Sunday, November 18, 2012

Stocks Bounce Positive in the Afternoon

MARKET SUMMARY

- Stocks resume selling, but perceived positive comments on fiscal cliff negotiations bounce them positive in the afternoon.
- Middle East tensions ramp further, driving oil higher in its downtrend.
- US economic data down on Friday as US tries fighting off joining the EU in a recession. Not to worry; it was all because of Sandy.
- Comfortable our leaders will solve the fiscal issues?
- Stocks still set for a relief bounce with some good stocks in position to lead in a holiday shortened week.

Set up to bounce despite negatives, just not there yet.

Though some bids returned to the stock market Thursday as stocks stemmed the straight selloff and traded in a lateral range that session, Friday saw stocks weak and selling once again. Understandable given fresh stories of attacks in the Middle East and word Thursday that Europe had again slipped into recession. On top of that, the US data, despite the recovery that is supposedly 'huge,' limped in again. Industrial Production and Capacity Utilization tumbled below expectations with capacity at the lowest in a year.

Of course the weakness was blamed on Sandy. I'm surprised no one has made a link between Middle Eastern violence or the European recession with the 'super storm.'


That Sandy was a strong storm . . .

I know the people in the northeast are suffering, but Friday I saw a story about how a landfill was piled two stories high with debris from the storm. After Ike, on my street alone the seven houses had debris piled 10 feet high and 10 feet wide on both sides of the entire street. The Bolivar Peninsula was scraped clean with even the pilings driven deep into the soil supporting houses 15 feet about the ground were gone. Over 200 people on Bolivar were washed out to sea and never found. Entire towns around Galveston Bay were washed completely away. Didn't see any day after day coverage for weeks on end of their plight. Whether fires, earthquakes, tornadoes, floods, many people in the US suffer disasters that just don't get the coverage this storm and its aftermath is getting.


What was once houses and businesses pre-Ike.


Before and after pictures. This is not bad; some areas became river bottoms for the storm to pass through the land.

But I digress. Getting back to the data, The Federal Reserve said with the release that Industrial Production would have been 1% higher than the -0.4% reported but for the storm. Really? Sandy made landfall late on October 29. Sure there was some pre-storm shutdowns but those few days accounted for such a huge proportion of the month's activities? Really? Holy cow, what is November going to look like then given how long the area has been shut down?


Industrial Production, October (9:15): -0.4% actual versus 0.1% expected, 0.2% prior (revised from 0.4%)

Capacity Utilization, October (9:15): 77.8% actual versus 78.3% expected, 78.2% prior (revised from 78.3%)



If we say that the impacted areas on the east coast were shut down a week ahead of the storm, and that is being very, very generous as many maintained activities until just before the storm hit, one week took 1% off of Production? Is the month that backend loaded? Will November show a -4% Industrial Production plunge? According to the Fed's absurd statement it should. IKE hit an area loaded with chemical and petroleum production and processing. There was no major plunge in Industrial Production in its aftermath. In any event, it was hardly great news on top of a negative New York PMI and the Philly PMI returning to negative as reported Thursday.

Thus you can understand why investors, faced with economics fading yet again as well as huge escalation of Middle East war potential, were a bit unsteady about delivering a relief bounce even with the market quite oversold. Throw on top of the mix the fiscal cliff issues and it is a wonder, other than the already sharp selloff, that stocks showed any inclination of a rebound.

As noted, stocks were lower in the early going. Slightly higher futures were the apex of the opening yet again.

To show just how much the US economy is the focus, and specifically the fiscal cliff, when the esteemed heads of the Senate and the House announced near lunch that talks with the President were 'constructive.' Harry Reid followed with a reversal of his 'after year end' comments last week, stating a deal could be reached before year end. Pelosi said they wanted to send a message to consumers, and to the stock market short term.


Oh I feel more confident a deal will be reached with this crowd. The question is, who are they making the deal for?

What is that day in December 2012 the Mayan calendar ends? Some say end of the world. Others say it is simply the start of a new age. Could it mark a new age where the US dollar is no longer the reserve currency and the end if US economic supremacy? Worth some thought as we plow into the fiscal cliff negotiations with specific talk of methods for increased revenues but vague generalities about entitlement reform. The deal being pushed by the administration: raise revenues now so we don't hold the middle class 'hostage' and then talk about the rest later. Patently bad idea.

In any event, stocks got the message, or more accurately, are so starved for some good news on the impending economic plunge that they grabbed at the headlines and jumped stocks upside into lunch. It was not all candy and nuts from there. After the initial surge stocks gave up and actually went back to flat and slightly negative. Then what looked to be very much a short covering bounce ahead of an uncertain weekend took over and rallied stocks back up, closing them out at or near session highs.

SP500 6.55, 0.48%
NASDAQ 16.19, 0.57%
DJ30 45.93, 0.37%
SP400 0.74%
Russell 2000 0.88%
SOX -0.04%

What was the end result? Looks as if it could be the start of the relief move we were looking for after the two weeks of sharp selling and Thursday's range trade as buyers did actually step in a few times. AMZN posted a nice move on volume off the 200 day SMA, and we picked up some shares there. GOOG could be next as it showed a doji off the 200 day. If nothing happens this weekend, something that is still up in the air given the continuing escalation in the Middle East, the market would have a reason to continue the oversold bounce. Though Friday was up, it was modest compared to the recent selloff and not likely the only move in any relief bounce.


OTHER MARKETS

Dollar. 1.2743 versus 1.2771. Flat on the session as the dollar moved laterally all week after breaking higher through the 200 day SMA the prior week. Dollar is being used as a safe haven in an uncertain Europe, Middle East, and likely other places yet to surface.


Bonds. 1.58% versus 1.58% 10 year Treasury. Surged but then declined to flat on the close. Bonds broke out just over a week back and coasted flat to end the week though quite volatile day to day after that initial move.

No wonder bonds broke out. With comments such as those from Atlanta Fed President Lockhart, it is clear the Fed is nowhere near removing stimulus, and is likely ready to pour it on. "I expect that continued aggressive use of balance sheet monetary tools will be appropriate and justified by economic conditions for some time even if fiscal cliff issues are properly addressed." Note the 'properly addressed' comment. What is the likelihood that they are 'properly' addressed when the President does not even want to talk about entitlements at this stage? All the more reason the Fed is going nowhere.

Any doubts? If so, Lockhart put an end to them: "I am not prepared to say we are remotely close to substantial improvement on the employment front." I am comfortable with that. What choice do I have?


Gold. 1714.70, +0.90. Modest gain Friday but did not retake the 50 day EMA breached Thursday. Not a great move, not a bullish move, but overall we anticipate gold to remain bullish.


Oil. 86.67, +1.22. Trended higher all week as the Middle East tensions climbed. Thursday oil took a break, but Friday right back up, moving through the 20 day EMA. Monumentally weak the past few months but the Mideast tensions are putting a bid in crude despite talks of a carbon tax as part of the solution to the fiscal cliff.85.45, -0.87. Tried the 20 day EMA on the high then reversed for a modest loss.



