Thursday, March 31, 2005

The Daily, Part 1 of 3, 10-27-18

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10/27/2018 Investment House Daily
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Targets hit: None issued
Entry alerts: None issued
Trailing stops: None issued
Stop alerts: None issued

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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.

Monday a Market Summary video, new plays, play table annotations.

Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play table.

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If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.


- Earnings disappointments send stocks lower Friday, then a recovery of sorts.
- Indices hold at the 78% Fibonacci retracement in ABCD patterns. There is bounce potential . . . as if that is a new story . . .
- GDP solid, consumers solid, business investment not
- Fed remains resolute that all is well even as the top line earnings misses balloon.
- Some good patterns, some 'name's with interesting setups, but still no follow through session, not even a real reversal session yet.
- More earnings, tons of economic data this week.
- Even on a bounce of the old leaders or a breakout from good patterns, it does not appear time to load up the brokerage accounts.

Friday did little to alter the back and forth volatility as AMZN and GOOG earnings helped the market sell off to new lows on this leg lower. Bids returned, however, and pushed the indices back above the Wednesday lows. That turned truly impressive losses to just 1% to 2% declines on the indices. NASDAQ for instance closed lower 151 points but was off 260+ on the low. So there was some recovery.

SP500 -46.88, -1.73%
NASDAQ -151.13, -2.07%
DJ30 -296.24, -1.19%
SP400 -1.06%
RUTX -1.10%
SOX -1.72%
NASDAQ 100 -2.34%

VOLUME: NYSE +5%, NASDAQ +7%. Volume up on a selloff but also on a recovery off the lows to hold the prior low. Decent enough.

ADVANCE/DECLINE: NYSE -2.6:1, NASDAQ -2.2:1. Was a lot worse before the recovery off the low.

NEW LOWS: NYSE 528, NASDAQ 446. That lower low pushed up the new lows once more.

There was also, despite the up and down from session to session, a steady trend lower. Perhaps the selloff was enough to put in a bounce. Perhaps it was just short covering to end a really weak week. There is so much bottom calling and bottom wishing, at this juncture it is hard to listen to the financial stations and keep a clear view.

That is what makes a follow through to any buying so important. The day to day back and forth action shows the need to have a good day of buying on a reversal, then after that initial move rests, see a return of upside with strength again. That shows that after that initial move buyers want to pick up more stocks. These are usually longer term holders versus the initial short covering moves.

Of course it takes good patterns to make any rally attempt stick, whether there is a follow through or not. Right now there are some interesting upside for certain, but not a lot. The growth areas are in effectively a bear market. There is interest in biotech/drugs, some retail, some telecom, food -- not exactly a hit parade of growth, but areas that can make you good money.

There are also some of the former leaders that have a decent shot at making a 200 day SMA stand, e.g. CRM, DATA, VRSN, ADBE. Friday VRSN showed a reach below the 200 day and a recovery on volume. CRM and DATA similar. Perhaps they can help lead a rebound. If they can continue upside off the 200 day they are worth putting in a bit of rebound money. These stocks can really move when oversold, and they are oversold. Don't need a follow through to play this kind of setup, just need to know it can end as fast as it starts. You take them for what it is worth at the time: a relief bounce. How do you play them? If the market surges from Friday, buy some 2 month expiration options (December works), anticipate a 2 to 3 day bounce, start taking some or all the gain.

In sum, much of growth is in a bear market, there are still areas receiving money and in good patterns, some not as clearly defined as they were. We like several of these areas and are looking at plays there. There are some patterns in growth that have possibilities. Given the market is too oversold for downside plays, that means they have a good shot at rebounding. Those are mentioned above, and if they make a solid move, we look to move in.


GDP, Q3 first read: 3.5% vs 3.3% exp vs 4.2% Q2

Consumer spending: 4.0%. Accounts for 2.69% of the 3.5% gain.

