Monday, April 29, 2013

Market is Using the Pause to Refresh

MARKET SUMMARY

- A rather do nothing session on rather do nothing economic data.
- Market was not ready to continue the move, but the patterns suggest it is using the pause to refresh.
- When 2.5% GDP growth is really quite bad. When, among other reasons, debt to GDP is 105%.
- Prepare for information overload: earnings, FOMC, jobs report and other key economic data.

After initial rally off support the market is pausing.

You can read the market action any way you want. There was selling on worries the Fed would fade stimulus. That took the SP500 to its 50 day EMA, the Dow to its November trendline, NASDAQ to its 2011 trendline, while RUTX and SP400 bombed through their trendlines and the 50 day EMA.

But, the economic data continued to soften. The 0.4% Q4 GDP read was not going to lead to as big a bounce as thought in Q1 as the economic data soured for the third straight spring. As sure as spring would eventually come, the Fed would surely have to remain generous with its money printing. Thus, with apparently the 85B per month still secure thanks to once again weaker economic data, the stock market recovered.

It is a perverse world where such prolonged economic weakness has led to such a prolonged stock market rally. With the fade in the economic data it looks as if the perversion is going to turn into habit. As Bloomberg reported last week, Fed talk of tapering stimulus has shifted to extending it given the economy's failure to find traction.

I think back to those who early in the year and as late as February and early March were saying this time the rebound was for real. This time it would surely stick. Housing had bottomed. Jobless claims were better. The President touting 6 million jobs created.

Yes, housing is better as the low end of the spectrum declines in numbers available. Starts, however, are dominated by apartments, somewhat late in the recovery versus the typical pattern.

Better jobless claims do not, as we have seen the entire recovery, mean job creation. Just because not as many people are getting fired there are jobs for those wanting to work. Jobs have been created, but they are all part-time and low paying with 58% of the jobs lost at the mid-level and roughly the same amount created at the lowest pay levels. Many who were holding part time jobs in hope of turning them into full time or otherwise finding full time have given up and left the work force. U6 plummeted on just 88K jobs creation in March; that tells you they left the labor pool. Of course food stamps and disability are at RECORD highs in a recovery in its fourth or fifth year depending upon who you talk to.

With that understanding it is easy to see why the thought is turning to a conclusion the Fed simply sticks with the stimulus and hopes they can keep things limping along until the economy can someday find traction. This even with a 2.5% GDP in Q1 as I will discuss later.

THUS, even though the market paused on Wednesday and again Friday after the GDP that was not as good as expected and indeed even worse than the headline showed, the market still looks as if it is setting up for a further, liquidity induced upside move. Liquidity runs this market, not the economic news. If it continues to come from the Fed the conventional wisdom is stocks will continue higher.

THE VERY interesting philosophical question is whether, once everyone is convinced the economy truly is stagnant and cannot rise under the Administration's policies of taxing producers, spending everything it can on everything it can but really encouraging free enterprise (the new GDP shows debt to GDP at 105%!), and a list that, frankly I am too tired of looking at and fretting over the cover again, WILL the jig be up?

In other words, if people believe that the only reason the market is rising is because of Fed stimulus and totally disregard any hope of economic growth, will the market still rise simply because of liquidity being pumped in? At some point there is a Roberto Duran 'no mas' moment when no correlation remains between the economy and the market, and the debt level hits the tipping point. It has happened many times in history and it will happen if we keep up what we are doing. You don't know what the level is or the exact trigger, but as the judge in 'Presumed Innocent' told counsel, you are playing with fire.

Nonetheless, we WILL continue to play with fire and may even be willing to suffer some scorching if the Fed sees no progress from the fiscal side. And by progress I am not talking about Congress just compromising for compromise sake to get things done. If you compromise on the wrong policies then you don't fix a thing. If you compromise and expand government to socialist and beyond levels, you don't get growth and you get what the USSR and the eastern block got. At 105% Debt/GDP we ARE running out of other people's money (Margaret Thatcher), or, as Milton Friedman put it, with the federal government in charge of the Sahara desert, even the desert is running out of sand.


The market action.

Friday stocks did little. Futures were sluggish ahead of GDP and after GDP. They actually rose after the miss (2.5% versus 2.8% to 3.0% expected); a miss means more Fed stimulus, right?

They rallied and sold, laughed and cried, and did it all again, giving up a gain late in the day.

SP500 -2.92, -0.18%
NASD -10.73, -0.33%
DJ30 11.75, 0.08%
SP400 -0.45%
RUTX -0.54%
SOX -1.07%

Even so, the indices, particularly the large caps, remain in good position to continue the test started Wednesday, hold the initial gains on the run, and resume the move higher in the range.


OTHER MARKETS

Dollar: 1.3033 versus 1.3004 euro. Up on the week and near the late March high. Faded Friday but managed to hold the 20 day EMA after an early selloff. Seems people still want money in the US given the trouble with the rest of the world.


Bonds: 1.67% versus 1.72% versus 1.69% versus 1.70% versus 1.69% versus 1.71% versus 1.69% versus 1.70% versus 1.72% versus 1.69% versus 1.72% versus 1.79% versus 1.81% 10 year Treasury. New closing high on this move with a gap Friday off the 200 day SMA. Economic worries, Europe and US, are keeping treasuries higher.


Oil: 93.00, -0.64. Strong recovery week pushed oil back through the 200 day SMA after bouncing off support just over a week back. Took a breather Friday but remains in a strong recovery in its range. It has set up an ABCD pattern now off of the December low and it is rallying back toward the top of the range.


Gold: 1453.40, -8.60. A week of recovery took gold through the 10 day EMA with a strong $38 Thursday move. Doji below the 20 day EMA Friday as gold tests the next resistance.


THE ECONOMY

2.5% is just the Fed.

I said over a year ago that 1.5% to 2% annual growth is what you get when you pump hundreds of billions, yeah verily, trillions of dollars into the economy via monetary policy. The money HAS to be put to work and that means there will be an increase in activity, particularly investment activity. Stock prices rise, dividends are paid, some marginal increases in economic activity. Voila, 1.5% annualized growth with some 0.4% and some 3% quarters at the extremes.

Thus you have the first read of Q1 2013 at 2.5%. Disappointing yes, but it was still 2.5% and that is better than 0.4% from Q4. As with jobs, however, you have to ask just what is the quality of this number?

Many were asking that Friday, and nearly everyone outside of the Administration that HAS to say it was a 'positive' concluded the 2.5% was nowhere near representative of the actual results and more importantly, the GLIDE PATH of the economy. Indeed, glide path is not a very good choice of phrases. More like controlled crash situation where the best hoped for result is minimizing the carnage upon impact.

So, when is 2.5% GDP growth not a good number?

1. When consumption jumps to 3.2% versus 1.8% prior, but consumers have to dip into savings to pay for essentials such as heating. Yes, spending on utilities in Q1 was the largest part of the increase in consumption. Seems the cold weather forced consumers to spend more on heating.

With incomes falling 5.3%, the biggest decline since Q3 2009, they had to tap into savings to pay for staying warm. That forced the savings rate, which had been growing, down to 2.6%, the lowest level since Q3 2007. Compare that with 4.7% in Q4 before the tax hikes. You CANNOT SAVE what the government takes from you.

2. When inventory buildup makes up 1.03% of the total number but almost 100% of that buildup is grain inventory build due to draw downs, something that won't be repeated. Without that build you have a scintillating 1.5% GDP growth rate.

3. When business investment falls to 3% versus 11.8% in Q4. No jobs come from no investment. Right now it does not pay to invest in the business outside of stock buybacks and dividends. Now THAT is growth.

4. When debt to GDP climbs to 104.8% as of March 31, 2013. Just slide on over Greece, Italy, Ireland, Spain, etc. The new socialist country has become just like you in terms of massive spending and the lack of economic power to grow out of it. Fed liquidity, surging healthcare costs (IBD reports Maryland rates will rise by as much as 150% for younger insured), higher taxes, low wage and low end jobs, food stamp usage at records, disability at record levels.

There is NO way to grow out of our problems with this kind of debt and this kind of spending and anemic economic growth. We have always grown our way out of debt overloads during recessions with powerful recoveries. We have documented many times how this is the weakest recovery in history.

No, it is not because the problems were so bad. It is because we have tried to solve a debt problem with debt as we spent dramatically more than in the prior administration, an administration know for its profligacy. Strangling entrepreneurs, Mom and Pop businesses, and basically anyone trying to go it alone with higher taxes, 100,000 new regulations and more coming, higher healthcare costs, higher energy prices, etc. hamstrings any recovery attempt.

