Monday, March 25, 2013

Cyprus Worries Off Again on Friday


- On again, off again Cyprus worries off again on Friday.
- Word of agreement on Cyprus spurs added upside late in the session and in the after hours trade. But there is no agreement.
- Consumer stocks rising, industrial stocks guiding lower: who wins?
- Texas wants its gold at home.
- Stocks held where needed to and bounced, but don't like NASDAQ or the small and midcaps failing to lead when the US consumer is supposedly stronger.

Okay so stocks were down Thursday after the Wednesday upside move off the 1-2-3 pullback. That should be enough right? No face plant, no broken indices (though some stocks look broken), so just walk off the pain and get back in the game. That is exactly what they did, indeed from very early in the pre-market.

Stocks bounced right back from the Thursday sharp drop, again using the 20 day EMA as support. Volume fell 1% on NYSE and 9% on NASD as the large cap indices led the bounce while the small and midcaps lagged. Not a banner day internally, but there have been worse on an upside move. Hey, in a funny money, liquidity lifts all boats market you don't need volume, at least in terms of shares, just large volumes of printed cash to make the markets go round.

SP500 11.09, 0.72%
NASD 22.40, 0.70%
DJ30 90.54, 0.63%
SP400 0.33%
RUTX 0.25%
SOX 1.14%


Dollar weaker: 1.2996 versus 1.2906. Down just modestly on the day but still trending up the 10 day EMA and approaching the July highs. A serious upside move continues as money that was moving out of Europe ahead of Cyprus (I guess NO ONE in Europe knew that Cyprus was going to happen, right?) has pushed the dollar in an impressive 2 month run.

Bonds rallied, somewhat strange: 1.91% versus 1.93%. Why the hell should US bonds rally if the US economy is so strong? Oh, I guess those industrial company warnings and weak guidance along with the European implosion is pushing money into US treasuries. Good thing because no one here seems to want them right now.

Oil rallied: 93.71, +1.26. As on again off again as the Cyprus issue as it works laterally at the 50 day EMA, still trying to make the decision to break higher toward 100 or break lower toward 85.

Gold sold: 1606.10, -7.30. Struggled on the session but up on the week. Darn well should be with Cyprus ready to implode and then the rest of Europe. Hell, TEXAS wants its gold back. A bill has been filed in the Texas legislature to bring it home from New York due to a severe lack of trust. Possibly also a secession movement. If you hear about the Texas government buying 1.6B rounds of ammunition you know something is up. Of course, as with Homeland Security, the story will simply be denied.

Cyprus still an issue, but not that much for US markets.

During the session there was darn little news. Cyprus updates on the half hour as usual, rumors of a resolution at hand helped jump the market up late and indeed after hours. But, alas, they were just rumors as no solution is yet ironed out and the Monday 'deadline' set by the ECB still looms. Indeed, one proposed plan has Cyprus still confiscating bank accounts, in some cases by 70% as it looks at taking 25% of what it considers the 'larger' accounts, i.e. those above the insured level. Nice.

That was 'hanging' over the market but US stocks certainly didn't seem to mind. Indeed stocks, as on Wednesday, ignored foreign issues and looked to the domestic arena, loving earnings from NKE, TIF, and even DRI, a stock that gave the most lackluster report but didn't bother this market as it was bid higher over 1%.

The action definitely skewed toward the large caps. Don't like that as much but hard to complain about the advance. Well, okay. I will complain some. No small/midcap participation of any meaning. Weak volume. Weak breadth (1.5:1 NASD, 1.7:1 NASD). Several areas were weak as the breadth indicates. The move just was not as strong as they have been in terms of participation.

Now that does not mean the advance cannot continue. At this point almost nothing has stopped the rise as even what many are calling Europe's Lehmann Brothers (Cyprus) hit but only caused a modest ripple in the US, i.e. a very normal test of the last move higher. As noted above, there is lots of money pushing into US stocks from here in the US and from overseas thanks to Cyprus . . . and the general crappiness that is the European Union economic condition.

Consumer stocks earnings versus industrial stocks warnings.

What appeared to drive this market Friday and indeed Wednesday was earnings. You had to look at them just right with some selective cognitive recognition to see how things were that much better, at least enough to drive stocks higher. It was as if investors were using some good earnings (earnings that would not have been viewed positive just a month or two back) as an affirmation of a decision already made to invest.

How so? This past week FDX, ARG, CAT and other industrials gave terrible outlooks on top of what many large cap industrial stocks said in their Q1 earnings. With these comments that March is looking at bad or worse than February, that lowered guidance appears to be coming true.

On the other hand there are a few consumer stocks have reported decent results and are heralded as great or reasons to buy. But are they? NKE missed on revenues. DRI was in line and reported weak sales. Nonetheless it was up Friday. In last earnings season these reports would have been used by investors to wipe their feet. Now with the new money hitting the market, these rather serious issues are viewed as just temporary setbacks surely to be overcome. Hmmm.