TECHNICAL SUMMARY

Internals.

NASDAQ
Stats: +16.19 points (+0.57%) to close at 2853.13
Volume: 2.162B (+8.75%)

Up Volume: 1.4B (+570.2M)
Down Volume: 762.01M (-417.99M)

A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Decliners led 1.6 to 1

New Highs: 14 (+2)
New Lows: 174 (-13)

S&P
Stats: +6.55 points (+0.48%) to close at 1359.88
NYSE Volume: 740.761M (+3.17%)

A/D and Hi/Lo: Advancers led 2.87 to 1
Previous Session: Decliners led 2.07 to 1

New Highs: 127 (+6)
New Lows: 301 (-14)


Dow
Stats: +45.93 points (+0.37%) to close at 12588.31


Volume: Volume jumped even further above average on both exchanges. Expiration Friday makes it hard to read much into the volume, but volume has been solid the prior two sessions so this bump is in line with that stronger trade. Cannot go as far to say it was an affirmation of the rebound off the session lows, but doesn't hurt.

Breadth. Pretty decent on NYSE at 2.9:1 upside even with s selloff and rebound. NASDAQ's 1.4:1 added nothing to the equation other than NASDAQ appears to be lagging again.


THE CHARTS

SP500. A second doji just over the July closing lows, reaching lower and bouncing back to positive. Thursday it had the look of a bounce trying to set up and Friday did some more work along those lines. A rally up to the 200 day SMA near 1383 is a good initial target.


NASDAQ. Very nice reach lower through the July lows that are interim lows in summer recovery followed by a reverse to the upside. More volume on expiration but volume was up all week. AMZN helping, AAPL contributing a bit. Perhaps this week GOOG can join.


Russell 2000/SP400. Good reversal off the July lows. Very much following NASDAQ's lead and a logical serious relief bounce takes it near 792 (closed at 776).

SP400 bounced off the Thursday low, closed positive. Kind of following along.


SOX. Big reach lower early and a recovery to flat. That low touched the July closing lows. Good position to rebound, good indication of a rebound given the Friday reversal, and the two week straight to the downside selloff has certainly built up the oversold pressure.


DJ30/DJ20. Holding at the July low, showing a second consecutive doji similar to SP500. Good solid reversal on the day after a sharp selloff the prior two weeks.

SP400 reached even lower, down to the May and June lows and reversed to recover most of the loss. In position to make a new upside rotation in the rolling range.


Summary: A further early reach lower then a rebound as the buyers entered again after showing some life Thursday. Start of a new upside leg? Not likely. More the start of an oversold bounce aided by some short covering ahead of a volatile weekend. Monday will tell the tale of the relief bounce, i.e. if stocks can continue the bid after the weekend they likely make the bounce.


LEADERSHIP

Big names. AMZN posted a nice move off the 200 day SMA. AAPL put in a big reversal session; not convinced on this one, however. GOOG could be ready off this 200 day SMA doji.

Financial. Financials still in the same pattern as Thursday, but after testing support and bouncing to doji, they look pretty solid. JPM shows a nice doji at the 200 day. C undercut the 50 day EMA but reversed to hold it. STT bounced nicely off the 50 day EMA. BAC is a bit iffy; holding the 50 day EMA with a second doji but not the same pattern as say JPM.

Retail. LULU bounced back up to test the 200 day SMA. Low volume even on expiration. Not sure it will make that move. Big box stores were so-so. COST was flat. JWN bounces off the 200 day SMA and can trade up to the top of its range similar to what COH is showing. M was up but is right in the middle of its range.

Homebuilders. Homebuilders bounced but it was a bounce in selling. KBH recovered up to the 50 day EMA but faded from there; still looks toppy. TOL is trying to bounce off the 200 day SMA. Mixed, definitely not as strong as they were.

Metals. Still look rusty. AKS, STLD are not heartwarming. FCX remained below its 200 day SMA.

Industrials: Trying to reverse, but from what? Hardly great patterns from CAT and JOY.


THE MARKET

SENTIMENT INDICATORS

VIX: 16.41; -1.58
VXN: 18.13; -1.1
VXO: 17.66; -1.62

Put/Call Ratio (CBOE): 1.03; -0.21. Third day above 1.0, logging those days that help in a reversal.


Bulls versus Bears

Bulls: 38.3% versus 43.6 versus 41.5% versus 45.7% . Fairly precipitous drop in bulls as they were indeed unable to following Michigan Sentiment. Getting close to the 35% level that is bullish for the market. Background: Undercut 35%, the threshold for bullishness, in early June. 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: 28.7% versus 27.7% versus 27.7% versus 25.5%. Breaking that recent range but still well below the 35% considered bullish for stocks. 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.


MONDAY

Friday the oversold rebound brewing started to show itself, but it took some more selling and some talk of a budget deal possibility (by year end of course; vague enough?) to pick up stocks. A reversal, some attempted selling, then a recovery into the close. Short covering ahead of an uncertain week or more than that, i.e. a more significant relief bounce after very significant selling?

A good start, but Monday tells the story, i.e. if there is same oversold condition and pressure to bounce that turned stocks higher Friday. The mid-afternoon selloff is instructive as stocks were not running straight higher on the fiscal cliff 'deal' news. Thus it was not just a bullish run upside after the news, and how stocks start off Monday will provide a better gauge of the staying power of any notion that stocks are going to put in a significant relief bounce.

There are stocks in position to bounce once more, some good names as we know such as AMZN, ISRG, GOOG, RGR that can help lead the way. If those can lead the way we can use them to play an upside rally whether it is an oversold bounce turns out to be more. Not expecting the more, but open to being pleasantly surprised for a holiday rally.

This coming week will be shortened with Thanksgiving Thursday and a half day Friday (closing at 1:00ET). This year there is the overhang of the Mideast tensions and the fiscal cliff, but the market is primed to bounce. We will play a few solid names/positions on a further bounce, but expecting the rally not to last over a full week or so. That means taking what is presented while watching indications the move may be topping, say at next resistance. The market is said to climb walls of worry, and right now it is presented with a good sized wall, but it is also in a position to put in a tradable upside move.

Have a great weekend!