Then you have the avarice in the government that just sucks the spirit from the people. Congress is again talking of exempting Congress and its aides from the Healthcare law because it is just 'too burdensome.' Or how about Senator Feinstein's husband being the broker on the USPS' sale of post offices, of course located on prime real estate in every town they are in? Seriously? SHE gets the benefit of this? This is the kind of stuff that makes hard working, tax paying, country loving citizens, the backbone of the country, decide we are just not going to fund it anymore. If just about anyone can get food stamps or disability or a free cell phone while you see an 87 year old grandmother hassled by the government over a few bucks of benefits she and her husband paid for every month for 50 years, you wonder what is the point? Juxtaposed against the open avarice and disconnected leadership from the administration and Congress, many people have drawn the line.

Will 2.5% GDP growth be enough to pay for the waste, graft, fraud, and avarice? Never is. Wasn't enough in the USSR. You cannot waste money as we do and spend money as we do and not have the industry to back it up. The third leg of the stool is cracked and about to splinter. The GDP report, as with the prior jobs report, reveals the recovery has no clothes.

TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -10.73 points (+0.33%) to close at 3279.26
Volume: 1.632B (-14.2%)

Up Volume: 816.89M (-453.11M)
Down Volume: 872.73M (+158.54M)

A/D and Hi/Lo: Decliners led 1.68 to 1
Previous Session: Advancers led 1.65 to 1

New Highs: 99 (-71)
New Lows: 26 (+5)

S&P
Stats: -2.92 points (+0.18%) to close at 1582.24
NYSE Volume: 602M (-11.21%)

Up Volume: 1.14B (-1.5B)
Down Volume: 2.03B (+850M)

A/D and Hi/Lo: Decliners led 1.49 to 1
Previous Session: Advancers led 2.02 to 1

New Highs: 243 (-278)
New Lows: 32 (-24)

DJ-30
Stats: +11.75 points (+0.08%) to close at 14712.55

BREADTH: -1.7:1 NASDAQ, -1.5:1 NYSE. Blah session, blah breadth.

VOLUME: Down on what we consider a consolidation session, -14% NASDAQ, -11% NYSE.


THE CHARTS

SP500. Continued the move up off the 50 day EMA started the prior Friday, but stalled out at the end of the week. Wednesday was weak, Thursday was up but closed well off the high, and Friday lost some ground. Still looks just like a pause in an continuing run higher in the now recovered channel.


NASDAQ. Rode the move up off the 2011 up trendline into Thursday, retaking its uptrend channel over the November trendline. Hung on by its teeth Friday as NASDAQ lost some ground, showing a doji at the trendline. Good move up, good test. If the techs join in . . .


DJ30. Good rally through Tuesday and then a tight lateral move over the 10 day EMA through Friday. Bounced off the trendline, testing the initial move, still room to run.


SP400. Up solidly all week then faded Friday to test the 10 day EMA on the low and bounce modestly. At the late March and April highs, actually looking decent here though at resistance.


RUTX. Up all week as well then fading modestly Friday. Recovered the 50 day EMA along with SP500 and extended that move on the week. Still looks heavy but it is following along nicely and actually led the move Wednesday and Thursday along with SOX.


SOX. Broke over the February and early April highs on the week. Faded Friday to a tight doji at the early April peak. It tapped the rally high from March Thursday at the high. A pullback to a higher low would be a very good sign, suggesting a breakout. Do we dare imagine that?


LEADERS

Big Names. AMZN took a shot on its earnings, but AAPL was up. GOOG was down but a very nice 10 day EMA test. MSFT enjoyed a strong week but started to struggle Thursday and Friday. Normal for a pullback after that move. CL, CLX are in rather normal pullbacks as the indices test that initial recovery off the early April selling.

Drugs, biotech. The bigger names were struggling as earnings came out (AMGN, CELG), but a lot of the small names enjoyed great weeks, e.g. BDSI, CLDX, SNSS, ACAD.

Retail. Mixed. DECK sold on earnings. COH surged in earnings. TJX rallied back up to the April highs. LULU surged, NKE continued its steady run. DRI, BWLD (restaurants) enjoyed nice gains.

Industrials, Machinery. CAT enjoyed a nice rally on the week as did TEX. Not great patterns, just rallying more.


THE MARKET

SENTIMENT INDICATORS

VIX: 13.61; -0.01
VXN: 15.48; +0.16
VXO: 12.93; -0.35

Put/Call Ratio (CBOE): 0.89; -0.08

Bulls versus Bears

Bulls faded significantly below 50 but bears were unconvinced, holding at 20.6%. Bears remain low, bulls not too high.



Bulls: 47.4% versus 50.5% versus 52.0% versus 49.5% versus 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. Has hit a soft patch. Higher then rolling over below the January and February highs. That market hiccup ahead of and to the Jobs Report. Now back up so . . . probably hangs over 50. 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: 20.6% versus 20.6% versus 19.4% versus 19.6% versus 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.


MONDAY

A week of major data from the ISM to an FOMC rate meeting to the April jobs report. Earnings as well, of course.

The indices are testing after a good 'rally where they had to' move off of key support. Earnings are mostly a disappointment as a strong majority of firms miss on the top line, i.e. sales are not keeping pace with expectations for an expanding economy. Perhaps, just perhaps, the economy is not expanding nearly as fast as thought. That is what the GDP numbers show and what the revenue results and guidance is suggesting for the future as well.

As alluded to earlier, that is good for continued stimulus, but the question is just how much more market benefit can be wrung out of continued huge amounts of stimulus. Quite a run thus far on the current QE phase, topping the run from late 2011 to early 2012 and again in May to September 2012. In that light, the current rally and its recent drop to support and indeed a bit lower than prior tests, is still suspect even if it looks simply like a normal pullback in the run higher.

So, with the FOMC out on Wednesday the driving question will be how committed the Fed is to continuing the stimulus. The statement won't likely tell the story, at least not what the minutes have told, and the minutes have been the market movers. Still, given all the 'tapering' speculation, if the statement is stone cold the same without referencing any need for tapering or other change, investors might take it as a positive.

It will be information overload as stocks test and that leads to emotions creeping in. So, stick with good patterns that are in position to move. Up or down. That is what we intend to do. The recovery was encouraging for the upside but it is not a move that cannot be altered by the current events and news. Weaker data keeps the Fed in the game and the easy conclusion is more stimulus.

Keep in the back of your mind, however, the idea that at some point stimulus won't matter to stocks anymore. Always have that as part of the overlay when reviewing the market. It is not there yet and has proved anyone thinking that dead wrong. Won't always be the case, so as you work good upside plays, don't blindly think that stimulus always means stocks rise. We have never had this kind of stimulus for anywhere near this long. History tells you what the result will be if it never stops, but what history does not tell you thanks to differing circumstances is WHEN the inevitability sets in. For now it has not.


Support and resistance

NASDAQ: Closed at 3279.26

Resistance:
3321 from April 2000
3390 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3277 is the November 2012 up trendline
3227 is the April 2000 intraday low
The 50 day EMA at 3220
3197 is the September 2012 post-bear market high
The 2011 up trendline at 3177
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
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
The 200 day SMA at 3087
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
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 1582.24

Resistance:
1598 is the April 2013 high and all-time high
1637 is the upper trendline in the channel

Support:
1576 from October 2007, the prior all-time high
The November up trendline at 1569
1556 from July 2007
The 50 day EMA at 1548
1539 from June 2007
1531 is the recent high
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
The 200 day SMA at 1458
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
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 14,712.55

Resistance:
14,888 is the recent all-time high
15,151 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.

Support:
The November up trendline at 14,581
The 50 day EMA at 14,417
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
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
The 200 day SMA at 13,548
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
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

April 22 - Monday
Existing Home Sales, March (10:00): 4.92M actual versus 5.01M expected, 4.95M prior (revised from 4.98M)

April 23 - Tuesday
FHFA Housing Price Index, February (9:00): 0.7% actual versus 0.6% prior
New Home Sales, March (10:00): 1.5% versus 0.7% expected (417K actual versus 415K expected, 411K prior)
Richmond Fed: -6.0 versus 3.0 prior.

