Stocks Fight Back to End the Week

MARKET SUMMARY

- Stocks fight back to end the week as the Dow rides HPQ's earnings.
- German business confidence to the rescue? Seriously?
- The Fed's world according to Bullard: the liquidity will remain.
- HPQ, AIG earnings were the toast, but questionable guidance from a series of consumer stocks is worrisome.
- Chinese stock market still fading after money supply drained.
- Copper diving this month. SP500 tends to follow.
- Testing the first selling: Some stocks in position to bounce even as many are still ready to pull back. It all depends upon the BADD money.

A rebound after German business confidence rises and the Fed says money is here to stay. All must be well.

After two sharp downside sessions triggered in reality by the FOMC minutes that detailed a significant swing in concern on the committee about the Fed's balance sheet and China's draining of its liquidity pool (not to mention a two month unabated continuation of the rally), stock futures were up and stocks started significantly higher.

They almost gave it up by midmorning, however, as the sellers took their shot. Looked as if the market might just turn over and sell once more. Instead, the buyers caught the decline just above the flat line and dutifully pushed stocks higher into lunch. An afternoon trading range ensued but stocks didn't give up, indeed catching a new bid in the last hour of trade and turning a mediocre bounce into a much better looking upside move. The Dow, riding HPQ's earnings, even broke back into its lateral range.

SP500

That final push closed SP500 above its 20 day EMA. Indeed it closed all of the indices outside of NASDAQ above the 20 day EMA and thus above near support. That leaves them in position to recover. Question is, will they continue to do so next week?

Clearly the BADD money was at work, the old Buy Any Damn Dip money. Certainly there was a dip and certainly stocks recovered. Breadth was not bad at 3:1 on NYSE, 2.6:1 NASDAQ. Clearly most stocks were up, but just as clear volume was much lower, falling 23% on NASDAQ and 16% on the NYSE. Money came back in, but it was not as strong as the downside volume and many stocks simply bounced from sharp selling versus turn the tables back upside. More on this in the technical section.


THE NEWS

What drove stocks to the upside? The BADD money is out there no doubt, but what brought it back to the market Friday?


Earnings don't hurt but even as some help others are worrisome.

HPQ and AIG reported earnings beats and that aided the bounce, HPQ in particular with its 12% surge. No doubt it helped bounce DJ30 back into its range.

Ignored on the session but not boding well for the economic future, a trio of consumer stocks warned about future business. DRI (restaurants) warned on its third quarter, citing lower traffic due to higher taxes and rising gasoline prices. The stock managed a gain on high volume in any event. JWN (department stores) missed on revenues and warned on the current quarter. ANF forecast a quarterly loss and said Christmas sales were not good. Moreover it plans closing 40 to 50 stores.

It would appear that yet again there are clouds on the consumer horizon, but for now, as with all other things economic, investors overlook those and focus on Fed liquidity. After all, the economy has limped along, at best, since the recovery started yet the stock market has surged in some cases to new all-time highs. Why start worrying about economics now if the Fed is there?


Is the Fed still in the game? To stay?

The question Wednesday and Thursday, however, was indeed whether the Fed was going to stay in the game. Throw in China draining its money supply as it did in 2011 preceding that April to December dive lower and serious questions arose about the ability of the rally to continue.

Then came Friday and some affirmation. Germany reported its business sentiment rose above expectations. Seriously. That was credited by many with jumping the futures higher. Seriously. Not HPQ or AIG earnings, but German business sentiment. Of course it was reported Wednesday in another German report that business sentiment was up yet stocks plunged. The same news recycled two days later certainly accounted for the renewed optimism. Right.


Happy Germans ignite rebound rally?

Come on. We have improved business sentiment here as well but has that led to companies investing in their businesses? Investment in Q4 fell 4.3% year/year. As is often the case, sentiment has nothing to do with actions here and you can bet it is the same in Germany.

No, the real strength of Friday was the Fed. It giveth back what it taketh away as of Wednesday. After the minutes roiled the stock markets and triggered the harshest selling of 2013 the Fed got rattled. It cannot, after all, let stocks slip with a still below trend economy and jeopardize whatever wealth effect it thinks it creates with the higher asset prices. As an aside, it is ironic that given the stock indices have risen from the ashes of 2008 to new all-time highs in several cases yet there is still worry about the consumer and the economy's ability to sustain growth on its own. The wealth effect must have an extraordinarily weak impact on the economy if that is the case. Nonetheless Friday after the close there were the pundits on the financial stations talking about how the economy was ready to really climb now as the 'wealth effect' kicks in. Right.

Back to the Fed. St. Louis Fed president Bullard appeared on CNBC Friday morning. After the 2-day drop the Fed wasted no time in getting the word out that just because its members are actually TALKING about and indeed appear quite worried about how long it can keep up this massive liquidity pump, it was just talk. It's their job to be prepared and thus they were just throwing that out on the table as good Fed governors should do.

True, you have to talk about possible courses of action, but the Fed's MO is to start talking when it starts wanting a change. Naturally the market took that (not to mention the statements made in the minutes) as the usual course of action: start talking to get everyone used to the idea, then start acting on the talk.

But Bullard indicated that was just wrong-headed thinking. EVERYONE is on board with the current 'very aggressive' monetary stimulus currently in place according to Bullard. His comments were so sticky sweet you got the impression that some on CNBC did not believe things were so cordial on the FOMC in terms of current policy.


I give you the solution: the printing press. The effect on the dollar's worth . . .

But Bullard insisted and they relented. You see, as Bullard put it, the monetary policy in place is assuredly going to stay for a 'long time' because it will take until 2014, maybe 2015, before the unemployment rate hits 6.5%, the level Bullard insists is the point where the Fed will 'consider' whether and how much stimulus to remove.

Wow. That was a completely different interpretation from what a read of the actual minutes appeared to indicate and indeed is different from what a couple of FOMC members stated before the minutes release. Oh well. This is the latest iteration so we must believe.

It appears investors did. That was the talk on many stations though the headlines in some cases still cited German business sentiment. Let's face it: Fed liquidity drove the markets since March 2009 when it announced QE1 and then all the subsequent QE iterations since. When that was threatened Wednesday the market stumbled. When reassurance was administered and confidence in QEternity restored, the markets resumed the upside.


OTHER MARKETS

Dollar: 1.3183 versus 1.3166 euro. Down against the euro given that German business confidence right? Up against everything else as the dollar index consolidated its move through the 200 day SMA and over the early November peak. Breakout to the upside despite the overall bearish pattern the past year. The Fed is going to continue printing money according to Bullard but perhaps not ALL markets bought into his comments.


Bonds: 1.96% versus 1.98% US 10 year treasury. An up week for bonds by a hair as they recovered from the early week selling and bounced off of some support. Still below the 20 day EMA with a doji, the resistance it failed at in mid-January.


Gold: 1572.70, -6.00. Gold rallied for a second session off of the gutting it endured from last Friday to Wednesday. Unfortunately the rally stalled and gold faded on the session. A relief bounce and not much of one.


Oil: 93.13, +0.29. Bloomberg said that oil rose, all of 29 cents mind you, on that increase in German business sentiment. Kid you not. Let's see, oil was gutted almost 5 points in less than a week and touched some support on the Thursday close. A response to a much stronger dollar perhaps? Or could it even be just an old fashioned relief bounce after getting pounded like abalone in an upscale restaurant's kitchen? German business sentiment? Are you serious? Is anyone over there actually READING the headlines and stories the reporters are putting out?


China: Since we are talking other markets, let's throw China in there. The Shanghai exchange lost just over 5% in four sessions, dropping stone-like after the announcement the PBOC cut off the liquidity and was withdrawing liquidity with reverse repos. Last time it did that was in 2011, and as noted above, its stock market sold off for nine months. Much of the world markets went with it.


Copper: Let's take in copper as well. Copper imploded the past week. Major decline in a short period. Note how it traded laterally for all of January while SP500 moved higher. It was slowing in momentum and then rolled over. Look back at the typical historical tracking. Copper fell hard in May 2012 similar to the current drop; the stock market followed it lower and then recovered as copper recovered. The current divergence is even more stark: SP500 has not faded at all in terms of what happened in 2012. That suggests, some would argue strongly, that stocks are skating on thin ice right now and are ready to fall.


THE ECONOMY

Go for the sequester.

It is not much; Larry Kudlow and others say that we are talking about just $44B in cuts. Even with these 'cuts,' however, the US will spend $15B more than last year. That is correct. These cuts won't cut ANY EXISTING program, just limit the additional spending the federal government desired.

What does that mean? There needn't be any air traffic controller cutbacks, no TSA shortages leading to longer check-in lines, no first responders laid off, no uneducated kids because teachers are furloughed, no criminals released because prosecutors cannot prosecute cases, and no hungry children. No program has to be cut because we are still going to spend more; again, just won't be able to spend it on new programs.

That is, UNLESS the administration wants to make a political point and actually cut back on services that need not be touched. All the sequestration will do is hurt defense because it is earmarked for the lion's share of the cuts. Not that it can't use cutting as well.