Support and resistance

NASDAQ: Closed at 2853.13

Resistance:
2858 is the late July 2011 peak
2900 is the March 2012 intraday low
The 10 day EMA at 2898
2942 is the mid-June 2012 high
2950 is the mid-April closing low
2962 is the April 2012 low
2977 to 2980 is the bottom of the late October 2012 consolidation
The 200 day SMA at 2985
2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
The 50 day EMA at 3003
3024 is the gap point from early May
3026 from 10/2000 low
3042 from 5/2000 low and several other price points
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
2847 is the mid-May 2012 low
2838 from the July 2012 lows
2778 from the May 2012 low and June 2012 gap point.
2747 is June 2012 closing low
2726 IS June 2012 intraday low


S&P 500: Closed at 1359.88

Resistance:
1359 is the April 2012 low
1363.46 is June 2012 high
1371 is the May 2011 peak, the post-bear market high
1375 is the early July 2012 peak
1378 is the February 2012 peak
The 200 day SMA at 1382
1402.22 is the closing low of the August 2012 lateral consolidation
1406 is the early May 2012 peak
The 50 day EMA at 1411
1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
1433 from August 2007 closing lows
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

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
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 12,588.31
Resistance:
12,716 is the April 2012 closing low
The 200 day SMA at 12,992
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
The 50 day EMA at 13,124
13,297 is the April 2012, prior post bear market high
13,300 to 13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
12,524 is a range of support from early 2012 and summertime 2012
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

November 13 - Tuesday
Treasury Budget, October (14:00): -$120.0B actual versus -$113.0B expected, -$98.5B prior

November 14 - Wednesday
MBA Mortgage Index, 11/10 (7:00): 12.6% actual versus -5.0% prior
Retail Sales, October (8:30): -0.3% actual versus -0.2% expected, 1.3% prior (revised from 1.1%)
Retail Sales ex-auto, October (8:30): 0.0% actual versus 0.1% expected, 1.2% prior (revised from 1.1%)
PPI, October (8:30): -0.2% actual versus 0.1% expected, 1.1% prior
Core PPI, October (8:30): -0.2% actual versus 0.1% expected, 0.0% prior
Business Inventories, September (10:00): 0.7% actual versus 0.6% expected, 0.6% prior
FOMC Minutes, 10/24 (14:00)

November 15 - Thursday
Initial Claims, 11/10 (8:30): 439K actual versus 388K expected, 361K prior (revised from 355K)
Continuing Claims, 11/03 (8:30): 3334K actual versus 3120K expected, 3163K prior (revised from 3127K)
CPI, October (8:30): 0.1% actual versus 0.1% expected, 0.6% prior
Core CPI, October (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
Empire Manufacturing, November (8:30): -5.2 actual versus -8.5 expected, -6.2 prior
Philadelphia Fed, November (10:00): -10.7 actual versus 0.0 expected, 5.7 prior
Crude Inventories, 11/10 (11:00): 1.089M actual versus 1.766M prior

November 16 - Friday
Net Long-Term TIC Fl, September (9:00): $3.3B actual versus $90.0B prior
Industrial Production, October (9:15): -0.4% actual versus 0.1% expected, 0.2% prior (revised from 0.4%)
Capacity Utilization, October (9:15): 77.8% actual versus 78.3% expected, 78.2% prior (revised from 78.3%)


November 19 - Monday
Existing Home Sales, October (10:00): 4.75 prior
NAHB Housing Market Index, November (10:00): 41 prior

November 20 - Tuesday
Housing Starts, October (8:30): 872K prior
Building Permits, October (8:30): 894K prior

November 21 - Wednesday
MBA Mortgage Index, 11/17 (7:00): 12.6% prior
Initial Claims, 11/17 (8:30): 439K prior
Continuing Claims, 11/10 (8:30): 3334K prior
Michigan Sentiment - Final, November (9:55): 84.9 prior
Leading Indicators, October (10:00): 0.6% prior
Crude Inventories, 11/17 (10:30): 1.089M prior



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

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

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Sunday, November 11, 2012

Fiscal Cliff Starting to Overshadow Other News

MARKET SUMMARY

- Not much relief in the relief bounce.
- Many news stories but fiscal cliff starting to overshadow them all.
- Fed: Bullard says Operation Twist to end, but the Fed may buy other assets.
- Wholesale Inventories climbing as prices climb.
- Michigan sentiment hits 5 year high just in time for the fiscal cliff posturing.
- Friday has the look of just a pause in the selling, but the midcaps and SP500 may try another relief move to start the week.

Just enough of a bounce to take off the downside pressure - - for the day.



Friday was somewhat of a disappointment. Okay, quite a bit of a disappointment. The market was oversold after two sharp downside sessions, but another strong decline early on could have really set a move back up of some significance.

As it was futures were mixed with NASDAQ higher given AAPL was bouncing in relief after some harsh selling. The selling pressure was escaping slowly with a modest bounce. Toward the open futures improved and stocks continued to recover on the open. Indeed, they put in a solid move into lunch.

That was the apex. Stocks tested into early afternoon, bounced decently, but put in a lower high. The upside had pretty much cashed in for the day. The faded and wandered into the close with the most modest of gains. Hardly an auspicious recovery. Indeed it was not a recovery as SP500, after rallying up through its 200 day SMA intraday, gave it back on the close.

SP500 2.34, 0.17%
NASDAQ 9.29, 0.32%
DJ30 4.07, 0.03%
RUT2000 0.17%
SP400 0.14%
SOX 0.24%

No, in the end it looked more like just a pause in the selling. SP400 looks better than the others as it holds over its 200 day SMA, but it is not an island, just as we found out NASDAQ and the Russell 2000 were not islands either. There could be another bounce to test the selling early in the week, but as noted, it let off some downside pressure Friday without getting that violent reversal.


THE NEWS

There certainly was news to be had. Earnings are still coming and JCP missed, noting a 26% decline in same store sales. Looks as if that turnaround attempt made a 360 versus a 180 degree turn.

China logged its slowest inflation in 33 months. Indeed, its PPI was negative at -2.8% year/year.

As soon as we touted Australia a bit its central bank cut its GDP projection to 2.75% from 3.00%. Not great but twice what we are producing.



Europe was its usual downer. Germany said Greece's next payment may be delayed because votes had to be taken, parliament had to approve it, etc. Sounds as if the Germans are just leading Greece around by the leash in a little 'whose your boss?' display.


Where the hell is my money?

Michigan Sentiment came in at a 5 year high at 84.9 (82.6 prior), but how long will it keep improving without jobs and rising incomes? Those are what really drives sentiment longer term. We have seen it rise and fall more than a time or two during this weakest of recoveries. Moreover, with the love fest known as the fiscal cliff negotiations to come, it is probably a pretty good bet that there won't be so many happy people over the holidays as we watch the sausage being made.



Indeed, the fiscal cliff is overshadowing the market, and the realization that the same people were in the same places talking the same line after the election had as much to do with the 5% decline on SP500 than anything else.

The sad thing is, we are going to debate this issue without really getting to the issue. The sides will sit down and talk about revenues, spending cuts, and tax increases because those are the issues they think they understand and can at least talk about without coming to blows.

The President has a line in the sand with respect to taxes. He is bound and determined, ideologically so, to raise taxes on those making $250K or more. Now they already pay over 50% of the taxes right now while almost 50% of tax age citizens pay 0% income tax. The argument I have heard as to why this will work is because the rates he wants are the rates under Clinton, and supposedly raising rates to that level will magically return us to economic nirvana. In the 17 years since, however, much has changed. There are so many differences between then and now.