April 24 - Wednesday
MBA Mortgage Index, 04/20 (7:00): 0.2% actual versus 4.8% prior
Durable Orders, March (8:30): -5.7% actual versus -3.1% expected, 4.3% prior (revised from 5.6%)
Durable Goods -ex transports, March (8:30): -1.4% actual versus 0.0% expected, -1.7% prior (revised from -0.7%)
Crude Inventories, 04/20 (10:30): 0.947M actual versus -1.233M prior

April 25 - Thursday
Initial Claims, 04/20 (8:30): 339K actual versus 351K expected, 355K prior (revised from 352K)
Continuing Claims, 04/13 (8:30): 3000K actual versus 3060K expected, 3093K prior (revised from 3068K)
Natural Gas Inventories, 04/20 (10:30): 30 bcf actual versus 31 bcf prior

April 26 - Friday
GDP-Adv., Q1 (8:30): 2.5% actual versus 2.8% expected, 0.4% prior
Chain Deflator-Adv., Q1 (8:30): 1.2% actual versus 1.6% expected, 1.0% prior
Michigan Sentiment - Final, April (9:55): 76.4 actual versus 72.4 expected, 72.3 preliminary versus 78.6 March Final

April 29 - Monday
Personal Income, March (8:30): 0.3% expected, 1.1% prior
Personal Spending, March (8:30): 0.1% expected, 0.7% prior
PCE Prices - Core, March (8:30): 0.1% expected, 0.1% prior
Pending Home Sales, March (10:00): 0.1% expected, -0.4% prior

April 30 - Tuesday
Employment Cost Index, Q1 (8:30): 0.5% expected, 0.5% prior
Case-Shiller 20-city, February (9:00): 8.7% expected, 8.1% prior
Chicago PMI, April (9:45): 52.0 expected, 52.4 prior
Consumer Confidence, April (10:00): 61.0 expected, 59.7 prior

May 1 - Wednesday
MBA Mortgage Index, 04/27 (7:00): 0.2% prior
ADP Employment Chang, April (8:15): 155K expected, 158K prior
ISM Index, April (10:00): 51.0 expected, 51.3 prior
Construction Spending, March (10:00): 0.4% expected, 1.2% prior
Crude Inventories, 04/27 (10:30): 0.947M prior
FOMC Rate Decision, May (14:15): 0.25% expected, 0.25% prior
Auto Sales, April (15:00): 5.3M prior
Truck Sales, April (15:00): 6.7M prior

May 2 - Thursday
Challenger Job Cuts, April (7:30): 30.0% prior
Initial Claims, 04/27 (8:30): 346K expected, 339K prior
Continuing Claims, 04/20 (8:30): 3050K expected, 3000K prior
Productivity-Preliminary, Q1 (8:30): 1.2% expected, -1.9% prior
Unit Labor Costs, Q1 (8:30): 1.6% expected, 4.6% prior
Trade Balance, March (8:30): -$43.5B expected, -$43.0B prior
Natural Gas Inventor, 04/27 (10:30): 30 bcf prior

May 3 - Friday
Nonfarm Payrolls, April (8:30): 150K expected, 88K prior
Nonfarm Private Payrolls, April (8:30): 166K expected, 95K prior
Unemployment Rate, April (8:30): 7.6% expected, 7.6% prior
Hourly Earnings, April (8:30): 0.2% expected, 0.0% prior
Average Workweek, April (8:30): 34.6 expected, 34.6 prior
Factory Orders, March (10:00): -2.5% expected, 3.0% prior
ISM Services, April (10:00): 54.0 expected, 54.4 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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Sunday, April 21, 2013

Hard to Get Market News on Friday

MARKET SUMMARY

- Hard to get market news Friday, but there is some.
- Step 2 in place: DJ30, SP500, NASDAQ and SOX hold key support with a bounce. Step 3 make the bounce stick. Step 4 extend the bounce.
- Japan apparently gets the okay to devalue, along with everyone else.
- Earnings better on Friday, woeful overall.
- Bounce has started on key indices and now we see if they can carry it through.

Market focused on other events but does what it needs to do, again.

It was rather hard to get financial news even on the financial stations Friday with non-stop (unending?) covering of the house to house hunt for the remaining Boston bomber. I thought that is why they had sports channels, financial channels, weather channels, movie channels, etc. Oh well, don't want to upset anyone and let's face it, the anchors on the financial stations were news rejects for the most part with their unrequited desires to be newsmen and women. Thus anytime they can change the subject, they do.

Several things were accomplished Friday. The second bomber was apprehended. The stock indices, after holding at key support Thursday, bounced off that support Friday. Even the Dow, weighed down by a rare and thus noteworthy earnings miss from IBM, managed a modest 10 point gain. Would have been 125 without IBM, so that shows that despite some specific earnings stories, stocks were in the mood to bounce off support.

They did bounce and thus accomplished Step 2 in our market watch. Step 1 was holding the support. Done on Thursday. Step 2 was bouncing off support. Done Friday. Now the next steps: holding the move and then extending it back up to the upper channel line.

It is that simple. As a result, there won't be much to say in this summary. That is likely a good thing because I used up what little wit and humor I have available in adding some 'color' to the plays that we compiled for the start of next week.

SP500 13.64, 0.88%
NASDAQ 39.70, 1.25%
DJ30 10.37, 0.07%
SP400 1.49%
RUTX 1.22%
SOX 0.75%

NASDAQ held its 2011 trendline and bounced on rising, average volume. Given it was expiration, the volume is suspect, but we will take it. SP500 held the 50 day EMA Thursday and bounced Friday. The Dow held its November trendline and showed a good doji, not bad given IBM's drag. SOX tapped the lows in its range and reversed for a solid gain.

All did what they had to do to keep the groundwork for a new rally in this run alive. The next question is whether they can make the move stick and keep it going. With the damage done on even those indices above that held key levels, e.g. NASDAQ and SP500, that is a key step and Friday didn't answer it. Friday just set the stage for the next step. Still has to deliver.


OTHER MARKETS

Dollar: 1.3072 versus 1.3057 euro. Lost some ground on the session after a big Wednesday surge off the 50 day EMA. Japan came out and said that the G20 had no words of condemnation or for that matter any words regarding its massive currency devaluation. I suppose since everyone is doing it the central bankers feel there is no harm, no foul if we all go down in a deflationary spiral.


Bonds: 1.71% versus 1.69% versus 1.70% versus 1.72% versus 1.69% versus 1.72% versus 1.79% versus 1.81% 10 year Treasury. Backed off some after a strong Monday move through the 200 day SMA. Held that move to close out the week as treasuries found their place last week as a refuge once more.


Oil: 88.01, +0.28. After a tail kicking, oil found support Tuesday and held it all week. Of course it was unable to mount a serious recovery as the international economic data continued to stink, US as well.


Gold: 1395.90, +3.40. After imploding on Monday gold pushed back a bit with modest gains through Friday. Not nearly enough strength to change the two ugly selling days, merely a relief bounce at this point, prompting many to continue their talk of deflation, or as the Fed speakers on the week said, disinflation. After all, there is no deflation in the Fed's vocabulary.


THE ECONOMY

Earnings show a lagging economy.

It is not only IBM's plunge on a rare top and bottom line miss that suggests issues with earnings season. It is the numbers overall.

91 of the SP500 have reported. Still a long way to go, but thus far they are going to need a comeback.

Earnings:
37% have beat expectations versus quarterly average of 47%.

13% have missed expectations.

Revenues:
21% beating versus 37% average

24% missing versus average of 18% missing revenues.



TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +39.7 points (+1.25%) to close at 3206.06
Volume: 1.717B (-1.49%)

Up Volume: 1.22B (+779.84M)
Down Volume: 517.13M (-792.87M)

A/D and Hi/Lo: Advancers led 2.11 to 1
Previous Session: Decliners led 1.6 to 1

New Highs: 62 (+26)
New Lows: 45 (-22)

S&P
Stats: +13.64 points (+0.88%) to close at 1555.25
NYSE Volume: 808M (+11.45%)

A/D and Hi/Lo: Advancers led 2.66 to 1
Previous Session: Decliners led 1.25 to 1

New Highs: 226 (+57)
New Lows: 115 (-232)

DJ-30
Stats: +10.37 points (+0.07%) to close at 14547.51

BREADTH: More interesting at 2:1 NASDAQ and 2.6:1 NYSE. Not huge, but fitting the move.

VOLUME: Expiration saw volumes mixed on NASDAQ (-1.5%) and up on NYSE (+11%).


THE CHARTS

SP500. Sold through the November trendline Wednesday, held the 50 day EMA Thursday, bounced Friday. Steps 1 and 2 in place. Now it has to show us what is left in the upside gas tank.