There is not one government agency or department in the history of government that could not be tightened and streamlined. Private sector companies, at least in the small and medium categories, have had to tighten and streamline for 5 years now. Survival mandated it. If a department's existence was on the line, it would find ways to cut and still deliver.

So, let the sequestration come. If we cannot survive that without so much as a ripple we have serious problems that won't be resolved without some almost cataclysmic event that alters the foundations of those currently engaged not in governing but in fighting for the extinction of the other. Things look more and more as they did in the run-up to that event back in the 1860's.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +30.33 points (+0.97%) to close at 3161.82
Volume: 1.561B (-23.14%)

Up Volume: 1.12B (+745.67M)
Down Volume: 435.11M (-1.215B)

A/D and Hi/Lo: Advancers led 2.58 to 1
Previous Session: Decliners led 2.3 to 1

New Highs: 100 (+43)
New Lows: 29 (-8)

S&P
Stats: +13.18 points (+0.88%) to close at 1515.6
NYSE Volume: 612M (-16.16%)

A/D and Hi/Lo: Advancers led 3 to 1
Previous Session: Decliners led 2.42 to 1

New Highs: 158 (+51)
New Lows: 26 (-34)


DJ30
Stats: +119.95 points (+0.86%) to close at 14000.57

BREADTH: Finally matched the downside breadth with some upside moves. 3:1 NYSE, 2.6:1 NASDAQ. Good breadth tends to suggest not just a narrow relief move.

VOLUME: On the other hand, volume was pathetic, falling 23% on NASDAQ and 16% NYSE. Back to below average on both exchanges after volume spiked well above average and the highest in a couple of weeks on the Wednesday and Thursday selling. More sellers showed up on the week, and even though Friday was positive, volume tells you there were less buyers on the upside day versus sellers on the downside. Basically the sellers took the day off and let stocks rise.


THE CHARTS

SP500. Recovered the 20 day EMA and indeed the 10 day EMA thanks to that last spurt that closed the large caps out at the high. Some help from financials though mixed action in that sector. Heavy equipment didn't help the move, but enough other sectors joined in. a recovery, but not convincing given the volume. Then again, with the money ready to move in, SP500 put itself in position to resume the upside.


NASDAQ. Gapped and rallied upside to the 20 day EMA. Filled the gap lower from Thursday but low, low volume. NASDAQ looks the weakest of the indices as this is just a weak bounce thus far.


DJ30. Rode HPQ's 12% gain back through the 20 and 10 day EMA and indeed into its three week lateral range. Stronger volume thanks to HPQ. Quick test, quick recovery. If the Dow is dictating the market moves then the market is fine. Of course, it does not.


DJ20. Held the 20 day EMA on the selling and bounced off of it Friday. No volume but held the trend and is still in great position.


SP400. Recovered the 20 day EMA after a quick 1-2 selloff. Keeping itself alive but as with NASDAQ it depends upon if the buyers return again next week. Interesting in that the midcaps are actually lagging SP500 and DJ30 in the recovery. Not by much but SP400 has not retaken its 10 day EMA.


Russell 2000 small caps: Russell recovered both the 20 and 10 day EMA after the sharp two days of selling. We will see if the buyers return here as well.


SOX. As with the others, through the 20 and 10 day EMA, attempting the recovery from that 2 days downside.

SUMMARY: Bounced right back to keep in the upside game and now we see if the buyers return again on Monday. Recall the discussion this past week about the 1999 run that would suffer a sharp couple of days downside only to resume the move. Volume was high on those downside days as well, but the liquidity won out. If buyers believe the Fed is in the game for still a long time to come as Bullard promised then this could very well have been a 2-day hiccup followed by a continued run.


'Son your ego is writing checks your body can't cash.'

After the FOMC minutes, however, regardless of Bullard's assurances you have to ask if his ego is writing checks he cannot cash a la Maverick in 'Top Gun'? It will take some other Fed-speak from other Fed officials to drive his point home in terms of investor confidence.


LEADERSHIP

Big Names. GOOG gapped to a modest doji and still looks unscathed; strongest stock in NASDAQ large caps. EBAY gapped up modestly off the 50 day EMA test but not inspiring as volume was extremely light. AAPL was higher but no volume here either. Just not a lot of life even with the overall market recovery.

Homebuilders. TOL looks weak, bouncing for a second session but to a tight doji below the 50 day EMA. Looks as if the current trend is over. KBH trying to hold the 50 day EMA but not looking strong.

Financials. Some were fine such as JPM as it bounced off the 20 day EMA. C looks weak. BAC could not move off the 50 day EMA. On the other hand V made a nice move.

Semiconductors. Still not ready for the most part. KLAC bounced but could not cross the 20 day. SLAB still below the 50 day EMA. But, solar looks better, e.g. FSLR.

Energy. Still needs work in some cases (APC) and decent in others (CVX). Overall, in much better shape than many sectors despite oil's sharp drop on the week.

Industrial Machinery. Did not help. CAT, CMI, TEX could not provide any real upside push.


THE MARKET

SENTIMENT INDICATORS

VIX: 14.17; -1.05
VXN: 15.68; -0.81
VXO: 13.74; -1.2

Put/Call Ratio (CBOE): 0.9; -0.2

Bulls versus Bears

Bulls continued their decline, really before this round of selling started. Anticipating the peak a bit and not so much so that they fostered a further grind higher. Bears rose a point as well. Lower and higher but still not at points that would suggest the selling ends. Indeed as chronicled the past two weeks they just got to the point where they suggested some selling and it is here.



Bulls: 48.4% versus 52.6% versus 54.7% versus 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6. Over the September 2012 level. Last time the market hit that level SP500 corrected 9% over the next two months. 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: 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%. Summary: 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 was the bounce, the almost expected obligatory buy attempt after two sharp downside sessions. Money wants to come in and with Bullard's comments it would have been almost strange if stocks did not mount a recovery attempt.

Okay, they attempted. It was not much of one what with the light, light volume, but the move had breadth and most indices recovered at least one level of near support. There were some stocks posting good moves in good patterns or off good pullbacks versus the jerk lower and reflex bounce. Not that they cannot make knifepoint turns; if the money wants in then that can happen. It is just not normal, not all that healthy, and definitely a product of excess liquidity.

Many other stocks made more of the latter type of move, the reflex bounce lower that didn't leave them in great position to continue higher. That suggests more downside to come, but it all depends upon the money, the BADD money and how bad it wants to get into the market.

With copper selling hard, insiders selling hard, questions about the Fed, and China drying up its money supply it would appear the market has a lot against it. I would say the sequestration issue, but that, as discussed last week and the additional points mentioned above, is not an issue at all. In any event, even without sequestration and any worries it might generate, that is a beefy lineup of negatives for stocks to deal with.

So it comes down to how bad do they want it, i.e. how much do those looking for some kind of return want into the market to play catch up. I expect them to come around once more, but I also believe that after this run to this point this lineup could send stocks on a further test near term before the run resumes. That is what I believe but just in case there are still some quality upside plays we will have ready, just in case. That desire to play when there is this much money in circulation can overcome a lot of problems. I think they call that throwing caution to the wind but the market has done that more than once in its history.


Support and resistance

NASDAQ: Closed at 3161.82

Resistance:
The 20 day EMA at 3163
3171 is the October intraday high
3197 is the September 2012 post-bear market high. Starting to crack.
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
The 50 day EMA at 3120
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
The 2011 up trendline at 3101
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
3024 is the gap point from early May
The 200 day SMA at 3008
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
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


S&P 500: Closed at 1515.60

Resistance:
1531 is the recent high
1539 from June 2007

Support:
1499 from January 2008
The 50 day EMA at 1482
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
The 200 day SMA at 1408
1406 is the early May 2012 peak
1402.22 - 1400 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
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak


Dow: Closed at 14,000.57

Resistance:
14,022 from 7-07 peak
14,198 from the October 2007 high

Support:
The 20 day EMA at 13,899
13,692 from 6-2007 peak
The 50 day EMA at 13,671
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 200 day SMA at 13,134
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
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

February 21 - Thursday
Initial Claims, 02/16 (8:30): 362K actual versus 358K expected, 342K prior (revised from 341K)
Continuing Claims, 02/09 (8:30): 3148K actual versus 3150K expected, 3137K prior (revised from 3114K)
CPI, January (8:30): 0.0% actual versus 0.1% expected, 0.0% prior
Core CPI, January (8:30): 0.3% actual versus 0.2% expected, 0.1% prior
Existing Home Sales, January (10:00): 4.92M actual versus 4.94M expected, 4.90M prior (revised from 4.94M)
Philadelphia Fed, February (10:00): -12.5 actual versus 1.5 expected, -5.8 prior
Leading Indicators, January (10:00): 0.2% actual versus 0.3% expected, 0.5% prior
Natural Gas Inventories, 02/16 (10:30): -127 bcf actual versus -157 bcf prior
Crude Inventories, 02/16 (11:00): 4.143M actual versus 0.560M prior

February 26 - Tuesday
Case-Shiller 20-city, December (9:00): 6.5% expected, 5.5% prior
FHFA Housing Price I, December (9:00): 0.6% prior
New Home Sales, January (10:00): 385K expected, 369K prior
Consumer Confidence, February (10:00): 62.0 expected, 58.6 prior

