but after three days the market did rise again. It was not any kind of glory, though, just a bounce off of near support. Given it was a weekend, we were not too excited about the move. If it had done something extra special, we may have been engaged, but there was no point with SP600 still below its prior peaks. With so much intrigue potential over the weekend with the Iran/Israel situation, it is not worth moving into those plays. Indeed, there are plenty of good setups for next week, and we can participate in those if the market wants to continue the rally. Perhaps we would see SP600 break out and join SP500, the Dow, and NASDAQ above its prior bear market highs.

OTHER MARKETS

Dollar. 1.3258 versus 1.3181 euro. The dollar sold off. That was interesting given some geopolitical intrigue. Perhaps it was the economic data that was somewhat disappointing. New Home Sales were not that great. On the other hand, there were problems in Spain and Greece with their bond yields surging back to the upside. For whatever reason the dollar sold off. It is still holding up right at the 50 day EMA. It still has to prove itself. Looking back, it is just below some important levels but is holding some interim peaks.

Bonds. 2.23% versus 2.29% 10 year U.S. Treasury. Bonds had a good day. A good upside week for bonds, recovering from the gutting they took the week before. Now they are up in this gap zone. We will see if they can continue to rally and move back above this key level that marked the bottom of the triangle. It was a week that saw some interesting moves in bonds as money continued to run their way. Yesterday we saw the 10 year TIPS trade at a negative yield. Pretty crazy, but that is the way things go when you have problems all over the world.

Gold. 1,662.50, +20.00. Gold responded favorably to the issues in the Middle East. There was a little fear trade going. It is not a recovery by any means. Gold has been beaten about the head and shoulders, but it is still fighting back and holding where it needs to hold.

Oil. 106.86, +1.52. Oil also enjoyed the old pre-weekend Iran/Israel issues. Oil rose and held the lateral pennant after the breakout. Oil is going to hold that until something happens in Iran. Either there is no issue or there is a break and oil surges.

TECHNICAL SUMMARY

VIX. VIX is down at lows. It is below the 2011 low, so surely that must mean that the market will sell off. It can mean that, but it does not have to mean that. It is still above lows hit in 2006 and 2007 before the market started to sell off. People associate that selloff with the mere fact that volatility is low. That is incorrect. Just because volatility is low does not suggest a selloff. A long time ago the market broke free of the notion that volatility was normal between 20-30. That is no longer the case. Volatility and how it impacts the market depends on whether a relationship is set up between the market moves, as it does from time to time (but those are short term moves). Longer term, volatility rises ahead of a selloff even as stocks rise. That is the key for the major moves that people look at volatility to suggest. Traders always talk about the correlation. Sometimes it sets up short term, but it is always present longer term, i.e., stocks rise and volatility rises as we saw in 2007. That is a signal that the market is ready to sell off big.

That is exactly what happened in 1999 into early 2000. Volatility started to run higher at the turn of the year in 2000 as the stock market ran higher. That was a telltale sign that the market was topping. We do not have that right how. Volatility is not running higher as the stock market is running higher. The mere fact that it is low does not mean that it will sell off. We have had volatility much lower for much longer periods of time, and these were prosperous times for the market. I hope I have made that point clear. I have to make it from time to time because I hear so many people on the financial stations misrepresenting what volatility means.

Volume. NASDAQ, -5%, 1.41B; NYSE, -6%, 662M. The day was nothing special. We had an upside day where volume fell. On Thursday we had a downside day that saw volume rise on the NYSE. We had more selling volume than we have had upside volume. That is not a good thing, but (and this is a big but), it is not hugely big volume either way. I know volumes overall are down a good 25% from years gone by, but my point is the relative volume from day to day is low and the change in the relative volume is low. It is not a situation where you are seeing big spikes of volume one way or the other. There are days where you get an outsized volume day such as February 29, or again on the selloff day of March 6. Volume cracked above average. Then we got an upside volume day on March 13, again on the March 14, and one more on March 15. They were upside volume, and then we had expiration; throw that one out the window.

Then on the downside, the volume was not bumping as high as it was to the upside on this run. It was not nearly as high as it was on the earlier time. We are not getting that distribution that would suggest the market is emptying out the cupboard, so to speak. What do I mean by that? If there is a lot of downside volume in other words on days that stocks sell, volume is high and it is low as the market rebounds, then you are taking the goods off the shelves on the down days. You are not restocking them on the up days as much as you are taking off the shelves on the down days. If you keep that up for enough days (usually a week or so on that action), then all of the goods are off the shelves, and it is time to restock. To do that the market has to go down to the store, restock, and then move back to the upside. That is my simplistic grocery store analogy, but I think it is clear. We are not getting that here. The market is mostly rising, lately on higher volume, than it has been declining. That makes this a perfect 1-2-3 test with a further reach down on Friday and a reversal, as you can see on the SP500.

Breadth. NASDAQ, 2:1; NYSE 2.5:1. The NYSE was pushed buy those small caps that were performing quite nicely.

Bulls versus bears. I am borrowing this from Investor's Business Daily. A big jump in bulls up to 48.4 from 43.6. At the same time, bears fell to 23.6 versus the 26.6 shown last week. What does this mean? Investors were turning more bearish with bulls falling and bears rising even as the market rose. The breaks to the new highs by SP500 joining the Dow and the NASDAQ broke sentiment higher as well. A lot of investment advisors took this as a positive and are back on the "everything is roses" parade. This is not an extreme level, but it is approaching the highs that were hit in past peaks. In April of 2011 as the market peaked out, you were looking at highs near 60 as close as February. A good selloff took some of the froth out of the investment advisors and sentiment, and it put it on a better track to move higher. This is another indication, similar to VIX but somewhat different, that the market can continue higher. In other words, this will not prevent the market from moving higher from here just as volatility at the low level it is right now will not prevent the market from moving higher either.

THE CHARTS

SP500. There was the breakout by SP500 a couple of weeks back, the additional rally, and then this week's pullback. A nice Tuesday, Wednesday, Thursday pullback to support. The Friday tap a little lower, and then a reversal to the upside. Volume did not scream higher. Obviously it was lower, so maybe a little distribution Thursday, maybe no accumulation Friday. But that is the way it has been on this rally. You are playing patterns more than anything else. Volumes count when volumes say something, but they are not saying much. Overall, volumes are telling you this rally cannot last, and ultimately we will have an ugly ending. Overall, that is what will likely happen. It is going on happen someday, but the question is when. Right now there is nothing suggesting that it will turn. Leaders are still hanging in there, and other leaders are trying to emerge to take their spot in case they do falter.

DJ30. DJ30 had its pullback, but it was not a 1-2-3. It was kind of a 4 out of 5 to the downside, but it held the 20 day EMA and the prior peak. It even tapped at it on the Friday low and Thursday as well. Then it reversed for a gain. Not a barn burner, not setting any records, but looking decent. MACD is worrisome, but it is shaping up. It did not do anything to change the trend of modest pullbacks and buys on the dip.

DJ20. We got that flop back to the 50 day EMA on Thursday, but an undercut and a rebound. Maybe the transports will try to drag their sorry rears back to the upside. This even with FDX saying they have issues with their business. People are going to trucks versus airfreight because it is so expensive. In any event, the transports can put in a higher low and break to the upside. Maybe they can take out this prior peak that they failed to do last time. That would be the transports, the small caps, and the semiconductors failing to take out those prior highs, but at least they are keeping themselves in the game and giving themselves shots to do it by making higher lows.

NASDAQ. NASDAQ was a leader all week and indeed on this rally. It faltered and had somewhat of a pullback, but it was not much of one. It still showed great relative strength even as it tested. Very strong, holding above the 10 day EMA, tapping below it on Friday but recovering as well. I guess it got a bit of an AAPL dip there, even though that trade was canceled. Very sold. 1-2-3 pullback and not even that because NASDAQ held up very well on the week.

SP600. The small caps remain the issue, and I am a broken record to this. They are making a higher low just as the transports are. They are trying to hold, at a logical level at that April 2011 peak. They want to mount another bounce off of that level. They are not dead yet (the old Monty Python and the Holy Grail mantra) and it is hanging in there. Maybe they can make the move. Why? They are so important because they are an economic harbinger, blah, blah, blah. You get the point. It will be one to watch again this week.

SOX. We should watch the semiconductors as well. They look pretty good. They did not pull back much, very much like NASDAQ. A simple, easy, shallow slide to the 10 day EMA. Maybe this higher low sets up the break over that February peak. Something it has not been able to do.

Where does that leave us with the indices? Not in bad shape. Same position. Showing the overall upward bias even with the small caps bumping up against that high and not able to make the break yet. They have not made the break, but here is an important point: They have not broken down either. They have had all kinds of chance to do it, but they have not. That speaks fairly loudly if you ask me.

LEADERSHIP

Retail. RL had a tough day, and it had a tough Thursday as well. It broke lower on Friday but managed to rebound. It managed to hold, reverse, and hold above the lows in its range after the breakaway gap. That fact kept us in the play. We will see if it can continue to move to the upside. NKE had a tough day after earnings. It did not perform well, but it held the 50 day EMA and bounced. Now we see if it can recover and move to the upside. COH looks like it is having a little issue as well. It has done this before and bounced right back. Note how on Friday it recovered nicely on volume as the buyers came back in.

Various apparel makers are having a bit of an issue, but not rolling over. DRI has been reporting some less-than-stellar earnings of late. It saw better results at its Olive Garden. Still lagging and bounced off of the 50 day EMA. Maybe there will be something there that will send it to the upside. PNRA was moving laterally in its trend last week, but not being spectacular. We are noticing that on a lot of these plays. They maybe moving higher, but not spectacularly so. Then you throw in one like TJX, and it continues to perform well with a great move over the past month. But it, too, may flatten out. It has not yet, but it may. Okay, we will not worry about that. As long as it runs, we are more than happy. HLF is one that has run. It has come back to test. Normal test thus far, and it looks fine to continue. Will it? WFM has broken below its trendline. It is trying to move up. It will be an important week for it as well. Some leaders may be coming under fire, and that is something we have seen in many of the different sectors.

Industrial. CAT bounced on Friday. Lower volume on the bounce. It may fill that gap and give us the downside play we were looking for initially.

Financial. Banks and financials overall had a pretty good week even though they were down to end the week. WFC closed at its 10 day EMA, hardly in any danger. MS actually bounced Friday. The regional banks are holding up. HSBC and HBAB, this is a nice pullback to test the breakout. That could be an interesting play. It has a lot of resistance overhead, but it is working its way back to the upside. The financials still look good, and if they find support, the market will perform well.

Technology. VELT is a small software company with a nice pattern. GLUU had a 21% move today. Not bad. Some of the small techs are actually able to produce some solid moves. ATHN is trying to make the break to the upside. CHKP is breaking higher. If it continues to move, it looks pretty good to pick up.

There are a lot of stocks in patterns that are not extended. That is what I have been saying for the last two weeks. They will lead this market. If they do continue to move higher and move up to leadership status, the market will look good working its way forward.

THE ECONOMY

That was a short respite: European bond yields jump.

Is the Financial Facility losing its efficacy in the European recession?

The new 2023 (10 year) Greek bonds, just two weeks old, are experiencing a rough childhood. Prices plunged 17.5% and sent yields over 20%. Ten year yields over 20%. Two bailouts in the bank and bonds are still unable to hold any value. Bailout three is apparently coming but will Germany agree to part with more money without something in return, say the Greek islands themselves?

Spanish bonds are starting to get edgy as well. They were starting to behave after the financial facility was placed, but now Spanish 10 year bonds are yielding over 5.5%, the highest in 11 months.

It appears as if the carefully planned EU recovery is not holding to plan. The problem is a recession is the last thing the Continent needs as the economic activity needed to bring the Greek and other debt to GDP ratios in line according to the bailout cannot occur without robust growth. But the austerity is preventing growth as well. Double edged sword and frankly things do not look good for the EU.

New Home Sales sports worrisome numbers and KBH misses big on sales.

New Home Sales, February (10:00): 313K actual versus 323K expected, 318K prior (revised from 321K)

The numbers look relatively innocuous with a 1.6% drop. A 1.3% gain was expected, however.

Revisions: 318K from 321K does not look bad either. BUT . . . that is down from 336K in December, -5.5% month/month. That is the largest decline in over a year.

Inventories: Total units for sale remained at 150K for the second month but with the lower sales numbers that pushed inventories to 5.8 months to deplete.

This is an ALL-TIME low (since records started in 1963) in new homes available for sale. All time. I searched Bloomberg, Briefing.com, and other financial sites. CNBC actually noted the 150K was a record low. Bloomberg made no mention of the 150K number, record low or no. Is that good news or bad? There need to be fewer homes for sale to ultimately firm prices and turn the market. Consider, however, the following.

KB Homes reported earnings and also that orders for new homes dropped 9% in the quarter. Not great, but then figure that +20% was expected. Thus the above 150K figure is not because of a lot of sales, but also drops in new home construction. Combined with the distressed sales of existing homes that still make up over 30% of the market and you get the lowest number of new homes on the market since the records were kept.

Chart anticipating a drop? Double top, lower MACD on a nominal, low volume new high.

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX: 14.82; -0.75
VXN: 16.57; -0.26
VXO: 14.41; -0.68

Put/Call Ratio (CBOE): 1.05; -0.06

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 48.4% versus 43.6%. Bouncing right back up after three week decline. 47.9% before that and 51% even before. Bullish sentiment is returning. Again, it is not excessively bullish. They are off the 55+ level even near the highs as investors get a bit pensive. Bigger picture that is good for the upside. That was the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 23.6% versus 26.6%. After a three week stint near 25 to 26% bears are falling. As with bulls, not excessive either way. Solidly lower after spending weeks at 30%ish. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: +4.6 points (+0.15%) to close at 3067.92
Volume: 1.414B (-5.29%)

Up Volume: 695.89M (+232.17M)
Down Volume: 711.23M (-318.77M)

A/D and Hi/Lo: Advancers led 2 to 1
Previous Session: Decliners led 2.27 to 1

New Highs: 72 (+16)
New Lows: 20 (-1)

SP500/NYSE

Stats: +4.33 points (+0.31%) to close at 1397.11
NYSE Volume: 662M (-6.1%)

Up Volume: 2.39B (+1.929B)
Down Volume: 956.62M (-2.283B)

A/D and Hi/Lo: Advancers led 2.47 to 1
Previous Session: Decliners led 2.85 to 1

New Highs: 75 (+23)
New Lows: 11 (-8)

DJ30

Stats: +34.59 points (+0.27%) to close at 13080.73
Volume DJ30: 130M shares Friday versus 122M shares Thursday.

MONDAY

Next week we have a full slate of economic data from Monday through Friday. We start with Pending Home Sales on Monday. More housing data. It played a big role this week. Case/Shiller, Consumer Confidence, Durable Orders. They we come back with the third iteration of GDP. Initial Claims on Thursday with that. Then Friday Personal Income and Spending, Chicago PMI, and Michigan Sentiment. This will be the final for March. We got a load of data coming out. We will be able to ride the rails with that, not to mention the geopolitical data and what is going on with Europe with the bond yields starting to spike again.

That is all important. It will be very important, and the political campaign will be important. But we are also coming into earnings season. That will be important because we are anticipating that earnings will start to abate. The comparisons are tougher, and the growth has been less. Despite all of this talk about expanding economic recovery, we will have lower earnings. We saw NKE's gross margins falling. Why? Costs. Costs will play a role across the board. There has been a lot of good cost management to this point, but companies have done about all they can do to cut the fat. They have not hired anybody or have not been higher much. They have been holding on to their money because they anticipated higher costs ahead. Higher costs for the raw materials or from regulations such as Obamacare or EPA mandates about what they have to do with respect to their energy consumption. The Energy Department is putting coal companies out of business and raising the energy cost to heat and cool buildings. And then the farmers with the Labor Department passed a bunch of regulations about what kids can do on the farm. A lot of kids now cannot even ride the golf cart down to take care of the animals if they are not 16. It is insane, but that is what we have.

There are a lot of extra costs built in. These regulations are not free. Those costs go up to companies, and they will pass the cost onto us sooner than later. It will be one crescendo. We have energy cost going up, we have the cost of regulations going up, and looks like we will have taxes going up. Do you wonder why companies are hoarding all that money? They know taxes will go up. They have this money that they made and paid tax on, so will they spend it? They will be very careful with what they do with it.

We think earnings warnings could start up this coming week. We could see some problems. Some of the stocks that are already kind of wobbly could be an issue. We need to be diligent with our positions. If they break down (and that is what happens, leaders break down and recycle through the market), we need to go ahead and book the rest of the gains on them and put our money in the stocks that are the up-and-comers I have been talking about. They are out there, and they have some interesting patterns. ABCD patterns. Here is SZYM with a nice flag pattern. There are many different solid patterns out there on the up-and-comers that we can take advantage of.

We will focus on those still as our next battery of upside. Nothing has really changed in the market to alter the character of the modest rallies followed by modest pullbacks, followed by modest rallies. We will keep an eye on the SP600, of course, because it is something of an issue not being able to make the break. That may just be a formality as it makes a higher low. If the market wants to rally next week, odds are it will pull SP600 with it.

What do we do? We want to be at the table to eat when hedge funds and money market funds put their money to work in these other stocks. You can see them developing their patterns. We made money on many of the stocks when they came off of the lows and made us some great gains as they broke higher out of those nice, rounded bottoms. The ones that are doing it now, we want to do the same thing and make great gains on them. All the while protecting what we have made on those that have rallied but may be showing a bit of wear-and-tear.

Have a great weekend! I will see you on Monday for the start of a busy week.

Support and Resistance

NASDAQ: Closed at 3067.92

Resistance:
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3042 from 5/2000 low
3026 from 10/2000 low
The 20 day EMA at 3015
3000 is the February 2012 post-bear market high
The 50 day EMA at 2922
2910 is the recent March 2012 low
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2816 is the early April 2011 peak.
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
The 200 day SMA at 2691
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2555 is the mid-August 2011 peak
2535 is the November island reversal gap point
2441 is the November 2011 low

S&P 500: Closed at 1397.11

Resistance:
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
The 20 day EMA at 1383
1378 is the February 2012 peak
1371 is the May 2011 peak, the post-bear market high
1357 is the July 2011 peak
The 50 day EMA at 1352
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1318.51 is the May 2011 low
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1264
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 13,080.73
Resistance:
13,058 from the May 2008 peak on that bounce in the selling
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
13,056 is the February 2012 high
12,876 is the May high
The 50 day EMA at 12,841
12,754 is the July intraday peak
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 12,063
The June low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak

Economic Calendar

March 19 - Monday
NAHB Housing Market , March (10:00): 28 actual versus 31 expected, 28 prior (revised from 29)

March 20 - Tuesday
Housing Starts, February (8:30): 698K actual versus 705K expected, 706K prior (revised from 699K)
Building Permits, February (8:30): 717K actual versus 695K expected, 682K prior (revised from 676K)

March 21 - Wednesday
MBA Mortgage Index, 03/17 (7:00): -7.4% actual versus -2.4% prior
Existing Home Sales, February (10:00): 4.59M actual versus 4.60M expected, 4.63M prior (revised from 4.57M)
Crude Inventories, 03/17 (10:30): -1.160M actual versus 1.750M prior

March 22 - Thursday
Initial Claims, 03/17 (8:30): 348K actual versus 355K expected, 353K prior (revised from 351K)
Continuing Claims, 03/10 (8:30): 3352K actual versus 3363K expected, 3361K prior (revised from 3343K)
FHFA Housing Price I, January (10:00): 0.0% actual versus 0.1% prior (revised from 0.7%)
Leading Indicators, February (10:00): 0.7% actual versus 0.6% expected, 0.2% prior (revised from 0.4%)

March 23 - Friday
New Home Sales, February (10:00): 313K actual versus 323K expected, 318K prior (revised from 321K)

March 26 - Monday
Pending Home Sales, February (10:00): 0.5% expected, 2.0% prior

March 27 - Tuesday
Case-Shiller 20-city, January (9:00): -3.8% expected, -4.0% prior
Consumer Confidence, March (10:00): 70.0 expected, 70.8 prior

March 28 - Wednesday
MBA Mortgage Index, 03/24 (7:00): -7.4% prior
Durable Orders, February (8:30): 2.5% expected, -3.7% prior (revised from -4.0%)
Durable Orders -ex Transports, February (8:30): 1.0% expected, -3.0% prior (revised from -3.2%)
Crude Inventories, 03/24 (10:30): -1.160M prior

March 29 - Thursday
Initial Claims, 03/24 (8:30): 350K expected, 348K prior
Continuing Claims, 03/17 (8:30): 3385K expected, 3352K prior
GDP - Third Estimate, Q4 (8:30): 3.0% expected, 3.0% prior
GDP Deflator - Third, Q4 (8:30): 0.9% expected, 0.9% prior

March 30 - Friday
Personal Income, February (8:30): 0.4% expected, 0.3% prior
Personal Spending, February (8:30): 0.6% expected, 0.2% prior
PCE Prices - Core, February (8:30): 0.1% expected, 0.2% prior
Chicago PMI, March (9:45): 62.0 expected, 64.0 prior
Michigan Sentiment - Final, March (9:55): 74.3 expected, 74.3 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Jobs are Decent, Stocks Bounce

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 12 Mar 2012 18:08:00 +0000

SUMMARY:

- Jobs are decent, stocks bounce, but the indices are still below the recent peaks.
- Some stocks continue to look super, and others bounced back but look a lot like mere relief bounces.
- Jobs continue to improve but the best jobs are 50% temporary, job quality and pay has degraded, long-term unemployment is still incredibly high, and another 10 years is needed at this rate to get back to even.
- January Trade Deficit jumps to the highest in 3+ years. That is not a bad thing.
- Economy at escape velocity? Does the jobs report scuttle any vestiges of a QE3? ECRI versus areas of economic improvement.
- Friday did not answer the rally or correction question, but it sure left the table set for this week to try and formulate an answer.
- Many more downside setups, but good stocks continue running and there are more than a few upside setups as well.

Stocks bounce on jobs report but don't surge. Don't turn and sell off either.

Friday brought the jobs report. Of course the news about jobs dominated the headlines, and it dominated the action in the markets as well. Jobs were decent. They came in better than expected at 227K, and December and January were revised higher. The unemployment rate held at 8.3% despite more people coming back into the jobs market. That means there were more jobs available to soak them up. That was great news, and the market did bounce to the upside. There were problems with the report, but there are problems with every report. The trend is better, but there are issues about this trend. Yes, the numbers are better, but there are other factors to consider. I will get to those later.

Stocks were up, but where did they get up to? The SP500 is back at its May highs. That puts it at about the prior post bear market peak. It did not do any real damage to that level. Indeed, it faded back after moving through it intraday. There is similar action on the DJ30 with a bounce back up toward a prior high. Not even making that level. NASDAQ bounced back up to its prior high, but it did not move through it either. Up on the day, for sure, but it was not stellar action.

This leaves the market in position to answer the question next week as to whether it will make a breakout or if it will fade back and consolidate or correct. There are still stocks set up to the upside. There are stocks that have been running well that continue to run to the upside and perform very well. At the same time, there are stocks set up to fall, and they are key stocks as well. We will see how it shakes out, but we will be ready for either direction. The market is at a point where it has run a long way. It is bumping at resistance and has not been able to make the break through. It is trying to buy some time just as the Fed tried to by time and hope that its policies took effect to get the market moving before inflation took off. The market is trying to move laterally, buy some time, and let it catch its breath and consolidate so it can try to make the next move higher.

Looking at the morning action, futures were moving higher up into the actual release of the jobs report. They had been hesitating, but they did slightly tick higher ahead of the report. They faded after it came out, but the market caught itself and rallied higher as trading began. It held up well for most of the day before fading in the afternoon and trading laterally. It did manage a bounce late in the session to put a bit better face on it and to hold the gains. But as noted, the major indices did not move through their prior peaks. They did not scare anyone with their power. On the other hand, they did not roll over and sell off. That was one of the scenarios we were watching for, and it did not develop. But the indices did not provide a clear picture as to whether it was a hands-down winner and they were going to move higher, or if they were just going to bump up at those highs again and roll back over.

The gains were decent on the day, but nowhere near what they were on Thursday.

SP500, +0.36%; NASDAQ, +0.6%; Dow, +0.11%; SP600, +1.28%; SOX, +1.08%

Looking at the percentage gains, there is a definite bias toward the growth indices or growth sectors. They were the ones leading higher, and frankly they helped lead the market to the upside on this last leg up to the prior highs. Now we will see if they continue on and give the indices the punch needed to break through those highs, or if the lagging sides of the market such as manufacturing (as seen with CAT) pull them back down once more. There is also a third scenario. Perhaps those that are moving higher and those that are setting up to break to the upside will provide enough impetus to hold the market high (or at least hold where it is now) as the others fade. Kind of like the new replacing the old that are tired and holding the status quo.

That does not do much for moving higher, but think of it kind of like the unemployment rate today. It held at 8.3% even as more people came back to the market. That is typically what drives up unemployment rate, but there were enough jobs to offset them. Kind of the yin and yang, or like the Seinfeld episode where he was even-steven. He threw $20 out the window and then he found $20 in a pocket somewhere. That is hardly the case here; not a true, pure analogy, but you get the idea. The market is set up. The question is which way it will go.

OTHER MARKETS

Dollar. 1.3116 versus 1.3280 euro. The dollar posted a gain against the euro, but it was down against the other currencies and the DXYO lost ground. It is in this double bottom at a support level. It rallied through the hump in the pattern, but it gapped right back down. A little mini-island reversal. We will probably see a pullback to the bottom of the range as the U.S. struggles against the other currencies. The Japanese yen is a little stronger. The Bank of Japan will probably try to intervene as it does not want a stronger yen. It has not wanted a stronger yen in the past 15 years that I can recall. Maybe even longer.

You would expect the dollar to be stronger on a better jobs report. It just was not across the board.

Bonds. 2.05% versus 2.01% 10 year U.S. Treasury. The 10 year sold as you would anticipate. The notable move was above 2% for the week, and that drove bonds down to the bottom of the range at the bottom of this triangle. They did bounce off of the lows. It is getting interesting. Will they be able to mount a run higher off of the bottom of the triangle? They are pinched down into the point of the triangle, and this is the lick log. They will have to either make a break or not. At this point in the past they have showed the doji similar to what they showed on Friday and have bounced, but they have never broken out. As noted, this is the lick log. Something will happen over the next week with bonds. They could break down, which would suggest that the Fed will not post more Quantitative Easing and that the economy is good enough for bond yields to rise. The question is will the Fed let them rise? It still wants that easy money policy. Maybe no QE3, but it wants to keep the rates low.

Gold. 1,711.20, +12.50. Gold had an interesting day, and indeed an interesting week. Gold has been somewhat of an enigma trade. It broke out of its channel in late January. It rallied a bit, tested, made a higher low, and then broke to the upside. It looked solid, and then came the Bernanke testimony two Wednesdays back. He did not say anything about QE3. Investors wondered "Where the heck is our inflation trade?" Then they sold gold. Gold continued down, but it held at the 200 day EMA and at some interim peaks and valleys. It bounced. Not big, but Wednesday, Thursday, and Friday it was to the upside. Friday was volatile, but it snapped back and posted a good gain up to the 50 day EMA.

Looks as if gold wants to try to make the break back to the upside. Maybe there is a realization that there will be inflation whether or not the Fed pulls out a QE3. Jim Rogers is saying that there is no question that prices are up and that the government is lying to us about prices. The EPI shows inflation at 8% on the stuff you buy every day versus throwing in the washer and dryer, the flat screen TV, and personal computers. We all know those prices are going down, but the prices of the things that we eat and put in our tank and simply need to get by every day are going up. Perhaps that is why gold looks to have found a bottom and is looking to bounce once more.

Oil. 107.40, +0.82. Oil closed higher as well. It was down early, but then it reversed. That makes sense given the economy is improving, even if Europe is down, China is trying to slow, and Brazil's GDP fell to 2.7% growth. Then there are all the troubles in Iran. I heard it said today that we are at the World War II moment now. The longer we wait (and we have already waited too long) the more costly it gets if we are truly serious about stopping Iran from getting nuclear weapons. Or we will just let them have nuclear weapons, and many believe the administration is willing to let that happen versus having any serious confrontation.

I can see the setup, however, that Israel will be forced to act before it gets it too late and the ability to stop Iran gets beyond their technology. And then we do not back Israel. We may say that Israel acted without our permission, and that could get kind of ugly. But I digress. Suffice it to say that there are a lot of tensions in Middle East that are not helping the price of oil.

TECHNICAL SUMMARY

The internals were kind of lackluster, but it was a Friday.

Volume. NASDAQ -2.5%, 1.56B; NYSE -0.5%; 662M. It is a little disappointing to see volume decline as the market continued to recover. Recall that volume was quite accelerated on Tuesday with the selling, and that shows there are more sellers in the market. But there are three days to the upside. Does that mean anything? Yes and no. It is good to see the market bounce back up, but we will look at the technical picture momentarily. Even though it did rebound, the light volume and where it closed are indicative of a continued issue with breaking through these levels. That does not necessarily mean it will roll over, but it could trade in that range.

Breadth. NASDAQ +2.4:1; NYSE +2.3:1. Breadth was not bad. Small caps and techs in general were better than large cap techs. The smaller issues were helping to fill in the market and push it higher. That is what it needs because a lot of big names are struggling right now. We need a bunch of soldiers to fill in the gap and hold that market to the upside.

THE CHARTS

SP500. I am looking at that Tuesday selloff. Volume was up. It was not huge, but volume was huge a week before when SP500 broke to its new post bear market high, but then reversed and gave it back. The two largest volume days in the past two weeks have been to the downside. That is not necessarily great news. Looking at the third highest volume session in the last two months, we can see that it was an upside day. It is about 2:1 when you look at the big volume days.

That said, we held at the February peak and had a three-day rebound. A three-day pullback and a three-day rebound on declining volume. SP500 even reached through the prior post bear market high on Friday, but it could not hold the move and closed right at that prior high. It is set up now. It can fall back in the range and continue to trade. It can fall back further down toward the 50 day EMA or the October peak. Or it could make the breakout. The odds of a breakout may not be that great. The odds of a breakdown are not that great either. Unfortunately, I am talking about a narrow, choppy trading range. I would prefer to have a trading range that was big and that we can easily play up and down, but we may not get that.

DJ30. The Dow is similar, but not in as good of shape as the SP500. Recall that the Dow is the one that looks like it is having this rollover top. And you can see the head and shoulders. It tried to break through those highs from early February that set up the left shoulder. It got close. It went through the high from early February, but it pulled back well off of its high to close. It could be in the formation of that right shoulder. We are still looking at that as a potential downside play, to see the Dow break lower and come back to test these lows in the range from late January. That gives us a nice downside play to take advantage of as the Dow trades in a range, consolidating the gains. I think that is the most likely scenario for all of the indices. Not a huge breakout and not a big selloff. Just range trading. After all, the economy is improving. Europe is getting its stuff all in one pile. There should not be any reason to sell off (at least not an overt reason).

NASDAQ. NASDAQ put in a decent day, moving back up to its prior high. Volume has been a bit lower on the rebound. But techs were no doubt in the lead just as they were in the lead on the rally to the upside. That helped the market make its positive break. The question mark we have is that as NASDAQ matches the prior high (the new post-bear market high, those levels hit in late February) then MACD is making a lower high. We are running out of a little momentum. Does that mean a rip roaring selloff? No. Probably range trading, as I mentioned. It bounced once off of its prior high just as it did after it broke through it in early February. So it looks like that could be a support level where we see NASDAQ trade basically between 3000 down to 2900. It could drop lower toward the 50 day EMA at 2856. We will have to see how it plays out. There is this gap also from early February, and that could provide a needed gap fill. That would put it basically where the 50 day EMA is right now around 2860. It is not a big move 100-120 points to the downside.

SP600. The small caps also posted a nice day. Up three days in a row after some ugly downside a week and a half ago. It broke through the 50 day EMA on Tuesday, but then it tried to recover Wednesday. It could not do it, but Thursday and Friday it marched right back through. Now it is at a key level. It could not bust through it on Friday, fading back. But it is still strong to the upside as the small caps help push up the breadth. They posted nice gains. This could be the support that the market needs, with those other guys coming in and holding it up while the household, name-brand stocks take a breather.

SOX. The SOX posted a nice gain as well, up over 1%. The third day to the upside after this doji on Tuesday. 1-2-3 down, doji, and then 1-2-3 back up. This is going to be more problematic. Perhaps we get a little head and shoulders set up. Perhaps. Maybe this is the test back up. We will see if it breaks. As with the rest of the indices, three days to the upside, recovery from the selling, but not a clear affirmation that they will break to a new rally high on this move. I do not think that was shown at all. Indeed, with the number of downside setups we are seeing versus the number of upside setups, they are getting pretty even in the market. That does not necessarily mean it will tank; it just means that as money moves from one area to another, it drops that area that it left but bolsters the area it is moving to. That somewhat maintains the status quo. It is kind of maddening, and semiconductors were maddening for everyone here today. It is amazing when these moves happen and people get on edge and everything starts bothering them. "Where it heck is my pen?" All of a sudden a pen becomes very important. When times are good they will just grab another one. Today it was, "Who took my pen?!"

Stocks like KLAC and NVLS were moving up. All of a sudden they broke back up after they looked to be breaking down. But I digress. The transports were three days up as well, but a doji at the 50 day EMA. They definitely remain one of the downside indicators for the market overall.

LEADERSHIP

There are downside setups, upside setups, and those that are in between.

Retail. Some retailers continue to perform quite well. FOSL is continuing its move to the upside. Hard to complain about that with a 2.6% gain. TJX was up 1% on the day. HLF was up 3.6% on the day. Strong moves indeed. NKE was up 2%, and SCSS was up 3.7%. Retail across the board continues to perform very well.

Semiconductors. The semiconductors were trying to come back from the dead and bugging the heck out of us. KLAC broke back up through the 50 day EMA. NVLS broke back up above its channel line. Not bad. Not all of them are out of the woods. SLAB remains unable to bounce after selling off hard. BRCM bounced up off that doji at the 200 day EMA. Maybe it makes the break. We are still watching it for a possible downside play.

Manufacturing/Machinery. Then you have the stocks that have been the old standbys and doing so well. CAT is not looking so hot right now, and that goes across the board when it comes to manufacturing stocks. JOY is showing a bear flag, bouncing up after gapping down. It looks like it could roll down pretty hard from here.

Metals. There are issues with some metals stocks. AKS is bouncing back after selling off. There have been really ugly downtrends. FCX bounced modestly, but has turned back down on Friday on volume when most everything else was moving to the upside.

Miscellaneous upside movers. There are downside setups in key areas as well. What wins out? We have a lot of potential downside moves, but we also have stocks that are running to the upside and looking quite strong. There are other stocks that we moved into during the week or have bought recently and are performing very well. OSIS, for instance, looks solid and is bouncing up higher again. GTLS is making a further upside break. KIRK came back very well from an initial rude treatment on its jobs report. MA is not blowing it out, but it is moving up nicely. IACI in retail is performing well.

As you can see, there are stocks breaking higher after pretty decent consolidations, and they are supporting the market just as other stocks are in trouble and are undermining the market's advance. The net effect thus far? It has not been a breakdown, obviously. It has been some weakness in the market overall, but it looks like it might be turning into a sideways chop or range trade versus any kind of major selloff. Of course, that is exactly the thesis we have been putting out there. That there will be rotation in the market, but there will not be a major selloff as a result. Just a test/correction that is much needed, but that will not end the rally, particularly if the economic data continues to look good.

We just have to watch out for a major selloff. That may suggest (as it did in 2011) that the economic data will not hold up, and maybe ECRI is right and we will have a selloff into the summer or fall.

THE ECONOMY

Jobs continue their improvement trend. The questions relate to permanence, quality, and patience.

More people finding jobs . . .

227K new jobs, 233K private, upside December and January revisions.
8.3% unemployment even with 500K people coming back into the workforce.

Noteworthy: Participation rate rose to 63.9% from 63.7% in January BUT the unemployment rate did not rise. Typically it jumps again as people come back into the workforce.
Conclusion: Enough jobs were created to soak up those coming back into the market OR they are giving up and creating their own companies.
Disconnect: Not enough jobs to keep up with population so how could unemployment remain constant?

But will they feel this way before too long?

Reality Check 1: Those unemployed greater than 27 weeks are STILL over 50% of the unemployed. The HIGH in the 1980's deep recession was 26%. At this point in that recession we were growing at 7% GDP per quarter for several quarters with millions of quality jobs created.

Reality Check 2: Over one-half of the professional and business services sector jobs growth (45K jobs out of 84K created) were temporary jobs. Companies are still at the 'try before you buy' stage.

Reality Check 3: Job quality is poor. During the Bush years the knock on the recovery was 'job quality.' These are even worse with lower pay (wages are negative), lower end jobs. 71,000 were in private healthcare at the low end.

Reality Check 4: At the current rate of job creation, one that does not even meet population growth, it will take 10 YEARS to get back to pre-recession levels. If it improves to 350K/month it still takes 7 years!

Reality Check 5: With the very mild winter construction jobs still lost 13,000 workers. Retail, the supposed bastion of the economic recovery, lost 7,400 workers.

Not enough jobs to keep up with population growth, more people came back into the market, but unemployment rate remained steady.

Perhaps means sole proprietorships or small businesses emerging. That is a positive for the economy.

Positives and the same old negatives. Overall better than where we were.

Trade Deficit surges, but that shows we want to buy more.

Wholesale Inventories rise less than expected, but sales are less than expected as well.

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX. The VIX is back down to the recent levels that have led to bounces in volatility and minor corrections in the stock market. There have just been minor corrections, right? We are trading in a range, and they are somewhat related now. They have come into sync with one another, but they are not big moves. As I have said before, volatility can remain low for years while the stock market rallies. The fact that it is bouncing around in this range is not indicative that the market is about to roll over. Although the more it trades as this and shows the inability to break out, that could lead to a breakdown. But, as I said, the indices are buying time. They are trying to hold up and trying to be a little stingy with their gains. They want to hang onto them while they rest, consolidate, and prepare for the next move. You like to see stocks hold their gains because you can continue your upside without any appreciable loss. That is the sign of a healthy market.

VIX: 17.11; -0.84
VXN: 18.11; -0.94
VXO: 15.37; -0.76

Put/Call Ratio (CBOE): 0.9; -0.04

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 47.9% versus 51.1%. After holding flat for two weeks the bulls are fading after the pullback from the highs. Good to see the bullishness back off. It is not excessive, it is not excessively low either. They are off the 55+ level even near the highs as investors get a bit pensive. Bigger picture that is good for the upside. That was the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 26.6% versus 25.5%. Right back up to the level three weeks back. A bit more uncertainty among bears but not running higher to levels that suggests a new surge upside. Makes sense given where the indices are. As with bulls, not excessive either way. Solidly lower after fter spending weeks at 30%ish. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: +17.92 points (+0.6%) to close at 2988.34
Volume: 1.561B (-2.44%)

Up Volume: 1.13B (-30M)
Down Volume: 436.53M (+13.02M)

A/D and Hi/Lo: Advancers led 2.42 to 1
Previous Session: Advancers led 2.56 to 1

New Highs: 121 (+43)
New Lows: 21 (-1)

SP500/NYSE

Stats: +4.96 points (+0.36%) to close at 1370.87
NYSE Volume: 662M (-0.45%)

Up Volume: 2.33B (-670M)
Down Volume: 1.22B (+706.64M)

A/D and Hi/Lo: Advancers led 2.33 to 1
Previous Session: Advancers led 3.93 to 1

New Highs: 159 (+39)
New Lows: 6 (-4)

DJ30

Stats: +14.08 points (+0.11%) to close at 12922.02
Volume DJ30: 103M shares again, same as the 103M shares Thursday.

MONDAY

There is a lot of economic data even after the jobs report. We will see Retail Sales. FOMC has a rate decision on Tuesday. We will have Empire Manufacturing and the Philly Fed. We will see the PPI as well as Industrial Production and Capacity Utilization. All of those are pretty important based on what ECRI has been forecasting. A lot these feed more or less directly into its model. It will be an important week of economic data yet again.

I want to get back to a comment I made earlier. I said that Friday did not really answer whether there was a rally or correction, but it did leave the table set for next week to make that determination. Again I do not think there is much likelihood of a breakout unless NASDAQ and the small caps can lead the move to a breakout aided by the chips, of course and garner enough strength to pull those stocks that are set up to the downside along with them and to keep them from falling. If that happens, great. That makes us money on our upside positions. We can continue to play those because we will get more breakthroughs, but we will also have to watch a test. The best time to move in after three days to the upside is to get a test instead of buying on the breakout. Four days up. How many times has this market made a four-day move? Or five or six or seven? Not many. You get a breakout, then it comes back and makes a test, and that is when you want to play.

I do not think we will get that. If we do, we will be ready to play it when we test. For now, we will still be looking for some upside plays that look good. As noted, money is moving through the market. Just because the market moves up and down in a range does not mean that stocks will go down on the days that are down and up on the days that are up. There is rotation. Money is flowing into different, new areas and pushing those stocks higher as it comes out of some of the large cap names that have helped lead the market to this point.

The market can decline on any given day, but those stocks can rally on any given day. We will continue to look for those because they can make us money. If they are set up right and have not made big runs and are set to make the breaks and rallies, then we can continue to play those. But there are also many stocks to the downside, as noted. We have plays on the report, and we will continue to put more on. There are getting to be more downside setups about as many as there are upside. That is an indication of a market changing character. Not necessarily for a crash, of course, based upon what I have been talked about. But it is that sideways chop and maybe a bit of a deeper test. We will have to see how that plays out. But we have to be ready to play these downside plays that present themselves.

It has been tough to the downside, I admit that. You get them slapped back in your face with the "buy on the dips" mentality, but you keep putting some money their way because they will break and sell off ( perhaps pretty big). We will play the ranges now. Our expectations will be just to play the ranges, and we will even be looking at some index plays. If we are going into a range, we can play that and make money just as we can make money off of stocks trading in a range and off of indices trading in a range. At the same time we get the stocks that break out and run higher, and then we make money off of those. And there are those that break down because the money is leaving them and going elsewhere. We can money off of those as well.

There is always a way to make money in the markets. You just have to recognize what the market is doing, adjust your expectations accordingly, and make your plays within those parameters. Then you take profits when it is logical. If the market goes beyond your expectations, then you let part of it run and you will pick up gain on that. If it plays up to your expectations and turns when you think it does, then you have made your money and you go looking at the next play the other way.

I will see you on Monday for another busy week. I think we will get some consolidation for awhile. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2988.34

Resistance:
3000 is the February 2012 post-bear market high
3026 from 10/2000 low
3042 from 5/2000 low

Support:
2900 is the March 2012 low
2888 is the May 2011 peak and PRIOR post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
The 50 day EMA at 2856
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April 2011 peak.
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2676
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low

S&P 500: Closed at 1370.87

Resistance:
1371 is the May 2011 peak, the post-bear market high
1378 is the February 2012 peak
1425 from May 2008 closing highs
1433 from August 2007 closing lows
1440 from November 2007 closing lows

Support:
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
The 50 day EMA at 1328
1325-27 is the March 2008 closing low and the May 2006 peak.
1318.51 is the May 2011 low
1313 from the August 2008 interim peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1259
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1099 from the mid-July interim peak
1075 is the October 2011 intraday low

Dow: Closed at 12,922.02
Resistance:
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,876 is the May high
12,754 is the July intraday peak
The 50 day EMA at 12,691
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 12,019
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

March 5 - Monday
Factory Orders, January (10:00): -1.0% actual versus -1.9% expected, 1.4% prior (revised from 1.1%)
ISM Services, February (10:00): 57.3 actual versus 56.0 expected, 56.8 prior

March 7 - Wednesday
MBA Mortgage Index, 03/03 (7:00): -1.2% actual versus -0.3% prior
ADP Employment Change, February (8:15): 216K actual versus 218K expected, 173K prior (revised from 170K)
Productivity-Revised, Q4 (8:30): 0.9% actual versus 0.9% expected, 0.7% prior
Unit Labor Costs - Revised, Q4 (8:30): 2.8% actual versus 1.1% expected, 1.2% prior
Crude Inventories, 03/03 (10:30): 0.832M actual versus 4.160M prior
Consumer Credit, January (15:00): $17.8B actual versus $12.0B expected, $16.3B prior (revised from $19.3B)

March 8 - Thursday
Challenger Job Cuts, February (7:30): 2.0% actual versus 38.9% prior
Initial Claims, 03/03 (8:30): 362K actual versus 355K expected, 354K prior (revised from 351K)
Continuing Claims, 02/25 (8:30): 3416K actual versus 3405K expected, 3406K prior (revised from 3402K)

March 9 - Friday
Nonfarm Payrolls, February (8:30): 227K actual versus 206K expected, 284K prior (revised from 243K)
Nonfarm Private Payrolls, February (8:30): 233K actual versus 220K expected, 285K prior (revised from 257K)
Unemployment Rate, February (8:30): 8.3% actual versus 8.3% expected, 8.3% prior
Hourly Earnings, February (8:30): 0.1% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
Average Workweek, February (8:30): 34.5 actual versus 34.5 expected, 34.5 prior
Trade Balance, January (8:30): -$52.6B actual versus -$48.2B expected, -$50.4B prior (revised from -$48.8B)
Wholesale Inventories, January (10:00): 0.4% actual versus 0.6% expected, 1.1% prior (revised from 1.0%)

March 12 - Monday
Treasury Budget, February (14:00): -$229.0B expected, -$222.5B prior

March 13 - Tuesday
Retail Sales, February (8:30): 1.0% expected, 0.4% prior
Retail Sales ex-auto, February (8:30): 0.7% expected, 0.7% prior
Business Inventories, January (10:00): 0.6% expected, 0.4% prior
FOMC Rate Decision, March (14:15): 0.25% expected, 0.25% prior

March 14 - Wednesday
MBA Mortgage Index, 03/10 (7:00): -1.2% prior
Current Account Balance, Q4 (8:30): -$113.8B expected, -$110.3B prior
Export Prices ex-ag., February (8:30): 0.0% prior
Import Prices ex-oil, February (8:30): 0.1% prior
Crude Inventories, 03/10 (10:30): 0.832M prior

March 15 - Thursday
Initial Claims, 03/10 (8:30): 358K expected, 362K prior
Continuing Claims, 03/03 (8:30): 3415K expected, 3416K prior
Empire Manufacturing, March (8:30): 15.0 expected, 19.5 prior
PPI, February (8:30): 0.5% expected, 0.1% prior
Core PPI, February (8:30): 0.2% expected, 0.4% prior
Net Long-Term TIC Fl, January (9:00): $17.9B prior
Philadelphia Fed, March (10:00): 12.5 expected, 10.2 prior

March 16 - Friday
CPI, February (8:30): 0.4% expected, 0.2% prior
Core CPI, February (8:30): 0.2% expected, 0.2% prior
Industrial Production, February (9:15): 0.5% expected, 0.0% prior
Capacity Utilization, February (9:15): 78.8% expected, 78.5% prior
Michigan Sentiment, March (9:55): 76.0 expected, 75.3 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Individual Stocks are Upside Key for Now

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 27 Feb 2012 06:10:00 +0000

SUMMARY:

- Stocks start stronger, give up the gains for a mixed close as the slow slog continues.
- Slow overall, but some solid moves from solid leaders.
- Michigan Sentiment Final jumps again.
- New home sales fall in January, but opposite of Existing Home Sales, they do so because of an upward revision in December numbers.
- Geithner says 'no quick fix' for gasoline problem. No there is not, but we would already be 'fixed' if we had taken action back when they last said there was no quick fix . . .
- President pushes algae fuel as he takes credit for higher oil production that had its beginnings before he was even running for President and when he has only 3% of offshore zones closed to drilling.
- Excess money helping fuel higher fuel prices.
- Indices end the week basically unchanged, i.e. still rising but making virtually no overall progress. Individual stocks are the upside key for now as we watch for rollover signs.

Indices try to make a meaningful move but suffer the afternoon dips.

Friday was heralded as the day that the Dow crossed 13K, and surely it did. It moved up to a whopping 13,014. It could not hold it again, however, and faded back below the magical 13K on the close. SP500 was said to have made a new closing high since 2008. Yea verily, it did, but it also did not break above its May intraday high. When you are talking about old highs, you have to talk about where it made it intraday. If you are playing a stock or index, then that makes a difference in a technical sense. Am I splitting hairs? Yes, I am.

There was virtually no change in the market as the indices closed mixed, but they did give up an early gain. We had a bit of that high-to-low action versus the low-to-high action that has been the hallmark of this rally. The low-to-high action is a positive because it shows buyers stepping in whenever there is a dip. We saw that this morning. Stocks open and sold back. There was that first-hour dip, and buyers came in and rallied stocks to session highs and pushed the SP500 to that new closing high. It was really looking good, almost breaking through the prior peak marking that bear market high. It could not quite do it, and it faded at that high. The buyers did not stay around until the close on Friday. It was hardly catastrophic. As noted, the indices are still very solid in their ranges, bumping up against or in some instances actually moving through the prior bear market highs.

We have the same action of a slow, steady move to the upside even though it was not shared by all of the indices on Friday.

SP500, +0.17%; NASDAQ, +0.23%; Dow, -0.1%; SP600, -0.4%; SOX, -0.2%

As I said, it was a mixed market. It was spread between the growth and the more stoic and staid large cap NYSE stocks and indices as well. It was a definite mixed bag on the day, and it was quite frustrating and boring. The indices are continuing this climb to nowhere. We have heard about the Bridge to Nowhere in Alaska. This is definitely not a move to nowhere, but it seems like it is going nowhere fast. There was an up day followed by a down day. Or a good, solid break to the upside followed by several days lateral. It is hard for the market to put together two (and dare we ask for three?) strong upside sessions back-to-back. I would even settle for every other day. Instead we get the slow slog to the upside.

That does not mean there were not good moves on the day. Some of the plays we were looking at broke nicely to the upside. FOSL is one of those apparel retailers doing quite well. It had a solid 2.5% break to the upside. VFC, another apparel maker, bounced nicely off of the 10 day EMA on rising volume. A very nice pullback to test its breakout, and it started to resume the move. They are out there. They are making upside moves, but it is more of a stock-by-stock basis. They are definitely moving, but the bigger moves are coming on individual names versus the overall market. That says something in itself; perhaps the market is tired. I have been saying that for a while.

Has it slowed the market? Yes. But it has not stopped the market. The move is definitely slower, but it is still moving higher and it has not put in that rounded-look looking top you get before selloffs. KLAC has a very classic-looking rounded top. The stock continued to work higher through late 2011, but as it did, MACD was putting in lower highs even as the stock put in higher price highs. Then there is a round off top spanning early January until basically this week. It broke below the 50 day EMA, and it tried to test on Wednesday and Thursday. Then Friday it broke lower once more. We have the move up on waning momentum, and then the rounding out at the top. Now perhaps we will have the rollover.

That puts this market in what they like to call on the financial stations "a stock-picker's market." That is where you have to get the right names. If you are a fundamental investor, that makes life very difficult for you. That is where technical analysis comes in. Frankly, we are always picking stocks. Every day we go through a big list of possible plays where we might put our money, and we decide whether it is worth it. Of those that are, we decide which have the best risk/reward, the best pattern, and are ready to go. Those are the ones that make it on the report. It is not something new for us, but it is something they like to talk about because it makes things a little more mysterious and supposedly difficult for the average investor. Anyone can do this, however. You do not have to be all that smart; you just have to understand how the market works and understand that it does not work the way you were taught that things should work. But that is a whole other story. While I teach some of it here, I have to teach classes to really get into that.

OTHER MARKETS

The other markets pretty much kept the trends they were following for the week as well.

Dollar. 1.3456 versus 1.3367 euro. It was a tough week for the dollar, and the closed lower again. It was a multi-month low versus the dollar (or a high versus the dollar, whichever way you want to look at it). It broke the dollar below its recent range in the index. The dollar stopped rising against the yen, and that has fueled this quick drop on Thursday and Friday in the DXY0. Of course it is down sharply against the euro as well.

The dollar should be getting stronger, in theory, if the U.S. economy is supposed to be stronger in the future. There is that offsetting problem of the eurozone. Money is moving back to the continent after spending time in the U.S. That is one of the reasons why the dollar is losing ground versus the euro. They are selling dollars in favor of buying euros.

Bonds. 1.98% versus 1.99% 10 year U.S. Treasury. Bonds were up overall on the day, although the 10 year posted a very modest gain. Bonds are holding in their range. They have a little triangle set up, and they bounced this week. We will see if they can make a breakout. That would be counterintuitive to a stronger economy in the U.S. and a stronger recovery in Europe. Bonds would be stronger if there was worry about the economic future here, in Europe, or both. The fact that they are rallying would suggest some kind of problem down the road. It is important to note that they have not broken out and they are at the bottom of their range. While they may be rebounding this week, we have to the see if it is just a relief move or something more significant. Right now it does not suggest that it is anything terribly serious. If this pattern forms up a bit better and bonds start to make the breakout, that suggests something is out there that we have to worry about yet again.