Inventories: Added 2.07% to the total. Inventories rose at the fastest pace since 2015, and that boosts GDP.

Imports: subtracted 1.34% from the total because imports are not made in the USA. BUT, we buy a lot of imports when the consumer feels good. And looking at the +4% gain in consumption, it is safe to say the consumer felt good in Q3.

Capital Investment: +0.8% versus +8.7% Q2. Big disappointment.

Solid, but the cap-ex shows the concerns moving ahead. Companies will not invest if they do not feel the potential return is worth the risk. With the top line misses showing up (Friday alone added AMZN, GOOG, CL, MCO, EXPE, MAT, WDC), companies are not selling as much. No investment if the feeling about the futures is not confident.

The Fed

Fed governor Mester appeared on CNBC Friday and was resolute regarding the Fed's need to continue hiking. She made the case that while markets are indeed lower and could pose a 'risk' to the economy overall, this appears to be normal selling versus any market flaws. She does not see panic, structural issues, etc.

Okay, that is fine. Markets rise, markets fall. But why? The economy is going through a softer spot now. The Fed views this as a softer spot in an otherwise strong economy. Okay, if the Fed was not involved I would not be concerned. The problem is, the Fed is involved and I and many others have seen what happens with the Fed: it turns just slowdowns into breakdowns in the economy.

That is why it was so interesting and indeed refreshing to hear Neil Kashkari Friday respond to the Fed's actions, stating the Fed should take its foot off the brake and let people enjoy this economic resurgence. Yes! That is exactly what I argued the past couple of weeks: we try so hard to achieve low unemployment and solid economic growth, yet after we get it, the Fed immediately goes to work on slowing it. In Fed results, that means ending it. After 10 years of terrible economic performance we finally are enjoying some fruits of recovery. The 1.5 years of recovery are HARDLY A REPLACEMENT for the 10 years lost. The average American needs a LOT more recovery to come anywhere near whole.



DJ30: Sold lower but recovered to hold inside the recent lows, showing a doji. This keeps DJ30 at the 78% Fibonacci retracement of the June to early October rally. Still in the ABCD and that can lead to a rebound. With many big name growth stocks oversold, that is a definite possibility, even after all the volatility.

SP500: Very similar action as well, undercutting the prior selloff low, rebounding to a doji at the 78% Fibonacci retracement. As with DJ30 this is a pattern that produces rebounds though not new highs. It is a recovery from an oversold condition.

NASDAQ: A similar pattern of sorts though not as clean an ABCD. It is holding the 78% Fibonacci retracement of the April to August move. Big names are oversold, several holding the 200 day SMA as noted earlier. This pattern is conducive to their rebound as it has held despite all the volatility.

SP400: Doji after touching a lower low Friday. SP500 is at the February low. Logical point to try and post a rebound try.

RUTX: Held just over the February low, also showing a doji. As with SP400, massively oversold and at the February low. That low as significance because that was the low of the January/February selling that saw VIX spike to the 50 level.

SOX: Also a lower low, also a doji, this one sitting on top the June 2017 peak. That does not mean a whole lot, but what does is that SOX 160 points in 8 sessions. It is a bit oversold.


It is hard to say one group is a clear leader. Consumer nondurables that includes the likes of PG is mixed. PG is solid, CL is not. CLX was good but gapped down to the 50 day EMA Friday. Perhaps money is gearing up to come back to the sold off former leaders. As noted, some are set up to bounce.

Software: CRM, ADBE, DATA, VRSN all have very interesting patterns at the 200 day SMA after some pretty serious selling. These double bottoms, however, could be the right shoulder, a dipping shoulder, of a head and shoulders top started in July.

Retail: Not bad in many cases. WMT in the discounters. DG is good though it gapped lower Friday. ULTA still very solid. TSCO is acting very solid. FOSL has an interesting pattern. ROST still working on a good pattern.