February 27 - Wednesday
MBA Mortgage Index, 02/23 (7:00): -1.7% prior
Durable Orders, January (8:30): -4.0% expected, 4.3% prior (revised from 4.6%)
Durable Goods -ex transports, January (8:30): 0.2% expected, 1.0% prior (revised from 1.3%)
Pending Home Sales, January (10:00): 1.0% expected, -4.3% prior
Crude Inventories, 02/23 (10:30): 4.143M prior

February 28 - Thursday
Initial Claims, 02/23 (8:30): 360K expected, 362K prior
Continuing Claims, 02/16 (8:30): 3150K expected, 3148K prior
GDP - Second Estimate, Q4 (8:30): 0.5% expected, -0.1% prior
GDP Deflator - Second, Q4 (8:30): 0.6% expected, 0.6% prior
Chicago PMI, February (9:45): 54.0 expected, 55.6 prior
Natural Gas Inventor, 02/23 (10:30): -127 bcf prior

March 1 - Friday
Personal Income, January (8:30): -2.4% expected, 2.6% prior
Personal Spending, January (8:30): 0.2% expected, 0.2% prior
PCE Prices - Core, January (8:30): 0.2% expected, 0.0% prior
Michigan Sentiment - Final, February (9:55): 76.3 expected, 76.3 prior
ISM Index, February (10:00): 52.4 expected, 53.1 prior
Construction Spending, January (10:00): 0.5% expected, 0.9% prior
Auto Sales, February (14:00): 5.6M prior
Truck Sales, February (14:00): 6.5M prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Rebound as Wal-Mart Laments Weak February

MARKET SUMMARY

- Stocks tested again, recover again.
- Wal-Mart laments weak February, yet stocks still rebound.
- Will the real economy please stand up?
- New York PMI positive, Industrial Production negative. Michigan sentiment higher, consumer confidence at recession levels. Part time jobs versus real jobs. Real data versus substituted data.
- Greenspan says the stock market causes economic activity: Some new major discovery? No, just how the government calculates the data.
- Recovery versus liquidity bath: This is what you get with liquidity, regulation, and debt.
- Stocks high and trending higher. El-Erian says time to take profits on 'artificially high' prices. Of course they are artificially high, but they can also move higher so take some gains along the ride.

Yet again stocks feel the presence of the underlying money, rally back ahead of long weekend.

In terms of the stock market, Friday was more of the same. After weeks of a slow trend upside that still rides the momentum from the January 2, 2013 launch to the upside that started the third leg off the summer 2011 correction, stocks faced some new yet old challenges.

Industrial production was lower in the US, this on top of the Thursday reports of GDP from Japan (negative for the third quarter) and the EU's official fall into an official recession. On the other hand, the New York PMI turned positive for the first time since August 2012 and the University of Michigan Sentiment statement jumped past expectations at 76.3.

Stocks sorted through the pros and cons through the morning, trading in rather choppy fashion as it has of late, even dipping midmorning toward lunch as has been its MO. Then the afternoon upside began at noon; the return of the bid that seems to occur each day as the new money pressing to get into the market fills in any dip.

The afternoon recovery was well underway when the major news story of the session hit. No HNZ buyout that could be bought the day before by insiders, tippers, and tippees. Bloomberg released Wal-Mart VP emails describing February sales as a 'total disaster,' the worst month this one VP has seen in his 7 years with the chain. A senior executive commented "Where are all the customers? And where's their money?" The feeling was the increased payroll taxes directly impacted the WMT customer.

Stocks plunged on the news with any gains wiped away. As I noted last week, with this bid in the market it appeared it would take a major story to derail it. With hints of better economic data perhaps buoying investors on top of the Fed's money (though quite dubious improvements given the details), the WMT story appeared to dash the 'green economic shoots' theories and hopes.

After a half hour of straight downside, however, the market caught itself . Indeed the indices were never in any danger whatsoever, at most tapping the 10 day EMA on the low. Then came the rebounding into the close. There was not a lot of time given the story broke in the afternoon session, so the indices could not recover all of the losses and only the Dow made it back to positive at the close.

SP500 -1.59%, -0.10%
NASDAQ -6.63, -0.21%
DJ30 8.37, 0.06%
SP400 -0.12%
RUTX -0.07%
SOX -0.60%

Though they didn't turn positive, it was clear the bid was still present as another close shave with reality staved off by the power of liquidity.


OTHER MARKETS

Dollar: 1.3357 versus 1.3342. Off modestly versus the euro Friday on a week that saw dollar gains thanks to an official EU recession and of course more currency wars. The week started with the G7 apparently stating Japan's currency manipulation was no issue, a clarification, then more general undermining currencies. It is, after all, at least in the minds of central banks and spendthrift governments, to pay debts back with devalued currency. Of course that only decimates the citizens' wealth and the country's economy with it, but a government doesn't care as long as it survives; there will always be more people to rule. The point: there are no benevolent governments; that is why we wrote the Constitution the way we did. Even then it has failed to keep the government in check. Watch your wallets!


Bonds: 2.01% versus 2.00% US 10 year treasury. Down on the week overall but recovered to end the week given the European and Japanese economic woes. Still below the 10 day EMA, still weak.


Gold: 1609.10, -26.40. Gold was crushed on the week with an emphasis on Friday as it undercut the recent lows in the pattern, blew up its pullback, and is now hanging on at the August consolidation level.


Oil: 95.86, -1.45. Actually broke harder to the downside. Spent the week rebounding for a routine 20 day EMA after a strong December through January run. Stalled right below the run's peak and then Friday was clocked. Oil has been stronger than it should have been then Friday was upended on news that was not that bad. Definitely interesting again and how it reacts to this sharp Friday decline this coming week tells if it was overdone on this last rotation higher to resistance and wants to trade back down in the 84 to 100ish range.


THE ECONOMY

To Tell the Truth: will the real economy please stand up?

From 1956 to 1968 the game show 'To Tell the Truth' was quite popular. A person of some notoriety and two imposters would answer questions from a panel of 4 celebrities and the celebrities would attempt to determine who the true person was. The answers were varied, degrees of made up to true, nonsense to fact.



Reminds me of our economic data in a way.

Friday the New York PMI was positive for the first time since August, and at 10.04, its best read since May 2012. On the other hand there was industrial production at -0.1% versus 0.2% expected and 0.4% in December. The decline aided by a 5.5% drop in auto production. Recall the oversupply discussed in November and December? That bled into production; had to.

Friday also saw Michigan Preliminary Sentiment for February rise to 76.3. Michigan has run hotter the past three months even as Consumer Confidence has plummeted to recession-esque levels in the mid-fifties.

Thursday initial jobless claims were reported at 341K and the reading was, yet again, trumpeted as some kind of proof the economy is turning. Again, however, the BLS substituted its estimates for the reality of what states report and each time it does that the numbers fall. Then each time it doesn't, they pop right back up to the 365K+ average.

Last week at the State of the Union address the President touted 6 million jobs created. What he did not tout was the facts that, I am sorry to say, make those mostly 6 million jobs not worthy of a US recovery. Over 75% part-time jobs paying the lowest scale ($7 to $13.79). Heck, in this economy even part-time lawyers are paid in some cases only $26/hour. Some would say that is a positive (like the old joke what's black and brown and looks good on a lawyer?: a Doberman; or the one that asks why sharks don't bite lawyers: professional courtesy), but it does underscore how weak the jobs market is.




Then Friday there was Alan Greenspan on CNBC, resurrected from the ashes of his now burned away aura of 'Maestro,' discussing the stock market and the economy. Greenspan covered familiar ground such as the stock market acting as a predictor of economic activity. That is dubious in itself at this point in history given the massive, truly massive, 'unprecedented in the history of the world' kind of stimulus injected into the economy and thus the stock market.

But he went further. After answering a question on the sequestration effects, he made a point to 'add one other thing.' Seems Greenspan longs to relive the glory days where everyone hung on his every convoluted sentence, his every wry 'I know more than you' smirk. Thus he threw out the bomb that stocks not only predict economic activity but they CAUSE economic activity.


Stock prices cause economic activity. Wow.

Recall back after the 2000-2001 collapse the then Fed Chairman's call for data to support even the existence of a wealth effect? His entire attack on the economy and indeed the stock market was promulgated upon the belief that high stock prices caused consumption, and he indeed talked of the 'runaway consumer,' apparently the result of the 'irrational exuberance' surrounding the stock market. Yet after he pulled all liquidity from the economy in early 2000, crashing first the stock market and then the economy (the stock market was indeed predicting the crash to come), he still just wasn't sure of any wealth effect.

Now he is sure. He says that 'the data shows' 6% of the GDP is a result of changes in the stock market. Not sure what that data is; perhaps he was able to piece together an argument to support what was, by his own admission at the time, an unfounded experiment that left the US economy in shambles and a three year dearth of US investment that led to the rise of the tech economies in Asia, India, and elsewhere, with jobs leaving the US never to return. With that kind of disaster laid at your feet by the facts of history, I suppose you had better come up with 'some data' that supports why you ruined the future of so many.

