Monday, December 17, 2012

NASDAQ Struggles on AAPL Deleveraging


- FOMC QE4 +2 and stocks are still off.
- Outside of NASDAQ struggling on the AAPL deleveraging, indices look solid, leaders holding up well.
- Inflation as per the government gives the Fed all the room it needs to keep easing, but reality is another matter.
- Industrial production, capacity show solid improvement over a weak October.
- Heading in opposite directions? China PMI up for second time after a year of downside while Japan, Europe plunge.

Stocks still sluggish, test nicely, but history says that after late stage QE, they need to prove they can move upside.

Futures rose early in the session on word that China's flash PMI registered over 50 for the second straight month, this after 12 months of negative reads. Of course this is government data and not the measurable results the world can rely upon, but with so much bad data around the globe and the fact that it is the Christmas season, it seems people, as in the kids in the 'Polar Express,' want to believe.

Believe . . .

So futures were indeed higher. The belief, whether in China or Christmas spirit, however, started to wane as Santa explained in 'Elf'; seems the Christmas cheer was not enough to get the 'clausometer' high enough for the market to reach flight speed.

Shockingly low clausometer reading.

Thus the dream of a good old fashioned family Christmas so treasured by Clark Griswold had to be shelved for another day.

Can I get you any more eggnog? Get you something to eat? Drive you out to the middle of nowhere and leave you for dead?

Despite a CPI that was plenty tame (-0.3% versus -0.2% expected and 0.2% October; Core 0.1% versus 0.1%), futures eroded. Speaking of tame inflation, however, I must note a personal story: 8 years ago I bought a Kenmore Freezer for $499. That same freezer today costs $799, a 60% increase in price. No, there is no inflation, no problem with dollar value erosion.

Perhaps it was Japans manufacturing hitting an 11 month low as its depression, similar to Doc Holiday's hypocrisy in 'Tombstone', knows no bounds.

Poor soul. The strain was too much for him to bear.

Of course old Doc is not the only one with runaway hypocrisy as we are seeing in the fiscal cliff negotiations . . .

Perhaps it was the impasse in the FCliff negotiations as Pelosi complained about families needing to get together for Christmas, Hanukkah, or Kwanza (versus I suppose having . . . jobs?) and Boehner leaving town BUT leaving everyone his cell phone number just in case.

Or perhaps the EU economic issues were a contributing factor as its PMI missed expectations at 46.3 and auto sales hit their lowest in 19 years!

Futures backed off from morning highs and the indices opened lower. They traded modestly negative all session but then caught a downside bid late in the afternoon as word of an elementary school shooting leaving over 20 dead hit the wires. A modest bounce tried to lift stocks but the indices were all negative at the close.

SP500 -5.87, -0.41%
DJ30 -20.83, -0.70%
DJ30 -35.71, -0.27%
SP400 -0.23%
SOX -0.69%
RUTX -0.06%

Of course there was the immediate crossfire about gun control needs, talk of executive orders by the President if Congress didn't act, etc. It is amazing how when trouble hits the Constitution is thrown in the trash, only resurrected when needed to grow government even bigger, the opposite of what it was written for. Thing is, a lot of what we are seeing lately is tied to this notion that the world is coming to an end on the 21st. That is like a full moon to the tenth power with respect to how people act. When that time passes and if we are all still here, this insanity likely dies down.

As for the market, it pretty much left the session in mourning. But it was not a rout. We looked at our positions again and again during the day and they simply, with just a few exceptions, not getting themselves into trouble. Sure AAPL is in real trouble. It released its iPhone 5 in China and one store had all of two people standing in line to get in. Seems AAPL's cache is domestic, and after a big run it is deleveraging just as Europe, the stock markets, etc. have done in this financial crisis.

Outside of AAPL and a few others, however, the action was very calm, very tame. Of course it was like that after QE3 and then broke down. Still, if the leaders are holding the line and acting well, you see if they can come off of a test with renewed vigor. They didn't do it Friday, but it is Christmas, there is a Christmas rally in place, and if investors want to rally stocks, they remain in position to be rallied.


Dollar. 1.3160 versus 1.3077 euro. Down hard versus the euro but held up decently against all other currencies. After all, with a race to the bottom your currency doesn't make a lot of moves because markets know other central banks will act to offset any advantage your currency might gain (if you call gutting its value gain) via policy actions.

Bonds. 1.71% versus 1.73% 10 year Treasury. Gapped up after holding at the 200 day EMA Thursday. Hard down on the week, trying to rebound post-FOMC announcement.

Gold. 1696.90, -0.20. Gold really went nowhere in the wake of the Thursday dive lower. It continues to hold below the 50 day EMA and mostly work laterally.

Oil. 86.73, +0.84. Working laterally, trying to put in a higher low after failing at the 50 day EMA to start December. Has not turned tail and totally dropped, instead trying to work laterally and build a support level to rally from.