Gold. 1,776.30, -9.90. Gold was off on the session. It took a breather after a very solid move up on the week. This week saw it resume the breakout from the channel formed from the fall off 2011 into early 2012. There was the breakout, the test, and then a great move to the upside this week. There was a little giveback on Friday. That is perfectly normal after a good week to the upside

Oil. 109.76, +1.93. Oil continues higher, painfully so. Quite the breakout on the week. Indeed, it was an impressive three-week move for oil. We were looking for a test but it was not showing up at the end of the week. Why not? There is stress from Iran and its issues with Israel, as well as other problems in the Middle East that keep tensions higher with respect to oil. Also there is the possibility of sanctions against Iran by the eurozone coming later. Iran is making it clear that it does not view that as a friendly act. No kidding.

There is also the dollar and its decline. As we used to see and talk about a lot in the past, oil tends to rise as the dollar weakens because it is nominated in dollars. It takes more dollars to buy every barrel of oil when the dollar value declines. You do not hear much about this right now as to why oil is high, but that is a very good reason why the moves are accelerating to the upside. The dollar is accelerating its decline against other currencies. It takes more dollars to have the same value for a barrel of oil. This despite the fact that there is a lot of oil in the U.S. right now.
The President is taking credit for making the increased oil production possible. I will talk about that more later, but it is absolutely crazy. That is like a newly-elected mayor cutting the ribbon on a completed 20-story building that a company built and saying, "Thanks to the policies I have implemented, we were able to build this." A lot of it was built well before the mayor ever showed up. That is exactly what happened with the additional energy production we have now.

TECHNICAL SUMMARY

Internally it was rather boring on Friday.

Volume. NASDAQ -7.2%, 1.6B; NYSE -17%, 581M. Volume fell fairly sharply.

Breadth. NASDAQ, -1.2:1; NYSE +1.2:1

THE CHARTS

SP500. The SP500 is bumping right at that old post bear market high from 2011. It could not take it out. It fell back, but it put in that closing high that got everyone excited. Again, that does not mean much because it did not take out those old highs. It is still bumping, still working on it, and still not there.

DJ30. Same story with the Dow. It moved to a nominal new high, but then it faded back and was unable to close out the deal. Up on the week, yes, but still struggling to extend this break above those July 2011 highs.

NASDAQ. NASDAQ was up as well. It continues to try putting a little distance between it and those prior highs, but it is not making much headway. A nice 1-2-3 pullback during the week, a nice break to the upside on Thursday, but it could not consummate it on Friday. Very similar to last week.

SP600. The small caps were down a bit, struggling right below the prior peak. Moving now in a four-week lateral range, trying to get out of there. Not looking bad or rolling over, but we do see MACD falling lower, as with the other indices. It is making a lower high as the indices bump and try to put in that higher high. A bit of loss of momentum.

SOX. Last night I talked about the SOX and its nice pullback to the 20 day EMA. It tried to put in the bounce on Friday. It could not consummate it and fell back. Not a catastrophic rollover; it is still sitting above the 20 day EMA. It can still make the move, and we will see if it does. The semiconductors could provide a big boost for this market. If they get back on track and make more of these solid 3-4 session upside moves, that would really goose the other indices to the upside.

LEADERSHIP

Semiconductors/Technology. I want to discuss those that I said were key and that we needed to watch. BRCM is attempting to hold at the 20 day EMA, make a higher low, and then try to push through the October 2011 peak. Very important test for BRCM because it is one of those AAPL-related semiconductors. Speaking of AAPL, it was up again. It posted a 1%+ gain on the day. It is right below this prior reversal-day peak. This will be an important test for AAPL. It has come right back up to that peak. The question is will it consolidate, make a higher low and break higher? Will it move right on through or will it reverse? Lower volume. MACD is still trying to make a move. It is nothing definitive yet. It is maybe just a bit low. We will see. This is a very important test for AAPL.

KLAC has put in that rounded top. It looks to be heading lower. That is the problem with chip equipment. NVLS has a rounded top. It is trying to hold the 50 day EMA, and it may do it. We will see. There is some trouble in semiconductors, but there are also good tidings there as well. Stocks such as BRCM are holding the line.

Retail. Retail remains solid. VFC had a nice break to the upside. It gave us the entry we were looking for. RL is trying to set up again for the new break to the upside. FOSL broke to a new rally high after that surge. It has given us the entry we were looking for as well.

Medical/Healthcare. ISRG looks to be making a new break to the upside. HNSN is another stock that we have played in the past. It looks like it could try to make a break to the upside. It has some serious resistance, but I just want to point out stocks that look to be coming around.

Manufacturing. HOLI had a nice break to the upside on Thursday and Friday. IR had a very nice flag pattern back to the 10 day EMA. We still have great stocks in great position to move higher, and they are moving higher. It is hard to bet against this kind of market.

What makes this kind of market run? Liquidity, baby. It has been the pump all along. Liquidity has fueled this recovery since basically day one. The turn at the bottom was from massive liquidity pumped into the system. For the initial rally, QE1 is what turned it. None of those other programs worked; QE1 brought stocks off of the bottom. Then we had the 2010 test. They did not know if there would be a QE2, and then it was announced in August. An inverted head and shoulders. The announcement was the catalyst, and shortly thereafter the market took off on another run up through early 2011. We knew that QE2 was ending in June, and the market started to falter ahead of that. It topped. It put in a head and shoulders. There was no QE3 announced, and the market sold off. Europe started to burn. With no QE3 the U.S. fell. The U.S. was in trouble, and then they announced twist. Twist rescued the market off of the lows. It was not enough to send it higher, however, because we still had the European problems. Then the Fed, the ECB, and four other world central banks got together and created dollar facilities for European banks. Thus we have had the move from mid-December to the present based on that liquidity.

We are back at the highs. We have had great runs and we are still having great runs thanks to the continued liquidity. As long as we have these good leaders moving, we can play them to the upside. Liquidity really drives the market.

THE ECONOMY

Treasury Secretary Geithner says 'no quick fixes' to gasoline price issue. If we started at some point in the last 30, 20, or even 10 years we would not, again, be having this discussion.

There's gold (black gold?) in them thar' swamps! President takes credit for increased oil production, makes more claims about 'green' energy.

ECRI still calling for a mid-year recession.

Recession call made September 2011, forecasting a recession by mid-2012. You won't know you are in one until about 6 months later.

Definitive data show no recovery, indeed things are getting worse:
-Annualized GDP peaked in Q3 2010. By Q2 2011 it fell to 1.5%. The last read was 1.6%. Since the peak it has flat-lined at 1.5%.
-Personal Income is down.
-Overall sales are down (recall the inventory surge in Q4 2011 GDP number?)
-Industrial Production is at a 22 month low.

This pushed the Coincident Index to a 21 month low (see chart). In the last 50 years this has equaled a recession.

Why is sentiment up? Central Banks have printed trillions in currency. As I discussed last week, that is why we have had the economic lift we have had. Not stimulus, not real growth, just extra money.

Money Velocity: Trillions of dollars out there but velocity is at a record low in the US and near record lows in China and Europe. The money is not getting used but going into the financial markets just as it did in, for example, 1999 when the Fed pumped all that Y2K money into the economy and it was put in the stock market.

Personal disposable income: Negative for the past five months!!

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

Sentiment is starting to play in the market. The VIX was up slightly, but it closed very low at 17.3. There was a decline in bulls and a rise in bears. This is markedly different from the spike we saw in bulls and the decline in bears over the last two weeks. Bulls came in at 51.1% while the bears rose to 26.6%. The 51.4 is up from 54.8 the prior week. The bears were at 25.8. Not a huge spike, but even as the market moves higher we are getting some issues with respect to how well the market is behaving. So much so that the slow move, even though it is to the upside, is getting a lot of people nervous. Bears are rising and bulls are falling from pretty steep levels, and that could suggest an interim top. Perhaps not a top of the rally, but an interim top.

The put/call ratio bumped up to 1.09. That is only on the CBOE, not the combination of all the put/call exchanges that, for instance, Investor's Business Daily uses. On IBD, the put/call ratio looks like it was around 0.84, but we do not have the latest numbers on that yet. We will have to see when it comes out over the weekend, but it will most likely be up. That shows that people are nervous. Does this mean that a bunch of speculators are out buying puts? No, although we have been buying some as the positions present themselves. We bought more positions today on KLAC to the downside, but that is different versus the big money managers buying puts for protection for a decline. They are anticipating a pullback, and it seems like everyone is anticipating it. What happens when everyone anticipates something? It tends to do the opposite, at least for a while. Thus the uptrend continues for now.

VIX: 17.31; +0.51
VXN: 18.27; -0.14
VXO: 15.44; +0.16

Put/Call Ratio (CBOE): 1.09; +0.11

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 51.1% versus 54.8%. After a quick and big spike higher bulls are right back down near that 50% level where it held for several weeks. Hit the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 26.6% versus 25.8%. Back up a bit but still lower than the 28.7% three weeks back. As with bulls, a quick and big break upside, but now right back down. After spending weeks at 30%ish, bulls are faltering big time. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: +6.77 points (+0.23%) to close at 2963.75
Volume: 1.602B (-7.18%)

Up Volume: 937.03M (-322.97M)
Down Volume: 679.7M (+187.71M)

A/D and Hi/Lo: Decliners led 1.21 to 1
Previous Session: Advancers led 2.44 to 1

New Highs: 110 (+12)
New Lows: 8 (-15)

SP500/NYSE

Stats: +2.28 points (+0.17%) to close at 1365.74
NYSE Volume: 581M (-16.76%)

Up Volume: 1.77B (-880M)
Down Volume: 1.61B (+520M)

A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Advancers led 2.6 to 1

New Highs: 162 (+30)
New Lows: 3 (-1)

DJ30

Stats: -1.74 points (-0.01%) to close at 12982.95
Volume DJ30: 89.4M shares Friday versus 120M shares Thursday.

MONDAY

Next week there is a lot of economic data. Monday brings Pending Home Sales. Tuesday is Durable Orders, Case/Shiller, and Consumer Confidence. Wednesday there is the second estimate of GDP and Chicago PMI. Very important. Thursday is Initial Claims, Person Income and Spending, and the ISM Index for February. All will be important, particularly in light of the ECRI reiteration of the call for a mid-2012 recession. That is just the situation we have.

Where do go from here? The indices are basically up at the old highs, unable to push further but not falling. As I said earlier, this is what they call "a stock picker's market," and we have seen some really great stocks moving to the upside. The indices are not rolling over at least not yet. Since they are not showing signs of that rounded top rollover, we are not going to bet against them overall right now. We are not that comfortable with a lot of new positions, but they keep showing themselves so we will keep taking them. We will let our positions run as long as they will. If any get in trouble, we will take some off of the table as we have been doing. We are not letting them get out of hand on us.

What does that mean for the coming week? A lot of data. We still have to keep that eye on the exit just in case things turn. Typically you get a rollover. Typically, as noted on Thursday, it takes awhile for this to work through the system. But the initial moves can be sharp as we saw in February. You get the climb and then, boom, a sharp selloff. But then you almost always get that recovery. If it does not make it, you are done and it will sell off. But this was a classic ABCD pattern. You have the strong move, the pull back, the bounce to a lower high. Then there is the sell off to a lower low, and then you have a rally right back up to the prior peak. That is what ABCD does and what you are looking for. That was the top. It tried again. Not bad, but that was false. It did not have the MACD with it. It was already in some trouble and it rolled over. We were worried at the time, and it proved to be correct.

We have not had the selloff yet. It may come up next week. You do not know. At some point there will be a punctuated selloff. Do we get out now and just wait for it? You can, but you might miss some action. You always get to that last point where you say, "Should I stay or should I go?" That is the question. But we are investors/traders and we have to take advantage of what the market gives. If we see moves like VFC, we want to take advantage of those because they can make us money even if the market is getting ready to top. We just have to be careful. It behooves us to watch the exit, watch our positions, and be pretty ruthless with taking stops as we have been. We are protecting our gain. We are not letting any of it go, and we are still making money to the upside. We will continue to do that. But we are fully cognizant of the fact that the indices, while they are breaking through the old highs, are not showing great strength. We watch for topping, we watch for any sharp pullbacks, but we can wait for a bounce to exit. That is typical these situations. You get a pullback and a bounce, a pullback and at bounce.

Even though we get selling, let us keep our heads. Protect your positions, but to not totally panic if we cannot get out of everything. Just wait for your time, and you typically get a better exit point. Then we will get better setups to the downside as well. Those stocks that broke down will rebound and fail, and we can get more downside entry points and make money to the downside as the upside folds up shop.

I hope that makes sense to you. Have a great weekend, and I will see you on another busy Monday. It is another week where we watch and see if this is the one where the move runs out of juice.

Support and Resistance

NASDAQ: Closed at 2963.75

Resistance:
3026 from 10/2000 low
3042 from 5/2000 low

Support:
The 10 day EMA at 2937
The 20 day EMA at 2900
2888 is the May 2011 peak and post-bear market high
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April 2011 peak.
The 50 day EMA at 2804
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2668
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low

S&P 500: Closed at 1365.74
Resistance:
1370 is the August 2007 low
1371 is the May 2011 peak, the post-bear market high

Support:
1364 is the March 2007 low
1357 is the July 2011 peak
1344 is the February 2011 peak
The 20 day EMA at 1344
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325-27 is the March 2008 closing low and the May 2006 peak.
1318.51 is the May low
1313 from the August 2008 interim peak
The 50 day EMA at 1311
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
The 200 day SMA at 1258
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak

Dow: Closed at 12,982.95
Resistance:
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,876 is the May high
The 20 day EMA at 12,836
12,754 is the July intraday peak
The 50 day EMA at 12,576
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,999
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

February 22 - Wednesday
MBA Mortgage Index, 02/18 (7:00): -4.5% actual versus -1.0% prior
Existing Home Sales, January (10:00): 4.57M actual versus 4.63M expected, 4.38M prior (revised from 4.61M)
Up 4.3% in January. Down 5% in December, revised lower. 5% - 4.3%= net negative.
Inventories: 2.31M unites. Lowest March 2005.

February 23 - Thursday
Initial Claims, 02/18 (8:30): 351K actual versus 355K expected, 351K prior (revised from 348K)
Continuing Claims, 02/11 (8:30): 3392K actual versus 3450K expected, 3444K prior (revised from 3426K)
FHFA Housing Price I, December (10:00): 0.7% actual versus 0.7% prior (revised from 1.0%)
Crude Inventories, 02/18 (11:00): 1.633M actual versus -0.171M prior

February 24 - Friday
Michigan Sentiment - Final, February (9:55): 75.3 actual versus 73.0 expected, 72.5 prior
New Home Sales, January (10:00): 321K actual versus 315K expected, 324K prior (revised from 307K). -0.9%. 5% revision upside in December.

March 1 - Thursday
Construction Spending, January (10:00): 1.0% expected, 1.5% prior
Auto Sales, February (14:00): 5.00M prior
Truck Sales, February (14:00): 5.73M prior

February 27 - Monday
Pending Home Sales, January (10:00): 1.0% expected, -3.5% prior

February 28 - Tuesday
Durable Orders, January (8:30): -1.4% expected, 3.0% prior
Durable Orders -ex Transports, January (8:30): 0.2% expected, 2.2% prior
Case-Shiller 20-city, December (9:00): -3.6% expected, -3.7% prior
Consumer Confidence, February (10:00): 62.5 expected, 61.1 prior

February 29 - Wednesday
MBA Mortgage Index, 02/25 (7:00): -4.5% prior
MBA Mortgage Purchases Index, 02/25 (7:00): -4.5% prior
GDP - Second Estimate, Q4 (8:30): 2.8% expected, 2.8% prior
GDP Deflator - Second, Q4 (8:30): 0.4% expected, 0.4% prior
Chicago PMI, February (9:45): 60.0 expected, 60.2 prior
Crude Inventories, 02/25 (10:30): 1.633M prior

March 1 - Thursday
Initial Claims, 02/25 (8:30): 355K expected, 351K prior
Continuing Claims, 02/18 (8:30): 3425K expected, 3392K prior
Personal Income, January (8:30): 0.4% expected, 0.5% prior
Personal Spending, January (8:30): 0.3% expected, 0.0% prior
PCE Prices - Core, January (8:30): 0.2% expected, 0.2% prior
ISM Index, February (10:00): 54.5 expected, 54.1 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Overcome Minor Selling Attempts

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 19 Feb 2012 20:35:00 +0000

SUMMARY:

- Stocks overcome minor selling attempts on the week, post gains along with some new post-bear market highs.
- Still feels as if you have the tiger by the tail, but thus far the tiger has not tried to swat us.
- Gallup puts Unemployment at 19.2% as CBO tells us long-term unemployed still at 40%, where they were in 2009.
- Philly Fed forecasting 30K jobs created in February. Why won't people hire?
- CPI 'lighter' trumpet the headlines, but the core is hot and getting hotter: beware gasoline prices.
- Sticking with what is working but the ranks of quality new plays are growing thinner.

Stocks hit some bumps but continue higher.

Hello fellow investors and traders. Let's face it, we all have to be traders to a certain extent right now, like it or not. Although we do still have investments. What about PCLN? You remember this company we bought way back in 2010 at $188, and today it was trading at $582. It was breaking out, as a matter of fact.

SOX overcame some minor selling on the session and on the week to post relatively nice gains. After all, stocks were trading laterally the prior week, and this week, even though they had issues getting away from that lateral range, they overcame them and rallied Thursday and Friday. We have had a few bumps along the way. Last Friday the stock market sold. It looked a bit shaky. Monday it bounced right back, but we had those sell on close orders. Wednesday the market sold back down, but it held the 10 day EMA again. Thursday it was back up, but there were those sell on close orders once again. Some former big buyers were now pretty big sellers, dumping shares. Friday did not seem to cause much of a problem, however.

Stocks were starting to the upside. They sold off and gave it all back early in the day, but then a slow, steady melt higher once more as another dip (this one intraday) was used as a buying opportunity. Looking at the SP500 chart, there were dips last Friday, then on Wednesday, but buyers stepped in and used the dips as an entry point as they have all along in this rally. There was no grand breakout move. Just more upside. That is not too bad given where the indices are. SP500 is still trying to get through its May peak. Other indices made it. NASDAQ continued to move higher above its prior post-bear market high. The Dow finally made more of a substantial move on Friday, clearing this two-week range where it played footsie with the old post-bear market high. Now looks like it might try to motor a bit. There was a good volume spike, but it was expiration Friday, so we cannot put too much into that.

All in all, it is hard to complain about the action on the week, particularly given that there were some hiccups. There was some actual selling showing up, but the market overcame it. The bids are still there. I was worried a few weeks back and spoke of the bids running out. They keep bumping up against the same resistance as the indices were bumping up against those prior highs, and there is the inability to break through. Sometimes that wears out the bids, so to speak. It exhausts the buyers and the sellers just wait them out. Once the buyers do not have anything left, the sellers can swoop in and knock stock prices backward. They took their shots last week, but they just were not able to knock them back. On Friday stocks managed to post gains and put in some decent moves on the indices.

SP500, +0.23%; NASDAQ, -0.27%; Dow, +0.35%; SP600, -0.03%; SOX, -0.88%; NASDAQ 100, -0.31%.

The SOX was up over 2% on Thursday and posted another solid gain on Wednesday as well. It was doing just fine. Why would the NASDAQ 100 be down? Big cap techs. AAPL was flat on the day. Some big names were unable to rally, and AAPL had that reversal on Wednesday. It looked like things were okay on Thursday. It held the 10 day EMA on a gap lower and reversed off of that, but it takes time for this kind of pattern to work through the system. I suppose it is good that they did not break down further, but it is not out of the woods yet given that Wednesday reversal.

All in all, not a bad week for stocks. Although there are still issues that I talked about last weekend that are still in play. That would be the double bout of selling attempts over the past week. They were not successful but, again, on the bounces at the end of the day there were sell on close orders and some big volume. That means there is some big money dumping shares the day after a selloff on a rebound. They are closing out their positions anyway. They were not buying into the dip as many were. They were selling at the peak of the dip. If they had been buying on the dip, obviously it would have been a bigger move. They were waiting, and they sold when the market went to close. Just so happens that, thus far, the market still found enough bids to overcome those sellers.

I talked about AAPL with its Wednesday reversal day. It held up, and that is good, but the jury is still out. Looking across the market, there are fewer stocks out there with those nice rounded bottoms that we can catch. We caught many of these in Q4 for the run higher to end 2011 and begin 2012. Those provided great gains for us to the upside. Now there are not that many. As noted last night, it is the missing demographic in the continued attempts for the market to move higher.

At the same time, there are more downside setups showing up. Some are in key areas such as the transports. KSU is a stock that we have been looking to play to the downside. We are seeing more topping patterns develop. Not more topping patterns than upside -- not at all. Just that more of them are developing. We are still looking at it for this weekend, but at this juncture I do not see a plethora of rounded tops that would be the antithesis of these rounded bottoms.

I talked a lot in October and November about the rounded bottoms that were setting up. I was excited about it. We felt that meant we were going to get the market rally. That was the whole point behind our thesis that we would get the run up to the prior highs in the SP500 and the other indices. That is exactly what happened. We rode these stocks to the upside. Others were already on the way as well; it was not all the rounded bottoms, but they provided a big foundation for the market to rally. We are watching for rounded tops. Not as many are setting up now, but some of those patterns look like they may be setting up a pennant. Those can give you a bit of a curve ball sometimes. Not that FTK is negative. We were looking at it as an upside play, but you can see what happened. MACD came up and hit a new high. It is just rolling over. It is not able to do anything with it. No major breakdown. It could just be a shakeout. We are watching it. You have to start watching patterns like this. There are some even bigger than this, stretching out over two or three months. Those are more of a worry than FTK. We see rounded tops forming, just not nearly as many as the rounded bottoms. If we saw multiple rounded tops in key stocks as well, that would be the indication that we would get a pullback, and a pretty good one at that. We are just not seeing that right now.

The overall economic data is solid. Retail Sales were not as great as expected, but if you ex out the autos, they were solid. And there were great revisions. The manufacturing numbers were good with Empire Manufacturing and the Philly Fed. Industrial Production and Capacity where not bad. Capacity was quite solid, thank you. Initial claims continued to improve. Housing Starts were higher than expected with a 1.5% rise. You can see what I am talking about. Where he getting better data, and that is on top of other data that was solid as well.

The U.S. data is looking good and, by golly, Europe seems to have it under control. I am not saying it is for certain, but it is giving the appearance of control whether it is in charge or not. Looking at the LIBOR rates, the dollar LIBOR went down to a new low on this selloff at 0.49. For the second day in a row, Friday, it continues to show less stress between the banks. The bond markets are improving. Portugal, Italy, and Spain yields are dropping significantly. If you are going to trust any market, typically it is the bond market. Of course there has been a lot of monkeying around with bonds given the government interventions, but they are showing that things are improving. LIBOR and the bond markets give pretty good insight that things are getting a bit better on the continent.

So is everything all candy and nuts now and we are all going to be happy at Christmas because of this? Everyone seems to think so. There is a lot of bullish sentiment out there. We had Barron's with its Dow 15K headline. We had the almost unending run higher in AAPL. And it is not just AAPL. CMG is running higher as well, day after day to the upside. COH is moving higher day after day. Well known, well loved, and moving higher. TJX is clicking them off with these slow moves right up the 10 day EMA. Just working its way higher.

A lot of people think we have hit nirvana when it comes to stocks with their steady moves and not giving any back. That is when you have to be a little worried. There is never nirvana in the market, although it seems like it sometimes. Everyone was partying too hard for too long back in 1999 and early 2000. They had a really bad headache afterwards... for years. The point is that we are getting pretty ebullient about stocks -- although the retail investor is not really in the market. Nonetheless, there is getting to be a lot of whipped-up sentiment, and people are coming around. It is ironic that AAPL made that great move and almost to the day that Barron's put out the Dow 15K article, AAPL surged and then reversed on high volume. Maybe that was just outstanding timing or maybe it is a little bit of foreshadowing.

Last week I said we had the tiger by the tail, and I think we still do. He may have seen us and tried to shake us off a little over the past week with those two downside days, but they were immediately followed by buying. Maybe he is planning something. Maybe he knows we are back there now and is scheming. We had those sell on close orders for two days. Big sells. We had AAPL reversing. We had a lot of great feelings in the market that everything is fine, and we have a lot of feeling in the economy that everything is fine. I have chronicled over the week that the economy is actually a piece of crud, although it is improving. Maybe it does not smell as bad and looks a little better, but crud is crud.

You can see what I am getting at. You have to be careful. Everyone is getting somewhat complacent. The tiger knows we are there. We will keep hanging onto that tail and following him along, but if he turns around and starts swinging at us, we will get out of the way pretty quickly. We are already moving into some downside plays, and we got knocked back on one of those this week had to close it. But we had some other good entries that I think could make us some money. If things keep hiccupping along, there will be some early fallout stocks that could make us money to the downside. That is the way it always is. There are always early leaders to the upside that everyone on follows, and there are always early leaders to the downside that most everyone follows that way.

The tiger is still running, and we are running with it. We are trying to figure out what tree are we going to jump off on. We were all laughing about it in the office today. If a stock looks at us sideways, we all said we would get out of them. We may be hyper paranoid right now, but we are seeing stocks do some pretty strange things on the day. HMSY sold off sharply. It rebounded, but it never really regained its trend. It closed below the 20 day EMA. It has been holding that for months on end. I like JAZZ a lot, but it sold off hard. It came back. We were just about to leave it because it was above the 2012 trend, but then it faltered. Got away from it.

We have some stocks that performed very well and have been market leaders. They are now coming under fire. The tiger is taking a swat here and there. It is just a matter of time before the tiger comes back to take a swipe at us. How do I know that? Because of history. I do not know precisely when it will happen; no one does. A lot of people think they do. What is more likely is the pullback similar to the one in Q4 of 2010. It was after that inverted head and shoulders bottom over the summer of that year, the rally back up to the prior highs, and JUST ABOVE the prior highs. Does that not sound familiar? And then the fade to test. But Quantitative Easing was still in place, so the rally continued.

We have not had our real test yet. We moved laterally, but that was not really a test. I still think we could come back and sell. We are starting to see more action that would line up with that idea and pull us to the downside. But it has not happened yet, so we are running with the tiger. We are still going into stocks. We saw buys we wanted like PCLN today. Long base, broke out, and tested it. That was a beautiful setup. I do not care if the market is at a zenith; PCLN looks like it wants to go up to $1000 again. I am not saying that is your target -- because I am not that stupid -- but I also bought some stock back at $188 and now it is trading at $582. You can still invest is some of these. I am not buying stock right here, although maybe it is a good play to do so. Maybe LEAPS could be a good thing to buy on PCLN if we are planning on it going potentially to $1000. That is something to consider. WFM is in its mid range, and it broke to the upside. It did a nice job of it, too. It still has room and could make us money. We are not looking for it to go up to $500. We are looking for it to trade up to the top of the range near 90. That is a start. That makes us some good money and puts the kids into college a bit better.

We have the tiger, but we still have some great stocks that are running along and will run interference for us. Maybe they are showing that the tiger does not really care about us right now. He just wants to head down the road. Since we are not holding him back, maybe he will let us ride along.

OTHER MARKETS

Dollar. 1.3158 versus 1.3132 euro. The dollar had a rough day, but it had a good week overall. It closed sharply lower against the euro. The yen is stinking so badly this week that the DXYO did not tank. Indeed, it gained on the week. The euro was up sharply on the week and the yen was down sharply on the week versus the dollar. That left the DXY0 up but off its highs on the week.

Bonds. 2.01% versus 2.00% 10 year U.S. Treasury. Bonds were flat on the day. Back down at the bottom of the range, but still holding the range. Bonds are not giving up. They are not totally convinced that everything is fine in Europe. If it was, then money would be fleeing back to the continent and our bonds would go down in price and up in yield. They are up in yield, but they have not broken through the bottom of the range.

Gold. 1,725.70, -2.80. Gold was flat on the week. Flat is not bad. Gold is holding the test of the breakout of the channel. Not bad action at all. It still think gold is going higher from here. Why? The EU is adopting all the U.S. strategies on how to liquefy your way out of problems. Ultimately that leads to some pretty hellish inflation, and that is what will put gold to the upside. The thing holding gold back this week was the lack of fear. It was the fear being taken out of the equation in Europe. Inflation will take charge again. We saw it in the U.S. CPI numbers. When that happens, gold will head back to the upside.

Oil. 103.27, +0.73. Oil looks unstoppable. It is right at the top of its range. International pressures are adding to it as well as simple stupidity in the U.S. Gasoline hit a new high at 3.53 per gallon. That was up from last week, and it is up 92% since President Obama took office. Oil will create problems for the economy, no doubt.

The other markets were acting like you would expect them to act. That is not necessarily good for us when looking at the price of oil and how gold is setting up, looking at inflation over the long run. But the market has not stopped. It has overcome the little bit of adversity that has been thrown its way, so we keep running with the tiger. We have him by the tail. He could turn around and maul us at any time, but we will run with him for as long as he will let us.

TECHNICAL SUMMARY

Volume. NASDAQ, +1.5%; NYSE, +11%. It was expiration, so you would expect a little higher volume. That is what we got, and it still was not very high volume at that.

Breadth. NASDAQ +1:1; NYSE +1.4:1

THE CHARTS

SP500. The notables: On Friday a break lower and rebound. Wednesday a break lower. Thursday a rebound. Now a new rally high. Still not over the prior post-bear market highs, but moving in that direction up toward 1375. It will be the moment of truth. It may stop these moves or it may not, but it looks like the SP500 will be the last of the majors to make it to that level.

DJ30. DJ30 finally broke out of its highs a bit decisively. Looks like it could put some moves on it if it wants to. Lateral consolidation for two weeks, breaking higher. Could be off to the races like PCLN. We will see.

NASDAQ. NASDAQ pulled back on the day. AAPL and the big boys were not helping out, but it extended its lead over its prior 2011 post-bear market highs. NASDAQ continues to be the leadership index.

SP600. The small caps made a decent comeback on Thursday. Friday they were matching the prior bear market highs, but still below the nominal new high hit in early February. This is the lick-log point for the small caps. Will they be able to break through and extend the move like NASDAQ and perhaps the Dow? Or will they be stuck here spinning their wheels?

SOX. The SOX had a very good week. It was up nicely Tuesday, Wednesday, and Thursday. Gapped higher and sold back on Friday. Technology had a bit of trouble. Growth had trouble on Friday, but this did not turn the tide on this move. A nice breakout over the November and December peak, and there is a good rally to the upside underway. It even cleared that July 2010 high. Still a lot of resistance ahead, no doubt. One of the major points of resistance is at 450-455. About the best the SOX could do was 439. It still has room to run. If the rest of the indices wants to move, SOX can help push in from below

LEADERSHIP

It was not a bad week for leadership. I will go through several different stocks that performed fairly well.

STX gapped higher on earnings. It has moved laterally nicely. Looks like it wants to make the break to the upside. Of course there is the PCLN juggernaut. It came to life in mid-January and it is looking super to the upside. Not bad at all. TXN is a key chip stock. It is still struggling to get over those prior peaks, but it has put in something of an ascending triangle. Maybe it can make the move. TEX has really been interesting. It continues to move to the upside. TJX is continuing to move higher up the 10 day EMA and 20 day EMA. These stocks are showing continued buying. Another building-related company is TREX. It has had a bit of trouble at the end of the week, but it came right back.

As long as these stocks keep performing as they are, we have that tiger by the tail. We will let him keep running. We do not see the breaks. We do not see the rounded tops yet. We do not see those clear flags that tell us to get out. We are not seeing that at all, but we are being careful. If we see a stock that looks like it will get in trouble, we take it out and shoot it before it shoots us or drags us down. We do not want to be like one of those guys caught on a line in "Deadliest Catch." They are out catching crabs, and when a guy goes overboard he is frozen like a popsicle and dead in two minutes. That is what happens when a stock starts dive on you and you do not cut the cord rapidly enough. It does not necessarily kill you (although it can), but it bleeds our gains away. Just do not do it. If the market keeps going up, we will other opportunities. We still have many great plays to continue higher for us.

We still have leaders that are running. We just do not have a lot of those in the rounded-bottom genre. There are a few out there. We will continue to put them on the report, but they are not showing up as fast as they used to. That is just a factor of how far the market has run right now. We have that tiger by the tail. We are letting him run, and we still have leaders running. They are making us money, and we will not say no to that.

THE ECONOMY

Gallup pegs the accurate unemployment rate.

Philly Fed and jobs: the connection.

CPI core is showing inflation.

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX: 17.78; -1.44
VXN: 19.76; -1.13
VXO: 16.33; -0.8

Put/Call Ratio (CBOE): 0.75; -0.13

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 52.1% versus 48.9%. After a dip from 50.0% bulls are picking up steam. At the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 28.7% versus 29.8%. Still around the 30% level but starting to back off, matching the same level as three weeks back. A bit less fearful as the indices probe the prior highs. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: -8.07 points (-0.27%) to close at 2951.78
Volume: 1.933B (+1.52%)

Up Volume: 836.27M (-783.73M)
Down Volume: 1.08B (+779.13M)

A/D and Hi/Lo: Advancers led 1.02 to 1
Previous Session: Advancers led 3.23 to 1

New Highs: 126 (+11)
New Lows: 12 (-1)

SP500/NYSE

Stats: +3.19 points (+0.23%) to close at 1361.23
NYSE Volume: 831M (+11.24%)

Up Volume: 1.99B (-1.46B)
Down Volume: 1.66B (+1.107B)

A/D and Hi/Lo: Advancers led 1.4 to 1
Previous Session: Advancers led 3.01 to 1

New Highs: 174 (+39)
New Lows: 2 (-5)

DJ30

Stats: +46.02 points (+0.36%) to close at 12950.1
Volume DJ30: 234M shares Friday versus 134M shares Thursday.

TUESDAY

There is a three-day weekend, so we will be starting things off on Tuesday. That could be interesting because Monday brings the interminable votes with respect to the Greece bailout. They have a few votes a week. Maybe they voted on the week before, but that was not binding so they have to vote again. And this other one was not really the right vote. You get the idea. We have that on Monday. They are planning to put the serious news out on Tuesday when the U.S. markets are open so they can react to that. That is what we hear. There will be something happening. In Europe there always is, right? No big deal there. The issues are if something happens in Iran or someplace similar. But no one can control that anyway.

It is a three-day weekend. What do you do? No one was selling, that is for sure. There was no real desire to sell. It was expiration, so that colors the tape a bit. It is hard to complain about the way things closed. Tuesday is a whole new story, and we will see what happens. The data does not come out until Wednesday. Existing Home Sales come out a half hour into trade. They are important. Then we have the usual Initial Claims on Thursday. On Friday we have the Michigan Sentiment final for February and New Home sales. Some important reports, although backing off.

What do we do at this point in the market? We continue doing what we have been doing all along in this rally. Of course we cannot do it to the same degree we were because we do not those nice, rounded bottom plays coming off of the double bottoms or the rounded bottoms or the cup with handles, or whatever they were forming down there. We had inverted head and shoulders, triangles. We saw a bit of everything. The common denominator was that they were putting in some form of a bottoming pattern, and they have broken higher and run for two to three months on top of that. We will stick with that because it has not changed.

We do not see dramatic changes in leadership, although we do see some that are having problems. The problem is the ranks of the upside quality plays are growing thinner. We are trying to stick to well-known names in great position if we can. There are other stocks in great position that have great patterns but are not as well known. That is not bad, but if the market starts to buck those are stocks that are jettisoned first. People do not really know them, so they just hang on to the household name stocks like AAPL. You do not want to get too heavy into lesser-known stocks just as you think the market might be moving toward some kind of top before a pullback.

That leaves you in a dilemma. You want to stick with quality, but you have to have quality names that give you the right kind of risk/reward. You do not want to put a dollar at risk for a dollar risk of loss. That is a losing proposition over the long run. You want to get those odds in you are favor. You want to have three points to make to the upside without having to break any resistance to one point to the downside to your support. There should be a support level there, and your stop loss can be right underneath that as a little firewall. As they said in Gettysburg, "This is damn good ground." That is good ground, and you want that big support (or resistance if you are playing downside) between your stock and where your stop is. That gives your play a chance to run even if it wants to test. It will hold at that support and bounce again.

You want to find those plays, but they are harder to find. They hate me here in the office because I keep saying "That will not work. That is not good enough. No. That will not be a play with enough quality." It is driving the guys crazy, but that is where you get the big bucks. That is why we keep finding those and it is what we will focus on. We will stick with what we are doing. We will hang onto that tiger's tail, letting our positions run, but we will be ruthless in protecting them as we have been.

We have a list of stocks that are on the bubble. Positions that are not maybe working as well as we wanted them to given the market rise. The patterns are not exactly what we want to see, but they are still working on it. But if they get in trouble then, boom, they are gone. The list is shorter because we have closed a lot of those positions. We have been fortunate that we can still close them with gains. We are not losing any money and actually putting more money in the bank as we do close them. We will continue to look that way, but we have to be flexible. We will be looking more downside as well. Keep your eyes open for rounded tops, head and shoulders setting up. Things that go bump in the night where you have highs and highs, but lower MACDs and the higher high. Just as we had higher MACD at the lower lows on the bottom. That is the circle of life. It goes up; it goes down. It is the symmetry of it all that is so compelling. We will have problems when we start seeing more tops like this, bottoms like this, or stocks that are still continuing to put those little pyramids one on top of another as they hold their trendline. We are not there yet, but we will probably see more of those as time goes on in this rally.

We will just take what the market gives along the way, adjusting accordingly. We will naturally move from a bullish, upside bent to a more bearish downside position as the market morphs into the pullback stage. I want to reiterate, as I did on Thursday, that I am not talking about a major selloff. I am talking about a pullback to test the October highs or the 50 day EMA, similar to what the market did in Q4 of 2010. It came back to test after matching (or just besting) the original rally high off of the bear market low.

I will see you on Tuesday. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2951.78

Resistance:
3026 from 10/2000 low
3042 from 5/2000 low

Support:
The 10 day EMA at 2919
2888 is the May 2011 peak and post-bear market high
2879 is the July 2011 peak
The 20 day EMA at 2875
2862 is the 2007 peak
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April 2011 peak.
The 50 day EMA at 2778
2754 is the October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2665
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low

S&P 500: Closed at 1361.23
Resistance:
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1357 is the July 2011 peak
1344 is the February 2011 peak
1340 is the early April 2011 peak
The 20 day EMA at 1335
1332 is the early March 2011 peak
1325-27 is the March 2008 closing low and the May 2006 peak.
1318.51 is the May low
1313 from the August 2008 interim peak
The 50 day EMA at 1302
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
The 200 day SMA at 1257
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak

Dow: Closed at 12,949.87
Resistance:
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,876 is the May high
The 20 day EMA at 12,771
12,754 is the July intraday peak
The 50 day EMA at 12,508
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,993
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

February 14 - Tuesday
Retail Sales, January (8:30): 0.4% actual versus 0.8% expected, 0.0% prior (revised from 0.1%)
Retail Sales ex-auto, January (8:30): 0.7% actual versus 0.5% expected, -0.5% prior (revised from -0.2%). Largest rise since 2/11.
Export Prices ex-ag., January (8:30): 0.0% actual versus -0.2% prior
Import Prices ex-oil, January (8:30): 0.1% actual versus 0.2% prior, +7.1% yr/yr
Business Inventories, December (10:00): 0.4% actual versus 0.5% expected, 0.3% prior

February 15 - Wednesday
MBA Mortgage Index, 02/11 (7:00): -1.0% actual versus 7.5% prior
Empire Manufacturing, February (8:30): 19.5 actual versus 14.0 expected, 13.5 prior
Net Long-Term TIC Fl, December (9:00): $17.9B actual versus $61.3B prior (revised from $59.8B)
Industrial Production, January (9:15): 0.0% actual versus 0.6% expected, 1.0% prior (revised from 0.4%)
Capacity Utilization, January (9:15): 78.5% actual versus 78.6% expected, 78.6% prior (revised from 78.1%)
NAHB Housing Market Index, February (10:00): 29 actual versus 26 expected, 25 prior
Crude Inventories, 02/11 (10:30): -0.171M actual versus 0.304M prior
FOMC Minutes, 1/25 (14:00)

February 16 - Thursday
Initial Claims, 02/11 (8:30): 348K actual versus 365K expected, 361K prior (revised from 358K)
Continuing Claims, 02/04 (8:30): 3426K actual versus 3505K expected, 3526K prior (revised from 3515K)
Housing Starts, January (8:30): 699K actual versus 671K expected, 689K prior (revised from 657K)
Building Permits, January (8:30): 676K actual versus 675K expected, 671K prior (revised from 679K)
PPI, January (8:30): 0.1% actual versus 0.3% expected, -0.1% prior
Core PPI, January (8:30): 0.4% actual versus 0.2% expected, 0.3% prior
Philadelphia Fed, February (10:00): 10.2 actual versus 10.0 expected, 7.3 prior

February 17 - Friday
CPI, January (8:30): 0.2% actual versus 0.3% expected, 0.0% prior
Core CPI, January (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
Leading Indicators, January (10:00): 0.4% actual versus 0.5% expected, 0.5% prior (revised from 0.4%)

February 22 - Wednesday
MBA Mortgage Index, 02/18 (7:00): -1.0% prior
Existing Home Sales, January (10:00): 4.63M expected, 4.61M prior

February 23 - Thursday
Initial Claims, 02/18 (8:30): 355K expected, 348K prior
Continuing Claims, 02/11 (8:30): 3450K expected, 3426K prior
FHFA Housing Price Index, December (10:00): 1.0% prior
Crude Inventories, 02/18 (11:00): -0.171M prior

February 24 - Friday
Michigan Sentiment - Final, February (9:55): 73.0 expected, 72.5 prior
New Home Sales, January (10:00): 315K expected, 307K prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Indices Struggle with Prior High

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 13 Feb 2012 01:44:00 +0000

A modest pullback as the indices struggle with the prior highs.

A Greek bondholder deal is not a Greek austerity deal. Investors were concerned because there were riots in the streets, and the head of one of the three political parties said he would not vote for the current austerity package because it was designed to humiliate the Greeks. They did not want to be under the boot of the Germans. That sums up the feeling on the continent about those haves and the have-nots. Those who have already gone through their austerity and have relative prosperity versus those who just wanted to do their own thing.

I am reminded of the cartoon about the grasshopper and the ant. The ant worked so hard during the days of summer to put away food while the grasshopper sat back, strummed his guitar, and sang a song about how working could wait. Come winter, the ant had a nice, warm home full of food, and the grasshopper was starving to debt. You know the story. I do not think the Greeks would appreciate that analogy, but it is somewhat similar to how things are going. They have to bite the bullet and, as I said the other night, we will have to do the same at some point. They do not want to do it, and that is understandable. As I mentioned last night, we did end up seeing pictures with the haze of not only tear gas but of burning autos dimming the natural beauty of Greece. It is a shame for such a beautiful place.

That news roughed up the futures, and they were starting to the downside. They tried to recover a bit into the open and could not make much of a move. They were heading in the right direction until things started. They did recover, and then it was back and forth the entire day, never gaining any kind of traction. It looked like things were turning up at the opening bell, but the Michigan Sentiment numbers brought the market right back down. They were not horrible, but they did miss expectations. It did not do much from there, although it did manage something of a late rally that cut the losses. But that is all it did.

SP500, -0.69%; NASDAQ, -0.8%; Dow, -0.69%; SP600, -1.42%; SOX, -2%; NASDAQ 100, -0.65%.

AAPL was not able to keep the NASDAQ 100 going, although AAPL was up pretty decently early in the session before things lost their mojo. Then it fell into that backsliding mode.

OTHER MARKETS

When there is worry about Europe and Greece, we start having improvement.

Dollar. 1.3171 versus 1.3290 euro. The dollar managed to bounce, but it was down on the week. Money continued to flow back to Europe from the U.S. on the sign that things were a bit better. That is, of course, taking Friday out of the equation. There is just something about people rioting in the streets, tear gas, and fires that quell the feeling that everything is just fine.

Bonds. 1.96% versus 2.04% 10 year U.S. Treasury. Bonds rebounded with a bounce back up toward the 50 day EMA. Back in the range but at the bottom of the range nonetheless. Money is being moved back out for the same reason it is moving out of the dollar. They are better on the day, but overall they are still trending down as money flows back to Europe.

Gold. 1,725.30, -15.90. Gold was up and down, but it still finished lower. It did rebound after hours and improve itself. It still looks like it will try to make a bounce. It held the 20 day EMA on the low, and it bounced nicely off that level.

Oil. 98.68, -1.23. Even though we imported incredible amounts of oil at an all-time high in 2011, it was down on the day. It also tested lower, but it rebounded and bounced up higher in its range this week.

Oil is still range bound, as are bonds, the dollar, and gold. They are all trading in a range, and they are all trading as you would expect as the news comes out day to day. But none of them are breaking out or breaking down. That tells us that things are not necessarily decided in Europe. Our stock market has rallied in anticipation of maybe a resolution, but then bonds have sold back, raising yields. But there have been no major breakthroughs that would suggest anything serious has changed. We head into another week with the markets banging up against those old highs yet again. And bonds, the dollar, gold, and oil are all roughly moving around in their ranges as well. It is as if they are all waiting for the definitive moment to take place or something new to come out.

With the markets where they are now, on Friday we saw that they can be rattled a bit. No doubt the market is a bit overbought and subject to upset when the news does not go its way. Greece did the market no favors, one that has its indices trying to break through the prior highs. There were some nominal breaks over the past week, but nothing that was able to extend and rally to the upside. The selling was pretty innocuous. It was not heavy across the board. Volume was lower. It was not anything that will scare investors too much ...yet. That is the way it always starts, however. It is something little. It reminds me of the Kurt Russell movie 'Big Trouble in Little China.' They were questioning Egg Shen and he says, "It was just a little thing. But that is how it always happens." We had just a little move on Friday, but that does not mean there will not be more selling. Sometimes the selling comes in quietly like a thief in the night. Other times it is like shock and awe when it starts. We have had a good run to the upside. Buyers still want to buy in, and we may just have a nice backslide. That remains to be seen, and this coming week will answer more of those questions.

Maybe it is a bit down the road, but a test would not hurt at all. As you know, we were taking positions seriously. If they showed signs of trouble, we were getting out of them. We want to keep the gain we have. One of the problems with the market is it has a lot of potential inflation because of all of the money printing. You want to make as much money as you can to keep ahead of inflation. You want to buy some commodities and buy some gold, and that is what we have been doing. You kind of take care of things from both ends. As Ronald Reagan said, one of the most patriotic things you can do is be a person for free enterprise, start your own business, make as much money as you can, and then give as little of it as you can to the government. When you are in an inflationary environment, that is all the more important. You have to hang onto all those extra bucks because they will be worth less. Not worthless, but worth less.

TECHNICAL SUMMARY

The internals were not that impressive.

Volume. NASDAQ -18%, 1.75B; NYSE -1.7%, 697M. Volume was down, and it was already quite low even before that drop. Volume overall has fallen considerably, so overall volume will not shock you if it is lower or higher.

Breadth. NASDAQ -2.9:1; NYSE -3.1. Decliners led thanks to the small caps suffering. Pretty obviously slanted toward the downside, but nothing grotesquely out of the norm or compared to what we have seen over the past year.

THE CHARTS

There was no big action. Friday was rather innocuous. It is a small start that may lead to something, but it was not showing it on Friday.

SP500. SP500 is back below the February peak, but it is holding the 10 day EMA. It is still in the steady rise. Looking at this, you might say this is no issue. If you ignore all of the tops, you may think that is no big deal at all. But that is not the case. We know they are there, but thus far the market has not broken. You just have to be concerned in the event that things get worse. What looks to be nothing can (as easily as not) develop into something, particularly when you are at prior highs.

DJ30. The Dow shows this. It broke through, but it just could not make it stick. The fell to the 10 day EMA as well, and now it is trading around in a range. It is still trying to hold, but it could easily come back and test the 50 day EMA that is marked roughly with the late-October peak. We have a place that is perfectly logical for the market to pull back and then turn back to the upside. That is much more logical than continuing on as it is without a pullback. Then again, the market does not always act according to our logic.

NASDAQ. The NASDAQ is very similar. It is holding its breakout, sitting with a doji on the 10 day EMA. A little island reversal. On Wednesday to Thursday there is a gap, and on Thursday to Friday a gap to the downside. Maybe that will lead to more selling, but it is nothing heavy duty. The bigger ones were back a week ago with that gap to the upside. If it gaps down from there, we have a pullback to the 50 day EMA. It is also roughly coincident with the late-October peak.

SP600. The small caps are a bit more interesting. The SP600 does not show a lot. Up and down, sliding just below the 10 day EMA. But if you look at the ETF that is traded, it gapped in something of an island reversal that one of the subscribers pointed out today. It gapped upside last week, it gapped downside on Friday. Could be a selloff. But how deep? You just look for a pullback down to that October high. At this point there is nothing to suggest otherwise.

SOX. The SOX was beaten up a bit. The chips took it on the chin. They have been one of the leaders, and they were roughed up somewhat. The question is whether they are going to lead to the downside. Some patterns got suddenly quite rocky. Not terrible, but not as comfortable as they were. It was like going over a big pothole in the road. The question is whether it smoothes back out or if we have more potholes that degrade and take it down to these October and early-November highs.

The markets are bumping up against those highs. There were some nominal breaks that everyone was excited about, but they are not able to push through. There is no follow-through, and that is something I always talk about. That is the key to anything whether it is a breakout of a stock or a selloff off a stock that breaks below support but then comes back and does not sell off. No follow through. The buyers cannot push the indices up through that resistance and make it stick or put mileage between it and those key points. If there is no follow-through, then the other side (whether you are upside or downside) tends to come back in. They push back and have some backsliding. That leaves us the possibly that we could have a bit of trouble, but that is what we have been looking for.

LEADERSHIP

Semiconductors. The chips are struggling a bit. Nothing major, but a bit of a struggle. ALTR is coming back toward the 200 day EMA. TXN is gapping downside, having a hard time getting through that early-January high. MRVL is one we have been watching and playing. It has been struggling. There is a little bit of hitch in the get-along, but that is okay. We are just being careful. We can get better setups out of these with a pullback. Why ride through something that is not looking that great in hopes that it gets better? Instead we can just let it come back and give us a test that sets it up a lot better. That is the theme I have been hounding you about for the past week. If you have a little trouble, do not mess around; just take it off the table and then maybe we will come back and later get a better buy on it.

Technology. It was a great week for AAPL. It was up 0.25 on Friday. It was showing a doji, but that was after a really nice run. We took some excellent gain off the table on the move. GOOG has had a good move to the upside. There are some interesting features. It has filled part of gap, and now it is up at a resistance point. If we draw another resistance line, it is bumping up against this range of resistance. We could see a downside move that would aid the market in testing. Is that not putting a positive spin on it?

Miscellaneous. Even though there are some trouble areas and potential problems, most every other area looks great from what we can tell. How do you tell? You look at the charts. I want to go through a group of stocks that we have that look good. TEX is performing very well. ARAY was off on the day, but it has had a great run. It was not showing that it is wearing out. TREX did not have a spectacular move, but it was down with a doji to the 10 day EMA. Plenty of positives with stocks still showing good action, good moves, and holding the market to the upside. That does not mean that these will continue to do so. Things start off quietly sometimes and then get worse. That is why we do not want to let positions get out of hand and start to hurt us.

THE ECONOMY

TO VIEW THE ECONOMIC SUMMARY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Michigan Sentiment lower but in keeping with the recovering trend.

A wider trade gap is a good thing.

THE MARKET

SENTIMENT INDICATORS

VIX. Volatility did bounce. It rose significantly on the day. It was up +11.5%, but it tapped the 50 day EMA and backed off. That means the market is having a rough patch and reacting as you would think when it sold. It is still very low, but volatility can remain low for long periods of time. This will be the key move where it bumped that 50 day EMA because there are other peaks along the way from back in the summer and in late 2010. That will be a level up around 22 that tries to keep it in check.

VIX: 20.79; +2.16
VXN: 20.94; +2.04
VXO: 18.76; +1.86

Put/Call Ratio (CBOE): 1.1; +0.23

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 52.1% versus 48.9%. After a dip from 50.0% bulls are picking up steam. At the highest level since April and May of 2011, the peak of the post-bear market high. Now the indices are back at that level and so are the bulls. All the more reason to watch this action at the prior highs. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 28.7% versus 29.8%. Still around the 30% level but starting to back off, matching the same level as three weeks back. A bit less fearful as the indices probe the prior highs. Not at a bearish level but they are growing more confident even as the market hits the prior highs and is not blasting on through. For more 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.

