Monday, April 16, 2012

Stocks Fade asTwo-Day Bounce Falters


- 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.


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.


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.


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.


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.


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.



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.


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)


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)


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


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

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

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

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

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
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

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

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