Sunday, September 23, 2012

Economy Looks to iPhone Release for GDP Growth


- No fireworks. No band. Just volume on quad expiration and the S&P rebalance. Is QE so pervasive it trumps all market influences?
- You know it's a slow day when the iPhone release is the main story.
- Bill Gross succinctly states the state of the bond market.
- Is the economy so desperate the iPhone release is looked to for GDP growth?
- Container shipments increase, cardboard prices trying to rise: anticipating a better Christmas?
- Confidence increases close to 2012 high, driven entirely by investors: this sums up the entire story of the economic 'recovery.'
- Increasing jobs: waiting in line for an iPhone would qualify under the Administration's new rules.
- After last week's fade many stocks are in position to take their turn at the helm while many leaders are problematical if they can add more.

Quite the dull expiration.

We figured that at least the big moves on the ECB agreement and the Fed's launching QE3 would have turned some big funds over, requiring some last minute reshuffling and rolling out on expiration. Then the S&P rebalance would result in some decent intraday swings, at least a late strong move. We waited and waited, but as with the Chicago Cubs fans who have gone from cradle to grave waiting for a World Series victory, the 'fireworks' I talked about Thursday were duds.

Pass those season tickets down to the kids . . .

About the only news out was the iPhone 5 release and the financial stations following the rolling releases across the time zones. Now THAT is news people.

Lined up for the i5: 'professionals,' retail customers, or 'working' under the new welfare rules?

The market was rather dull. There was no volatility spike, no back and forth runs. Even the buy on close orders for the S&P rebalance, while spiking volume, didn't spike volatility.

Thus we had a rather uneventful session with stocks starting higher, losing steam and selling into the afternoon and close, only to bounce after hours as the market on close orders for the rebalance were filled.

SP500 -0.11, -0.01%
NASDAQ 4.00, 0.13%
DJ30 -17.46, -0.13%
SP600 0.33%
SOX 0.13%

But of course it is not just stories about lines waiting to get this new product that, quite frankly, and I don't want to upset Apple users (I was an early adopter of Macintosh BTW), is a catch up device to the Samsung with a bad mapping feature. It is beautiful and from what I have learned about metal milling, the aluminum body is a work of art.

No there are other stories, equally as incredible as those willing to wait in line. First, consider the idea that AAPL's phone is supposedly going to add 1/4 to 1/2% to GDP in Q4 2012 according to a JPM economist.

While the calculations are dubious, the idea is not. If a company envisions and then creates a product that consumers find they desire, the company sells a lot of them and makes money. That is how the PC evolved; no one really needed a PC right? We were all told that when they came out, yet before we knew it, everyone had one. You could not compete without the productivity enhancing device. PC makers literally created their demand by creating the product.

Remember this dinosaur?

What a history.
AAPL has created demand for easier to use computers, better music players, better phones, and now better mobile productivity devices such as tablets. These were visionary products; many people did not realize they wanted them but they realized they needed them. In building these products AAPL created demand for ITS products. That is how capitalism works. As people actually want it and stand in line to get it, there is real GDP impact. Other companies make items to aid the consumer in his experience with AAPL products. More supply to create or meet demands. It has a snowball effect.

Contrast that to government spending. The government decides where to spend the money for stimulus. Education, roads, solar companies, wind farms, algae energy, turtle crossings, etc. Most have the genesis in good intentions. Problem is, profit is not a motivating factor for a government. It wants a result and will spend any money it feels to get it done. Thus you have money going after bad ideas or massive corruption and waste even in good ideas as contractors know the government doesn't really know what it is doing and can take advantage of the situation. Or worse, the government uses sweetheart deals, the old 'friend of the administration' nonsense we see so much of. The result if $600 hammers or as reported this week, over $1B in waste in one part of Medicare alone, this year alone.

How much could it add to the economy? Who knows? What we do know is that if we had more of the type of investment and invention AAPL is accomplishing our economy would be humming. We need to promote investment in new ideas and businesses in the US. That means you have to not threaten to tax more of the potential gains. It means you have to have regulations that don't strangle but encourage ideas and investment from every source.