Biotech/Drugs: Money is moving toward some. ACAD, NVAX. JNJ still solid. PFE trying to hang on at the 50 day MA. It is a fight.

Telecom: Some are looking solid. Like how VZ is testing a breakout. AUDC is worth watching as it tests its last strong move as is CIEN.

Food: MCD is testing and could give us an entry as the week progresses. KO testing some as is PEP after a good recovery move.


Stats: -296.24 points (-1.19%) to close at 24688.31

Stats: -151.12 points (-2.06%) to close at 7167.21
Volume: 2.97B (+7.22%)

Up Volume: 748.44M (-1.342B)
Down Volume: 2.21B (+1.558B)

A/D and Hi/Lo: Decliners led 2.12 to 1
Previous Session: Advancers led 2.43 to 1

New Highs: 19 (-3)
New Lows: 446 (+164)

Stats: -46.88 points (-1.73%) to close at 2658.69
NYSE Volume: 1.124B (+4.87%)

Up Volume: 280.698M (-3.079B)
Down Volume: 829.137M (-420.863M)

A/D and Hi/Lo: Decliners led 2.6 to 1
Previous Session: Advancers led 2.63 to 1

New Highs: 9 (-2)
New Lows: 528 (+223)


VIX: 24.16; -0.06. Punched out 27.52 on the high. That is still below the early October high even as the indices plumbed new lows. Typically you have to get that spike in VIX to mean a low is set. This has not been a spike.
VXN: 29.87; +0.33
VXO: 27.18; +1.80

Put/Call Ratio (CBOE): 1.32; +0.29

Bulls and Bears:

Bulls continued to fall though at a slower pace. Bears almost 'jumped' for them. Stubbornly low are those bears. It is best to see the bulls and bears converge, the former down, the latter up. They are, but in very slight moves.

Bulls: 50.5 versus 51.9

Bears: 19.0 versus 18.3

Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.

Bulls: 50.5 versus 51.9
51.9 versus 56.3 versus 61.8 versus 60.6 versus 59.0 versus 57.7 versus 60.1 versus 59.6 versus 57.7 versus 57.3 versus 54.9 versus 54.5 versus 54.9 versus 55.3 versus 52.4 versus 47.1 versus 47.6 versus 52.0 versus 55.5 versus 52.9 versus 50.0 versus 49.1 versus 46.6 versus 43.1 versus 43.6 versus 48.0 versus 43.6 versus 42.2 versus 49.5 versus 55.5 versus 54.9 versus 48.6 versus 48.1 versus 48.5 versus 41.9 versus 54.4 versus 66.00

Bears: 19.0 versus 18.3
18.3 versus 18.5 versus 18.6 versus 18.3 versus 18.1 versus 18.3 versus 18.1 versus 18.3 versus 18.3 versus 18.6 versus 18.8 versus 18.6 versus 18.5 versus 18.5 versus 18.6 versus 18.4 versus 17.6 versus 17.8 versus 17.7 versus 19.2 versus 19.2 versus 19.4 versus 19.4 versus 20.6 versus 20.8 versus 19.6 versus 19.8 versus 18.6 versus 17.5 versus 16.8 versus 15.7 versus 15.5 versus 14.4 versus 14.6 versus 14.4 versus 15.5 versus 12.6 versus 12.8 versus 12.7 versus 13.5 versus 15.2 versus 15.1 versus 15.2 versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4 versus 14.4 versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1 versus 19.0 versus 20.2


Bonds: 3.079% versus 3.126%. Bonds up on the week, yields lower. Not much, but off the lows.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.126% versus 3.111% versus 3.1692% versus 3.20% versus 3.196% versus 3.1779% versus 3.209% versus 3.165% versus 3.158% versus 3.167% versus 3.146% versus 3.169 versus 3.206% versus 3.233% versus 3.189% versus 3.183% versus 3.061% versus 3.087% versus 3.061% versus 3.052% versus 3.048% versus 3.048% versus 3.085% versus 3.066% versus 3.068% versus 3.076% versus 3.057% versus 2.99% versus 3.00% versus 2.972% versus 2.963% versus 2.977% versus 2.937%

EUR/USD: 1.14042 versus 1.13757. Euro fading down near the August lows.