The early 1990's recession was very shallow; it was over before the election and recovery was underway. It was merely a pause in the great run from the early 1980's. Raising taxes is really never a good thing but Clinton got away with it because he simultaneously slashed capital gains taxes from high levels. He upped the marginal rates, lowered capital rates, and money was still invested in the economy and the 20 year boom continued after a brief respite.

Not the case this time. Capital gains taxes are set to rise 5 times in addition to the marginal rate increases across the board. With an economy already in the dumpster, burdened by $6T new debt in the past four years, running a $1T+ deficit already this year, raising tax rates will be, as the CBO says, automatically recessionary.

The sad truth is, it will do nothing to alleviate the problem. We could confiscate the entire profits of the Fortune 500 companies and run the government for a few weeks. In short, we can tax away everything owned in the country and we could not pay our debt. Yet if you talk about cutting taxes our leaders squeal about 'lost revenues.'

We should do the opposite: cut taxes that place extra burdens on investment capital, on corporations, and yes, in individuals. Don't tax investment capital 2 and 3 times. Then you get more investment capital (remember, if you tax it, it will disappear). Reduce corporate taxes to zero and take out the price of those taxes in the price of the goods and services sold. I talked with a candidate for Congress who asked me if I really believed that would happen. I explained that of course companies would try and maintain their pricing to increase their profit. BUT . . . someone who wanted the business, who wanted to enter the market, would come in with lower prices and then the spiral lower would start. Good old competition.



Cutting taxes works. There has never been an instance in US history that tax cuts did not generate MORE revenues than were taken in at the higher rates before the cuts. Kennedy, Reagan, Clinton, and even Bush. The right kinds of cuts, i.e. on capital, corporations, and marginal rates, are the most effective. The argument about 'lost revenues' is blown out of the water by the facts. Yet you still here even the republicans say they want to lower rates but close 'loopholes' so revenues remain the same. Question: if there is no net money left in the pockets of the people and the entrepreneurs, does a tax cut do any good? Hell no. It only simplifies the code. It doesn't bring the all important new investment capital into the economy.



All tax cutters. All produced a lot more revenue after cutting taxes than before.


On top of that, spending must be cut. No one should want to pay one more penny to the government with all of the waste, fraud, and avarice ongoing in the federal government. $365,000 parties for government agencies. Penthouses in Las Vegas during conventions. Two week trips to Hawaii for a one-day seminar on team building. Presidential parties with a $1M price tag. Presidential vacations costing over $1M each. But of course, we are told there is just no fat in the budget to be cut, and that all of these little items I am citing are just so small they don't really impact the equation. With that attitude of course they won't. Just go ahead and spend away because we can't really hope to get it all in control anyway, right?

Nonsense. But of course they will not do what has to be done. As I said earlier today, not a snowball's chance in hell they address the real issues and the real means to alleviate the cliff. Spending must be reined in. I posit that the proposed defense budget cuts could be entirely offset by cutting out fat and waste in our government. It used to be the government employees were paid less then private sector but the tradeoff was job security. Now they are paid more, have better retirements, and you cannot fire them short of them committing a major felony.

Cutting spending is important but just one part. Those taxes are another. Why? We have to grow our way out of this. That means investment capital is needed in an economy that has been sputtering for 6 years. There is damn little money people are willing to invest. On top of that there are hundreds of thousands of new regulations enacted during the past four years. We are now as bad as Europe and the EU in trying to regulate everything. Businesses cannot thrive if they are handcuffed. Oh, and there is more coming. In January the EPA will issue its report on hydraulic fracturing, and you can make book that the EPA will find fracturing is environmentally hazardous and must be controlled by none other than the EPA. So, you expect the bonanza of energy production on private lands to slow and our chances of becoming energy independent to slip from our hands. Hate to sound negative, but that has been the MO of this government, and with four new years it is not going to let up. Indeed it is going to go full bore.

So, we will have fighting and posturing and a deal will ultimately be struck that does not address the problems. Everyone will congratulate themselves about cuts that don't really cut anything because they are going to cut dollars that would not be spent for years and years. They will all praise themselves and most Americans will think they did a bang up job fixing the problem. The ratings agencies will be forced to agree lest they be investigated for downgrading the mighty US. And the same problems will still be there and we will lose our ability to sell bonds and to act as the world's reserve currency, dollars will be dumped, inflation will skyrocket, our standard of living that has declined the past 5 years will fall harder and faster.

Wow. Hard to be happy after that. Sorry for being so morose, but we have a nasty hole we dug and these fellows in DC are not up to the task, at least they have not shown the right stuff yet.


Sam Sheppard playing Chuck Yeager in 'The Right Stuff.'

But who knows? Christmas is coming and they may have their brains grow three sizes similar to how the Grinch's heart grew in 'How the Grinch Stole Christmas.'






OTHER MARKETS

Dollar. 1.2718 versus 1.2752. The dollar still looks poised to break higher. Thursday and Friday the dollar tapped the 50 day EMA on the low and rebounded to hold the 200 day SMA on the close. Looks poised to move higher but there is also resistance just over head in a potential left shoulder to a head and shoulders pattern.


Bonds. 1.61% versus 1.62%. After trading in its narrowing range in a quite volatile manner, bonds broke out on the European worries, and frankly on worries about the US economy given the reelection and the fiscal cliff and growth worries.


Gold. 1731.00, +5.00. Gold continued its post-election, Bernanke on the loose, inflation fearing move. It cooled its jets a bit, gapping to a doji Friday. A good run, slowing a bit, likely to test toward the 50 day EMA near 1720.


Oil. 86.07, +0.98. Oil bounced modestly for a second session. Holding near some support but still quite weak.


TECHNICAL SUMMARY

Internals.

NASDAQ
Stats: +9.29 points (+0.32%) to close at 2904.87
Volume: 1.778B (-3.58%)

Up Volume: 869.09M (+478.39M)
Down Volume: 913.5M (-566.5M)

A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Decliners led 2.85 to 1

New Highs: 19 (-12)
New Lows: 123 (+5)

S&P
Stats: +2.34 points (+0.17%) to close at 1379.85
NYSE Volume: 682M (-2.01%)

A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Decliners led 2.74 to 1

New Highs: 203 (-25)
New Lows: 145 (+29)

Stats: +4.07 points (+0.03%) to close at 12815.39

Volume: Volume again traded off the prior session but was still above average on both NASDAQ and NYSE. Distribution selling all week, showing some volume Friday as the indices tried a bounce. Nothing to suggest a turn right now.

Breadth. Finally eased up as you would expect with the indices trading flat. Still, breadth was slightly negative even with the indices slightly positive.