We did this in the 1980's and 1990's. Taxes were very high and regulations were choking business in the 1970's. Reagan cut taxes, gave investment incentives, reduced regulation and thus dramatically improved the risk/reward ratio. Money was unleashed from everywhere.

That of course means savings in order to fund investment. This is the OPPOSITE of what our government is promoting now. $1T stimulus projects on bridges, deficit spending, monetary policies that ENCOURAGE NO SAVINGS in the private sector have drained the pool of funds used to make dreams and ideas come true. Why no savings? Because the government has reduced interest rates to 0% and wants you to spend it all in some Keynesian demand orgy.
Those running the government forget, or never learned from history, that consumption is an EFFECT of economic growth, not the cause of economic growth. All the more argument to get government out of the way, cut the taking of profits, and let the private sector do what it has done for over 200 years.

It doesn't always work, but it more often does. Facebook was supposed to add so much to the economy by going public because of the millionaires it would create. Then the stock face planted so to speak and that was muted. But still, California unemployment, along with Texas, show 'surging' jobs, at least compared to the rest of the country.

But isn't the government helping by changing the rules on what is work?

You have heard it already: so-called professional line waiters who are paid to wait in line to buy as many iPhones as they can get so they can be re-marketed for a profit above the retail price. Some interviewed say they have a new 'job' as a professional line waiter. Wonder if they are reporting the income?

At least they are being somewhat entrepreneurial, though many waiting in line are just marking time . But, as we learned from the changes the Administration has made to what qualifies as work under the Welfare rules, many, perhaps all, were 'working.'

We know that unpaid house sitting while someone else tries to find a job is considered 'work' under the new rules. So sitting in line for a friend who is working or seeking work should be work. What about reading the newspaper while in line? That qualifies as work when you are at home (educating yourself, looking at the want ads), so why not while on line. What about watching another line sitter's belongings while the other takes a nature break? You bet.

Man, it could be that 1/4 to 1/2 where WAY off. If you factor these in you have a jobs boom, at least in terms of being able to collect welfare. Wow. All of these jobs created just to be lost after a day or two. Well, at least they NOW qualify for welfare because they were out there trying to get a job and even 'working.'

That, of course, is all sarcasm. You have to wonder how much this DETRACTED from GDP in real terms. Supposedly these people waiting in line have real jobs in order to pay for these phones. After all, last I checked Sprint was not taking food stamps for phones. Thus any bump to come in GDP would have to factor in the work days lost while waiting in line. Again I assume those people had jobs. Perhaps they do not but with all of the assistance from government could buy this rather expensive phone. I am very pleased to see these poor people are able to take advantage of the latest technology as they house sit.


In most cases, the other markets showed more of what we saw all week.

Dollar. 1.2992 versus 1.2995 euro. The dollar closed a bit stronger. But the dollar had already made most of its move for the week. I am looking at the bounce back to the upside. As discussed on Thursday, this is a classic bear flag bouncing back up after a sharp decline. This is the opposite of what we call a bullish flag where a stock or index rallies nicely and then fades back. You can see the flag in June after the strong May to early-June run. Here we have the opposite: A strong break lower from a head and shoulders, a break of support, a test of the next level of support, and a rebound in a bear flag. Note that it has moved up to the 10 day EMA. In a strong downtrend, the 10 day EMA plays the resistance role. If the 10 day EMA is holding, you likely get a series of lower moves down that trendline. That denotes a very strong downtrend. That makes this bear flag bounce up to test the 10 day EMA important.

Note that there is a double layer of resistance from the 10 day EMA and this horizontal resistance line. This makes it an important test and one that you would think would break to the downside, one, because of the technical position for one, and two, because of QE3. There is no reason for the dollar to emerge strong out of this unless every other nation in the basket of currencies against the dollar also reduces the value of their currency through some form of easing or other monetary stimulus.