Historical: 1.13757 versus 1.3972 versus 1.14682 versus 1.14626 versus 1.1538 versus 1.14556 versus 1.14961 versus 1.1578 versus 1.15906 versus 1.15592 versus 1.15901 versus 1.15324 versus 1.4966 versus 1.4916 versus 1.1598 versus 1.15164 versus 1.14762 versus 1.15517 versus 1.15774 versus 1.16038 versus 1.16357 versus 1.17501 versus 1.17658 versus 1.17476 versus 1.17486 versus 1.17772 vs 1.16833 versus 1.16692 versus 1.16858 versus 1.16226 versus 1.16900 versus 1.15863 versus 1.16016 versus 1.15946 versus 1.15534 versus 1.16243 versus 1.16341 versus 1.15832 versus 1.16029 versus 1.1664 versus 1.17035 versus 1.1691 versus 1.16802 versus 1.16216 versus 1.15390 versus 1.15709 versus 1.158 versus 1.1487

USD/JPY: 111.89 versus 112.391

Historical: Last below 109 in June 2018: 112.391 versus 112.091 versus 112.427 versus 112.680 versus 112.527 versus 112.385 versus 112.553 versus 112.558 versus 111.848 versus 112.222 versus 112.076 versus 112.158 versus 113.01 versus 113.12 versus 113.706 versus 113.894 versus 114.383 versus 113.642 versus 113.690 versus 112.734 versus 112.981 versus 112.811 versus 112.575 versus 112.448 versus 112.247 versus 112.369 versus 111.849 versus 112.06 versus 111.81 versus 111.491 versus 111.608 versus 111.192 versus 111.064 versus 110.680

Oil: 67.59. Still hanging out at the 200 day SMA after that Tuesday sharp decline.

Gold: 1235.80, +3.40. On a slow climb up the 10 day EMA.


Earnings continue, likely along with more top line misses. That is the new old normal of the economy, common from 2008 to 2016, on hiatus, but now returning as the economy cools off of some relatively hot levels. Recall that the mantra of many upside analysts pre-earnings was that the results would rescue the market. They have not done that yet.

There is also a ton of economic data, data that the Fed can look at and if necessary, ignore. Personal income and spending, consumer confidence, ISM, construction spending, factory orders, and the October jobs report.

Plenty to digest along with the volatility in the stock market.

As noted before, the stock indices are in position to bounce from the 78% Fibonacci retracement and ABCD patterns. The volatility suggests a possible bounce. Oh, there I go again, bottom guessing.

You have to be ready, however. So, we have 'formal' plays on some very solid patterns, letting others set up a bit more, and also some 'informal' ones on CRM, VRSN, DATA, ADBE -- if they can produce a bounce we look to play them for a bounce.

The market is still a volatile day to day episode overall, but perhaps Friday is an attempt at a reversal that can lead to a bounce that leads to a follow through and more. If just a bounce, then we play a bounce with those software stocks and see how the stocks with better patterns react. They may just work more on their patterns if the others bounce and get money pushed their way.

With no follow through yet, indeed no reversal attempt yet (okay, perhaps Friday was), all upside moves are suspect. That is why it is not time to put the majority of your accounts in new positions, up or down. The indices are oversold, some big names are at support with decent setups, others have held well during the selling in very good patterns. Downside is not as good a probability after the recent selling, and the upside has not proved itself. If there is a bounce, there is a bounce and we can dabble in it. If it holds and then posts a follow through, then we can pick up positions where there are good patterns -- hopefully a lot more good patterns than now. If not, we get out and then play some downside.

Have a great weekend!

End part 1
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