NASDAQ Fills Early May Gap

MARKET SUMMARY

- Stocks try to start higher then fade to a lower low, recover some lost ground.
- NASDAQ fills early May gap, helps trigger afternoon recovery.
- Took some downside gain on the dip, tested the waters with an upside play on the rebound.
- Some leaders ignore the selling, holding out some upside promise for the market.
- Looks as if an oversold bounce tried to set up on Friday, and we will see if it can keep moving and provide some upside trade opportunities this week.

It was a bounce, not much of a bounce, but a bounce. Moreover, it took the circuitous route to get the result. The problem started early on with futures to the upside. After the kind of rout the market had Thursday, nothing typically good comes from an early market bounce, at least if what you consider good is a sustained upside move. Thus when we saw futures were up on basically no new news, well we were less than enthusiastic about the session's prospects.

As it turned out, however, we were able to take some gain on the SSD and QLD as per our plan when the indices dipped again after the higher open, and actually took a new upside position on SSO. Kind of testing the waters on that one when we saw the action we wanted, or at least close to it.

What action? NASDAQ filled the early May gap and started to recover. SP500 and DJ30 didn't quite hit the 78% Fibonacci retracement, but they came close and they too started to rebound. As noted, however, it wasn't a straight drop and recovery.

No, stocks started the session attempting a bounce. And as you would expected after such a butt kicking as on Thursday, the sellers were feeling their oats and charged the early upside. They managed to drive all of the indices negative by midmorning.

At the session lows, however, NASDAQ had filled that early May gap and when the sellers got there they relented. Stocks bottomed over lunch, rallied and tested in mid-afternoon, forming an intraday inverted head and shoulders. They rallied into the afternoon, fading just a bit in the last hour. A mixed close but not terrible. Indeed, but for ORCL and its second straight earnings miss, NASDAQ may have made it to positive as well.

SP500 4.24, 0.27%
NASDAQ -7.38, -0.22%
DJ30 41.08, 0.28%
SP400 -0.27%
RUTX 0.33%
SOX 0.25%

So, it took longer than we wanted and it was not the route we preferred, but stocks did eventually test lower, held, and started a rebound.

Volume was huge on this expiration so it is hard to attribute the recovery with a lot of strength.

Breadth moderated: From -12:1 NYSE on Thursday to basically flat. Reversal session so that is understandable.

Summary: You have to view it as an oversold move in our book but that is what we were expecting anyway, right? The question is whether it can be played. We tested the water a bit on Friday, not wanting to get drawn in too much on expiration after a butt-kicking on worries of a FOMC tightening cycle, and a weekend to boot. If there are good stocks in position to move this coming week and if the indices continue in a bounce, we can look at putting some more money to work to play a bounce but it would just be playing trades. Nothing in the action Friday suggests the market bottomed the selling and is ready to run higher in a renewed rally in the trend.


THE NEWS

Are you kidding? There was virtually nothing to discuss Friday in terms of economic data. Now there was lots of debating what the FOMC actually said, the merits of whether it is correct in seriously talking taper, is the economy really better given headlines but also given the lack of acceptance of those headlines as being indicative of the real economy, the continuing deterioration of the jobs picture, and the worry whether housing can hold up with spiking interest rates.

Those are just a few issues. You can throw in some non-domestic worries such as Japan, China's liquidity crisis where it injected $8B overnight in response to what was rumored a bank default, Brazil's now millions in the streets, a frosty G8, Syria.

Despite the recovery, the world is in serious crisis. There are the problems that never go away, e.g. Greece, Spain, Portugal, Italy and Europe in general given the few that can help but the overwhelming number that need help.


Nice Carnival mask dude.

There are new/not so new problems such as China's slowdown. Recall China was supposed to have bottomed a few months back and was on the road to recovery. Funny thing happened along the way as liquidity dried up when the PBOC stopped its stimulus moves. Things are just lovely with bank overnight rates spiking to 25% the past week. You know that is a sign of economic health as are the tens of thousands that waited in the streets to buy physical gold. Yes the Chinese are very confident their communist government has everything under control and is there to help them.

And that brings you back to the US that is considered, as was and indeed still is China, to be in recovery. If the Chinese markets seize up when the PBOC withdraws liquidity, is the US going to be really different?

I have said it before many times, but it bears repeating: is the run in the US stock market from 666.79 to 1,687.17 on SP500, a 2.5x move, warranted by the economic recovery the US has shown? Two quarters, two measly quarters of 4% or better growth in 4 years and you get a market that is up 150% from the low? Moreover, putting in new highs. Hardly.


The US economy is painted in a favorable light, but it's strength is about as real as this fellow's.

Financial assets are inflated by excess liquidity. The economic growth is still very tepid. The 'animal spirits' are low in where it counts, e.g. investment in capital goods and R&D, and thus few jobs will be created. Those that are created are part-time in order to adjust to the healthcare law as companies cut costs wherever they can. The economic growth the US has shown is what you get when you flood the economy with trillions of dollars.

Remove the reason for the current stumble along economic activity and the inflation of financial asset prices and is there reason for the prices to advance? To even hold at the current levels?

I say the answer is 'no,' and thus if the Fed is serious and sticks to its taper, there will necessarily be an unwinding of some portion of the move higher in equities to match the economic expectations. That, or the Fed will be forced BACK INTO THE GAME of buying securities in order to float the economy and financial assets.

It is a very treacherous game with the economy not nearly as good as we are led to believe or hope for. As such, the financial markets are at risk as the economy cannot produce enough activity to justify the inflated asset prices as businesses and individuals are handcuffed by regulations that limit what they can do and increase their costs. Indeed we hear that the President is going to sidestep Congress and issue through the EPA new regulations on emissions and that will constrain our new energy boom and threaten out energy independence. We also hear he is going to unilaterally block the Keystone pipeline.