Bonds. 1.76% versus 1.78% 10 year US Treasury. Bonds maintained a similar position; that is, trying to rebound after breaking lower. They have had some success. A gain in yield means bonds sold, and a decline in yield means bonds rallied. We had a modest rally on Friday that you can see in the chart. Overall there is a similar pattern to the dollar. A head and shoulders, a break down through support, but it has not started that steep decline down the 10 day EMA yet. Indeed, the bonds broke back through the 200 day EMA and this support from the double bottoms on Thursday. It faded. On Friday it gapped below it but reversed. It is not sure whether it wants to make the break. It is very bearish, but it just has not decided.

Why would that be? If we look back on what happened on Friday, there was some Fed speak yet again. It has been a big week of Fed speak even after it has "spoken" with the FOMC decision on the prior Thursday. It is like they are trying to rationalize or justify what they did with everyone else. Of course they need to given that Fisher and others are saying that they shouldn't have done it. There you have it. As I said on Thursday, this is the most divided Federal Reserve we have ever seen. It matches a very divided country. As an aside, I don't buy into the idea that we are more divided now than we have ever been. We are divided, but we have been divided in the past in this country as well.

The thing it is, we have not been divided with such clear issues about our future. It has always been more a matter of the US going on as it always has while we are divided on policy adjustments. Now we have true differences about whether we still hold the capitalist, free enterprise ideas that we were founded upon or if we want to go the route of European socialist and even further than that. That is the difference this time around. But I digress.

Getting back to bonds, there was some idea floated Friday that the Fed would now start buying bonds. It did not say it was imminent, but the idea is out there. The Fed could start buying Treasuries again as it did in QE1 and QE2, and thus bonds saw a little bit of life. Right now the Fed is buying mortgage-backed securities. What is the problem with those mortgage-backed security buys? We are already seeing it. Yes, the rates are lower, and that is bringing down mortgage rates. But the problem is, as Bill Gross tweeted on Friday, "Fed buys mortgages, but banks fail to pass through lower yields to future home buyers." There you have it. This is the same problem we had with QE1 and QE2. The Fed made money virtually free, but the banks were not willing to lend that money out. They maintained very high rates compared to what the Fed had pushed rates to and what the banks were getting. The restrictions on lending were also extraordinarily high. Consequently, very little money was lent.

And, consequently, the money was put into financial markets such as commodities and stocks, and those rallied. Of course we have seen that. It is no secret that March 2009 was when the stock market bottomed with QE1. All of that money went into financial instruments because the economy was in terrible shape and no one wanted a loan. Those that did could not get it. Same thing with QE2. Now the Fed is taking a different tack and going with mortgage-backed securities. The problem is the banks are still not lending the money.

The group that has the hardest time obtaining any loans is ironically the group that is best able to afford them: professionals like doctors and dentists who are self-employed and do not work for the big companies. Their wages have not been falling as much as company wages, thus they have the best ability to get the loan and repay it. But they are the worst in actually being able to obtain the loans. Again we see just good intentions, as we often do with the government or quasi-governmental agencies. They fail even though everyone thinks it is a good idea.

Gold. 1778.10, +7.90. Gold was up modestly on Friday. Looking at the pattern, you can see the opposite of the dollar. Gold has put in a rounded base. It has broken higher, and it is running up the 10 day EMA and using it as support. That is a very strong uptrend. Over the past week it has moved laterally, holding onto all of its gains after the FOMC decision. It is waiting for the 10 day EMA to catch up with it, and it is just about the there. Look what happens when the 10 day EMA catches up with these rallies in gold. It sends it back to the upside anew for the next run. It cannot do this indefinitely; you usually get four or five runs. Here it looks like we have the initial breakout, and then we have 1, 2, 3. So we have more coming before it will need a deeper test. It does not mean the run is over. It just has to rest, recuperate, set up again, and then move out.

Friday it was trying to break higher. It closed off of the high, but it was a solid day for gold, particularly with this setup behind it.

Oil. 92.89, +0.47. Oil continued its recent trend. It has been moving up quite well. As with other markets, it did turn back away from its trend last week, but there are other factors impacting oil that are perhaps not QE3 related. We have noted that over the prior two QE sessions were introduced, oil did fall in the immediate aftermath. Maybe that is the consistency. But there is also the build of 8.1M barrels when just 1.4 was anticipated this week. That means there is more oil out there, and that made the Saudi's announcement that they were producing 10M barrels a day and would produce more of necessary all the more curious.