Greenspan's conclusions are utter hogwash: anemic growth, high unemployment, and Wal-Mart sales dropping.

So, according to Mr. Greenspan the rise in stock prices is causing a further rise in the economy on the wings of a wealth effect. Wow. It must not be much of a wealth effect. The stock market as measured by the SP500 is up 128% since the March 2009 low. The economy is limping along AT BEST at 2% growth. In the entire history of the US there has been no 100+% gain in stocks without GDP growing well above the long-term growth trend that used to be considered to be 3% as the bare minimum.

Moreover, what about the jobs discussed above? The majority are part-time as the underemployed employment rate when added to the unemployed produces a number in excess of 14%. Many people lost their retirements in the collapse and the lack of good jobs has prevented many from rebuilding retirement. There is no wealth effect there, particularly with the jobs they are getting paying the minimum wage scale. Sure that is not everyone, but the data show that clearly 75%+ of the jobs are low end, part time hourly work. You DON'T amass a new stock portfolio on those wages, and the only company match you get is in the uniform you wear.

What the heck caused stocks to rally in the first place?

The clincher, the fact that puts all of this nonsense to rest, goes back to just why stocks started to rally in the first place, something that Greenspan's analysis totally ignores. In March of 2009 there was not some perception that the economy would improve dramatically and thus warrant a 128% SP500 surge through early 2013. As noted above, the economy output simply does not warrant that kind of asset value rise.



What triggered that rally and indeed the next 5 rallies in the stock market (and there have been five since March 2009) is quantitative easing, i.e. the free and unbridled printing and placing money into the economy. With little use for that money in terms of real economic investment and thus economic growth (recall that capital investment as recently as December fell 4.3% year/year!!), it all goes into the stock market and other markets. Gold was a runaway winner until margin requirements were such that there is practically no margin buying anymore. Bonds were big winners with the Fed buying bonds for as far as the eye can see. Now, however, with rates rising even as the Fed continues to buy, inflation is showing its head and thus bonds are falling despite Fed buying.

The rally is based upon excess liquidity. Bernanke wanted stock prices to rise. They have. 2% GDP, as noted above, is a pathetic growth rate to underpin a 128% stock price appreciation, and as we know, it is not the driver. It is liquidity.


A Good as it Gets?

Greenspan should know this as well as he has one of the seminal case histories that occurred under his watch. From May 31, 1999 to late March 2000, the NASDAQ gained 107%. Greenspan flooded the economy will billions of dollars ahead of Y2K and the uncertainties that surrounded that date. The economy didn't need the money and no one wanted it as there was no dollar hoarding. So, it all when into the stock market and it zoomed.



In March Greenspan called all of the money back at once. More than that, he clamped down hard on the money supply, fearing he had unleashed an inflationary genie. Stocks had to be sold. Margins raised. More than that, the economy lost not only the money Greenspan pushed into the system, but more as lending restrictions were tightened as well. Stocks crashed and the economy followed.

The sprint higher was fueled by massive excesses in liquidity. There was a GDP kicker added by the excess money as Q4 saw a 7.37% GDP rise. Then the crash when the liquidity was pulled with 1.05% GDP in Q1 2000.

I have said it and many others with many more letters after their name have said it: the 1.5% to 2% GDP growth seen as a best result since the crash is just about the best you can get when you live off of Federal stimulus (recall the 'Recovery Act' that was simply spending on pet projects) and the Federal Reserve's massive liquidity binge without real economic investment and growth to back it up.


What if this is as good as it gets?

Thus as Jack Nicholson queried "What if this is as good as it gets?" in the movie of the same name, the answer is this is as good as it gets until we chart a different course. Better start planning as if that is the case, particularly looking at the index charts from a longer term perspective.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -6.63 points (-0.21%) to close at 3192.03
Volume: 1.841B (-3.31%)

Up Volume: 651.73M (-438.27M)
Down Volume: 1.14B (+323.68M)

A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Advancers led 1.12 to 1

New Highs: 200 (+2)
New Lows: 17 (-5)

S&P
Stats: -1.59 points (-0.1%) to close at 1519.79
NYSE Volume: 666.331M (+8.7%)

A/D and Hi/Lo: Decliners led 1.18 to 1
Previous Session: Advancers led 1 to 1

New Highs: 465 (-11)
New Lows: 73 (+13)


DJ30
Stats: +8.37 points (+0.06%) to close at 13981.76

BREADTH: Painfully flat . . . AGAIN.

VOLUME: Expiration Friday saw trade actually decline on NASDAQ. NYSE trade rose from 8.7% up to 42% depending upon which tape you want to use. There was a surge to near 900K on some tapes that took into account late trades. In any event, trade was expiration trade so not of much use.


THE CHARTS

Below is a recap of each index' action on the session but the bigger picture warrants a look. If you peruse weekly charts since March 2009 for any of the indices something pops out at you, something I mentioned last week: the symmetry of this last run with the prior runs.

The big initial QE run into early summer 2010, the QE2 run into May 2011, then the three shorter runs on QE3, Operation Twist, and QE4 the latest rally. Note how the last three are shorter overall and shorter in progression in the series of three.

QE has limited effects with each getting subsequently shorter in duration. That would put the current iteration near its limit. Mohammed Al Erian Friday said that stocks were artificially high at this stage and to take some profits. What do you know.

From our technical perspective the run should be just about over unless there is some other extraneous stimulus. Perhaps the economy jolts to life (dubious) or there is some way to avoid sequestration and a budget deal is struck (even more far-fetched it would appear). The point: technically there is reason to be cautious but at the same time we don't want to time the top so to speak and sell all out.


SP500. Lateral move with doji testing the 10 day EMA intraday continues. Flattening out the past week, showing some churn with higher volume as stocks can make no headway. That is typically a topping sign but volume has not been much higher.


NASDAQ. Still over the 10 day EMA and still rending higher, just slower going as it trades right at to just over the September levels. Still be a bit careful here.


DJ30. WMT pushed up the volume but DJ30 did a masterful job of recovering to hold the 10 day EMA yet again in its lateral consolidation attempt.


DJ20. Doji after pushing to a new all-time high. Might be a bit tired but hardly anything wrong with the pattern.


SP400. Flat Friday with a doji but still trending rather effortlessly up the 10 day EMA.


Russell 2000 small caps: Gapped then reversed to negative. Hasn't done that since mid-December and that led to a modest decline.


SOX. Faded after a very strong Thursday. Trending up the 10 day EMA but some headwinds as it bumps the early April upper gap point.


LEADERSHIP

Big Names. Overall they don't look all that great. AAPL started to fall, AMZN is holding up but could not follow through on its Wednesday surge. GOOG on the other hand looks solid. Mixed back and not providing unified leadership.

Homebuilders. Fell on the session with KBH to the 10 day EMA and TOL as well, but not rolling over just yet.

Financials. Down on the session but they are still trending higher. JPM at the 10 day EMA, C and BAC as well.

Semiconductors. Took a day off but otherwise in good leadership. Some solar stocks actually look interesting again, e.g. FSLR, JASO.

Energy. As with most surging areas, energy faded as well SLB, HAL faded slightly while RIG flopped and gave back all of the Thursday gain. Maybe we will get some buys on these.

Chemicals. Still look solid, e.g. AXLL holding up while MOS and MON pushed higher. AGU on the other hand continued its dive.

Retail. All over the map as you might imagine after WMT's issues, but not too bad. DECK is still in position to continue higher and PNRA might provide a buying opportunity off the 200 day SMA test.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.66; -0.32
VXN: 13.66; -0.75
VXO: 12.08; -0.51

Put/Call Ratio (CBOE): 0.83; -0.08

Bulls versus Bears

An interesting development. Without any decline in the stock market to push it the number of bulls declined. As noted last week they are at a level where the market corrected starting in September but some of the pressure is off.



Bulls: 52.6% versus 54.7% versus 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6. Over the September 2012 level. Last time the market hit that level SP500 corrected 9% over the next two months. 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: 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%. Summary: 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.


TUESDAY (Monday closed for Presidents' Day)

Virtually no change in the stock indices as they maintain their trends up near support. Yes they were up and down last week with SP500 bouncing laterally. Yes NASDAQ is bumping at its earlier highs. Same issues as before.

As noted earlier, it was enough for Mr. Al-Erian to say stocks are artificially high (QE) and that central banks will have a hard time maintaining them as their efforts become less effective.

Of course that doesn't mean they go away, just that they are still present. The risk/reward overall is diminished at least in terms of the upside. As noted in the weekly index charts, this is the third in a series of three legs higher based upon new QE announcements. Certainly the market can continue higher from here; money will do that. At the same time you have to factor in how much more it can rise versus how much it will correct when it does get to the point it tests.

There is a big gap from early January on NASDAQ. The other indices didn't gap but the way they trade is not conducive to gaps. In any event, after this run and that gap, we are keeping the QID play just in case.