Those actions will not help the economy catch up to the gains in financial instruments, those gains enjoyed by the inflation of asset prices by the Fed. Remember, that is what Bernanke said he wanted to do, but one can hardly argue the 'wealth effect' has ignited the economy.



MARKETS:

OTHER MARKETS

Dollar bouncing: 1.3122 versus 1.3220. Dollar put in its third upside day off of the three week selloff. It is now back at the April lows facing some resistance but moving up well. With the Fed potentially back off from money printing the dollar is showing more strength.

Bonds: 2.53% versus 2.43% 10 year. Dive, dive, dive. Well, if Mr. Bernanke was 'somewhat puzzled' on Wednesday by bond yields rising the past 7 weeks, he must be damned perplexed right now. The TLT broke below the March 2012 and October 2011 lows and is now at the August 2010 peak. If you look at a two year chart you can see a big head and shoulders top and TLT just broke through the neckline.

Oil fades a second day: 93.69, -1.45. After rallying to a 2013 high midweek, oil is off its feed. Seems it is worried that the Fed pulling back will impact US economic growth, and of course there is the bank liquidity crunch in China so maybe China won't be buying up supplies all over the world for awhile.

Gold bounces ever so modestly: 1292.20, +6.30. After plummeting close to $100 Thursday, gold 'surged' a few bucks upside. Okay, it broke lower from the descending wedge pattern and now a modest bounce. No recovery.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -7.39 points (-0.22%) to close at 3357.25
Volume: 2.718B (+35.43%)

Up Volume: 1.39B (+1.172B)
Down Volume: 1.49B (-310M)

A/D and Hi/Lo: Advancers led 1.49 to 1
Previous Session: Decliners led 5.85 to 1

New Highs: 63 (+18)
New Lows: 74 (0)

S&P
Stats: +4.24 points (+0.27%) to close at 1592.43
NYSE Volume: 1.418B (+45.73%)

A/D and Hi/Lo: Decliners led 1.01 to 1
Previous Session: Decliners led 12.05 to 1

New Highs: 68 (+5)
New Lows: 486 (-158)

DJ30
Stats: +41.08 points (+0.28%) to close at 14799.4

Volume: Ballooned on expiration so doesn't really help in analysis, i.e. no accumulation on a modest large cap NYSE bounce.

Breadth: Flat on NYSE, +1.5:1 NASDAQ. All in all not bad given the up and down moves and NASDAQ's negative finish. Most of that was attributable to ORCL with its second straight horrid earnings report.


THE CHARTS:

DJ30 and SP500. SP500 and DJ30 reached toward the 78% retracement discussed Thursday, came close enough, then rebounded, showing a modest gain and a doji on the candlestick chart. Could be the D point in an ABCD pattern formed off the April to May run. It has the characteristics, now we see the two can generate an upside push. Picked up some SSO calls on the action. Looking at a bounce at this juncture, not a resumption of the rally. Will take it if it comes, but not expecting it.

NASDAQ. Under pressure all session thanks to ORCL and thus closed lower. But NASDAQ did fill the early May upside gap and then it rebounded. That puts it in position to bounce to fill the Thursday gap, perhaps. Being in position, however, does not equal making the move, and we still don't like the look of the pattern. Thus a bounce upside is likely just that, but then again, that is the way we are viewing the entire market on any upside move.

RUTX. Gapped upside then broke lower and tested the March consolidation highs noted Thursday. Used that as support, opting not to head significantly lower to the early May gap, instead rebounding to a modest gain and a nice doji with tail. That puts RUTX in a similar position as SP500.

SOX. Good action. Gapped upside but didn't stick, fading to test further, undercutting the 50 day EMA on the low then rebounding. Held the May and early June lows on the test, and that means SOX is still in its range, looking pretty darn solid.


LEADERSHIP:

Big Names: AMZN remains in its breakout with a tests lower and recovery. GOOG tested and reversed, holding the 20 day EMA near support. AAPL still stinks; bad week. IBM continues to dive.

Technology: STX sold again. FFIV is at the April low with higher MACD. CTSH is at a key support. ORCL dove lower, but didn't drag all software with it. CA testing the 50 day EMA. SNDK sold again but it bounced off a 50 day EMA test. RAX looks interesting to try a bounce.

Chips: Mixed. KLAC quickly turned to struggling below the 50 day EMA. TXN ditto. Others are solid: DIOD, ANAD, NVDA.

Financial: JPM is at the 50 day EMA and its own ABCD. BAC and C even as interest rates surge. Why? Perhaps no more free Fed money to help pad the balance sheets? WFC looks solid.

Internet: Still solid, e.g. WWWW, AWAY, GOOG.

Telecom: Not bad. BBRY at the bottom of its triangle, JDSU tests the 50 day EMA.

Retail: Very mixed: HD, DECK, YUM weak. Others fine: JWN, LTD.


SENTIMENT INDICATORS

VIX: 18.9; -1.59
VXN: 19.44; -0.62
VXO: 18.91; -2.42

Put/Call Ratio (CBOE): 1.17; -0.22

Bulls and Bears:

Well, market sentiment is as volatile as stocks. As SP500 and DJ30 held the 50 day EMA with a double bottom and bounced, sentiment improved as bulls expanded and bears contracted. All, of course, just in time for the market to roll over. Expect to see fading sentiment this coming week with the dive.


Bulls: 46.8% versus 43.8% versus 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5%.

Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 21.9% versus 22.9% versus 20.8% versus 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 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 full economic calendar is ahead with many data points the Fed and the market can chew on and decide, or argue, as to whether the Fed will stay on its taper track.

As noted above, nothing in the Friday action indicates the break lower has run its course. ABCD patterns on SP500 and DJ30 are promising. NASDAQ filled its early May gap and bounced, but its pattern is frightening. On the other hand, SOX looks very good, holding its range.