Tanks are full of oil. There is no need for more oil with the world economies the way they are. There was rumor and some talk from within the administration that it would open the Strategic Petroleum Reserve. But it did not have to because apparently Saudi Arabia agreed to the administration's cajoling and announced massive amounts of production and that it would increase production if needed. But there is no need.

Gasoline prices are over $4 on average in the US, but that is not due to any lack of oil. It is simply because oil prices remain high overall, and there is very little refining capacity. Basically the US has said we do not want anyone refining anymore gasoline in the US. So we had this wait on oil last week. I also posited that perhaps it was because some of the protests against the US were dying down, but they are not really. They are moving to other places the world, but maybe more out of the Mideast for the moment. There is still a lot of trouble there.

Then you have the counterbalancing issues. What are those? Again, note that oil is still high overall in a relative sense. We have reason for that because Iran and Israel are still playing chess, so to speak. In weekend an Iranian from the Republican Guard said that there would be war with Israel, and that Israel wanted war with Iran. He did not know when it would occur, but it would occur. There you have the problem. The old self-fulfilling prophecy that I talk about quite a bit. If people think something will happen, they tend to just let it happen or subconsciously take steps to enable it. In other words, they do not fight it. They do not think it is something that they should avoid because it is inevitable so they will go forward with it.

There have been political gaffes made in the past on inevitability. I remember Clayton Williams in a governor race in Texas said something that was rather shocking for anyone to say at any time, particularly a candidate for the governor of the State of Texas. I will not even repeat it here. It just goes to show you that when people have an air of inevitability, they say and do things that are rather stupid. That is what makes me worried about the Mideast and Israel and Iran. I am also worried about what the US is doing and what we are doing to Israel. We may be forcing its hand in the matter. We may be protesting about Israel going to war, but we are really giving Israel no choice with our lack of support for them with the way things are devolving over there. I do not know if it is intentional or not, but it is the way things are working out.

Oil was down, but I do not think it will stay down for very long. It has broken technically near term. It has bounced back late in the week to the 50 day EMA. It does look like it wants to come down a bit more, but I do believe there will be a shock to it. It will not be a demand shock, obviously. It will be more of a fear-factor thrown in that will damage oil prospects.



Volume. NASDAQ +31%, 2.36B; NYSE +90%, 1.146B. It was Friday with quad expiration and an SP500 rebalance. That means huge volume. You can't read anything into it as it was just a confluence of external events.

Breadth. NASDAQ +1.55:1; NYSE +1.43:1. Breadth puts it more into reality.

New Highs (NYSE): +160, 306. Decent but off the 500+ that was reported earlier in the week.


SP500. SP500 is working laterally in a very tight range over the 10 day EMA. It may have another day or two. Maybe it wants the 10 day EMA to get right up to it as it has done in the past, and then it will break to the upside. The VIX chart suggests there could be some more consolidative action before a move higher. Two to three more days of lateral movement lets the 10 day EMA catch up, and that would roughly coincide with what the VIX is telling us. The point is it has a good break, a good consolidation, and it could go at any time.

NASDAQ. NASDAQ tells similar story. In tried to make the break on Friday with a gap to the upside. It did close positive, but it gave most of the gain back. Break higher, move laterally, the 10 day EMA caught up with it and valuated it higher. Friday was an odd day because of all the extra volume and pressures on the markets. We have to throw it out and see how things go to work on Monday, Tuesday, and Wednesday. The thing is, as with SP500, this is still a solid pattern. It is just showing consolidation, not any real giveback.

SP600. SP600 was up 0.33% on Friday. It spent the entire week fading in a very nice flag. Remember you have the bear flags and then the bull flags. This is a nice bull flag to the 10 day EMA. A reversal on Thursday and it bounced Friday. It could not hold the move and it faded and gave most of it back. It is set up very well to continue higher, sitting to top of the lateral consolidation of just over a week ago, and well above the March and April peaks. It is in excellent position to make a renewed break to the upside.