NASDAQ

Stats: -23.35 points (-0.8%) to close at 2903.88
Volume: 1.759B (-17.57%)

Up Volume: 405.95M (-654.05M)
Down Volume: 1.37B (+418.54M)

A/D and Hi/Lo: Decliners led 2.87 to 1
Previous Session: Decliners led 1.23 to 1

New Highs: 43 (-67)
New Lows: 14 (+4)

SP500/NYSE

Stats: -9.31 points (-0.69%) to close at 1342.64
NYSE Volume: 697M (-1.69%)

Up Volume: 819.86M (-1.45B)
Down Volume: 3B (+1.25B)

A/D and Hi/Lo: Decliners led 3.08 to 1
Previous Session: Advancers led 1.01 to 1

New Highs: 88 (-106)
New Lows: 11 (+4)

DJ30

Stats: -89.23 points (-0.69%) to close at 12801.23
Volume DJ30: 123M shares Friday versus 157M shares Thursday.

MONDAY

We are going into next week a bit cautiously, but we are looking for a test. Maybe it will hold and continue higher, but we are looking for a test that we can make plays off of. Plenty of data comes out next week. Tuesday we have Retail Sales back out. We have Business Inventories, and it will be important to see if they are rising. Empire Manufacturing is on Wednesday. On Thursday we have the Initial Claims, Philly Fed, Housing Starts, Building Permits, and the PPI. Friday we have the Leading Economic Indicators. Plenty to move the market, not to mention Greece and what will happen there over the weekend.

Considering all of that, we have to figure out what we want to do for the coming week. Frankly, I would love one more push to the upside and to take more gain off of the table. But you cannot count on that. The Friday action was not bad, but it may not get better. If we get a push downside, we need to be ready to continue what we are doing. Take gain off of the table, close positions, and do not let them hurt us. We have made a lot of great money, and we do not want to lose any of it. You will lose a little bit because, as you ride up, obviously you have positions that are not padded with a nice gain on them. You have to be quick. If you see they are in trouble, you take them off. If it gaps lower, then so be it. That is the way it goes.

It does not look like it will do that, but we are not going to sit around and wait for things to get down to the 50 day EMA without doing anything. We can buy back in at that point. I have a concern that this might be more than just a pullback. So many are positive that this is a great market to buy and that all we need is a little test and everything will be fine. But tests usually get to the point of discomfort. They want to scare you out as you see your profits evaporating. If you are back in the market down from October of 2011 and it comes right down here, then you will not feel much discomfort. But not everyone gets in right at the bottom, and you buy along the way. We do not want to get uncomfortable with positions. That is why we were taking them off of the table without much hesitation on Friday. We have been ruthless on them all week long, taking gains as well as taking trailing stop losses.

Just keep cool. There are still a lot of good patterns out there. We will look at some to the upside and some to the downside. There are some great patterns both ways, and we will get opportunity out of those. We have some that are still down at the bottom and ready to move up. If the market wants to go higher, if it gets some good news over the week, we could do that. We could get another week or two of run to the upside.

The market will go further than you think it should. Even now I think it should pull back. This is something that I have been thinking about all along. Remember, if it got to this target, I did not think it would go higher. But it could. That is just my thought; it is not the market's final word. I can kind of hear it walking up behind me and saying it might fall here. I am just listening and I am ready. I have a little adrenaline going (or maybe that is just coffee).

The point is we have to be ready. We need to know what we have, which is a good chunk of positions that are still in good shape. We have already banked a bunch of gain on them. If we get in any trouble, we want to take those off, too, and just wait for good opportunity. There are some of them that we can let ride. They are in great shape and we will not sell them out, like some old positions in AAPL. We might sell some calls on that, but we are not going to dump those shares because we have a little pullback in the market.

Again, my thesis is that this is just a pullback in the market and not a major decline. I may be proved wrong. If we get a pullback to the 50 day EMA or the late-October peak and it holds and we see a bunch of patterns setting up, we will be ready to buy again. We may be ready to buy on the way down if some early leaders find their purchase before the rest of the market and start move up. That is fine. We will just take them on a stock-by-stock basis. Overall I feel there could be a pullback, but we cannot be sure until the market lets us know. We have just been positioning ourselves to be ready for it, and we will continue to do so.

I will see you on Monday. We have a big week ahead, and we will preserve some money and make some money.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2903.88

Resistance:
3026 from 10/2000 low
3042 from 5/2000 low

Support:
2888 is the May 2011 peak and post-bear market high
The 10 day EMA at 2881
2879 is the July 2011 peak
2862 is the 2007 peak
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April 2011 peak.
2754 is the October 2011 high
The 50 day EMA at 2743
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2663
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low

S&P 500: Closed at 1342.64
Resistance:
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325-27 is the March 2008 closing low and the May 2006 peak.
The 20 day EMA at 1323
1318.51 is the May low
1313 from the August 2008 interim peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
The 50 day EMA at 1290
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
The 200 day SMA at 1258
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak

Dow: Closed at 12,801.23
Resistance:
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,754 is the July intraday peak
The 20 day EMA at 12,700
The 50 day EMA at 12,426
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,991
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

February 7 - Tuesday
Consumer Credit, December (15:00): $19.3B actual versus $8.5B expected, $20.4B prior

February 8 - Wednesday
MBA Mortgage Index, 02/04 (7:00): +7.5% actual versus -2.9% prior
Crude Inventories, 02/04 (10:30): 0.304M actual versus 4.175M prior

February 9 - Thursday
Initial Claims, 02/04 (8:30): 370K expected, 367K prior
Continuing Claims, 01/28 (8:30): 3475K expected, 3437K prior
Wholesale Inventories, December (10:00): 0.4% expected, 0.1% prior

February 10 - Friday
Trade Balance, December (8:30): -$48.8B actual versus -$48.2B expected, -$47.1B prior (revised from -$47.8B)
Michigan Sentiment, February Preliminary (9:55): 72.5 actual versus 74.0 expected, 75.0 prior
Treasury Budget, January (2:00): -$27.4B actual versus -$40.0B expected, -$49.8B prior

February 14 - Tuesday
Retail Sales, January (8:30): 0.8% expected, 0.1% prior
Retail Sales ex-auto, January (8:30): 0.5% expected, -0.2% prior
Export Prices ex-ag., January (8:30): -0.2% prior
Import Prices ex-oil, January (8:30): 0.1% prior
Business Inventories, December (10:00): 0.5% expected, 0.3% prior

February 15 - Wednesday
MBA Mortgage Index, 02/11 (7:00): 7.5% prior
Empire Manufacturing, February (8:30): 14.0 expected, 13.5 prior
Net Long-Term TIC Flow, December (9:00): $59.8B prior
Industrial Production, January (9:15): 0.6% expected, 0.4% prior
Capacity Utilization, January (9:15): 78.6% expected, 78.1% prior
NAHB Housing Market , February (10:00): 26 expected, 25 prior
Crude Inventories, 02/11 (10:30): 0.304M prior
FOMC Minutes, 1/25 (14:00)

February 16 - Thursday
Initial Claims, 02/11 (8:30): 365K expected, 358K prior
Continuing Claims, 02/04 (8:30): 3505K expected, 3515K prior
Housing Starts, January (8:30): 670K expected, 657K prior
Building Permits, January (8:30): 675K expected, 679K prior
PPI, January (8:30): 0.3% expected, -0.1% prior
Core PPI, January (8:30): 0.1% expected, 0.3% prior
Philadelphia Fed, February (10:00): 10.0 expected, 7.3 prior

February 17 - Friday
CPI, January (8:30): 0.3% expected, 0.0% prior
Core CPI, January (8:30): 0.2% expected, 0.1% prior
Leading Indicators, January (10:00): 0.5% expected, 0.4% prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Jobs Provide Additional Strength to the Rall

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 06 Feb 2012 16:59:00 +0000

SUMMARY:

- Jobs beat expectations, provide additional strength to the rally.
- As DJ30 knocks on the door, NASDAQ, SP600 kick the son of a (expletive) in and break to post-bear market highs.
- There are no doubt more jobs, but just how many and what quality? A look into the manipulation of the internal numbers providing the results.
- January ISM shows strong employment gains in the midst of a banking layoff binge.
- Factory orders quietly slip in December, matching the decline in other data, but no one cares as all eyes are on the lagging jobs data.
- Iran preparing a 6,000 mile range 'Great Satan' missile. No, we don't need a missile defense system in the 'modern' era of terrorist warfare.
- More upside or time for a test? At least the indices are dealing more from a position of strength.

Jobs send the indices on a further run with no signs of any selling into the news.

I am starting with the NASDAQ as my initial chart, and you probably know why. Unlike SP500 that was bumping up against the February highs, and unlike the DJ30 that was trying to get through its prior bear-market high but failed, NASDAQ and the SP600 borrowed an old expression from Bum Phillips, the coach of the former Houston Oilers. After a tough loss to arch rival Pittsburgh in an AFC Championship game, Coach Phillips made the famous statement, "Last year we knocked on the door, this year we beat on the door, and next year we're gonna kick the son off a [blank] in." While the Dow was knocking on the door over the past two weeks, NASDAQ and the SP600 took control of the market. They took leadership in the market and they kicked the son of a [blank] in.

Of course it was the jobs report that fueled the action. The market had already risen substantially, and when jobs and unemployment both came in better than expected, stocks gapped to the upside and ran higher. There was no sign of selling on the day. Stocks started higher, quickly ran to the upside, and then slowly bled higher into lunch. After that it was more of a holding position for the back half of the day. All afternoon stocks traded in a narrow range, but they never gave up ground. There was no inclination to sell. Even after the run this point and breaking through resistance, the sellers were not to be found. We did do some selling. There were some stocks that did not participate. There were some stocks that have earnings coming up, and we used the nice pop in the market and the increase in volatility to take some gain in options.

Overall it was just some position maintenance. We let our stocks run because they are running well. We did not want to get in front of the move, particularly when there no one really wanted to sell. Perhaps it is all about the jobs and the belief that the economy has turned the corner and is going to improve. Jobs are lagging, however, and we have seen slowdowns in the economic data across the board over the past month-and-a-half to two months. We even saw more of that on Friday with the Factory Orders, but that was just ignored. There is no reason to worry about downers when you have jobs going. But jobs lag and the other data leads. It is softening. It has not turned over, but we have to keep an eye on it in the future.

On Friday that was not the question. It was nirvana. Jobs were up, things were looking good, and we would probably have another "recovery summer" as Tim Giethner put it on the day when he addressed some issues with respect to the economy and the dollar. Without a doubt, the markets liked the news and closed up.

SP500, +1.5%; NASDAQ +1.6%; Dow, +1.25%; SP600, +2.1%; SOX, +1.8%

Very solid gains pushing the indices to the highs, beyond the highs, and leaving them in a position of strength if there is going to be a test. Yes, the indices look overbought a bit, but as we have often seen, they can be overbought for a long period of time before they ever decide to come back. If the market will go up, we will go up with it. That is why we were not getting in front of the move. We were letting a lot of our positions run and build up some great profits. If we need to take them next week, we will. But right now we were not going to get out, break off this run, and be the sacrificial lamb so others could make money.

We took positions when times may not have been so clear-cut and wonderful. Stocks were saying "buy us" at this interim bottom when they were forming their rounded bottoms. They looked like they were going to break up while the market was still trying to come back to the downside. Well, you buy when stocks say "buy me," regardless of what your guts are saying. They are probably saying "Do not even look; I am getting sick." If you have to, keep the Pepto-Bismol buy your desk and buy when your head tells you to move in. Then you can enjoy these kinds of runs these runs that even extended beyond what our thesis was.

Remember, we were expecting a run up toward these highs, no doubt. We were not expecting them to take them out. That does not mean they will hold the gains. It does not mean they will not reverse and sell off. But we will not step in front of it. If we think we are smarter and start picking tops and bottoms, that is when we end up missing out on the moves.

OTHER MARKETS

The other markets were not quite as strong as we thought they might be in some circumstances, and they were as you would expect them to be on stronger economic data in other circumstances.

Dollar. 1.3151 versus 1.3144 euro. The dollar was down on the day versus the euro, and it was basically flat against the other currencies even with our strong numbers. It did reach 1.3066 euro early in the day. That was a big gain on the dollar, but it could not hold it. Why not? There may be some issues with these numbers. I alluded to some of them earlier when talking about the jobs numbers lagging with respect to the other economic indicators. But there is also something in the internals of the numbers.

I will go into this in more detail in the economic section, but there are real problems with these numbers, even though they look good, most everyone was willing to accept them, and the trend is improving. There are actual jobs out there and bodies being put to work. People are getting jobs, but it is the number of jobs and the percentage of people working that have serious problems with them. Not to mention what kind of jobs they are getting temporary, permanent, high paying, low paying. There are some real problems. While the jobs are the jobs, it looks like there could be some down-right manipulation of the numbers going into the equation to determine what percentage of people are employed or unemployed. It looks like the dollar might have figured some of that out during the session.

Bonds. 1.93% versus 1.83% 10 year U.S. Treasury. Bonds sold. Bounced up to the top of the range, and then it closed down close to the bottom of the range with a gap. But notice how it held the range with a doji. It has been trading in this tight, up-and-down range for the past three months, and it is still holding it even after the barn-burner jobs report.

Gold. 1,740.20, -19.10. It was down a lot harder intraday. It is almost surreal when listening to Mr. Bernanke talking on Wednesday about how things were still problematic for the economy. Of course, the week before, the Fed said it would keep interest rates low until the end of 2014, and gold broke to the upside. Then gold sold off, of course, as it should when strong economic numbers came out. But it rebounded. It still looks strong. Still looks like it wants to go to the upside. Maybe gold understands that there are other things afoot. There is the Fed that is very easy and wants to keep pumping money into the equation, but maybe things are not as strong as they appear on the surface. There is an old saying, "All that glitters is not gold." And all that appears in the jobs numbers are not jobs. I will elaborate on that a bit later.

Oil. 97.79, +1.43. Oil bounced. Of course you would expect it to on some better economic data. It sold down to 96 or near the bottom of the range and it bounced. That is exactly what you would expect. We have tensions with Iran. Now it supposedly has a missile that can go 6K miles or thereabouts. It is dubbed the "Great Satan" because it can deliver a payload to the United States. I wish we had continued working on that missile defense shield. I guess some very smart people decided we did not need it because warfare was going to be different now in the age of terrorism. Maybe and maybe not. It will be different, but it will also be the same in some ways. If someone can develop an intercontinental ballistic missile and carry a warhead to the United States, there we go again. They wield a lot of power and we have that mutual ensured destruction thing again. Nice. Of course we assume the other side wants to live and does not want to bring about the end of the world. Well, times have changed indeed. That is modern of warfare, and it is even worse than it was before. Even more reason to want a nuclear missile shield. But I digress. I have just been readying the stories and they are not that pleasant.

THE NEWS

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Issue 1: Unbelievable Numbers and Assumptions.

1.2M workers dropped from the workforce from December to January!

Lower worker pool and you get more APPARENT employment
100 workers in work force. 80 are working.
80/100 = 80% employment or 20% unemployment

Reduce workers in work force to 90. 80 still working.
80/90 = 88.9% employment or 11.1% unemployment rate.

Long-term Workforce participation = 65.8%
Government figure for January: dropped to 63.7% on the ASSUMPTION that 1.8M people left. SHRINKING THE WORK POOL as in the example above.

Why leave? Government says they are retirees.

Really? The 55+ age group participation in the workforce is SPIKING as more and more older citizens are forced to work later in life because their retirements are gone.

The population expanded to 242.2M. If you apply the long term participation rate that is in line with the statistics versus the government's artificially lower level and account for those the government says are no longer in the work force through its 'adjustment,' you get unemployment at 11.5%! That is a 'true' number versus the artificial and very POLITICALLY TIMELY adjustment to the downside that shrinks the unemployment rate.

The Administration was ready, and as soon as there were more 'bodies' going to work per the non-farm payrolls report it 'adjusted' the worker pool, using the non-farm payrolls showing job creation as cover for the change. It argues there are more jobs. Yes there are, but NOWHERE NEAR THE NUMBER NEEDED TO COME UP WITH AN 8.3% UNEMPLOYMENT RATE.

ISSUE 2: What kind of jobs are being created?
Part-Timer Economy.

January reports 699K temporary workers, a record increase putting part-timers at 27.739M, the third highest ever.

Only 10% of the jobs increase was due to full-time jobs!

Low Paying Jobs.

Moving from higher paying jobs to lower paying jobs. Bankers laid off by the thousands even as the employment rate moves higher.

CRT Capital said today that 113K of the non-farm payrolls jobs were low pay jobs. Typically couriers and messengers decrease in January after the holidays but they were still strong. When those jobs go, the numbers go down.

Remember in the Bush administration and that economic recovery the carping about the 'quality' of jobs created? Where is the worry about this now? Are we so starved for jobs this time around that we are taking anything, taking the 'new normal' idea Bernanke espoused Thursday regarding the unemployment rate with respect to the types of jobs we will have in the US?

Is our view of the problems with the jobless report overly picky or just BS?

Some commentators said Friday that US data is now no more reliable than China and its manipulation of its releases.

Bernanke as late as Thursday did not see this coming.
The CBO did not see it coming, predicting unemployment back over 9% by year end.

Indeed the trend is belying historical trends: Unemployment rate goes up BEFORE jobs because the perception the economy is better. People re-enter and look for jobs that are not there yet, spiking unemployment rate.

This time the rate is dropping AS there is meager jobs creation. After several months of economic improvement have people really given up and not come back to the jobs market? In other words is this time different? It certainly seems what is different is the government's 'adjustments' to the input data.

We would the THRILLED to see unemployment really fall as jobs really recover. The problem is the unemployment number is hogwash, and EVEN IF it is correct, it is no byproduct of the Administration's actions. It took three years to get to this point and indeed it is the government ending its stimulus programs and Congress blocking more of them that is allowing the economy to get back on track somewhat.

The problems are still here because the policies are still there. Gasoline is spiking again and will be over $4/gallon this summer at this rate; there is no change in Administration policy on this and indeed its actions are further stymieing improvement (e.g. Canadian pipeline). Food costs are still spiking and nothing suggests that is backing off despite the Fed's belief there is no inflation. 40,000 new regulations as of January 1 continue to undermine and browbeat small businesses, making profitability ever more elusive. And let us not forget the Defense Authorization Act that, for the first time, allows the government to use our military as a police force and allows the warrantless and secret removal and detention without representation of ANY US citizen deemed, in the opinion of the President or authorized party, a terrorist threat.

In conclusion, the recovery is simply not that great. Q4 GDP was atrocious with most of the gains due to inventories piling up. Even taken at face value it is a paltry level, one-third of what it should be in similar recoveries at this period. The jobs rate is up as the non-farm levels show, but it is still pathetic and we are swapping high pay jobs for low pay jobs as we push IPO's offshore and discourage investment in the US. We are conditioning the youth to a 'new normal' of European mediocrity and stand the very real risk of losing our economic dominance and condemning our progeny to generations of decreased standard of living.

TECHNICAL SUMMARY

Volume. NASDAQ +12%, 2.12B; NYSE, 13%, 827M. Buyers are moving in and showing more strength as the market has shown more strength to the upside over the past month or more.

Breadth. NASDAQ +4:1; NYSE +3.7:1. Advancers were solid. Growth stocks leading the way yet again.

THE CHARTS

I have already talked about kicking in doors. Who is doing the kicking and who is just knocking?

SP500. SP500 is still is not above its February peak. It is trying and it is close. It is there, but it just has not made the move. That would also be at the late-July interim peak as well as the late-May interim peak. There is resistance at 1345 that SP500 has not moved through. Not to mention getting up to 1385 where the May peak resides. There is still plenty of upside for SP500 to play catch up if it wants to do that. That would give NASDAQ and the other indices that broke out the chance to move higher before they come back to test. That is not a bad scenario. As I said earlier, that is dealing from strength versus looking up from the bottom side of the resistance.

DJ30. DJ30 gained a nice 1.25%. That pushed it right up to a new post bear-market high. Indeed, it closed at a new post-bear market high, but it just did not take out that prior peak at 12876. It came close, closing at 12862. Just a few short points away, but it was not able to kick the door in. It is still knocking and has to prove it can make the move.

NASDAQ. NASDAQ is a thing of beauty. It has been very strong over the past week, straight to the upside. Hard to maintain that kind of ballistic move without a test. But, as I said, it can be testing from a position of strength now. Coming back after breaking through is always better than moving up to it and fading. I did not expect it to do this on this move; just a little hitch in the get-along on the way up. It is what it is. You play what the market gives and do not try to be smarter than the market and outguess it. That just causes you to either miss out on big runs or get ripped apart betting against the market move. That is why we take gains at the logical points but we always leave stuff on the table to continue higher. We are making even more money right now as NASDAQ helps lead the way to the upside.

SP600. Speaking of leadership to the upside, you have to talk about the small caps. They, too, put in that new high, closing at about 463. That puts it over 460, and that breaks it to that new post-bear market high with a big leap up in the back half of the week. Ones again they are more from a position of strength. Also, small caps are just good harbingers of economic action down the road. If they are breaking to new highs, that is a positive for the U.S. economy down the road as well.

SOX. Semiconductors have been leaders of late, no doubt. Even if the chart is not breaking to any new highs, it is breaking to higher highs. It cleared that July peak and is now taking on the next step at the late-May peak. It will be a series of trying to take out after another. Stepping up and shooting them down. That is how it works when you are digging yourself out of a hole. It is doing it with a bit of flair with strong moves from component stocks. The neat thing is that some have been leading all the way to the upside and others are just now getting in gear. Now they are helping the index to the upside as money seeks different levels of semiconductors to look for those big percentage gains.

Remember, the mutual funds are out early in the year playing catch up, and they are also playing the January effect game (even though it is now February). They see a bit of recovery and they see that they are behind. They are trying to look for big gains. They play the stocks that have been beaten down. That is why we saw all of those rounded bottoms that ultimately started to break to the upside. Some of them started sooner than others. AKAM made the break to the upside. Some of them have been coming around later to the party. SWKS formed this rounded double bottom and broke to the upside, finally making the move. Broke through the trend and has continued to run. It has happened at different stages, but that is the strength of the market. You kept getting different waves of leaders emerging as money moves around, looking for the percentage gains in these big moves off of the lows.

LEADERSHIP

There were some issues with stocks. It is easier to point out stocks that are having problems or did not follow than those that were up because, as we saw from the breadth, most stocks rallied.

Metals. AKS was down on the day. I was wondering mid-session why this stock was not participating. The other steel stocks were not surging, but they seemed to be performing. This was an aberration that I noticed.

Industrial Equipment. Some stocks in industrial equipment were not. HOLI is not necessarily in a bad situation, but it was not doing anything on the day. It continued to sell off, not benefiting from the good news in the market overall.

Retail. DG was down on the day. It has not performed well. It has been trending to the upside, but it has not been breaking or running to the upside. That was questionable. Why was it not participating on a good market day?

Autos. AAPY and ORLY moved up but were not looking that strong. They were laggards in the move. Were they laggards because of individual stories or is it just a sign that stocks are getting somewhat tired overall and are not ready to move higher? It was a combination of both.

Stocks have run a long way. Many are tired and many are at the point where they need to test. A further move up in the market will not necessarily drive those early leaders further to the upside. On the other hand, the stocks that have been beaten down that have started to turn the corner, they should move to the upside. We did see that occurring as well.

What does this mean in terms of leadership? It means some stocks are tired. We still see many stocks that are coming off of the lows, getting new money pushed their way. As of Friday, there was no reason for any of the hedge funds or mutual funds to stop putting money into those stocks.

THE MARKET

SENTIMENT INDICATORS

VIX. We have not looked at the VIX in awhile; there has been no point. Frankly, there is still no point in looking at it. It has tumbled down to 17 from 30 back in early December. I said it did not seem to matter too much anymore that it had broken free from tracking the market. That is exactly what has happened. It sold off as the market has rallied, which you would expect. But just because it has done that does not mean we should all of a sudden expect a surge or selloff. Why? Because the VIX can move laterally for months or even years at low levels and not indicate a selloff is coming. Just because it is down to an old level does not mean anything. It has to set up a correlation, and right now it is not there.

VIX: 17.1; -0.88
VXN: 18.21; -0.68
VXO: 16.19; -0.84

Put/Call Ratio (CBOE): 0.77; -0.11

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 48.9% versus 50.0%. A dip as the market continues upside but basically still at the flat line as it was for all of January. To the end of 2011 showed a slow, steady increase to this level. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.8% versus 28.7%. Right back up to 29.8% again after a brief dip. Bears remain skeptical, but the market is riding that skepticism upside. Basically holding at that 30% level where bears moved down to in early December and have held ever since. Again, bears are not growing but they are not necessarily buying into the upside move. Back and forth around 30% where it has flat-lined for 8 weeks. Again, Bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: +45.98 points (+1.61%) to close at 2905.66
Volume: 2.123B (+12.39%)

Up Volume: 1.8B (+570M)
Down Volume: 341.64M (-266.36M)

A/D and Hi/Lo: Advancers led 3.98 to 1
Previous Session: Advancers led 1.54 to 1

New Highs: 262 (+97)
New Lows: 14 (-2)

SP500/NYSE

Stats: +19.36 points (+1.46%) to close at 1344.9
NYSE Volume: 827M (+13.29%)

Up Volume: 3.94B (+1.53B)
Down Volume: 622.33M (-1.008B)

A/D and Hi/Lo: Advancers led 3.67 to 1
Previous Session: Advancers led 1.34 to 1

New Highs: 299 (+91)
New Lows: 7 (-1)

DJ30

Stats: +156.82 points (+1.23%) to close at 12862.23
Volume DJ30: 142M shares Friday versus 114M shares Thursday.

MONDAY

We had a great finish to the week and an excellent week upside as far as stocks are concerned. We have more earnings news coming out next week. We also have more economic data, although it does back off from the onslaught of the prior week.

Wholesale Inventories will be an interesting report, but that is all the way to Thursday. That will be the same day as Initial Jobless Claims. We saw inventories jump up in the Q4 GDP report, and we want to see what they are showing in December and whether they are up. They were expected to rise quite a bit from the prior read. Friday we have the Trade Balance. It will be interesting to see, although no one is paying attention to it. The Treasury Budget is out, but no one seems to care about that either. There will be Michigan Sentiment, and that will be the new preliminary for February. We will see if it can hold its own. It is expected to drop off a bit, but it should probably pick up given the market moves. Stock market gains drive a lot of sentiment, but you have to offset that with very high gasoline prices right now. Frankly, they are shockingly high in February. They will be over $4 come summer, and that will put a lot of angst into American wallets jobs or no.

Despite having purportedly improved the jobs situation, we are still going to have problems when people have extraordinarily high food prices compared to last year. The gasoline prices are also extraordinarily high since the President took office. There are issues he will have to deal with, and I am not so sure that the jobs numbers will hold up. If we keep seeing these incredible manipulations of the numbers, someone will eventually say "What the hell?" Maybe then they will pay attention to what is going on versus just blindly following the pablum being issued. But enough said on that.

What do we have for the week? Technically we have NASDAQ and SP600 at new post-bear market highs. That is an important move. Does it mean you buy? No. It does not necessarily mean you buy at all. The market has run hard to this point with just a little test. We may get some more follow-through push to the upside as some people "me too" it early in the week. Then we may get a test. We will eventually have to have a test of this, but a lot of it will depend on what SP500 and the Dow can do. Can they continue to push higher and make a break as well? They have room to run. SOX and SP500 and the Dow can play catch up and drive higher, and at the same time that would allow NASDAQ and the SP600 to gain some more before we have a test.

Without a doubt, we will find more plays that are in position to move. We could not do much on Friday with the gaps to the upside. Most positions gapped and ran early. You do not want to chase that bus, particularly after the indices have already moved up sharply on the week off of a test. We did not want to chase them, but instead I think we might get some early giveback at some point early in the week. That will give us better entry points on some positions that just gapped and ran away from us. As I have said before, when you get to these levels, the probabilities are not in your favor to chase. We will wait for good opportunity.

There are some stocks that did not move or did not move a lot. That does not mean they are shunned and that no one will pick them up. It just means that, as this market moves up, they are building their patterns. They have not been turned to as the next sector to be anointed with new money. If the market stays healthy and keeps building in better economic data for the future, it will turn to these sectors that are setting up new patterns to break higher. The money will want to go where the chance for larger gains are. That is basically what I am talking about the probabilities. Certain stocks will run too high, then we want to rotate our money into another area that has not run yet and drive it to the upside and make good percentage returns from those.

We will be looking at the next potential areas money can flow to. Money may have already flowed into them at one point, has left it for awhile and is recycling that area and letting it recharge and then comes back into it. Or it just has not made the move yet and wants to find that break to the upside. They are out there. Even as the market has raced higher, some have been left behind. Perhaps they are starting to break down trendlines and reverse to the upside. We will be looking for those to augment our buys.

Again, it is nice to be in the position where you are in plays that you bought when times were not so clear but are now pulling in some good bucks for us again as they continue runs maybe after a pause or maybe straight to the upside. It is no time to sit on our laurels, of course. We will look for additional places to put our money. You have to keep rolling your money into new winners. As you take some off the table, you have to find places to put it if it is there. We will do that.

I noted earlier that on Friday there really was no inclination to sell. NASDAQ closed near its high, and SP600 closed near its high as well. Indeed, all of the indices closed at or very near their highs for the day. No selling pressure; that is true overall. But I want to point something out when looking at some charts of stocks at the close. There was interesting action. There were some Market On Close sell orders that hit. Many stocks sold off right as the market closed. Big orders were put in that drained these stocks to the downside. They bounced back up a bar or two later with a nice recovery, but there were sales out there. Some big money was taking some positions off of the table late in the day.

Looking at the SPY, you can see some big reaches down. Some of these were market orders, obviously, but there was huge volume on these sales. Look at the huge spike in volume in VLTR as it sold off but recovered. That means there were some Market On Close sells. Some big funds were selling on the close. They did not want to sell during the session. They saw the market holding its gains and moving higher into the close, so they waited and put in the orders. Then at the end of the day there was big selling. But it is just in a few. They bounced right back. The thing is, there are some sellers out there. There were some willing to sell into this strength just not in the traditional way that we usually see it.

Next week, we watch for a pullback. We watch to see if we can get something going on a test that gives us a chance to move in and pick up some stocks that may have run away from us during the week or on Friday but come back. If they come back and hold, then we can step in. But we have to watch out. If the big money wants to sell more, we just have to wait. We will mind our positions and take some gain from these good moves upside that we let run on Friday. We will watch our positions, take gain as needed, and then see if there is a deeper selloff or just a test of that rush to end the week that gives us new entry points. One I have been looking at is the GLD. It broke out, and I still think it will go higher. We will just have a play if we can catch it off of a test either at the 10 day EMA as it closed or lower. We will be willing to make that play as well.

We have an interesting market and a really interesting week ahead to see how it tests. We will be ready either way. Things have been going basically according to plan thus far. We have banked a lot of money, so we have some money to put to work, and we also have a lot of money on the table that we will take if things get rocky.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2859.68

Resistance:
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak and post-bear market high

Support:
2841 is the February 2011 peak
2825 is the 2007 closing peak.
2816 is the early April peak.
2796 is the February gap down point
2762 is the February low
2759 is the mid-May low
2754 is the recent October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
The 50 day EMA at 2698
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2661
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1325.54
Resistance:
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1318.51 is the May low
1313 from the August 2008 interim peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
The 50 day EMA at 1276
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
1258 is June 2011 intraday low
The 200 day SMA at 1257
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,705.41
Resistance:
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,391 is the February 2011 peak
The 50 day EMA at 12,308
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,980
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

January 30 - Monday
Personal Income, December (8:30): 0.5% actual versus 0.4% expected, 0.1% prior
Personal Spending, December (8:30): 0.0% actual versus 0.1% expected, 0.1% prior
PCE Prices - Core, December (8:30): 0.2% actual versus 0.2% expected, 0.1% prior

January 31 - Tuesday
Employment Cost Index, Q4 (8:30): 0.4% actual versus 0.4% expected, 0.3% prior
Case-Shiller 20-city, November (9:00): -3.7% actual versus -3.2% expected, -3.4% prior
Chicago PMI, January (9:45): 60.2 actual versus 62.8 expected, 62.2 prior (revised from 62.5)
Consumer Confidence, January (10:00): 61.1 actual versus 67.0 expected, 64.8 prior (revised from 64.5)

February 1 - Wednesday
MBA Mortgage Index, 01/28 (7:00): -2.9% actual versus -5.0% prior
ADP Employment Change, January (8:15): 170K actual versus 200K expected, 292K prior (revised from 325K)
ISM Index, January (10:00): 54.1 actual versus 54.5 expected, 53.1 prior (revised from 53.9)
Construction Spending, December (10:00): 1.5% actual versus 0.4% expected, 0.4% prior (revised from 1.2%)
Crude Inventories, 01/28 (10:30): 4.175M actual versus 3.558M prior
Auto Sales, January (14:00): 4.20M prior
Truck Sales, January (14:00): 6.04M prior

February 2 - Thursday
Challenger Job Cuts, January (7:30): +38.9% actual versus +30.6% prior
Initial Claims, 01/28 (8:30): 367K actual versus 375K expected, 379K prior (revised from 377K)
Continuing Claims, 01/21 (8:30): 3437K actual versus 3538K expected, 3567K prior (revised from 3554K)
Productivity-Preliminary, Q4 (8:30): 0.7% actual versus 0.7% expected, 1.9% prior (revised from 2.3%)
Unit Labor Costs, Q4 (8:30): 1.2% actual versus 0.7% expected, -2.1% prior (revised from -2.5%)

February 3 - Friday
Nonfarm Payrolls, January (8:30): 243K actual versus 155K expected, 203K prior (revised from 200K)
Nonfarm Private Payr, January (8:30): 257K actual versus 168K expected, 220K prior (revised from 212K)
Unemployment Rate, January (8:30): 8.3% actual versus 8.5% expected, 8.5% prior
Hourly Earnings, January (8:30): 0.2% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
Average Workweek, January (8:30): 34.5 actual versus 34.4 expected, 34.5 prior (revised from 34.4)
Factory Orders, December (10:00): 1.1% actual versus 1.5% expected, 2.2% prior (revised from 1.8%)
ISM Services, January (10:00): 56.8 actual versus 53.1 expected, 53.0 prior (revised from 52.6)

February 7 - Tuesday
Consumer Credit, December (15:00): $8.5B expected, $20.4B prior

February 8 - Wednesday
MBA Mortgage Index, 02/04 (7:00): -2.9% prior
Crude Inventories, 02/04 (10:30): 4.175M prior

February 9 - Thursday
Initial Claims, 02/04 (8:30): 370K expected, 367K prior
Continuing Claims, 01/28 (8:30): 3475K expected, 3437K prior
Wholesale Inventories, December (10:00): 0.4% expected, 0.1% prior

February 10 - Friday
Trade Balance, December (8:30): -$48.2B expected, -$47.8B prior
Michigan Sentiment, February Preliminary (9:55): 74.0 expected, 75.0 prior
Treasury Budget, January (14:00): -$40.0B expected, -$49.8B prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

GDP Tries to Stymie the Rally

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 30 Jan 2012 22:37:00 +0000

SUMMARY:

- GDP tries to stymie the rally, but stocks recover in the afternoon.
- Still bumping the highs, still not breaking through.
- GDP at 2.8% is inflated by inventories adding almost 2 points to the total. This is recovery? Anyone could get this result by flooding the economy with dollars.
- GDP internals tell why Bernanke downplayed the economy Wednesday.
- Consumer Sentiment continues to improve thank goodness.
- Dollar struggles (where is the strong dollar mantra?), bonds rally on Fed action, economic data.
- Leaders rallied Friday but the market is not done selling as tops, even for near term tests, take a bit of time to form.
- Can make money but now our game plan has to change with the indices at the prior highs.

GDP internals underscore the problems with the economy and those that may come.

In the closing alert on Friday I included a note I sent to the traders in the office about my feelings on where this market was. We typically discuss that note live between the traders in the afternoon to figure out where we want to go and make sure we are all in the same page. We also look out over the next session or, in this case, Monday and next week. I included part of that note because I think it did a good job of spelling out what I was talking about on Wednesday and Thursday with respect to where the market is going in the coming week or two based on the additional information we received Friday in the economic numbers.

First I will go over a bit of the background for the day, and then I will get into that note in particular. It was a mixed back-and-forth session that saw the NYSE large cap indices struggling. The SP500 and the DJ30 closed slightly lower, but it was a growth day. The growth indices such as NASDAQ, SP600, and the SOX staked out the lead on the day, posting upside gains. Looking at where they closed on the session, if this market wants to sell (as surely seemed the case on Thursday), it does not seem to want to sell that hard. Stocks declined after the premarket GDP data came out. That data showed a consumer less consumption-minded and business falling sharply while inventories piled higher as a result.

In the backward world of GDP calculation, without inventories rising due to less spending, GDP would have risen only 0.8%. Now that is growth, my friends. The worry is we have a repeat of early 2011 when the economy sputtered after a good finish to 2010. Indeed, that finish was better than the first read of Q4 in 2011 showed us on Friday. The market had its issues.

SP500, -0.16%; NASDAQ, +0.4%; Dow, -0.58%; SP600, +0.59%; SOX, +0.34%; NASDAQ 100, +0.29%.

The market took a hit early on when the GDP numbers came out. At 2.8%, that was significantly less than expected. There are other factors I alluded to that I will talk about later. There was a recovery, however. A rebound but then a slump into lunch. Buyers reasserted themselves. They bought on a dip, driving stocks higher in the afternoon, pushing NASDAQ and the SP600 back to positive. It brought SP500 and the Dow well off of their lows to close out the session. SP500 bounced up off of its 10 day EMA. Again, if the market is trying to sell, it is not trying to sell that hard.

OTHER MARKETS

There was an impact from the weaker GDP numbers.

Dollar. 1.3209 versus 1.3156 euro. The dollar sold. With a weaker economy, why do you need to invest your money in the dollar? Money gets pulled out of weakening economies, and that is what the dollar showed on Friday. In the premarket alert this morning, I talked about the Fed's policies and what it is doing to the dollar. That would include the administration's policies as well. When was the last time you heard that old mantra that "A strong dollar is in the best interest of the United States?" In Bill Clinton's administration we heard it all the time. Even in President Bush's administration, although they did not really believe it, they still said it. Today I could not remember the last time I heard anyone from the Obama administration say that a strong dollar is in the best interest of the United States.

I know some of you will e-mail and say they said it on this day or that day. My point is that we used to hear it all the time on CNBC, Bloomberg, Fox Business, or wherever. You could not swing a dead cat without hitting someone in the administration who said something about a strong dollar being in the interest of the United States. And before I get the cat lovers writing in, that is just a phrase from Huckleberry Finn.

In any event, the dollar did not have a lot of faith in the U.S. recovery as investors fled the dollar for other currencies.

Bonds. 1.90% versus 1.96% 10 year U.S. Treasury. Bonds rallied on the news. Why? People get scared when the economy weakness. They want safety and they ran to U.S. Treasuries. It does not hurt that the Fed's policies are pushing people toward Treasuries once again even though they are not yielding anything. Why? The Fed says it will keep interest rates low. You can make money as bonds rally and yields fall. Indeed, it was enough today to have the Fed's Lacker say that the U.S. may have to raise rates before 2014.

That is damage control. The Fed is stretching the 0% interest rate timetable, and it does not like how that is being received and commented on in the financial markets. It is trying to say this is not just the printing press running again. "We are aware that there could be inflation, blah, blah, blah." No one is really buying it just as no one in the Bush era really bought the policy statement that they believed a strong dollar was in the interest of the U.S. Actions speak louder than words. They did so in the Bush administration with respect to the dollar, and they are now with the Fed's treatment of bonds and interest rates.

As an aside, it is no wonder that the Fed did what it did and Bernanke said what he did in the Q&A; the Fed got a pre-look at these numbers and was not impressed with what it saw. Thus it said it would keep these rates lower. But it has to do the damage control. It made that promise to keep money cheap and free to the big banks and companies. While the Fed cannot do anything else because it has itself in a box, it is really not helping. It is pushing money away from the U.S. as we see in the dollar.

Bonds are still in trouble, but they rallied back up to the 50 day EMA. The 5 year reached a record low yield at 0.75%.

Gold. 1,732.60, +2.70. Gold did not do a lot. That was after a big run for the week. After hours gold was up another 15 clicks. It continued to run. The Fed promises cheap, easy money and gold sees is as inflationary. Gold broke out of its range to the upside when it looked ready to roll over and head back down. It all hinged on what the Fed did, and you see the result.

Oil. 99.47, -0.23. Oil was virtually flat on the session. Still struggling in the range. Still not following, still not rising. A lot of it depends on what happens with Iran and others. Oil is being held hostage somewhat, if you will pardon the rather hackneyed allusion to the 1970's when Iran was involved with U.S. hostages.

THE ECONOMY

TO VIEW THE ECONOMIC OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

TECHNICAL SUMMARY

Volume. -14% NASDAQ, 1.73B; -5.5% NYSE, 759M. Volume fell off the table. There was no selling strength, and there was no real buying strength.

Breadth. 1.87:1 NASDAQ; 1.85:1 NYSE. Breadth was to the upside.

On Friday many were saying that the Thursday reversal that I talked about quite extensively was apparently nothing. It may be nothing, but it is not likely. As discussed in the office this afternoon, this is one of those times you can get burned jumping in too quickly if you were expecting to get into trades and stay in for several weeks. Why? The market is likely hitting a level where it caps out this move near term. Does it roll over? Move sideways? Just test modestly? It can be any of those. We could get a rollover of significance that breaks down into this lower range. We could get a rollover that just tests the October peak. Or we could get a lateral, choppy move for weeks on end. Even if a rollover is coming and even if stocks will fall over the next few weeks, it often takes time for buyers to finally run out of steam and stop buying on the dips.

Looking at the mid-2010 recovery, we had that inverted head and shoulders and the rally back up to that prior peak. Right when it came back up to the peak before it broke out, it stalled and faded back from that April peak and tested just a bit. But then it turned around, broke out, and started the nice rally into April through July. Fast forwarding to the current situation, the indices are in the process of bumping into that prior peak. The Dow made that run on Thursday and reversed. It did not roll over completely, but it threw a big doji and was down on Friday. Not selling off, but it was down. They have not made that test, however. That is the same test from 2010. But that is likely to happen, and they are likely to come back and test near that October peak. That was the recovery high that they had a little trouble moving through. They will come back and test that to some degree. It has not been answered yet as to how far.

This time around why is it different? Why might it not continue to the upside? Things are not that great right now. GDP was crappy at 2.8%. As I noted, 1.9 points of that was an inventory bill as consumer and business spending dropped off even with auto sales up 38%. This may be an overall top, and not the bump of the prior high that precedes a test that then leads to a breakout. Again, that is the action we saw back in late 2010. As I noted, however, that is not an answered question as of yet. Thus you will always have up and down action as we saw on Friday. Part of the market did fine and other parts struggled. It is likely going to be choppy for awhile. Those that move in too quickly in anticipation of an upside breakout or a downside breakdown often get ground up in the choppy action.

Your next statement might be, "Then why the heck are we even worrying about this right now?" Because the subscribers and those of us in the office that want to trade positions can make money. You have to look for the juicy, ripe moves to the upside and downside that can make us nice gains without having to break any resistance or support. You want to capture moves without needing any kind of breakout or breakdown because in a choppy, indecisive market that is testing those prior highs, you are not going to get as many breakouts. Just when you get the move going, you hit resistance and at it stalls out and fades. If you have to break through resistance, you will be in trouble. You end up getting stuck in a play or you have to bail on the play or just have some dead money for awhile. If you are banking on a breakout in order to make money, the odds are stacked against you in this market and the market that is likely to come over the next few weeks. The probabilities do not have your back as they have. Again, that kind of action can grind you up if you are looking to position trade for several weeks.

What do you do? For now you play partials. Do not get too far into a potentially choppy market, and you play the really ripe moves where you do not have to make that break through any resistance or break down through support to make some nice money. We are not trying to pick up a dollar while risking a dollar or two. You still want to have that good ratio. A good probability of a sold return but without making the move through a resistance level. That makes finding plays a lot harder. That is what everyone was moaning about today while looking ahead for the weekend. That is one of the reasons we had this talk. You have to put your mind in sync with what the market is showing you. Do not try to force that square peg into a round hole. Be smarter.

Again, we will play partial positions. We took a couple of partial positions today. We also took gain on other positions and closed some others. You have to continue your position maintenance. You have to be smart. This is not the time to load the boat. Things looked great on Friday, and we made some money on plays that moved wonderfully for us. I was very pleased with the action on Friday, and not because I feel the troubles are over and the market is going to race higher now or lower over the next 5 days. I was pleased because our positions made us a lot more money.

Many surged. JAZZ made a nice break to the upside. NFLX continued to push higher after its gap to the upside. SCSS moved up. KLAC continued its move on good volume. LULU was up as well on a good move. SOHU posted a nice 6%+ gain. STX broke higher out of a lateral consolidation. Those are just a few of them that moved up nicely, and this is on top off a great week for us. Leaders in good position making their moves. We are not assuming that this will last, however. We let most of them run today. We did not take a lot of gain. We will watch closely next week, careful to bank more gain if they start to wear out (i.e. the market bumps up against that resistance again and starts to falter).

Remember, it takes a bit of time for the momentum to wear out. The momentum is upside right now. If it keeps bumping up against those prior highs and selling off, it will wear itself out. Thus it is likely to give us that test. If it holds on that pullback, we will see new setups, no doubt. Indeed, we see some pretty juicy setups with no resistance overhead to be broken in order to make us the kind of money to makes the play worthwhile. We will look at those this weekend for the coming week.

There you have it. That is basically the meeting we had this afternoon talking about what we are doing and why we are doing it. It just summarized what I have been saying over the past several sessions. You have to play smart now and get the probabilities in your favor. You have to keep them in your favor and not lose sight of what is happening in the market overall. We can still make great money, but we have to protect what we have made to this point. Do not be caught up in days such as Friday that saw a lot of our positions the leaders making great moves. You can say, "Man, this market is going to higher." But leaders lead, right? They perform better than other stocks, and they were leading on Friday. But if the market cannot break through these highs, those leaders will not be able to take us out of it all by themselves. They, too, will come back.

THE CHARTS

I will just note that all of the major indices other than the SOX experienced the 50 day EMA moving up through the 200 SMA. Most places look at the 50 day EMA versus the SMA. The EMA is the one that most of the traders are watching now. We know the SP500 and the Dow have already made that move along with the NASDAQ. On the SP600 the golden cross as occurred. That is an overall bullish indication. Why? The 10 day, 20 day, and the 50 day are now sloping to the upside. The momentum is moving higher. If it sustains, the 200 day will flatten further and then turn up. Then all of the major indices will be moving higher. That is a powerful trend.

If there is a test, do not panic. With what we see in stocks and EMAs as well, it could precipitate a test of the cross. Then, just about the time that the test and the cross start to materialize as the 50 day slides lower, stocks should find their bottom and break back to the upside. That would be perfectly normal. It is all in the test. It is how stocks and indices test moves that tells you the tale as to the underlying strength. This cross is a good indication, but it is not the answer in itself.

THE MARKET

SENTIMENT INDICATORS

VIX: 18.53; -0.04
VXN: 19.31; -0.25
VXO: 18.06; +0.49

Put/Call Ratio (CBOE): 0.88; -0.1

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 50.0% versus 50.0%. Still at the flat line as it has been for all of January. To the end of 2011 showed a slow, steady increase to this level. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 28.7% versus 29.8%. Backing off but just modestly from that 30% level where bears moved down to in early December and have held ever since. Again, bears are not growing but they are not necessarily buying into the upside move. Back and forth around 30% where it has flat-lined for 8 weeks. Again, Bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: +11.27 points (+0.4%) to close at 2816.55
Volume: 1.736B (-13.89%)

Up Volume: 973.01M (+329.94M)
Down Volume: 716.4M (-483.6M)

A/D and Hi/Lo: Advancers led 1.87 to 1
Previous Session: Decliners led 1.23 to 1

New Highs: 71 (-27)
New Lows: 9 (-4)

SP500/NYSE

Stats: -2.1 points (-0.16%) to close at 1316.33
NYSE Volume: 759M (-5.6%)

Up Volume: 1.96B (+420M)
Down Volume: 1.95B (-1.1B)

A/D and Hi/Lo: Advancers led 1.85 to 1
Previous Session: Decliners led 1.04 to 1

New Highs: 177 (-68)
New Lows: 8 (-1)

DJ30

Stats: -74.17 points (-0.58%) to close at 12660.46
Volume DJ30: 164M shares Friday versus 131M shares Thursday.

MONDAY

We have a ton of economic data. It will be the first Friday of the new month, and that means we will have the payrolls report ending the week. Everyone will be looking at that. It will be interesting to see how that turns out. Can it continue to improve? Or will what appears to be a slowdown in Q4 in some very key economic metrics starts to slow down the improvement (for want of a better word) in employment.

On Monday there is Personal Income and Spending. Tuesday brings the Case/Shiller, the Chicago PMI, and Consumer Confidence as well. We have ADP on Wednesday as well as the ISM. Huge numbers. Challenger on Thursday, Initial Jobless Claims on Thursday. Productivity on Thursday. Friday brings not only the employment report but Factory Orders and the ISM Services. A huge week of news, not to mention more earnings.

It will be a busy news week. There will be a lot more on Europe. There were downgrades by Fitch of Spain and Italy on Friday. No surprise there with a two-notch downgrade. There will be more Europe news that may or may not impact negatively on the market. We have been able to overcome a lot of that, but now we are back at these highs. That tends to magnify the news that is negative. Investors naturally pull back and wait to see.

Remember that we could see a choppy back-and-forth. Thursday was down. Friday was quasi up. The big cap NYSE was not. Otherwise tech and growth was up, and our leaders performed well. We have down days and we will have up days. I do not think we will get a breakout. Typically you do not get that move on the first try. What happened back in the summer of 2010 is classic. You have the rally and then, in the fall, the tap of the prior high and the test before the breakout. We will have to watch and see.

If the Fed announces another QE3 at some point, the market will break out and go to the upside. Before that happens, the Fed will be watching to see how they perform at these prior highs and if we get a fall back. The deeper the fall back, the better the chance we have of the Fed acting. Why? The Fed knows that if the market falls back it is seeing 2012 weakening. After the GDP advance report for Q4 that was released on Friday, we understand why Bernanke talked down the economy on Wednesday in the press conference.

Prepare for chop. It will happen. Do not get too married to positions. Do not stay heavy in all positions. We have lightened up on a lot of them. Those we have been taking lately have been partials. When we move into any new plays coming up, it will be partials. We will take our gain. We will take that partial and reduce it even more by logging the gain when we get there (or we get darn close) as we have been. We can make money in this, no doubt about it. We just have to adapt and cannot apply breakout strategies in all cases. Maybe there will be some, but we will play those on the test. The market will be choppy and up and down. Again, that can grind you up.

Do not be impatient. This is one of those times that patience pays off. Take the move when it is there. Do not chase the bus and do not rush in too quickly. Those are very much related at these times in the market. You can chase the bus and be in too quickly at the same time. It makes no sense, but it has the same effect. That is the way I look at it. The other day I said you do not have to be that smart to make money in the market, but you just have to think a little differently. There is an example of it.

In any event, we will get good plays where we do not have to make breakouts. We do not have to count on a break to make us money. Harder to find, yes. Fewer plays, yes. That is the way it is at these potential tops and bottoms where the market is trying to figure out itself what will happen. Be smart and be patient. Let the plays come, and then jump on them when you see them. If they do not go your way, we will get the heck out of Dodge. Preserve your money. Take the money when it is there for taking. Do not try to push for something that is not there; the odds are against you in this kind of market, and it will most likely be taken away from you.

I will see you on Monday for a busy news week. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2816.55

Resistance:
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2796 is the February gap down point
2762 is the February low
2759 is the mid-May low
2754 is the recent October 2011 high
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 50 day EMA at 2674
The 200 day SMA at 2659
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1316.33
Resistance:
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1313 from the August 2008 interim peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 50 day EMA at 1268
1258 is June 2011 intraday low
The 200 day SMA at 1257
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,660.46
Resistance:
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
The 50 day EMA at 12,244
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,972
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

January 25 - Wednesday
MBA Mortgage Index, 01/21 (7:00): -5.0% actual versus 23.1% prior
Pending Home Sales, December (10:00): -3.5% actual versus -3.0% expected, 7.3% prior
FHFA Housing Price Index, November (10:00): +1.0% actual versus -0.2% prior
Crude Inventories, 01/21 (10:30): +3.56M actual versus -3.438M prior
FOMC Rate Decision, January (12:30): 0-0.25% actual versus 0.25% expected, 0.25% prior. Extended low rates from mid-2013 to late 2014. Wow.