THE CHARTS

SP500. Rallied through the 200 day SMA with a nice move into lunch. Then came the afternoon and it gave it all back, closing below the 200 day SMA. Doji but not necessarily one indicating a turn. Very well could be an interim, continuation doji in the midst of selling, but SP500 is holding at some interim support.


NASDAQ. Holding at some interim support at 2900 NASDAQ showed a hammer doji. It is in the midst of a range of support but not expecting that to necessarily bounce it higher. A big dip needs a test, but the pressure was released a bit Friday as AAPL bounced some.


Russell 2000/SP400. Nice doji at some interim support. Looking for RUT to test the 200 day SMA up near 807 given it acted better than most before it broke.

SP400 is showing a nice doji at the 200 day SMA and is in excellent position to make the break higher. The market could use some leadership from the mid-caps but not sure they can accomplish all the heavy lifting needed. Perhaps for just a test.


SOX. Held up reasonable well Friday after diving lower from the unexpectedly solid upside move. Just over some support at 365 (closed at 369) so we will see if it can provide a bounce.


DJ30/DJ20. Big tight doji at some interim support. Nest support is 12,700 and it did test 12,743 on the low, perhaps close enough. SP400 could use the help.

DJ20 Not performing well at all, not even showing the same doji that the other indices flashed. Just over some interim support and we will see if Monday brings a renewed bounce.


Summary: The bounce attempt was rather weak after those two sharply lower sessions. It did not change the character of the decline, and indeed it may have let the sellers off the hook, i.e. relieving the pressure to rebound without generating any lasting upside.


LEADERSHIP

Big names. AAPL bounced but lost about as much as it gained on the session. A doji and in need of a relief move that would help NASDAQ as well. AMZN gapped to a tight doji and looks rather interesting. EBAY is struggling still but holding up. IBM shows a big tight doji and is now in position to rebound.

Industrials. JOY showed a doji as did many stocks. CAT gapped lower and reversed upside on some volume. Not bad. TEX bounced off the 200 day SMA.

Financial. Some improvement but some damage was done. BAC gapped lower and recovered to flat. No volume. JPM shows a doji but is still the 50 day EMA. MA is holding the 50 day EMA and bounced. V gapped to the 20 day EMA and bounced to a gain. Nicely.

Metals. Struggling. Gapped to a doji below the recent range. AKS still working on the pattern at the 50 day EMA. STLD is holding the 200 day SMA and bouncing. These may develop here.

Retail. Some good, some bad. YUM bounced nicely. ULTA gapped lower. LULU is struggling at the late October highs. KSS dove lower this week. JCP is in huge trouble. Widely divergent, showing issues even with spiking consumer sentiment.

Homebuilders. Slipping. KBH slips a bit. BZH is below the 50 day EMA. TOL slid to a new low from its September peak. Some weakness in an important group.


THE MARKET

SENTIMENT INDICATORS

VIX: 18.61; +0.12
VXN: 19.41; -0.73
VXO: 19.35; +0.42

Put/Call Ratio (CBOE): 1.17; +0.04


Bulls versus Bears

Bulls: 43.6 versus 41.5% versus 45.7% . Bouncing right back up as the market takes some sharp declines on top of a more orderly previous pullback. Will be interesting to see if this confidence that tracks Michigan holds next week. Background: Undercut 35%, the threshold for bullishness, in early June. 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: 27.7% versus 27.7% versus 25.5%. Staying at 27.7% again as bears hold a flat line. Has to get to 35% to be significantly bearish to suggest an upside rally. 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.


MONDAY

A very interesting week again. Even with the election over there is no letdown in the pressure. Lots of economic data from retail sales to Philly Fed to CPI and more. A few more earnings. The fiscal cliff negotiations. The market trying to regroup after a sharp decline. Oh, and the Fed.

Yes the Fed. All eyes on the cliff for sure. Economic data? Yes a bit, but no one is worried as much about that now because the election is over, the cliff is out there, and the idea is if that is not fixed the data won't matter. In any event any shortcomings can be blamed on Sandy as well as the cliff. Oh, and let's not forget Bush, right?

Back to the Fed. Friday St. Louis Fed president Bullard had some comments but they were not heavily reported. Mr. Bullard said that Operation Twist would likely not be continued. BUT . . . THE Fed 'may' expand QE to buy other assets.


Don't need to Twist, but other asset buys just might happen.

This is not news; Bernanke and the FOMC statement said that other means would be used if necessary, even after things started to recover. What is significant is that Bullard is out there, after a quiet period from the Fed around the election, pushing this line. It is likely prep work for some other kind of asset buys. Bernanke is getting impatient. The Cliff has him worried. He wants to paper over the problem before it arises.

That sets the stage of characters. Election is over. The same players are still in place. The Cliff remains an issue because of the disparate positions and the view that no one received a mandate in the election. The economy is the hapless buffoon stumbling along. The stock market decided to avoid the Christmas rush and sold right after the election. Bernanke is still at the Fed, will stay at the Fed, and has his theories to put to the test.

Fiscal Cliff versus QE. The stock market is the hostage. Clearly the market sold first and will ask questions at some point after Obama won the election and kept the Senate. Investors are worried about the ability to resolve the tax hikes, etc. coming their way.

That said, IF there is anything positive on the Cliff the market can and will rally. The Cliff is resolved (or at least is claimed to be; it won't be because they won't do what is really necessary) and QE is in place and will remain in place. That would be a green light for stocks.

But, it is not close to green yet. The Cliff issue just received its opening remarks late in the week. Obama gave a campaign speech with a baseball bat after Boehner gave some specifics he is willing to work with. It could be very contentious yet again.

That leaves the market watching to see how it turns out but not comfortable it will get resolved. In that scenario the market is somewhat in limbo with a negative overhead even with QE in the pocket. It has had enough of a pullback to bounce. It had enough before NASDAQ and company broke the 200 day SMA. It didn't and now it has a longer term basing pattern to fill out if it is going to continue upside.

So, we don't anticipate any big upside move off of this last decline. Yes there could be a nice relief bounce to test the support just broken (SP500 did that but none of the other have), the relief bounce we have discussed. That is likely to come this week but the question is whether there is more downside first. Friday let the pressure off the selling and thus dulled the snapback chances.

Still, we have some good downside positions in place. We believe there is more downside to come at least as part of a basing process that will prepare the markets for upside again on the shoulders of some more of that QE. With a rebound we still look just for a relief move. It might take a downside session early as we wanted to see Friday to trigger it. When it comes we use it to lighten the upside and prep some more downside.

The problem we have to start the week is the market is basically where it was after two sharp downside days. Many stocks are oversold or need more work to set up for upside or downside plays. Some plays are there for stocks that are in rolling ranges and have managed to hold the bottom of the range in this selling. Those can provide us upside plays (e.g. GOOG). Kind of selective and at this point you have to be. If we see stocks close to bottoming such as GOOG we can look at them as potential bounce plays if we get a selloff to start the week that reverses. That is always a good play, and while it looks too pat to have that happen, it often does.