SOX. SOX continues to lag. It was up modestly on Friday, but it sold off to the 50 day EMA this week. It has simply been unable to move higher. If the rest of the market moves up, it will bounce. The key for it is the August and now September twin peaks that has yet to break through and even challenge its prior high. The chips, the commodity it is, are lagging, even with those that are actually being purchased in quantities and have pricing demand because they go into smart phones and tablets.

DJ20. It would not be complete if I did not look at the pair of the DJ30 and DJ20. The DJ30 was flat on the day, but look at it moving in its own lateral consolidation as well. Looking at the DJ20 transports, we see the Dow moving up again and the transports breaking below the recent lows and also the closing lows from July. It is breaking down as the DJ30 attempts to break higher. That is about as divergent as you can get in the Dow Theory. The only thing more divergent would be if the DJ20 took out these lows from the summer. That would be the opposite of the Dow and would be a very negative signal. As if this is not already negative.

The interesting thing is what the transports are showing. FDX says things are getting worse. NSC said things are getting worse as well. Looking at their charts, they were heading to the downside, obviously not taking the news of the slowing down in the Q3 well. Some of the information we get from the transportation area is just speculation, but there are some hard numbers. Container imports were up 9% in July. In August they said they were up 4.4%. This is the time, believe it or not, when the retails have to start stocking for the holiday season. It is Christmas in the summer. They have to start getting it early because it has to get here from the slow boats from China, literally; get to the ports; be off-loaded; get separated; move out in trucks and trains; and get where they need to be. That cannot happen in a week, so they have to start months in advance. They are stocking right now for Christmas, and it is up over the 2011 levels.

It could be one of those situations where people are just tired of being poor and being in recession and they want to spend some money. That happens. It has happened before in this secular economic depression that we are in right now. They feel better and they buy some, but then we see earnings, wages, and jobs do not keep up. Indeed, they actually lose ground, so they have to go back into hibernation. You cannot keep spending if you do not have it. I said that on Thursday. It is just the way it is. They will spend some and then realize they don't have any more money. Then they have to go back in and batten down the hatches and try to save slowly. Inflation is eating away at their wages as well as wages simply declining overall. It does not help that people cannot find jobs. It is still speculation whether there will be a good holiday season, but retailers are importing more in anticipation of that.

We check the truck lines as well. We did some checks with their volumes, and they are not seeing any pickup yet. They would be a little later. They would be starting about now. We will find out about them in October. One of the things we are learning is that containerboard prices are rising a bit. The question is, are the containerboard prices rising because of demand or are they rising because of inflation? Some of the containerboard companies are saying that it is unusual for them not to have any excess tonnage right now. It is pretty tight. That is why we see the prices rise. Containerboard tonnage available is kind of light.

The question is, is it light because they are being used up or due to lack of production? What has been going on? Do we have a lot of manufacturing going on in the country? No. Every area but Chicago has been negative for at least three months now. We do not have a lot of manufacturing. Could it be that they are just not making as much containerboard either, and therefore volumes have declined and they don't have as much as they did? That would make sense.

There are things moving in this economy. As I reported over this week, the machining is booming with respect to the oil field. There is also improvement in the housing market. HD and LOW are seeing better building materials purchases. People are doing stuff to their homes, and that suggests that they will want to buy stuff for the holidays.

While the economy overall is still in trouble, there are signs of some areas picking up. The thing is, they go both ways. It is not all due just to demand increasing as we see with containerboard. Manufacturing is down, and that means manufacturing containerboards was down as well. That created a shortage of containerboards which bumps up their prices. That does not mean there are more goods being shipped, but there are more goods being imported. There is some influence from that as well. Both are playing a role, and you would be errant in concluding that things were about to take off to the upside or that things were about to roll over a cliff based on these numbers.