There are still some upside plays that can yield nice gains if the market continues to run. Some ag chemicals still look good, energy may provide a test, chips remain solid, financials are trying to set up again. If they do set up and take the lead then the market has some solid areas to take it higher. Thus we will be looking at plays in those areas in the event the market finds new strength and continues these moves.

If it cannot then we have some downside plays we take advantage of.

Al-Erian says to take profits now. He is calling a market top and perhaps he knows more than most do; after all he is on television all the time. We prefer to take gain along the way at logical points, letting some run higher. Then if the market runs farther than anyone thinks we can participate in the upside and take some more gain. Then as the market does top we are typically lighter in positions anyway.

So we are keeping reasonable stops on current positions, still picking up some upside but partial positions, not wanting to get too heavy if a top is near but then as any market move continues we can participate in it.


Support and resistance

NASDAQ: Closed at 3192.03

Resistance:
3197 is the September 2012 post-bear market high. Starting to crack.
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3171 is the October intraday high
The 20 day EMA at 3162
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
The 50 day EMA at 3112
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
The 2011 up trendline at 3098
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
3024 is the gap point from early May
The 200 day SMA at 3005
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
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


S&P 500: Closed at 1519.79

Resistance:
1539 from June 2007

Support:
The 20 day EMA at 1504
1499 from January 2008
The 50 day EMA at 1476
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
The 200 day SMA at 1406
1402.22 - 1400 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
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak


Dow: Closed at 13,981.76

Resistance:
14,022 from 7-07 peak

Support:
The 10 day EMA at 13,960
The 20 day EMA at 13,870
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
The 50 day EMA at 13,620
13,557 to 13,662
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 200 day SMA at 13,119
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
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

February 15 - Friday
Empire Manufacturing, February (8:30): 10.0 actual versus 0.0 expected, -7.8 prior
Net Long-Term TIC Fl, December (9:00): $64.2B actual versus $52.4B prior (revised from $52.3B)
Industrial Production, January (9:15): -0.1% actual versus 0.2% expected, 0.4% prior (revised from 0.3%)
Capacity Utilization, January (9:15): 79.1% actual versus 78.9% expected, 79.3% prior (revised from 78.8%)
Michigan Preliminary Sentiment, February (9:55): 76.3 actual versus 73.5 expected, 73.8 prior

February 19 - Tuesday
NAHB Housing Market Index, February (10:00): 48 expected, 47 prior

February 20 - Wednesday
MBA Mortgage Index, 02/16 (7:00): -6.4% prior
Housing Starts, January (8:30): 910K expected, 954K prior
Building Permits, January (8:30): 918K expected, 903K prior
PPI, January (8:30): 0.3% expected, -0.2% prior
Core PPI, January (8:30): 0.1% expected, 0.1% prior
FOMC Minutes, 1/30 (14:00)

February 21 - Thursday
Initial Claims, 02/16 (8:30): 358K expected, 341K prior
Continuing Claims, 02/09 (8:30): 3150K expected, 3114K prior
CPI, January (8:30): 0.1% expected, 0.0% prior
Core CPI, January (8:30): 0.2% expected, 0.1% prior
Existing Home Sales, January (10:00): 4.94M expected, 4.94M prior
Philadelphia Fed, February (10:00): 1.5 expected, -5.8 prior
Leading Indicators, January (10:00): 0.3% expected, 0.5% prior
Natural Gas Inventories, 02/16 (10:30): -157 bcf prior
Crude Inventories, 02/16 (11:00): 0.560M prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Can the Friday Upside Break be Trusted?

MARKET SUMMARY

- Stocks make a low volume break higher to end the week.
- China exports great but the US/China data doesn't add up.
- US trade deficit drops to lowest since 2010, but unlike some claim, it won't improve the GDP print.
- Can the Friday upside break be trusted? Sure, once it shows it can hold.
- Hard to chase stocks at this stage of the game, but perhaps we get another down Monday and can take advantage of that.


An upside session that was hard to buy.

Futures were lower but moved higher to the open. When the bell rang stocks popped. Indeed the bulk of the move was logged in less than a half hour. The rest of the day stocks held a tight lateral range. They couldn't extend the gains but they also didn't give them up.

SP500, NASDAQ, SP400, RUTX, and SOX broke to new rally highs. DJ30 did not. The moves looked solid and some of the percentage gains pushed 1%. Volume lagged with NYSE trade falling below average and to its lowest level in over a month. Breadth was decent at 1.7:1 NASDAQ and 2:1 NYSE, but nothing indicating a new blast higher.

Basically after a week or more (depending upon the index) of chopping laterally some buyers indeed could not stand it any longer and bit. There were some leadership groups from semiconductors to some techs to energy and even in retail. This market continues to find leadership as money continues to press and work its way in at every perceived opportunity. Not sure how much opportunity Friday actually was. As with last Friday we won't be surprised if Monday is a bit of a pullback.

SP500 8.54, 0.57%
NASDAQ 28.74, 0.91%
DJ30 48.92, 0.35%
SP400 0.59%
RUTX 0.61%
SOX 1.32%


OTHER MARKETS

Dollar: 1.3360 versus 1.3398. The currency war has taken off. Venezuela cut its currency in the neighborhood of 45% Friday. Japan says it overshot on weakening the yen. All of this helped push the dollar through the 50 day EMA to the upside. Things are going to get interesting as this could be the start of a 1930's race lower.


Bonds: 1.95% versus 1.96.% US 10 year treasury. Still trying to rebound but still trending lower overall. It would appear bonds are going to try and bounce for now but overall they are acting as if the Fed's time is drawing to an end.


Gold: 1668.00, -3.30. Holding the 200 day SMA on the Friday close, in great shape to make the bounce. Just has not done it yet.


Oil: 95.72, -0.11. Holding the 20 day EMA with a doji after a nice fade. In perfect position to rebound to try the prior high at 100.50. Producing more oil here in the US than in years, talk that we could be energy independent by 2020, and oil just won't quit.


THE NEWS

China trade numbers with the US and the US trade numbers with China fail to mesh.



The pre-market was flush with more recovery fervor. Don't get me wrong, there are things that look better. Housing is better; if there is any healing at all in the economy housing, the area down the longest, has to get better. There are other signs as well. You CANNOT fail to improve with the amount of money the Fed has placed and continues to place into the economy.

As I said months and months back, the 2% economy that we have that oscillates from 0% growth to 3% growth is what you get by virtue of all that money. Nothing else, however, has helped. More regulations (tens of thousands), higher taxes, higher healthcare costs; the result has been very little investment in the economy. Share buybacks and special dividends are not the R&D that create new technologies, new industry, new jobs, and a higher standard of living. Indeed our standard of living is slipping.

But I digress. I want to be positive but that does not mean you can ignore the facts as apparently so many are. Thursday I talked about the facts of initial jobless claims and about how many are ignoring them. The Chinese and US data don't add up but they have to.

China said it exported $219B to the US as its exports overall surged 25%. Of course the 25% gain ignored 5 extra days in the period over last year but that was not even mentioned on CNBC; at least Bloomberg noted it.

But that was just one part of the story. The US reported $315B in imports from China. There is that math problem. $315B does not equal $219B. China is reporting less sales to the US than the US is reporting. $96B is a pretty big difference. The US has no reason to overstate what is being imported as that CUTS the GDP level. China wants to show its economy is surging. Not sure what the disconnect is.


US Trade Deficit falls as oil imports drop to the lowest in 15 years. Some lick their chops at erasing the negative GDP print, but this data won't do it.



The financial stations were also lathered up over the US deficit falling to -38.5B when -48.6B was reported in November. November was a huge swing negative. December was an equally extreme swing, the first sub-$40B month since November 2010 and the narrowest since January 2010.

Why did it fall? Oil imports hit the lowest in 15 years on lower demand. Lower demand is not a good economic indicator. In addition, something hardly mentioned, there was a strike at the LA/Long Beach ports after Thanksgiving, delaying shipments for December.

Nonetheless, some are saying that will add 0.7% to the Q4 GDP. Here's the problem with that. The strike will cause delayed shipments to be shipped in January and that will spike the imports and widen the gap again. Further, the decline was close to the BEA estimate in the advanced Q4 GDP (-40.0B estimate versus -41.0B). So, as per the BEA estimate there was no big surprise and thus there won't be, at least based on this trade data, any big revisions to that -0.1% initial GDP read.




TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +28.74 points (+0.91%) to close at 3193.87
Volume: 1.794B (-6.76%)

Up Volume: 1.26B (+476.29M)
Down Volume: 535.19M (-614.81M)

A/D and Hi/Lo: Advancers led 1.71 to 1
Previous Session: Decliners led 1.68 to 1

New Highs: 195 (+52)
New Lows: 15 (-1)

S&P
Stats: +8.54 points (+0.57%) to close at 1517.93
NYSE Volume: 509M (-14.74%)

A/D and Hi/Lo: Advancers led 2.16 to 1
Previous Session: Decliners led 1.51 to 1

New Highs: 471 (+155)
New Lows: 40 (+12)


DJ30
Stats: +48.92 points (+0.35%) to close at 13992.97

BREADTH: Lackluster compared to prior similar price moves.

VOLUME: Weak volume on the break higher is not an indication of a strong new break higher.


