Monday, February 11, 2013

Can the Friday Upside Break be Trusted?


- 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%


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.


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.



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)

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)

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.


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).


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.



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.


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

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

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

1539 from June 2007

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

14,022 from 7-07 peak

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

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