Leadership has not changed much, and you can break it down into two big groups. The first group is those stocks that have led the market and performed well in this run higher. I will be touching on a variety of sectors, so do not get upset if I don't name your favorite stock. There is AAPL, obviously. SCSS is doing well, COST has been running well and making money. AMZN is doing the same, running higher. These stocks have performed well, and they have led the rally. But when we were looking around after a week or so of pullback on the indices, these stocks are not giving the feeling of good setups to buy into. After a week we thought we would find a lot of plays out there, but there were not a lot of plays. At least not in a lot of these big names that have led the move higher.

You have to look in other areas that are improving to get better buys. One of those is still industrials, industrial metals and the like. ANR does not have a great pattern, but it has been a big selloff and now it is doing that rounded bottom thing with rising MACD that has led to so many stocks moving higher. What do I say about how rallies work? You get waves of stocks that come in. The early leaders, the ones that follow, the next group, and the next. During all that time, groups are setting up. Eventually the rally does not continue, and those that are setting up and look good never make their breakout and they fade away.

We are watching the industrial stocks because they appear to be making a turn. TC is another in industrial metals. It is making that rounded bottom, rising MACD, and now in a bull flag. It looks ready to move. We also have energy. CIE looks like it is trying to turn to make a break to the upside. DWSN in energy is trying to make a turn back up using the same kind of technical underpinnings. There are others out there as well. JOY is one we have been looking at. It has turned and broke higher, and now it is testing. It looks pretty solid, too.

There are some oldies but goodies that look like they are trying to turn. ISRG in medical is trying to make a move, or at least to turn and put together a move. In retail, I named a bunch of stocks that had moved up and did not seem ready to buy. DLTR looks like it is trying to make a turn. A big break on Thursday. FDO looks as if it might be trying to make a turn as well. These are deep discount retail stores, and they still look good. That tells you that the economy is not that great overall.

You have that bifurcation, yet it is not really a bifurcation. They are just early leaders and other stocks that are trying to step up and become leaders right now. We want to play the ones that are stepping up to try and become leaders as well as those in the mid-range that have been leading but have pulled back a bit and set up new bases and look ready to move once more.



VIX. Once again the VIX is back down to the levels from August and March and then in May and July of 2011. It resulted in a bounce in volatility; in other words, a selloff in equities. When it got to this level in August, there was a selloff and VIX bounced, but it was just a modest pullback in the SP500. That mid- to late-August pullback that yielded the breaks higher.

While the test this past week back to this low suggests that maybe the market has more consolidating to do, we would not read a major consolidation from that. When we look at the charts you will see that it may not be that there is much more consolidation given the nice setup from indices such as SP500. We want to bring that to your attention.

I also want to discuss some other sentiment indicators that I don't usually mention, but they are important. One of them is consumer confidence. Rasmussen reported this week that 40% of those polled believe that the economy is getting better. That is almost matching the 2012 highs. It is just two points off of the 2012 highs in terms of confidence. So confidence is returning. The most interesting aspect of that is that almost 100% of the increase in confidence is from investors. Those who invest are more confident. Why? Because the Fed said it was going to come out with QE. It said it would do whatever it takes in order to make things work, and it is doing that. Stocks rallied in anticipating of the Fed doing something because the Fed, from May and June, had promised it would do something. Stocks rallied in anticipation and they have rallied on the event as well.

If you look outside of investors, they are virtually unchanged in their confidence. That sums up the entire story about the economic recovery. Those in the stock market are more confident because stock prices have rallied. Those who are not in the market pay no attention to the market, and all they see are their paychecks and their job prospects. Some have paychecks, but they have decreased over the past four years. Many others do not have paychecks. They lost them and have been out of work for a long time. They have no confidence change because they don't see any change.

To summarize, all gains have been by investors, and all of those are paper gains thanks to QE printing and driving the indices higher.