January 26 - Thursday
Initial Claims, 01/21 (8:30): 377K actual versus 375K expected, 356K prior (revised from 352K)
Continuing Claims, 01/14 (8:30): 3554K actual versus 3550K expected, 3466K prior (revised from 3432K)
Durable Orders, December (8:30): 3.0% actual versus 2.0% expected, 4.3% prior (revised from 3.7%)
Durable Orders -ex A, December (8:30): 2.1% actual versus 0.7% expected, 0.5% prior (revised from 0.3%)
New Home Sales, December (10:00): 307K actual versus 321K expected, 314K prior (revised from 315K)
Leading Indicators, December (10:00): 0.4% actual versus 0.7% expected, 0.2% prior (revised from 0.5%)

January 27 - Friday
Chain Deflator - Q4, First iteration (8:30): 2.6% prior
GDP - Q4, First iteration (8:30): 2.8% actual versus 3.2% expected, 1.8% prior
Chain Deflator-Adv., Q4 (8:30): 0.4% actual versus 1.5% expected, 2.6% prior
Michigan Sentiment - Final, January (9:55): 75.0 actual versus 74.2 expected, 74.0 prior

January 30 - Monday
Personal Income, December (8:30): 0.4 expected, 0.1% prior
Personal Spending, December (8:30): 0.1 expected, 0.1% prior
PCE Prices - Core, December (8:30): 0.2 expected, 0.1% prior

January 31 - Tuesday
Employment Cost Index, Q4 (8:30): 0.4 expected, 0.3% prior
Case-Shiller 20-city, November (9:00): -2.6 expected, -3.4% prior
Chicago PMI, January (9:45): 62 expected, 62.5 prior
Consumer Confidence, January (10:00): 67 expected, 64.5 prior

February 1 - Wednesday
MBA Mortgage Index, 01/28 (7:00)
ADP Employment Change, January (8:15): 175K expected, 325K prior
ISM Index, January (10:00): 54.7 expected, 53.9 prior
Construction Spending, December (10:00): 0.4% expected, 1.2% prior
Crude Inventories, 01/28 (10:30)
Auto Sales, January (14:00): 13.5M expected, 4.20M prior
Truck Sales, January (14:00): 6.04M prior

February 2 - Thursday
Challenger Job Cuts, January (7:30): 30.6% prior
Initial Claims, 01/28 (8:30): 375K expected,
Continuing Claims, 01/21 (8:30): 3525K expected,
Productivity-Preliminary, Q4 (8:30): 0.6% expected, 2.3% prior
Unit Labor Costs, Q4 (8:30): 0.8% expected, -2.5% prior

February 3 - Friday
Nonfarm Payrolls, January (8:30): 170K expected, 200K prior
Nonfarm Private Payrolls, January (8:30): 145K expected, 212K prior
Unemployment Rate, January (8:30): 8.5% expected, 8.5% prior
Hourly Earnings, January (8:30): 0.2% expected, 0.2% prior
Average Workweek, January (8:30): 34.4 expected, 34.4 prior
Factory Orders, December (10:00): 1.6% expected, 1.8% prior
ISM Services, January (10:00): 53.1 expected, 52.6 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Quantitative Easing III Likely on the Way

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 16 Jan 2012 18:44:00 +0000

SUMMARY:

- France spills the beans early on an S&P downgrade and the market takes its licks.
- Stocks sell but once again they recover off the lows with the low to high intraday action. If S&P action occurred a couple of months back we would be talking about Black Friday part 2.
- JPM disappoints but the reaction in the stock and financials is minimally negative.
- Michigan Sentiment posts a nice January bounce.
- Europe has its reasons for backing off its Iranian oil embargo plans. What are our reasons for not taking Canada's oil, producing our own, creating thousands of jobs, giving people incomes to buy homes given low rates, and lowering the price of oil and gasoline?
- Earnings and economic data for the short week ahead, and still we see plenty of upside patterns that we will take advantage of if they show the moves.
- S&P downgrade portend an EU recovery? When S&P downgraded the US our economy rebounded.
- Quantitative Easing III likely on the way: it is an election year, Bernanke knows which side will preserve his job, and his henchmen are laying the groundwork.

A backend loaded news week overcomes some pretty negative news and holds up just fine.

Monday is Martin Luther King Day, so the financial markets will be closed. I was worried about that because there may be something happening in Europe over that long weekend. While we will be closed on Monday, other markets will be open and we might be behind the curve. That could lead to some significant selling on Friday in anticipation that something may happen. As it turns out, this morning our friends the French let slip that S&P would downgrade the credit of seven European nations (one being France) from AAA to AA+. They stole S&P's thunder, but it did not matter. Reuters carried the story and the news was out. As a matter of fact, I am glad France did this.

Futures were somewhat lower because JPM missed in its revenue guidance, and that pull a pall across the market. Financials had been moving up well, and this news knocked them back. But that is okay; it is a normal profit-taking day after a good run higher. This was not carnage for JPM or any of the other financials. It did have futures trading under water, but not desperately so. Then came France spilling the beans about the S&P downgrade. When that news hit, futures really tumbled. When the market opened it continued to fall to the downside, looking for a bottom after this news.

What would have happened a couple of months ago? The Dow would have dropped 300-400 points easily. The Dow was down, but it only fell 160 points on the low. That was no 400 points drop. I have seen 400 points drops, and this was no 400-point drop. Indeed, the Dow reached down and tapped at the 20 day EMA which is coincident with the late-October peak. It tapped it and recovered beautifully off the lows to close down about 50 points. Great action. What was that? I said great intraday action.

This was bad news, but we all knew it was coming. We have been dealing with the PIIGS for over a year now. We all knew there were problems and knew nothing had been done. There has been some deft kicking of the can down the road, but nothing major. Mind you, the ECB did finally get in the game. Mr. Draghi has started to cut rates, and a lot of the pundits have been saying that the ECB helped the EU avoid a catastrophe. Maybe that is the case. Maybe they flooded enough liquidity in there to get things thawed out a bit. We do know that the dollar LIBOR has dropped for the first time in months. It went from below 20 to 58. Now it slid back to 57. I can live with that. There is a little improvement, and things are loosening up in Europe. So, timely as ever, S&P comes in and downgrades. France and Austria were knocked down a notch. The knocked Italy, Spain, and Portugal down two notches. There was an expected downgrade, but there is always a reaction to that harsh reality slap in the face, even if we all knew it was coming. That is what we saw from the market on Friday. Again, even though we have been dealing with this for over a year, it is good to see that the rating companies finally got in and let us all know that there is truly a problem in Europe.

Europe is probably going into a recession. It is likely already there, and it may be an ugly one. But it is taking steps to improve liquidity, and hopefully it will expand their debt enough to float them out, similar to what we have done in the U.S. That may lead to horrible inflation down the road. I do not know for sure. I have a pretty good idea, but the Fed keeps saying it will not happen. So we stick our heads in the sand, believe, and buy stocks. That is apparently what happened on Friday.

Stocks were down, but then after a half hour in the day, Michigan Sentiment came out at 74 versus the 71.2 expected. That helped turn the market back to the upside. Anything over 70 is good. It was 69.9 back in December, and this is the first read from January. That looks solid. Never mind that the trade balance was a bit worse than expected. Export prices fell again. We can live with that, too, I guess. It was the Michigan Sentiment that helped turn the market back to the upside. Indeed, while stocks did not ever recover to positive, they did not do badly. It is more of that low to high action that is the hallmark of this current rally.

Even on days were it is up, it starts low and finishes high. It is able to pull it off. There is more of that bullish bias start the New Year and the "January effect." Funds are looking to put money to work. They always do at this time of year in order to get the big percentage gains for the smaller stocks. Things in the US are improving, and they want to buy the small stuff, let it appreciate, and then get good gains to start the year. Then they can back off and coast as the year moves ahead. Why? A lot of people are saying this may be a tough year for the economy even after it gets a good start to the end of 2011, as we saw back in 2010. A good finish, but it cannot keep the mo. We will have to see what happens there, and I am still worried about it. I was saying that four and five months ago. I was worried about what would happen after the first of the year.

For now, the market is moving higher. For now, that is a good omen for the economy. The small caps are continuing to move up, and that is always a positive. We do not want to go against the market. That is why, despite our misgivings in our gut about what may happen in 2012, we defer to what the market is showing with many stocks in position to buy. We have been taking advantage of them, and they have been working for us. Not going to complain about that. Sure, there are clinkers out there. They always happen. We are coming into earnings season, we have pre-announcements and warnings, and there are stocks gapping upside and downside. You are in the game, and that will happen. But we have a lot of great positions. We never put everything in one position. That is just money management. You spread your trades out, you make no trade bigger than a certain percentage of your portfolio. You manage your money, in other words, and you will make money.

In any event, we are seeing this low to high action, which is positive for the market. That is a positive for this rally continuing. Even in the face of some very negative news out of Europe, this market was able to recover off of its low. The Dow was down 160 points, coming up over 100 points off of its low to close. Buyers using dips to move in. As a result, the indices cut their losses significantly.

SP500, -0.5%; NASDAQ, -0.5%; Dow, -0.4%; SP600, -0.9%; SOX, -2.1%

Not a great day, but not the carnage that could have been. Again, you have to look at the low to high action, still showing a bullish or upside bias to the market even on a negative day.

OTHER MARKETS

You can see a response to the European news in the other markets.

Dollar. 1.2676 versus 1.2825 euro. The DXY0 looks like the dollar was down, but it was not down against the euro. These are lows of the euro versus the dollar we have not seen since 2010. Against the other currencies, the dollar was a bit weaker, so the DXY0 overall was lower. The DXYO was higher on Thursday when the dollar was lower against the euro. You see how it works; it is not just the dollar/euro that moves the DXY0. Overall the dollar continues its way higher, testing the late-September/early-October high as it continues to trend up the 20 day EMA. Indeed, it traded below the 20 day EMA intraday and recovered to hold that support level. The dollar continues its strength. We would love to see the dollar strengthen. We are all tired of our dollars being worth less than they were three years ago or even longer than that. Even George W. Bush's presidency pursued a somewhat weak-dollar policy. He just was not so open about it.

Bonds. 1.84% versus 1.97% 10 year U.S. Treasury. Bonds had a rip-roaring day. Big moves. Bonds bouncing back to the upside. It was a bit of a fear trade with the downgrades from several EU countries. Some money fled to the U.S. This was a huge move for the 10 year, and it will probably give some of that back as the news is absorbed into the market.

Gold. 1,631.10, -16.60. Gold was down on the day. Gold has been an enigma. It looked as if it wanted to break higher, but it broke lower. It looked like it wanted to break down, and then it broke higher. Now it is holding over the 200 day EMA, indeed, bouncing back up off of that level intraday on Friday. Gold is a jumbled pattern right now. At some point we will get a good buy in gold. We are just waiting for it to show up. This pattern is hard to love right now, but I will note one thing. There was a triangle, a breakdown. Now you have a double bottom at roughly the 78% Fibonacci retracement. In theory, you could get a move back up to the prior high off of this double bottom. That is something to look at, but it is such a jumbled pattern.

It did come back from a lower low that undercut that September low. Whenever you see that false breakdown and a recovery, that is a positive. People used it to step in, and it held right on top of the April to July consolidation. It is a logical point for it to hold again as it did in September. When it undercut it again and did not fail, that showed there were buyers still here. I still think it could roll over at this point. There is resistance where it is right now. A gap higher from early August, the peak in October, and then the lows in November. It has resistance; we just have to see if it falls back down. Then it would have to test this old low again that has proven to be support thus far. If gold continues higher from here, it is probably a trade up to the old high. That is what you shoot for with a double bottom at the lower Fibonacci extensions.

Oil. 98.68, -0.29. Oil had something of a rough week. A rough week in that it was really holding up well thanks to Iran wanting to close the Strait of Hormuz and saying it would do so if there were economic sanctions against it. That ratcheted up the price of oil. It looked like it was ready break above that November peak, and then Europe said they could not impose that oil embargo for another six months. Why? Some EU countries may not be able to replace that oil. Frankly, their economies are in the toilet. If they had to go elsewhere to get oil, it would be more costly. Then Iran said it will close the Strait of Hormuz, and that would raise the price of oil even further. That would put more pressure on the economies, and did I mention they were already in the toilet? That would probably flush the toilet and then we would have a bunch of the PIIGS rooting around in the sewer. It did not want to take any action to exacerbate the problem for its member nations. It said they did not like what Iran is doing. If it gets a nuke, it will be a real problem. But if they go down in the toilet, that is a real problem, too. The old, "I will save myself first and then worry about everyone else later" mentality. We are looking at six months down the road.

That is a long explanation to say that oil fell, but it did not fall out of its pattern. Not at all. It tapped the 50 day EMA on Friday and bounced to a doji. Looks like it wants to bounce right back up.

THE NEWS

TO VIEW THE ECONOMY OVERVIEW CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Why are we not creating readily available jobs, lowering oil costs, and putting more money in American pockets?

TECHNICAL SUMMARY

The internals were lackluster, but that is what you would expect.

Volume. -0.5% NASDAQ; +3.8% NYSE. NASDAQ's volume did not increase on the worries out of Europe. Not bad. It did rally on the NYSE, but it also did so as the indices recovered off of their lows. Stocks in general bounced off their lows. That is positive. Buyers step in and drive things back up on higher volume. That is a good indication. When we look at the charts, you will see where they bounced off of. That makes is look even better.

Breadth. -2:1 NASDAQ; -1.9:1 NYSE. Breadth was not that great and not that bad. No major problems, and that goes along with what I talked about earlier with the reaction to the news.

CHARTS

SP500. SP500 just undercut the recent support level, the flat plateau to begin the year, and it rebounded off of that 10 day EMA. It lost the move over the October peak temporarily, but recovered it on a closing basis. Still good action. It reached down, reversed, volume was up. Buyers came in and supported the SP500, and likely those financials were holding it up as well. They still make a difference on the SP500.

NASDAQ. NASDAQ had decent action as well. It sold off, it recovered. It is holding the line, although it is still below the October and November peaks. It is doing what we want and playing along. You could say we have something of an island reversal. It could end up being that. We have a gap higher and a cluster at the top. It could be primed to gap lower; it all depends on earnings. It is earnings season now, and the question is how those big names will drive NASDAQ. The NYSE indices look good. Tech is not in a leadership position as far as its pattern is showing. It is not the time of year for tech to be a leader, so the fact that it is following along is a positive. It would be even more positive if it was leading, but you take what you can get.

DJ30. On the Dow you can see it a bit plainer. It almost touched the 20 day EMA and reversed, and it closed to hold above the 10 day EMA. It, too, saw volume increase as it rebounded and is in the next trading range up to the April and July peaks. Perfect action on the Dow.

SP600. The small caps were down on the day, but they tapped the 10 day EMA and bounced. That was also a tap at the October peaks. It held that level and rebounded, albeit modestly, along with the rest of the indices. It did no harm. It left itself in good shape to continue the move.

SOX. SOX lost 2% on the day. It is very NASDAQ-ish in its pattern. A gap higher, testing back. It could gap lower, and that would be all she wrote. After all, it is at the top of the range. It is walking on thin ice. It is holding above the early-December peak. Maybe that will hold it up. By the way, that is also coincident with the high from September. Maybe that will hold it and bounce it. Note that September looks very similar with the gap higher, the gap lower, and then it sold off. That was an island reversal. Here we have the gap higher and it is sagging. We have to wait and see if the SOX can hang on. Similar to the NASDAQ, it is not an index you would anticipate to lead at this time of the year. But we are seeing several semiconductors stocks performing well and continuing to perform well as others try to step up. It is a totally mixed sector right now, and we will see if they can continue to hold the line.

LEADERSHIP

Financial. The financials were knocked back on JPM's numbers. Next week there is a basket full of earnings. That includes WFC, one of the nice performers in this group. It has not just been the big names, but the regionals such as STT. It was performing quite well. They all got knocked back on Friday, but it was nothing major. We will look for a little more test, and maybe the earnings season in these stocks will give them more of a test. Next week, a lot of these will report, as noted. After that, maybe they could have the impetus to move to the upside.

Technology. AAPL looks like there is a little flag and it wants to break to a new high. GOOG has come back, and we will have to see. It has a more bearish flavor to it, but it could hold the line and make a break to the upside. CERN is trying to hang on and rebound. NTGR is showing a lot of life. It is testing again after a nice break to the upside. Unable to break through the November and December peaks, but it looks like it wants to do it this time, so it will have room to the upside. Tech is not looking great overall, but there are stocks that look really good. We want to take advantage of those.

Drugs/Healthcare. JAZZ surged to the upside, and now it is coming back for a test. BABY had a break to the upside, and now it is coming back to test. We are seeing a lot of this in drugs as well. OFIX was surging higher last week. Once again, many sectors are performing well.

This week I went over how well building materials have been doing. Home builders, engineering firms, materials, and construction are all performing better. That is the "stuff" that helps stronger economies. We did not have these kinds of moves in these kinds of stocks in the other failed attempts for the economy to move higher. In 2010 there were three quarters of 3% and almost 4% gain in GDP that evaporated in the wind. It could not hold because there was not any substance. This time we have some substance going. That is why things could be better in 2012. Maybe it will not fizzle as it did in 2010 and 2011. It remains to be seen. I am still in the Missouri "Show Me" State. You have to show the good moves, but it could do it. It is an election year, and many strange things can happen.

THE MARKET

SENTIMENT INDICATORS

VIX: 20.91; +0.44
VXN: 21.38; +0.59
VXO: 20.13; +0.95

Put/Call Ratio (CBOE): 0.74; -0.11

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 51.1% versus 49.5%. Back up but hanging around 50%. Over the past three months a steady increase. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.8% versus 30.5%. Back and forth around 30% where it has flat-lined for 6 weeks. Bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: -14.03 points (-0.51%) to close at 2710.67
Volume: 1.656B (-0.54%)

Up Volume: 586.93M (-533.07M)
Down Volume: 1.03B (+517.52M)

A/D and Hi/Lo: Decliners led 2.1 to 1
Previous Session: Advancers led 1.6 to 1

New Highs: 40 (-24)
New Lows: 24 (0)

SP500/NYSE

Stats: -6.41 points (-0.49%) to close at 1289.09
NYSE Volume: 734M (+3.82%)

Up Volume: 853.11M (-1.407B)
Down Volume: 2.74B (+1.08B)

A/D and Hi/Lo: Decliners led 1.87 to 1
Previous Session: Advancers led 1.6 to 1

New Highs: 108 (-7)
New Lows: 24 (+9)

DJ30

Stats: -48.96 points (-0.39%) to close at 12422.06
Volume DJ30: 161M shares Friday versus 128M shares Thursday.

TUESDAY

Next week is a short week, but there is a lot of data. It starts with New York Empire Manufacturing on Tuesday. On Tuesday we also have Industrial Production and Capacity. PPI on Wednesday. On Thursday there are Initial Claims, and we got close to 400K this week. We also have CPI, but it is not expected to do much. Housing Starts, Building Permits, and the Philly Fed are all very important. Existing Home Sales are on Friday.

Some big news, but all of it will pale in comparison to the flood of earnings that come out next week. As noted, there are a lot in financial and lot in tech. You name it, they will be announcing. We have had a lot of pre-announcements and some surprises to the downside. A lot of those, but we have also had some great ones to the upside. We are looking for the market to continue its upside moves to have that upside bias even as the numbers come out.

Remember, often in earnings you get that initial surge in the first couple of weeks of earnings. Everyone thinks the results are great and some big names drive the indices higher. Then investors get the picture, and they realize things are okay but not that great. Then you have the fall off. We have all been there. In July things took off, and then it was not so great. But then the earnings came back late. Investors thought it was pretty good, but it was not enough to hold. In April things were not so great, but then things took off. They were better than they thought.

We are coming in a little hot. We get a couple of weeks of good earnings announcements as we are coming in hot, and then we go down. In July we came in hot and went down. In April we came in hot and went down, but then we were back up. We could get that shakeout in the financial area. We have stocks in position to test, and some are already testing, setting up for new moves.

I think we have a couple more weeks to the upside. Will we take a bunch of new positions? Not really. We have some great ones that are moving. If the market be continues up, we will bank more profit on them just as we did this past week. But we can still take new positions. As a matter of fact, we found a bunch of plays this week and weekend that we can put money to work in. Some of these already have the news out, so we do not really have to worry about them. I always like that. The news is out, they have gapped to the upside, and we are looking maybe for a continuation move off a breakaway gap. Those are always nice.

That is what I like about earnings. Even though we do not always stay in the stocks during earnings season, it sets up new moves either upside or downside. We love playing those breakaway gaps after the news comes out. We may get a gap fill. If you do not, you will have more upside. Or if it goes the other way, you will have more downside. Even in earnings season we get opportunity coming into the numbers and after the numbers.

We will just take what the market gives. Right now there is a synergistic, positive combination of better economic data, earnings that are pretty good, pre-announcements that are worrisome, and then the sense that maybe Europe has it under control. S&P came out with downgrades, but S&P is always late to the party. When S&P comes out, maybe things are better. What happened with the U.S.? S&P downgraded, and then the economic data started to improve. Could Europe now start to improve? It very well could be. With that in mind, we will not turn down opportunity as it presents itself. If a stock is in good position, is not extended, has room to run, and we can take advantage it, then yes, we will. I will not say," Yes we can" because I might throw up if I did. I will say yes, we WILL take advantage of that.

I want to mention that the Fed is making some noise. There was another Fed FOMC member out today talking about the worry the Fed has that the economy will not be able to sustain this move. There are pundits positing that the Fed is thinking about QE3. Why on earth would we need QE3 if the data is improving as it has been? We have data that is improving that was not on the other attempts. Like I said, the materials, the housing, and the home builders stocks are improving. That is something we have not seen before. It makes this look a bit more sustainable. Why would we need QE3 and more inflation pressure? Because it is an election year.

Ben Bernanke is the most political Fed chairman we have ever had. He knows he is gone as soon as any Republican is elected. Rick Perry said something about hanging him in Texas. I do not know what he was talking about. Ron Paul would just get rid of the Fed altogether. You get the picture. He is siding with the guy who will keep him, and it is an election year. The economy has been showing signs of improvement. It probably does not need any more stimulus. We do not need it for the inflation reasons, that is for sure. We may just get QE3 anyway to pump up those financial assets even more. We all realize what happened with QE1 and QE2. There is 1 and 2, and now there is the selloff as we had in 2010. And we are looking for number 3. Perhaps that is why the market has been moving up in anticipation of that. It could be. Do not be surprised if we get QE3. If we do, stocks will take off. Of course we will make a lot of money if that happens. We better make a lot because we will have to worry about inflation. We can make a lot and then buy some gold with the profits.

Do not be surprised if that happens. That is my new thought for 2012. I am not too much into predictions; I am just talking about the possibilities. It sure looks like the Fed is setting it up. All I am doing is reading what is out there I am not predicting. The Fed is setting up QE3 because it is an election year. The Fed wants their guy, the guy in power, to get reelected. At least that is what Ben Bernanke wants. Then he will keep his job and hopefully, in his mind, he will go down as the guy who saved us all from the brink. We will see what happens.

I will see you on Tuesday. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2710.67

Resistance:
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2686 is the January 2011 closing low
2676 is the January 2010 low and the December 2011 peak
The 200 day SMA at 2658
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
The 50 day EMA at 2620
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1289.09
Resistance:
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1293 is the October 2011 peak
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1258
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
The 50 day EMA at 1248
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,422.06
Resistance:
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,391 is the February 2011 peak
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 50 day EMA at 12,061
The 200 day SMA at 11,959
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

January 9 - Monday
Consumer Credit, November (15:00): $20.4B actual versus $7.0B expected, $6.0B prior (revised from $7.6B)

January 10 - Tuesday
Wholesale Inventories, November (10:00): 0.1% actual versus 0.6% expected, 1.2% prior (revised from 1.6%)

January 11 - Wednesday
MBA Mortgage Purchas, 01/07 (7:00): +4.5% actual versus -3.7% prior
Crude Inventories, 01/07 (10:30): 4.958M actual versus 2.209M prior

January 12 - Thursday
Initial Claims, 01/07 (8:30): 399K actual versus 375K expected, 375K prior (revised from 372K)
Continuing Claims, 12/31 (8:30): 3628K actual versus 3600K expected, 3609K prior (revised from 3595K)
Retail Sales, December (8:30): 0.1% actual versus 0.4% expected, 0.4% prior (revised from 0.2%)
Retail Sales ex-auto, December (8:30): -0.2% actual versus 0.3% expected, 0.3% prior (revised from 0.2%)
Business Inventories, November (10:00): 0.3% actual versus 0.5% expected, 0.8% prior
Treasury Budget, December (14:00): -$84.0B expected, -$78.1B prior

January 13 - Friday
Trade Balance, November (8:30): -$47.8B actual versus -$44.0B expected, -$43.3B prior (revised from -$43.5B)
Export Prices ex-ag., December (8:30): -0.2% actual versus -0.2% prior (revised from -0.1%)
Import Prices ex-oil, December (8:30): 0.1% actual versus -0.2% prior
Michigan Sentiment, January (9:55): 74.0 actual versus 71.2 expected, 69.9 prior

January 17 - Tuesday
New York Empire Manufacturing, January (8:30): 10.0 expected, 9.5 prior

January 18 - Wednesday
MBA Mortgage Index, 01/14 (7:00): +4.5% prior
MBA Mortgage Purchase Index, 01/14 (7:00): +4.5% prior
PPI, December (8:30): 0.1% expected, 0.3% prior
Core PPI, December (8:30): 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, November (9:00): $4.8B prior
Industrial Production, December (9:15): 0.5% expected, -0.2% prior
Capacity Utilization, December (9:15): 78.1% expected, 77.8% prior
NAHB Housing Market , January (10:00): 21 expected, 21 prior

January 19 - Thursday
Initial Claims, 01/14 (8:30): 387K expected, 399K prior
Continuing Claims, 01/07 (8:30): 3613K expected, 3628K prior
Core CPI, December (8:30): 0.0% prior
CPI, December (8:30): 0.1% expected, 0.0% prior
Core CPI, December (8:30): 0.1% expected, 0.2% prior
CPI, December (8:30): 0.2% prior
Housing Starts, December (8:30): 670K expected, 685K prior
Building Permits, December (8:30): 680K expected, 681K prior
Philadelphia Fed, January (10:00): 10.0 expected, 10.3 prior
Crude Inventories, 01/14 (11:00): 4.958M prior

January 20 - Friday
Existing Home Sales, December (10:00): 4.57M expected, 4.42M prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Solid Jobs Report Reflects Economic Improvement, But...

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 09 Jan 2012 21:00:00 +0000

SUMMARY:

- A solid jobs report reflects the economic improvement, but stocks did not buy into it, at least on Friday.
- Rare revisions to the unemployment rate, the simple are you employed or not survey, raises eyebrows and questions about data accuracy and perhaps explains the market's lukewarm response.
- Dollar and bonds still acting as a safe haven for European funds.
- Stocks close the week with a flat session, unable to build upon the Tuesday, start of the year rally.
- Boat show indicator starts to turn positive but job cuts in 2012 are already high.
- Market still sports many levels of positive patterns supporting a continued move toward the prior highs.

Cool response to a decent jobs report suggests investors don't believe everything they are told in an election year.

Looking at the morning chart of the SP500 futures, you would not have thought a good jobs report was released. Looking at the chart of the day, it also does not look like much is happening. SP500 actually closed lower on the session. That somewhat belies a jobs report that was solid. It was not great, but it was pretty good. It topped expectations at 200K nonfarm payrolls, 50K more than originally anticipated. There was a revision to the downside in November by 20K. When you factor in some upside revisions in October, it was just an 8K job write down between the two months. The nonfarm private payrolls topped expectations, coming in at 212K. That topped the 170K expected. The prior month was also revised down to 120K from 140K.

The unemployment rate dropped 0.2% to 8.5% after it was revised up to 8.7% in November. It is rare to have an upside revision. It is strange because the unemployment number is completely based on a household survey. What reason would there be to revise when it is based on actual calls they made? That put the entire read of the unemployment rate into an even more skewed and skeptical eye than usual. A lot of people think there is some monkey business going on with the employment data. It just so happens that we get into an election year and suddenly the unemployment rate drops substantially below 9%, where it has been for years. It was pretty strange to have a revision, even if it was to the upside. As noted, it brought some skeptics out, and that was reflected in the morning action.

Looking at the intraday chart, you do not see the kind of enthusiasm you would expect this report to generate. There was more good news on the report with the average workweek. It bumped up to 34.4 hours when it was expected to hold steady at 34.3. It has been stagnant at 34.3 for months. What does a tenth of a percent bump mean? It reflects 200K jobs. Lo and behold, there are your 200K jobs. It was a solid report, and it reflects the improvement in the economy over the prior four months just as we felt it would. We also felt that given a decent, solid report, the market might want to bump higher. It might break it free to move to the upside after a good surge on Tuesday, and then a drift for the rest of the week. It continued to drift.

When the news came out, there was an initial pop. Just before the embargo was released, you could see the SP futures jump to the upside. The news hit a bit early. Before CNBC or Bloomberg got the news out, it surged to the upside and then fell back. Futures were up to begin. They got a bit more juice when the news came out, but then they fell back down. As the market opened up it traded lower. It recovered but then range traded for the rest of the day and closed virtually flat. Once again, the growth sectors were leading the way. They lost one of their important components, the SP600, as it turned in a negative session. As you recall on Thursday, there was the triumvirate of NASDAQ, SP600, and the SOX all posting solid gains in a growth renaissance of sorts. But it was not so much of a renaissance on Friday. It was a bit disappointing after a couple of months of solid economic data and a week that showed continued economic improvement. Perhaps some of the news was already built into the gain in the market that we saw on Tuesday.

Even with the disappointing action on Friday, we still look at the market overall in position to continue the moving higher, with SP500 clearing the October peak and then trading up toward the 2011 highs from April, May, and July. We see too many good patterns out there from too many solid sectors to think otherwise. It is interesting because the jobs report somewhat reflects this. There are positives on every sector of jobs growth. It was not huge growth, but construction gained 17K. I believe they said it was the first gain since 2006.

There were widespread employment gains. There are widespread good patterns in the market. With that kind of support for this move, you tend to have continued upside moves -- at least for the near term while those patterns somewhat consummate themselves. After that maybe it rolls back over. A lot of people said we could see similar action in the economic data as we saw in 2010 and 2011 (as I have been saying for a couple of months now). Improvement in late 2010 and then a peak and a decline in 2011. Lo and behold, I am reading all week, especially on Thursday and Friday, that we will have that same kind of action. A weakening 2012 before it picks up once again. But it all remains to be seen.

What we are worried about now is what we are always worried about. That is what is happening right here and right now. We keep an eye on the horizon, of course, so we can take what the market gives.

OTHER MARKETS

Once again the action in the other markets is getting somewhat turned around. Thursday the action somewhat behaving as you would think it would in a normal time. In other words, we had some improving U.S. economic data across the board, and we saw the dollar move higher and bonds move lower. That made a lot of sense. The dollar should strengthen if the economy strengthens. Bonds should move lower and yields should move higher if the economy is strengthening. It makes sense; you do not need the safety of Treasuries, you do not need to grab that yield. You put risk money out there to make a bigger return. Plus, money will be worth more down the road than it is now, so interest rates should rise. It makes sense (hey, something in economics actually does).

Dollar. 1.2730 versus 1.2788 euro. The dollar surged to the upside yet again. A big week for the greenback as it continues to break higher. There are still a lot of worries about what will happen in the eurozone. Will it break up? Will there be defaults? Will there be a smaller eurozone? Those clouds will continue to hound the continent as well as the U.S. markets through 2012. But the dollar was stronger because we have a stronger economy. And Europe still stinks -- I will admit that.

Bonds. 1.95% versus 1.99% 10 year U.S. Treasury. Bonds were surging on the session as well. The 10 year has been hovering around that 2% level. There was a sharp break. Bonds rallied and yields tumbled. That is the opposite of what they should be doing on strong U.S. data. Then again, we are not in a situation where the U.S. is making its own wake. We have to worry about Europe, and I think we will still have a real problem out of China. I think the economy will go into some collapse in different areas. Real estate over there is just primed, but that is another story. We have that European issue, and that will continue to attract European currency to U.S. Treasuries and the safe havens. Therefore we see bonds rally.

It is not just the banks putting the money over here. ECB overnight deposits rose to a record yet again. The banks are keeping the money in Europe. They are keeping it near at hand, too; they are not just shipping it to the U.S. and buying Treasuries in a carry trade (although some of them are). We may have a possibility of some improvement in Europe as money gets put to work over there. I hope that is why they are putting money in the ECB overnight deposits. Then it is close at hand and when they need it they can use it and invest it instead of just parking it in the U.S. and doing that carry trade that U.S. banks did for so long. They borrowed for 0% from the Fed and then bought bonds and got a guaranteed return. There is still money going into U.S. bonds even with a stronger U.S. economy. That tells you there are still problems in the rest of the world, and they are seeking the safety of the U.S. Treasury market. As the dollar rallies, obviously they are buying U.S. dollars as well.

Gold. 1,617.30, -5.60. Gold was off slightly. Gold trades in many different markets and closes at different times. Looking at this chart, it looks like it is up and down. Do not get too bent out of shape about the actual closing numbers; it is the trend that matters. Here we have a doji below the 200 day EMA. It is at other resistance as well. It is right at the resistance from the September and October lows and the consolidation back in August. It could still fall from here. I am still looking at a downside play in gold.

Oil. 101.77, -1.45. Oil took a modest downside day. Still in great shape to make a new break higher. It is trying to put in a higher low near the 10 day EMA at the top of its range. It bounced up and has come back to test. If it puts in this higher low, it is in excellent position to break to the upside. No reason oil should fall now, despite troubles in Europe and despite troubles in China. That is, unless they become front-burner, raging issues. Iran is causing a lot of trouble in the Middle East, and that is helping prop prices higher despite a larger than expected build in the U.S. inventories announced on Thursday.

TECHNICAL SUMMARY

Volume. -7.5% NASDAQ, 1.7B; -16% NYSE, 648M. Volume fell off the table sharply.

Breadth. -1.2:1 NASDAQ; -1.2:1 NYSE. Breadth was mealy-mouthed as well.

CHARTS

SP500. We had a couple of higher lows formed in late November and mid December. You had a higher high, and now it is trying to break over the October high on SP500. We had a consolidation, a big break to the upside on Tuesday as the New Year trade got underway, and then pretty much a lateral move to a slight drift higher to end the week. That leaves the SP500 just below the October peak. October clocks in at 1285 on the high, and SP500 closed almost 1278. It is right there. It has put in higher lows, and it is consolidating laterally. It is in good shape to make the break higher.

The question is whether it will get the impetus to get that break. A lot of patterns still look good. The financials have been improving. They took the day off Friday, and that is why we got no traction on the SP500. Overall, its position is one of strength and there are still good patterns to push it and the other indices higher. This coming week we may get a little more lateral move. Maybe a slip back, or maybe not. It looks good either way. We could get a little giveback or just a new break to the upside. We look for it to take out that October peak. If it does, that is a positive sign for the next week or two for a rally up toward those April and July peaks. We are looking for a good, sharp rally. Then we may get the pullback. Some people say 1300 is the peak, and it may be. We just have to take what it gives and let the play run. For now we have the upside bias that we wanted to see. It is playing out the way we wanted it to.

DJ30. DJ30 was down on the day, but it was a modest loss. It broke to that new high. It is testing it as the 10 day EMA rises above it. I think when the 10 day gets there, it will make its move. It has a good shot to get to 12750. That is the double top from July. That would be a very good move for it. That puts it up another 400 points or so. That can make us money on the positions we already have that are already logging good gains.

NASDAQ. NASDAQ edged higher. It was one of the market leaders again, although it did not make much headway. It is above the 200 day EMA. It is at other resistance from way back, some other gap points March and January. It is still roughly at the early-December peak. It has moved just past it, but it has a lot of resistance still overhead. It is fighting, but it is making some moves, getting help from stocks such as AAPL, GOOG, NTGR, and other big name techs that are moving to the upside for now. They are showing good momentum and carrying this pre-earnings into early earnings rally to the upside.

SP600. The small caps could not make it a threesome when it came to the growth indices moving higher again. They faded back 0.3%. Still in this lateral move. Looked like they wanted to make the break on Tuesday. Tried it, did it, but could not hold it. Now they are still measuring it, moving laterally over the 200 day EMA and right at that late-October peak. In excellent position, as with the Dow, to continue to the upside.

SOX. SOX was up. It was a market-leading kind of move, although it was a weak move. There were semiconductors moving, breaking higher off of the lows in their patterns. That is positive. This will help. The SOX is still mired in its trading range, but it is trying to make a move to the upside. If it does rally higher over the next couple of weeks, the rest of the market will benefit from that. I am not saying it will make the breakout even over the November peaks, but it does not have to for us to make money. If it merely moves to those levels, that means the rest of the market will break above its October peaks and go into that April-to-July trading range and bounce up toward the top of the that range. Then we make some nice money on this end of 2011/beginning of 2012 rally that we have been looking for and have been playing. Why have we been playing it? The individual stock patterns have been saying please come in and buy us because we are going higher.

LEADERSHIP

I have been talking a lot about stocks that are forming good patterns and moving higher. Stocks that have done so already and others that are coming up to fill in the void and provide that extra support for the momentum to the upside. Those waves of new buys coming in. That is always the lifeblood of any rally. It has to live off the initial stocks that move higher, and then it has others step up to take the baton, so to speak, and continue the move.

Financial. Financials have finally started to step up over the past week. The gap higher on Tuesday started money into the sector, and then they continued up through Thursday. Friday was not their day. They were off, but still just modestly, and holding their gains. JPM was off slightly, but it had a very good week under its belt. WFC is the same situation. A great week to the upside after clearing the 200 day EMA a couple of weeks back and testing it. It is moving quite well. Financial institutions have joined the party and are moving up. If they continued to do so, the SP500 makes the break over the October peak, and we continued this rally up near those April and July peaks.

Medical/Healthcare. Healthcare is not getting a lot of play but it has been doing fine. JAZZ had a nice 10% move up, making a super break to the upside. MYL is testing back this week, but it has had a great run under its belt so far. TEVA has rallied up to its 200 day EMA. Looks as if it wants to continue on.

Retail. Retail has had its home runs and its strikeouts, but it is also holding up well and continuing to the upside. Many stores are doing the upside move, continuing up from Thursday. PIR continued its move after a great blast upside on Thursday. We took some gain off the table for LULU on Friday because it ran right up to its upper trendline. Was not quite to our target, but it was very close. After a nice move up for the week, we decided to bank some gain before next Monday just to have it in pocket. SCSS broke to the upside, looking good. Very solid move. Retail is hanging in there. It is not only those patterns that have already moved, but we see stocks that look like they could move as well. GES could make the upside break as well and continue to provide support to the market and to this sector overall.

Technology/Semiconductors. Technology has tried to step up and lead over the last few days. GOOG is pulling back, but it is at the 10 day EMA. It might give us another buy for a continued bounce to the upside. AAPL was churning away again, moving up another 4+ clicks on the session. SNDK looks like it was trying to break higher out of its triangle. Other chips are looking solid as well. ALTR looks like it might try to make a break to the upside. ATML is moving up off of its lows, breaking higher on some solid volume. During the week, MU gapped higher and rallied up to its 200 day EMA.

These are some of the chips I am talking about. While the stocks overall may not look that great, it is getting some support from various chips. Those could really add to the move to the upside over the next couple of weeks and put some life into this market (something more than just this gradual drift we have seen). I could show you a lot more, but I need something left to put on the report. It is where these stocks are set up in these bases. These rounded bottoms or trading ranges -- whatever you want to look at. There are many different patterns out there. We are seeing a lot of little triangles at the bottom of a selloff. They are setting up to move higher. We see them in many sectors, just as we saw jobs growth in many sectors.

I cannot emphasize enough what a positive this is for the market. You have to have a lot of stocks in position to move up, and in a staggered position. It is like buying fruit. If you buy a dozen peaches and they are all ripe, they will start to rot before you can eat them. Or if you have some that are very ripe and some that are real really green, you may not be able to eat all the ripe peaches before they rot, and then the others you have to wait a week before they are ready. But if you stagger them, then you can eat peaches constantly and enjoy them. The market comes up, these others ripen, they move, and you eat them. You grab the others as they come along and ripen. You get the idea with respect to how important it is to have several good sectors in position to move higher to keep rallies moving.

THE MARKET

SENTIMENT INDICATORS

VIX. The VIX is trading down to the low it hit two weeks ago. The market had a little struggle at this level. There is a support level here. It may try to bounce, and the market may try to consolidate a bit. When we look at the charts, you will see it is already consolidating. I am not putting too much stock in what the VIX is showing now. It is not an absolute correlation. A lot of talk about it, but the talk has not done anyone much good. Everyone has been saying the market is going to fall or what have you. Yet the market keeps rising. They said the Christmas rally would end, and then the market keeps going up. It is not going gangbusters, but it is showing that positive action. That is the low to high action. Once again we saw the market dip on Friday and then it recovered as bids came back. They did not knock the cover off the ball, but they did come back in. It is a positive, though it was not raging. As long as the buy stays there my thesis remains in place that the market continues to move up.

VIX: 20.63; -0.85
VXN: 20.52; -0.88
VXO: 19.77; -0.37

Put/Call Ratio (CBOE): 0.96; +0.13

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 49.5% versus 50.5%. Fading modestly on a week of consolidation ahead of the first of the year, but still well above the 45.3% from three weeks back. Still probing the overdone range and could be part of the picture that tops out the current in January, but it is not there yet. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 30.5% versus 29.5%. Right back up to the same level sported three weeks back as bears remain skeptical. Skeptics in the face of a move is a good sign the move continues. Lower but not anywhere near suggesting investors are carefree. The average the past month and more is 30%. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: +4.36 points (+0.16%) to close at 2674.22
Volume: 1.693B (-7.54%)

Up Volume: 994.71M (-375.29M)
Down Volume: 676.22M (+239.24M)

A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Advancers led 1.55 to 1

New Highs: 43 (+2)
New Lows: 34 (+7)

SP500/NYSE

Stats: -3.25 points (-0.25%) to close at 1277.81
NYSE Volume: 648M (-16.17%)

Up Volume: 1.24B (-1.39B)
Down Volume: 2.28B (+670M)

A/D and Hi/Lo: Decliners led 1.18 to 1
Previous Session: Advancers led 1.52 to 1

New Highs: 107 (+1)
New Lows: 14 (-4)

DJ30

Stats: -55.78 points (-0.45%) to close at 12359.92
Volume DJ30: 131M shares Friday versus 158M shares Thursday.

MONDAY

Next week we will have more economic data, but I want to talk about a couple of other economic indicators first before I get into that. One of them is what I called the "boat show" indicator. The boat shows are just getting started now, and the New York one as has been underway. After a five-year decline in new boat sales, they are finally starting to see them rise. They have been on the rise since August 2011. During the recession, new boat sales fell 55%. Previously-owned boats declined only 7%. The pre-owned is the largest part of the market, but the new boats, just as in housing sales, are always important because it gives a better indication of the health of the market. If people are looking to buy new, they have the money and the confidence to do so.

There is an old saying in the economy that the luxury is the last to go down when the economy goes down and the first to come back when the economy comes back. Regardless of their size, boat sales are considered a luxury item. You need the extra cash to buy one. It is nice to see them improving in sales. We will have to see how the boat shows hold out, but that is a positive indication for the economy coming back. It flies somewhat in the face of the idea that the economy will go down in 2012. There are reasons for it to go down, but there are reasons to think it is on the comeback trail as well. The smaller boats are still outperforming the big ones. The small ones always come back faster. It will be interesting to see if the big luxury yachts come back this year.

Another important indicator is jobs. They were better on Friday, but there is another indicator out there. Already this year there have been 2,348 job cuts announced. Boeing has announced cuts. A solar company has announced cuts. And Pepsi will announce cuts as well. They will be significant. They will not be huge numbers, but already we are seeing job cuts as the economy is supposedly improving. That is something to keep an eye on as we move forward because jobs lag the economy. If we are seeing job cuts after seeing an improvement in the jobs numbers, that could indicate that we have seen the apex of the jobs recovery. Then we could start seeing it come back down over 2012, particularly if the economists saying that the economy will fall are actually correct.

As for the actual data next week, we have Consumer Credit along with Wholesale and Business Inventories. Retail Sales for December will be out on Thursday, and that will be big. Friday we have Michigan Sentiment. Those are the big ones for the week. That said, we have to go back and look at the market overall and what I anticipate ahead. It is basically what I have talked about earlier.

The bias is upside right now. There are plenty of good patterns in the market to continue the push to the upside. If we avoid any major problems out of Europe and any major problems from China, the market has a very good shot over the next 2-3 weeks of rising up into the initial rounds of earnings (starting next week) and putting in some good gains toward the July and even the April and late-May peaks. Again, that would put SP500 up around 1350. Plenty of room to run to the upside and make us a lot of money. We have great positions that are already moving. Indeed, we took just a bit of gain off the table on Friday. If we get some more days to the upside, even with this slow drift up, our plays are hitting or coming close to our targets.

As the market moves up, if it has another great surge as it did in mid December or late November, we will have plays hitting targets all over. That is exactly what we have been playing for. We will take partial profits on that, and then we will see how the market handles these peaks. If it struggles, and I think it might, we will book some more of the gain. We will leave a little bit there because if there is a breakout we want to be in those stocks. I have said it many times before: The market can run further than you ever think it could, either upside or downside. It can run more than you would ever rationally believe was possible. Why? Because the market always overshoots near term. Longer term it evens out, but near term it always overshoots. If it gets a good rally going, it can keep going and going. It has a tendency to do the opposite of what a lot of smart people think it should do -- or what your gut tells you it can do. If you rely on your gut when you are investing or trading in the market, you typically end up gutted.

Watch what the stocks are telling you. If they are saying "buy me" as MU said this week, then you buy them. If they bounce off of support such as BWLD did this week, you buy it. If you see a decent move or a decent pattern in a stock like FWLT and it starts to move, pick up some shares. If it works, you make good money. If it does not work, you have a good risk/reward point and you can get out of it. You are not hurt significantly. You have more risk to the gain than you have to the loss, and that is the way you play the game.

We have more exposure in great stocks now because we have good patterns out there. We will take advantage of it as long as the market continues. As Roy McAvoy said in Tin Cup, "You ride her till she bucks ya." Of course Roy was not that great a success. He was a great striker, but he did not have the mental aspect of the game. That is what you do by watching what the market tells you versus playing from your gut.

We will continue to watch what this market tells us. Right now I think it is telling us to continue buying. My caveat is that we may be getting to the point where we do not want to buy too many more stocks. We have a lot of good positions. If the market does rally up to the old highs and stalls, that will put our upside positions in with great gains for us. If we buy a lot of them ahead of the peaks, that leaves us in a position where we could be left high and dry when the tide goes out. We will play the stocks that have good patterns, that are not extended, and that can make us money in this kind of move. If we stay with stocks that are not extended, we will be fine.

I will see you on Monday. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2674.22

Resistance:
2676 is the January 2010 low and the December 2011 peak
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
The 200 day SMA at 2660
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
The 50 day EMA at 2605
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1277.81
Resistance:
1293 is the October 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1275 is the January 2010 low, early January 2011 peak
1267 is the December 2011 peak
The 200 day SMA at 1259
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
The 50 day EMA at 1239
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,359.92
Resistance:
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,284 is the October 2011 peak
12,258 is the December 2011 peak
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 50 day EMA at 11,978
The 200 day SMA at 11,955
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

January 3 - Tuesday
ISM Index, December (10:00): 53.9 actual versus 53.4 expected, 52.7 prior
Construction Spending, November (10:00): 1.2% actual versus 0.5% expected, -0.2% prior (revised from 0.8%)
FOMC Minutes, 12/13 (14:00)

January 4 - Wednesday
MBA Mortgage Index, 12/31 (7:00): -3.7% actual versus -2.6% prior
Factory Orders, November (10:00): 1.8% actual versus 2.1% expected, -0.2% prior (revised from -0.4%)
Auto Sales, December (14:00): 4.36M prior
Truck Sales, December (14:00): 5.98M prior

January 5 - Thursday
Challenger Job Cuts, December (7:30): 30.6% actual versus -12.8% prior
ADP Employment Change, December (8:15): 325K actual versus 180K expected, 204K prior (revised from 206K)
Initial Claims, 12/31 (8:30): 372K actual versus 375K expected, 387K prior (revised from 381K)
Continuing Claims, 12/24 (8:30): 3595K actual versus 3620K expected, 3617K prior (revised from 3601K)
ISM Services, December (10:00): 52.6 actual versus 53.0 expected, 52.0 prior
Crude Inventories, 12/31 (11:00): 2.209M actual versus 3.899M prior

January 6 - Friday
Nonfarm Payrolls, December (8:30): 200K actual versus 150K expected, 100K prior (revised from 120K)
Nonfarm Private Payrolls, December (8:30): 212K actual versus 170K expected, 120K prior (revised from 140K)
Unemployment Rate, December (8:30): 8.5% actual versus 8.7% expected, 8.7% prior (revised from 8.6%)
Hourly Earnings, December (8:30): 0.2% actual versus 0.2% expected, 0.0% prior (revised from -0.1%)
Average Workweek, December (8:30): 34.4 actual versus 34.3 expected, 34.3 prior

January 9 - Monday
Consumer Credit, November (15:00): $7.6B prior

January 10 - Tuesday
Wholesale Inventories, November (10:00): 1.6% prior

January 11 - Wednesday
MBA Mortgage Purchasing Index, 01/07 (7:00): -3.7% prior
Crude Inventories, 01/07 (10:30): 2.209M prior

January 12 - Thursday
Initial Claims, 01/07 (8:30): 372K prior
Continuing Claims, 12/31 (8:30): 3595K prior
Retail Sales, December (8:30): 0.2% prior
Retail Sales ex-auto, December (8:30): 0.2% prior
Business Inventories, November (10:00): 0.8% prior
Treasury Budget, December (14:00): -$78.1B prior

January 13 - Friday
Trade Balance, November (8:30): -$43.5B prior
Export Prices ex-agriculture, December (8:30): -0.1% prior
Import Prices ex-oil, December (8:30): -0.2% prior
Michigan Sentiment, January (9:55): 69.9 prior

By: Jon Johnson, Editor
Copyright 2012 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Predictions? Europe Will Remain an Issue

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 01 Jan 2012 21:43:00 +0000

SUMMARY:

- Lackluster session then late selling send SP500 negative for 2011.
- DJ30 and SP600 face new year trying to lead a continuation of the rally.
- Earnings can keep the upside move alive, then kill it as investors ask 'is that all?'
- Predictions? Europe will remain an issue, North Korea and Iran are more trouble, no real US rally despite election year, more economic issues, blah blah, blah. Watch the market, be aware of history, and take what the market gives.

Lackluster session keeps SP500 flat for 2011, belies the year that was.

There is not a lot to say about the Friday session. It was very quiet, and futures were up modestly. Stocks started higher but faded, and they were never able to recapture any excitement. Looking at the SPY chart, it was trending to the downside all session. It was not a completely steady trend; things in the afternoon got quite volatile with a couple of very strong selloffs. There was a recovery the last hour off of that sharp, mid-afternoon selloff that sent the indices to session lows. In the last few minutes of trading, however, programs came in and sold the market. The effect was to push the SP500 negative by 0.04 for 2011.

SP500 had been coasting all day in positive territory for the year, albeit a weak positive gain. It was thrown away in the last minute, but it did not really matter as it finished flat on the year. What does matter is how stocks trade during the year. It was that bounce up and down. There was the initial trading range through mid year, the selloff, the second trading range, and then the recovery that made us the money. You get money from the moves and not from flatlining. We did have movement even though the year ended flat overall.

The Dow did finish upside on the year. Looking back to December 31, the Dow was near 11600 but closed at 12200. Around a 600 point gain. Nothing dramatic, but it was to the upside. Dow was obviously a relative outperformer for the year. The SP600 came on late in the year, and it finished lower for the year. It ended 2010 at 415.73 and it closed at 415.10. It, too, was down for the year, but it was the movement in the year that makes the difference for us.

This is one of those years were they look back and say that the stock market did nothing for people. They will say it has not done anything for the last 10 to eleven years, but that is not true. If you buy one thing and hold it forever, that would be the case, but that is not what happens in the real world of stock trading and investing at least not these days. It is incorrect to say (as some of our politicians like to) that stocks are inherently bad and risky for those looking for retirement. That is why we never changed Social Security.