Have a great weekend!



Support and resistance

NASDAQ: Closed at 2904.87

Resistance:
2942 is the mid-June 2012 high
2950 is the mid-April closing low
2962 is the April 2012 low
2977 to 2980 is the bottom of the late October 2012 consolidation
The 200 day SMA at 2983
2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
3024 is the gap point from early May
3026 from 10/2000 low
The 50 day EMA at 3033
3042 from 5/2000 low and several other price points
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
2847 is the mid-May 2012 low
2842
2838 from the July 2012 lows


S&P 500: Closed at 1377.51

Resistance:
The 200 day SMA at 1381
1402.22 is the closing low of the August 2012 lateral consolidation
1406 is the early May 2012 peak
The 50 day EMA at 1421
1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
1433 from August 2007 closing lows
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

Support:
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
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 12,815.39
Resistance:
The 200 day SMA at 12,992
13,056 is the February 2012 high
13,058 from the May 2008 peak on that bounce in the selling
The 50 day EMA at 13,228
13,297 is the April 2012, prior post bear market high
13,300 to 13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday high
13,668 from 12-2007 peak
13,692 from 6-2007 peak
14,022 from 7-07 peak

Support:
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

November 5 - Monday
ISM Services, October (10:00): 54.2 actual versus 55.0 expected, 55.1 prior

November 7 - Wednesday
MBA Mortgage Index, 11/03 (7:00): -5.0% actual versus -4.8% prior
Crude Inventories, 11/03 (10:30): 1.766M actual versus -2.045M prior
Consumer Credit, September (15:00): $11.4B actual versus $10.6B expected, $18.4B prior (revised from $18.1B)

November 8 - Thursday
Initial Claims, 11/03 (8:30): 355K actual versus 370K expected, 363K prior
Continuing Claims, 10/27 (8:30): 3127K actual versus 3250K expected, 3262K prior (revised from 3263K)
Trade Balance, September (8:30): -$41.5B actual versus -$45.4B expected, -$43.8B prior (revised from -$44.2B)

November 9 - Friday
Export Prices ex-ag., October (8:30): 0.2% actual versus 0.7% prior
Import Prices ex-oil, October (8:30): 0.3% actual versus 0.2% prior
Michigan Sentiment, November (9:55): 84.9 actual versus 83.0 expected, 82.6 prior
Wholesale Inventories, September (10:00): 1.1% actual versus 0.4% expected, 0.8% prior (revised from 0.5%)


November 13 - Tuesday
Treasury Budget, October (14:00): -$113.0B expected, -$98.5B prior

November 14 - Wednesday
MBA Mortgage Index, 11/10 (7:00): -5.0% prior
Retail Sales, October (8:30): -0.2% expected, 1.1% prior
Retail Sales ex-auto, October (8:30): 0.1% expected, 1.1% prior
PPI, October (8:30): 0.0% expected, 1.1% prior
Core PPI, October (8:30): 0.1% expected, 0.0% prior
Business Inventories, September (10:00): 0.6% expected, 0.6% prior
FOMC Minutes, 10/24 (14:00)

November 15 - Thursday
Initial Claims, 11/10 (8:30): 388K expected, 355K prior
Continuing Claims, 11/03 (8:30): 3125K expected, 3127K prior
CPI, October (8:30): 0.1% expected, 0.6% prior
Core CPI, October (8:30): 0.1% expected, 0.1% prior
Empire Manufacturing, November (8:30): -9.3 expected, -6.2 prior
Philadelphia Fed, November (10:00): -1.0 expected, 5.7 prior
Crude Inventories, 11/10 (11:00): 1.766M prior

November 16 - Friday
Net Long-Term TIC Fl, September (9:00): $90.0B prior
Industrial Production, October (9:15): 0.0% expected, 0.4% prior
Capacity Utilization, October (9:15): 78.2% expected, 78.3% prior



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

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

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Monday, November 05, 2012

Jobs Numbers Supposedly Good But...

MARKET SUMMARY

- Stocks try to add to Thursday rally, fail miserably.
- Jobs numbers supposedly good but the market action appears to belie that view.
- Other markets suggest stronger growth. Well, almost.
- Jobs report heralded as a signal of recovery, but the inside numbers show this is not the kind of recovery anyone wants.
- Thursday and Friday show buyers and sellers still battling it out at support, but unless there was some other influence Friday, that kind of reversal is not a good upside indication.

Sellers step back in as investors not wowed by jobs report, future prospects.

As good as Thursday looked with NASDAQ, SP600 and SP400 jumping off key support at the 200 day SMA, Friday negated that move. Now it was not a total washout. SP400 (midcaps) sold hard, but they also easily held above the 50 day EMA. The small caps held some of their two-day move but are basically back at the 200 day SMA test range from the prior week. NASDAQ, well, it is smack dab on the 200 day SMA yet again after a week of testing and the Thursday upside break. SP500 and DJ30 failed at the 50 day EMA and find themselves as well testing the support of the past week.



Disappointing, but not a complete repudiation of the Thursday move. True, but it is hard to spin such a clear rejection of that prior day's move.

Thing is, the session was set to start out just fine. Futures were higher with some spillover from Thursday's move and then the jobs report juiced the upside a bit more with a top line beat and 84K upside revisions in the prior two months.

Unfortunately, the market reverted to the 'high on the opening tick' playbook. After a higher open stocks faded. They faded into midmorning. They tried to bounce. The bounce failed and stocks sold to the closing bell. Mirror image of Thursday's higher open followed by a session-long rally. Risk on, risk off. Buy today, sell tomorrow. Jobs report good, jobs report maybe not so good. Regardless of the reason, stocks blew most of the Thursday advance, closing near session lows.

SP500 -13.39, -0.94%
NASDAQ -37.93, -1.26%
DJ30 -139.46, -1.05%
SP600 -0.52%
SOX -1.89%

That leaves them right back where they started from before Thursday, but after a surge and purge the upside move typically loses strength.


A good try, but out of gas?


OTHER MARKETS

The stock market pulled the old surge and purge action. Well, not on Friday; it was pretty much no surge and purge the Thursday gains. Other markets, however, at least 2 out of 4, appeared to take the data as good overall.

Dollar. 1.2829 versus 1.2936. This time the dollar did break up the bearish pattern. A break through the 50 day EMA and run to the 200 day SMA. There is still a lot of overhead resistance, but after a week of lateral movement the dollar jumped sharply. Seemed to believe the economic data was a positive.


Bonds. 1.72% versus 1.72% versus 1.69% versus 1.72%. I left the series from the past four sessions so you can see how bonds are walking a straight line at least on the closes. Friday bonds gapped lower on the jobs report; you would expect that if jobs were really showing a good economy. But as the session progressed bonds gave up the entire move. Maybe not such a great report. Regardless, bonds are narrowing in the range still, holding over the 200 day SMA to close the week. A break is coming and it might be the election that does it.