THE CHARTS

SP500. Broke higher out of a choppy week and one-half of lateral movement along the 10 day EMA. Still below the upper channel line. Very low volume. Nice new break but no volume.


NASDAQ. Gapped upside and rallied to a new closing high for the post-bear market. Volume fell but was close to average. NASDAQ may be trying to take the lead as it was stronger than SP500.


DJ30. Up but no breakout. Still a very nice pattern over the 10 day EMA, however.


DJ20. Cracked up through the two week lateral move on no volume. Not trusting it as a new breakout.


SP400. New high as the move continues up the 10 day EMA. A modest lateral move but basically no test.

Russell 2000 small caps: New high here as well but nothing significant and MACD has rolled over. Very choppy test and not too confident this move will continue.


SOX. Clean upside break as the chips take a leadership role similar to NASDAQ. Next resistance is the April 2012 upper gap point at 431 (closed at 424.81).


LEADERSHIP.

Big Names. Lackluster. AAPL was up with a gap to a doji. EBAY was up but a doji below the first of year high. GOOG continues to power ahead. PCLN is set up very well.

Chips, some techs, energy, and even some retail looked pretty good with some new moves.

Financials, homebuilders, leaders in this rally, continue to test, still holding up well.


THE MARKET

SENTIMENT INDICATORS

VIX: 13.02; -0.48
VXN: 14.14; -0.63
VXO: 12.44; -0.44

Put/Call Ratio (CBOE): 0.9; -0.13


Bulls versus Bears

A rise in bulls, a decline in bears. They are now beyond the last higher high and lower low hit in September. At that time the market corrected.



Bulls: 54.7% versus 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . Over the September 2012 level. Last time the market hit that level SP500 corrected 9% over the next two months. 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: 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Summary: 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

Again as on last Friday, we here will not be that surprised to see some give back to start the week. Friday was up and there were some flashes upside just as this rally has shown all along. There are stocks that can still break higher.

On the other side of the ledger, the overall volume was weak. Bulls and bears are just about at extremes. There are fewer primed stocks to choose from. The overall risk/reward is simply not as good here.

Doesn't mean the market cannot surge higher again. Markets that are on runs can do that. There was money wanting to get in for a week or more. Finally Friday it just bought in a bit. If they want to keep buying Monday we let our plays run and have a few that we can add to ride higher. Runs can go a lot farther than you think so if they go you go too.

All that is pushing the move now is money. Earnings are still coming but they are a known quantity. The economic data heavy hitters are out and now the market is basically on its own. The upside bias was there Thursday when stocks tested then recovered. It was there from the get go on Friday. Just a lot of bullishness after quite a run, a run that has basically matched the June to September run. At this point we are long out of the gate, riding the bulls surges, and the clock is well past 8 seconds. That tells you to be a bit cautious, but caution doesn't mean turn and run.


Enjoying the ride?




Support and resistance

NASDAQ: Closed at 3193.87

Resistance:
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3171 is the October intraday high
The 20 day EMA at 3142
3134 is the March 2012 post-bear market peak
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
The 50 day EMA at 3094
The 3083 up trendline at 3091
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
3024 is the gap point from early May
The 200 day SMA at 3001
3000 is the February 2012 post-bear market high
2999 is the bottom of the August 2012 consolidation
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
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


S&P 500: Closed at 1517.93

Resistance:
1539 from June 2007

Support:
1499 from January 2008
The 20 day EMA at 1494
1475 is the September 2012 high
1471 is the October 2012 intraday high
The 50 day EMA at 1467
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
The 200 day SMA at 1403
1402.22 - 1400 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
1344 is the February 2011 peak
1340 is the early April 2011 peak
1332 is the early March 2011 peak


Dow: Closed at 13,992.97

Resistance:
14,022 from 7-07 peak

Support:
The 10 day EMA at 13,917
The 20 day EMA at 13,795
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
The 50 day EMA at 13,540
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 200 day SMA at 13,098
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
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

February 8 - Friday
Trade Balance, December (8:30): -$38.5B actual versus -$45.4B expected, -$48.7B prior (revised from -$48.7B)
Wholesale Inventories, December (10:00): -0.1% actual versus 0.3% expected, 0.4% prior (revised from 0.6%)


February 12 - Tuesday
Treasury Budget, January (14:00): -$2.0B expected, -$27.4B prior

February 13 - Wednesday
MBA Mortgage Index, 02/09 (7:00): 3.4% prior
Retail Sales, January (8:30): 0.1% expected, 0.5% prior
Retail Sales ex-auto, January (8:30): 0.1% expected, 0.3% prior
Export Prices ex-ag., January (8:30): -0.2% prior
Import Prices ex-oil, January (8:30): -0.1% prior
Business Inventories, December (10:00): 0.3% expected, 0.3% prior
Crude Inventories, 02/09 (10:30): 2.623M prior

February 14 - Thursday
Initial Claims, 02/09 (8:30): 365K expected, 366K prior
Continuing Claims, 02/02 (8:30): 3200K expected, 3224K prior
Natural Gas Inventories, 02/09 (10:30)

February 15 - Friday
Empire Manufacturing, February (8:30): 0.0 expected, -7.8 prior
Net Long-Term TIC Flows, December (9:00): $52.3B prior
Industrial Production, January (9:15): 0.2% expected, 0.3% prior
Capacity Utilization, January (9:15): 78.9% expected, 78.8% prior
Michigan Sentiment, February (9:55): 73.5 expected, 73.8 prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Gushing Over the Market Hits an Extreme

MARKET SUMMARY

- Stock market gets what it wants: unemployment rate rises even as perception of economy improves, Dow crosses 14K
- Jobs report weak, unemployment up, but benchmark revisions have many dismissing the actual number, much as they dismissed the GDP number.
- Raw jobs numbers, sans adjustments, show a 155K jobs loss.
- Gushing over a 2% at best economy and lower year/year numbers. As the old song says, I guess we will take anything after 2:00 a.m.
- Maybe stocks have done what they always do, just on a grander scale thanks to QE: already priced in the perceived economic bounce.
- 2012 GDP growth total, based upon history, suggests, despite the view the economy is recovery, recession?
- How much better can the news get for now? Gushing over the market hits an extreme. Yes enjoy the ride but be ready for a jolt given everyone is so ebullient.
- Still plenty of stocks in position to move: sentiment may be getting a bit extreme, but market moves can get that way as well.

Unemployment rate rises, Fed billions secure, Dow tops 14K. All the rest of the gushing is noise.

7.9% unemployment, up from 7.8%. Fed's $85B per month tied to a lower unemployment rate. As with the key master and the gatekeeper in 'Ghostbusters,' an explosive combination.


Are you the key master?
Are you the gatekeeper? Ghostbusters, 1984

Never mind the headline jobs number missed expectations with a 157K reading versus the 180K expected or that the Work Week was 34.4 versus 34.5 expected and December was revised lower to 34.4 (why add jobs when those you have are working less?).

No, there were reasons to grab hold and run with it. First, though not that important, the benchmark revisions were released, and as in 2011 it turned sub-mediocre job creation into very mediocre job creation. That gave those believing the economy has turned ammunition to gush about how great 2% growth is. Of course they say 2% because we all know that the Q4 GDP reported at -0.1% was really 2% growth. Only a fool would think otherwise, right? Of course in Q4 2011 they thought that 4% growth was the gospel truth only to see it up and disappear like a fart in the wind in 2012 (from 'The Shawshank Redemption) . . .




The more important reason was stated above: unemployment rate rose and the Fed ties removal of stimulus to a declining number. Bingo.

Sure many explained the move on the benchmark revisions showing strength. Just as they did last year; right, I get that. As the 'coast' economists (Keynesians) beamed about the benchmark revisions, the market, secure that the $85B per month was, well, secure, rallied. A lot. DJ30 crossed above and held the hallowed 14,000 level. Not an all-time high, but getting in the ball park, about 189 points off. SP500 is about 63 points off its all-time high. Kind of a scary pattern if you look at a 20 year chart.

SP500 15.06, 1.01%
NASDAQ 36.97, 1.18%
DJ30 149.2, 1.08%
SP400 0.75%
RUTX 1.01%
SOX 1.89%

Stocks blasted off early and rallied into the afternoon. Lost a bit of ground in the back half of the session, not surprising given the run to this point, the weekend, the usual. Still, solid gains, decent breadth, though there was a volume lag. Bottom line, it was a new month, there is some money to put to put to work from a bit of bond selling, confirmation that the stimulus was here to stay. That money got put to work.

The way the pundits gushed about the economy and the market as the closing bell approached and on the post-market shows you would think there is nothing but upside ahead. The economy is stronger, the market is rallying and getting new money and clear waters are ahead as far as the eye can see.

Question: have they stopped to think the stock market has done what it always does, that is rises in anticipation of this improvement in the economic data? Granted there is no surge in the data, no surge at all for that matter, but with the super steroids of QE1, then QE2, then Twist, and now QE forever, the MARKET has surged and as a little kicker put in a few more points for the economic increase. Or I will say instead, the supposed economic increase.