Fortunately or unfortunately, that will have to change regardless of your views; we simply cannot afford the system as it is. But that is another story that we will have to fight over in 2012, just as we have tried to fight it in 2011 and 2010. Of course nothing has been done. In an election year, of course, still nothing will be done. We have to look to 2013 before anything serious can be addressed with respect to this issue.

It was a day highlighted by the usual year-end predictions for the coming year. You know my belief on that. It is a fool's errand to try predicting what will happen with enough specificity to invest by it. As I talked about on Thursday, there were events in 2011 that no one could have predicted. There was the Japanese earthquake and subsequent tsunami and its impact on Japan and the rest of the world. The U.S. economy came to a near standstill after that natural disaster, waiting to see how severe things were. We also had the debt crisis and the debate in September that acted to stymie the U.S. economy as well. There were no predictions with respect to those, and those are the kinds of things that make the difference in any year, particularly in investing.

I will talk more about my predictions when we get to the wrap up and look ahead to next week. I do have a few things to throw out, but nothing as earth-shaking as a comet striking the U.S. or anything like that. It is all common sense to anyone who looks at the headlines, knows a little history, and who has spent a bit of time investing.

SP500, -0.43%; NASDAQ, -0.33%; Dow, -0.57%; SP600, -0.94%; SOX, -0.41%.

It was down across the board except for the Dow. Again, it was the relative-strength performer. It really came into its own late in the year, showing it was the relative strength leader as NASDAQ the index that tried to lead starting the last quarter of 2010 faded and became a laggard to close out the year.

OTHER MARKETS

Dollar. 1.2940 versus 1.2981 euro. The dollar managed a modest gain on the year. It traded sharply lower and then had to recover off of the April and May lows to post that gain. It was a solid recovery. Much to the chagrin of the Treasury, the Fed, and probably the Obama administration, the dollar has firmed as the European markets have come under more and more pressure. As the dollar firmed, gold sold off for a variety of reasons. One of them lately being the dollar strength not requiring people running to the safety of gold. That is a tenuous argument, but it is one of the reasons that saw gold weaken at the end of the year.

Bonds. 1.88% versus 1.90% 10 year U.S. Treasury. Bonds rallied on the session. Bonds started the year with the 10 year over 3%. Many predicted that the bond bull market was over. Bill Gross was one of them, and he came back later in the year and said he was wrong. It surprised many people because it was anticipated that the U.S. economy would recover in 2011. It looked better at the end of 2010, but then it fell back into its old habits and sold. And it sold and Europe sold, the bond market strengthened. U.S. bonds were much more attractive given what was out in the rest of the world. Even China was having trouble slowing down in 2011. Early until the year it was restricting reserves and forcing banks to require more collateral and reserves for lending. Now it has done the opposite because, as usual, central banks are wrong in their guesstimates of what will happen and they overshot. Now they are panicking and trying to head the other way. All that does is make U.S. bonds look better.

Gold. 1,567.80, +26.90. Gold sold off at the end of the year after a tremendous rally up through August, but it was up 10% for the year. On Friday gold reversed early losses and posted a nice gain. It is a nice reversal for the yellow metal, and it roared back. What will happen? As noted, gold was up 10% for the year. Commodities overall were down 8.3%. That was after a 17% gain in 2010. Commodities could be under pressure again in 2012. Gold will most likely sell more as will silver (down for the year) in 2012. Much of the selling at the end of the year was due to margin calls and people having to raise cash. As the U.S. economy looked to be improving, there was also less need to run to gold to hedge against any downside in the U.S. as well as other places, such as China and Europe. Gold suffered. It is likely to suffer even more, and I think we will get a buy point in gold in 2012. It just will not be at the first of the year.

Oil. 98.83, -0.81. Oil was off for the session. Oil has rallied nicely through the late spring, sold off on the European worries and has now recovered. There are still European issues, but the U.S. looks better and that has helped bolster the price of oil. It is something of a paradox. You have a mostly weak world when it comes to economics, but oil is holding near 100. It is having trouble getting over the 103 level, and there is significant resistance from prior peaks in this range. It is not a surprise that it is moving laterally after a very nice October to November run. It is having something of a difficult time moving through. We will see if it can make the break. There is a little ABCD pattern, and it has bounced off of that.

It will be very interesting to see what happens in 2012. If Iran does something insane, oil will become "gold" and leap to the upside. We will see how that plays out. Again, that is one of those predictions. You can make educated guesses, but as for investing, what if it does not happen? You could face the other side of the coin. Let the market tell you what it will do, and then take what it is giving. That is our motto. We avoid making grand predictions and becoming invested in making grand predictions. If they do not come true, you either panic because you are in the wrong positions and need to get out of them (investing on emotion at that point). Or you do not do anything if it does not work your way, and then you are stymied. In that case, you cannot see the market moving and make money off of that move regardless of whether it is where you thought it would go or not. That is what you need to do to be a good investor and trader today. You have to look at the market and take what it gives. That has been our motto for years, and it is even more apropos in the current market climate.

TECHNICAL SUMMARY

Volume. +2.25% NASDAQ; +2.1% NYSE. For two out of three days, we had volume increase on the downside. That shows there are a bit more sellers in the market, but on very low volume.

Breadth. -1.1:1 NASDAQ; -1.1:1, NYSE. Breadth was not really worth discussing.

CHARTS

I will talk more about trends than specifics, but there are a few specific points to note.

SP500. SP500 closed fractionally lower for the year. It remains in an end of year uptrend, trying to break from this overall trading range that saw a peak back in April and in July. That was the top of this run, and it has been trying to recover ever since. It has been burdened by the problems coming out of Europe, even though the U.S. economic data has improved over the past four months.

We see the trading range, the break higher, and now a pair of higher lows and a higher high (that could not quite hold) trying to produce the next move to the upside. That can get it into this trading range toward the April and July peaks to end the rally, so to speak. Then it could move up in January, play around in that range for awhile, and then likely run out of gas and fall.

DJ30. The Dow is very interesting. It has been the relative strength leader in the market after NASDAQ abdicated that role in Q4. The Dow managed a pair of higher lows off of the October low which marked the bottom of the selling for now. And it made a nominally higher high as well. Very key moves. Higher lows and a higher high are always important. That opens it up to play in that upper trading range toward the April peak at 12,876. The Dow closed at 12,217, so it has room to play to the upside.

I want to draw your attention to another aspect. In August, the 50 day EMA crossed through and below the 200 day EMA. That was after the initial selloff, and it acts as something of a confirmation. The market struggled after that. It ultimately did recover, and it has been in this current return of the rally. Now the 50 day EMA is on the verge of crossing back up through the 200 day EMA. Whereas the cross below or down through the 200 day EMA is called the "death cross," a cross back to the upside is called the "golden cross." It is supposed to bring gold, it is a good thing, etc. As with the selloff in July and August, it had already occurred when the cross took place. Just as this rebound has started to occur as the cross is getting ready to take place. In theory it produces more of an upside. It produced hardly any significant further downside after the cross in August.

Take that for what it is worth. It is a good indication of a trend, but it is not a guarantee that that trend will continue to build upon itself. There are many people making statements about this as far as predictions for 2012. Again, look what happened when the death cross occurred. There was not much death here just a trading range and it broke back to the upside. The Dow is posting a leadership role moving into 2012. That is very good. It was leading to the upside and did a large part of the heavy lifting in carrying NASDAQ upside in that late 2011 rally.

NASDAQ. NASDAQ is not looking as strong, but it still has improvement in progress. It is still mostly in the clutches of that August-October trading range, or "the eurozone" as I like to call it. It has put in a pair of higher lows. It has yet to put in a higher high. That is what we are waiting for. It is in good position, sliding laterally this past week along the 50 day EMA. That puts it where it can produce a bounce to the upside.

It is following rather than leading. But as I noted last night, following the Dow and the SP600 is good enough for now. Remember, we want them to get up in that April-July trading range, move up a bit more, and make us money on our current upside plays. That is really all we are looking for.

SP600. The small caps fell almost 1% on the session, but that put them simply back at the 200 day EMA. Still in position to run higher. SP600 made a pair of higher lows and a nominal higher high. They faded back, unable to hold that move over the October peak. It is in excellent position to make the break to the upside and continue that move. Again, as with the other indices, that would put in this playground from April into July. The July peak for SP600 is at 462, and the index closed at 415. That gives it plenty of room to play and run to the upside. It is in good position to begin that move for the start of the year.

Remember, small caps and the first of the year tend to go together. Why? The theory is that the big money funds pick up the small caps because they have the greatest potential for percentage returns. They like to have them in the portfolio and grab the gains they make during the year. It starts in January, they buy them and it pushes them higher. Then whether they move up or not is problematic based on the economic activity, of course. We know that the market takes that economic activity into account months before it is anticipated to show itself. The small caps are helping lead the market higher along with the Dow, and that is a positive for the market overall if it can hold this move and continue with a break to the upside to a new higher high.

SOX. SOX was down 0.4%. It is very similar to NASDAQ, still struggling in that eurozone range. It is below the 50 day EMA, working laterally and trying to get a little steam up to make a break higher. It does not have the series of higher lows, it does not have the strength of the other indices. Maybe it will be a follower such as NASDAQ, which would be a positive for more upside. But it could be the problem that turns the market pack down as it did in November. We will see. My prediction (and it is only through January) is that the market continues higher as the SOX follows along the SP500, the Dow, and the small caps. Then when earnings come in, we start to have a giveback of any breakout to the upside. That is when we have to deal with the reality of 2012.

LEADERSHIP

I will be speaking in broad terms on leadership.

There are groups that have performed well. When there is trouble, utilities do perform better. They were one of the leadership groups in 2011. On the other hand, financials were down 17%. They were the anti-leaders. Stocks from small business service companies such as HMSY were performing very well, helping out. There were semiconductors that performed quite nicely despite the overall laggard nature of the chips. SIMO posted a very nice upside gain.

There is some retail still in position to move higher after having already moved up during the year. RL could break higher from a downward-pointing wedge. TJX is continuing its upside move. HD continues to look solid to the upside. CMG is still working higher inside of its channel. Retail of various shapes is performing quite nicely even while some sectors inside of retail are struggling. DECK continued to the downside on Friday, landing us a very nice gain on our downside play.

Which sectors will lead in 2012? We will see what the market tells us. We have sectors setting up nicely to move higher that have been moving up and are set up. We have been taking advantage of those. Those would include some of the drugs stocks, medical appliances, small business stocks, and the software stocks. We have been taking positions in those as well as retail. We have been taking positions in those because that is what is setting up. What will set up at the end of the year? I do not know. I will say we will probably get a good buy in gold later in the year. Just not right now.

As always, we will watch the sectors and see what the money is moving into and out of. We will play those to the upside and downside, respectively.

THE MARKET

SENTIMENT INDICATORS

VIX: 23.4; +0.75
VXN: 23.13; +0.06
VXO: 22.98; +1.03

Put/Call Ratio (CBOE): 0.87; -0.23

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 50.5% versus 45.3%. After a drop the bulls charged with a big jump over 50. This is starting to get into the overdone range and could be part of the picture that tops out the current in January. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal but now dissipating. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.5% versus 30.5%. Bears are not really buying into the bullish scenario. Down but at the level hit three weeks back. The average the past month is 30%. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: -8.59 points (-0.33%) to close at 2605.15
Volume: 1.042B (+2.26%)

Up Volume: 375.29M (-462.24M)
Down Volume: 623.84M (+462.72M)

A/D and Hi/Lo: Decliners led 1.17 to 1
Previous Session: Advancers led 2.56 to 1

New Highs: 34 (+1)
New Lows: 60 (-15)

SP500/NYSE

Stats: -5.42 points (-0.43%) to close at 1257.6
NYSE Volume: 483M (+2.11%)

Up Volume: 1.03B (-1.01B)
Down Volume: 1.19B (+990.61M)

A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Advancers led 3.73 to 1

New Highs: 163 (+42)
New Lows: 17 (-12)

DJ30

Stats: -69.48 points (-0.57%) to close at 12217.56
Volume DJ30: 96M shares Friday versus 84.6M shares Thursday.

TUESDAY

As for looking into the future, I will start with the coming week. There will be a plethora of economic data starting on Tuesday. The ISM Index for the country will be out, and it is expected to continue its improvement. FOMC minutes will also be out that afternoon. We also have Factory Orders and Auto Sales on Wednesday. Then we will have the warm-ups to the Friday jobs report. Challenger and ADP Employment will come out. The Initial Jobless Claims are expected to drop again. ISM Services will come out as well. On Friday we have that payroll report. They are expecting 150K new jobs and a little bump higher in the unemployment rate. We will see. The worker pool is in a secular downtrend. Maybe that is changing now. Maybe there is more excitement about the jobs picture. After all, this week those saying that jobs were easier to find were up significantly versus those saying jobs were hard to find. Maybe we are at an inflexion point where we will see it turn. Heaven knows we need to see that happen.

We will have a full plate to start the week. That will be interesting, but one thing that will start taking precedence is earnings. It is one of the things that has been hampering the market as seen by the semiconductors. We had a lot of warnings out from the chips, and that caused a lot of our problems. ORCL missed badly in December. We will have a lot of earnings coming out in January. I think that could be one of the significant drivers in the current action of the market. Indeed, I think we can have a continued move higher (hopefully more of an upside move than we have seen lately) in the first couple of weeks of earnings. They do not really get started until the second week of January. That means we have an upside move maybe through the third week of the month. Then we will get the gist of what is going on. At that point we could have some issues. We could get good enough news to keep the rally moving until investors say "is that all?" And start selling things off. We could also get some bad news that could kill the rally right off the bat. Those are the possibilities as I see them. That is my prediction for at least the first part of 2012.

There could be a lot of issues after that even if we get the rally to the upside on an initially good outlook. We have Europe. That will continue to be on the front-to-middle burner of the market stove. There were worries that Europe would announce some kind of dissolution of the eurozone this week. That was a real worry out there. Then we have U.S. data. The economic data is improving. Can it continue to do so into 2012? We had improving data at the end of 2010. It could not hold up through the first part of 2011, but it has not made a comeback. Frankly, it has held up more than I thought it would. Thus you see the value of predictions. I thought the data would have already turned over by now, and it has not. I can live with that.

Then there are the external political issues. We have Iran talking about closing the Strait of Hormuz. It says if it is threatened it will do that. North Korea made statements today, basically threatening the south. It said there would be new changes in the world. You have this view that the U.S. is in a weakened condition, and people are taking their shots at us, so to speak. That will continue through this year.

It is an important election year, and that is another issue we have in the U.S. It is not only the U.S. economic data, but how well Congress, the administration, and the judiciary can play along with each other. There will be some very important decisions by the Supreme Court. It will happen earlier rather than later in the year. They have already announced that they are taking the argument on the ObamaCare case. They will hear it in March. They are setting aside a full three days of hearings, I believe. That will probably give us an answer before July, which was previously anticipated. We will have that answer before the elections, and that will be very important.

Then we have the Republican primaries leading up to the November election. All of this will have a huge impact on the economy and the stock market. Typically the market rises in an election year, but I am not so sure that will be the case this time around. There are so many issues confronting the U.S. The belief is that whoever is in the White House at the end of the year will make the difference as to how effectively the U.S. is able to deal with these issues. There is a concern that if the current administration feels like it will not win, it may do as much as it can on the way down. I am not so sure that the current administration can be counted out in this election. I do not think that is the case at all.

If the market goes down and the economy tanks, the chance of reelection falls tremendously. If it continues its improvement, people might give him the benefit of the doubt. Despite everything they disagree with, they may let the President have another four years. I have my opinions on how that will be, but that is one of the things that the market will be factoring in over the year. We will be looking at how the market factors these things in.

There are a lot of bold predictions about what it will do. I have made the predictions I am willing to make. They are not classic predictions at all, other than what the market is telling us now in the short term. That is what we always do, and that is what we will continue to do. My goal is not to be right on what is going on in the world. Although, looking at history, it really tells you what is happening. It has been very accurate thus far. That does aid in our decision-making on where to invest and what to look into. But the market is often not rational in the near term. It overshoots to the upside, and it overshoots to the downside. While things may even out over time, a lot of the money is made when it overshoots one way or the other. Despite what we believe should happen, we look at what the market IS doing and what IS happening in stocks. We will continue to do that and take what the market gives.

Right now we are still looking for that move up into January. If something major happens in Europe or if North Korea or Iran does something crazy, then all bets are off. That would be true regardless of what the situation was going into it. We just have to play with what the market is setting up to move. We have been able to play upside and downside of late because it is that kind of a market. I think we will still be able to do that because I believe the market will move higher but then be unable to continue the move and ultimately give the decline. That means a lot of stocks that are in trouble will not really recover during a rally that may ensue in this April to July level. That is why we can continue to play the upside and downside. When the upside does break, as I believe it will, then we will have already taken profits. We are looking to take gain as the market trades to its peak in this range. Then we can look to play more downside as well.

Have an outstanding New Year's celebration. I hope you can be with your family and friends, and I hope you have a wonderful time. We have had a very trying 2011 in terms of all the problems that have confronted the U.S. and the world. I know a lot of you have had personal issues as well, personal problems with the fires and floods we have had this year. It has been a very difficult year for a lot of people.

I am happy to say we have done very well with our market plays. We have been making a lot of great money with that, and I hope that helped you out. We are looking to do the same this year. I have a concern that it will be another very trying year in terms of economics for many people. I hope I am wrong. I am always concerned about that. I want us to look ahead and hope for the U.S. to be a great entrepreneurial nation again. We can lead the world and create those jobs and technologies that will raise our standard of living for ourselves, our children, and our grandchildren. My concern is that we are not doing that now. That we will hand off a worse country than we ever have before in terms of the outlook for our children and grandchildren. But we are a great country and a great people. If we are allowed to be entrepreneurs and inventors and do not have the government crowding us out of what we are best at doing, there is no doubt that we can be the world leader again. As Darrell Royal at UT used to say, we just have to go back and 'dance with who brung us.' If we do that, we will be great.

I will see you on Tuesday. Have an outstanding weekend!

Support and Resistance

NASDAQ: Closed at 2605.15

Resistance:
2612 is the late August 2011 peak
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2661
2676 is the January 2010 low and the December 2011 peak
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low and NASDAQ
The 50 day EMA at 2596
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2441 is the November 2011 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1257.60
Resistance:
1258 is June 2011 intraday low
The 200 day SMA at 1259
1267 is the December 2011 peak
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
The 50 day EMA at 1232
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1158 is the November 2011 low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,217.56
Resistance:
12,258 is the December 2011 peak
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,947
The 50 day EMA at 11,905
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

December 27 - Tuesday
Case-Shiller 20-city, October (9:00): -3.4% actual versus -3.0% expected, -3.5% prior (revised from -3.6%)
Consumer Confidence, December (10:00): 64.5 actual versus 58.0 expected, 55.2 prior (revised from 56.0)

December 28 - Wednesday
MBA Mortgage Index, 12/24 (7:00): -2.6% prior

December 29 - Thursday
Initial Claims, 12/24 (8:30): 381K actual versus 368K expected, 366K prior (revised from 364K)
Continuing Claims, 12/17 (8:30): 3601K actual versus 3600K expected, 3567K prior (revised from 3546K)
Chicago PMI, December (9:45): 62.5 actual versus 60.1 expected, 62.6 prior
Pending Home Sales, November (10:00): 7.3% actual versus 0.6% expected, 10.4% prior
Crude Inventories, 12/24 (11:00): 3.899M actual versus -10.570M prior

January 3 - Tuesday
ISM Index, December (10:00): 53.4 expected, 52.7 prior
Construction Spending, November (10:00): 0.5% expected, 0.8% prior
FOMC Minutes, 12/13 (14:00)

January 4 - Wednesday
MBA Mortgage Index, 12/31 (7:00): -2.6% prior
Factory Orders, November (10:00): 2.1% expected, -0.4% prior
Auto Sales, December (14:00): 4.36M prior
Truck Sales, December (14:00): 5.98M prior

January 5 - Thursday
Challenger Job Cuts, December (7:30): -12.8% prior
ADP Employment Change, December (8:15): 180K expected, 206K prior
Initial Claims, 12/31 (8:30): 375K expected, 381K prior
Continuing Claims, 12/24 (8:30): 3620K expected, 3601K prior
ISM Services, December (10:00): 53.0 expected, 52.0 prior
Crude Inventories, 12/31 (11:00): 3.899M prior

January 6 - Friday
Nonfarm Payrolls, December (8:30): 150K expected, 120K prior
Nonfarm Private Payrolls, December (8:30): 170K expected, 140K prior
Unemployment Rate, December (8:30): 8.7% expected, 8.6% prior
Hourly Earnings, December (8:30): 0.2% expected, -0.1% prior
Average Workweek, December (8:30): 34.3 expected, 34.3 prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Another Early Rally is Squandered

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 19 Dec 2011 19:28:00 +0000

SUMMARY:

- Another early rally is squandered as SP500, NASDAQ fail to break back out of the Eurozone range.
- US data, European bonds look better on the week but a Fitch ratings move Friday afternoon overrides the positives.
- Longer term patterns still pointing toward danger in 2012.
- SP500, NASDAQ still need to break out of the EZ (Eurozone), but many stocks look ready to support a breakout near term.

A second early bounce runs out of bids.

It was yet another week that logged solid gains in U.S. economic data. Retail Sales were good enough. Business Inventories were solid. The Fed kept the rates steady and said it would continue to do so through mid 2013. But there was even better data than that. The Fed is the Fed, and it has had rates low for a long time. Jobless Claims fell to 366K. That is the best since 2008. The PPI was holding steady. Prices were not going anywhere. Empire Manufacturing tripled expectations. Capacity Utilization held in solid. The Philly Fed more than doubled expectations. We are seeing improvement in the economic data for the third straight month; indeed, extending over three months. We had some issues with earnings warnings. They have been a problem, particularly with semiconductors. We also had some really good news from the likes of FDX. It had a great earnings report. ADBE had a great earnings report as well. There are warnings and there is a lot of concern about 2012, but the data has been steadily improving.

The problem is that last week the U.S. stock indices did not have a great week. They started off weaker, unable to continue the prior Friday's bounce. They sold off through Wednesday. On Thursday and Friday they managed to put in a rebound, but it was nothing great. Why do I say that? Number one, it was of no size compared to the Monday-Wednesday selloff. More than that, SP500 and NASDAQ fell back into their August-October range known as the "eurozone," American style. I call it the eurozone because every timed the EU has real troubles, U.S. stocks fall into this August-October range. As noted, SP500 and NASDAQ fell into it. On Thursday and Friday they did try to break back out of that range, but it was an effort that bore no fruit. Both sessions SP500 tapped at the level to beat, but it was beaten by that level. In other words, it sold back each session, though it did post modest gains.

We had decent economic data. We are still improving, but the U.S. stock market faded. It was not a collapse. We are still in position to make a higher low and continue the move to the upside. It was just disappointing to see a breakout stall again just as a breakout stalled in late October and early November. We had two breakouts and now two stalls. What was the reason for the pullback? The economic data was not bad, and some of the earnings results were a bit disconcerting, but it is primarily Europe. I call this the eurozone for good reason. Every time there is real trouble out of Europe, U.S. stocks fall back into this range. Of course there are ongoing problems in the EU, but I am speaking of when they come to a boil or when a certain story hits and spooks investors. On Friday it looked as if the market may have been able to make a break to the upside. As on Thursday, the futures were up. Even though they were whittling back ahead of the open, stocks jumped higher as the market got underway. All of the indices were trading to the upside.

Bonds in Europe were trading better. There was a vote of confidence on the austerity measures for the country. The Italians were standing firm, and that helped the market. Bonds across the continent improved. They rallied, and that means yields fell. That is positive. The problem is yields have been raging higher because no one wants to lend the EU countries any money. That is bad you need money to operate. The banks have to be able to trade. Thus the dollar facilities and other aids that have been announced over the last three weeks.

That was not enough, however, to keep the market moving higher. Why? Fitch, a ratings company, joined Moody's and S&P in putting most of Europe (including France) on a negative credit watch. There have not been any downgrades, but negative credit watch is the first step in doing so. Now that the Big Three have put the continent on negative watch, it is just a matter of time before there are specific downgrades to debt. And, let's face it, there should be. If the U.S. is downgraded, then all of Europe should be downgraded. That just goes to show you it is a subjective, touchy-feely business that these guys are in. They should have downgraded Fannie Mae and Freddie Mac a long time before they actually did, but they missed it. They were asleep at the wheel. Same here. They have been asleep at the wheel, and now they are downgrading well after the fact. It is after everything is basically known.

It was that news that helped scuttle another rally attempt. The bids dried up and stocks sold into lunch. Not a banner day. Then they traded laterally into the close. It was not a complete disaster. It was not a collapse, but it was not a great session. The indices closed mixed.

SP500, +0.3%; NASDAQ, +0.56%; Dow, -0.02%; SP600, +0.83%; SOX, +0.81%

It was not carnage, but it was disappointing because the indices were unable to hold an early gain once again. They almost snatched defeat from the jaws of victory.

OTHER MARKETS

Dollar: 1.3032 versus 1.3020 euro. The dollar was down early. It was struggling because things looked better and Europe was stronger. By the close and Fitch's missive with respect to the credit worthiness of European sovereigns, the dollar gave back some of the loss. It strengthened versus the euro, but it never caught up on the day. There was still a slight loss on the dollar, but it was a huge week for the dollar as it broke to a new high for the year. It was moving across that September peak as well as topping the January peak. It pulled out just ahead of it and is now testing back. Of course you would expect it to test after such a nice run to the upside, breaking two key levels and now bumping up into the December 2010 peak. Great move by the dollar on the week, but it moved because of our friends in Europe.

Bonds: 1.85% versus 1.91% 10 year U.S. Treasury. Bonds enjoyed another rally overall. Money is fleeing Europe and coming to rest in U.S. Treasuries once again. Now we have the bonds challenging the mid-November peaks as well as the September and early-October peaks. Very strong move by debt instruments in the United States last week. Again that is due to issues with respect to Europe. With the U.S. data improving as it has been, in most situations you would expect to see bond yields rising and bonds themselves falling. Not the case given the extracurricular influences on the U.S. market.

Gold: 1,596.60, +21.40. Gold had a very difficult week. It sold off, broke lower on Monday, and it fell the entire week. It had a modest bounce on Friday after showing a Thursday doji. There is a bounce to the upside after a pretty good bloodletting downside this past week.

Oil: 94.10, +0.23. Oil struggled all week as well. It found a little bit of purchase on Friday, but that was barely any kind of move. After falling sharply, it is showing a doji and trying to bounce back to the upside. It rallied through 103, and it broke through resistance at 100. It went back and tested 96-95 support. It rebounded but never made it through that prior high. It has rolled over now and it is testing just below a key support level. Now it will have to look at 90-92 as next support. In other words, it is trading right above a range of support, but it is struggling.

China is having issues and having to lower collateral rates and reserve rates, and it probably will have to do a few other things to keep its bubble economy going. We have Europe with its issues not wanting to buy as much, obviously. It does not have the manufacturing base. Even with the U.S. manufacturing base back on the expansion now, it is not enough to soak up all the oil. Particularly when we are selling oil down to the Gulf of Mexico from Oklahoma now. We actually have plenty for a change for a little while.

All of indices and all of the markets were impacted last week not based upon U.S. data, but based upon European and Chinese data. No longer do U.S. moves dominate the moves of all commodities. It used to be when the U.S. sneezed, the entire world shuddered. Now the U.S. is improving, but it has hardly any impact on commodities. Interesting.

TECHNICAL SUMMARY

INTERNALS

The internals were rather lackluster.

Breadth. NASDAQ, +1.3:1; NYSE, +1.6:1.

Volume. NASDAQ, +43.6%; NYSE, +48%.

Volume exploded higher on expiration Friday. Do you read anything into that? Of course not. It was expiration Friday, so volume means very little. The more interesting feature about volume is that it has tailed off dramatically since 2007. It is even lower now because there is no proprietary trading allowed. We have implemented rules that have basically taken liquidity out of the market. They are driving money to other markets around the world versus the U.S. systems. Can you believe that? It is our insane effort to regulate every possible aspect of the markets and to regulate areas that were regulated before but were not properly enforced. Now we have regulations to cover the regulations that are not enforced by the regulators.

Why we do not just fire the regulators that are not enforcing the laws in place, I do not know. That is not the way our Congress and federal government works, so now we have extra regulations. It is amazing. If you talk to money managers, Wall Street people, small businesses, and lenders, they all say that everything is drying up. We would prefer to regulate and push business overseas than to enforce less-stringent regulations that would make sure the marketplace was safe and bring the money back home. We are so stupid in the U.S. So stupid. Our leaders to not understand markets, and they think regulation is the answer.

You must have minimum regulations; there is no doubt about that. You have to ensure that the market is fair. That is what the Constitution is there for; it is there to ensure a fair, safe playing field. But if we do not follow the Constitution and go off the paper, we get away from having a fair, level playing field. If we do not follow the minimum regulations that we passed (and that worked), then we are not going to get the results we want. The answer is not putting more regulations on top of regulations. That never works. You cannot regulate fairness into free markets. You set up the minimum to ensure equal access, and then you should just let people go. Some will win and some will lose.

Inadvertently, through the will to do good by the people, we have driven money away and are drying up our markets. We gave away our IPO markets. There are more IPOs on other stock exchanges in other parts of the world than in the U.S. We used to be THE place, and now we have driven all that business away. We have regulated it away. Enough of that. You understand that that is why volumes have been so low. People complain of low volumes, but they have literally operated to dry them up. But I digress.

CHARTS

SP500. No volume, light volume, big volume on Friday. It was all expiration, however, so we will not read anything into it. I do want to note that for two days the index bounced up against the top of the eurozone (1225-1235) and failed to move through. It has come back. The question is whether it will fail and fall back into the range or if it will make a break to the upside. It has not answered that. I will tell you this: I said the important aspect was the test of the top of the range after it broke into it. Thus far it is failing the test. Two days of tapping at the resistance and falling back. It has not rolled over, and that is always a positive. This week will tell the tale. I do not like what I see here, and I will talk about that more when discussing leadership.

NASDAQ. NASDAQ is the same type of action, although it never threatened a break. It came closer on Friday; Thursday there was nothing. NASDAQ gapped higher, but it put no scare into 2600. On Friday NASDAQ rallied up to 2585. Getting closer at 15 points away. It put a little shiver into 2600, but then it immediately turned tail and headed back down off of those levels. It is not threatening it seriously, and it also has not made the break. It has made an attempt at it, but it has not been able to push through. That is something we have to watch next week. Will it roll over or will it pick itself back up and try to make the break once more? We will see. Thus far, it is not wowing anyone.

DJ30. The Dow was down on the session, but it held the 50 day EMA nicely. Showed a nice doji. It is in excellent shape to move higher.

SP600. SP600 was up on the session. Definitely a day for the growth indices. It was up but also finished well off its high. It is holding right above its August peak. That is good. It needs to be one of the leaders to the upside. This week will let us know if it will do that, along with the Dow, or if it will throw in with SP500 and NASDAQ if they cannot make it out of the range.

SOX. Semiconductors were up, but they were off their peak as well. Indeed, they were tapping at the interim highs from August and fading back. The chips tried to make the move, but they were not providing any help for the rest of the market. We still have the same old problem. The Dow and SP600 are holding above their range, and the NASDAQ and SP500 are unable to make the break thus far. This next week will tell the tale.

LEADERSHIP

I will be talking about two broad categories tonight. There are the stocks in position to move higher near term, and then we have longer term patterns that do not look so good. I will not go into detail on specific sectors; I want to go by individual stocks and comment on how they look.

AAPL is still in a good pattern overall. It is setting up a triangle in its trading range. GOOG is also looking decent overall. It is at the top of its range, trying to make a break to the upside. There are a multitude of other stocks I have discussed that have formed rounded bottoms and are trying to move back up. ARAY is one of these. AVY is another I have talked about quite a bit. TASR has rallied nicely and is testing as we speak. LNN is in a trading range. It looks like it wants to bounce back to the upside. PEET is in a very nice uptrend.

In short, there are stocks that have moved up and are still moving nicely higher. They are set up to do more upside work. Then there are those that have sold back but are making nice rounded bottoms and want to make the break to the upside. LII has a nice rounded bottom, breaking to the upside. Those can provide solid, near term upside for the market. If SP500 and NASDAQ want to make the break higher, they can provide the motors to do it. That is great. Near term I have always said there is a possibility for a rally to the end of the year and into the first of the year. A little January effect action.

We have stocks with the patterns to be the drivers for that move; we just need something to trigger the move. Good economic data was unable to do it this week. It tried to, but Thursday and Friday it did not have enough juice to break NASDAQ and SP500 higher. Maybe they can do it on their own patterns and the accumulation the January effect in the smaller stocks toward the end of the year. After all, SP600 is trying to be one of the leading indices along with the Dow.

At the same time, there are other stocks that are kind of scary when looking down the road. Looking at a two day chart of BRCM, over the early part of 2010 through the present it set up a big head and shoulders. And it is breaking lower. LRCX just announced an acquisition. From early 2010 to present it has set up a big head and shoulders, and it is trying to break lower. And it is not just semiconductors. ADSK has set up a similar head and shoulders and wants to break lower from the looks of it. In energy, APA is set up a head and shoulders. There are others. KO is not as severe, but it is putting in a rounded top starting this year. Look how it made a higher high in August and September but MACD made a lower high. It is trying to roll over. It has a very lethargic looking top setting up.

From 2010 to present UTX is setting up something of a head and shoulders top. FCX is setting up the same pattern. We are playing it to the downside now. You can see that head and shoulders top with the lower MACD. It is just struggling. CTXS looks like it is setting up and having trouble, wanting to roll over with a head and shoulders of its own. BEAM has that head and shoulders as well. Looks like it wants to break to the downside. Industrial metals are having the same issue. BHP is setting up that head and shoulders as well.

Near term we see the possibility of a move higher. But looking out to 2012, based upon the patterns that have set up over the last 18-22 months, we see a bunch of head and shoulders in some key names. Not all names, but some key names. That is worrisome. It does not mean the market will roll over, but it means there could be some problems in 2012. This is one reason that 2012 is bugging me. I have concerns about economic data sustaining itself and about what Europe and China will do to the attempted rebound in the U.S. I am worried. They could really have an impact on us, and Bernanke is worried about this as well. I guess I am not in great company. There are also the patterns that are disconcerting when they mesh with what you hear about economics. Stock markets look down the road, 9, 12, 15 months. That puts us well into 2012. These patterns could start breaking down before then. If that is the case, we could potentially have a not-great 2012. At least toward the back half of it.

We can play some of these to the downside. These are big moves. We will begin taking a look at these because some of them are breaking lower. We have positions in some of them, and we will be looking to take positions in others as they continue to set up and break down. We will be looking longer term, of course, but these are longer term patterns. We will mix them in with our short term.

THE MARKET

SENTIMENT INDICATORS

VIX. Volatility has fallen back down to the late-October levels. It is also sitting on top of the mid-June levels. As the market sold, volatility bounced around a bit, but it mainly came down. That is the opposite of what usually happens. When the market sells, volatility tends to run higher. When the market is rallying, volatility dries up until it gets to the point where it needs to break and move back to the upside. What we see now is an interesting situation. The SP500 and NASDAQ are trying to break back up out of the eurozone. It would suggest that they might fail in that effort because volatility has fallen back down to the complacent levels hit before when the market sold.

The market did not plummet back in late October when volatility hit this level and started to bounce. It sold sharply for a couple of days, but it recovered after that. Then when the markets sold off sharply in November, volatility did not spike to the moon. It was up but it did not do much. Indeed, toward the end of the month it fell. Volatility is not actually working the way one would anticipate. Can I necessarily say that because it is back down to the late-October level that the market will fail in its attempt to break out? No. I can suggest that there might be some trouble and some issues, but that does not mean it will fail. Indeed, it could be read to say it will continue to the upside. I will put it to you this way: Volatility is not tracking true with the market. There are times when it does and times when it does not. When it does not, do not spend too much time on it. Obviously I have already spent too much time on it tonight.

VIX: 24.29; -0.82
VXN: 23.48; -1.31
VXO: 25.02; -0.43

Put/Call Ratio (CBOE): 1.15; -0.11

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 45.3% versus 47.4% and 44.2% prior. Faded as the market stumbles around at the top of the Eurozone range. Just as it was picking up some steam to the upside it slips, but nothing major here. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 30.5% versus 29.5% versus 30.5%. Right back up as it appears 30% is going to be a support level. Makes sense given the market chop now. The index spent seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: +14.32 points (+0.56%) to close at 2555.33
Volume: 2.487B (+43.67%)

Up Volume: 1.52B (+715.97M)
Down Volume: 1.1B (+240.05M)

A/D and Hi/Lo: Advancers led 1.28 to 1
Previous Session: Advancers led 1.36 to 1

New Highs: 37 (+15)
New Lows: 120 (+6)

SP500/NYSE

Stats: +3.91 points (+0.32%) to close at 1219.66
NYSE Volume: 1.139B (+48.31%)

Up Volume: 3.16B (+790M)
Down Volume: 1.69B (+280M)

A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Advancers led 1.71 to 1

New Highs: 86 (+26)
New Lows: 55 (-5)

DJ30

Stats: -2.42 points (-0.02%) to close at 11866.39
Volume DJ30: 389M shares Friday versus 137M shares Thursday.

MONDAY

Next week there is another calendar full of economic data. It begins with Housing Starts on Tuesday. That is when the serious news hits. Existing Home Sales are on Wednesday. On Thursday you have Jobless Claims and then the third estimate of Q3 GDP. Michigan Sentiment is also on Thursday along with Leading Economic Indicators. Friday brings Durable Goods, Personal Income and Spending, and New Home Sales. Plenty to chew on next week as SP500 and the NASDAQ try to break out of their eurozone ranges.

As I discussed earlier, all eyes will be on the SP500 large caps and the biggest NASDAQ stocks as they bump their heads at the top of the eurozone trading range. Will they make the break or not? I still believe there are enough short term, bullish patterns out there ready to move higher. I believe they can indeed drive those indices up out of this range for now. I am not saying they will break out to a new high. They could drive them out. We have put in one higher low. We could put in another higher low, make the break, and come up and test these April into July highs. I do not think we will break those. I think that will be the zenith on the move. We may break them. We may move through them on a short term basis, but I believe that would be the reversal signal.

This is just my analysis; it does not mean it will happen. But this is what I have seen in 25 years of looking at the stock market. This is the kind of thing that happens. We have the economics, we have the patterns near term and long term, and we have problems in the rest of the world. I have seen it happen in different parts here and there, but now they are all put together at once. These are truly historic times. It kind of sucks to be here, but it is interesting at the same time. When I ponder these things and get concerned, I am often reminded of what Gandalf the Grey said in The Lord of the Rings. Everyone living through times such as these sometimes wishes it was not their burden. But it also makes the decisions pretty simple. It is not worrying about whether you are here or not. You ARE here. It is about what you decide to do with the time you are given. That is one very eloquent way of saying, "When life gives you lemons, make lemonade." Or in my neck of the woods, "Take what the markets give you."

We get our edge by making money off the market whether it goes up or down. We gain the edge so we do not have to care. We ultimately do care, but you understand why I say I cannot care when I am trading the market. We just look for what the market will give us. Short term it looks like it will give us some upside plays. After that, it looks like it will give us some long downside plays, punctuated by sharp moves to the upside, of course. That is the way it always is. Underlying all of that, we just look at what the market is doing. Look at the plays. Do we have a good probability of making money on this play? Do we have at least 3:1 odds in our favor of going in the direction we are looking at? If we can get 3:1 or better and we are playing smart with the direction of the market overall, we end up winning and making a lot of money.

Just be smart and do not get too caught up with all the noise and all the predictions about what will happen. It is the end of the year, and there will be a lot of predictions. Do not get too caught up in that. Look at what the market is doing now and overlay that with what is setting up down the road. Just like what I went through tonight. If you do that, you are less likely to be caught by surprise and get that one in your ear, as Shoeless Joe Jackson admonished the young Moonlight Graham in Field of Dreams. If we do that, we will not get caught behind the trend, or we will not get to the point where we are getting killed. We can stay ahead. We can make great money just allocating common-sense money to each play and then making sure each play has the requisite risk/reward. If we do that and keep our eye on the horizon, we will be in great shape no matter what the market and the economy throws at us.

Have a great weekend. Do some more Christmas shopping. Maybe do some more hunting; it is still hunting season after all. Drink some great wine or whatever it is you like to do. Whatever your beliefs are, try to enjoy the season. Enjoy the benefits of the hard work we have put in this year. It has been a difficult year from an up and down standpoint, but it has been a very profitable year as well. Enjoy it. Smell some roses and spend some of that money; maybe it will help the economy. I will see you on Monday.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2555.33

Resistance:
2555 is the mid-August 2011 peak
2572 is the November 2-11 gap down point
2580 is the November 2010 closing high
2593 is the November intraday high
The 50 day EMA at 2596
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2612 is the late August 2011 peak
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2665
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2546 is the early September 2011 gap down point
2535 is the November island reversal gap point
2532 is the early August gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1219.66
Resistance:
1220 is the April 2010 peak
The 50 day EMA at 1224
1227 is the November 2010 peak
1231 is the late August 2011 peak
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1261
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 11,866.39
Resistance:
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,939
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
The 50 day EMA at 11,792
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

December 12 - Monday
Treasury Budget, November (14:00): -$137.3 actual versus -$139.5B expected, -$150.4B prior

December 13 - Tuesday
Retail Sales, November (8:30): 0.2% actual versus 0.6% expected, 0.6% prior (revised from 0.5%)
Retail Sales ex-auto, November (8:30): 0.2% actual versus 0.5% expected, 0.6% prior
Business Inventories, October (10:00): 0.8% actual versus 0.9% expected, 0.0% prior
FOMC Rate Decision, December (14:15): 0.25% actual versus 0.25% expected, 0.25% prior

December 14 - Wednesday
MBA Mortgage Index, 12/10 (7:00): 4.1% actual versus 12.8% prior
Export Prices ex-ag., November (8:30): -0.1% actual versus -1.5% prior
Import Prices, November (8:30): 0.7%
Import Prices ex-oil, November (8:30): -0.2% actual versus -0.2% prior
Crude Inventories, 12/10 (10:30): -1.932M actual versus 1.336M prior

December 15 - Thursday
Initial Claims, 12/10 (8:30): 366K actual versus 390K expected, 385K prior (revised from 381K)
Continuing Claims, 12/03 (8:30): 3603K actual versus 3650K expected, 3599K prior (revised from 3583K)
PPI, November (8:30): 0.3% actual versus 0.1% expected, -0.3% prior
Core PPI, November (8:30): 0.1% actual versus 0.1% expected, 0.0% prior
Empire Manufacturing, December (8:30): 9.53 actual versus 3.0 expected, 0.61 prior
Current Account Balance, Q3 (8:30): -$110.3B actual versus -$110.0B expected, -$118.0B prior
Net Long-Term TIC Fl, October (9:00): $4.8B actual versus $68.3B prior (revised from $68.6B)
Industrial Production, November (9:15): -0.2% actual versus 0.2% expected, 0.7% prior
Capacity Utilization, November (9:15): 77.8% actual versus 77.8% expected, 78.0% prior (revised from 77.8%)
Philadelphia Fed, December (10:00): 10.3 actual versus 4.5 expected, 3.60 prior

December 16 - Friday
CPI, November (8:30): 0.0% actual versus 0.1% expected, -0.1% prior
Core CPI, November (8:30): 0.2% actual versus 0.1% expected, 0.1% prior

December 19 - Monday
NAHB Housing Market Index, December (10:00): 19 expected, 20 prior

December 20 - Tuesday
Housing Starts, November (8:30): 627K expected, 628K prior
Building Permits, November (8:30): 633K expected, 653K prior

December 21 - Wednesday
MBA Mortgage Index, 12/17 (7:00): 4.1% prior
Existing Home Sales, November (10:00): 5.03M expected, 4.97M prior
Crude Inventories, 12/17 (10:30): -1.932M prior

December 22 - Thursday
Initial Claims, 12/17 (8:30): 380K expected, 366K prior
Continuing Claims, 12/10 (8:30): 3650K expected, 3603K prior
GDP - Third Estimate, Q3 (8:30): 2.0% expected, 2.0% prior
GDP Deflator - Q3 (8:30): 2.5% expected, 2.5% prior
Michigan Sentiment - Final, December (9:55): 68.0 expected, 67.7 prior
Leading Indicators, November (10:00): 0.3% expected, 0.9% prior
FHFA Housing Price Index, October (10:00): -0.1% prior

December 23 - Friday
Durable Orders, November (8:30): 2.0% expected, -0.5% prior (revised from -0.7%)
Durable Goods Orders, December (8:30): 0.3% expected, 1.1% prior (revised from 0.7%)
Personal Income, November (8:30): 0.2% expected, 0.4% prior
Personal Spending, November (8:30): 0.3% expected, 0.1% prior
PCE Prices - Core, November (8:30): 0.1% expected, 0.1% prior
New Home Sales, November (10:00): 313K expected, 307K prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

A String of Earnings Warnings is Worrisome

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 11 Dec 2011 21:34:00 +0000

SUMMARY:

- Doesn't take much of a European deal to satisfy investors and traders.
- A string of earnings warnings is worrisome, but not for stocks, at least not yet.
- China industrial output slows further.
- Michigan Sentiment approaching 70.
- Moody's cuts the big French banks.
- Despite the negatives, Europe trumps and stocks rally nicely, pushing the indices up off an important support level.
- The bid returned on Friday. If it is still there Monday the prospects for a further upside push firm considerably

Apparently any deal was good enough on Friday.

Apparently any deal out of Europe was good enough for the U.S. stock market on Friday. Considering that there were rumors from Japan that Germany would veto any kind of deal, the fact that the EU agreed to anything (even if it did just kick the can down the road further) meant a sigh of relief was heard around the world. It was enough to bounce U.S. futures to the upside, and it was enough to send European stocks higher as well.

It really was not that auspicious of a deal. I dare say it was not powerful no offense to the French official who predicted that a powerful deal would be struck. It was an agreement among all of the EU members except the UK. They simply will not go along with anything the EU wants to do. It was an agreement for tighter fiscal controls in order to prevent future debt increases. Think about that. "Future debt increases"? Is that not the same thing we do over here with our budget? That grand super committee was supposed to cut $1.2T, but it could not agree how to do it. They could not agree on what to cut because they were cutting expenditures that had not yet been made. In other words, these were expenditures that would possibly be made in the future. That is not cutting. Cutting is dealing with what you already have earmarked to spend. It means the money is going out the door. It is not cutting a potential expenditure in the future. But that did not deter Europe, and they were able to agree to do just that. This is supposed to provide some kind of fiscal restraint well down the road.

There was another leg to the agreement (with only two legs, maybe it will fall over). It was what they call the ESM. It is another emergency fund. It will be 500B available in July of 2012. You might ask why they would take so long; it is eight months away. But this ESM was already planned, and it was supposed to be put in place in July 2013. They advanced it an entire year, but that still leaves it in July. Obviously, the feeling in Europe is that this is really not a major crisis. If they do feel that, then they simply do not want to address it. In 2013 they were going to put together another fund? There may not be anything left by July 2012, much less in 2013.

It is all rather comical. But what is even more comical is that U.S. markets found it palatable and rallied on the news. Futures started out high and they kept moving higher. This despite some pretty worrisome data from U.S. companies. I am not talking about data that the government is compiling; I am talking about actual information and earnings projections coming from companies. There was a string of warnings. ALTR, TXN, and LSCC in computer chips, TOY in autos and DD chemicals. All kinds of plastics, chemicals, and the stuff that goes into consumer goods. DD specifically cited a consumer electronics slowdown as one area that caused it to reduce its outlook for 2012. We have already had GLW say that it was cutting back on its glass production for flat screen TVs because demand was way off. Now we add to it a series of semiconductors and then more stoic Dow-type stocks such as DD.

That gets a bit worrisome. It is just not something in an obscure area of the chips sector. It is TOY, DD and others. The chips that these companies make are not the kinds of chips that go into phones or tablets, but that does not mean they are worthless. They find their way into auto parts, industrial components, and consumer goods. This is part of what I talked about on Thursday night. They are all over the market, representative of the entire market and the economy. These chips go into everything. If they see demand slowing it is worrisome.

But not to fear. It was not hurting the market on Friday. China was reporting that its industrial output hit its lowest level in two years, but that was not going to matter. Did it matter that Moody's cut the largest banks in France such as Societe Generale and Credit Agricole? No. Stocks were going to rally because there was a deal. It was a "kick the can down the road" deal, but that works for stocks in the near term. If they feel like the banks, financial institutions, and large companies will be able to operate under the facilities that are put in place, then stocks are going to perform well. Maybe they believe that the bid is there again. Maybe they believe that Quantitative Easing European style will be coming. It might or it might not. The meeting was very opaque with respect to giving guidance on further liquidity measures.

Again, that did not matter for stocks. They started to the upside. They tested early and then it was a steady rally for the rest of the day, closing out near the session highs. Stocks did move flat for the last hour, but they did not give up their gains.

SP500, +1.7%; NASDAQ, +1.94%; Dow, +1.55%; SP600, +3.24%; SOX, +1.22%.

Not what you would typically expect from the SOX, but it had to overcome the morning dips, turn back up, and then rally to the upside after stocks such as INTC and TXN helped it to the downside.

It was not just the European deal that was considered good news. There was some economic data out in the U.S. dealing with the Michigan Sentiment reading for December. It was the preliminary reading, but it came in quite nicely at 67.7 when 65.1 was expected. It was 64.1 back in November. It is approaching 70, and that is getting to be a decent level. I say "decent," but it beats the heck out of the 50's and low 60's. We have continued improvement in the economic data as reported in the U.S. While that is very hopeful, again, you should counterbalance that with the problems we are hearing from some well-known big names in the U.S. economy. I am not talking about just one sector. I am talking about GLW, DD, and several semiconductors. That is a wide range, and it represents a wide range of goods in the U.S.

OTHER MARKETS

The other markets were up and down, but it was not exactly with you would expect.

Dollar: 1.3373 versus 1.3336 euro. The DXYO did rise against the euro, but it was higher against other currencies around the world, so the DXYO itself rose. The dollar continues to look good in this cup with handle pattern that formed off the initial rally from August.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.06% versus 1.98% 10 year U.S. Treasury. Bonds sold as you would expect. That thumped the 10 year back down to the 50 day EMA. It is also in a cup with handle right now, trying to hold at the 50 day EMA and to break higher off of that level. Bonds have been range trading over the past week. They are back and forth almost even amounts every day. They have been in a range since the rally flattened out that ended in September. It moved back and forth, and it is carving out this pattern. We will see if there is a break to the upside. What would break it to the upside? Bad news in Europe or bad news in the U.S. economy. People would run to safety, and that would push bonds higher. A cup with handle is a bullish pattern. It suggests that bonds are building in a worry about the future.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,717.40, -4.00. Gold was down on the session modestly, basically banging around in its triangle. It tried to rally on Wednesday and gave it up Thursday. Friday it held the line and bounced modestly. It is right at the point of its triangle. It is time for it to make a break, and we should see a definitive move at some point in this coming week.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 99.41, +1.07. Oil closed up on the session. Volatile week for oil as well. Earlier in the week it was very flat. On Thursday it sold hard, and then Friday it managed a bounce. Still over the 95 level that is support for it. It is between that and the 103 level that is acting as resistance. We have maybe a double top in here, but I would not write oil off at this point. I would not say it is rolling over. It is just testing right now.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

INTERNALS

The internals were lackluster in one respect but quite strong in the other.

Breadth. +4.5:1, NASDAQ; +6:1, NYSE. Breadth was very sharply upside.

Volume. -10% NASDAQ, 1.63B; -13% NYSE, 746M. Volume was anemic. Both NASDAQ and NYSE were below average.

CHARTS

SP500. SP500 had faded back to the August-October range. It made a higher low in late November, rallied, and could not make a higher high. It rolled back over, but it has held that prior range for now. It is now in position to try to take on the June low and late-October peak again. Very good to see the bounce. Things were dicey and they still are somewhat. It is not out of the woods. That is why I want to see if the bid returns on Monday. SP500 did itself a big favor on Friday with this solid rebound off of that prior trading range.

NASDAQ. NASDAQ is very similar. It bounced off the 50 day EMA and also bounced off of the August and September peaks. That put it back in the very choppy range spanning October and November. It is doing what it has to do, and that is to hold support and make a new bounce. On the low it held at that June low, and now it is trying to put in a bounce. Again, Monday will tell much more of the story. It will tell whether the bid returns next week that, again, showed up on Friday after it left the building on Thursday with worries about what the ECB Chairman Draghi was saying.