NASDAQ. Broke the 50 day EMA Wednesday, held the 2011 trendline Thursday, rebounded Friday. Held and bounced where it had to. Now can GOOG, MSFT and company lead a recovery beyond the bounce?


DJ30. Good action, holding the trendline with a doji on volume (thanks to IBM). In position to make the bounce and now we see if it can.


SP400. Broke back up through the 50 day EMA in a solid move but hardly definitive. Midcaps continue to lag and look weak in their pattern. Not the focus of the bounce but worth watching if they don't follow.


Russell 2000 small caps. Bounced as well, using the late February low as support. As with the midcaps, not looking for the RUTX to provide leadership, just watching to see if they follow.


SOX. Reached lower, held support, reversed to the upside. Good action in the range, setting itself in position to make a bounce higher.


SUMMARY: DJ30, SP500, SOX, and NASDAQ all held where they had to and then bounced Friday. Now can they hold it and extend the move.



LEADERSHP

Big Names. AMZN looks ready to roll back up. GOOG helped lead higher after earnings. MSFT added to the upside as well.

Financial. Overall weak as BAC, JPM, WFC struggled.

Drugs. Good Friday as most bounced, e.g. CELG, AMGN, CLDX, ARRY. Solid moves from a leadership group.

Retail. Mixed but solid overall. DECK still solid. ROST ready to break higher as is KIRK. CONN in great position along with PSMT.

Industrials, commodities, machinery, materials all continued to struggle.



THE MARKET

SENTIMENT INDICATORS

VIX: 14.97; -2.59
VXN: 17.17; -1.58
VXO: 14.27; -2.1

Put/Call Ratio (CBOE): 1.1; -0.08

Bulls versus Bears

Bulls faded significantly below 50 but bears were unconvinced, holding at 20.6%. Bears remain low, bulls not too high.



Bulls: 47.4% versus 50.5% versus 52.0% versus 49.5% versus 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. Has hit a soft patch. Higher then rolling over below the January and February highs. That market hiccup ahead of and to the Jobs Report. Now back up so . . . probably hangs over 50. 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: 20.6% versus 20.6% versus 19.4% versus 19.6% versus 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.


MONDAY

Earnings season takes full flight with the bulk of earnings to come this week. That means a lot of dodging and weaving as the market weathers the thus far higher level of misses, but there are some groups that continue to look very good, e.g. drugs/healthcare, retail, and even some semiconductors.

Earnings will give some guidance, but thus far the indices have held where they needed to even with overall weaker results. Just getting started, however, and that is subject to those midcourse corrections during the season.

The key remains the same: Held support, bounced from support, now can they hold it and extend the move yet again?

Our plays focus on catching the solid sectors with solid stocks that used the recent pullback to their advantage. Again, no issues putting money into the winners . . . as long as the indices can hold their recovery off support and the extend it. Of course if they do, the leaders will be moving as well.

May sound overly simple, but that is the nature of this market right now. There is Fed talk, there is government talk about currencies, there is geopolitical tension, worries of deflation/disinflation . . . basically a petri dish of issues. The overriding factor for the stock market remains, given the absence of any good economic recovery, liquidity. Nothing at this juncture but a change in the Fed's beliefs on Keynesian stimulus would call for removing stimulus.


Support and resistance

NASDAQ: Closed at 3206.06

Resistance:
The 50 day EMA at 3209
3227 is the April 2000 intraday low
3255 is the November 2012 up trendline
3321 from April 2000
3377 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 2011 up trendline at 3169
3134 is the March 2012 post-bear market peak
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
The 200 day SMA at 3080
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
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 1555.25

Resistance:
1556 from July 2007
The November up trendline at 1560
1576 from October 2007, the prior all-time high
1598 is the April 2013 high and all-time high
1625 is the upper trendline in the channel

Support:
The 50 day EMA at 1542
1539 from June 2007
1531 is the recent high
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
The 200 day SMA at 1453
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
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 14,547.51

Resistance:
15,052 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.

Support:
The November up trendline at 14,482
The 50 day EMA at 14,359
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
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
The 200 day SMA at 13,502
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
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

April 22 - Monday
Existing Home Sales, March (10:00): 5.01M expected, 4.98M prior

April 23 - Tuesday
FHFA Housing Price I, February (9:00): 0.6% prior
New Home Sales, March (10:00): 415K expected, 411K prior

April 24 - Wednesday
MBA Mortgage Index, 04/20 (7:00): 4.8% prior
Durable Orders, March (8:30): -3.1% expected, 5.6% prior (revised from 5.7%)
Durable Goods -ex transports, March (8:30): 0.0% expected, -0.7% prior (revised from -0.5%)
Crude Inventories, 04/20 (10:30): -1.233M prior

April 25 - Thursday
Initial Claims, 04/20 (8:30): 351K expected, 352K prior
Continuing Claims, 04/13 (8:30): 3060K expected, 3068K prior
Natural Gas Inventories, 04/20 (10:30): 31 bcf prior

April 26 - Friday
GDP-Adv., Q1 (8:30): 2.8% expected, 0.4% prior
Chain Deflator-Adv., Q1 (8:30): 1.6% expected, 1.0% prior
Michigan Sentiment - Final, April (9:55): 72.4 expected, 72.3 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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Monday, April 15, 2013

Stocks Enjoy Strong Week

MARKET SUMMARY

- Jobs report two Fridays back is long gone, stocks enjoy strong week despite weaker economic data.
- Gold and silver pounded even as data weakens, geopolitical tensions rise. It seems incredible, but remember LIBOR?
- March Retail Sales vastly disappointing, but furnishings are up so all must be well.
- Michigan Sentiment follows Consumer Confidence lower.
- Business inventories grow much less than expected.
- Earnings following last quarter's pattern, but does it matter with free money for financial markets?
- 401K borrowing the latest sign of systemic US economic problems under the surface.
- Don't want to sound cocky, but despite all of the bad data, this time around SOX doesn't seem to hold sway over SP500, DJ-30.

When economic reports mean nothing to the stock market.

Just two Fridays back the futures imploded on a weak jobs report. Not just in numbers (88K), but in the type of jobs being created (lowest pay scale as medium tier jobs lost are replaced with low-tier jobs) or not created for that matter, driving able bodied people out of the workforce.

This Friday was another poor economic data day. Retail sales stumbled in at -0.4% when they were expected to hold steady. Retail sales trending lower since 2011.


Michigan Sentiment face-planted (72.3 versus 78.6 prior), following Consumer Confidence back toward recession levels .



Business inventories rose just 0.1% (0.4% expected, 0.9% prior), suggesting those touting a 3+% GDP for Q1 will likely be disappointed. Earnings continued last quarter's trend of missing on the top line, i.e. sales. JPM and WFC, despite free money, missed on the top line. JPM's deposits are far in excess of loans; backward. When you get money for free why risk it on loans that could fail to perform? Get a guaranteed return; it beats working. Remember that later when we talk about people and jobs.



Friday's data was simply a continuation of what the past couple of months have shown, i.e. a return to the spring slide into a summer slump. 13 of 14 misses on economic data points not counting the Friday misses. The data is not looking good for another year as 2013 data points are below 2012 data points and are again missing expectations of 'this year there really will be recovery.'

Indeed, futures were lower, substantially so, before and even more so after the retail sales data. Nonetheless they dutifully tried to recover. Then the Michigan Sentiment and inventories data hit and they gave up. Stocks tumbled into midmorning.

Of course, with Fed liquidity in place (and solidified by the weak economic data) as well as Europeans and the US retail investor trying to catch the 4 year US equities rally bus just before it returns to the bus yard, the bids returned. Midmorning was once again the turning point and stocks, while not surging upside, produced a solid recovery into lunch and then managed to angle higher into the close. No green on the tape, but the Dow was virtually flat and all indices posted nice rebounds. Again.

SP500 -4.52, -0.28%
NASDAQ -5.21, -0.16%
DJ30 -0.08, -0.00%
SP400 -0.36%
RUTX -0.44%
SOX -0.46%

Bad economic data? There is true pain in the American populace as the Great Recession not only lingers but continues its pattern of gains to end and begin a year only to be followed by a slump. Indeed, 401K retirement account loans jumped 28% in Q4 2012 with 1/5 of those with 401k's now having loans against them to make ends meet.