OTHER MARKETS

Dollar: 1.3665 versus 1.3581 euro. The dollar sold down to a new 14 month low against the euro yet again during this fade, but it did come back from the session low. Now the question, as noted Thursday night, is why? Why if the US is so strong is the currency still falling? And falling against the euro, a continent that stands a few bad breaks from seeing most of the southern countries fall into feudal times.


Bonds: 2.02% versus 1.98% US 10 year treasury. After the jobs data bonds actually rallied with yields falling to 1.94%. What the heck? By the close, however, the ship had righted so to speak and bonds collapsed lower. Unemployment was higher, the Fed will keep buying, but bonds still sold off.


Gold: 1670.60, +8.60. Gold surged to the 50 day EMA but could not hold the move. It did pack in some gain to end the week, holding just over the 200 day SMA on the close. Still putting in a higher low and still needing to break over the 50 day EMA.


Oil: 97.77, +0.28. Still climbing, tapping the 10 day EMA on the low and bouncing, keeping the trend in place. Gasoline prices are surging, up 0.20 in just a few days. Highest gasoline prices on average ever. This could get ugly: taxes higher, gasoline prices digging into more income, disposable or otherwise.






THE NEWS

Take away the seasonal adjustments, take away 270K+ jobs from the reported number.

Jobs are like, so cool! An interesting and somewhat different feature to the unadjusted, actual numbers: the 16 to 19 age group gained jobs while the 55+ group that had led the jobs creation lost just a fraction.

A bit of a change, but the result is the same: the most jobs created are in the low end, the $7 to $14 per hour range.





Look at the raw numbers: 115,000 net jobs lost in the raw numbers, yet the adjustments put the number at a positive 157K. In other words, in reality there were 272,000 jobs less than the adjusted number reported.

It is clear that the numbers of jobs created month in, month out is still slow and stumbling. It is also very clear that the quality of the slow and stumbling number of jobs created every month is the low end. This is NOT A US RECOVERY.


Gushing over 2% growth. My goodness, how European.

I almost had to hose off after the last 5 minutes of the session as called by CNBC and its panel of standup comedians, I mean experts, on the NYSE floor. Even Harry Dent who believes some calamity is to come was bullish near term. A veritable stock market, economic love fest.

A lesson from the 1970's and the 'free love' era: beware of love fests as some nasty side effects can come out of them. Not that I was old enough then to participate. I just read the stories.

There is an old Bobby Bare song 'I've never gone to bed with an ugly woman (but I've sure woke up with a few).'

'I've met more than one morning lying there groaning, crying "Lord what did I do?"
Hanging my head as I slipped from her bed trying hard not to leave any clues.
When I start out the evening I'm being selective,
but I'll take anything after two . . .


'. . . I'll take anything at two . . .' or it seems six years after the start of the recession.

It would seem that after 6 years of rather horrid economic activity we have hit our 'two in the morning' time and we will take anything that may look good. Once again, the annual rights of the spring are here and the pundits are gushing about how the economy is ready to run. This time they are showing even more vigor even though earnings are less vigorous and the data, quite frankly, is not as solid across the board as in late 2011 and early 2012.

It appears that if enough time goes by we will indeed stop being selective and demand what is typical for the US but will settle for what we can get. As Michael Moriarty said in the Clint Eastwood western classic 'Pale Rider,' 'if we take a thousand dollars this time, what price do we put on our dignity next time? $2,000? $1,000? Or just the best offer?'


Is -0.1% GDP that some are calling 2% growth the price of our acquiescence to what is going on?

It almost seems we are willing to take the best offer. The economic data appears to show some improvement, but as noted, it did the same in 2011 and early 2012 but it was even stronger than now. Certainly earnings are not as strong yet.

If you look at each data point cited for its strength, I can show you the same month 2012 was stronger AND data points in other reports that contradict the claimed strength.

The ISM came in at 53.1, topping the 50.5 expected. In January 2012 it was 54.1. ISM national was over 50 but all regions outside Chicago were negative. Regional reports are not used for the national report believe it or not. So you have individual regional reports compiling data for their regions, a much simpler and more accurate task than the national given the scale and scope, yet shallower samples in the national report are used for the overall number. A disconnect between the two and an overall lower ISM than same month 2012.

Michigan Sentiment topped expectations at 73.8 (71.4 expected). In January 2012 it was 75 on the final read. Then there was the Consumer Confidence number tanking to recession levels at 58.6 from 66.7; tremendous plunge in confidence.

Incomes are trumpeted as jumping 2.6% in December, but it is clear that resulted not from great new jobs (the jobs data above proves that), but from incomes such as dividends, pulled forward from 2013. That won't be duplicated.

Durable goods orders jumped 4.6% but inside the numbers it was all defense spending and Boeing planes, and when you look at key capital investment, it was down 4.3% year/year.

Again, IF the pundits on television had the facts it would be shooting fish in a barrel to undermine the notion how strong the economy is. Earnings estimates for Q4 have been steadily cut from where they were going into the season. They are lower. The ISM was lower. Michigan sentiment was lower. Consumer Confidence lower. So much stronger than before, but lower.

Grown men supposedly seasoned in the markets are allowing the hype and euphoria over Dow 14,000 and indices at or closing in on all-time highs to color their judgment and conclusions versus looking at the facts.


Madame Defarge knits her tapestry of death for the heads that will literally roll.

Again I am reminded of Madame Defarge in 'The Tale of Two Cities' chiding the peasant for being overwhelmed by the splendor of royalty and forgetting his poverty-stricken plight: while the economy struggles to produce any jobs and millions of citizens are newly on government assistance in the past year we are beguiled by the money printing that has pushed up asset prices, confusing that with real growth.


Recession anyone?


How can this face be so worried?

Thursday Art Cashin cited a little discussed but widely know stat in economic lore: Since 1948 when the records started to be kept, when the year over year real GDP growth is less than 2%, the US has ALWAYS fallen into recession.

You guessed it. The 2012 year over year real GDP growth was 1.5%.

All the excitement over how it is better now than it has been in the recovery even as the obvious facts show the economic data is worse. Even Mr. Shiller of the Case/Shiller Index that is being cited as an indication of recovery is not so sure that is an accurate conclusion drawn from the data. As stated before, the excitement is emotion as they are caught up in the stock indices pushing to 5 year highs and closing in on all-time highs.

I put it this way again: do you think that 2% growth, IF we accept what the optimists are saying about what GDP growth is right now, has driven the stock indices to all time highs (as in the case of SP400, RUTX) or within striking distance as on DJ30 and SP500? If you are intellectually honest you have to answer 'no' and recognize it is massive liquidity pushed into the financial markets that pushed the indices to these highs.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +36.97 points (+1.18%) to close at 3179.1
Volume: 1.991B (-7.82%)

Up Volume: 1.54B (+540M)
Down Volume: 475.4M (-724.6M)

A/D and Hi/Lo: Advancers led 2.6 to 1
Previous Session: Advancers led 1.56 to 1

New Highs: 275 (+140)
New Lows: 26 (0)

S&P
Stats: +15.06 points (+1.01%) to close at 1513.17
NYSE Volume: 690M (-2.95%)

A/D and Hi/Lo: Advancers led 3.19 to 1
Previous Session: Advancers led 1.04 to 1

New Highs: 655 (+402)
New Lows: 59 (+32)


DJ30
Stats: +149.21 points (+1.08%) to close at 14009.79

BREADTH: Not bad at 2.5:1 NASDAQ and 3.2:1 NYSE. Maybe all fluff but good fluff moving many stocks.

VOLUME: Lower but decent after spiking the last day of the month Thursday. Not a bad showing for a new month in the new year, still nicely above average as new money jumped into the market rally.


THE CHARTS

SP500. Broke to a new rally high and post-bear market high after a 2 day test to the 10 day EMA. Regardless of the driver, SP500 is moving ahead and a sighting in on the 1576.09 all-time high hit in late 2007. Markets can run a lot farther than we think they should or can.


NASDAQ. Still below the September high of 3197 but in clearing the recent lateral move it puts everyone on notice it is seeking that level. Gapped upside Friday and closed out near the session high on a seventh straight session of above average volume.


DJ30. Broke 14,000, sold below it a few times, but then held it on the close. It too is seeking an all-time high at 14,198.

DJ20. Rebounded off the 10 day EMA test and sits just below last week's all-time high.


SP400 and Russell 2000. New high for the midcaps after a quick three day test of the 10 day EMA. As noted early last week, the doji pauses were just that, leading to a new bounce.

RUTX small caps: After flopping to the 10 day EMA Wednesday we said whether it held or folded would tell the tale for stocks. It held and Friday gapped and ran to a new all-time high.


SOX. A rather typical test of the 10 day EMA for the SOX and Friday the chips were up with SOX at a new rally high. Still a load of resistance from 2012 prices starting at 425 and running up to 445. Shooting them down one at a time for now.


LEADERSHIP.

Big names. AMZN did not participate. After gapping higher on its earnings but struggling to hold the move it has continued to struggle. AAPL was down as well. EBAY and GOOG pushed ahead with GOOG pushing to a new rally and all-time high above the October peak.