Add to that many stocks that managed to hold support even as many more seemed to fold up last week. Leadership is the key for nay market, and if enough hold and can then pull others along with them the rally can continue. Many stocks broke hard to the downside but if leaders hold the line and keep the market moving, those stocks that broke hard have time to recover into new patterns.

That is the analysis you need to always apply to the market. Then you can add some of your own color to it that is consistent with the leadership. What this tells us is that yes, the rally can resume. We are not approaching any bounce, however, as if it WILL be the resumption of the rally. If the move higher continues to start next week we want to play it as a bounce/trade at first. Realistic expectations about a break higher, and if it turns out to be more great. If it is, there will be leaders making the move, taking the point. You play those, and if they want to do more with the move, you let them.

So, we play a bounce and if it turns into something more we let positions run. If it fails, as I think it will (but that is just a personal opinion) and the indices hit resistance and roll with leadership doing the same, then you use the bounce to exit weaker upside positions or trades to the upside and play some more downside.

It is still an open question as to the market's next real trend a la FOMC decision. The money is still coming into the market gratis the Fed, but the market looks ahead and as of last week it was looking at a Fed pulling back the QE and an economy that isn't up to snuff. This week will tell more about whether the market is looking through rose colored binoculars as it looks ahead. In any event, play it for the move it gives.



Support and resistance

NASDAQ: Closed at 3357.25

Resistance:
3371 is the early May 2013 upper gap point
3378 is the June 2013 intraday reversal low.
The 50 day EMA at 3390
3449 is the November 2012 up trendline
3521 is the August 2000 low.
3532 is the early May high and 2013 high
3540 is the upper channel line for the November 2012 to present uptrend

Support:
3321 from April 2000
The 2011 up trendline at 3253
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 200 day SMA at 3175
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
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



S&P 500: Closed at 1592.43

Resistance:
1598 is the June 2013 intraday reversal low and the April 2013 high and former all-time high
The 50 day EMA at 1615
The November up trendline at 1652
1687 is the May high and post-bear market high
1724 is the upper trendline in the channel

Support:
1576 from October 2007, the prior all-time high
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
The 200 day SMA at 1506
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
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


Dow: Closed at 14,799.40

Resistance:
14,844 is the June intraday low
14,888 is the April peak and prior all-time high
The 50 day EMA at 14,979
The November up trendline at 15,360
15,542 is the May 2013 high
15,925 is the upper channel line for the trend off the November low.

Support:
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
The 200 day SMA at 13,962
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
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

June 25 - Tuesday
Durable Orders, May (8:30): 3.0% expected, 3.5% prior (revised from 3.3%)
Durable Goods -ex transports, May (8:30): -0.5% expected, 1.5% prior (revised from 1.3%)
Case-Shiller 20-city, April (9:00): 10.5% expected, 10.9% prior
FHFA Housing Price I, April (9:00): 1.3% prior
Consumer Confidence, June (10:00): 74.9 expected, 76.2 prior
New Home Sales, May (10:00): 460K expected, 454K prior

June 26 - Wednesday
MBA Mortgage Index, 06/22 (7:00): -3.3% prior
GDP - Third Estimate, Q1 (8:30): 2.4% expected, 2.4% prior
GDP Deflator - Third Est., Q1 (8:30): 1.1% expected, 1.1% prior
Crude Inventories, 06/22 (10:30): 0.313M prior

June 27 - Thursday
Initial Claims, 06/22 (8:30): 345K expected, 354K prior
Continuing Claims, 06/15 (8:30): 2958K expected, 2951K prior
Personal Income, May (8:30): 0.2% expected, 0.0% prior
Personal Spending, May (8:30): 0.4% expected, 0.2% prior
PCE Prices - Core, May (8:30): 0.1% expected, 0.0% prior
Pending Home Sales, May (10:00): 1.5% expected, 0.3% prior
Natural Gas Inventories, 06/22 (10:30): 91 bcf prior

June 28 - Friday
Chicago PMI, June (9:45): 55.5 expected, 58.7 prior
Michigan Sentiment - Final, June (9:55): 82.6 expected, 82.7 prior

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

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

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

Stocks Waiting on Bernanke

MARKET SUMMARY

- After the Thursday surge, stocks fail to follow through upside, instead waiting on Bernanke.
- PPI 'tame,' Michigan Sentiment drops a bit.
- US bonds falling, rates rising, housing market struggling just a bit.
- China cannot sell enough bonds to fund banks.
- Tax credit boosted Q1 earnings.
- Indices still holding support, sporting better internals.
- VIX suggests stocks just might pull off a new bounce.
- Market on hold for Bernanke on Wednesday, but leadership is still solid, ready to move if they get the nod.

There are some crazy things going on in the world that suggest the attempt to push economic recovery via massive monetary policy liquidity is starting to unravel.

That is a dramatic way to start the market wrap, and I am not saying the Friday selling was a result of these issues. Friday had its own problems to deal with, and while the news was nothing devastating, the market did react, e.g. when the Michigan preliminary June sentiment hit (82.7 versus 83 expected and 84.5 for May), the bounce to positive from a generally weak pre-market abruptly ended. Stocks sold hard negative into midmorning.

They tried to bounce into lunch, then a story hit that the IMF was lowering its 2013 US growth forecast. IMF pronouncements are usually only good for some laughs, but the market made a beeline lower into early afternoon, and while stocks bounced to the last hour, once the closing bell was in sight they gave back the bounce and finished right at session lows. Not a major move, just your usual 3-digit swing on the Dow (135 points high to close) as the indices gave up on average roughly half of the Thursday surge.