Recall back when the industrials were reporting good results (compared to the prior few years) on the export economy? Easy to do when you get major stimulus and tax breaks AND the rest of the world was not sliding toward the abyss. At the time the pundits on the financial stations crowed about how strong the US was as evidenced by these companies selling goods overseas, not here at home.

Now the industrial earnings look to be rolling over given the guidance and now the warnings they have as the actual numbers come in.

So you have consumer stocks reporting results viewed as strong right now but that would not have impressed many last earnings season. We believe that the driver is the perceived improvement in the housing market with some better pricing providing the consumer with some much needed confidence boosting.

Our worry is the consumer, currently buoyed by recovering home prices, rolls over as well as the big companies won't be spending either (FedEx cut its cap-ex by $300M) and that means any signs job creation was improving (and that is darn little really) will end. That would mean the current consumer led recovery the market loses that reason for rallying. These retail earnings as it is are not that strong; again, a month ago the revenue misses would have caused selloffs in the stocks.

Of course this is a worry right now and not reality. Stocks are rising as investors find whatever issues there are with the earnings, they are not enough to blunt the money flowing to the stock market from various sources eager to put money in the US and to take part in the market rally overall.

So on the day we took some gain on a few positions, both upside and downside. That is the way this market is as it shows some broad divergences in performance. Several possible buys played footsy with the buy points so we opted to wait and let them show they are serious about holding the move after the weekend.



Stats: +22.4 points (+0.7%) to close at 3245
Volume: 1.645B (-0.9%)

Up Volume: 929.78M (+371.16M)
Down Volume: 712.5M (-417.5M)

A/D and Hi/Lo: Advancers led 1.46 to 1
Previous Session: Decliners led 2.16 to 1

New Highs: 122 (+22)
New Lows: 17 (+4)

Stats: +11.09 points (+0.72%) to close at 1556.89
NYSE Volume: 549M (-7.11%)

A/D and Hi/Lo: Advancers led 1.79 to 1
Previous Session: Decliners led 1.92 to 1

New Highs: 706 (+442)
New Lows: 464 (+438)

Stats: +90.54 points (+0.63%) to close at 14512.03


SP500. The Wednesday bounce didn't last but neither did the Thursday selling. SP500 bounced off the 20 day EMA. The late February selloff was 4 sessions. This one is 5, not counting Friday if it is the start of the recovery.

NASDAQ. Up off the 20 day EMA as well though low volume here as well. Not nearly as strong as SP500 and others and NASDAQ is a worry heading into next week. Very choppy compared to the other indices and that is not good after a run upside.

DJ30. Very similar to SP500, just at the 10 day EMA versus the 20 day EMA.

SP400. Up off the 10 day EMA but lagging in terms of the move. Not convincing at all on the day, but the trend is still very much in place.

Russell 2000 small caps. Identical to SP400 and not instilling a lot of confidence.

SOX. Very volatile as NASDAQ. SOX is holding the lower up trendline so it is making a stand, but with NASDAQ questionable and the small and midcaps not bouncing with strength it is quite problematic.

SUMMARY: The Friday action was skewed toward the large cap NYSE stocks. The other indices were up but their gains were not convincing and some patterns are troubling, e.g. NASDAQ. Friday did not ensure the upside continues.



VIX: 13.57; -0.42
VXN: 13.88; -0.36
VXO: 13.24; -0.72

Put/Call Ratio (CBOE): 0.92; +0.06

Bulls versus Bears

Mix in a bit of selling and the bulls fell back below 50. Bears were not so easily swayed, basically holding steady. Still elevated and closer to levels that are a bit frothy but stil off the highs on this move hit before the February selling.

Whatever was lower bears and raising bulls the prior week gave up for this week as the bulls surged and bears flopped. Not at extremes on the bulls but moving that was fast while the bears a very near an extreme and that is not good for the market. So in terms of some psychological indicators the market is getting toppy.

Bulls: 47.4% versus 50.00% versus 44.2% versus 46.3% versus 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: 18.6% versus 18.8% versus 21.1% versus 21.1% versus 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.


Big week of data starts Tuesday: Durables, New Home sales, Confidence, GDP Q4 final, Chicago PMI, Personal Income and Spending. On top of that, Monday is the deadline imposed by the EU for Cyprus to come up with a new plan. Now the conventional wisdom suggests Cyprus takes a big chunk of citizen property in the form of bank deposits and savings and uses those as the sacrificial offering to Germany and the other northern EU countries.

The not so conventional wisdom (I guess that would be the unconventional wisdom) we think might happen is an Iceland where basically Cyprus decides to be the next (after Iceland) European or close to European nation to go its own way versus be forever entombed as a lower class country in the EU. That would mean it would cut contracts, slash and burn. That means citizens and businesses in Cyprus would still bear the brunt of onerous cuts and reforms. BUT, and this is the thing that makes it alluring, it would be its own country again and have the hope of growth and prosperity down the road. If it goes the EU route it pays the same or more and is enslaved. Think of it as tax credits: you have to pay the money either in taxes or you can buy something for yourself that you need with that money. You still have to spend it but at least you get something you needs. That is a powerful incentive and some in Cyprus are talking about it. Will they have the willpower and the ability to convince the masses?