No problem. As long as the economy is not in full dive mode the Fed dollars, the European euros converted to dollars, and the US investors, worried suddenly that he has missed out on the move, are filling in the dips with their cash. Thus the US stock market avoided a Friday selloff and capped off a strong recovery week by at least hanging onto the gains.


What about those people out if the workforce? The rise, and fall, of the 'full-time part-time' worker.

Many hopeful workers hung on for months and months then years and years at low paying part-time jobs, hoping to use that job as the usual path to full employment. The financial stations for awhile touted the rise in part-time workers in each monthly jobs report that would of course lead to full time jobs. Now the stations don't even bother talking about that because it is clear that the policies in place that are helping perpetuate the Great Recession are perpetuating 'full-time part-time' workers. There are others, such as Mark Zandi, perched in their ivory towers reading data, who remain convinced the recession is over and jobs are trending positively. Yet, they fail to recognize or acknowledge that the part-time jobs are not turning into full-time jobs. As I said early in 2012, if you create a million part-time, lowest pay scale jobs, is that as good as the same number of full time, leading edge technology jobs? Of course it is not, but somehow that critical analysis is lost in the current debate.

The problem is, even those workers, not officially counted in the headline unemployment number because they had jobs (albeit well below their skill level) but picked up in the so-called U6 report as underemployed due to economic reasons, see the handwriting on the wall and are simply leaving the workforce. U6 dropped from 14.3 to 13.8 in one month! Over 90M (some say over 100M) non-institutionalized (i.e. not in jail) working age US citizens are now out of the work force. Not for disability, just a decision not to work.

Indeed, WHY WORK at a low pay job with no hope of advancement when you can do NOTHING, collect federal and state benefits, and have the SAME or even more disposable income than when you were working? The reverse incentives created by our policies have blunted our inherent desire to work and contribute to society as people make the economic decision to quit low paying, dead end jobs, collect benefits, and perhaps work some cash basis odd jobs where they don't have to report the income and pay taxes. These people are not stupid. They are making the rational ECONOMIC DECISION placed before them not to work.

Have you ever wondered why the Administration is pushing so hard for a hike in the minimum wage? It is an unspoken recognition that its policies have turned the US innovation and entrepreneur jobs engine into a stagnant, cost-avoiding assembly line mindset. The costs associated with employees due to federal programs such as the Affordable Healthcare Act force businesses to look at employees in an entirely different light in order to compete internationally. Thus part-time jobs now dominate the employment scene. Moreover, given the stagnant economy, the majority of the jobs created anyway are low end, low paying positions.

So, in order to avoid a mass migration into poverty that could be hung as an albatross around the Administration's neck, it and other proponents of the policies creating the low-wage problems tout a minimum wage that will keep those forced into low paying jobs for lack of any other positions from being a poverty statistic. What used to be starter jobs on the way to better permanent jobs are now 'full-time part-time' jobs, and instead of advancing through the ranks, the only way to get them a higher wage and out of poverty status is by raising the minimum wage. That is how bad this economy is.



OTHER MARKETS

Dollar: 1.3086 versus 1.3111 euro. Down on the week, testing the 50 day EMA as expected. No issues really, though is it not surprising that the SP500 and company are moving sharply higher as the dollar fades? Should not the dollar track economic strength? For that matter, shouldn't stocks? They are not. Given the weak economy, stocks are tracking liquidity not economic strength. For liquidity to continue they feed on weak data. Not diving off the cliff data, but just stagnant 1 step forward, 1 step backward data. That keeps the Fed in the game, and in the absence of true economic growth, that works for stocks. At least it works until it doesn't. History shows there is always a tipping point. It just doesn't show what that tipping point is for each economy.


Bonds: 1.72% versus 1.79% versus 1.81% 10 year Treasury. Cyprus then Japan and bonds spike. Then last week they started to test, sharply. No worries. Friday a big gap upside in bonds and another drop in yields. Rising bonds are not a sign of economic strength. Despite the Fed saying it will start ending QE in the summer, bonds are up. Perhaps it was Bernanke stating that tapering would be accomplished by charging interest on deposits at the Fed. Perhaps it is a belief that the economy is not that strong and heading for another summer slump.


Oil: 91.29, -2.22. Oil is in a full frontal dive, breaking the 200 day SMA and starting to test support at the 90 level. It looks as if the 78% Fibonacci double top is working, but that works because it shows supply and demand in the chart itself. It reflects the real world trading of oil and it forecast a decline. Oil is not needed as much given a weak Europe, a self-slowing China, a weaker Australia, and of course what looks to be a weaker US in progress. IEA lowered its world outlook on Thursday, simply reading the tea leaves.


Gold: 1500.90. -64.00. Gold was destroyed Friday along with silver. Why? Some say it is because Europe is forcing the sale of gold reserves by member states that cannot otherwise reach bailout austerity terms. Think of it as our system of Medicaid. In order to get it you have to have exhausted all assets or agree to turn over your last ones to the government. That, however, is not really what is going on here. Remember over a year ago when Germany offered its 'final solution' for bailing out the hopelessly bankrupt south? It said it would provide funds IF proper collateral was put up. As an example, Germany said 20% of the amount of the bailout amount in gold would suffice. Just an example mind you. The EU won't require the gold to be sold; it will take it in then hand over the euro. German plan enacted without officially getting its approval.

Why is gold falling? Heaven only knows. Of course there is conspiracy talk. Why would gold fall when the world economies are in turmoil, money printing is rampant and getting worse (e.g. Japan), world geopolitical turmoil (North Korea, Iran), drought in many regions of the world. Gold seems too big for a conspiracy, however.

Then again, LIBOR was supposedly such a big market with so many players that NOBODY could rig the market. We started calling attention to how LIBOR rates were not moving but a basis point or two even as the economic turmoil escalated in Europe yet again. Unlike the original crisis when rates exploded, they were a mere fraction of those levels even as Europe's problems approached meltdown status.

Turns out, MASSIVE manipulation involving HUNDREDS of institutions and thousands of people was taking place. A market that was too big and too liquid to manipulate was indeed manipulated. Our Fed even knew about it as did Treasury Secretary Geithner. So WHO IS TO SAY the gold market is not being manipulated? Indeed, the LIBOR manipulation may have simply been a DRY RUN on how to do it! With the tensions in the world and the money printing taking place, gold should be at $2,000. It is heading sharply lower. Something is amiss in this market.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +5.21 points (+0.16%) to close at 3294.95
Volume: 1.443B (-20.01%)

Up Volume: 611.86M (-220.26M)
Down Volume: 851.32M (-117.62M)

A/D and Hi/Lo: Decliners led 1.47 to 1
Previous Session: Decliners led 1.05 to 1

New Highs: 103 (-81)
New Lows: 21 (+4)

S&P
Stats: +4.52 points (+0.28%) to close at 1588.85
NYSE Volume: 620M (+2.29%)

A/D and Hi/Lo: Decliners led 1.6 to 1
Previous Session: Advancers led 1.62 to 1

New Highs: 267 (-390)
New Lows: 84 (+21)

DJ-30
Stats: +0.08 points (0%) to close at 14865.06

BREADTH: About what you would expect. Breadth lags on reversal days so it was down 3:2 at the close. Not bad given how negative things looked through midmorning.

VOLUME: Vastly mixed with NASDAQ volume mercifully falling, but that was after a big Thursday on the IDC PC sales data (-14.1%, largest ever). Back to below average on NASDAQ, not bad for a down day, up to average on NYSE. Given the recovery off the low, we will say that is okay.


THE CHARTS

SP500. No issues, falling but holding easily over the 10 day EMA and then rebounded. Ho hum, another recovery in the uptrend.


NASDAQ. Quite the week, recovering the channel Monday, extending the move Wednesday, coasting into the weekend Friday with a reach lower and recovery off the 10 day EMA. NASDAQ looked ready for the fork. Bought itself new life even with the issues around some of its largest caps and their connections to the waning PC business. Better come up with a BAILOUT plan for these techs. No business should ever fail, right, particularly the big ones.


DJ30. Another normal week for the Dow, rising off the 20 day EMA, and just an intraday tap lower, to again approach the top of the channel. Friday just took a day off but still finished flat.


SP400. Followed through on the prior Friday's test of the 50 day EMA and rebound. Made it back into the channel Thursday (we are going to give it that achievement), but slipped lower Friday below the trend. Holding the 10 day EMA, still trending higher as it put in a higher low, but it now has to put in a higher high to keep the trend in place.