SP500 -9.63, -0.59%
NASDAQ -21.81, -0.63%
DJ30 -105.90, -0.70%
SP400 -0.36%
RUTX -0.84%
SOX -0.40%

That seems crazy, does it not, given the late Thursday Hilsen-rally sparked by the story that Bernanke was going to calm the markets next week at his FOMC presser. But the article talked of Bernanke calming the markets about interest rates, not QE withdrawal. Maybe the market thought about it overnight and decided the fix might not be in, that Bernanke might surprise the markets next week talking about rates versus massive bond purchases ($85B/month, remember?).

















THE NEWS

PPI wasn't bad though a 0.5% spike in PPI from -0.7% is not good for anyone. The core, less food and energy, was a much tamer 0.1%, right in line with expectations and just 1.7% year/year, well below the Fed's 2% limit.

PPI, May (8:30): 0.5% actual versus 0.1% expected, -0.7% prior

Core PPI, May (8:30): 0.1% actual versus 0.1% expected, 0.1% prior

If you don't eat and don't drive, mow the yard, cool the home, or want hot water the core reading was passable news (though it was up from -0.4% in April). For those poor unfortunates who actually require food and drink and are part of the 63.4% of the working age population who have a job you need to get to and smell decently when you do get there (i.e., hot water to shower), then it bites. Only 63.4% of the work capable population working. That is problem enough to cause the market pause, but that is another story.




Industrial Production was flat, up from -0.4%, but it was a miss.
Capacity Utilization fell, 77.6 from 77.7, missing the 77.8 expected.
Not great news, but again, not really market moving. Just more of the same stumble 'recovery' the US citizen has 'enjoyed' the past four years.

Serious Issues

The US data was more of what we have seen again and again: improved to end a year and start a new one, fanning the hope that this year it will be different. Then a weakening of the data as summer moves in. Other stories, however, are worrisome.

US bond rates rising and the ripple effects are already showing up.

The US placed three bond offerings this week and each one required higher than anticipated yields (had to pay more interest to sell them) and the demand as judged by the bid to cover was as weak as we have seen it in this recession.

The rise in rates required to place bond offerings is evident in mortgage rates with the 30 year hitting 4.15% the past week, up from 3.59% in early May. Big run. That pushed US home refinancing down 36% from early May. A 'taper' was expected, but not so quickly. That also makes home purchases less affordable as rates rise. Yes historically rates remain low. BUT so does the economic activity, recovery or no recovery. Low historical rates can appear high if the economic activity does not generate well-paying jobs that can afford to buy even with 'low' rates.

So the US is going to have trouble with rising rates given the weak jobs market, and I don't know how Bernanke will keep rates down without buying even more bonds, something the Fed simply cannot do.


China still trying to outrun the year of the recession dragon.

China is having similar, though much worse, problems. For the first time in 2 years (23 months exactly), the Chinese failed to place all of the bonds offered. 30% was left over. That left its banks in a liquidity crunch and the People's Bank of China (PBOC) having to consider more stimulus to keep the banks afloat to fund the continued building ghost cities and office buildings with no hope of occupancy in an attempt to keep the economy going and hopefully outrun a cascading collapse.



Then there were images of 10,000 Chinese citizens waiting in 'line' (more like a mass blob) to buy gold. What do they realize that other don't (or do, depending upon if you talk to a gold bug)? Hey, I still say take some of your stock market gains and buy some hard assets, including gold and including the good as gold, perhaps better, ammunition. .223, 5.56mm, 9mm, 0.40, 0.45 are all high demand calibers.

Q1 US earnings beats said to be attributable to R&D tax credit (WSJ).

A tax credit that expired at the end of 2011 but was resurrected in early 2013 is credited for raising corporate earnings 10% in Q1 to a fairly solid 6.7%. It helped companies that could not make the sales on the top line bolster earnings through a tax credit. The impact is predicted to wane in the remaining quarters of 2013 and it expires at year end. So was the stronger bottom line, weaker top line pattern in Q1 prevented from being a weaker bottom line, weaker top line pattern thanks to large corporations getting a tax break? The WSJ seems to think so. It will be easy to see in Q2 and on.



MARKETS:

OTHER MARKETS

Dollar mixed: 1.3330 versus 1.3368 euro. Up versus the euro but down against other currencies. The dollar index is at some support and likely tries to rebound here and test the break of the May low.

Bonds steady after a wild ride: 2.13% versus 2.14% versus 2.23% Wednesday. Bouncing back, tapping toward the 20 day EMA on the intraday high but then reversing to close below the 10 day EMA. The 10 day, 20 day, 50 day, and now the 200 day MA are all pointing lower. The failure to break through the 10 day EMA shows a strong trend downside. The bond index bounced to test the March low and looks as if it is failing. PIMCO is unwinding its long bond positions, pressuring bonds further. Hilsenrath said Bernanke will talk about rates at his presser next Wednesday. Thus it is up to Bernanke next week to firm up bonds, if he wants to.

Oil rallied. Again: 97.85, +1.16. Breaking through the March, and May highs, closing in on the January closing high at 97.94. After that it is 100 with the peak from September 2012.

Gold bounced modestly: 1387.70, +9.90. Trying to hang in above 1375, but is not making any headway and is still in a negative pattern.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -21.81 points (-0.63%) to close at 3423.56
Volume: 1.443B (-7.74%)

Up Volume: 428.75M (-821.25M)
Down Volume: 1.01B (+690.21M)

A/D and Hi/Lo: Decliners led 2.53 to 1
Previous Session: Advancers led 3.06 to 1

New Highs: 80 (-1)
New Lows: 24 (-18)

S&P
Stats: -9.63 points (-0.59%) to close at 1626.73
NYSE Volume: 577M (-16.01%)

A/D and Hi/Lo: Decliners led 1.22 to 1
Previous Session: Advancers led 4.62 to 1

New Highs: 107 (+10)
New Lows: 90 (-282)

DJ30
Stats: -105.9 points (-0.7%) to close at 15070.18

Volume: Lower and below average on both NYSE, NASDAQ. No heavy selling Friday, just a lack of interested buyers. Higher volume downside sessions still hold the lead in this choppy 4-week pullback. That indicates the sellers dominate but they are not so strong the indices are breaking support. Indeed, the past week on NASDAQ showed a drop to below average volume each session. No heavy selling as it walks laterally at the 50 day EMA. The buyers and the sellers are still fighting, but the sellers are losing their grip on the overall market, and that is a positive for the bounce attempt off of support.