SP600. SP600 had a very nice move. It bounced off of its August peaks and the 50 day EMA, moving back up close to that late-October peak. Excellent action by the small caps. They have to take out the 200 day EMA and that late-October peak. They look very solid to make a run at that.

DJ30. DJ30 has been the leading index. It held the 200 day EMA and bounced nicely. It has not taken out the late-October peak, but it is looking like it wants to.

SOX. SOX is very important. It was up +1.22%. It was not the best mover of the day. It gapped lower. Recall that it had some bad news from the earnings warnings, but it managed to reverse and close positive just above that trendline. While it was not a stellar move, it keeps itself in the game to move higher. We will see if it can. It has been struggling. As I said on Thursday night, the chips are a leading indicator. Whether they lead to the downside or to the upside, we have to watch that because they are in everything we buy, see, do, and use right now. They play an important role. If they move up, the odds of the market success on a rally improve dramatically.

LEADERSHIP

Semiconductors. It was not a total implosion. Semiconductors were able to come back off the lows. ALTR gapped lower on its warning, but it formed decently. It managed to close out with a gain. LSCC gapped lower and was unable to recover. INTC gapped lower but managed to bounce off of the 20 day EMA. LRCX had a nice test and rebound. KLAC held the 10 day EMA and bounced. SNDK looks nice, holding at the 20 day EMA and looking ready for a bounce to the upside. There are some semiconductors performing just fine. ONNN put in a nice rounded bottom.

Technology. Some tech stocks were performing well. GOOG made a break upside after a nice test of the move through the July peak. It is performing very well. NTGR posted a nice gain. Solid break to the upside on Friday, almost 5.5% on the move.

Industrial. IR is setting up a nice cup with handle base. UTX put in a base, bounced, and it is trying to kick up its heels a bit. AVY has put in a nice consolidation. It is starting to move higher again with a good upside break on Friday. Industrials do not look bad. Seems like a lot of areas are picking up a bit and trying to move higher.

Retail. I have been worried about retail, and we have put some downside plays in the retail sector. Some of them are recovering and some are not. SCSS is starting to move back to the upside. No real volume on Friday, but it is starting to make an upside break. Some of the small business suppliers and office supply companies are looking better. ODP has a rounded bottom and MACD is moving up. It is trying to put in some kind of move. SWSM had a good blast to the upside. RL is trying to make a higher low. A little ABCD pattern, and it bounced off of it. Trying to test that first move and continue to the upside.

We have stocks that are obviously in better shape now after a bit of a pullback on Thursday and the lateral consolidation leading into Thursday. That leaves these stocks in pretty decent position to make bounces to the upside. Indeed, we were picking up some on Friday such as OXM. It is an apparel company making a break to the upside.

They were moving and were in position to move. I suspect that they will try to do that again because we have a lot of good patterns set up. Again, if we get the bid early next week, then this rally could really get some feet under it.

THE MARKET

SENTIMENT INDICATORS

VIX. The VIX dropped considerably on Friday. A straight-line, sharp drop could be suggestive that the market is going to try to rally some. It has been trading in a range. It has had a couple of sharp declines. This would be the third, and this time it may stick. Although it is still above the 200 day EMA. This one was a sharp decline, and it did not bounce. We will see if it rebounds next week. The big difference would be whether the European bids returns or not. It was there on Friday. If it shows up again on Monday, things could look positive for a continued rally.

VIX: 26.38; -4.21
VXN: 25.99; -4.01
VXO: 26.11; -4.88

Put/Call Ratio (CBOE): 1.2; +0.24

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 47.4% versus 44.2%. Bounced right back up to 47.4%. Interesting pattern, bouncing from 44.2% to 47.4%. Picking up steam to the upside. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 29.5% versus 30.5%. Continuing its decline from above 35%. The index did spend seven weeks over the 35% threshold considered a bullish indicator. For more 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.

CHARTS

NASDAQ

Stats: +50.47 points (+1.94%) to close at 2646.85
Volume: 1.63B (-9.75%)

Up Volume: 1.47B (+1.229B)
Down Volume: 186.72M (-1.403B)

A/D and Hi/Lo: Advancers led 4.49 to 1
Previous Session: Decliners led 5.99 to 1

New Highs: 45 (+28)
New Lows: 49 (-23)

SP500/NYSE

Stats: +20.84 points (+1.69%) to close at 1255.19
NYSE Volume: 746M (-13.05%)

Up Volume: 3.38B (+3.252B)
Down Volume: 368.5M (-3.742B)

A/D and Hi/Lo: Advancers led 5.93 to 1
Previous Session: Decliners led 6.38 to 1

New Highs: 91 (-4)
New Lows: 17 (-2)

DJ30

Stats: +186.56 points (+1.55%) to close at 12184.26
Volume DJ30: 154M shares Friday versus 166M shares Thursday.

MONDAY

There is a big week ahead, and it will be important for a lot of economic data. We have Retail Sales on Tuesday. That will be very important. By the way, the FOMC meets on Tuesday. No one is expecting much from them. Wow, if Quantitative Easing came it would be crazy. But it will not. The economic data is improving enough to thwart any desires Ben Bernanke might have to do that.

On Thursday there is a lot of information. PPI, Initial Jobless Claims, Empire Manufacturing, Production and Capacity, and the Philly Fed. A huge day followed by the CPI on Friday. We have a lot of data, and it is also coming up to earnings season. We are already seeing warnings, and we may see more warnings coming. That could be the counterbalance to the European the deal that was struck on Friday. Maybe investors will wake up and say that the European deal has no clothes again. Maybe we will have trouble and struggle back down into that range as we have every time the European crisis has been perceived as a crisis again by U.S. investors and traders.

We are trying to get a bid. It is trying to buck up as it did on Friday. Looks good. We will see if it can do it. It is not out of the woods by any stretch. It bounced where it had to; all of the indices did, but they have not put in a breakaway move off of this level. That is why I think we have to see that bid come back in early next week in order to confirm Friday was not just a fluke a relief bounce on a deal that really was not that great of a deal. It REALLY was not that great of a deal. It was not a powerful deal, but it may be enough with the U.S. data to keep U.S. stocks moving higher.

Now I have to throw in the added wild card of warnings. That is something that has to be watched. It is also expiration. We have a triple witch coming on Friday. That could add to a bit of volatility as the market tries to move off of this support level. There are many stocks in decent position to move higher. Some are extended, pulling back. Others have formed rounded bottoms and are ready to move higher. Others are kind of in no man's land. They have started a move, and they are in between. They are somewhere in their range. You do not want to buy them because they do not have far to go before they hit resistance. Others are right up near resistance. While they may look enticing, some of them are not that great because they have overhead at hand. Others who have a similar pattern do not have that same overhead. That is where we come in, picking those that have less overhead resistance to move through. Those are the ones that can make the quick, solid moves for you in a rally that resumes and may be moving up to the end of the year.

We will focus on those stocks we think can make us good trades to the upside during this period. That does not mean we will try to get a dollar or two on a $50 stock. We will still have plays with very reasonable rewards to them, but that is just part of having a good risk/reward in your plays overall. You want the probabilities in your favor. Then you tend to win even if you get some clinkers. And you invariably get some clinkers that just do not go the way you want them to. It is a game of probabilities in the market. Probabilities of what stocks will do and then allocating your money accordingly. It is not about putting all of your money at risk on just one or two plays. Being smart about how you put your funds to work is just as important as getting good plays.

We have to see if the market bid returns gratis Europe to start the week. There are stocks in position to move higher that can carry this rally forward even as some stocks are extended. We need a healthy market to have waves of stocks that move higher. Thus we look at stocks such as AVY that have put in a good bottom but have not rallied sharply yet. These stocks can be the next wave to the upside. They are ready. It is just whether or not investors are ready to push the market higher overall. I may sound like a broken record, but that is what we are going to find out this coming week. We will see whether the European bid that showed up again on Friday although it may just have been a relief move can stick and push stocks higher and thus make their moves stick as well.

We will find some good plays, and we will be ready. If the market wants to run, we will take it. If it was a head fake on Friday, we have got some downside that we already purchased so we can take advantage of it. It is still a range trade right now. It is frustrating and can make you kind of crazy, but you can see overall improvement. Higher low, coming back. If the bid comes in, the indices are in good shape to bounce off of that August-October peak and continue on toward the April, June, and July peaks. That may be all we get out of the rally, but that would be a nice rally indeed.

I will see you on Monday. Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2646.85

Resistance:
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2671
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
The 50 day EMA at 2602
2599 is the June 2011 low
2593 is the November intraday high
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November gap down point
2532 is the early August gap down point
2512 is last weewynnk's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1255.19
Resistance:
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1263
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
The 50 day EMA at 1224
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,184.26
Resistance:
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,945
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
The 50 day EMA at 11,767
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

December 5 - Monday
Factory Orders, October (10:00): -0.4% actual versus -0.4% expected, -0.1% prior (revised from 0.3%)
ISM Services, November (10:00): 52.0 actual versus 53.4 expected, 52.9 prior

December 7 - Wednesday
MBA Mortgage Index, 12/03 (7:00): 12.8% actual versus -11.7% prior
Crude Inventories, 12/03 (10:30): 1.336M actual versus 3.932M prior
Consumer Credit, October (15:00): $7.6B actual versus $7.0B expected, $6.9B prior (revised from $7.4B)

December 8 - Thursday
Initial Claims, 12/03 (8:30): 381K actual versus 395K expected, 404K prior (revised from 402K)
Continuing Claims, 11/26 (8:30): 3583K actual versus 3700K expected, 3757K prior (revised from 3740K)
Wholesale Inventories, October (10:00): 1.6% actual versus 0.2% expected, 0.0% prior (revised from -0.1%)

December 9 - Friday
Trade Balance, October (8:30): -$43.5B actual versus -$44.0B expected, -$44.2B prior (revised from -$43.1B)
Michigan Sentiment, Preliminary December (9:55): 67.7 actual versus 65.1 expected, 64.1 prior

December 12 - Monday
Treasury Budget, November (14:00): -$139.5B expected, -$150.4B prior

December 13 - Tuesday
Retail Sales, November (8:30): 0.6% expected, 0.5% prior
Retail Sales ex-auto, November (8:30): 0.5% expected, 0.6% prior
Business Inventories, October (10:00): 0.9% expected, 0.0% prior
FOMC Rate Decision, December (14:15): 0.25% expected, 0.25% prior

December 14 - Wednesday
MBA Mortgage Index, 12/10 (7:00): 12.8% prior
Export Prices ex-ag., November (8:30): -1.5% prior
Import Prices ex-oil, November (8:30): -0.2% prior
Crude Inventories, 12/10 (10:30): 1.336M prior

December 15 - Thursday
Initial Claims, 12/10 (8:30): 390K expected, 381K prior
Continuing Claims, 12/03 (8:30): 3625K expected, 3583K prior
PPI, November (8:30): 0.2% expected, -0.3% prior
Core PPI, November (8:30): 0.1% expected, 0.0% prior
Empire Manufacturing, December (8:30): 3.0 expected, 0.61 prior
Current Account Balance, Q3 (8:30): -$110.0B expected, -$118.0B prior
Net Long-Term TIC Fl, October (9:00): $68.6B prior
Industrial Production, November (9:15): 0.2% expected, 0.7% prior
Capacity Utilization, November (9:15): 77.8% expected, 77.8% prior
Philadelphia Fed, December (10:00): 4.3 expected, 3.60 prior

December 16 - Friday
CPI, November (8:30): 0.1% expected, -0.1% prior
Core CPI, November (8:30): 0.1% expected, 0.1% prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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Stocks Rally, But Trade Went Flat

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 04 Dec 2011 18:30:00 +0000

SUMMARY:

- Stocks initially rally on Europe, jobs report, but by session's end the trade went flat.
- Jobs are slowly following the economic improvement higher.
- Jobs report appears better but more people left the workforce than found jobs.
- Near term the European bid is a positive, but some head and shoulders patterns are not pleasing for the upside longer term.

Jobs report is heartening but not and stocks rally but not.

It was jobs Friday, and that means all eyes were on the monthly jobs report. It is important to note that the jobs report was not necessarily the driver on the day. Early on, stocks were higher. It was not because of the jobs report as futures were up before the report came out. There was news out of Europe that a scheme had been derived whereby central banks could make an end run around the constitutions that were blocking direct central bank aid to those countries needing help. The plan is basically that central banks would loan to the IMF, and then the IMF would generously turn around and give the money to those countries in need of assistance.

Nothing like a good, old-fashioned socialist end run around constitutional law to pump the markets up. Of course the markets do not care if it is constitutional or not. The markets care if there is liquidity. Markets care if there is money to invest in financial instruments and debt instruments and thus drive them higher. When that happens and the perception is that the money is there or on the way, stocks are going to trade higher. That is exactly what they were doing. When it hit 8:30 EST, there was a surge to the upside. Then there was an "I am not sure what the heck it all meant" pullback. That was on the jobs report.

Depending on what side of the fence you are on, or whether you are just a person who listens to rational thought and facts, you had a different opinion about what the jobs report meant. I am not going to tell you exactly what it is, although I am sure you already know what the numbers were at this point. The stocks shot up, looking good at first, and then stocks pulled back all session. The Dow was up over 100 points. By the end of the day, however, it closed flat.

SP500, -0.2%; NASDAQ, +0.03%; Dow, -0.01%; SP600, +0.341%; SOX, -0.2%

Flat as a pancake. Could not go anywhere and did not want to. Stocks were just lethargic. That is totally understandable given what stocks have done on the week. This was huge week. At one point, when the Dow was up over 120 points, it had logged the best week it had ever logged in a points term. But it could not hold the move, and they faded back to flat as you can see by the tombstone doji on SP500.

It was not the best week ever, but it was a doggone good week. Stocks were just a bit tired after breaking back out of the August-October trading range. Of course there are some burrs under the saddle, so to speak. SP500 tried the June low but could not break through. It was not a clear breakout. Let's face it, after such a huge run and then bumping up against resistance, you cannot expect them to make a break at the end of the week. Especially with a jobs report that was not that great, despite the headlines and despite trumpeting from certain sectors of the government.

THE NEWS

I have talked a lot about it, and I guess we have to hit that news and hit it hard. The jobs number is not that great on the headline. It was 120K versus 123K expected, but there were great revisions for September and October. September was revised up 52K. October was revised up 20K, pushing that to 100K. Overall with the revisions, it was not that bad. It is averaging 132K per month for the year, and that is right where you need to keep up with population increases and people just coming out of school.

So are we there? No, we are obviously not there. But the headline was the unemployment rate. It tumbled to 8.6% from 9% when, of course, 9% was expected. Holy cow. What is going on? The last time it was at this 8.6 level was March of 2009. Surely the economy is starting to really hum. You would expect employment to pick up after three months of improvement in economic data. That is exactly what has been occurring. But it is not worth 0.4% on the unemployment number. What is going on? It is going to take awhile to explain, but stick with me.

Overall, unemployment fell 600K to 13.3M. Those who have been unemployed over six months were 5.7M. That was a decline as well. Sounds pretty good, but the workforce fell 315K jobs. That means basically those people who have not looked for work for four weeks are not counted. Who has not been looking for work for four weeks? Those are the people who have run out of unemployment benefits. As soon as they run out of those benefits they quit going through the motions of saying "I am looking," and they just give up. There are no jobs out there, and they go away. That was the lowest level since January. In other words, that is it biggest drop since January as far as the workforce goes. Again, 315K people.

One of the problems is that 6.6M people are not in the workforce but actually want work. This kind of gets hard to get your hands around and maybe your head as well. There are now more people out of work and without benefits (by the tune of 700K) than there were at the same time last year. Even though there is supposedly improvement, more people are out of work and without benefits right now. Indeed, the share of industries that are adding jobs fell to 54.7%. That is the lowest in a year. The average time for being unemployed rose to an all-time high. Those are not great numbers, and at least half of the decline in the unemployment rate was caused simply by people dying or giving up and leaving the workforce. This is the strange feature that we have to deal with right now.

Typically when the economy improves and jobs start to improve, we get a spike in the unemployment rate. Just trust me when I say that it is true. The people who have been out of the market, those that we are seeing leave see that the economy is getting better. They either sense it or see people getting jobs or they hear it on the news. Then they go back and look for work. Those that disappeared off of the rolls and are no longer participating in the job search suddenly show back up. Employers tend to lag the rest of the economy. They do not want to hire until they absolutely have to hire. Then they pull the trigger and start hiring those people. The initial surge of those who came back in but could not find a job (thus the spike the unemployment rate) are hired, and then the unemployment rate drops. That happens right at the turn of the economy, of course. Things get better and people come back in. They sense it is better, but the jobs are not there jet. The unemployment rate spikes, and then it starts to go down because businesses have to hire at that point. But we have never had the spike in unemployment. We have had unemployment at 9% or more for years now.

I am borrowing from Investor's Business Daily. In 2009, unemployment spiked above 9%, and it has stayed until just the last month. We have had years of high unemployment. What has happened? There has been no big surge at the end of the recession. You have a surge at the beginning when everyone gets laid off, and then there is a surge at the end when people come back to look before the jobs are really there. What has happened instead this time, with this protracted level of 9%+ unemployment, the workforce has atrophied and withered away. There is no spike in employment, just another dousing to the labor force.

Let us think about that. When to employers hire? When they absolutely have to. They have been burned having people on when the economy fell. You typically see certain things happen. You see average hours worked jump because they have to get more and more productivity out of the workers that are there. They do not want to hire yet. Business gets better and better, so they push those people more and more. They make them work more hours, until they say "If you do not pay me more or get someone else, I'm out of here." Look what is happening: The average workweek is flat at 34.3. It even fell three weeks ago. Hourly earnings were down 0.1%. They were expected to rise 0.2%. They are not working more, and they are not paying people more. They are obviously not overtaxed. These are problems with this report.

I do not mean to say things are not getting better. No doubt that there are more jobs out there. There is some hiring going on, but it is not a boom in hiring. It is not enough to account for a 0.4% drop in the unemployment rate. It looks like we have some funky and downright strange monkeying around with the numbers. There is reason to account for a drop, but it looks as if there is overreaching. They are factoring in too much, and the problem is they are government numbers. If an administration wants to fudge, they can. I do not care if it is Democrat or Republican. These guys are starved for some good news, and I think they are overplaying their hand. As I said, the fall in people saying they found work would account for a bit more than half of the decline in the jobs number. That would have reduced it, but there is way too much of a decline for what the numbers show. They do not real tell a story.

While there has obviously been improvement in the economy over the last three months, it is not to this extent. The numbers themselves show there are reasons for the fall. Things are really not a lot better than they were with more people out of work and without benefits then there were a year ago. We still have problems even though things are turning, but let us be positive. We need some positive news in this country. There are way too many people still out of work. Even looking at the U6, which was down to 15.6M from 16.2M people, that is still unbelievably too many. It is terrible. We have to get business going.

This idea of 99% and 1% is a serious problem we have to deal with. I was discussing this with several people and small business leaders in the area, and they said they see nothing wrong with someone saying "I want what you have" if they start a business or get a job and work their rears off to get it. Instead, we have people saying "I want what you have, and I am going to petition the government to take from you what you have worked for so they can give it to me." That, I am afraid, is the huge difference we have today versus pretty much the entirety of this country's history.

Just look at the entitlement programs. I heard one fellow last night discussing it, and he said really we have $100T in debt when you factor in all the entitlements and liabilities. It is not what you can do for your country, but what the heck can my country give to me. And if they have to take it from someone else to do so, that is fine. But here is the sad truth. They could confiscate all of the wealth in this country all of the profits from the Fortune 500 companies, and they could tax the rich people all they want and more, and still they would never pay our entitlements. They would never pay it down.

The only thing we can do is stop and come up with different ways to fund these liabilities. With respect to Social Security, Medicare, and even Medicaid, that is ultimately what we will have to do. We have to change the game for people who are coming up into the system. Those who we made promises to and who have paid in and cannot change, we have to take care of them. But for those who are coming up through the system, we have to change it. The numbers do not work. The math is not there. We live longer than we did when the system was designed. You had to cheat death for two years to collect any Social Security. Now we have to change it. The question is whether we are smart enough to do that. We have a lot of people who want to spread misinformation about any possible change being the end of our country. If we do NOT change, that will undoubtedly mean the end of our country.

OTHER MARKETS

The news impacted the other markets as well. It was the European news that really had the anticipated effect on our bonds and dollar. It did not hurt that the jobs report was a bit better. But our debt instruments and our currency reacted inversely to what they should have on a stronger U.S. economy. That tells you something else about the impact of that jobs report and what it really meant on Friday.

Dollar: 1.3405 versus 1.3464 euro. The dollar was up against the euro, but it was down against just about everything else. A stronger jobs report should have seen a stronger dollar. It did not. The dollar is not in danger right now, much to the chagrin of the administration and the Fed that want to inflate our way out of this. Because there are other issues in the world, people are still hanging onto dollars versus Euros.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.05% versus 2.09% 10 year U.S. Treasury. Bonds rallied. The 10 year moved up and drove rates down. Bonds should have sold and rates should have rallied on a strong jobs report with a good news situation for the U.S. That was not the case. People were buying U.S. bonds. Bonds are bouncing off the 50 day EMA, continuing their rally off of the July low.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,749.40, +9.60. Gold closed slightly higher. It rallied more intraday and backed off toward the close. Still in its triangle and still trying to look for a new breakout to the upside.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 100.94, +0.74. Oil closed up. It is still having trouble putting mileage on that 100 level. It broke through it, it fell back to 95, and it has kind of melted higher since. I do not think it will have many issues moving forward. But with China this week having its PMI starting to contract (that is its factory output) and then lowering reserve requirements on its banks to reliquify its economy, oil has a bit of a pause. It is worried about China being able to suck up all that excess oil in the world. Oil did not just blast off once more. But again, I do not think it is really in trouble.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

INTERNALS

Breadth. Advancers led 1.5:1 on NASDAQ and 1.5:1 on the NYSE.

Volume. Volume fell 10% to a measly 1.6B shares on NASDAQ. It rose 4% on the NYSE to 815M, but that was rather pathetic and well below average as well.

CHARTS

SP500. A broader top set in to start this year. A head and shoulders with the crash into July and August. A recovery and now struggling. This week was a good week for the SP500. It moved up to the March and June lows, but it could not punch through. It tried to do so on Friday, but it was not the day. It got thrust back, showing a tombstone doji at the top of this range. Despite the great week, that tombstone doji suggests there may be a fall back. The jobs report did not instill a lot of excitement on Friday, but maybe the market was just tired. It is at a critical level. It broke down from that head and shoulders. It rebounded, sold, and it made a higher low. Now it has to prove itself once more. We will have to see.

It is in a range, no doubt. It may be over the August-October range, but it has not broken back up through this key level. It did so once, but it could not hold the move. Now it looks like it might falter below that. We will have to see how it plays out. The bid from Europe will play a big role in the weeks to come. If it is still there, if the market still perceives more money is coming, the bid will remain and stocks should rise. After all, they love liquidity and they love handouts. As long as it is on this side of the ocean or on the continent side of the ocean, stocks will love it. But they will have to come up with something, and Friday it was not enough. They had another inkling of what was to come, but it was not enough to keep stocks moving to the upside.

NASDAQ. NASDAQ posted no gain. It gapped higher, closed flat. It is still above its June peak, so it has a little momentum. Really it has not had a breakaway move from the August-October range. The jury is out on it as well. It gapped and reversed. That is not necessarily great action, but it was on low volume at the end of the week of a strong move higher. It really was not in the mood to go anywhere. But as with SP500, it had that head and shoulders, the break down, and now it is coming up to test again. We will just have to see what happens. Again, if the bid remains thanks to European influences (or, more correctly, European liquidity), NASDAQ should find a bid and resume the move to the upside.

SP600. The small caps posted the best gain of the day, but they are still below their March and June lows, showing a doji just as SP500 did. Showing it right below the 200 day EMA as well as that late-October peak which was the recovery peak off of that sharp selling into early October. The small caps have something to prove as well. They have to get through this level. But after such a big move, they can afford to come back, test a little bit, and then make the next break to the upside. We will see if that comes true. If the economic data continues to improve and we get that liquidity, it should not be a problem.

SOX. Semiconductors broke through that downtrend off of the February peak, but they could not hold it into the close. Again they are suffering from the same problems as the rest of the indices. That was just a doggone good week that took it up to resistance. Now maybe it will have to rest a bit before it makes the break through.

LEADERSHIP

I need to go through a lot of sectors and will show you a lot of charts. They are not representative of every stock in the market. There are still stocks that are in great shape. Oh, look at all the foreshadowing. But these are worrisome.

Semiconductors. Remember that the semiconductors are a leadership index. They tend to move higher before the rest of the market and lower before the rest of the market. That is because chips are in everything. If there will be an economic recovery, they will see it first. That is exactly what happened in 2008. They bottomed in Q4 and rallied. Then when everything else hit the lows in March, they were just making a higher low. They were off to the races, and this has happened so many times. It happened out of the 2000 recession. It has happened in pretty much every recession I have been through. I have played the chips as the leader out of that recession. It is really cool. I love it. They led out of this one, but they also led to the downside.

What have they formed here? You can see a pretty good head and shoulders has set up in the SOX. Looking at the SMH, that head and shoulders is pattern shaping up. Looking at individual semiconductors, you can also see the head and shoulders. BRCM has a broad top and a breakdown recently. Now it is coming up to test the bottom of that breakdown. Longer term, BRCM looks really weak. LRCX has also put in this big head and shoulders dating back to early 2010. Am I scaring you yet? That is not the intention. I just want to point things out. There are problems that will have to be dealt with.

Industrial. Industrials are always important. This is one of the areas that have been doing really well. We have had the export economy under President Obama. These are the big companies that have been performing very well. GE may be in a trading range. It could be setting up a head and shoulders of its own. That is not that clear. Let us look a little deeper. CAT looks like a real topping pattern. Big run. Look at the three highs, and a lower high in the selloff. The first really major correction since the low in March of 2009. Now it has returned back up to the bottom of that trading range.

It does not look that great. Are there worse patterns? Look at IR. It is a big manufacturing company. It has a head and shoulders with a really wimpy shoulder. It has moved up recently, sure, but it is very worrisome longer term. HON has been a leader. Its stock pattern matches that of the indices. We will see what happens. It looks to be running out of some juice, although it still has a little power. HUN is big into chemicals. A head and shoulders. ASH is another big chemical company. It has a very rounded top. Note this second peak in the middle of 2011. MACD is lower. It is running out of steam, or so it appears to be longer term.

Energy. BTU has a head and shoulders. HAL should be doing great, but it has kind of a toppy pattern. It broke sharply lower, a lower high. Looks to be struggling. SLB is a very similar pattern.

China. SINA peaked and it is breaking down. Of course we have been playing it to the downside. CTRP is a Chinese stock that we love to play. It put in that broad top and has rolled over.

Technology. Some technology stocks are having problems. We have a play on NTGR, but it is longer term trying to set up a head and shoulders. As an aside, just because they have longer-term issues does not mean we cannot play them short term to the upside. What do we know about head and shoulders? They do not always consummate. But this is just worrisome. I am drawing attention to it because you have to stay ahead of the game.

ORCL set up a head and shoulders this year. It sold off, and now it is making a lower high. That does not mean it is not going to bounce back up. We just need to watch it. CA has that big head and shoulders forming up.

Shipping. TK, an important transportation company, is setting up that long term, two-year head and shoulders top.

Metals. FCX has that big, rounded top. It is making a right shoulder right now. It was a long left shoulder, and the right shoulder may also take awhile to consummate. It is setting up. Looking at the Copper index overall, it has the same kind of big head and shoulders pattern. There is a big top in Steel and Iron. It never even made it back to the prior high before kind of rolling over.

Grains/Foods. Grains are a problem as well. CORN has a head and shoulders. That seems weird. If we are recovering and the world is growing, we should need corn. Why would corn prices look to be rolling over? The cotton index, BAL, had a huge rally in 2010. It looks to have peaked out, forming its head and shoulders as well. For those that love their morning cup of joe, JO looks as if it has peaked and rolled over after a big rally as well.

It is not as severe. This is just in 2011. A lot of these other patterns are spanning two years. The SOX is a two-year span. It had that big run on the initial Quantitative Easing, and then it had a pause. It had a run on the second Quantitative Easing, but it looks like it is ready to roll over. If we do not get another round of Quantitative Easing or some kind of stimulus or financial liquidity over in Europe, we might see this roll over.

I guarantee you the central banks and our Fed are watching all of these charts. They are not so pronounced on our indices, but they are still there. Never recaptured the 2008 high, and they have this rollover look to them. The SP500 has it. NASDAQ has it, too, although it did manage to take out the 2008 high. The small caps look better. They took out the high, but they are still struggling. Small caps need to be leading the way if there is to be a real economic recovery in the U.S.

I point these out not to say the world is ending and we should all run into a cave right now. I point it out to show you that we are not as strong as some are saying. We are supposedly recovering from the Great Recession and have turned the corner. In the U.S, some say how strong we are every morning on the financial stations. Maybe we look strong relative to a bunch of the European countries, but we are not strong in the way of leading the world like we used to be. Not even close. We have to be concerned that we are getting a head fake. We have to watch out for that one "in your ear" as Shoeless Joe Jackson warned Moonlight Graham in "Field of Dreams."

We could be setting up for the one in our ear. We are being told everything is recovering. We are being told that the central banks have it under control and will make things work. But that may not be the case. The patterns are worrisome; something nefarious this way comes (sorry Ray Bradbury). There could be problems if some more liquidity is not pumped into the markets. Every time Alan Greenspan saw this set up, he knew he had to pump in more liquidity. But all that has done is build a house of cards bigger and bigger, or inflated the bubble more and more. Eventually it has to pop or be deflated. That is what worries me. I have looked at a large cross section of stocks and materials, and there are similar patterns setting up.

Retail. Retail stocks are still performing very well. RL continues to move higher. VFC continues to move higher. PVH is still moving to the upside, and BBBY is still moving to the upside. It is hard to argue with those and I am not arguing. The consumer is spending, and that may lead the world out of trouble. I will not write that off. I am just saying we have to be careful looking ahead while we are trading, investing, and moving in on our position plays. We just have to keep this in mind and know that it is out there.

If it starts to come together, we need to be ready. That is all we ever do; it is nothing new. It is just another part of our job to keep you informed and for you to keep yourself informed as we move forward. Just know the big patterns, the overlays, as we trade in a day-to-day, week-to-week, and month-to-month basis. If you do that, you will stay out of trouble. You know what is coming, but do not let it totally color your short-term actions so that you think everything will fall.

Take what the market gives. If you have good upside setups as we have had, you take them. Maybe it is in a context of an overall top that ultimately breaks down. That does not mean we cannot make money then.

THE MARKET

SENTIMENT INDICATORS

VIX: 27.52; +0.11
VXN: 27.69; +0.49
VXO: 27.93; +0.25

Put/Call Ratio (CBOE): 0.98; +0.04

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 44.2% versus 47.4% versus 44.2%. Right back down to the level hit three weeks back though still well above 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 30.5% versus 32.6% versus 34.7%. Unlike bulls that backed off, bears continued their more bullish stance as they became more endangered. The index did spend seven weeks over the 35% threshold considered a bullish indicator. For more 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.

CHARTS

NASDAQ

Stats: +0.73 points (+0.03%) to close at 2626.93
Volume: 1.634B (-10.02%)

Up Volume: 769.11M (-280.89M)
Down Volume: 876.4M (+116.6M)

A/D and Hi/Lo: Advancers led 1.52 to 1
Previous Session: Decliners led 1.71 to 1

New Highs: 44 (+3)
New Lows: 41 (-17)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -0.3 points (-0.02%) to close at 1244.28
NYSE Volume: 815M (+4.09%)

Up Volume: 2.49B (+820M)
Down Volume: 1.58B (-410M)

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

New Highs: 121 (+1)
New Lows: 11 (-4)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -0.61 points (-0.01%) to close at 12019.42
Volume DJ30: 150M shares Friday versus 144M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

Now that we have the jobs report out of the way, we still have plenty of economic data. There are Factory Orders, ISM Services, and then Initial Jobless Claims, of course. It will be interesting to see how Wholesale Inventories are shaping up ahead of the holidays. Then we finish the week with the first look at the Michigan Sentiment for December.

That is all well and good, but what will rule the roost? It will be what is happening in Europe. Why? The jobs report did not light any fires in the U.S. on Friday. It may be that the market was a bit tired, but it is also at resistance. The jobs report was not that great. It is just following a lukewarm recovery in the U.S. While the recovery is nice, the ECRI still says it will not prevent a recession in 2012. That ties in somewhat to those longer-term head and shoulders charts.

The SP500 is below the March and June lows. It is showing a doji after a nice week. Can it continue? We will find out. We have a lot of great upside setups. We also see a lot of downside setups, and it is somewhat worrisome. As a matter of fact, we will probably put on another play on the SDS or the SPY because of this pattern. We had a sharp selloff, we had a rebound to a lower high right below important resistance. There was a fade, and then a rebound to a lower high right below an important resistance. We may be range-bound again, but we will have to let it show us what it will do. We will be ready either way. That means we have to be ready on the positions we took to the upside. If we get back down in the range and want to turn around, we will kill them, go downside, and make some money.

If we are range-bound, so be it. If we are not, so be it. The bid is the key. Will the EU, the individual countries, the IMF, the ECB, and even the U.S. Fed keep that bid under Europe and thus the bid under the U.S? The Federal Reserve here does not want to go on QE3 if it can avoid it. It may accomplish its goals by Europe inflating its currency and financial markets, and thus dragging us along with it. After all, as we saw in July and August, it was Europe pulling us down. If it can inflate their asset prices and pull us up, too, it will do whatever it can to help short of out-and-out lending money to the EU.

Given the mindset of the Ben Bernanke Fed and the change in the ECB with the change in leadership from Mr. Trichet, I think we could very well maintain that bid and continue to the upside. That is what I expect to happen, but my expectations will not tell the market what to do. We simply have to be ready. While I expect Europe to continue to come out with clever plans to form some kind of Quantitative Easing, we just have to be ready in case things turn ugly after a fantastic week in the U.S. stock market.

I will see you on Monday. Have an outstanding weekend!

Support and Resistance

NASDAQ: Closed at 2626.93

Resistance:
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2674
2676 is the January 2010 low
2686 is the January 2011 closing low
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
The 50 day EMA at 2593
2580 is the November 2010 closing high
2572 is the November 2-11 gap down point
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2535 is the November gap down point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1244.28
Resistance:
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1265
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
The 50 day EMA at 1218
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,019.42
Resistance:
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,284 is the October 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
The 200 day SMA at 11,946
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
The 50 day EMA at 11,688
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

November 28 - Monday
New Home Sales, October (10:00): 307K actual versus 312K expected, 303K prior (revised from 313K)

November 29 - Tuesday
Case-Shiller 20-city, September (9:00): -3.6% actual versus -3.0% expected, -3.80% prior
Consumer Confidence, November (10:00): 56.0 actual versus 42.5 expected, 40.9 prior (revised from 39.8)
FHFA Housing Price Index, September (10:00): +0.9% actual versus -0.1% prior

November 30 - Wednesday
MBA Mortgage Index, 11/26 (7:00): -11.7% actual versus -1.2% prior
Challenger Job Cuts, November (7:30): -12.8% actual versus 12.6% prior
ADP Employment Change, November (8:15): 206K actual versus 125K expected, 130K prior (revised from 110K)
Productivity-2nd Rev., Q3 (8:30): 2.3% actual versus 2.6% expected, 3.1% prior
Unit Labor Costs, Q3 (8:30): -2.5% actual versus -2.1% expected, -2.4% prior
Chicago PMI, November (9:45): 62.6 actual versus 57.5 expected, 58.4 prior
Pending Home Sales, October (10:00): 10.4% actual versus 0.1% expected, -4.60% prior
Crude Inventories, 11/26 (10:30): 3.932M actual versus -6.219M prior

December 1 - Thursday
Initial Claims, 11/26 (8:30): 402K actual versus 390K expected, 396K prior (revised from 393K)
Continuing Claims, 11/19 (8:30): 3740K actual versus 3650K expected, 3705K prior (revised from 3691K)
ISM Index, November (10:00): 52.7 actual versus 51.0 expected, 50.8 prior
Construction Spending, October (10:00): 0.8% actual versus 0.3% expected, 0.2% prior
Auto Sales, December (15:00): 4.27M prior
Truck Sales, December (15:00): 5.84M prior

December 2 - Friday
Nonfarm Payrolls, November (8:30): 120K actual versus 123K expected, 100K prior (revised from 80K)
Nonfarm Private Payr, November (8:30): 140K actual versus 141K expected, 117K prior (revised from 104K)
Unemployment Rate, November (8:30): 8.6% actual versus 9.0% expected, 9.0% prior
Hourly Earnings, November (8:30): -0.1% actual versus 0.2% expected, 0.2% prior
Average Workweek, November (8:30): 34.3 actual versus 34.3 expected, 34.3 prior

December 5 - Monday
Factory Orders, October (10:00): -0.4% expected, 0.3% prior
ISM Services, November (10:00): 53.4 expected, 52.9 prior

December 7 - Wednesday
MBA Mortgage Index, 12/03 (7:00): -11.7% prior
Crude Inventories, 12/03 (10:30): 3.932M prior
Consumer Credit, October (15:00): $7.0B expected, $7.4B prior

December 8 - Thursday
Initial Claims, 12/03 (8:30): 395K expected, 402K prior
Continuing Claims, 11/26 (8:30): 3700K expected, 3740K prior
Wholesale Inventories, October (10:00): 0.2% expected, -0.1% prior

December 9 - Friday
Trade Balance, October (8:30): -$44.0B expected, -$43.1B prior
Michigan Sentiment, December, Preliminary (9:55): 65.0 expected, 64.1 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Not Much of a Relief Bounce

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 21 Nov 2011 02:05:00 +0000

SUMMARY:

- Not much of a relief bounce from the Wednesday and Thursday selling, certainly not recovering NASDAQ's and SP500's patterns.
- Europe bounces on ECB bond buying but it now appears Germany is not going to go along with any ECB bailout.
- US data continued up for the week but thus far it is not enough to hold the market higher in the face of EU issues.
- The ties between stimulus spending and MF Financial's collapse.
- Some key breakdowns but also many stocks minding their own business.
- Small caps, DJ30 trying to hold the line for SP500 and NASDAQ, but if the market is going to resume the upside it has to overcome the odds.

Lackluster day as buyers not ready to step back in after NASDAQ, SP500 break lower.

When pondering the action on the week, the market outlooks is somewhat harder to discuss. SP500 and NASDAQ fell out of their positive bullish consolidations, those pennant patterns, and broke back down into the August and October trading range. At the same time, the DJ30 was actually holding above that trading range and continuing its pattern, also holding above the 50 day EMA. Looking at the SP600, it is pretty much doing the same thing. It is holding above the 50 day EMA and still has its pattern going. You have a bifurcation in the market. The problem I have been pondering and keep coming back to is the serious decline in NASDAQ. It should be a leader at this time of the year. And then there is SP500 as the financials suffer under more weight from the EU deal or a lack of confidence in the most recent deal. No one really believes that any of the deals that have been struck will amount to relief. The proof is in the bond yields that continued higher.

Spanish bonds this morning were trading higher than Italy's bonds. Why? The ECB is buying Italy's bonds. It is not buying Spanish ones yet; it cannot afford to. It hopes if it heads off Italy that Spain will follow, but that is not the case. As noted on Thursday, the spread between the French and German bonds was up 200BP. There are other problems with Europe. We hear that Germany will not approve any of these bailouts. It is going back to the hard line, saying that it is illegal for the ECB to perform this kind of bailout. That casts a pall upon any "deal". If there is a new deal, no one will really believe it. That ties back to why I am worried about this action.

After withstanding the problems out of Europe earlier in the week, NASDAQ and the SP500 broke lower. It looked as if they would hold up, swallow the bad news, and continue to the upside with a seasonal trend. It did not happen. Now what is going to move the market higher? If we have another deal in the EU, we may get a day's worth of pop out of it, but will anyone really believe it? Particularly considering Germany. No matter how many deals have been agreed to, Germany still keeps saying that they do not believe it is legal for the ECB to participate in this kind of bailout.

We have already had earnings season in the U.S., and it did help hold the market up. But now guidance is not as strong and it is wearing off. That always happens through earnings season. There is an initial euphoria or excitement about the earnings, and then it slowly wears off. People start looking for the problems versus the positives in the earnings results. What about the U.S. economic data? Will it hold the market up? It looked like it might be doing that. A lot of people are anticipating 3.5% growth in the Q4 GDP. That is kind of what we had last year. It did not do us a lot of good for 2001, but hope springs eternal, right? We did have some more relatively good news today.

The Leading Economic Indicators came out with a better than expected gain at 0.9% when 0.6% was expected. That is good, you would think, but these Leading Economic Indicators are not that leading. As you recall, last year they said things were better or things were worse and then the economy did the opposite shortly thereafter. In any event, it is just another list of better data for the week. Initial Claims were better. Philly Fed was still holding positive, although I would not call it better. Industrial Capacity and Production came in better than anticipated. Always good to see that. We started off the week with Empire Manufacturing coming back to positive, although fractionally so. Retail Sales popped in better than expected.

So another week of positive data at least in terms of what we saw in the U.S. But it was not enough to hold the U.S. stock indices higher. That leads me back to the question I posed earlier: What will move the market higher now that NASDAQ and SP500 have broken lower? Perhaps seasonal trends will reassert themselves. Or perhaps investors will just not worry about Europe before Christmas. What are the odds of that? The crisis is there every day. We are looking at bonds yields in all of the PIIGS every single day.

The U.S. Debt Commission is supposed to come up with something by midnight on Monday. One side does not really want a deal and the other side, while willing to make some concessions, will not just give up to have a deal. We likely will not get anything major. Even if the automatic sequestration of $1.2T kicks in, that is only $120B a year. That is chicken feed. It will not do anything to stall the spending. If we were talking $6T or $10T over 10 years, maybe that would make a difference. If we were talking about $4T in a year, then we are making a difference. As it is, it is absurd. It is ludicrous to think that $120B a year will make a dent in any of the problems we have.

For the third time, I go back to the question of what will move the market higher. It could just decide to reverse after an expiration Friday. It is done that before, and there are some good patterns still out there. But there are also more patterns pointing to the downside. That is what makes this a hard summary to write this week. Things were setting up nicely, but then they just fell through the floor. We ended up taking more downside positions and closing some upside positions that looked solid before Thursday.

Next week is a holiday week for Thanksgiving. That typically leads to some upside. We have wild cards this time. We have the euro zone out there and also the Debt Commission. Maybe the day after Thanksgiving will give us a gain. It typically does, but we will just have to look at individual stocks, keep powder dry where we can, put money to work where we can, but not go overboard. If we can make some money by the end of the year, we will be more than happy to. We have some great downside plays that are just screaming to the downside and look like they will make us good money. That is not the direction we were necessarily looking to play, but as we were saying in the office, we have to be ready in the event it occurs. Sure enough, stocks such as AMZN and CERN are just screaming to the downside and making us good downside money. We are making money, but it is just not in the direction we thought for now. That is the way the market is. It takes its cues looking down the road. Right now it apparently does not like what it sees near term. Or maybe it is starting to factor in longer term. We are just trying to take with the market gives us. As you can see from some of these patterns, that is to the downside right now.

Looking at the action on the day, the indices were higher. Futures were up early, and stocks actually did rally out of the gates. Then it was a tough session the rest of day. Jagged, up and down. Somewhat of a typical expiration day. Volatile, up and down, but it really was not volatile in a while range. Volume was overall mixed. It was not a strong expiration Friday in terms of volume.

SP500, -0.04%; NASDAQ, -0.6%; Dow, +0.22%; SP600, +0.3%; SOX, -0.83%.

The indices were bracketing the flat line. It really was not much of a day either way. The problem was Wednesday and Thursday. That is what dropped SP500 below its 50 day EMA and out of that little pennant consolidation. The doji on Friday did not instill a lot of confidence that it would bounce right back up. We will see now things trade on Monday. News out of Europe or China would impact the trade. Unfortunately that is the kind of market we are in; it is held hostage by overseas news. It looked like we had seasonal trends in place until Thursday. Now we have to see if that was just an outrider and if the market will recover. We will find out more for sure next week.

OTHER MARKETS

Dollar: 1.3519 versus 1.3463 euro. The dollar closed down. A bit better mood in Europe, so of course the dollar faded against the euro. It rallied against other currencies however, and that pushed the DXYO slightly higher. It is still in its uptrend after this shaky time to end October. It is trying to move nicely up the 20 day EMA right now

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.01% versus 1.95% 10 year U.S. Treasury. You would expect bonds to fade given that the European view was a bit better. That is exactly what happened. However, bonds remained in their uptrend. That is a function of the weakness in Europe as well as concern about what will happen in the U.S. in 2012. There are a lot of glowing words about the U.S. economy, how we are the strength of the world and how we are in an expansion now. We very well could be. The data has been encouraging. I just do not think it is that encouraging when I do the surveys of small businesses around the country and I see how some big companies are spending or not spending. I do not see a lot of investment. I see the kind of things that are just to keep the company moving. As a matter of fact, we had more layoffs in the financial sectors announced this week. We are not talking small potatoes. We are still seeing erosion in certain sectors and maybe across the economy as well. Many are saying that the government numbers on unemployment are just wrong. They say the actual rate of unemployment is well up to 16-17%. That does not make you feel good, does it?

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,724.50, +4.30. Gold was flat on the day as well. It has come back, it sold off hard on Thursday, and now it is putting in a little doji. Perhaps it will try the bounce now. I thought it might try the bounce from the 10 day EMA off of Wednesday, but it did not happen with that Thursday decline. But it is not out of the picture. It has not totally damaged itself, and it has a bit better place to bounce from. Gap points, other lows. We will see if it can get a little bounce here as well.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 97.41, -1.41. Oil closed down on the day. It closed off Thursday and Friday after a tremendous run higher. It ran up to 100, and it broke through it. Now it is having a bit of trouble getting through there. I said that would be resistance, and it is acting that way. I also said it would come back near 95, and the 200 day EMA is just above that level. We are likely to see oil come back to that level next week and then try to resume the move upside.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

Breadth: Breadth was noncommittal. Flat on NASDAQ and 1.3:1 to the upside on the NYSE. That was thanks to the small caps holding the line.

Volume: Volume was not what you would typically expect on an expiration Friday. It fell 21% on NASDAQ to 1.7B shares. It was roughly flat, down 0.5% on the NYSE to 905M shares. That is not bad for the NYSE given that it was trading around average on Thursday in that higher-volume selling. As we have seen of late, a little higher volume on the selling.

CHARTS

SP500. SP500 snugged up below the 50 day EMA. It tapped it on the high, and then showed a doji. That is worrisome. This may just be a continuation doji. It does not really show us anything. It broke below, it tapped resistance, and now we may see a further fall. You have to look at that. A breakdown is a breakdown. We have seen a lot of false breakdowns in this market over the past 2-3 years. Maybe this will be a false break back into the August-October range, and then it will turn right back up. I would love to see that. But as noted on Thursday, this is now a Missouri market. It is a "show me" state of affairs. SP500, with its cadre of financial stocks, will have to show us that it can make the move to the upside and recapture that pennant. This is kind of an outrider. If it has a quick breakdown and a quick break back to the upside, we will forgive it its sins and move on. Then we can look for a rally into Christmas. We will see if it can do that and if it is worthy of forgiveness. But like they say in my church, you have to ask for it first.

DJ30. As noted earlier, the DJ30 managed to show a doji at its 50 day EMA after tapping that level on the Thursday low and rebounding. It looked good. It still has something of a pennant or trading range going. It has higher volume at this level, so the buyers are stepping in. It is sitting right on top of its August-October range. The Dow could provide leadership. That would be cool. We will take it from whenever we can get it.

NASDAQ. NASDAQ is not quite the same picture. It closed near the session low, continuing its third day to the downside. It was not a great session. It did not show any kind of doji, it did not show any kind of bounce back. Volume was lower, back below average. That is a little bit of compensation. It is back down to the August-October range, and it is breaking out of its little pennant as well. Maybe it wants to seek dispensation and rebound as well. We can give it forgiveness if it does that. It is the time. It is the seasonal trend for techs. If it will not do it, that is not a good indication for the rest of the market.

SP600. The small caps rose 0.31%. Not a big move but an important day. It showed a doji right above the 50 day EMA, holding above the August-October range. Small caps look good. As noted before, they are the ones that made the advance/decline line positive on the NYSE. We like what we see. There is the Dow, which is the big boys. There are not many of them, but they are there holding the line. And we have the small caps. Lots of those in the market, and they are holding the line. That is a positive. They could break here and drag NASDAQ and SP500 back up. What if they do not? We can still make money on the move because we are not playing all the stocks in the market. We are playing specific stocks in the market that are holding good patterns and continuing to move higher. They were still out there even on Friday.

SOX. The SOX was down -0.83% and is having a bit of trouble. It is threatening to break back into this trading range, but it is hanging in there for now. Bad day on Thursday, but it held the line. While it was down a bit on Friday, it is still trying to hold the line as well. We will see how it plays out next week. It could easily bounce back in this range. Look what it has done. You can see it zigzagging back and forth on top of the August-October trading range. It could definitely make the bounce next week.

LEADERSHIP

Technology. Techs continued to struggle. AAPL was down for the third session in a row. We are now playing this short on some positions and with good reason. GOOG continued down as well after making a kind of tepid second high right at the July peak. It has not broken completely. It may bounce post-expiration. If it comes up short, that could give us a nice entry to a downside play. Semiconductors were weak as well. KLAC was a great runner through October and mid-November. It had a second tough day in a row, heading toward the 50 day EMA and some support. It will likely find some there. We just wanted to preserve the rest of the gain. If it comes back down and tests, we can then initiate some new positions to the upside.

Retail. Retail is having good times and bad times. AMZN is kicking hard to the downside, breaking through the 200 day EMA and the late-October low. This does not look like a stock that will lead the retail sector to victory this holiday season. That is somewhat disturbing and perturbing. BWLD is holding up nicely with a flag at the 50 day EMA. There are different tales of extremes. SHLD had weak guidance. It was treated weak and it was hammered to the downside on Thursday. It was not able to get up off the floor on Friday.

ANN reported some earnings. It beat but its guidance was in line. It got slapped around pretty good. All of a sudden, retailers that were untouchable at one point are looking fairly touchable. Even some of the discount stores that should do well in a weak economy are not doing so well now. You might think the economy is improving since the discounters are not doing as well. But when you look at the non-discounters, they are not doing that well either. Maybe things are just really bad. But that belies what we see in retail sales and what we hear from all of the financial stations. DLTR bounced off the low again on Friday, but I do not think it will hold. I may be wrong. It has a rounded top. Maybe this volume is kicking in at support so it will bounce back up. Something tells me it wants to fall back down toward this July peak before it tries to resume further to the upside. That is my belief, although I still have to let the market tell me what it will do.

Financial. Financials checked up a bit on Friday after a really ugly week. JPM was showing a doji, but it is likely just a continuation doji that continues the stock moving lower. Same action on MS. WFC is holding up a bit better. It is holding at some support, but maybe it has a cup with handle pattern. It will have to prove it. We are still in that "show me" state, and it will have to prove it can break out.

STT has a cup with handle going. Maybe it can pull it off. It is one to watch, and we will definitely have it on our list. We just have to see if it can hold up. That does not mean there is a lot of trouble out there. As noted, a lot of small caps were holding up just fine.

Miscellaneous. TRLG pulled back all week, but it is still quite solid. This little ABCD-type pattern or flag pullback is trying to set up. WIRE has a similar pullback. A nice break here, testing back. It just was not the week to make the move higher. It is holding up quite well. JDAS did not have a great week, but it is holding up quite nicely. It is setting up to just perhaps try moving back to the upside.

There are stocks trying to move. ROST announced a split. It has tested down to its 50 day EMA and looks like it is ready to bounce. We do have stocks out there that can bounce and look as if they want to bounce. The question is will they bounce? That is the 64 trillion-dollar question. Are these stocks going to lead the market back up and help pull SP500 and NASDAQ out of the doldrums after they broke down out of their really nice constructive upside patterns? That will be the question as we move through Thanksgiving and into Christmas.