VIX: 13.98; -0.09
VXN: 14.44; -0.14
VXO: 12.37; -0.55

Put/Call Ratio (CBOE): 0.8; -0.05

Bulls versus Bears

Bulls: 54.2% versus 51.1% versus. Exploding higher as anticipated last week as the QE decision sunk in. Still below the 60% to 65% bullish levels that flash a warning sign. Nonetheless, a big move up over the past month from 43.6% and that after five at 39%. Undercut 35%, the threshold for bullishness, in early June. You would expect it to rise and it has. Still not at a dangerous level, just working as it should. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. 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: 24.5% versus 25.5% versus 24.5%. Back down to the 24.5% level that is a sticky level for bears. March and April saw lower lows in the 21% range. On the last run never made it to the 35% that can be a bullish indication, but the bulls were weak enough back in June. Over 35% is the threshold to be really be a good upside indicator. 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: +4 points (+0.13%) to close at 3179.96
Volume: 2.365B (+31.4%)

Up Volume: 1.3B (+532.36M)
Down Volume: 1.25B (+220M)

A/D and Hi/Lo: Advancers led 1.55 to 1
Previous Session: Decliners led 1.63 to 1

New Highs: 191 (+94)
New Lows: 28 (+5)


Stats: -0.11 points (-0.01%) to close at 1460.15
NYSE Volume: 1.146B (+89.74%)

A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 1.55 to 1

New Highs: 306 (+160)
New Lows: 11 (+1)


Stats: -17.46 points (-0.13%) to close at 13579.47
Volume: 429M shares Friday versus 118M shares Thursday.


Next week we have plenty on the economic calendar. We are also starting to get closer to earnings season, so we will have warnings. We have already seen several with FDX, BBBY, and NSC. You get the idea. We will have more economic data which could have a bearing even though we are still in that theme of the QE taking over everything else. We do not really know how much we will get out of any individual story. It will have an immediate push, but as far as long-lasting, QE3 rules the roost.

We have consumer confidence on Tuesday along with Case/Shiller. It will be one of those weeks. We are getting the employment report which will be just two Fridays away. We are all starting to warm up and look at it. All of these fall into play. Consumer confidence, new home sales on Wednesday, and initial claims on Thursday. We will also get the durable goods orders for August.

We also get the third estimate of Q2 GDP. It bumped it up to 1.7% last time. Friday will be important as well with personal income and spending, and then the Chicago PMI. It has been the positive holdout. We will also get the final Michigan Sentiment for September on Friday. That is the one that surprised everyone with its big move to the upside. But, as noted with Rasmussen, consumer sentiment is improving but it is all based on investments in the stock market. Gasoline prices are still way too high. It is over $4 on the national average. Jobs are still terrible. It is all the stock market and the euphoria over the Fed launching another QE3. That will mean more stocks on the rise.

Will more stock be on the rise? The indices certainly suggest that that is the case. A nice pullback all week, really losing no ground from the break higher on the QE announcement. That suggests a further move up. The VIX indicates it might take a few more days before it is time, and that would help other patterns set up better perhaps. Then we get a new break. Everyone expects that. Confidence is higher. That means there is always worry about that not happening.

There were issues with some stocks that looked a little shaky on Friday. It was likely just expiration and the SP500 rebalance. AMZN broke a little bit sharper to the downside. It did not break, but it just looked shakier. That was a little worrisome. We saw that in several areas, and we will see how that plays out on Monday and if they can right themselves. There is no reason they should not. There is QE, still good patterns. When we get expiration and rebalance out of the way, then things should work fine. If they don't, we have reasonable stops, so we will be protected in that event.

We could get more of a consolidation, and that would be fine. It would set plays up better and we could look at even more and pick which ones we want to buy as it rallies to the upside. Of course we are anticipating a further rally to the upside because the action suggests that. QE3 is here. The Fed is talking about bond purchases now, so it will keep the money flowing with the pullback that sets a lot of stocks, including the indices, in good position to run back to the upside.

The worry, of course, is the outriders such as the Dow Jones transports that are falling. We could have some more earnings warnings from what we have seen. FDX, NSC, BBBY, INTC, etc. There have been several that have had warnings, and that is obviously not good for the market overall. The question is, will it outweigh QE3? QE3 is a major market driver, but it is not the only market driver. It cannot overcome everything. The market will still have its ups and downs, its ebbs and flows. But with the overlay of QE3, many investors believe -- and in reality, I believe -- that it takes out the possibility of major declines in the market for now. But just as soon as you think that, it breaks and the unexpected and unthinkable happens. But right now there is nothing to suggest that that will be the case, particularly looking at the action of the indices outside of the Dow transports.