Breadth: Through Wednesday, downside breadth dominated the upside. The previous Friday stocks surged but breadth was barely 2:1 on NYSE; NASDAQ didn't even make it to that level. Thursday a shift started with 3:1 and 4.6:1 breadth on NASDAQ and NYSE, respectively. Friday was noncommittal at -2.5:1 NASDAQ and -1.2:1 NYSE. That in itself, given 0.6% to 0.8% losses on the indices, is better internal action.


THE CHARTS:

Volatility: Yet another day of triple digit DJ30 swings (135 points), showing the volatility is still present. Present, but the decline has for now stalled at key support for several indices.

Position in the pattern: This rally started off the November 2012 low with a bounce that started the trendline. The indices have put together 4 legs to this rally, and typically a run get 4 to 5 legs before it peaks and fades to base out. Thus there can be another bounce in this move. The run started with Fed assurances the QE was continuing, and it struggled in February and April when that assurance was cast in doubt. Same issue now. With Hilsenrath's late Thursday market commentary, whether a fifth leg commences looks as if it is all coming down to what Bernanke tells the markets Wednesday.


DJ30 and SP500. Fell hard to the 50 day EMA Wednesday in a second test of this key support in a week. A bounce Thursday on volume. Friday a test on light trade. Both indices have put themselves in position to make the next run. Note how this episode of selling is longer than prior tests, another change in character but one that has yet to result in a breakdown. Note the last move up was stronger. As volatility increases, the moves increase. The last move upside, if there is another one, is likely a screamer.

NASDAQ. Similar to DJ30, SP500 in the test of the 50 day EMA. Similar in the duration of the pullback. It is taking more this time to firm up support, but thus far it continues to hold the line as well. Lower volume the past week as it works laterally, and that has quelled some of the distribution that often leads to further downside. More of a lateral basing action this past week, and that is better for another upside try.

SP400. Broke the 50 day EMA again on the week, but matched the last low as it puts in a double bottom at the 61% Fibonacci Retracement. A double bottom is good technical action at that level and opens the door for a bounce to the prior high. That is how a trader would trade the move.

RUTX. Basically the same action with a double bottom over the 50 day EMA, but the small caps are showing the double at the 38% Fibonacci retracement, and that indicates more upside momentum as the test is shallower. That makes this test and the bounce really darn interesting.


SOX. Still holding over next support, the 50 day EMA is still rising up to meet it. It looks like a rounded top, but it is not breaking. You cannot count on SOX breaking down, particularly given the action of the other indices, but it is very important to watch because if it does break lower, it tends to lead the rest of the market lower as well.


LEADERSHIP:

Big Names: AMZN is holding its breakout, testing and then bouncing. GOOG moved laterally at the 20 day EMA on the week. PCLN is setting up a nice pennant. AAPL sagged but held its pattern. IBM slumped to the 200 day SMA but it managed to hold. Not a pretty pattern.

Financial. JPM is holding the 20 day EMA, forming a pennant the past three weeks. C is testing the 50 day EMA, holding its gains, but a rather toppy look. V continues its 6 week lateral move, holding the 20 day EMA.

Retail: DECK bounced over the 50 day EMA to end the week. LULU could not bounce. Many leaders are taking a pause with the market, but are holding good patterns: COST, ROST, PNRA, YUM, JWN.

Semiconductors: A volatile week, some holding, others not. Not: TXN, XLNX. Holding: KLAC, SMTC, ANAD, LEDS.

Drugs/Healthcare: Some look great, e.g. THRX, VRX, TSRO. Others are struggling and could crack, e.g. CELG, GILD. Not breaking but have weakened.

Internet: Hanging in rather nicely. YNDX, WWWW, BIDU, SOHU, LNKD.

Still plenty of leadership that can kick in after this test and set the pace for the rest to follow.


SENTIMENT INDICATORS

VIX: 17.15; +0.74. Friday some of the television faces we all know reported volatility (read the VIX) hit a high on the week not seen since late February. True. But to imply that means something major would be wrong. Now I am not saying they were warning a major issue was afoot, but they leave that impression. No, VIX is at the same levels hit in late February and Mid April when the market what? Last suffered pullbacks. It hit these levels and bounced. So, VIX suggests a bounce off of this last test.

What about VIX overall? It is not suggesting any kind of major breakdown. Yes it is higher, but it is still at very low levels and rose as the market sold versus as the market rallied. That is a HUGE difference when using VIX to determine major tops. At a major top VIX will rise as the stock market rises. A strong run coupled with a strong upside VIX trend is a time to, as the late Crocodile Hunter said, not walk, but run! Not there.


VXN: 17.28; +0.15
VXO: 17.26; +0.93

Put/Call Ratio (CBOE): 1.19; +0.21


Bulls versus Bears

Bulls still falling rapidly as the market tests. Bulls are back to the March and late April lows, levels that led to bounces. Bears bounced sharply as well, a much larger percentage move. As bulls peaked at prior peaks the bears bottomed at prior bottoms. They have merged, even more so than the prior convergences the past three months and are closer to the convergence from November 2012. Meaning? They are getting close to the bounce point.




Bulls: 43.8% versus 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 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.

Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 22.9% versus 20.8% versus 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 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 very busy week ahead with a pair of regional manufacturing reports, housing starts, existing home sales, CPI, and of course, the granddaddy of them all, the next FOMC rate decision meeting. A two-day affair (as they all have been since the crisis started so they could fully develop all ideas) with the result issued midmorning Wednesday then the Bernanke presser at noon.

Even with the mouthpiece spewing forth Thursday afternoon that the great one would calm the market's worries, the way he styled it, e.g. calm the masses re interest rates, left open HUGE issues as to just what Bernanke will say. He can calm re interest rates perhaps, but what does that mean toward the biggie, the $85B per month of mortgage buys. Seems one relates to the other, but who knows, other than his hairdresser, what the chairman will say. The Fed had Hilsenrath put this out there ahead of the FOMC meeting trying to head off a market selloff on worries what might come out of that meeting.

The market was already rallying Thursday when Hilsenrath posted the Fed's article. Perhaps the market was going to make a move upside even without the Fed, but now the Fed stepped in, has everyone now excited, and we will never know. It really bites to have markets so damn dependent upon what an agency or one person says. Sure the Fed always has sway, but with these massive mortgage buys and liquidity injections, the market now lives or dies via the Fed. With such a weak economy EVEN WITH MASSIVE LIQUIDITY, it is damn frightening to think what will happen when the Fed pulls back. Maybe those saying the Fed is holding the market back (e.g. Greenspan) will be right, but frankly with so much liquidity in the system the economy should be screaming higher, not screaming at the thought of the Fed pulling the liquidity.

Thus I still, personally, don't like the market at this point. But I have not liked the market at other points in this four year run and in bull runs before this one. That doesn't keep me out of the action. Your worries should heighten your awareness of the market and leadership moves and thus sharpen your actions. Do NOT fall into the trap of second guessing what you are seeing in the individual leadership stocks, in rising stocks, in declining stocks, and yes in the market itself. Channel your concerns into making sure you make good trades versus letting it keep you out of trades because your gut doesn't feel right. Let's face it, when you put fifty large up on a position you are going to have stomach issues no matter what the situation. It is whether you believe in what you are doing and thus are focused on the play versus the result. If you focus on good stocks, good indices, good patterns, good entries and exits, then the result takes care of itself.

Don't get me wrong. The market has to be in the direction, most of the time, with your moves. Thus if there are technical issues with the market overall, that must be factored in, but do it in terms of how much you risk versus changing the parameters of your system. When you start changing parameters that are working for you that is when you start the train rolling that crushes you. If what works for you is not working, then THAT is telling you the market is not right. Abandon that strategy and play another type of pattern, but don't change a working strategy if you don't know exactly why you are changing it and how it will help you. In short, you need to have traded the change before, paper or otherwise, versus just winging it.

So next week is rigged to a certain extent with Bernanke on Wednesday. But rigged which way? The trend suggests it continues; they always do don't they? Leadership still looks good though some good stocks look heavy after this week. I say it often and say it again: if there are a lot of solid stocks still in solid patterns or in solid trends, showing no issues, then the market has what it needs to continue. I have seen so many recovery attempts in bear markets blast off, look solid, but after the initial salvo there are no leaders in position to take the point and thus the rally attempt fails. Leadership is THE key. It is still in this market as of Friday.




Have a great Father's Day! I am a father and there is nothing greater and nothing more challenging. You make a mistake with a trade, you hit your stop point and you are out with a defined loss that you can handle because that is your rule. Make a mistake with a child, and it can be hard to recover. Kudos to all of those dads who find the time, no matter what the economic conditions, the problems, the worries, to stop and take a try at his daughter's hula hoop, make as many of their children's performances as possible, beam with pride with each accomplishment; show their children how to tie on a fishing lure, play a chord on the guitar, operate some power tools, build a birdhouse, find their way in the woods, lay down a bunt, respect other's persons and property, love their mothers, and understand our freedoms and why we have them.


Support and resistance

NASDAQ: Closed at 3423.56

Resistance:
3429 is the November 2012 up trendline
3521 is the upper channel line for the November 2012 to present uptrend
3521 is the August 2000 low.
3532 is the early May high and 2013 high

Support:
3401 is the May 2000 closing low
The 50 day EMA at 3384
3378 is the June 2013 intraday reversal low.
3371 is the early May 2013 upper gap point
3321 from April 2000
The 2011 up trendline at 3244
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 200 day SMA at 3166
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
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



S&P 500: Closed at 1626.73

Resistance:
The November up trendline at 1644
1687 is the May high and post-bear market high
1714 is the upper trendline in the channel

Support:
The 50 day EMA at 1613
1598 is the June 2013 intraday reversal low and the April 2013 high and former all-time high
1576 from October 2007, the prior all-time high
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
The 200 day SMA at 1501
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
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


Dow: Closed at 15,069.11

Resistance:
The November up trendline at 15,262
15,542 is the May 2013 high
15,838 is the upper channel line for the trend off the November low.

Support:
The 50 day EMA at 14,969
14,888 is the April peak and prior all-time high
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
The 200 day SMA at 13,913
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
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

June 11 - Tuesday
Wholesale Inventories, April (10:00): 0.2% actual versus 0.2% expected, 0.3% prior (revised from 0.4%)

June 12 - Wednesday
MBA Mortgage Index, 06/08 (7:00): 5.0% actual versus -11.5% prior
Crude Inventories, 06/08 (10:30): 2.523M actual versus -6.267M prior
Treasury Budget, May (14:00): -$138.7B actual versus -$139.0B expected, -$124.6B prior