THE MARKET

SENTIMENT INDICATORS

VIX: 32; -2.51
VXN: 31.83; -2.51
VXO: 32.2; -2.26

Put/Call Ratio (CBOE): 0.89; -0.41

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 47.4% versus 44.2%. Picking up speed just in time for the market to fall off sharply. About right. Still steadily climbing after crossing back above bears. It could not last forever and with the surge in October just a matter of time. Did its work, however, as the market surged off the readings below 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 32.6% versus 34.7% versus 36.8%. Continuing the fall as you would expect. It did spend seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: -15.49 points (-0.6%) to close at 2572.5
Volume: 1.728B (-21.24%)

Up Volume: 592.7M (+188.34M)
Down Volume: 1.15B (-620M)

A/D and Hi/Lo: Decliners led 1.02 to 1
Previous Session: Decliners led 2.52 to 1

New Highs: 14 (-3)
New Lows: 85 (-14)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -0.48 points (-0.04%) to close at 1215.65
NYSE Volume: 905M (-0.55%)

Up Volume: 1.85B (+1.528B)
Down Volume: 1.9B (-2.24B)

A/D and Hi/Lo: Advancers led 1.36 to 1
Previous Session: Decliners led 4.27 to 1

New Highs: 73 (-1)
New Lows: 74 (-20)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +25.43 points (+0.22%) to close at 11796.16
Volume DJ30: 181M shares Friday versus 170M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

As we ponder the question of whether these stocks will lead the indices back to the upside, we also have to ask ourselves how much money we want to put at risk. Given the breaks lower, right now I do not want to take a lot of full positions to the upside. This is a very choppy market. It looked like it was building to the upside despite a few wicked downdrafts in late October and mid-November. It was weathering the data, swallowing the bad news, and still looking good. At least until Thursday. That changed the character. It has to prove itself again, and until it does, we do not want to put a bunch of new money to work. We will take advantage of stocks that make the moves we want, whether upside or downside. We were buying downside today, and we would continue to do so because there are more good setups to the downside if this market wants to continue. In other words, if it has had enough of all the Europe action and says it is giving up and going home for the year. If that is the case, we will take advantage of it.

There are so many things out there externally impacting the market. I talked about some of them earlier. There is the European data that comes out every day. I also talked about the U.S. Debt Commission and Congress that will have to come with something. If it does not, we will get $1.2B in rather illusory cuts. We will not cut real money that we are actually spending. We will cut money that we would have spent on the wars if they were not ending, but now we will not spend it because they have ended. You get the idea. It is BS.

We have a lot to deal with in the market, and it may just not want to deal with it toward the end of the year. Seasonal patterns could take hold again and cause a general rise. It would definitely be the tortoise move I believe. There is nothing to goose the market and give it that big jump to the upside. We have to be concerned about what is happening and what could happen. At the same time, there are plenty of stocks holding their own. They have weathered this week just as the indices were doing beforehand. Remember, it is only the SP500 and the NASDAQ that are having troubles. The Dow looks great, and SP600 looks great. The mid caps are not bad. Right below the 50 day EMA. They are more like the SP500, but holding above the range from August-October as well. There are still some positives there.

It is bifurcated. We could get good moves to the upside from mid caps and small caps. We are more than willing to play those. We will just go into it as deep as we thought when it looked as if NASDAQ and SP500 had nice pennant patterns and would move higher with a seasonal trend to the end of the year. Once more, we have to ask ourselves the question: What could improve NASDAQ and SP500 right now? Do we have any earnings coming out? They will not do the trick. A deal in Europe will not really help unless it is something totally major. Better U.S. economic data? There is more coming out, but it did not do the trick for the market last week even though there was good data again.

We have some issues out there. All these problems we have with the debt in our country and with Solyndra. Today I was watching some of the political shows, and they were talking about how they would solve the problems of the country. They were comparing Jon Corzine's problem with MF Financial back to when they were having the economic troubles and the President and the Vice President said they were talking to Mr. Corzine. The Vice President emphatically said that when he needed an answer, he picked up the phone and he called Jon Corzine and asked him, "What do we do?" I found it so ironic the way things have turned out. It appears that when things were in trouble for Corzine, they used client money or other people's money to try to bail them out. It did not work. And what is the government doing? It is trying to use other people's money to bail out the government. Our money is being spent for mistakes that the government made with housing as well as mistakes a bunch of the companies made when they were sucked in or were forced to do what the government wanted them to do.

In any event, it is ironic. Write it all down; it is interesting history you will want to share with your grandkids one day. But it does not necessarily answer the question of what we do now. Or does it? As I said, there are so many external factors impacting the market right now. We see stocks that we like to play upside and downside, and we will continue to play them. We just will not put as much money to work right now until we get something more of a trend back. If the market reverses back and SP500 retakes its pennant pattern, that would be a very good sign. A false breakdown, a quick reversal, and then we would put more money to work. If they get more downside coming, we will pull the more money to work downside.

We have some beautiful plays making us money to the downside right now. Again, we were not anticipating that to be the direction that we would make money heading toward Thanksgiving. Lo and behold, we have some plays that are really good in the money now. If we get another push down early next week, we will be taking some nice gain off the table. Take what the market gives. You have the plays where you notice that they look good. Do not ignore them. Do not ignore the setups because they are setting up for a reason. When they make the moves, put some money to work.

We will let things settle next week. We will not be doing a lot. It is a holiday week. I will give the staff a lot of time off starting on Wednesday, so we will hit it hard Monday and Tuesday. Knowing that it is a holiday-shortened week, however, we will not put a ton of money to work. We are anticipating taking some good gain off the table before we sit down at the Thanksgiving table. I will see you on Monday and see where this market goes toward Thanksgiving. Have an excellent weekend!

Support and Resistance

NASDAQ: Closed at 2572.50

Resistance:
2580 is the November 2010 closing high
2593 is the November intraday high
2599 is the June 2011 low
2603 is the March 2011 intraday low (post-Japan low)
2612 is the late August 2011 peak
The 50 day EMA at 2616
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2686
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1215.65
Resistance:
1220 is the April 2010 peak
The 50 day EMA at 1224
1227 is the November 2010 peak
1231 is the late August 2011 peak
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1271
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 11,796.16
Resistance:
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,974
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,702
The 50 day EMA at 11,698
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

November 15 - Tuesday
PPI, October (8:30): -0.3% actual versus -0.2% expected, 0.8% prior
Core PPI, October (8:30): 0.0% actual versus 0.1% expected, 0.2% prior
Retail Sales, October (8:30): 0.5% actual versus 0.4% expected, 1.1% prior
Retail Sales ex-auto, October (8:30): 0.6% actual versus 0.2% expected, 0.5% prior (revised from 0.6%)
Retail sales ex-auto, ex-gasoline: 0.7%
Empire Manufacturing, November (8:30): 0.61 actual versus -0.8 expected, -8.48 prior
Business Inventories, September (10:00): 0.0% actual versus 0.2% expected, 0.4% prior (revised from 0.5%)

November 16 - Wednesday
MBA Mortgage Index, 11/12 (7:00): -10.0% actual versus 10.3% prior
CPI, October (8:30): -0.1% actual versus 0.0% expected, 0.3% prior
Core CPI, October (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, September (9:00): $68.6B actual versus $58.0B prior (revised from $57.9B)
Industrial Production, October (9:15): 0.7% actual versus 0.4% expected, -0.1% prior (revised from 0.2%)
Capacity Utilization, October (9:15): 77.8% actual versus 77.7% expected, 77.3% prior (revised from 77.4%)
NAHB Housing Market Index, November (10:00): 20 actual versus 18 expected, 17 prior (revised from 18)
Crude Inventories, 11/12 (10:30): -1.056M actual versus -1.370M prior

November 17 - Thursday
Initial Claims, 11/12 (8:30): 388K actual versus 398K expected, 393K prior (revised from 390K)
Continuing Claims, 11/05 (8:30): 3608K actual versus 3648K expected, 3665K prior (revised from 3615K)
Housing Starts, October (8:30): 628K actual versus 604K expected, 630K prior (revised from 658K)
Building Permits, October (8:30): 653K actual versus 603K expected, 589K prior (revised from 594K)
Philadelphia Fed, November (10:00): 3.6 actual versus 7.5 expected, 8.7 prior

November 18 - Friday
Leading Indicators, October (10:00): 0.9% actual versus 0.6% expected, 0.1% prior (revised from 0.2%)

November 21 - Monday
Existing Home Sales, October (10:00): 4.85M expected, 4.91M prior

November 22 - Tuesday
GDP - Second Estimate, Q3 (8:30): 2.5% expected, 2.5% prior
GDP Deflator - Second Estimate, Q3 (8:30): 2.5% expected, 2.5% prior
FOMC Minutes, November (2:00)

November 23 - Wednesday
MBA Mortgage Index, 11/19 (7:00): -10.0% prior
Initial Jobless Claims, 11/19 (8:30): 391K expected, 388K prior
Continuing Jobless Claims, 11/12 (8:30): 3620K expected, 3608K prior
Personal Income, October (8:30): 0.3% expected, 0.1% prior
Personal Spending, October (8:30): 0.3% expected, 0.6% prior
PCE Prices - Core, October (8:30): 0.1% expected, 0.1% prior
Durable Orders, October (8:30): -1.0% expected, -0.6% prior (revised from -0.8%)
Durable Orders -ex Transports, October (8:30): 0.0% expected, 1.8% prior (revised from 1.7%)
Michigan Sentiment - Final, November (9:55): 64.2 expected, 64.2 prior
Crude Inventories, 11/19 (10:30): -1.056M prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Continue to Rebound

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 14 Nov 2011 16:53:00 +0000

SUMMARY:

- ECB buying keeps Italian bond yields lower, gives stocks cover to continue the rebound.
- Michigan sentiment up for three months . . . to still terrible levels.
- Once again when the European intrigue is removed, stocks move higher.
- A new trading range or a steady trend higher to year end?
- Still plenty of solid patterns to keep the indices moving higher.

Get Europe out of the way and stocks want to rise.

On Friday the market showed once again that if we can just get Europe out of the way, stocks really do want to move to the upside. The ECB has been heavily buying bonds starting on Thursday and continuing on Friday. That was able to push Italian bond yields from about 7.5% to below 6.5%. 7% is the magic number that everyone looks at with respect to bond yields. If a 10 year is yielding more than 7%, no one wants your assets. It is very hard to make your economy grow and do what you need to do if you cannot get money, so the ECB is out buying and bond rates were lower. As a result, there was a collective sigh of relief in stock markets around the world. They all performed pretty well, and the U.S. was no exception.

There was not a lot of other news out before the open other than simply a better outlook for Europe, particularly in Italy. There were some U.S. earnings that were pretty decent. DIS performed nicely. It gapped sharply higher. As a matter of fact, members of my family are going to Disney on Ice tonight. More money for the House of Mouse.

There was enough to keep stocks moving higher. When I say enough, I mean without Europe being in the way and trying to louse up the end-of-year move in the rest of the market. This market wants to move higher on seasonal trends and on catch-up by funds. Every time the overlay of Europe is removed, stocks move higher. We saw that on Friday, and that gives hope that toward the end of the year as we move toward Thanksgiving, we will see stocks continue to move higher.

As I have discussed all week and last week, there were certainly plenty of patterns still in position to make a move to the upside. Take away Europe (or at least get used to the idea of Europe) and you have the stock market performing better. Even with the Wednesday downdraft on the Italian job, after the big hits occur because of Europe, the market is moving higher. Taking away Europe or getting used to it maybe the market is becoming somewhat immune to Europe. Maybe. If Europe collapses it will be ugly. But if this is the kind of "stuff" we have to deal with, than perhaps the stock market becomes somewhat immune to the barbs and can continue higher toward the end of the year.

Looking at the intraday chart, futures were up early. When the market opened they rallied nicely. Stocks moved up sharply into mid-morning where they pretty much hit the zenith for the day. They spent the rest of the day range trading, bouncing lower and bouncing higher. But it was in a very tight range. That produced some solid moves after a little dip in the last hour failed. Stocks returned back to their session highs.

SP500, +1.95%; NASDAQ, +2.04%; Dow, +2.19%; SP600, +2.75%; SOX, +3.53%.

Very solid upside gains. Again this was with the problem of Europe removed from the picture.

As for the news moving the session, there was not that much domestically. About a half hour into the session, there was the preliminary read of Michigan Sentiment for November. It came in much better than expected at 64.2 versus 61.3 with 60.9 prior. That is the third straight monthly rise. A lot was made of that. It is true: whenever there is a bounce, a trend one way or the other, that helps. But we have also had that bounce in the economic data overall in the past two to three months. Thus you will have sentiment improving a little. These levels are still terrible levels. In other words, non-recession levels are well over 100, and they are not even close to that after two years of supposed recovery.

The entire week saw some better economic data. That continues the trend over the last two to three months. Initial Claims was the big headliner for the week, coming in at 390K versus the 400K reported the prior week. That finally gets it below 390K. This time it looks like it is there for real. Recall the prior week was revised back up to 400K. There are have really been no weeks under 400K before this week.

The data is a bit better overall, and that is good for now. But as I discussed on Thursday and have mentioned the last couple of weeks, 2012 does not look that great. There are so many issues that will impact us in the U.S. that have nothing to do with Europe. I believe we could definitely slide back in recession. I hope I am wrong. That would be great for everybody because there are so many people out of work right now and that need help. I am talking about the real kind of help. Not just giving people money and making some busy work. I mean help that will make jobs that last as opposed to just spending hundreds of billions of dollars on jobs that are here for the moment but then gone. I do not know about you, but I am tired of spending $250-300K on a single job that actually turns out to just be illusory because the company goes out of business. Or spending $200-300K dollars for a single job in a fire department or policeman or teacher. That is an incredible amount of waste. We would be better off just giving them $250K, and then they would have three or four years' worth of salary.

It is incredible what we are doing and that we cannot see what history has done for us. Growth is the real key getting businesses growing not giving away entitlements. It is summed up by the student loans and the high costs of tuition. Looking at the charts, it is almost a dollar-for-dollar track for the amount of money that has been put into the student loan program. Tuition has gone up. The schools are not stupid. They know they will get every dollar put into the system, so they just hike tuition to suck it in as fast as they can. They are maximizing their dollars. And what happens? All it does is inflate tuition. It is the same old story. More money in a contained, closed system with the same amount of product or services means higher-priced products and services. Excess money becomes hot money that inflates prices. That is exactly what happened in schools. It is insane. Children cannot earn their tuition over the summer our over the year as they used to. They have put so much money into the system, and they just suck that money up. Has it gone to more teaches? No. It is gone to more administration and bureaucrats. But I digress. I will not get too deep into that tonight.

Suffice it to say, we have a lot of the same old problems that we always have. In the morning, Mohamed El-Erian of PIMCO was saying that we are not addressing the structural problems we have in the United States. We are just printing more money and trying to spend our way out of it. Spending is the problem right now. He said we have a very real problem and that the economy is near stall speed right now because we are not addressing the structural problems. That is a very good summation. I cannot say I agree with everything Mr. El-Erian says, but he is absolutely right about this.

We have problems that are of a structural nature, and we are not addressing them. We are throwing money at them, and that is exactly what we did before. We are trying to cure debt problems with more debt, and that simply does not work. History shows it does not work. We are really looking at a problem in 2012 as a result

OTHER MARKETS

Dollar: 1.3746 versus 1.3604 euro. The dollar was down. It is still overall in its uptrend, but it is struggling. The dollar did fall back down and tap the 50 day EMA on the low. It is still above those four peaks from early and midsummer 2011. It is struggling and, of course, it will go back and forth as Europe goes back and forth. But right now it is still holding above an important support. Will the dollar go higher if the U.S. economy falls? It typically does not, but where will people put their money? Not in Europe and not in the dollar, so I do not know. Maybe China? We will see.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.06% 10 year U.S. Treasury. Bonds were closed, so no trade today. Just to recap the week, the bonds stayed pretty strong even with a weak auction on Thursday because there were issues in Europe. The bond market is still holding out. They are saying we could have some problems in Europe and there could be some issues, so we will hang on for now and see what happens later in Europe.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,788.10, +28.50. Gold bounced sharply. A very strong move. It is bouncing back up off of a test. It broke higher, it has tested, and now it is looking to move to the upside. Why? Europe is ready to pass its bailout package because it is getting rid of the Greek Prime Minister and the Italian Prime Minister. We will have people in there who are just going to go for total money printing. That is going to feed into inflation. Likely the U.S. will have to do something similar next year when the economy that is now hitting stall speed actually stalls out.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 98.99, +1.21. Oil gained again. Quite a strong day and quite a strong week for oil. It went straight to the upside, and now it is bumping up against the some resistance at 100. It is not having any problems on the way up. It did stumble a bit at 95. There was some resistance there, so it may want to test a bit at 100 before it continues its move to the upside.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

The internals were solid in one respect and weak in another.

Breadth: Breadth was a nice 3.6:1 on NASDAQ and a solid 6:1 advancers over decliners on the NYSE.

Volume: Volume was another story altogether. It fell 16% to a meager 1.5B shares on NASDAQ. It was almost a 20% decline on the NYSE to 691M shares. Again, quite divergent and quite mixed. We are seeing volume down on up days and volume higher on down days. The sellers are definitely stronger, but if you remove the European issue, the sellers do not really have a reason to sell. After all, the U.S. data is getting better, right? We are seeing stocks move to the upside on catch-up and maybe just a feeling that the U.S. has made it through the worst of times with respect to the economic situation.

CHARTS

SP500. SP500 was up for the second day. It moved back up above the June lows. That puts it in this range below the April peak. Maybe we get another trade to the upside. It made a lower high last time, but it also made a higher low. We have a little triangle or pennant pattern forming. It looks like it wants to make the break to the upside. We have very good MACD still in the action. The momentum remains solid. All we have to do is avoid one or two of these days from earlier in the month were Europe reared its head again and sent stocks lower. It does look positive for SP500 to continue to the upside.

NASDAQ. NASDAQ is not as impressive with respect to the chart. It did gap to the upside and is trying to get a pennant of its own going as it sits on top of the August-October peak. It is cracking into this upper tier of the trading range, and we will see if it can make it. It is having a problem with AAPL being a stick in the mud and holding back NASDAQ overall. But it is still managing to make the move upside.

SP600. SP600 looked solid, posting a 2.75% gain. It is forming up a pennant or triangle itself, looking for an upside breakout.

SOX. The semiconductors continue to be the ones to watch. They are the sleepers. They are above their little trendline again with a gap higher on Friday. Maybe a little pennant forming here as well. They are performing well, and we will keep looking at them. If we can pick up some more, we will do that.

After an ugly Wednesday, the indices are right back up. They do not want to give up. They are hanging in there and setting up nicely. Why are they setting up nicely? Because they have leadership to help them along the way.

LEADERSHIP

Semiconductors. LRCX broke higher out of a little pennant or triangle. Look back at the SP500. We have a pennant forming up. There is something similar and we already have the semiconductors making the break to the upside. SLAB had a pennant formed. It is jumping to the upside as well. Semiconductors are going to be performing well. I will not complain about that.

Technology. Techs in general are looking good. GOOG is making the move to the upside. PANL looks good on the upside as well. A is looking solid. It is forming a triangle or pennant pattern; we are seeing just a bit of that here and there in the stock market Even without AAPL, technology is still doing well. 'Tis the season for semiconductors and technology stocks to perform well. It looks like they are trying to do just that.

Retail. Retail is performing well. BWLD has a nice pullback to support. It looks ready to make the move to the upside. LULU is in the middle of its triangle. It is at one of the moments of truth where it has come back to the 50 day EMA right in the middle. The heart of a triangle is forming. It is pinching off toward the end of the triangle, and it will have to make a break sooner than later. Often a higher low at the 50 day EMA leads to a breakout move. We are looking for that as well. PNRA looks like it wants to make the move to the upside. EL has set up nicely after a gap upside on earnings. You like to see these gaps, and then you want to see them continue on to the upside.

Retail is still doing well, but there are some demolitions here. DDS had good earnings but it failed to impress on the margins and was slapped around a bit. There are some of those out there. In retail some are blowing up, but overall they look pretty solid.

Industrial. CAT looked good. Putting in a little buy. It jumped to the upside. It still looks kind of heavy. We have to watch it; we have a downside play on it. But it is trying to make its move. It looked ready to fall, but it is trying to come back. TEX still looks solid as well. With DE it looks like there is some life in the old tractor still.

Miscellaneous. There is still plenty of leadership out there that can make the move for us. Indeed, you can throw out a lot of stocks across many sectors and come up with some really nice patterns. ANSS has a great pattern and a nice surge that it has tested. LNG had a nice pullback, looking very solid. ACE has a great pennant going all its own. TRLG has a nice pullback of its own after a breakout. You can go across many different sectors and find these leaders. That is why I am saying it looks like the market will have more room to move higher. There are so many stocks that have bullish patterns behind them and are under accumulation. That is exactly what you want to see for a market to continue higher. If you can get Europe out of the way, then I believe stocks will rally into the year end and make us some really nice money.

THE MARKET

SENTIMENT INDICATORS

VIX: 30.04; -2.77
VXN: 29.35; -3.32
VXO: 28.72; -2.67

Put/Call Ratio (CBOE): 0.93; -0.23

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 44.2% versus 43.2%. Steady rise from 40.0% and 35.8% the week before that. Still climbing after crossing back above bears. It could not last forever and with the surge in October just a matter of time. Did its work, however, as the market surged off the readings below 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 34.7% versus 36.8%. Falling below 35% for the first time in weeks, continuing the fall from 37.9% and 45.0% before that. It did spend seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: +53.6 points (+2.04%) to close at 2678.75
Volume: 1.574B (-16.37%)

Up Volume: 1.36B (+230M)
Down Volume: 228.75M (-519.11M)

A/D and Hi/Lo: Advancers led 3.62 to 1
Previous Session: Advancers led 1.68 to 1

New Highs: 29 (+16)
New Lows: 45 (-23)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +24.16 points (+1.95%) to close at 1263.85
NYSE Volume: 691M (-18.8%)

Up Volume: 3.11B (+480M)
Down Volume: 243.75M (-1.116B)

A/D and Hi/Lo: Advancers led 6.05 to 1
Previous Session: Advancers led 2.34 to 1

New Highs: 121 (+34)
New Lows: 37 (-30)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +259.89 points (+2.19%) to close at 12153.68
Volume DJ30: 134.5M shares Friday versus 168M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

There are a lot of economic reports to come. We have a quiet Monday, and then the PPI starts on Tuesday. The big one will be the Retail Sales. What is the consumer doing? Remember, Retail Sales can be fickle. Everyone points to them and says Retail Sales have been moving up nicely. They were up 1.1% back in September. They say things are going great, but we have to factor in pricing. Prices have been higher, so we may not be buying that much more with these increased Retail Sales. That is one of those where you have to watch out. It is too easy to say everything is okay without understanding just how these economic reports are put together.

Empire Manufacturing is very important out of New York. It has not been doing well. It is expected to bounce higher. What these regional manufacturing reports pull off will be key. Are they going to continue to head lower, or will they turn up? Remember, regional manufacturing was the economic indicator showing recovery when nothing else was. They have turned down. There overall number is just clinging above 50 right now; it has not fallen. This will be very important as to what these regions show for October and November. If they say negative and that would be a surprise then the economy will not look so good for 2012. It will look even worse than I have already prognosticated. But it can still move higher toward the end of the year. We have the CPI on Wednesday. It will be important to see what those prices are doing. Then on Thursday we have the Philly Fed. Friday are Leading Indicators. Whatever. They do not mean a heck of a lot. The ECRI is the big Leading Indicator.

The economic reports will have something to do with the market action, no doubt. Particularly if the regional reports come in better than expected or worse than expected. They will have their impact. But right now it really looks like the market just wants to move higher. It was kind of tough to stay with that thesis after Wednesday when the stock market sold so hard on the Italian bond issues. What happened right after that? You remove them and stocks have bounced back up. They want to move higher. If they become somewhat immune to all of this European noise, then they will advance nicely.

There will be other setbacks. That is the way it will be. But look what has happened. With every setback there is a lower high, yes, but a lower low. The pattern is narrowing, sitting on top of support. That is a positive. That is very constructive action that will lead to breakout. You also have many stocks in good position to move higher. We have some great ones we already have positions in, and we are looking to buy some more. Then we have some more coming on this weekend that look solid as well. We will have many stocks that we will be able to choose from that could lead the market higher, and I think they are going to lead the market higher.

We will continue to look for the moves to the upside. We will continue to find those stocks in good bases that are ready to move. How many stocks did I show you tonight that had this pennant pattern forming and are already breaking to the upside? That just goes to show you they are out there and are ready to move. We need to be able to have plays set up to take advantage of that. We will buy even more when they present themselves. There is not a lot of mystery here. It is just that the European issues are adding a little fog of war, so to speak, to the stock market. Overall if you have good patterns, you have resilience. We have seasonal trends and we have funds that want to play catch-up. We have the mix to push the indices higher. Maybe not to a breakout (after all, I do not think 2012 will be all that great economically), but definitely well into this upper-tier trading range. That would give us some really nice gains moving into the holidays. Everyone could use a better holiday this year. Maybe the market will help deliver that despite gasoline prices that will move higher because oil is near $100 a barrel.

Enjoy a beautiful weekend. I hope it is beautiful where you are and I hope it is going well for you. I will see you on Monday with more plays ready to go after a market that looks like it wants to move higher. Although it will be two steps forward and one step back. Overall, it is moving to the upside.

Have a great evening!

Support and Resistance

NASDAQ: Closed at 2678.75

Resistance:
2686 is the January 2011 closing low
The 200 day SMA at 2688
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2754 is the recent October 2011 high
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2676 is the January 2010 low
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
The 50 day EMA at 2613
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1263.85
Resistance:
The 200 day SMA at 1272
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
The 50 day EMA at 1221
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,153.68
Resistance:
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,976
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,700
The 50 day EMA at 11,653
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

November 7 - Monday
Consumer Credit, September (15:00): $7.4B actual versus $5.0B expected, -$9.7B prior (revised from -$9.5B)

November 9 - Wednesday
MBA Mortgage Index, 11/05 (7:00): 10.3% actual versus +0.2% prior
Wholesale Inventories, September (10:00): -0.1% actual versus 0.5% expected, 0.1% prior (revised from 0.4%)
Crude Inventories, 11/05 (10:30): -1.370M actual versus 1.826M prior

November 10 - Thursday
Initial Claims, 11/05 (8:30): 390K actual versus 400K expected, 400K prior (revised from 397K)
Continuing Claims, 10/29 (8:30): 3615K actual versus 3690K expected, 3707K prior (revised from 3683K)
Export Prices ex-ag., October (8:30): -1.5% actual versus -0.2% prior (revised from prior)
Import Prices ex-oil, October (8:30): -0.2% actual versus 0.2% prior
Trade Balance, September (8:30): -$43.1B actual versus -$45.9B expected, -$44.9B prior (revised from -$45.6B)
Treasury Budget, October (14:00): -$98.5B actual versus -$105B expected, -$140.4B prior

November 11 - Friday
Michigan Sentiment, Preliminary November (9:55): 64.2 actual versus 61.3 expected, 60.9 prior. Third straight monthly rise.

November 15 - Tuesday
PPI, October (8:30): -0.2% expected, 0.8% prior
Core PPI, October (8:30): 0.1% expected, 0.2% prior
Retail Sales, October (8:30): 0.4% expected, 1.1% prior
Retail Sales ex-auto, October (8:30): 0.2% expected, 0.6% prior
Empire Manufacturing, November (8:30): 0.0 expected, -8.48 prior
Business Inventories, September (10:00): 0.1% expected, 0.5% prior

November 16 - Wednesday
MBA Mortgage Index, 11/12 (7:00): 10.3% prior
CPI, October (8:30): 0.0% expected, 0.3% prior
Core CPI, October (8:30): 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, September (9:00): $57.9B prior
Industrial Production, October (9:15): 0.4% expected, 0.2% prior
Capacity Utilization, October (9:15): 77.6% expected, 77.4% prior
NAHB Housing Market Survey, November (10:00): 18 expected, 18 prior
Crude Inventories, 11/12 (10:30): -1.370M prior

November 17 - Thursday
Initial Claims, 11/12 (8:30): 400K expected, 390K prior
Continuing Claims, 11/05 (8:30): 3648K expected, 3615K prior
Housing Starts, October (8:30): 603K expected, 658K prior
Building Permits, October (8:30): 603K expected, 594K prior
Philadelphia Fed, November (10:00): 7.5 expected, 8.7 prior

November 18 - Friday
Leading Indicators, October (10:00): 0.6% expected, 0.2% prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

G20 Wishes EU Good Luck

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 07 Nov 2011 15:12:00 +0000

SUMMARY:

- Jobs report is better but not, and the market takes it as not.
- Stocks off, finishing the week lower, but modestly so.
- G20 meets, agrees it accomplished nothing, wishes EU good luck.
- Europe already in recession even as US data improves. ECRI still says US will follow Europe.
- Down Friday but many stocks are in position to rally.

Something of a quiet session for a change as jobs report is mixed and not enough to bring the buyers.

OTHER MARKETS

Dollar: 1.3792 versus 1.3823 euro.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.03% versus 2.06% 10 year US Treasury.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1755.60, -9.50.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 94.43, +0.36.

http://investmenthouse.com/ihmedia/xoil.jpeg

THE MARKET

SENTIMENT INDICATORS

VIX: 30.16; -0.34
VXN: 29.35; +0.05
VXO: 29.25; -0.18

Put/Call Ratio (CBOE): 1.13; +0.06

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 43.2% versus 40.0% versus 35.8%. Bulls continue to climb for a second week after crossing back above bears. It could not last forever and with the surge in October just a matter of time. Did its work, however, as the market surged off the readings below 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 36.8% versus 37.9% versus 45.0%. Still on the decline but not as severe as the prior week. Seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: -11.82 points (-0.44%) to close at 2686.15
Volume: 1.912B (-8.25%)

Up Volume: 852.32M (-807.68M)
Down Volume: 1.05B (+585.49M)

A/D and Hi/Lo: Decliners led 1.74 to 1
Previous Session: Advancers led 2.84 to 1

New Highs: 35 (-6)
New Lows: 42 (-8)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: -7.92 points (-0.63%) to close at 1253.23
NYSE Volume: 789M (-18.66%)

Up Volume: 1.33B (-2.74B)
Down Volume: 2.54B (+1.806B)

A/D and Hi/Lo: Decliners led 1.55 to 1
Previous Session: Advancers led 3.53 to 1

New Highs: 51 (-17)
New Lows: 34 (0)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: -61.23 points (-0.51%) to close at 11983.24
Volume DJ30: 126M shares Friday versus 158M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

Support and Resistance

NASDAQ: Closed at 2686.15

Resistance:
The 200 day SMA at 2690
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2686 is the January 2011 closing low
2676 is the January 2010 low
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
The 50 day EMA at 2597
2593 is the November intraday high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1253.23
Resistance:
1255 is the late December 2010 consolidation range
1258 is June 2011 intraday low
The 200 day SMA at 1273
1275 is the January 2010 low, early January 2011 peak
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
The 50 day EMA at 1213
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 11,983.24
Resistance:
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
The 200 day SMA at 11,975
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,700
The 50 day EMA at 11,557
11,555 is the March low
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

October 31 - Monday
Chicago PMI, October (9:45): 58.4 actual versus 58.9 expected, 60.4 prior

November 1 - Tuesday
ISM Index, October (10:00): 50.8 actual versus 52.1 expected, 51.6 prior
Construction Spending, September (10:00): 0.2% actual versus 0.3% expected, 1.6% prior (revised from 1.4%)
Auto Sales, November (15:00): 4.07M prior
Truck Sales, November (15:00): 5.97M prior

November 2 - Wednesday
MBA Mortgage Index, 10/29 (7:00): 0.2% actual versus 4.9% prior
Challenger Job Cuts, October (7:30): +12.6% actual versus +211.5% prior
ADP Employment Change, October (8:15): 110K actual versus 100K expected, 116K prior (revised from 91K)
Crude Inventories, 10/29 (10:30): 1.826M actual versus 4.735M prior
FOMC Rate Decision, November (24:30): 0.25% actual versus 0.25% expected, 0.25% prior

November 3 - Thursday
Initial Claims, 10/29 (8:30): 397K actual versus 401K expected, 406K prior (revised from 402K)
Continuing Claims, 10/22 (8:30): 3683K actual versus 3675K expected, 3698K prior (revised from 3645K)
Productivity-Preliminary, Q3 (8:30): 3.1% actual versus 2.8% expected, -0.1% prior (revised from -0.7%)
Unit Labor Costs -Pr, Q3 (8:30): -2.4% actual versus -1.1% expected, 2.8% prior (revised from 3.3%)
Factory Orders, September (10:00): 0.3% actual versus -0.2% expected, 0.1% prior (revised from -0.2%)
ISM Services, October (10:00): 52.9 actual versus 53.8 expected, 53.0 prior

November 4 - Friday
Nonfarm Payrolls, October (8:30): 80K actual versus 85K expected, 158K prior (revised from 103K)
Nonfarm Private Payrolls, October (8:30): 104K actual versus 117K expected, 191K prior (revised from 137K)
Unemployment Rate, October (8:30): 9.0% actual versus 9.1% expected, 9.1% prior
Hourly Earnings, October (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Average Workweek, October (8:30): 34.3 actual versus 34.3 expected, 34.3 prior

November 7 - Monday
Consumer Credit, September (15:00): $5.0B expected, -$9.5B prior

November 9 - Wednesday
MBA Mortgage Index, 11/05 (7:00): +0.2% prior
Wholesale Inventories, September (10:00): 0.6% expected, 0.4% prior
Crude Inventories, 11/05 (10:30): 1.826M prior

November 10 - Thursday
Initial Claims, 11/05 (8:30): 400K expected, 397K prior
Continuing Claims, 10/29 (8:30): 3690K expected, 3683K prior
Export Prices ex-ag., October (8:30): 0.3% prior
Import Prices ex-oil, October (8:30): 0.2% prior
Trade Balance, September (8:30): -$45.8B expected, -$45.6B prior
Treasury Budget, October (14:00): -$105B expected, -$140.4B prior

November 11 - Friday
Michigan Sentiment, Preliminary November (9:55): 61.5 expected, 60.9 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Spending Posts a Solid Increase

noreply@blogger.com (Eric Aafedt, Publisher) — Sun, 30 Oct 2011 16:03:00 +0000

SUMMARY:

- To the flat line as market nurses its party hangover.
- Supposed reemergence of European worries blamed for stock stall.
- Spending posts a solid increase but incomes again stagnant.
- Michigan sentiment rides market bounce higher.
- Weak earnings outlooks versus strong outlooks: which is right?
- A breakout test likely a good buy thanks to seasonal trends and fund buying.

A slow, flat, and normal session on the heels of a big upside break.

It was a week that saw the indices break out of the old trading range indeed, two trading ranges and into a new range. It was the last one below the April and May highs that mark the zenith of the rally off of the March 2009 lows. I want to take a moment to backtrack and see where we are. The market was running into the beginning of 2011. That was on the heels of QE2 that broke the stock market higher beginning in late August and early September of 2010. A very powerful run up into early 2011. At that point the Fed was saying that QE2 would be removed in June, and the market started to pitch a bit. It moved laterally, trying to make a breakout in late April with earnings trying to assist it. It could not hold the move, however, and it faded back into June.

What happened? It tried to bounce again to end May. In June when there was no renewal of Quantitative Easing, the market sold off. It tried again, deciding it did not need the Fed. Perhaps it thought maybe things had turned enough where the market could break out to a new high and continue to the upside. That would show that the economy was picking up. It did not happen, and it fell back. What happened right after that? All of the issues in Europe came to the fore. We knew all along there were problems in Europe, but they came to a head in July and August. There were fears of a total meltdown, and we took those gains out of the market through mid-August.

After that, it looked like the crisis might have been averted. The dive was enough to get the heads of state in Europe to start talking about the problem. That was a giant leap forward, and the market started to bounce up and down. After there was word that there would be a deal made and this was the final deal, of course the market found its bottom, reversing off a false breakout on SP500, and rallied in October. Indeed, if this move holds through Monday, this will be the best rally in October ever. That is how powerful this move was. It was a powerful move to the downside as the Europe problem was factored into stock prices, and stocks rallied in anticipation when it was believed that a deal was in the offing. When a deal was announced on Thursday, stocks exploded higher, breaking into that new range. This is the final one before the indices can test that late April/early May high.

That will truly be the lick log moment. We may get some trading in this range, but getting up to the top and breaking out would tell a lot of stories. What do I mean? If stocks can break out, that would mean better economic times ahead. Why would they do that? Nothing has changed other than time. But time, as they say, does heal all wounds. But is it going to heal these wounds? Has enough time elapsed since the credit crisis hit? We have been in this for three years. It surely seems as if enough time has gone by. But we have problems such as ECRI saying that a recession is baked into the cake. Things improved this past week in the cycle, but that really does not matter. The indicators are as such that a recession is considered something of a done deal at this point. It is just a question of how deep or significant it will be.

Indeed, ECRI has been saying that we could have negative GDP by Q1 of 2012, if not sooner. GDP came in at 2.5% on Thursday for Q3. If it was sooner, that would mean it is happening this quarter. It may not happen because things have been looking a bit better. That is the irony of the ECRI. Oftentimes the CEOs will see business looking great and say, "What do you mean we will have a recession?" But the numbers are what the numbers are. The ECRI guys say, "That is what you are paying us for." They pay them to tell them what the cycle is. We will have to see how that actually turns out. The lick log point is up at these prior highs. What will propel the market higher? We have Europe taken out, and we have Europe put back in. Now we have to focus on U.S. domestic issues. Is there enough to drive the market higher? I will talk about this later. Who is right? Is it MMM and WHR who have dour outlooks? Or is it the other side of the equation like PNRA and CAT who say things look solid? That is the sixty-billion dollar question, no doubt.

Getting back to the session and the week itself, we saw the indices break out into a new range. A powerful week nearly ending a powerful month we still have Monday to factor in. We had the huge move on Thursday. There was the rush up higher on the Deal of the Century in Europe. This may be the deal that actually solves the problems. A lot has to be worked out. As I said last night: Short on fact and long on promises. We will see what happens. There was a big run on the Europe news and the fact that the U.S. data was better. Even though Europe's actual data has been worsening, the deal makes the difference. Then we had a hangover on Friday. After the stock market parties up 3% and more on the indices, it is hard to continue that kind of action even on a Friday. Maybe I should say especially on a Friday after a big move.

As you can see from the intraday chart for Friday, stocks were very flatline. They opened weaker, bounced, and then traded laterally the entire day in a narrowing range. At the end of the day, it was a wash. There were a few above the flatline and a few below the flat line.

SP500, 0.04%; NASDAQ, -0.05%; Dow, +0.2%; SP600, -0.6%; SOX, +0.15%.

You see the point. Flatlining, comatose, whatever you want to call it. The market had no stomach to continue the upside, and that is perfectly normal after such a huge move to the upside.

What was blamed on the day for the stock market going nowhere? If you read the headlines, it was the supposed reemergence of worries about Europe a day after the deal supposedly resolves all of the problems with Europe. Friday saw some new data. The UK confidence level fell precipitously. Spain's unemployment rate came out at 21.5% on Q3. That was high, and you just have to feel for them. Italy had some bond auctions, and it had to pay a record level of interest rate for a bond auction. That just shows you that things are not well in Europe even with the bailout. Maybe it is true what some people are saying. They say we had a big rally on this deal, but just what was the deal and how will it fix these problems? Debt problems fixed by more debt? Some people are thinking that, and that is good. You have to keep on open mind, right?

Blame whatever you want, it was really a technical issue. The market factored in a European collapse, and then over the past month, it has taken that back out. Stocks have bounced back up to where they were before that news became a serious concern. That leaves us now looking at what the U.S. will do. Do we have enough to drive us forward, or are we just back to where we were, looking for QE3 perhaps to take us higher? The market was struggling after QE2 ended. It did not have any reason to move higher. Maybe the economic data is enough to take it upside. We will have to see just how the market reacts to this range and, indeed, the peaks from July and April/May.

OTHER MARKETS

Dollar: 1.4161 versus 1.4189 euro. The dollar broke, and it broke big. It held the line for the entire month of August before it finally broke higher as the European worries skyrocketed. Then on Friday the dollar plummeted. Against the euro, it actually gained. Against the other currencies, however, it dove lower as the DXYO shows. Big drops. It is still hitting lows against the yen, and those other currencies weighed down the dollar even though it was up slightly against the euro.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.32% versus 2.38% 10 year U.S. Treasury. Bonds rebounded modestly. They broke on Thursday below support. There was a modest rebound Friday that did not change anything about the break. This was an inside day technically, therefore it really means nothing. This first move is still in control.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,747.20, -0.50. Gold took the day off. Virtually flat after a very strong week. Broke to the upside, perhaps on some fears of more inflation. There is not really any fear in Europe, right? That is all gone because the deal has solved it. But it has rallied somewhat, maybe on some inflation fears. This was an unexpected move, as noted. Inflation is what explains the move since fear was falling.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 93.32, -0.64. Oil prices backed off on Friday after a strong week. Oil has bounced through the $90 resistance range. It is now bumping up against the $96 range that acts as some resistance. Very strong move. A little lateral movement and backfilling. That is totally expected after such a good break to the upside. The question is will it break out over the May to July resistance? If it does, gasoline prices will surge.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

INTERNALS

After a very strong Thursday, Friday was a sleeper.

Breadth. Breadth was 1.3:1 decliners over advancers on NASDAQ. Breadth was 1.3:1 advancers over decliners on the NYSE.

Volume. NASDAQ saw volume fall 35% to 1.8B shares. NYSE trade fell 30% to 900M shares. Definitely not a banner internal day. It was a flatline on the markets, so that is expected.

CHARTS

SP500. SP500 tested the 200 day EMA on the low. It broke through that on Thursday, and it rebounded back up to close flat on the session. That still keeps it in its range. It still wants to bang around in there and perhaps move up to the top and break out. But it surely will have to prove that to us and virtually everyone on the planet.

NASDAQ. NASDAQ showed the same action. A gap lower, reversed to close flat. It, too, has broken into the final range before that April and May peak. It has some interim highs at July that it has to deal with as well. It is in the range. It made a big gap upside, and it could test and then continue on. Nothing wrong with that. We will see if it can hold the move.

SP600. The small caps were down on the session a bit more, but they are holding right at the 200 day EMA after surging up to that level on Thursday. They were right at the bottom of their March and June lows that mark the upper range that leads to the July peak. That is where the small caps hit their high versus April and May.

SOX. SOX sported some very good earnings this past week and Thursday it gapped above the down trendline out of February. Very solid action. It also gapped above the June and July lows that acted as resistance points. It is a double break of double resistance, so to speak. It did not go anywhere on Friday; it just broke some big overhead resistance. Taking a day or two off is normal. Semiconductors look decent. You always love to see a trendline break, although there is still some serious resistance at 420. But that is a nice run from here as the index closed the week out at around 396. Plenty of room to run just as there is room to run in the other indices back up to the prior peak.

LEADERSHIP

Leadership from the week was across the board. A lot of stocks rebounded. I will not go through all of them tonight because it was such a broad move. We have seen some of those little rounded bottom breaks to the upside that set up and broke higher this past week.

BRKS in the semiconductors equipment area is one that shows us somewhat of the typical pattern. The downtrend, the rounded bottom, a little double bottom. It formed the handle and then broke higher. It gave us a great buy and is surging. This is what we see not only in the semiconductors area, but in tech, retail, metals (not as much, but we are seeing it), and in a plethora of sectors across the market.

It is not really a question at this point of one or two sectors leading the move. That happened on the initial run with stocks such as AAPL or CERN moving higher. Now those stocks are fading back and testing. They are not necessarily breaking down, but they are testing while the other stocks that formed that little bottom and started to break higher are making the runs for us now. Stocks such as TRV in the insurance business formed that rounded bottom, the handle, and then broke to the upside. As noted, we see them across the market. We moved into quite a few of them last week, and now we will be waiting for a pullback. If we get it, we can move into these. Why do we want to do that? I will talk about that as I discuss Monday's session.

THE MARKET

SENTIMENT INDICATORS

VIX: 24.53; -0.93
VXN: 25; -1.28
VXO: 24.21; -0.44

Put/Call Ratio (CBOE): 1; +0.09

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 40.0% versus 35.8%. Big jump in bulls as the cross back above bears. It could not last forever and with the surge in October just a matter of time. Did its work, however, as the market surged off the readings below 35%. 35% is the threshold measuring bullish versus bearish action. Six weeks the bulls were below bears. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 37.9% versus 45.0%. Backing off hard as Bulls recover hard. As with bulls, an expected move given the rally. Just now crossing back below bulls after six weeks of bears over bulls and seven weeks over the 35% threshold considered a bullish indicator. For more 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.

NASDAQ

Stats: -1.48 points (-0.05%) to close at 2737.15
Volume: 1.823B (-34.54%)

Up Volume: 999.51M (-1.48B)
Down Volume: 851.39M (+488.24M)

A/D and Hi/Lo: Decliners led 1.27 to 1
Previous Session: Advancers led 4.9 to 1

New Highs: 61 (-49)
New Lows: 24 (-1)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +0.5 points (+0.04%) to close at 1285.09
NYSE Volume: 902M (-30.08%)

Up Volume: 2.46B (-3.8B)
Down Volume: 2.03B (+1.666B)

A/D and Hi/Lo: Advancers led 1.26 to 1
Previous Session: Advancers led 7.01 to 1

New Highs: 76 (-104)
New Lows: 21 (+14)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +22.56 points (+0.18%) to close at 12231.11
Volume DJ30: 163M shares Friday versus 251M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

There is a lot of economic data. It is, of course, the first Friday of the new month, so we will have the employment data late in the week. Everything will be geared toward that piece of information. We do have a lot of other salient economic reports ahead of that. On Monday we have the Chicago PMI, the precursor to Tuesday's overall national ISM manufacturing number. It is expected to climb after hanging on at 51. We have seen the regions go both ways some negative and some holding positive such as Chicago with its 60 reading the prior month. It is expected to continue a bit of improvement. That would be good news for everybody.

There will be the precursors to the jobs report coming out on Wednesday: Challenger Job Cut Report and the ADP Employment Index. There is a little thing called an FOMC rate decision on Wednesday. No one expects much. Watch out for things that no one expects much from. The market stalled out before June in anticipation of the end of QE2. Nothing has been done in Congress with respect to any kind of jobs initiative. I wish the Republicans would come out with their own jobs initiative, pass it, and then let the Senate work on it. Just try to do something. The President said he will write some executive orders and do a few things with student loans etc. to try to push his agenda. To me that means that Bernanke may have the green light to try something on his own as well. QE3? If that happens, that will start a new, powerful rally to the upside. That is a big long shot at this point. We will have to see. On Thursday we have the usual Jobless Claims and also the ISM Services for the month. Friday is the Jobs Report, of course.

There are two real areas to look at. The third is the wild card of the FOMC and a QE3. If that is announced, it throws everything out the window and we have a powerful rally. It may not solve any problems, and it may kill the dollar even more. Maybe the dollar is anticipating it, and that is why the dollar is in total freefall, from the looks of it, on Friday. But there are two other issues to deal with. Number one is the competing earnings reports. We have seen some great guidance from companies such as CAT. It is looking super, rallying to the upside and announcing great guidance ahead. It is basically the shining star in the earnings picture for the rest of the market. There are others that have done very well and announced great earnings. INTC has done super. It looks great heading forward.

Then there are others that are not really helping the cause. It is not because they are not making some money now; they just do not see the business down the road. TXN was having a problem. MMM did not have a good outlook at all. It was having cost issues, and they are saying that it is an execution problem. On TXN they said they must not been doing something right because everyone else is reporting great earnings. Then there were our old friends. AAPL surprised with a miss, and no one really knew what was going on with that. With AMZN everyone said it was just a retooling. They said they just have to spend more money, and they have done this from time to time. I frankly believe that is the case, but it is another one that did not have such great guidance. On Friday WHR announced terrible results, a bad forecast, and said it will lay off 5K workers. That is a downer.

Who is right? What is going on here? We have a battle of the weak earnings outlooks versus the strong earnings outlooks. The answer has to be that no one really knows. But we do know one thing: When there is volatility in the market or in anything, that usually presages some change in the trend. We have had a series of strong quarters with ever-increasing earnings. The outlooks have been great. Now we are seeing outlooks that are not so great. In other words, we are getting volatility where there was no volatility for several quarters. That shows you that something is changing. That brings up the specter of ECRI and its forecast for things being so much worse that they are calling for a recession. One thing about ECRI that is different from all other leading indicator reports is that it has never called a false recession. It is gotten them all right. That is just a fact.

We have that worry out there and we see strong, solid companies saying that things are not as great as some people are saying. It is easy to blame execution, but these are good companies. We will see if it is execution or not. That is something to be concerned about. I will reiterate, however, that volatility typically suggests a change in the trend. Strong earnings were the norm all during the run higher, and then we had sudden volatility. Seriously negative outlooks could stall out the indices as they get back toward those prior highs. Remember, they have to have some reason to break through these. QE2 carried the market up to the April highs. Now it needs a new catalyst to carry it further. Either QE3 or some kind of notion that the economy will improve even more and thus make stock prices more valuable down the road.

That is the longer-term picture. This is what we have to watch out for when the indices bounce up to the top of this range and test the old highs (the head and shoulders on SP500). That leads us to the more near-term issues. We have to keep an eye on the long term, but right now we have had a great breakout. We have a lot of stocks in these neat bases that broke higher last week. We have a market that surged tremendously on Wednesday and Thursday. It is in need of a little pullback, and Friday it started to do that. If we get another pullback Monday and Tuesday and we get some new money coming in at the beginning of the month there will be funds playing catch up we could see stocks bounce right back up. We could use that to play the move in the range. We want to play the moves that are here at hand. We keep an eye on the macro situation, and then if the market breaks out, great. It breaks out and then our upside plays continue to run for us. If it does not, we take some profits and see what happens after that. Are we going to trade in a range again as we did from August into October? We will have to see how that plays out.

There are some interesting features driving this action. It makes it pretty cool for us at least for those who want to play it upside. You have the seasonal trends in place. Remember that the techs like the time around October. They start to rally and move higher toward the end of the year. They led the move up. They were the first to break out of their range. They were the first to test and break into the new range. Techs were showing the power that they should in the season. That part of the world is correct. We anticipate those seasonal trends to continue because they broke into the new range and they can rally up to the top of the range. Then everything will be just as it should be.

When we broke out of the trading range, a lot of people were shorting the market or thought it was going to fail. I was one of them; I thought it was going to fail, but it broke out. That forced shorts to cover. Then the test came, it held, and there was a new breakout. That forced shorts to cover more. Not only that, there are a lot of funds out there playing catch up. They have to make more money to the end of the year because they were not buying any of this move up. This is the one chance to grab hold, and they want to follow it through the end of the year and catch that seasonal trend. We have that as a backstop as well.

What does it mean? It means pullbacks are likely going to be backstopped by the big funds using them as buying opportunities to catch a continued move up toward the end of the year. They have our back, so to speak, and that is just fine with me. We can play that even if the market ultimately tops out at the July and April highs and rolls back over. We can play that move and make great money doing it. We can do it with a bit more confidence because those big funds have our backs.

With that, next week we will look for a bit more pullback and some stocks getting in good position to buy again after that big surge. Then we will anticipate the big boys coming in and pushing those stocks back up, driving our current positions higher, thank you very much. We can take some more gain. It will help us make some nice trades up to the prior high on the new positions that came back to test and those great patterns that broke higher. They will make us some money as well.

Sounds easy when you lay it out that way, but listen: Patience is the key. Let them set up, and do not chase the bus. A lot of people will do that. As soon as you start chasing the bus, however, things come back on you. I still do it all the time. Here in the trading room, we will have a play ones or twice a week where we make a buy just at the wrong time, of course. Then it turns on us. Discipline is the key. Fortunately we limit that to a single sacrificial one. I always say I am just trying to get the market to turn, so I will go ahead and do it. Then, sure enough, it will turn. But understand that is part of the discipline of trading. This is a trader's market, no doubt about that right now. Everyone here as figured that out.

In any event, be patient. Let the plays come to us. If they do, we have great entries and can make money. If you chase, you have to be just right. Have a little patience and let it set up. We have the big boys backstopping us probably for another month I hate to put a timeline on it, but this is the time of year where they should be doing that. If they will provide the backstop, that's great. We will play in that field and make some money. I will see you on Monday.

Have an excellent weekend!