Financials. MA is holding its test after earnings gapped it but it reversed. JPM moved to a new rally high. C and BAC are bouncing from their recent tests. Not huge moves at all, just steady.

Transports. Most faded after the strong run to new highs in the index. They were up but not surging. Are these leaders losing some juice? KSU bounced off the 10 day but below recent highs. JBHT in trucking looks strong. ABFS made us money but after it turned the corner it is not following other truckers. UPS missed its earnings and has stumbled some.

Housing. Some surprise moves as TOL tanked toward the 20 day EMA. PHM did not participate and KBH faded some though it still looks to be a solid leader in the group. Materials are mixed as LPX still struggles, VMC sets up, and PATK looks good having fought off the sellers.

Retail. Still very sloppy given all the consumption and incomes. JWN is very range bound. LULU, FOSL, ZUMZ, BKE, CHS, ANN, ANF. These are not patterns to get all gushy over. On the other hand there are a few of interest, e.g. KIRK, KORS, and even DLTR as it looks to be bottoming for a bounce.

Drugs/Medical. Still interesting. SNSS surging. BMRN hits a new rally high. CELG breaking higher off its test. HNSN looks great for a new bounce as does ACAD.

Technology. FFIV holds some interest but just not sure what it is. IBM is fighting off the dips. May look at it upside as well. In the chips LSCC is interesting at that group continues to recover. FALC in software is a low price stock with some interesting action, but it is also low volume as well.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.9; -1.38
VXN: 13.89; -0.94
VXO: 12.44; -1.55

Put/Call Ratio (CBOE): 0.9; -0.01


Bulls versus Bears

Bulls: 54.3% versus 53.2% versus 51.1% versus 47.8% versus 46.8% versus 45.7% versus 43.6% versus 39.3% versus 37.2% versus 38.3% versus 43.6 versus 41.5% versus 45.7% . Basicallly at the September 2012. Last time the market hit that level SP500 corrected 9% over the next two months. 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: 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7% versus 27.7% versus 25.5%. Holding steady at 22.3% as the bears have hit the limit of their optimism, at least for now. Summary: 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

I am going to start my look at next week saying this: markets can run or fall a lot farther than we logically or rationally believe they can run. Thus a bit of the Friday post-market euphoria is understandable, but at the same time it is concerning. USUALLY it is the pessimism that drives the move, not the out and out euphoric gushing I heard Friday afternoon. By the time the euphoria sets in, everyone is more or less all in.

There is a notion that if all the money that chased bonds over the past few years started leaving as interest rates continue to rise (and thus has a snowball effect on rates itself), that money will find its way into stocks as the only game in town in terms of getting a return. It sounds very logical and I believe it will happen at least in part.

What pundits such as Harry Dent are worried about is that after that run occurs, what happens next? The money will be all in, the Fed is out of bullets, we have on the upside $100T in debts, and we had better pray that the economy has sparked to more than the 2% growth the experts claim the -0.1% Q4 GDP number actually showed. If not, beware the Zimbabwe effect.

What about Zimbabwe? It enjoyed the best performing markets in the world for a decade. Now the country has $217 of real currency (US dollars) left and its own currency is nothing but stacks of printed paper thanks to hyperinflation taking hold once the country passed the tipping point. What is the inflation rate? Cato Institute puts it at 89.7 sextillion percent. FYI a number in sextillion has 24 zeros after it. Its markets produced great paper gains. The only ones who survived are those who turned the paper into hard assets, something I have been telling you to do the past two years with some of your stock market profits. Take the money the Fed is giving you via its policies pushing stocks higher then convert some of it to hard assets while their prices are cheap. A balanced approach, right?


It's all a lot of fun until your money looses 89,700,000,000,000,000,000,000,000% in value.

But of course we are not Zimbabwe yet and we won't be there next week. So we again go about using the market run to our advantage so we have the dollars to convert into some hard assets just in case inflation gets a grip and things get a little sour.

I would not be surprised at all next week if the market sold. Lots of euphoria over what I have demonstrated are weaker year over year economic numbers mixed with liquidity-induced new market highs. As noted, however, that is a timing issue; euphoria does not mean automatic selling.

To me the market ended the month strong as new money came to stocks to start the year and a lot of funds that are still behind kept the ball rolling in the month. The old saying 'as goes January' has many revved up fearing they are missing out. Then February comes and new money hits Friday and push stocks higher despite a weak jobs report and economic numbers that are worse than January 2012. A lot of new money hit. A bit of letdown is normal.

Thus with the upside gaps Friday we opted not to engage in chasing that bus, figuring we will get a shot to buy this week. Indeed there are quite a few stocks we have looked at that could still participate with or without a test.
Don't count out an even more impressive run higher.

That statement is important: with or without. Why? Because even if we believe the market will test that does not mean it will test. As I always say, a market can run farther than we logically think it can or should. Thus if it does not come back there are plays we can make.

INDEED, if this is the start of a shift from bonds to stocks with retail investors coming back on board the rush higher could be impressive for several months. In that case there will be many buying opportunities. We just opted on one day to wait and see if the excessive excitement yields a deeper snap test for a few days and then we can move in with a better risk/reward situation. If not, we see many plays we can use to capture a further move higher for now until that next test comes.

The interesting point is this: if there is a sharp jolt, some of the newcomers will get burned by it and put off again just as it turns back and starts to rally once more. Psychology and markets are a devilish thing. Know what you want to do and do what you know. When stocks say 'buy me' based upon their patterns and their move it is best to listen to them versus our keen logic and wit. You don't have to be too terribly smart to make money in the market, you just have to think about it in the right mindset. Thus even though I think the excitement over the economic data is potentially cataclysmically wrong if the right people believe it is true and make decisions based upon it, I am not going to let that belief cloud my view to what stocks are doing and what a good risk/reward play is.


Support and resistance

NASDAQ: Closed at 3179.10

Resistance:
3197 is the September 2012 post-bear market high
3227 is the April 2000 intraday low
3401 is the May 2000 closing low

Support:
3171 is the October intraday high
The 10 day EMA at 3146
3134 is the March 2012 post-bear market peak
The 20 day EMA at 3124
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
The 2011 up trendline at 3079
The 50 day EMA at 3078
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points
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
The 200 day SMA at 2997
2988 is the July 2012 high
2977 to 2980 is the bottom of the late October 2012 consolidation, July 2012 peak
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


S&P 500: Closed at 1513.17

Resistance:
1539 from June 2007

Support:
1499 from January 2008
The 10 day EMA at 1497
The 20 day EMA at 1484
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
The 50 day EMA at 1457
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
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 1399
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


Dow: Closed at 14,009.79

Resistance:
14,022 from 7-07 peak

Support:
The 10 day EMA at 13,836
13,692 from 6-2007 peak
The 20 day EMA at 13,687
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high
13,557 to 13,662
The 50 day EMA at 13,447
13,413 from the late September 2012 low
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
The 200 day SMA at 13,074
13,058 from the May 2008 peak on that bounce in the selling
13,056 is the February 2012 high
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

February 1 - Friday
Nonfarm Payrolls, January (8:30): 157K actual versus 180K expected, 196K prior (revised from 155K)
Nonfarm Private Payrolls, January (8:30): 166K actual versus 193K expected, 202K prior (revised from 168K)
Unemployment Rate, January (8:30): 7.9% actual versus 7.7% expected, 7.8% prior
Hourly Earnings, January (8:30): 0.2% actual versus 0.2% expected, 0.3% prior
Average Workweek, January (8:30): 34.4 actual versus 34.5 expected, 34.4 prior (revised from 34.5)
Michigan Sentiment - Final, January (9:55): 73.8 actual versus 71.4 expected, 71.3 prior
ISM Index, January (10:00): 53.1 actual versus 50.5 expected, 50.2 prior (revised from 50.7)
Construction Spending, December (10:00): 0.9% actual versus 0.5% expected, 0.1% prior (revised from -0.3%)
Auto Sales, January (14:00): 5.5M prior
Truck Sales, January (14:00): 6.5M prior


February 4 - Monday
Factory Orders, December (10:00): 2.4% expected, 0.0% prior

February 5 - Tuesday
ISM Services, January (10:00): 55.6 expected, 56.1 prior

February 6 - Wednesday
MBA Mortgage Index, 02/02 (7:00): -8.1% prior
Crude Inventories, 02/02 (10:30): 5.947M prior

February 7 - Thursday
Initial Claims, 02/02 (8:30): 360K expected, 368K prior
Continuing Claims, 01/26 (8:30): 3200K expected, 3198K prior
Productivity-Preliminary, Q4 (8:30): -1.2% expected, 2.9% prior
Unit Labor Costs, Q4 (8:30): 2.4% expected, -1.9% prior
Natural Gas Inventories, 02/02 (10:30): -194 BCF prior
Consumer Credit, December (15:00): $11.9B expected, $16.0B prior

February 8 - Friday
Trade Balance, December (8:30): -$45.4B expected, -$48.7B prior
Wholesale Inventories, December (10:00): 0.3% expected, 0.6% prior

By: Jon Johnson, Editor
Copyright 2013 | All Rights Reserved

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

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