Gold. 1675.40, -32.70. Gold appeared to take the data seriously, implying a stronger economy means less need for the Fed pumping liquidity and thus less inflation pressures.


Gold swan-dived to support from the mid-August interim high just over the 200 day SMA. Impressive dive.


Oil. 84.86, -2.23. Oil slumped through its recent lows in the weeklong lateral consolidation. There is some support at 84. After that it is 80.50ish. Oil was not buying a strong economy. Some of the explanations for the weakness were laughable, e.g. Bloomberg stating that Sandy was causing the price to drop because there would be more supply restored soon. Really? What about that decline from the peak in mid-September, long before Sandy was even a twinkle in the weatherman's eye? No, too much oil, not enough economic activity, and that means lower prices.


TECHNICAL SUMMARY

Internals.

NASDAQ
Stats: -37.93 points (-1.26%) to close at 2982.13
Volume: 1.796B (-2.71%)

Up Volume: 474.95M (-1.055B)
Down Volume: 1.36B (+1.014B)

A/D and Hi/Lo: Decliners led 2.75 to 1
Previous Session: Advancers led 1.81 to 1

New Highs: 73 (-23)
New Lows: 53 (+3)

S&P
Stats: -13.39 points (-0.94%) to close at 1414.2
NYSE Volume: 696M (-0.43%)

A/D and Hi/Lo: Decliners led 2.3 to 1
Previous Session: Advancers led 3.35 to 1

New Highs: 365 (+9)
New Lows: 65 (+2)


DJ30

Stats: -139.46 points (-1.05%) to close at 13093.16


Volume: The silver lining is a modest dip in volume on both NYSE and NASDAQ. Trade was, however, still well above average and thus whatever modest fade in trade was not really significant. Stocks jumped Thursday on stronger trade then fell Friday on still strong trade. Meaning? A wash as the buyers and the sellers fought to even again on the sum of those two days.


Breadth. NASDAQ downside jumped to -2.75:1 versus 1.8:1 on Thursday's upside. Some stronger downside action. NYSE at -2.3:1 was solid but couldn't match the prior session's 3.3:1. This is pretty much a push as well; both days were significantly higher than anything in the prior week.


THE CHARTS

SP500. Rallied through the 50 day EMA on the open than quickly gave that move up along with most of Thursday's move. SP500 is right back over 1400 support and of course it can again find support there. The problem is the sellers successfully negated the Thursday surge to the 50 day EMA. Thus SP500 failed at resistance Friday, and that leaves it vulnerable to forming that right shoulder to that potential head and shoulders pattern starting in August.


NASDAQ. Gapped upside in a continuation move to Thursday, but then reversed early and sold all the way back to the 200 day SMA on the close. The pattern is an engulfing pattern and a negative though volume was not huge. Obviously the ability to hold the 200 day SMA or this general level next week and renew the upside will be key if a rally is still to ensue. Always tough to blow a good move but NASDAQ at least left itself in position to make the break higher if this proves just to be an end of a crazy week move.


SP600/SP400. SP400 was the impressive index Thursday and on Friday it showed it still was a solid candidate to lead. Yes it sold back but it also held the 20 day EMA on the close, above the 50 day EMA and of course well above the 200 day SMA it tested toward on the intraday lows the past week. It looks as if it was just caught up in the storm and left itself in position to move higher.


SOX. Fell right back from the 50 day EMA but as with the midcaps it left itself some breathing room by holding over the 10 day EMA. Can put in a higher low here and at least rally further upside in the range but still not looking at SOX for any leadership.


DJ30/DJ20. Rallied to the 50 day EMA and again faded, but unlike Thursday the Dow faded all the way back to the recent lateral move. Holding over 13,000 support but as with SP500 its pattern remains overall weaker than NASDAQ and the small and midcaps.

DJ20 again rallied, but as it hit the high from two weeks back it was pushed negative. Not a collapse but disappointing. Lower volume, however, and still in position to continue higher if this was just a 'Friday thing' ahead of an uncertain weekend for stocks.



LEADERSHIP

Big names. Again no aid from the big names. AAPL didn't even pretend to move higher, diving over 3% and below the 200 day SMA on the close. AMZN tried the rally but gave it up, closing flat; actually not a bad feat for the session. IBM rolled over hard from the 200 day SMA. GOOG gapped upside and reversed to flat. As you can see some big names held their ground while others took more diving lessons.

Industrials. After solid Wednesday and Thursday moves the industrials suffered some selling. JOY faded from an intraday 200 day SMA break. CAT gapped and reversed to close just below the 50 day EMA. The bigger names such as UTX and MMM just don't look healthy.

Financial. Hung in decently. BAC followed the Thursday surge with a gap to a doji and a 1+% gain. JPM faded but is in its range and continuing uptrend. Same with GS. WFC is struggling. Overall, decent given the session.

Metals. Up Thursday, melted Friday. FCX back to the 50 day EMA to try again. AKS gave up over half the Thursday gains. SID gapped and then reversed. Still, they are working on patterns, e.g. SCHN.

Retail. PCLN exploded higher through the 200 day SMA. Hit the September peak and stalled but a blistering move. LULU continued the run but then closed just below the 50 day EMA. PII shed some gains but not much. Pretty much the strong remained solid even with a pullback on the session.


THE ECONOMY

TO VIEW THE ECONOMY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.html

Low quality, low paying jobs dominate those jobs created. We ask the question again, are a million low paying part-time jobs better than a lower number of quality full-time jobs?

Nonfarm Payrolls, October (8:30): 171K actual versus 125K expected, 148K prior (revised from 114K)

13 years of this level of job creation to recover to pre-recession levels.
2% less people working than when the current President took office.

Nonfarm Private Payrolls, October (8:30): 184K actual versus 130K expected, 128K prior (revised from 104K)

Unemployment Rate, October (8:30): 7.9% actual versus 7.9% expected, 7.8% prior

Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior

Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)

Who is getting the jobs?

We heard it again today from the administration and the pundits on the financial stations: the labor force has fallen because the baby boomers, those 55 and up (though not all BB's are at 55 yet), are retiring. That intuitively makes sense because that is the traditional time to retire and the usual path.

These are not traditional times. Thanks to the Fed and its QEternity, interest rates are negative in real terms (adjusted for inflation). Thus what any of the 55+ crowd have left after the financial collapse won't earning anything outside of the stock market or other riskier markets. Thus they have to make up the difference somewhere.

They do so by getting jobs. They may WANT to retire but they feel they CANNOT retire because of the decimation of their retirements and the inability to earn interest income. So, they go to work. Indeed, so much so that in October the 55+ segment received 68% of the jobs created.



And over time, i.e. in this recovery:



20 to 24 year old unemployment rate: 13.2%

What kind of jobs?