Support and Resistance

NASDAQ: Closed at 2737.15

Resistance:
2759 is the mid-May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
The 200 day SMA at 2691
2686 is the January 2011 closing low
2676 is the January 2010 low
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
The 50 day EMA at 2587
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1285.09
Resistance:
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1274
1258 is June 2011 intraday low
1255 is the late December 2010 consolidation range
1249 is the March 2011 low (post-Japan)
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
The 50 day EMA at 1208
1196 is the November 2010 consolidation peak
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 12,231.11
Resistance:
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,754 is the July intraday peak
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

Support:
12,110 from the March 2007 closing low
12,094 is the April 2011 low
The 200 day SMA at 11,973
The June low at 11,897 (closing)
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,700
11,555 is the March low
The 50 day EMA at 11,501
11,452 is the November 2010 peak
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

October 25 - Tuesday
Case-Shiller 20-city Index, August (9:00): -3.80% actual versus -3.5% expected, -4.21% prior (revised from -4.11%)
Consumer Confidence, October (10:00): 39.8 actual versus 46.0 expected, 46.4 prior (revised from 45.4)
FHFA Housing Price Index, August (10:00): -0.1% actual versus 0.0% prior (revised from 0.8%)

October 26 - Wednesday
MBA Mortgage Index, 10/22 (7:00): 4.9% actual versus -14.9% prior
Durable Orders, September (8:30): -0.8% actual versus -1.0% expected, -0.1% prior
Durable Orders -ex Transportation, September (8:30): 1.7% actual versus 0.4% expected, -0.4% prior (revised from 0.0%)
New Home Sales, September (10:00): 313K actual versus 300K expected, 296K prior (revised from 295K)
Crude Inventories, 10/22 (10:30): 4.735M actual versus -4.729M prior

October 27 - Thursday
Initial Claims, 10/22 (8:30): 402K actual versus 402K expected, 404K prior (revised from 403K)
Continuing Claims, 10/15 (8:30): 3645K actual versus 3700K expected, 3741K prior (revised from 3719K)
GDP-Adv., Q3 (8:30): 2.5% actual versus 2.3% expected, 1.3% prior
GDP Deflator, Q3 (8:30): 2.5% actual versus 2.5% expected, 2.5% prior
Pending Home Sales, September (10:00): -4.6% actual versus -0.9% expected, -1.2% prior

October 28 - Friday
Personal Income, September (8:30): 0.1% actual versus 0.3% expected, -0.1% prior
Personal Spending, September (8:30): 0.6% actual versus 0.6% expected, 0.2% prior
PCE Prices - Core, September (8:30): 0.0% actual versus 0.1% expected, 0.1% prior
Employment Cost Inde, Q3 (8:30): 0.3% actual versus 0.6% expected, 0.7% prior
Michigan Sentiment -, October (9:55): 60.9 actual versus 58.0 expected, 57.5 prior

October 31 - Monday
Chicago PMI, October (9:45): 58.9 expected, 60.4 prior

November 1 - Tuesday
ISM Index, October (10:00): 52.1 expected, 51.6 prior
Construction Spending, September (10:00): 0.3% expected, 1.4% prior
Auto Sales, November (15:00): 4.07M prior
Truck Sales, November (15:00): 5.97M prior

November 2 - Wednesday
MBA Mortgage Index, 10/29 (7:00): 4.9% prior
Challenger Job Cuts, October (7:30): -211.5% prior
ADP Employment Change, October (8:15): 100K expected, 91K prior
Crude Inventories, 10/29 (10:30): 4.735M prior
FOMC Rate Decision, November (24:30): 0.25% expected, 0.25% prior

November 3 - Thursday
Initial Claims, 10/29 (8:30): 402K expected, 402K prior
Continuing Claims, 10/22 (8:30): 3675K expected, 3645K prior
Productivity-Preliminary, Q3 (8:30): 2.8% expected, -0.7% prior
Unit Labor Costs -Preliminary, Q3 (8:30): -1.1% expected, 3.3% prior
Factory Orders, September (10:00): -0.2% expected, -0.2% prior
ISM Services, October (10:00): 53.7 expected, 53.0 prior

November 4 - Friday
Nonfarm Payrolls, October (8:30): 88K expected, 103K prior
Nonfarm Private Payrolls, October (8:30): 114K expected, 137K prior
Unemployment Rate, October (8:30): 9.1% expected, 9.1% prior
Hourly Earnings, October (8:30): 0.2% expected, 0.2% prior
Average Workweek, October (8:30): 34.3 expected, 34.3 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Market Defies the Negatives

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 24 Oct 2011 03:42:00 +0000

SUMMARY:

- After fighting off the negatives all week and holding the top of the range, SP500, DJ30 join NASDAQ with a breakout move.
- EU 'intensified negotiations' help fan a Friday rally.
- Earnings overall solid Friday, adding to the upside push.
- Dollar hits post-WWII low versus yen.
- Market defies the negatives and moves into the next range of resistance.
- Rally to a new high? Don't expect it, but will take what the market is giving out.

Indices defy the negativity as SP500, DJ30 follow NASDAQ's breakout.

Where there's a will there's a way, I suppose. The market took about every possible hit you could throw at it. There were problems with the European deal, economic issues here at home, and maybe some earnings that were not quite as good as some felt they should be (e.g., AAPL). Nonetheless, all week it held up in the top of its range AT the top of its range, so to speak. Remember the indices were trading in a range from August into October. The past week moved up to the top of that range and then consolidated laterally. The question was whether they were going to break higher or fall back down in the range. NASDAQ was the first to move to the upside. It broke higher last Friday and then sold back to test. This Friday it gapped higher again, moving back out of its range. This time it was not alone. It was joined by SP500, breaking out of its range. It was also joined by the Dow 30. Even the DJ20 broke higher out of its range. Very solid moves as a group of indices all moved up together.

I have to say, I had my misgivings as to whether this move could occur. After the action on Wednesday and Thursday, I started to change my tune a bit, particularly on Thursday as the indices reached lower, held the bottom of this recent lateral consolidation and rallied back. That is the first time the buyers have stepped in to rally stocks off of an intraday move. That showed a bit more bullish action as the consolidation went into its first week. Apparently that was enough to send it to the upside. Certainly my views and the views of the others here are not going to stop the market's move. The question now is, one, can they sustain the break? Number two, will it move just into this range of resistance below the April peak, or will it try to make the breakout?

Once again, I have to take negative side. I do not see how it can possibly do that given outlook for the economy. Then again, the market does not care what I think. It factors in the fact and the beliefs of millions of traders and investors. That is how it makes its moves. Even though we may have misgivings, we recognize the move and we were ready to play the move. Indeed, we have been playing the move even though we did not necessarily like it. It was one of those situations where your gut may say one thing, but you have to keep your eyes open and do what the market tells you to do.

We have a break higher in the indices. They could turn right back down next week if the European meeting this week is not as good as investors think it should be. There could also be some bad earnings next week that flip things back down. The key move now will not about the race higher. It will be the test of this break by SP500, the Dow, and the Dow 20. Will they hold a la the NASDAQ and then begin the move back upside? The interesting thing is NASDAQ already made the break. It has already tested the break and it is heading up. Now these other indices are joining it. Maybe the testing is done. That is one of the reasons we were moving into upside positions on Friday even though we had a gap to the upside. There are very solid plays that we have been looking at. Those that have formed that rounded bottom over the August-October time frame. As they were making breaks higher (as they have been doing in a staggered form all week), we moved into new upside positions.

Was there really a reason for this move on Friday? There was no economic news released. There was a lot of other news. As I mentioned, there was the EU news. There were supposedly "intensified negotiations" reported on in the morning. They were ahead of this weekend meeting, so that got everyone excited. They are talking this time, and Merkel or other Germans are not saying this deal will not fly. Now they were having "intensified negotiations," whatever that means, and the market took that as a positive that some kind of deal would be reached. Indeed, they were throwing out a figure of 1.3T Euros as a bailout amount. Of course that was less than the 2T heard earlier in the week, but that is better than a sharp stick in the eye or a thumbs down from Merkel as seen earlier.

There were some good earnings out. GE's earnings were rather in line and boring. HON reported a nice beat and upside guidance. It took off to the upside, breaking out of that little rounded type of bottom that I have talked about. VZ beat. It was not a great beat, but it was solid. We are seeing that with other stocks this week. INTC, GOOG, and others have posted some great earnings and are moving higher.

So we had reasons, but does it really matter what the reason was for the market to make the breakout? A breakout is a breakout, right? It does not matter what our feelings are or why we believe it happens. There is always the game of "pin the tail on the reason" why the market moved whenever there is a significant break upside or downside. It really does not matter why we think it happened. Everyone can hypothesize, but the market does not the react as much to the day-to-day news. It does short term, do not get me wrong. It will bounce one way or the other based upon a news story, but the overall trend occurs over time.

The indices broke lower to start October. They rallied back to the top of the range, and then they moved laterally along the top of the range until the breakout on Friday. While Friday may have been influenced by some of the news that got things going, the move was set up long before Friday ever came around. Whether it was Europe, earnings, both, or just the phase of the moon does not really matter in the long run. The question is what the technical action is on the breakout and then what happens afterward. As I said, who knows if this breakout can continue, but we do know that we had the break after it rallied up to the top of the range, and then the SP500 and NYSE indices followed the NASDAQ's lead to the upside.

Can it continue? Again I ask that question. I will answer it with another question: Who knows? I do know that things are extremely negative and kind of extremely positive at the same time. That may seem strange. Investor sentiment is way down. The bears have been on top of the bulls for several weeks. The bears are at 41%, sharply lower this week from the last couple of weeks, but they are still above the bulls that are at 35.8%. Those are the investment advisors. We have a cross over that has been ongoing now for close to a month, and it is very bullish. The sentiment is quite negative. At the same time, a lot of people are saying the market has to go up. They are overly exuberant about what will happen with the EU.

I heard some things today that made me think that times may be a-changin', so to speak. Early on I heard comments that I had not heard since the late 1970's. On some of the news shows, some analysts said that the best way for the U.S. to move forward is for it to manage its decline similar to the UK. A lot of this was said back in the late 70's as well. Things like, "The days of the U.S. are over" or "It has seen its best days." It was a nice experiment while it lasted, but how long could this thing called a Republic last, really? Of course then we proceeded to get Ronald Reagan in, and he reignited our entrepreneurial spirit and national pride. Then we had one of the most incredible 20-year booms the world has ever seen, creating over 200M jobs along the way. An amazing period in our history.

This extreme pessimism is a cause for optimism. I heard other things about this rally on the session. "It was a short squeeze. There was no real buying. There was no conviction." It was just expiration, a short squeeze that put the pinch on those that were trading the market short. No doubt rallies start with squeezes, but, again, this rally is a bit beyond that point for the moment. We have had this break to the top, and now a breakout. There will be shorts there because a lot of people are looking right at this 1225-1230 level. When SP500 broke over it, they were caught with their shorts down, so to speak, and they got squeezed where you do not want to get squeezed. That is how these things work. So it was partly that, but it is always partly short squeeze.

Lack of conviction. No one believes in it, and then you have a lot of stocks that have formed up that rounded bottom as I have talked about (HON, for instance). Over the past three months they have moved in this rounded bottom where there is a double bottom, an inverted head and shoulders, a cup pattern whatever it happens to be. Now they are breaking higher. This is the next wave of stocks to lead the market higher, and we are starting to see that happen. Indeed we were buying into that next wave of stocks again on Friday despite the moves already to this point.

When you see companies such as VSEA or LNKD are moving higher, you have to take note of that and participate in the move to the upside. You may not believe in the move. Your gut may tell you not to get involved, but your gut and the market do not go together. As I tell people in the seminars, you have to forget about what you have learned all your life about how you should react to buys and sells. I am not just talking about the stock market; it is about everything in life. You have to forget about all that. You have to start understanding stock movements and why they move. More importantly, just understanding that they are moving and to take advantage of it when they do.

That is the kind of market we are in today. Then when you see stocks set up in these bases, it is telling us there is accumulation ongoing. We may not believe it, but you cannot deny it. They are breaking higher, and you cannot deny that either. You can either be like some of the guys you see on TV and curse the night, or you can light a few candles, call your broker, or get online and make some trades to participate in the move.

On Friday the stocks were moving. They started higher. Futures were up and stocks went higher when the bell rang. There was a mid-day slump, but they never came close to negative. Then they rallied back in the afternoon to finish close to session highs.

SP500, +1.9%; NASDAQ, +1.5%; Dow, +2.3%; SP600, +2.3%; SOX, +2.25%.

Very solid moves. We have seen this back-and-forth movement all week. It is one of the things we were somewhat lamenting, but this time there was a difference. It was not just banging back and forth, day-to-day in a tennis match inside the trading range. This move broke it through the top of the range.

OTHER MARKETS

As you would probably suspect, the other markets were heading in different directions.

Dollar: 1.3863 versus 1.3772 euro. The dollar lost ground. The dollar is now at a post-World War II low versus the Japanese yen. Wow. It was down against the euro for four straight days. That is the first time it has done that since July of 2011. Certain not a banner day for the dollar or a banner week, for that matter. But it was not beaten to a pulp either. It is still holding at its support after a nice break to the upside. The dollar holders are not ready to give up and say that Europe has its problems solved. That is what this chart is telling you. There is some doubt, but they have not given up and said it is a fait accompli.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.21% versus 2.18% 10 year U.S. Treasury. Bonds had fallen back down to the 50 day EMA but, as with the dollar, they have not given up their trend. There is some doubt that Europe will do what it needs to do or at least what our Treasury Secretary and others are telling them they need to do. If they do not, the bonds can bounce right back up on fear. We will have to see how it plays out. This is an important test, but a test in an uptrend nonetheless.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,636.20, +23.30. Gold bounced back. This was the week that it broke down from that upwardly-pointing wedge. It came close to 1600, falling down to 1605 on the low. Now it is bouncing. We have gold to the downside. I do not think we have overstayed our welcome on the downside move. Maybe we did, but I still think it will find a lot of resistance at 1650. I still think it will come back lower, closer to 1550 before it moves significantly back to the upside. What will that have set up, mind you? The old ABCD pattern. If it goes down to 1550 or right around the 200 day EMA and bounces from there, that will be a great buy on gold.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 87.46, +1.39. Oil bounced upside once more. It closed off of its high. It is trying to bump back up at the top of the range at 90. It is just above mid-range, and it is trying to hold. It has been very volatile this week, but the theme is still holding this move higher off of the late-September low. Looks like it wants to try to bump 90. That will be a very important test. If Europe comes up with something, it will definitely give that a run. If Europe does not, we will see it fall back down in relatively short order.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

INTERNALS

Internals were solid, but you have to juxtapose that with the fact that it was expiration Friday and that will skew the numbers.

Breadth. Breadth was solid on NASDAQ at 3.5:1. It was a very solid at 5.4:1 on the NYSE.

Volume. Volume actually fell on the NASDAQ by 2.5% to 1.97B. No expiration effect there. It was up 18.5% on the NYSE however, topping 1B shares. Maybe a little expiration bump there, but it was nothing really impressive as far as the trade. It did push volume up to average on the NYSE.

CHARTS

SP500. SP500 broke above resistance. It cleared the recent highs as well as the late-August peaks. It is at 1238. That takes it beyond 1227 that was that November peak. Finally, after several month of waiting, it is now looking toward the March low at 1250 and the June low at 1260 or so. You have another 12 to 22 points before it hits those levels. The large caps are in position to challenge them now. Again, the question is do they rally higher or test first? NASDAQ has already tested and succeeded, so it may just be a case where these indices continue higher following NASDAQ as it has already done the heavy lifting for them. What is the next run? We look for a test to March or June at 1250-1260. That is when things get tough. That will be a serious resistance range. It has to break through that to get to the next serious resistance range that would perhaps allow it to challenge the April and May peaks up near 1370 or so. It is making the headway. It is surprising; you may not believe it is happening, but it is. We will see if it can hold the move and continue on.

NASDAQ. NASDAQ has already made the break. It did so two Friday's back, and it spent this past week testing. There was that Thursday move where it tapped the 50 day EMA and reversed. First-time buyers had showed up intraday, and then it gapped to the upside. It was not a breakout for NASDAQ. It did not clear the prior highs, but it was an important move because it managed to move back up over resistance and has but in what looks to be a successful test of that breakout move. Now it will challenge very significant ranges, as noted before. That takes it all the way back to 2007 levels, these shoulders from that head and shoulders that lead off into the massive decline in 2008. It will be a very tough range for it. It is a breakout, it is a move, but now it has to figure out where it will go from here. It is pretty tight up to these levels at 2700, 2710. That gets it up another 60 or 70 points. That is not a bad move, but it gets it very serious in here with some heavy duty resistance. It may have the help of the SP500 and the Dow to send it higher, however.

DJ30. DJ30 also broke over its recent highs and it broke through the March lows. It is aiming at the June double bottom. That little double bottom is not far away. Serious resistance at 1200 psychological and actual price resistance at that level. It has problems as well. It is just trying to retake all of these prior peaks, but it is a "one step at a time" program. It has to shoot down that resistance. You have to hand it to the indices, they did it on Friday.

SP600. SP600 had a 2.3% gain. Back up to last weeks' highs. Still in their range and still below the August peak. They are following but they are not inspiring a lot of belief that the economy will be super anytime soon.

SOX. The SOX was up 2.25%, well off its high on the day. Still well off last week's high, and well off the September highs. It is just not leading here. I guess we will take following for now, as long as we can get some of the indices to move higher. We have to watch the SOX. It was one of the first to notch the lead lower earlier in the year. If it does not follow here, that is very significant. We would look for the moves by the other indices up into the next range to be truncated ultimately by the SOX acting as an anchor chain and dragging them back down. If the semiconductors do not perform well, the economy will probably not do that well. Any breakout by SP500 and NASDAQ that moves up into this upper range will be impeded by the SOX falling back down. We have to watch for that as the weeks unfold. For now we have a break higher. That is obviously a positive move, and we will play it. The question is how much play we will get out of it.

LEADERSHIP

Financial. JPM was trying to make the break through the 50 day EMA, but it could not. MS is playing above its 50 day EMA, but it could not put a lot of mileage on anything. WFC had a decent move, up over 2%. It is trying to stretch its move. These are not ones to write home about, but they are trying to make hay to the upside. A rounded bottom, a break higher, and struggling a bit. But it is putting the moves on again and trying to make its mark to the upside.

Retail. ANF has an interesting pattern. Nice flag. It has its double bottom/rounded bottom ready to move higher. BEE is breaking higher out of its own rounded bottom. Very interesting. I will call that retail because it is a hotel/motel type. A little stretch, but give me a break. COH is trying to make a break higher. It is not surging, but we did see surges from stocks this week. TSCO is breaking higher. On Friday we saw CMG smash to the upside along with MCD. I am eating crow burgers today for getting out of my MCD the day before earnings. Good call.

Transportation. The transports broke out. CSX broke higher from its lateral consolidation. JBHT formed a nice pennant after it reversed its trend and broke nicely higher. We have rails breaking higher, we have freight breaking higher. Very nice to see the transports following and breaking out with the Dow. That is some kind of Dow theory signal, although it is not a new high. It is just a break higher, but it is a positive synergistic move to the upside.

Energy. Energy remains somewhat of an enigma. It has improved off its lows, but it is not breaking out as other areas are. CHK has rallied up to resistance. Kind of struggling. HAL rallied but it faded this week. It looks like it wants to break to the downside. VLO is trying to make the break over resistance. We will see if it does. The point is that energy has recovered some, but it is not breaking higher. That is an interesting feature as well. It has something to do with economies. Energy follows economies or leads economies, and it is not making a strong move to the upside here. We need to watch this as time goes on.

Technology. AAPL was the big story. It missed its earnings and it is testing its 50 day EMA. GOOG hit its earnings and gapped upside. It is moving laterally. We will see if it can move higher. It was not a breakaway gap, so we will see what it can do. There are others setting up and trying to move well. NTGR has a nice rounded bottom, forming a handle. You have to like that. JNPR is trying to set up and turn the corner as well. RAX had a nice break to the upside, and now it is testing that move. FFIV is the same thing. A nice handle test. These are the cloud companies. They were the big leaders back in 2009. They sold off. They have had a deep correction, and now they are trying to step up and become some of those stocks that take the lead or assist in taking the lead now that some of the horsemen who pulled the markets higher have to take a break.

THE MARKET

SENTIMENT INDICATORS

VIX: 31.32; -3.46
VXN: 31.42; -3.36
VXO: 30.14; -3.42

Put/Call Ratio (CBOE): 0.86; -0.52

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 35.8% versus 34.4%. Rising for the first time in several weeks but still over 35%. 35% is the threshold measuring bullish versus bearish action. Sixth week the bulls are below bears and the gap is widening. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 45.0% versus 46.3%. Fading off the high but still well over 35%, the level considered bullish for the market. Sixth week of bears over bulls and six weeks over the 35% threshold considered a bullish indicator and have made that important crossover of bulls. For more 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.

NASDAQ

Stats: +38.84 points (+1.49%) to close at 2637.46
Volume: 1.975B (-2.47%)

Up Volume: 1.73B (+778.28M)
Down Volume: 416.54M (-663.46M)

A/D and Hi/Lo: Advancers led 3.48 to 1
Previous Session: Decliners led 1.09 to 1

New Highs: 40 (+40)
New Lows: 26 (+26)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +22.86 points (+1.88%) to close at 1238.25
NYSE Volume: 1.075B (+18.52%)

Up Volume: 3.69B (+840M)
Down Volume: 764.71M (-665.29M)

A/D and Hi/Lo: Advancers led 5.41 to 1
Previous Session: Advancers led 1.3 to 1

New Highs: 78 (+50)
New Lows: 16 (-19)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +267.01 points (+2.31%) to close at 11808.79
Volume DJ30: 264M shares versus 166M shares Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

With those leaders trying to step up, the market has a good shot at continuing this run. That is why we are buying into the move, pure and simple. There is a lot more data next week, and there are a lot of earnings. One third of the SP500 reports earnings in the coming week. It will be a huge week for earnings and for data. Case/Shiller, Consumer Confidence, Durable Goods Orders, New Home Sales, Initial Claims. The advance GDP for the third-quarter will be important. 2.2% we will see. Personal Income and Spending and Michigan Sentiment end the week. A lot of news and a lot of earnings.

Of course we also have our friends over in Europe who will be trying to solve their financial problems. A lot of things can push and pull the market different directions, but we are going to continue to look at these stocks that have had these rounded bottoms and can provide leadership to the upside. Because we have had a break higher in the indices themselves. Again, I do not think they will break to new highs on this, but we can challenge the prior range, rattle around in there and make some money. We sure made money rattling around in this range. Play the move up, see how it tests, and then we can play it for as far as it will run. Then if it sets up into a back-and-forth trading range once more and it is a decent range looking at it. It is just the same size as the one it just broke out from. That gives us plenty of opportunity to make great money. We are going to look to do that using these plays. I am looking at the SP500, but it is the same type of pattern of the other plays that we have been looking at. We will use them until we cannot use them anymore.

Maybe the market runs out of juice because the economy just cannot hang. Okay. It will get there eventually. Until then we will not wring our hands about how terrible the future will be. We can talk about it; it is a lot of fun to make fun of our fearless leaders and talk about how they are screwing up and how we would do things so much better if we were there. That is all part of the process. But it comes down to what the market is doing and how we can make money out of it. Even if we feel like things might be going to hell in a hand basket, if we can make money in the near term buy playing the upside, we will make money in the near term by playing the upside. We may have to flip it back to the downside and make a lot of money as things sell off quickly again, but that is what you do. We are traders and investors in this market. You take what the market gives, and that means you have to be ready to move. And we will be.

For now, I like these little rounded bottoms. We will see how far they can take us. Enjoy your weekend. We are getting carried away by the mosquitoes down here, but I take solace in the fact that winter will be here eventually and two or three of them might die when the weather gets down to 35 or so.

Have a great weekend!

Support and Resistance

NASDAQ: Closed at 2637.46

Resistance:
2643 is the September 2011 high
2645-2650ish from December 2010 consolidation
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2692
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
The 50 day EMA at 2563
2555 is the mid-August 2011 peak
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1238.25
Resistance:
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1275
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1235 is the mid-December 2010 consolidation low
1231 is the late August 2011 peak
1227 is the November 2010 peak
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
The 50 day EMA at 1196
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 11,808.79
Resistance:
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,966
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,734 from 11-98 peak
11,717 is the late August 2011 peak
The August low at 11,700
11,555 is the March low
11,452 is the November 2010 peak
The 50 day EMA at 11,392
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

October 17 - Monday
Empire Manufacturing, October (8:30): -8.48 actual versus -4.0 expected, -8.82 prior
Industrial Production, September (9:15): 0.2% actual versus 0.2% expected, 0.0% prior (revised from 0.2%)
Capacity Utilization, September (9:15): 77.4% actual versus 77.5% expected, 77.3% prior (revised from 77.4%)

October 18 - Tuesday
PPI, September (8:30): 0.8% actual versus 0.2% expected, 0.0% prior
Core PPI, September (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, August (9:00): $57.9B actual versus $9.1B prior (revised from $9.5B)
NAHB Housing Market Survey, October (10:00): 18 actual versus 15 expected, 14 prior

October 19 - Wednesday
MBA Mortgage Index, 10/15 (7:00): -14.9% actual versus +1.3% prior
CPI, September (8:30): 0.3% actual versus 0.3% expected, 0.4% prior
Core CPI, September (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Housing Starts, September (8:30): 658K actual versus 595k expected, 572K prior (revised from 571K)
Building Permits, September (8:30): 594K actual versus 610k expected, 625K prior (revised from 620K)
Crude Inventories, 10/15 (10:30): -4.729M actual versus 1.344M prior

October 20 - Thursday
Initial Claims, 10/15 (8:30): 403K actual versus 403k expected, 409K prior (revised from 404K)
Continuing Claims, 10/08 (8:30): 3719K actual versus 3690k expected, 3694K prior (revised from 3670K)
Existing Home Sales, September (10:00): 4.91M actual versus 4.92M expected, 5.06M prior (revised from 5.03M)
Philadelphia Fed, October (10:00): 8.7 actual versus -8.8 expected, -17.5 prior
Leading Indicators, September (10:00): 0.2% actual versus 0.3% expected, 0.3% prior

October 25 - Tuesday
Case-Shiller 20-city, August (9:00): -3.5% expected, -4.11% prior
Consumer Confidence, October (10:00): 46.0 expected, 45.4 prior
FHFA Housing Price Index, August (10:00): 0.8% prior

October 26 - Wednesday
MBA Mortgage Index, 10/22 (7:00): -14.9% prior
Durable Orders, September (8:30): -1.0% expected, -0.1% prior
Durable Orders -ex Transportation, September (8:30): 0.4% expected, 0.0% prior (revised from -0.1%)
New Home Sales, September (10:00): 300K expected, 295K prior
Crude Inventories, 10/22 (10:30): -4.729M prior

October 27 - Thursday
Initial Claims, 10/22 (8:30): 403K expected, 403K prior
Continuing Claims, 10/15 (8:30): 3700K expected, 3719K prior
GDP-Adv., Q3 (8:30): 2.2% expected, 1.3% prior
GDP Deflator, Q3 (8:30): 2.5% expected, 2.5% prior
Pending Home Sales, August (10:00): -1.0% expected, -1.2% prior

October 28 - Friday
Personal Income, September (8:30): 0.3% expected, -0.1% prior
Personal Spending, September (8:30): 0.6% expected, 0.2% prior
PCE Prices - Core, September (8:30): 0.1% expected, 0.1% prior
Employment Cost Index, Q3 (8:30): 0.6% expected, 0.7% prior
Michigan Sentiment - Final, October (9:55): 57.5 expected, 57.5 prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

No Quit in the Rally

noreply@blogger.com (Eric Aafedt, Publisher) — Mon, 17 Oct 2011 14:59:00 +0000

SUMMARY:

- No quit in the rally as more fuel fuels more gains.
- SP500 that much closer to the top of its range as NASDAQ makes the break.
- September retail sales top expectations but remember, sales are based on prices and inflation is a factor in prices.
- Business inventories tick higher but they are not building as some say.
- Michigan Sentiment hits a 30 year low as income expectations hit all-time lows.
- Europe, China CPI's are hot.
- The real leading indicators: Manufacturing led us out of the recession, gave the early indication of a new economic slowdown, and after it bounced and other indicators followed, it is now leading lower again.
- Stocks are driving higher into earnings. Now with the indices up two weeks and at the top of the range will earnings drive stocks higher from here?

Another solid price advance pushes SP500 to the top of its range.

Stocks pushed ahead once again. After some shaky intraday patterns on Wednesday and Thursday, stocks found more fuel to the upside. That was pretty much gratis of GOOG's earnings. GOOG reported blowout earnings once again, putting to rest any idea that its results might be somewhat shaky. It gapped sharply to the upside, and that really ignited NASDAQ, taking it higher with a big gap. AAPL followed GOOG, and they go somewhat hand-in-hand. AAPL gapped and ran to a new closing high. Very impressive moves. It kept the rally alive in the market even after more than a week of solid upside gains.

Indeed, NASDAQ broke out of its range with the move, holding its early gap higher and adding to it as the session went on. SP500 posted a nice gain, closing out at session highs. It closed at roughly 1225, and that puts it just below that November peak were it never really was able to break free. We are still looking for SP500 to someday make it up to the March and June lows. It has not been able to do it yet. It is still in a trading range, though it did put in a new closing high in that range on Friday.

Stocks were ready to move from the get-go on Friday. There was some good news out with retail sales, and there were other issues that helped drive stocks higher. But again, it is really earnings and a better feeling about Europe. They are all merging right now and driving stocks to the upside. Investors are breathing a collective sigh of relief about Europe and go back to investing in stocks. We will see how far that goes; I have been talking about the economy lately, and I have some more things to talk about tonight.

Looking at the SPY, futures gapped to the upside. They rallied nicely into the open, tested midday, and were still holding nice gains. They put on a nice show in the afternoon, rallying back to session highs. Impressive moves once again.

NASDAQ, +1.8%; SP500, +1.75%; Dow +1.45%; SP600, +1.8%; SOX, +1.1%.

Bringing up the tail end were the semiconductors. They have had a good run to this point, so I will not hold it against them. Very nice action to round out a solid week that saw the indices bounce up to the top of the range in some cases (as noted with NASDAQ) breaking through the top of the range.

OTHER MARKETS

Stocks are moving higher. Investors feel better about Europe and maybe U.S. prospects because some of the economic data has been better for the past few weeks. As stocks moved higher, the dollar continued lower along with the other markets. They kind of reversed the course they have been taking as stocks sold.

Dollar: 1.3876 versus 1.3787 euro. The dollar continued to sell. It has not been down this road in quite some time. It broke just below the 50 day EMA, but that still keeps it below the low from mid-September. It has tested its trend. This is the most significant test back for the dollar since it did renew its run higher. Remember it sold off into May, rallied, and then tried to make a break but formed a somewhat upward-tilting wedge and broke down. Nice consolidation and a tremendous run on the fear about Europe. Now it is taking that out.

It is coming down to a key test, and that is this trio of tops. Indeed, there is another top and bottom along the way, just above the 200 day EMA around 7650 on the DXYO. It will be an important test for the dollar. It is at an important support level. We will have to watch this as next week progresses. As the U.S. economy has improved, ironically the dollar has dropped. A lot of that is money leaving the dollar and going to Europe after it fled to the dollar on fears that Europe would implode.

http://investmenthouse.com/ihmedia/dxy0.jpeg

Bonds: 2.24% versus 2.17% 10 year U.S. Treasury. Bonds showed a similar chart pattern. A nice, strong breakout and rally through mid-September in the past two weeks. As the market recovered on the European situation, supposedly improving, the bond market sold. It was a decline again on Friday, but it is still holding its uptrend more or less. It is not holding the sharpest uptrend, but it is holding above the 50 day EMA. After this kind of run where the TLT has rallied from roughly 95 up to 125, a little pullback to the 50 day EMA is normal. We will see if it holds if there is worry once again interjected about the U.S. economy.

With earnings from GOOG looking good and this uptick in U.S. economic data, bonds have pulled back, but they have not broken their trend.

http://investmenthouse.com/ihmedia/tlt.jpeg

Gold: 1,683.20, +14.80. Gold bounced modestly. It continues in its upward-pointing wedge. I still think gold will break to the downside. The caveat is if Europe announces some crazy plan to run things up higher. In other words, if it does some Quantitative Easing or something along those lines, gold could jump up. Inflation is already crazy in Europe. The CPI for Europe in September grew at 3%. Huge moves. In China it was up 6%. They already have an inflation problem over there. If they throw gasoline on the fire with some Quantitative Easing, they will have incredible inflation. Massive stagflation. Today Jim Rogers said that the 1970's stagflation would be a piker (those are my words) versus what we will see with stagflation this time around if we keep up the crazy nonsense we are doing. So we have that wonderful nugget to digest down the road. Right now the market is not paying any mind to it, but we have to worry about that later.

http://investmenthouse.com/ihmedia/xgld.jpeg

Oil: 86.98, +2.75. Oil continued to rally. It broke back through the 50 day EMA. It is just above the middle of its range from 80-90. As the dollar declines, you will see oil rally. Oil is denominated in dollars. If the dollar gets weaker, it takes more dollars to pay OPEC off for its oil. That is part of our importing inflation. That is why having a weak-dollar policy is such a bad idea when we have so little oil on our own. That is why the Obama administration's energy policy is insane. It is trying to get us off of oil by doing something I do not know what. Paying off solar companies with contributors, apparently? It is laudable to get us off of oil, but we will not make that jump overnight. We have companies trying to do these things, but they cannot compete with China right now. Maybe we should try to get to a point where we can, but we have to get things that actually work.

We are having a real problem, but we need a stopgap measure. We have to go to natural gas or develop more of our own reserves so we can make that transition. The problem is, while we are doing that, if you weaken the dollar for the export economy that he wants that benefits the big companies and hurts America and small businesses, you are going to cheapen the dollar and make everything more expensive. That just makes our energy more expensive. That makes our inflation more expensive. It is a pernicious cycle they have started. They truly do not understand economics. They do not understand how, if you squeeze one part of the balloon another part pops out. You have to understand the entire balloon, so to speak, and how applying pressure at certain points impacts it. They are just going around taking potshots at different areas, and the result is a horrendous sausage-making process. It will not turn out to be good sausage.

Oil is bouncing up as the dollar is selling. It is going higher. People are also thinking that the world economies are better than they thought, so they are pushing oil higher as well. Again, the key will be when it gets up to 90 in the top of that range. There is no reason for oil to go through that, but I will talk more about the economic activity later. As you will see, while things look better near term, I think longer term, we will have a real problem overall. Europe has that 3% CPI rate. We could have trouble here as well if we are not very, very careful. I can tell you right now, we are not being careful.

http://investmenthouse.com/ihmedia/xoil.jpeg

TECHNICAL SUMMARY

INTERNALS

All of the internals and market technicals got to extreme levels. They wanted to rally to the upside, and that is exactly they have done. Now the indices find themselves at the top of the range. Friday was not a stellar day.

Breadth. Advancers were solid at 3:1 on the NASDAQ and 4.3:1 on the NYSE. Pretty much matched the session as they should, but volume was low.

Volume. Volume was down 1.65B on NASDAQ. Down a fraction. Down 9% to a meager 758M on the NYSE.

CHARTS

SP500. SP500 moved up to the November peak. Got close to it. Closed near session highs, did not back off. Very nice. We will see what it can do next week. It has run along way, from below the bottom of the range to the top of the range in eight sessions. Next week we will see if it can make the break higher and actually make it up to the March and June levels starting around 1260 and running up to 1270. That would still be a nice run. It is at the top of the range. Still in the range for now. We will see if the large caps can make the move.

NASDAQ. NASDAQ broke out. It is above its September peak as well as the March and June lows. It is ready to bump up into this modest range of resistance that is near the 200 day EMA. On Wednesday it gapped to a doji right at resistance, but it paid it no mind. It showed excellent strength. It was aided by AAPL and GOOG's earnings on Friday, and it performed well. Volume has been very low as it moved up to this top, but MACD has broken to a higher high as the index moved to a higher high. It is doing what it should do, and we will have to see where it decides to pause. It is the time of year for techs. They are performing well, but we have some big names coming in next week including AAPL.

AAPL has run very well towards its earnings. It had a new closing high. It is also near the September intraday highs. It has put in a good run. If it runs through Tuesday, you can bet we will take some more option gain on the two plays we still have options on. We have some November and December options on them, and we will bank some gain ahead of those earnings. You can always leave some and let them go crazy to the upside like GOOG. Maybe you get it. But when you look at this run into earnings, the probabilities are that you may get some backtracking. With AAPL, you may get a big burst to the upside. If we do, we will take some more gain at that point. We are being driven by some big moves in some big names on NASDAQ. When we get used to the earnings, that might change the story. Not for now, though.

SP600. The small caps were up 1.8%. A nice move. Still below the August peak. Lagging and, of course, that tell us that the economy is not as great as people think it is. If the economy in the U.S. was going to take off, the small caps would be taking off. We are seeing a drive by the same old big names and multinational exporters that lead the market over the past three years. That is because of the lower dollar policy and the export-economy policy of the administration. Small caps are not the favored few because they create wealth, they create independence, and they give people the ability to tell the government, "We do not need you." The government does not like that; it wants us all to be beholden to it.

Small caps are lagging. Not good for the market and not good for the economy. Ultimately I think that is the reason we are going to go back into a recession whether it is an official textbook recession or not.

SOX. SOX rose 1.1%, and it, too, is approaching its prior high in the range. The last time it went up here, it gapped to that evening star and sold off. It showed a hammer doji or hangman doji on Friday just below that prior level. Worth watching. NASDAQ has laughed at those candlestick indications for the past week, but it cannot laugh at them forever. It has hit SOX on several occasions and has resulted in selloffs. Will this be the next one? It is below resistance. It is right at the top of the range. It is showing that hammer or hangman doji. We will see what happens here.

In sum, the indices had a great two weeks. They are up near the top of the range. NASDAQ was breaking out of the range. Will NASDAQ be able to pull the rest of the market higher with it? Or is the SP500 going to roll over at the top of its range? It did not look that way on Friday, but you also have the small caps. Are they tagging along, or will they act as a weight on the rest of the market? They are not the largest, most capitalized names, so they do not move markets overall. They do give a very good indication of our economic future, however.

LEADERSHIP

Technology. AAPL is at a new closing high. GOOG jumped massively on its earnings, gapping to the upside very sharply. They dragged a lot of names with them. That is just the way it goes AAPL and GOOG did great, no doubt about it.

NVDA had a great two weeks, but it has gapped to a hangman doji right at the old high. MACD is not making a higher high. It sold off on this kind of symbol last time. We will see what happens. This is something to consider. It is an important stock. BRCM is a semiconductor that is moving higher. It was upgraded, and it just missed taking out that prior high. Back in July it gapped to the upside on earnings and then rolled over and sold off hideously. Maybe it does not do that this time. It is up at this level and MACD is rising. Maybe it will eclipse the prior level. We will see. This is one to watch as well. It will not necessarily slow down. There is nothing saying it is in trouble maybe as much as NVDA. We just need to be watching how all of these stocks handle the prior highs because they are all getting up there right now. We want to see how they react.

Financial. JPM announced its earnings. They were not great. Did not sell off very hard. GS is still trending lower. WFC has been a decent performer. It has a little rounded bottom and is breaking higher. There are some financials that are helping support the move to the upside. Not raging and breaking out, but supporting the move to the upside.

Overall. A lot of what you see right now is the pattern of a little rounded bottom. That is about the only thing you can put any money in right now that is not overbought. Are they going to rally to the upside and keep the move going, or are they just late comers who were lagging all along and are not going to be able to hang with the market? If these big boys turn around and sell off, are they just going to collapse back down in their range? We will see what happens there. The market is divided into these two areas. There are those that have really surged and then those that are wannabe surgers. We will see if they can make the break higher.

THE ECONOMY

Retail sales surprise to the upside but is it real growth or inflation issues?

Business Inventories tick higher prompting some to say an inventory build means a good holiday season. Get off the crack.

Michigan Sentiment hits all kinds of records.

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:

Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

THE MARKET

SENTIMENT INDICATORS

VIX. The VIX has fallen off of the proverbial table as the market has rallied. That is exactly what you would expect. Indeed, it has broken below an important support level. That bodes well for the market overall. It has made a good move, no doubt.

VIX: 28.24; -2.46
VXN: 28.69; -1.61
VXO: 27.15; -2.01

Put/Call Ratio (CBOE): 0.99; -0.06

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 34.4% versus 34.4%. Holding steady after dropping form 37.6%. Still below the important 35% level suggesting a bullish climate for stocks. Fifth week the bulls are below bears and the gap is widening. A powerful sentiment signal. Solid move lower from 49.5% in late July. Highs from April and December (60% readings spanning December through early May 2011). The 5 year high is 62.0. The crossover level at 29% bulls from July 2010 is long gone. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 46.3% versus 45.2%. Increasing the negative views, well above the 40.9% reading just three weeks back. Still well above the bulls and the 35% level considered bullish for the market. Fifth week of bears over bulls and six weeks over the 35% threshold considered a bullish indicator and have made that important crossover of bulls. For more 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.

NASDAQ

Stats: +47.61 points (+1.82%) to close at 2667.85
Volume: 1.645B (-0.66%)

Up Volume: 1.28B (+160M)
Down Volume: 391.67M (-156.15M)

A/D and Hi/Lo: Advancers led 3 to 1
Previous Session: Decliners led 1.04 to 1

New Highs: 31 (+19)
New Lows: 24 (-1)

NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg

NASDAQ 100 CHART: http://investmenthouse.com/ihmedia/NASDAQ100.jpeg

SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg

SP500/NYSE

Stats: +20.92 points (+1.74%) to close at 1224.58
NYSE Volume: 758M (-9%)

Up Volume: 3.15B (+1.77B)
Down Volume: 532.65M (-1.987B)

A/D and Hi/Lo: Advancers led 4.34 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 46 (+15)
New Lows: 20 (0)

SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg

SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg

DJ30

Stats: +166.36 points (+1.45%) to close at 11644.49
Volume DJ30: 133M shares Friday versus 144M Thursday.

DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg

MONDAY

A huge, busy week next week. We have a lot on the economic data slate. That will be very important. Monday we have New York Empire Manufacturing. We will see if they can actually pull back out of the negative numbers. Not expected to do so. Industrial Production and Capacity Utilization is still expected to rise. We will see. If they go along with the recent bounce in data, they should do that. The core PPI on Tuesday is important. Wednesday brings the CPI, and that is also very important. Housing Starts are somewhat important. The CPI will be critical for us. It is expected to actually slow its rise. We will see. I do not trust the government with that one. Jim Rogers thinks they are lying, and I think he is correct. But I will not point fingers. That would not be the civil thing to do in this country that is acting so civilly of late.

Thursday Initial Jobless Claims are out once more. Existing Home Sales are much more important than Housing Starts. The Philly Fed is important. Will it pull another negative as anticipated? Will it be better or worse? It is anticipated to improve or to not be so negative. Some people say I should not be so negative, but it is in my nature. Leading Indicators are out on Thursday. Who gives a flip? Does not mean anything. The only man-made indicator worth anything is ECRI. ECRI already said we are going into recession. I have to go along with them. It does not say when, but it will not be too long.

Lots of news in manufacturing. That will be very important. It was the first to turn up, and it was the first to turn down when things started to sag early in 2011. Here's the rub. The thing that everyone is forgetting is that manufacturing has turned down again ahead of all other economic indicators. It has led the recovery. It led the decline this year. It started to recover and then started to turn down. The rest of the economic data is just now turning back. It has likely just turned up in time to start rolling back down with the regional manufacturing data. Consider that when you hear all the other things they are saying. You can make a good case and convince yourself that things are getting better, but everything bounces in a downtrend. But I do not want to be too negative, so I will move on.

What will really be driving things next week? The market will be important and, yes, Europe will be important while they try to get a plan together. Remember, all this good will and good cheer is because Europe has finally said "I guess we ought to do something." Then the markets rally and everyone feels better. Do not count on Europe doing the right thing. It has not done that in quite some time. What is the right thing? That is a good question. Is it what the U.S. wants? I do not think so. It should be what Iceland wants. I wrote a blog about this. Iceland was the poster child for all of the selloff in 2008 because it is just financial that is basically its economy. It took a bunch of these bad loans and bad mortgages, and it was crushed. No one would bail it out. It had to come up with its own scheme, and that was that the bond holders had to pay for it. In other words, those who had the contracts had to deal with it. If they could not stand, they went down. Banks went down and financial institutions collapsed. Now Iceland is in better position than any of the countries that tried to bail things out. By 2012, it will not have a yearly deficit in its economy. It has flushed out the system and is doing quite well.

We will have earnings next week, and that will be driving a lot of the action. AAPL's earnings come out Tuesday after the close. They will probably be blockbuster. The stock may rally ahead of that. The question is do you want to take some before or after? You can play the gamble and maybe go after. If it rallies up through Tuesday afternoon, we will probably take some more options off the table. Look at the pattern. Look how far it is. That is the market in general. They have rallied up to the next resistance level except for NASDAQ. It has broken through the intermediate resistance. The question is can they continue from here? There is nothing to slow them down. They are going quite well. If they get more good earnings, they should continue higher near term.

Remember how earnings work. Look back in June, July, and August; when you get the initial results, you get good moves. Then you can have a slump after that. It does not matter what kind of market you are in. Look at April. Pretty good. It sold off but came back. After awhile, the market gets the gist of what they will be, and it is harder to impress the market with the results unless they are blockbuster. After everyone gets used to what is coming, a huge number will benefit an individual stock, but the market overall has pretty much priced it all in.

The market had rallied ahead of earnings, as I suggested it would. It has continued into the early earnings. I did not think it would keep going as it has, but it has some big earnings that helped it out. The key is whether it turns down here or if it keeps going. We will be split. We will probably put 50/50 upside to downside on the plays for next week. This is an important point. We have some SPY, we have QID. We got some of that tossed back in our face. Fortunately we played the QQQ all the way to the upside. That helps. We will reload on those to the downside if it shows us that. I am not convinced that this thing will move higher. The economy does not suggest it will. Something will come up that will suddenly wake people. I think it will hit them with a sledgehammer about the economy and that will bring things down.

That is just what I think, however. Ultimately, you have to go with what the market tells you. It has rallied nicely. Some people believe the market is saying that things are rosy. NASDAQ has broken out. It is looking pretty good, but it is supposed to do that this time of year. SP500 has not broken out of its range yet. DJ30 has not broken out of its range yet. SP600 has not broken out of its range yet; indeed, it is lagging considerably. Mid-cap SP400 has not broken out of its range. The SOX is up at the top of its range, and it is showing a hangman doji on the candlestick chart. We have NASDAQ making the break. Good for it. It has GOOG and AAPL driving the show. AAPL is the strongest stock in the entire country. It is driving the action on NASDAQ.

Even NASDAQ has not broken to a new high. It has huge resistance overhead. I am still thinking we will have a pullback. Again, what I think does not matter a hill of beans to the market, but we will be ready for it. Just like we have been ready to play the upside and let upside positions keep running. If we get more good upside, we will let them run as long as they want to run. Then we will get the heck out of dodge if it rolls over and start to sell. As always, we will let the good stocks test, but those that we just played for a quick hit and got the gain, we will be out of there. Then we will look to the downside. We will take whatever the market gives.

It is an important week ahead. A lot of data and earnings. We have rallied two weeks up to the top of the range. We saw some good initial earnings. Often the pattern is that once we get the good earnings in, we have trouble. Then again, it is the end of the year. People are feeling a bit better. They are in denial of a lot of the data out there. They are saying no recession. They say we will have a great holiday season in the retail area. That is fine. You can be in denial a long time and things continue to run higher.

The market tends to overshoot near term but not long term. We can be in denial and things can continue much further than a rational person would think they could go. How many times have we seen that on this rally? It has made us a lot of money, so we just play it and let it run. If it rolls, it rolls. If it does not, we keep letting it run. We just take whatever the market gives. We play what it tells us to play, but we have a selection of plays to make. If we get good risk/reward, we take the shot. If it does not work, we get out.

Have a good weekend. Enjoy the beautiful weather (at least that's what we have down here). I will see you on Monday for a big week of data.

Support and Resistance

NASDAQ: Closed at 2667.85

Resistance:
2676 is the January 2010 low
2686 is the January 2011 closing low
The 200 day SMA at 2694
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range) 2723 to 2705 is the range of support at the bottom of the January to May trading range
2759 is the May low
2762 is the February low
2796 is the February gap down point
2816 is the early April peak.
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2879 is the July 2011 peak
2888 is the May 2011 peak

Support:
2645-2650ish from December 2010 consolidation
2643 is the September 2011 high
2612 is the late August 2011 peak
2603 is the March 2011 intraday low (post-Japan low)
2599 is the June 2011 low
2593 is the November intraday high
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak
2555 is the mid-August 2011 peak
The 50 day EMA at 2550
2546 is the early September 2011 gap down point
2540 is the early November 2010 lower gap point
2532 is the early August gap down point
2512 is last week's gap down point
2469 is the November 2010 low
2331 from October 2010 low and the August 2011 intraday low
2305 from the August 2010 peak (summertime base)
2139 is the May and June 2010 low
2123 is the August 2010 gap down point
2100 from the August 2010 lows

S&P 500: Closed at 1224.58
Resistance:
1227 is the November 2010 peak
1231 is the late August 2011 peak
1234 is the August 2011 low
1235 is the mid-December 2010 consolidation low
1249 is the March 2011 low (post-Japan)
1255 is the late December 2010 consolidation range
1275 is the January 2010 low, early January 2011 peak
The 200 day SMA at 1276
1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1357 is the July 2011 peak
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

Support:
1220 is the April 2010 peak
1209 is the mid-August 2011 high
1196 is the November 2010 consolidation peak
The 50 day EMA at 1191
1178-1180 is the October 2010/November 2010 consolidation low
1131 - 1127 from August 2010 base peak.
1119 is the early August closing low
1109 is the mid-September 2010 gap up point
1101 is the August 2011 low
1075 is the October 2011 intraday low
1099 from the mid-July interim peak
1090 is the early September 2010 gap up point
1040 from the August 2010 lows and May/June 2010 lows
1011 is the summer 2010 low

Dow: Closed at 11,644.49
Resistance:
The August low at 11,700
11,717 is the late August 2011 peak
11,734 from 11-98 peak
11,867 from the August 2009 high and peak on that bounce in the selling.
11,893 from March 2008 closing low
The June low at 11,897 (closing)
The 200 day SMA at 11,968
12,094 is the April 2011 low
12,110 from the March 2007 closing low
12,283 is the March 2011 peak
12,391 is the February 2011 peak
12,876 is the May high
12,754 is the July intraday peak
13,058 from the May 2008 peak on that bounce in the selling

Support:
11,555 is the March low
11,452 is the November 2010 peak
The 50 day EMA at 11,352
11,178 from November 2010
10,978 is the bottom of the November 2010 consolidation
10,750 from September 2010
10,720 is the August closing low
10,705-710 from January 2010 peak
10,694-700 from August 2010 peak
9938 is the August 2010 low

Economic Calendar

October 14 - Friday
Retail Sales, September (8:30): 1.1% actual versus 0.6% expected, 0.3% prior (revised from 0.0%)
Retail Sales ex-auto, September (8:30): 0.6% actual versus 0.3% expected, 0.5% prior (revised from 0.1%)
Export Prices ex-ag., September (8:30): 0.3% actual versus 0.3% prior
Import Prices ex-oil, September (8:30): 0.2% actual versus 0.2% prior
Michigan Sentiment, October (9:55): 57.5 actual versus 60.0 expected, 59.4 prior
Business Inventories, August (10:00): 0.5% actual versus 0.4% expected, 0.5% prior (revised from 0.4%)
Treasury Budget, September (14:00): -$64.6B actual versus -$67.0B expected, -$34.6B prior

October 17 - Monday
New York Empire Manufacturing, October (8:30): -4.0 expected, -8.82 prior
Industrial Production, September (9:15): 0.2% expected, 0.2% prior
Capacity Utilization, September (9:15): 77.5% expected, 77.4% prior

October 18 - Tuesday
PPI, September (8:30): 0.2% expected, 0.0% prior
Core PPI, September (8:30): 0.1% expected, 0.1% prior
Net Long-Term TIC Fl, August (9:00): $9.5B prior
NAHB Housing Market Survey, October (10:00): 14 expected, 14 prior

October 19 - Wednesday
MBA Mortgage Index, 10/15 (7:00): +1.3% prior
CPI, September (8:30): 0.3% expected, 0.4% prior
Core CPI, September (8:30): 0.2% expected, 0.2% prior
Housing Starts, September (8:30): 595k expected, 571K prior
Building Permits, September (8:30): 610k expected, 620K prior
Crude Inventories, 10/15 (10:30): 1.344M prior

October 20 - Thursday
Initial Claims, 10/15 (8:30): 404k expected, 404K prior
Continuing Claims, 10/08 (8:30): 3690k expected, 3670K prior
Existing Home Sales, September (10:00): 4.94M expected, 5.03M prior
Philadelphia Fed, October (10:00): -9.6 expected, -17.5 prior
Leading Indicators, September (10:00): 0.3% expected, 0.3% prior

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

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