Russell 2000 small caps. Followed up the bounce off the 50 day EMA with a run to the trendline. Tapped it Thursday, faded to the 10 day EMA Friday. Okay. Now we see if RUTX holds with another higher low and can break back into the range AND take out the March high. Still a question mark.


SOX. Strong surge to the trendline, bouncing off the neckline in the head and shoulders pattern. Made it back up to the November trendline Wednesday, then faded. Friday tested the 20 day EMA on the low and rebounded to almost flat. Showing some guts here. A break and hold through 437.50ish is an important move to the upside.


SUMMARY: A continuation of the recovery off the Friday jobs report selloff and reversal. RUTX and SOX are still problematical, but they took a shot and could not take the rest of the market with them. Will have another shot this week but SOX left itself in position where it could bounce.



LEADERSHIP

Still in a few groups stealing most of the move.

Drugs/Healthcare. CELG, AMGN, BIIB, ACAD, ARRY.

Retail. TJX, ROST, DECK, VVTV, PCLN, LTD, AMZN, PNRA.

Consumer Oriented: CLX, CL, PG, MMM,

Toilet contenders:

Metals: FCX, SCHN, SID, AA.

Commodities: Trending lower as SP500 trends higher.

There are some MAJOR divergences in leadership and losership. Losers involve important groups. Leadership groups are a bit consumer related, and if the consumer falters as well the market losses some important upward push.


THE MARKET

SENTIMENT INDICATORS

VIX: 12.06; -0.18
VXN: 13.88; -0.21
VXO: 11.68; -0.01

Put/Call Ratio (CBOE): 1.15; +0.28

Bulls versus Bears

Bulls fell modeslty, bears rose modestly. A bit of worry as stocks sold to the Jobs report. Now that stocks have recovered some ground sentiment might improve a bit or hold steady, but a bit less bullish, a bit more bearish, and that helps the uptrend overall.



Bulls: 50.5% versus 52.0% versus 49.5% versus 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. Has hit a soft patch. Higher then rolling over below the January and February highs. That market hiccup ahead of and to the Jobs Report. Now back up so . . . probably hangs over 50. 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: 20.6% versus 19.4% versus 19.6% versus 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.


MONDAY

A couple of regional PMI reports, housing starts, industrial production. Important if you are interested in the economy and jobs, not so much if you are wanting the stock market to climb. It is not a complete detachment of economics and the market: if the economic numbers implode the market will do so. But jobs were bad, seriously, systemically, engrained, take decades to fix kind of bad . . . yet stocks recovered that day and into this week.

So, with economics disintegrating but doing so similar to a controlled building implosion, there is not that total run for the hills. Sure bonds are running higher, commodities are tanking, but no problems with the economy. Just look at gold, right? It is going down so all must be just fine. Either way, without really bad data, really bad, stocks rely on the liquidity, because so-so bad or just bad data only works to keep the Fed in the game.

Looked across the market for plays. Harder to find upside in the respect earnings are at hand and we don't typically like to play new plays just ahead of earnings. Of course there are some, we have them, and we will see if the market wants to go higher.

That is the question. Great recovery. SP400, RUTX, SOX trying to get back in the channel. Will they pull the rest of the market back or will the rest of the market drag them on. More likely the latter given the amazing resilience shown after the jobs report as well as last Friday when a 50 point downside move was reason to buy the Dow. Too much money coming in to deal with any bad economic news.

That won't last forever, but trying to pick the moment outside of the market showing you is a fool's errand. So many sites are running 'the end is near or here' stories but history tells you that these bubble endings can go on and on for years before imploding. Recall the dot.com boom when a full two years before the crash I was reading very serious market mavens saying the internets were a bubble that was going to explode in weeks if not days. Didn't. For another two years.

The moral: all bubbles end, you just don't know when. Watch the leadership in the bubble. When it goes down and volatility is high, you likely are at the end of the line on the move. Time to sell and start playing the downside. Not there. We can get selloffs; just had one. But it was not THE selloff.

br>


Support and resistance

NASDAQ: Closed at 3294.95

Resistance:
3321 from April 2000
3360 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3271 is the 2013 high
3234 is the November 2012 up trendline
3227 is the April 2000 intraday low
The 50 day EMA at 3209
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 2011 up trendline at 3158
3134 is the March 2012 post-bear market peak
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
The 200 day SMA at 3071
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
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 1588.85

Resistance:
1615 is the upper trendline in the channel

Support:
1576 from October 2007, the prior all-time high
The 20 day EMA at 1564
1556 from July 2007
The November up trendline at 1549
1539 from June 2007
The 50 day EMA at 1539
1531 is the recent high
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
The 200 day SMA at 1447
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
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 14,865.06

Resistance:
14,945 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.

Support:
The 20 day EMA at 14,593
The November up trendline at 14,375
The 50 day EMA at 14,304
14,198 from the October 2007 high
14,149 is the February 2013 high
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
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
The 200 day SMA at 13,452
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
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

April 9 - Tuesday
Wholesale Inventories, February (10:00): -0.3% actual versus 0.5% expected, 0.8% prior (revised from 1.2%)

April 10 - Wednesday
MBA Mortgage Index, 04/06 (7:00): 4.5% actual versus -4.0% prior
FOMC Minutes, 3/20 (9:00)
Crude Inventories, 04/06 (10:30): 0.250M actual versus 2.707M prior
Treasury Budget, March (14:00): -$107.0B expected, -$198.2B prior
Treasury Budget, March (16:00): -$106.5B actual versus -$107.0B expected, -$198.2B prior

April 11 - Thursday
Initial Claims, 04/06 (8:30): 346K actual versus 365K expected, 388K prior (revised from 385K)
Continuing Claims, 03/30 (8:30): 3079K actual versus 3058K expected, 3091K prior (revised from 3063K)
Export Prices ex-ag., March (8:30): -0.2% actual versus 0.6% prior
Import Prices ex-oil, March (8:30): -0.2% actual versus 0.1% prior (revised from 0.0%)
Natural Gas Inventor, 04/06 (10:30): -14 bcf actual versus -94 bcf prior

April 12 - Friday
Retail Sales, March (8:30): -0.4% actual versus 0.0% expected, 1.0% prior (revised from 1.1%)
Retail Sales ex-auto, March (8:30): -0.4% actual versus 0.0% expected, 1.0% prior
PPI, March (8:30): -0.6% actual versus -0.1% expected, 0.7% prior
Core PPI, March (8:30): 0.2% actual versus 0.1% expected, 0.2% prior
Michigan Sentiment, Preliminary April (9:55): 72.3 actual versus 78.0 expected, 78.6 prior
Business Inventories, February (10:00): 0.1% actual versus 0.4% expected, 0.9% prior (revised from 1.0%)


April 15 - Monday
Empire Manufacturing, April (8:30): 5.0 expected, 9.2 prior
Net Long-Term TIC Flows, February (9:00): $25.7B prior
NAHB Housing Market Survey, April (10:00): 45 expected, 44 prior

April 16 - Tuesday
CPI, March (8:30): -0.1% expected, 0.7% prior
Core CPI, March (8:30): 0.2% expected, 0.2% prior
Housing Starts, March (8:30): 930K expected, 917K prior
Building Permits, March (8:30): 945K expected, 946K prior
Industrial Production, March (9:15): 0.3% expected, 0.7% prior
Capacity Utilization, March (9:15): 78.4% expected, 78.3% prior (revised from 79.6%)

April 17 - Wednesday
MBA Mortgage Index, 04/13 (7:00): 4.5% prior
Crude Inventories, 04/13 (10:30): 0.250M prior

April 18 - Thursday
Initial Claims, 04/13 (8:30): 355K expected, 346K prior
Continuing Claims, 04/6 (8:30): 3068K expected, 3079K prior
Philadelphia Fed, April (10:00): 2.5 expected, 2.0 prior
Leading Indicators, March (10:00): 0.0% expected, 0.5% prior
Natural Gas Inventories, 04/13 (10:30): -14 bcf 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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Sunday, April 07, 2013

Jobs Report Leads to Harsh Selling

MARKET SUMMARY

- Jobs report leads to harsh selling, but stocks spend most of the session mounting a recovery.
- Weak jobs trash a lot of good economic will.
- Japan stimulus gone wild, US data send financial markets reeling.
- Earnings season eve and things are disturbing.
- SOX still divergent as growth indices test key support: the next bounce and how it reacts tells the tale.

It keeps coming back.

Remember the kid in your neighborhood the gang didn't want to play with? You always tried to ditch him, went to great lengths to devise schemes to avoid him, but he always showed up, returning from wherever you left him.