Stats: -20.83 points (-0.7%) to close at 2971.33
Volume: 1.772B (-2.15%)

Up Volume: 889.37M (+128.39M)
Down Volume: 896.25M (-163.75M)

A/D and Hi/Lo: Decliners led 1.05 to 1
Previous Session: Decliners led 1.69 to 1

New Highs: 35 (-4)
New Lows: 39 (+7)

Stats: -5.87 points (-0.41%) to close at 1413.58
NYSE Volume: 588M (-2.49%)

A/D and Hi/Lo: Decliners led 1.12 to 1
Previous Session: Decliners led 2.32 to 1

New Highs: 79 (+11)
New Lows: 30 (-4)

Stats: -35.71 points (-0.27%) to close at 13135.01

Volume: Trade down 2% on both NASDAQ and NYSE on a holiday Friday and after the CT tragedy took the life out of the market and the country. Volume remains elevated overall, showing some distribution on the week but also the indices are at support so a bit of higher volume shows some buyers hanging in and picking up positions.

Breadth. Very modest at -1.1:1 on both exchanges. No major weakness, just a modest fade on the session and really on the end of the week.


SP500. Faded to the 50 day EMA on lighter trade after a tombstone doji Wednesday on the FOMC decision. Very orderly fad and still in position to bounce off the late October low and the August consolidation. As before, it has left itself in position to bounce and all it needs is for the buyers to step in.

NASDAQ. This one is the worrisome one as it gapped through the 200 day SMA, the 50 day EMA and the 20 day EMA. It is undercutting the late October low as well as the July highs. The 200 day SMA and 50 day EMA are virtually coincident, indicating a negative cross is coming. Not a complete blowout of support and of course it can still reverse; seen that a lot the past couple of years. AAPL is a major drag on NASDAQ; the main drag. We have a downside play on NASDAQ at the ready in the event it cannot pull out of this decline.

Russell 2000/SP400. Was up on the day but could not hold it to the close. Still a solid pattern, having filled the Tuesday upside gap out of the consolidation. It is now sitting at the prior consolidation and has put itself in position to bounce once more. Now we wait and see if they can do it.

SP400 midcaps again faded to just below the 10 day EMA and are flirting with undercutting the October and November interim peaks. No major break but needs to start firming and holding for a rebound move.

SOX. Faded further, holding at the 10 day EMA on the close after a brief undercut. Failed at the 200 day SMA and prior peaks and lows and now is at the lick log: will it bounce to take them on again or has it shot its last bolt as Miss Havelock was told in 'For Your Eyes Only'?

DJ30/DJ20. Faded again but held the 10 day EMA nicely. DJ30 is still not a pattern I love but it is working on it, and if it bounces here has put in a right shoulder to a possible inverted head and shoulders. Indeed, the risk/reward is very good for a play up to the interim highs if it does in fact hold at this near support.

DJ20. Four days straight DJ20 has pushed to the top of its range only to be rebuffed. Still fighting at the top of the range.

Summary: The indices edged lower for the most part, and that kept them at near support and in the position to bounce if they just can get the bids. NASDAQ is the problem child given it is joined at the hip with AAPL. Outside of those co-dependent entities the indices are in position to bounce and there was not really any damage done to the leaders on the week.


Big names. AAPL gapped lower close to the November intraday low. Tells NASDAQ's story. AMZN is trying to hang on. EBAY dropped over 1%. Any wonder why the midcaps and small caps were providing most of the leadership?

Semiconductors. Edged lower overall but some names are not bad. TXN was up. INTC has a nice 1-2-3 pullback in place. Some of the smaller names that helped leader earlier are still testing. If they can hold and bounce the chips become much more interesting.

Financial. The banks are still holding their lateral moves, flat-lining for the week. Brokerages, e.g. MS, started moving higher on the week and indeed added gains Friday. Still very promising sector.

Retail. Still as mixed as can be. The discount variety stores are getting hammered. DLTR, DG, even TGT. The big box department stores are not much better, e.g. JWN, M. Specialty retailers are faring better, e.g. LULU, LTD, CAB.

Transports. Truckers still look good, e.g. ODFL, ABFS. Rails are mixed: CSX versus KSU. Airlines have jumped: DAL, LUV.

Drugs/Healthcare. Still setting up nicely. ISRG, OSIR, ARNA, CELG, ONXX.

Summary: There is still leadership and stocks still in great position to move higher.



VIX: 17; +0.44
VXN: 20.19; +0.72
VXO: 17.46; +0.75

Put/Call Ratio (CBOE): 0.89; +0.05

Bulls versus Bears

Bulls: 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . Okay, right back up to the peak two months back after peaking in September. Working back up with the market bounce. Got close to 35% on the last dip, but no cigar. 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: 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Bears are falling faster than bulls are rising, somewhat ironic given the fiscal cliff issues. Now at the level hit almost two months back just a bulls are rising toward that level. 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.