While the US markets appeared to shake off the Cyprus issues late in the week, the NASDAQ pattern is not good and the small and midcaps are lagging. The trend is still in place so perhaps there is nothing to worry about. There are still good patterns in position to move higher if the money is there.

Ah yes, the money. Don't be fooled about recovery driving this. Yes there is some wealth effect from home prices firming and better economies in certain states. But overall there are problems with industrials and that is very worrisome. The consumer can drive things, but not if jobs don't at least hold steady. Jobs are what ultimately drives consumer actions. With weak guidance and lack of capital investment forecasts, if that turns to reality there won't be jobs growth.

So, it is up to the money staying and investors willing to put it to work. The US has been saved by the fact the rest of the world is so bad, and right now that certainly looks to be the continuing theme. That may right the patterns in NASDAQ and SOX and get the small caps and midcaps back in the game.

PROBLEM IS: WHY are the midcaps and small caps suddenly lagging the move IF the domestic economy is improving. They should be out in front leading. That remains very worrisome (along with restaurant numbers). The question is whether it trumps the money.

Thus far it has not and thus we continue to look at more upside. At the same time we look to some additional downside plays because of the issues and the simple fact that we have made some great money on our downside plays even as the market rallied. That shows not all is well everywhere but again, it has not kept the market from rising and we will see if it can continue to overcome issues with the aid of massive liquidity.

Support and resistance

NASDAQ: Closed at 3345.00

3261 is the recent March high
3304 is the upper channel line for the November 2012 to present uptrend
3321 from April 2000
3401 is the May 2000 closing low

3227 is the April 2000 intraday low
The 20 day EMA at 3221
3197 is the September 2012 post-bear market high
3171 is the October intraday high
3177 is the November 2012 up trendline
The 50 day EMA at 3176
3134 is the March 2012 post-bear market peak
The 2011 up trendline at 3134
3130 from some January 2013 lows
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
3062 is the December 2012 prior peak
The 200 day SMA at 3044
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
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 1556.89

1564 is the recent March peak.
1576 from October 2007, all-time high
1587 is the upper trendline in the channel

1556 from July 2007
The 20 day EMA at 1542
1539 from June 2007
1531 is the recent high
The November up trendline at 1518
The 50 day EMA at 1512
1499 from January 2008
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
The 200 day SMA at 1430
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
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 14,512.03

14,715 is the upper channel line for the trend off the November low.
9.0% above its 200 day SMA, still leaving DJ30 room to run before it gets too top heavy on this run and has to test.

The 20 day EMA at 14,330
14,198 from the October 2007 high
14,149 is the February 2013 high
The 50 day EMA at 14,043
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
The November up trendline at 13,881
13,784 is the late February 2013 closing low
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
13,413 from the late September 2012 low
The 200 day SMA at 13,308
13,300 to 13,331 is the August 2012 post-bear market high
13,297 is the April 2012, prior post bear market high
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

Economic Calendar

March 26 - Tuesday
Durable Orders, February (8:30): 3.8% expected, -4.9% prior (revised from -5.2%)
Durable Goods -ex transports, February (8:30): -0.2% expected, 2.3% prior (revised from 1.9%)
Case-Shiller 20-city, January (9:00): 7.5% expected, 6.8% prior
Consumer Confidence, March (10:00): 66.9 expected, 69.0 prior
New Home Sales, February (10:00): 426K expected, 437K prior

March 27 - Wednesday
MBA Mortgage Index, 03/23 (7:00)
Pending Home Sales, February (10:00): 2.0% expected, 4.5% prior
Crude Inventories, 03/23 (10:30): -1.314M prior

March 28 - Thursday
Initial Claims, 03/23 (8:30): 338K expected, 336K prior
Continuing Claims, 03/16 (8:30): 3040K expected, 3053K prior
GDP - Third Estimate, Q4 (8:30): 0.3% expected, 0.1% prior
GDP Deflator - Third Estimate, Q4 (8:30): 0.9% expected, 0.9% prior
Chicago PMI, March (9:45): 56.5 expected, 56.8 prior
Natural Gas Inventor, 03/23 (10:30): -62 bcf prior

March 29 - Friday
Personal Income, February (8:30): 0.8% expected, -3.6% prior
Personal Spending, February (8:30): 0.6% expected, 0.2% prior
PCE Prices - Core February (8:30): 0.1% expected, 0.1% prior
Michigan Sentiment - Final, March (9:55): 72.4 expected, 71.8 prior

By: Jon Johnson, Editor
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Jon Johnson is the Editor of The Daily at

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