Look at the average workweek:

Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)

The workweek is falling again, revised lower in September and missing expectations of a rise in October. How can you have more jobs but less hours worked? Because the jobs created are virtually all low-paying part-time jobs.

After the September jobs report we showed that the bulk of the jobs were part-time (582K of the 837K); the U6 reading of unemployed (includes those less than fully employed because of economic conditions, i.e. they cannot find the fulltime job they want) held steady at 14.7%. It dropped a fraction to 14.6% in October, but that simply means the older people looking for work are not seeking full-time jobs. Makes sense.


How much are they getting paid?

Take another look at the average hourly wage:

Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior

No growth, and with inflation that means negative real growth.
From the BLS: October hourly $19.79 from $19.80 mo/mo. Year/year: 19.79 versus 19.57. Now that is a higher reading (+1.1%) but that is the LOWEST yearly increase ever.

After the September jobs report we showed how the jobs created were dominated by the lowest end of the wage scale. Fully two thirds of the jobs created are at the bottom of the pay scale at $7.69 to $13.83. That is how the average hourly rate falls even as more jobs are created.




Summary: What this, as well as the other jobs reports mean.

The administration touted the job creation on the stump. It has to; there is nothing else good in the numbers to talk about. Wages were lower because most of the jobs are part-time and the low end of the wage scale going to seniors who have to re-enter the jobs market because of decimated retirement accounts and no way to produce income on what is left. Do you think the people would cheer so loud if they knew that the majority of the jobs created were desperation jobs that seniors were forced to take at low pay scales simply in order to survive? You know they would not.




THE MARKET

SENTIMENT INDICATORS

VIX: 17.59; +0.9. Of course VIX bounced right back up, but it did not recover anywhere near all the Thursday loss and closed below the 200 day SMA.
VXN: 19.95; +1.51
VXO: 17.87; +0.97

Put/Call Ratio (CBOE): 0.92; -0.03

Bulls versus Bears

NOTE: The data was not updated this week due to Sandy and the market closure. Data may be available later this weekend.

Bulls: 41.5% versus 45.7% . Down from 54.2% five weeks back when the first downleg in this selling started. That is a fairly sharp decline. Not at levels considered bullish (35%), but getting darn close in a hurry. Never came close to the 60% to 65% bullish levels that flash a warning sign. Background: Undercut 35%, the threshold for bullishness, in early June. 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: 27.7% versus 25.5%. Hung at 25% for close to two months. Now it is moving up some. Just some. Has to get to 35% to be significantly bearish to suggest an upside rally. 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.


MONDAY

More data next week and more earnings, but most of the data the market considers important (ISM, regional PMI reports, jobs report) are out and more or less priced into the markets.

The major focus will be the election and who wins and what that means for stocks. The prognostications are all over the map as to who wins and what it means for the market based upon who wins. All conjecture.



What I can tell you is that the indices are at a key level. They consolidated there and tried to move higher Thursday. The other side of the market did not agree with that move and shoved it right back Friday. That shows us that investor are still more or less evenly split at this key level. Gee, looks like the election picture as well does it not?

To us that shows the market is ready to move, but it is waiting to for that next piece of data to move it. It could have been the jobs report, but it was not. Buyers could not advance the market and sellers entered. To us it means the election and getting it decided. As to who wins I don't know if that makes more a difference than the certainty. I have my views as to what a win for each means in terms of unlocking funds business is holding for investment and pricing stocks for the future. I think if there is change that will be viewed as positive. However, certainty, as noted, plays a role in stock pricing.

Either way, the key is the reaction at this support. The Friday action was bearish even with what we were told is good jobs news. I could get very esoteric as to why good news was considered bad and tie that into the market, but that is getting extremely far on the limb of conjecture.

Given the push back by the sellers, we picked up some downside positions. There are more of those setting up thanks to the test of resistance and turn back lower. Thus we will be ready with some more of those in addition to some upside. The fade Friday pushed some solid stocks back a bit without any real damage, and that puts them in the category of possible upside leaders if the markets again find purchase at support.

Have a great weekend!


Support and resistance

NASDAQ: Closed at 2982.13

Resistance:
2988 is the July 2012 high
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
3024 is the gap point from early May
3026 from 10/2000 low
3042 from 5/2000 low and several other price points
The 50 day EMA at 3053
3076 is the late April 2012 high
3090 is the mid-March interim high
3037 is the October low
3101 is the August 2012 high
3134 is the March 2012 post-bear market peak
3171 is the October intraday high
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
The 200 day SMA at 2979
2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2910 is the March 2012 low
2900 is the March 2012 low


S&P 500: Closed at 1414.20

Resistance:
1422.38 is the prior post-bear market high (March 2012)
1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
The 50 day EMA at 1426
1433 from August 2007 closing lows
1438
1440 from November 2007 closing lows
1464 is the June up trendline
1463 is the September closing high
1466 is the September closing high
1471 is the October 2012 intraday high
1475 is the September 2012 high
1499 from January 2008
1539 from June 2007

Support:
1406 is the early May 2012 peak
1402.22 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1379
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
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 13,093.16
Resistance:
The 50 day EMA at 13,285
13,297 is the April 2012, prior post bear market high
13,300 to 13,331 is the August 2012 post-bear market high
13,653 is the September 2012 high
13662 is the October 2012 intraday 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 200 day SMA at 12,985
12,971 is the early July 2012 high
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

Nonfarm Payrolls, October (8:30): 171K actual versus 125K expected, 148K prior (revised from 114K)
Nonfarm Private Payrolls, October (8:30): 184K actual versus 130K expected, 128K prior (revised from 104K)
Unemployment Rate, October (8:30): 7.9% actual versus 7.9% expected, 7.8% prior
Hourly Earnings, October (8:30): 0.0% actual versus 0.2% expected, 0.3% prior
Average Workweek, October (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)
Factory Orders, September (10:00): 4.8% actual versus 4.5% expected, -5.1% prior (revised from -5.2%)


November 5 - Monday
ISM Services, October (10:00): 55.0 expected, 55.1 prior

November 7 - Wednesday
MBA Mortgage Index, 11/03 (7:00): -4.8% prior
Crude Inventories, 11/03 (10:30): -2.045M prior
Consumer Credit, September (15:00): $10.0B expected, $18.1B prior

November 8 - Thursday
Initial Claims, 11/03 (8:30): 370K expected, 363K prior
Continuing Claims, 10/27 (8:30): 3250K expected, 3263K prior
Trade Balance, September (8:30): -$45.4B expected, -$44.2B prior

November 9 - Friday
Export Prices ex-ag., October (8:30): 0.7% prior
Import Prices ex-oil, October (8:30): 0.2% prior
Michigan Sentiment, November (9:55): 83.0 expected, 82.6 prior
Wholesale Inventories, September (10:00): 0.4% expected, 0.5% prior



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

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

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