June 13 - Thursday
Initial Claims, 06/08 (8:30): 334K actual versus 345K expected, 346K prior
Continuing Claims, 06/01 (8:30): 2973K actual versus 2973K expected, 2971K prior (revised from 2952K)
Retail Sales, May (8:30): 0.6% actual versus 0.3% expected, 0.1% prior
Retail Sales ex-auto, May (8:30): 0.3% actual versus 0.3% expected, 0.0% prior (revised from -0.2%)
Export Prices ex-ag., May (8:30): -0.7% actual versus -0.5% prior
Import Prices ex-oil, May (8:30): -0.3% actual versus -0.2% prior
Business Inventories, April (10:00): 0.3% actual versus 0.2% expected, -0.1% prior (revised from 0.0%)
Natural Gas Inventories, 06/08 (10:30): 95 bcf actual versus 111 bcf prior

June 14 - Friday
PPI, May (8:30): 0.5% actual versus 0.1% expected, -0.7% prior
Core PPI, May (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Current Account Balance, Q1 (8:30): -$106.1B actual versus -$111.5B expected, -$110.4B prior
Net Long-Term TIC Fl, April (9:00): -$37.3B actual versus -$13.4B prior (revised from -$13.5B)
Industrial Production, May (9:15): 0.0% actual versus 0.1% expected, -0.4% prior (revised from -0.5%)
Capacity Utilization, May (9:15): 77.6% actual versus 77.8% expected, 77.7% prior (revised from 77.8%)
Michigan Sentiment, June Preliminary (9:55): 82.7 actual versus 83.0 expected, 84.5 May final.


June 17 - Monday
Empire Manufacturing, June (8:30): 0.8 expected, -1.4 prior
Net Long-Term TIC Fl, April (9:00): -$13.5B prior
NAHB Housing Market Index, June (10:00): 45 expected, 44 prior

June 18 - Tuesday
CPI, May (8:30): 0.2% expected, -0.4% prior
Core CPI, May (8:30): 0.1% expected, 0.1% prior
Housing Starts, May (8:30): 950K expected, 853K prior
Building Permits, May (8:30): 983K expected, 1017K prior

June 19 - Wednesday
MBA Mortgage Index, 06/15 (7:00): 5.0% prior
Crude Inventories, 06/15 (10:30): 2.523M prior
FOMC Rate Decision, June (14:00): 0.25% expected, 0.25% prior

June 20 - Thursday
Initial Claims, 06/15 (8:30): 340K expected, 334K prior
Continuing Claims, 06/08 (8:30): 2967K expected, 2973K prior
Existing Home Sales, May (10:00): 5.00M expected, 4.97M prior
Philadelphia Fed, June (10:00): -0.2 expected, -5.2 prior
Leading Indicators, May (10:00): 0.2% expected, 0.6% prior
Natural Gas Inventories, 06/15 (10:30): 95 bcf prior

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

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

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

Indices Surge Off a Great Setup as Rotation Resumes

MARKET SUMMARY

- Indices surge off a great setup as rotation resumes. What's not to like? Volume, and particularly breadth.
- Jobs are 'just right' . . . for a dysfunctional economy and financial markets.
- Low-pay jobs continue to dominate job creation as the US becomes a nation of full-time part-time workers. That's one way to solve the wage gap between the US and China.
- Consumer Credit is 94% student loans and auto loans.
- Greenspan tells the Fed to practice what he preached but never practiced himself.
- Market likely ready to continue the bounce, but big Fridays typically give some better entries the following Monday.

Stocks surge off of support.

What was not to like about Friday? Stocks drifted ahead of the jobs report, jumped on 175K jobs and a 7.6% reported unemployment rate as the 'just right' mix, and rallied to close at session highs.

SP500 20.82, 1.28%
NASDAQ 45.17, 1.32%
DJ30 207.50, 1.38%
SP400 0.94%
RUTX 0.83%

Again, what was not to like?

Perhaps . . . volume as trade faded to below average on NASDAQ and to average on NYSE. To be fair, volume levitated to above average the past few weeks, so a drop off is not fatal. Just so happens it was on the second biggest up day of the year, however, so it was no ringing endorsement of the move.

Perhaps . . . breadth? Just shy of 2:1 on both NASDAQ and NYSE. Hardly commensurate with the price move. INDEED, breadth was better on the Thursday reversal session (3:1 NYSE) when breadth tends to lag the market move.

These numbers suggest the session was not quite as strong as the gushing financial stations would have you believe.

Don't misunderstand. A good setup yielded a big upside gain. Stocks gapped upside, rallied, held the move from midmorning to the last hour, then rallied to the close. GOOG, PCLN, and AMZN all posted good moves with AMZN blasting out of a triangle base.

The break higher by leaders is important. Money left some stocks the past week but was not rotating into other areas as it was previously when the market continued to renew itself and continue the rally. Friday showed a resumption of rotation out some areas and into new, e.g. personal products to internet (WWWW, BIDU, SOHU).

Rotation is a positive. A big jump off of the same support that held in past dips during this November run is a positive. Indeed, it is likely enough to pull more money into the stock market.

At the same time, don't completely forget about or discount the weak market internals. A few stocks were up big. Most stocks either were not up big or were not up. In short, the outsized gains Friday don't necessarily require a further move higher next week given fewer participants in terms of buyers and in terms of fewer stocks participating in the move.


The News: So what caused it?

Jobs get the nod as the catalyst, but without the sweet setup the move would not be as significant. Basically jobs at 175K but a rising unemployment rate at 7.6% is supposed to keep the Fed from any near term action. What it does, however, is keep the Fed on track for a rate hike in late summer/early fall.