Stocks have come back to perhaps pull back to set new buys or are in bases where they could make good runs to the upside. Those are the ones that we want to take advantage of because it moves in waves it is not just a few stocks leading the rally. Sometimes that happens; in the early 1990s it happened, but that is the rarity. When you have this kind of QE, money will go into the big names, of course. We are in a lot of them. But it will go into a lot of other names as well because it has to filter its way into the market. That is why we are seeing a lot of other areas such as the industrial metals and energy start to turn and look back to the upside.

We will continue to look for those plays that are emerging. If we get some good pullbacks, maybe on Monday, Tuesday, and Wednesday on some of those stocks that have been in the lead and they give us a new entry point, we can pick those up for a continued move to the upside. I will see you on Monday.

Have a great weekend!

Support and resistance

NASDAQ: Closed at 3179.96

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

3134 is the March 2012 post-bear market peak: broken, not forgotten.
The 20 day EMA at 3126
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high
The 50 day EMA at 3056
3042 from 5/2000 low
3026 from 10/2000 low
3024 is the gap point from early May
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
The 200 day SMA at 29168
2910 is the March 2012 low
2900 is the March 2012 low

S&P 500: Closed at 1460.15

1499 from January 2008
1539 from June 2007

1440 from November 2007 closing lows
The 20 day EMA at 1438
1433 from August 2007 closing lows
1425 from May 2008 closing highs
1427 is the August 2012 peak
1422.38 is the prior post-bear market high (March 2012)
The 50 day EMA at 1410
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
1378 is the February 2012 peak
1375 is the early July 2012 peak
1371 is the May 2011 peak, the post-bear market high
1363.46 is June 2012 high
1359 is the April 2012 low
1357 is the July 2011 peak
The 200 day SMA at 1354
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak
1325 is the July 2012 intraday low
1309 is the right shoulder low from June 2012
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
1266 is the June 2012 base low

Dow: Closed at 13,579.47
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 50 day EMA at 13,175
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
12,971 is the early July 2012 high
The 200 day SMA at 12,823
12,754 is the July intraday peak
12,716 is the April 2012 closing low
12,391 is the February 2011 peak
12,369 is the left shoulder low from May 2012
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
12,035 is the June 2012 base low
The June 2011 low at 11,897 (closing)
11,734 from 11-98 peak
11,717 is the late August 2011 peak

Economic Calendar

September 25 - Tuesday
Case-Shiller 20-city, July (9:00): 0.8% expected, 0.5% prior
Consumer Confidence, September (10:00): 63.0 expected, 60.6 prior
FHFA Housing Price Index, July (10:00): 0.7% prior

September 26 - Wednesday
MBA Mortgage Index, 09/22 (7:00): -0.2% prior
New Home Sales, August (10:00): 380K expected, 372K prior
Crude Inventories, 09/22 (10:30): 8.534M prior

September 27 - Thursday
Initial Claims, 09/22 (8:30): 380K expected, 382K prior
Continuing Claims, 09/15 (8:30): 3270K expected, 3272K prior
Durable Orders, August (8:30): -5.1% expected, 4.1% prior (revised from 4.2%)
Durable Orders -ex Transports, August (8:30): -0.3% expected, -0.6% prior (revised from -0.4%)
GDP - Third Estimate, Q2 (8:30): 1.7% expected, 1.7% prior
GDP Deflator - Third, Q2 (8:30): 1.6% expected, 1.6% prior
Pending Home Sales, August (10:00): 1.0% expected, 2.4% prior

September 28 - Friday
Personal Income, August (8:30): 0.2% expected, 0.3% prior
Personal Spending, August (8:30): 0.5% expected, 0.4% prior
PCE Prices - Core, August (8:30): 0.1% expected, 0.0% prior
Chicago PMI, September (9:45): 52.8 expected, 53.0 prior
Michigan Sentiment - Final, September (9:55): 79.0 expected, 79.2 prior

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

Jon Johnson is the Editor of The Daily at

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