To those waiting for a serious correction in this market, it must feel the same way. A lot has been thrown at it, but it is holding up, at least in the large cap arena.

Friday was more of the same. A confluence of bad news: Thursday's jobless claims set the tone. North Korea moving missiles and the US responding with a massive movement of military equipment. Japan's financial markets swinging wildly back and forth in response to massive new monetary stimulus suggest that the country may have finally gone too far, moving past the tipping point. FFIV, an important tech stock, took a blowtorch to its guidance just ahead of earnings season. March jobs limped in at 88K. Despite upward revisions to the prior two months, the key points within the report sadly delineate the serious problems that remain in the US economy in is fifth year of recovery.


N. Korean negotiating Japan: What the . . . ? US jobs show real problems

Even with some really bad news that gapped stocks sharply lower on the open, virtually at the open stocks started to recover. You could call it short covering but that didn't really occur until late in the day when it was clear the market was not going to roll back over. Then it became a game on the financial stations as to whether the indices would make it to positive and complete the reversal.

They didn't, but nonetheless it was not a bad finish.

SP500 -6.70, -0.43%
NASD -21.12, -0.65%
DJ30 -40.86, -0.28%
SP400 -0.14%
RUTX -0.26%
SOX -0.52%
DJ20 +0.46%

The interesting thing, well one of the interesting things, is that despite the divergence between large caps and the small and growth stocks, the only index that did not hold or recover to a relatively key support level was SOX. Of course SP500 and DJ30, the indices most immune to the recent selling, easily held support. DJ20 transports blew out the 50 day EMA but then raced back up to show a nice shakeout. The remaining indices, while they did bounce and hold support, didn't necessarily save themselves by their recovery. Gave themselves a chance, but didn't ensure things were whistling back to the upside.


OTHER MARKETS

With the US jobs report and the Japanese stimulus gone wild, yes other financial markets were impacted.

Dollar: 1.2999 versus 1.2943 euro. Despite issues in Japan and the continuing European drama, the US dollar was lower Friday on the weak jobs report. It broke the 20 day EMA, closing or otherwise, for the first time since early February. Some confidence in a US recovery waning.


Bonds surging: 1.71% versus 1.76% versus 1.81% 10 year Treasury. 10 basis points in 2 sessions, but that is nothing compared to what Japan is experiencing with its 4+% (400+ BP) swings in one session. Still, the lack of confidence in the world and the US economy was on display Wednesday to Friday with bonds exploding higher. EVEN WITH MASSIVE INTERVENTION BY CENTRAL BANKS, the bond market jumped, some would say out of control. Indeed because of intervention keeping rates lower we are seeing these almost unbelievable breaks upside.


Oil down hard on the week: 92.70, -0.56. After pulling a Sir Robin from Monty Python just shy of the January and February peaks, oil showed it is trying to find support at 92 to 90. Down but bouncing off the low for a second session. Important bounce, but again I point out that the recent rise pretty much matched the 78% retracement of the September to December selloff, and double tops at that level tend to retrace all the way, i.e., back down near 85.


Gold: 1576.00, +23.60. Sold hard early in the week but held support Thursday and reversed. Friday with all of the turmoil it was of course running. It has tested and now it shows just how much upside there is.


THE ECONOMY

Jobs report sets back views of economic recovery.

Doesn't really matter that January and February were revised higher another 61K. It doesn't matter that unemployment fell to 7.6% (indeed the reasons for the fall are the problem). With the US economy supposedly in the fifth year of official recovery from the Great Recession, the March jobs report reveals major systemic issues with the jobs market and the economy, the kind of problems that develop when policies induce behavior that would otherwise not occur in rational markets.

Nonfarm Payrolls, March (8:30): 88K actual versus 192K expected, 268K prior (revised from 236K)

Nonfarm Private Payrolls, March (8:30): 95K actual versus 210K expected, 254K prior (revised from 246K)

Unemployment Rate, March (8:30): 7.6% actual versus 7.7% expected, 7.7% prior

Hourly Earnings, March (8:30): 0.0% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)

Average Workweek, March (8:30): 34.6 actual versus 34.5 expected, 34.5 prior

People leaving the workforce in March in the Fifth year of economic recovery: 677,000

496,000 people leaving the workforce net.

Total number of work age residents not in the workforce: 90M.
US population: 313M
Workforce participation rate: 63.3%, lowest since May 1979

U6 Unemployment (includes people working at less than full employment and want to work full time): 13.8% down from 14.3%!!!

What this shows:

1. People who have worked part-time in hope of finding full time jobs are giving up and deciding they can collect unemployment for 99 weeks, go on disability and collect other government benefits and HAVE AS MUCH DISPOSABLE INCOME AS WHEN THEY WORKED PART TIME.

2. Real unemployment rate is over 11%


3. Jobs quality and disparity plunge and widen

Since January 2009:
+4.02 million jobs for the 55+ age group
-2.8M jobs in all other age demographics.

Ages 22 to 54: -2.2M jobs during this administration.




Let them use spoons!

You can create millions of jobs but if your policies ordain them to be low paying part-time jobs, just how healthy is the economy when measured merely by jobs? It is the old story about Milton Friedman and a communist government project he was shown. When Friedman asked why there were using shovels versus earth moving machines in digging a canal, he was told it was so they could provide more jobs. Milton quipped, why not have them use spoons?

Raising the minimum wage? Those jobs are supposed to be stepping stones to better jobs. Now they are end jobs. No wonder this administration wants the minimum wage raised as its polices turn low paying part-time temporary jobs into permanent jobs.

More people working at worse jobs does not equate to economic health.


Ridiculousness: Japan may have hit the monetary policy tipping point.

In a move that is being described by some as the Bank of Japan president driving around throwing yen out the back of a Toyota, Japan embarked on the biggest monetary stimulus in the world. As shown Thursday, its move dwarfs the US $85B monthly injections.

Of course all is well as a result, right? My word, look at the Japanese bond market. At first it rallied a bit. Then it went berserk, trading a 410BP move in one session. Yen is diving, its bond yields literally exploding. Japan may have finally shown the rest of the world where the tipping point is.






TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +21.12 points (+0.65%) to close at 3203.86
Volume: 1.59B (+9.81%)

Up Volume: 607.67M (-382.35M)
Down Volume: 943.81M (+473.79M)

A/D and Hi/Lo: Decliners led 1.52 to 1
Previous Session: Advancers led 1.88 to 1

New Highs: 47 (+8)
New Lows: 43 (+11)

S&P
Stats: +6.7 points (+0.43%) to close at 1553.28
NYSE Volume: 646M (+11%)

A/D and Hi/Lo: Decliners led 1.14 to 1
Previous Session: Advancers led 1.64 to 1

New Highs: 165 (-13)
New Lows: 67 (-10)

DJ-30
Stats: +40.86 points (+0.28%) to close at 14565.25


BREADTH: With the wild moves in the market you could not take much from the -1.5:1 on NASDAQ and -1.1:1 NYSE.

VOLUME: Volume up about 10% on each exchange as stocks recovered. Of course you cannot take much from that recovery volume rise because it was still lower than on Wednesday when the indices fell hard. More distribution on the week than accumulation. Not a lot of selling days, however, so not necessarily suggesting a lot more selling.


THE CHARTS

SP500. All the way to the November up trendline on the low, turned, and then recovered back to the 50 day EMA. Tried the other side of the tracks, didn't like it. A bit top-heavy, but my goodness, considering all the news this was not bad action and showed buyers still ready to enter.


NASDAQ. Through Thursday NASDAQ sold to the November up trendline that marks the bottom of the channel. Friday NASDAQ gapped below that level but held the 2011 trendline. Reversed to hold the 50 day EMA on the close. A deeper recovery to deeper support, but note that if Friday was the low it still put in a higher low. Not a complete shakeout and recovery. NASDAQ has a rounded top trying to form, MACD is putting in lower highs, big names such as FFIV are struggling. AAPL, on the other hand, wants to bounce. It is trying to hold.


DJ30. Reached to the 20 day EMA, tested, rebounded. Unscathed.


SP400. On the week the midcaps broke the November trendline with some flair. Friday tested the 50 day EMA on the low and rebounded to a modest loss. Good reversal, and can put in its own higher low as well, but not an all clear signal. It is sluggish, trying to put in a rounded top similar to NASDAQ and that needs to be watched over the next bounce attempt off this doji.