Yet another heavy week of economic data along with more fiscal cliff machinations. Throw on top of that the outcry over what happened in CT and the threats of executive orders on guns and you have another week of peace on earth and good will toward men.

More fun on the Hill this week.

The background is what the background is. The Fed has spoken. QE is here to stay until the Fed says it won't be here whether or not it talks of 6.5% unemployment as some important signpost or not. Japan is just now wanting to vote expressly on unending monetary policy. We have followed Japan's path and thus we are nowhere near ending stimulus. Indeed I would put the Fed's focus on employment above its mandated focus on price stability and maximized growth. It has added its own third leg, unemployment.

Thus while specific economic reports and stories will impact the market on a day to day basis, the stage is basically set: open-ended QE and a huge deficit with no economic growth to speak of. The main factors at that point are the Cliff, new regulations from the Administration, and how all of that impacts growth prospects. In short, the market faces the same challenges of the past few months, just closer in time now.

Therefore you go back and look at the technical picture to show how the market is interpreting the events. Right now the indices are testing the second run off the November low. They are at a crucial point of support where they either decide to bounce on into Christmas and make this a true holiday rally spanning both Thanksgiving and Christmas or fold and head lower in a move akin to the post-QE3 rollover.

Leaders are still mostly holding on just fine and are in position to bounce. As noted, Friday we looked at our plays again and again and were pleased with the vast majority. No technical issues to cause alarm.

At the same time, the post QE3 test was very normal and ordinary, and then after a week the bottom dropped. Thus while we like the action of the plays we need to be vigilant and if the leaders cannot make bounces off the pullback then lighten up the upside as the holiday rally slows its momentum.

Support and resistance

NASDAQ: Closed at 2971.33

2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
2988 is the July 2012 high
The 200 day SMA at 2989
The 50 day EMA at 2989
2999 is the bottom of the August 2012 consolidation
3000 is the February 2012 post-bear market high
3019 is the up trendline from 2011
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

2962 is the April 2012 low
2950 is the mid-April closing low
2942 is the mid-June 2012 high
2900 is the March 2012 intraday low
2858 is the late July 2011 peak
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 1413.58

1425 from May 2008 closing highs and the October 2012 low
1427 is the August 2012 peak
1434 from early November 2012
1433 from August 2007 closing lows
1440 from November 2007 closing lows
1446 is a short term down TL from the September 2012 peak
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

The 50 day EMA at 1411
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation
The 200 day SMA at 1387
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 13,135.01

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

The 50 day EMA at 13,085
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 13,004
12,716 is the April 2012 closing low
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

December 14 - Friday

CPI, November (8:30): -0.3% actual versus -0.2% expected, 0.1% prior
Core CPI, November (8:30): 0.1% actual versus 0.1% expected, 0.2% prior
Industrial Production, November (9:15): 1.1% actual versus 0.3% expected, -0.7% prior (revised from -0.4%)
Capacity Utilization, November (9:15): 78.4% actual versus 78.0% expected, 77.7% prior (revised from 77.8%)

December 17 - Monday
Empire Manufacturing, December (8:30): 2.0 expected, -5.2 prior
Net Long-Term TIC Fl, October (9:00): $3.3B prior

December 18 - Tuesday
Current Account Imbalance, Q3 (8:30): -$103.6B expected, -$117.4B prior
NAHB Housing Market , December (10:00): 47 expected, 46 prior

December 19 - Wednesday
MBA Mortgage Index, 12/15 (7:00): 6.2% prior
Housing Starts, November (8:30): 873K expected, 894K prior
Building Permits, November (8:30): 876K expected, 866K prior
Crude Inventories, 12/15 (10:30): 0.843M prior

December 20 - Thursday
Initial Claims, 12/15 (8:30): 345K expected, 343K prior
Continuing Claims, 12/08 (8:30): 3192K expected, 3198K prior
GDP - Third Estimate, Q3 (8:30): 2.7% expected, 2.7% prior
GDP Deflator - Third Est., Q3 (8:30): 2.7% expected, 2.7% prior
Existing Home Sales, November (10:00): 4.90M expected, 4.79M prior
Philadelphia Fed, December (10:00): 1.0 expected, -10.7 prior
Leading Indicators, November (10:00): -0.2% expected, 0.2% prior
FHFA Housing Price Index, October (10:00): 0.2% prior
Natural Gas Inventories, 12/15 (10:30): 2 prior

December 21 - Friday
Personal Income, November (8:30): 0.3% expected, 0.0% prior
Personal Spending, November (8:30): 0.3% expected, -0.2% prior
PCE Prices - Core, November (8:30): 0.1% expected, 0.1% prior
Durable Orders, November (8:30): 0.2% expected, 0.5% prior (revised from 0.0%)
Durable Orders -ex Transports, November (8:30): -0.4% expected, 1.8% prior (revised from 1.5%)
Michigan Sentiment - Final, December (9:55): 74.0 expected, 74.5 prior

End part 1 of 3

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

Jon Johnson is the Editor of The Daily at

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