Russell 2000 small caps. Harsh week, selling hard Monday to Wednesday, breaking the November lower channel line along the way. Wednesday to Friday it sold to the 50 day EMA, danced around it, managed to rebound Friday to keep it safe. Same story as NASDAQ and S400: put in a higher high on the past bounce but MACD flagged. It broke the trendline and is now at next important support. This does not mean it has to fall. It has dropped some already. The NEXT bounce off of this test of key support tells the tale.


SOX. As with RUTX, a tough week. Down hard to start, breaking the November trendline and then the 50 day EMA. It did NOT recover the 50 day EMA as did the other growth indices. SOX is ahead of the rest of the indices in terms of pattern development. It has a head and shoulders in place. It broke the neckline last week and is in the process of testing that break. Important for the rest of the market how that break plays out.

SUMMARY: Breaks lower all around, but the same strengths (or weaknesses) in the end. SP500, DJ30 held up fine. NASDAQ, SP400, RUTX broke trends but managed to hold an important support. These three are forming rounded tops and the next bounce off the 50 day EMA test will tell their strength in terms of further selling, i.e. if they form a right shoulder and roll over from it. SOX is already there, and as noted Thursday, it led the move lower in the summer and then early fall 2012. That DOES NOT ALWAYS happen as the earlier action in 2012 showed; everything fell together then. Right now, however, it IS diverging as it did in summer and particularly the fall of 2012. Thus after a bounce by NASDAQ, SP400 and RUTX, they could be dragged lower by SOX. That makes this next bounce key.


LEADERSHP

Big Names: AAPL looks ready to bounce back up off of support. GOOG gapped below the 50 day EMA Friday. It needs an immediate recovery. AMZN is ready to bounce back up in its range similar to AAPL. CLX is at the 20 day EMA, slowing and ready to bounce. Indeed, it is not on the report, but if you are interested, the July 85 strike calls with a $3 move to 90 after clearing the 10 day EMA on a bounce lands a 59% gain.

Financial. Not ready to call a reversal. JPM, BAC, C, etc. all gapped lower then reversed with engulfing patterns (lower low, higher close than prior session). Not giving that much contribution to the upside.

Metals. Starting the bounce upside after the selling. FCX showed great volume as it started upside. Not much room to play, however. STLD looks right as well.

Building materials. TREX is trying to hold the 50 day EMA and bounce, but the pattern is a bit treacherous. LPX surged Friday after a 50 day EMA breach, but it too is somewhat treacherous; can pull it off but has to show it. CX gapped to the 50 day EMA as if it was wearing concrete galoshes, but then blasted off to a new rally high. Go figure. This as homebuilders struggling big: TOL, PHM.

Transports. Sold but then found buyers. JBHT, ODFL in trucking. KSU and CSX in rails. Not that powerful, but another test in the trend.

Retail. Some massive moves, e.g. PNRA. Other solid participants are the same: DECK, DLTR, WSM, TJX.

Techs. Clouds grew a bit thicker after FFIV. ADTN was hit. RAX managed to rebound some as did AKAM, but they are still pitiful patterns. Others took hard hits, e.g. SWI and how it bounces tells some tech tales.

Drugs/healthcare. Continues as a hot area and we are playing it and ready to play more with SNSS, CLDX, ACAD.


THE MARKET

SENTIMENT INDICATORS

VIX: 13.92; +0.03
VXN: 15.52; +0.26
VXO: 13.87; +0.33

Put/Call Ratio (CBOE): 1; -0.09



Bulls versus Bears

Bulls jumped but bears were not convinced. This past week shows the bears were a bit more prescient, at least near term. Bulls are still at pretty high levels but not necessarily toppy. Bears are a bit light; that should change after this past week.




Bulls: 52.0% versus 49.5% versus 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: 19.4% versus 19.6% versus 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.


MONDAY

Not only economic but geopolitical issues are in the spotlight. The US was thought to be cruising, if not in a strong recovery, at least in a recovery that was improving. That jobs report pokes holes in that theory, revealing systemic problems.

What does this mean for the market? The Fed is going nowhere for now, and likely not even in the summer as some Fed officials were saying last week. The FOMC minutes this Wednesday could cause more issues if those thoughts were uttered at the meeting. After all the turmoil maybe those ideas are changing, but it won't change what was said a month ago. Thus that presents some market risk.

Still, most will feel the turmoil means the Fed remains in place. So, liquidity is there as the backstop. That said, how NASDAQ, SP400, RUTX and SOX fare on their next bounce is very important. As noted, SOX is diverging downside from SP500 and DJ30. When it did that in 2012, the overall market followed. Again, how this next bounce fares is key. A rollover of course means more selling, and it also means SP500 and DJ30, despite their strength, are at risk.

At this juncture with the growth indices at support we are willing to play a bounce off of some pretty harsh selling last week. Looking at it as mostly a bounce for now given the patterns and the proximity of earnings season. The market is set to bounce for a week or so, then the story is told as to the next move. Thus we have the mindset of playing a bounce move and then acknowledge we might have to sell out more upside and play more downside.

Doesn't mean it will happen, but we need to be ready given the action in the growth indices and the divergence in SOX. There are still good patterns in sectors such as drugs and healthcare, and those are definitely worth playing because money continues to move to them. There are also bounce plays such as AAPL, NKE, TRIP, etc. that we are looking at for some near term gains. If they continue from there, great. If not, we bank some solid gain on the initial move, and then get out of things deteriorate.

Just being ready, just taking what the market gives.


Support and resistance

NASDAQ: Closed at 3203.86

Resistance:
3207 is the November 2012 up trendline
3227 is the April 2000 intraday low
3321 from April 2000
3339 is the upper channel line for the November 2012 to present uptrend
3401 is the May 2000 closing low

Support:
3197 is the September 2012 post-bear market high
The 50 day EMA at 3194
3171 is the October intraday high
The 2011 up trendline at 3157
3134 is the March 2012 post-bear market peak
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 3062
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 1553.28

Resistance:
1556 from July 2007
1576 from October 2007, all-time high
1609 is the upper trendline in the channel

Support:
The 20 day EMA at 1553
1539 from June 2007
The November up trendline at 1539
1531 is the recent high
The 50 day EMA at 1529
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
The 200 day SMA at 1441
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
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 14,565.25

Resistance:
14,900 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.

Support:
The 20 day EMA at 14,473
14,198 from the October 2007 high
The 50 day EMA at 14,201
14,149 is the February 2013 high
The November up trendline at 14,052
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
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 13,401
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

April 5 - Friday
Nonfarm Payrolls, March (8:30): 88K actual versus 192K expected, 268K prior (revised from 236K)
Nonfarm Private Payrolls, March (8:30): 95K actual versus 210K expected, 254K prior (revised from 246K)
Unemployment Rate, March (8:30): 7.6% actual versus 7.7% expected, 7.7% prior
Hourly Earnings, March (8:30): 0.0% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
Average Workweek, March (8:30): 34.6 actual versus 34.5 expected, 34.5 prior
Trade Balance, February (8:30): -$43.0B actual versus -$44.7B expected, -$44.5B prior (revised from -$44.4B)
Consumer Credit, February (15:00): $18.1B actual versus $14.0B expected, $12.7B prior (revised from $16.2B)

April 9 - Tuesday
Wholesale Inventories, February (10:00): 0.5% expected, 1.2% prior

April 10 - Wednesday
MBA Mortgage Index, 04/06 (7:00): -4.0% prior
Crude Inventories, 04/06 (10:30): 2.707M prior
Treasury Budget, March (14:00): -$107.0B expected, -$198.2B prior
FOMC Minutes, 3/20 (14:00)

April 11 - Thursday
Initial Claims, 04/06 (8:30): 365K expected, 385K prior
Continuing Claims, 03/30 (8:30): 3058K expected, 3063K prior
Export Prices ex-ag., March (8:30): 0.6% prior
Import Prices ex-oil, March (8:30): 0.0% prior
Natural Gas Inventories, 04/06 (10:30): -94 bcf prior

April 12 - Friday
Retail Sales, March (8:30): 0.0% expected, 1.1% prior
Retail Sales ex-auto, March (8:30): 0.0% expected, 1.0% prior
PPI, March (8:30): -0.1% expected, 0.7% prior
Core PPI, March (8:30): 0.1% expected, 0.2% prior
Michigan Sentiment, April Preliminary (9:55): 78.0 expected, 78.6 prior
Business Inventories, February (10:00): 0.4% expected, 1.0% 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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