Nonfarm Payrolls, May (8:30): 175K actual versus 159K expected, 149K prior (revised from 165K)

Nonfarm Private Payrolls, May (8:30): 178K actual versus 175K expected, 157K prior (revised from 176K)

Unemployment Rate, May (8:30): 7.6% actual versus 7.5% expected, 7.5% prior

Hourly Earnings, May (8:30): 0.0% actual versus 0.2% expected, 0.2% prior

Average Workweek, May (8:30): 34.5 actual versus 34.5 expected, 34.5 prior (revised from 34.4)


Three to four months down the road for the start of removing stimulus appears to be the right timetable for stocks, at least here in early summer. That likely changes as the new school year looms. It might change Monday given the internals noted above.
The irony is, the real unemployment rate, when using historical workforce participation average rates over decades (65.8% versus the current 63.4%) is 11.3%! The Fed is talking about an improving economy but the numbers used to gauge improvement have been 'dumbed down' to the current woeful economy. By any historical standards unemployment is at a crushing 10+% but because the government adjusts every other statistic only when benchmark changes accentuate the positives, it is not about to calculate unemployment based upon historical participation rates.

Further, the rise in the unemployment rate to 7.6% was the result of rising sentiment and confidence as reported this past week. More people feel better about the economy and went look for work. But there are not enough jobs and frankly, not many good jobs.

Quantity over quality.

We created more jobs (175K) but the average hourly wage was flat versus a 0.2% expected gain. Once more you see the jobs created remain low-end with a large percentage being part-time.

Time quality: Part-time is on a big upswing. A new record at 2.68M temporary staffing jobs as 25,600 such jobs were added. Over the last four months temporary jobs are up just under 100,000, second only to restaurants. Historically temporary jobs peak when the economy peaks given tight labor markets. Hardly the case right now, at least in terms of the jobs market. Maybe the economy is topping out, but jobs are still lagging.

The key is what we have discussed before: the sweeping change of our workforce makeup in response to the sweeping change of the 'affordable healthcare act.' Investor's Business Daily picked up on this discussion this weekend.

Pay Quality: 55% of jobs created in May came from sectors paying below average wages: retail and hospitality. Given the bulk of jobs came from this group, the average wage limped in at $23.89. Over the past 12 months average hourly wages are up 2%. In the 10 months prior to the recession that started in 12/07 gains averaged 3.5%.

The jobs creators and what they pay:
Leisure and Hospitality: 43K jobs at an average pay of $13.45/hour.
Retailers: 27.7K jobs at $16.63/hour.
Temporary help: 25.6K jobs at $15.74/hour.

Again, almost 100K of the 175K jobs produced are in the lowest pay categories.

The lagging jobs groups and what they pay:
Construction: 7K jobs at $26.06/hour
Manufacturing: -8K jobs. Average wage $24.22/hour.

As we have detailed the past year, the jobs created are in the lower pay areas. The economy is STILL LOSING JOBS in some of the HIGHER PAY categories.

The piece de resistance: 21% of jobs lost in the recession were in occupations paying hourly wages of $13.83 or less. In the 'recovery,' those low pay occupations account for 58% of the jobs created. Today I heard a White House official touting 7 million jobs created in this administration.

Harken back to the Milton Friedman story where he was shown a works project where thousands of workers were using shovels to dig a canal. Friedman asked why they were not using earth moving machinery to which the communist official replied 'because using shovels creates more jobs.' Milton responded 'why not have them use spoons?'


Man, if we had some spoons we could REALLY make some progress . . .

The Friedman story is a twist of the current situation but it underscores that creating crappy, low paying jobs is no substitute for real investment and invention that creates real industry and economic activity and thus new inventions and cutting edge jobs that RAISE the standard of living. Indeed, this data clearly shows our standard of living is declining as we replace good jobs with low paying jobs.


A renaissance underway?

I heard one economist again mention the manufacturing 'renaissance' underway . . . as the regional manufacturing reports outside of Chicago are all negative, the national ISM is contracting, and manufacturing lost another 8K jobs, the third straight month of losses. Renaissance? Not in terms of jobs. Manufacturing has had to retool to meet competition from China and elsewhere.



The GRAND IRONY: we complain of China's low-cost labor force but the 'solution' we have come up with is a system that rewards job creators if they create part-time, lower pay jobs. In essence, we are 'dumbing-down' our workforce pay, moving toward China. Hell of a way to compete.

In any event, at the current rate it will take another 6 years to get the unemployment rate down to 5%. Longer if you compare apples to apples, i.e. using historical participation rates versus the artificially ones in place now.


Consumer Credit, April (15:00): $11.1B actual versus $13.2B expected, $8.4B prior (revised from $8.0B)



Very significantly, 94% of the credit was for school loans and auto loans. Just 6% was revolving, or credit card spending. At least that reversed a -0.9B March drop, but it shows not a load of confidence in terms of using credit. On the other hand, perhaps people now don't HAVE TO use their credit cards to survive as they did before. Maybe.


Weekend humor. In a sad way: Greenspan appeared on CNBC and seems to think that he was a putz in terms of easy rates compared to this Fed. Friday Greenspan said the Fed needs to go ahead and exit its QE program because the current Fed's 'maybe we will exit at some point in some amount when some trigger occurs' approach is holding the market back as investors are concerned about interest rate rises of uncertain amounts. After all, look at the volatility in the bond yields just on this last round of the Fed pondering what to do.



Greenspan suggests to get it over already and let the market make that decision. This fits his theories on rate hikes and cuts (i.e. the market factoring in the end point of the Fed move once the Fed announces a rate move program), but ironically, Greenspan NEVER put his theories into practice. Instead Greenspan would keep the market guessing, indeed appearing to take delight in the mystery, if another rate cut was coming and thus putting off investment just in case another rate cut was on the way. A little pot calling the kettle black.

Of course you have to factor in what the current chairman has to work with: a horrid fiscal and regulatory policy that is anti-growth. Bernanke is trying to do it all by himself.

Also factor in that Mr. Greenspan is still in denial his next to nothing interest rates had anything to do with the housing bubble and resultant crash that also gave Bernanke a short rope to work with.


Yes I am this much smart.

Of course Greenspan's remarks implicitly assume the economy in its current state CAN sustain itself and thus stock prices. It can . . . likely at zero growth rates just as they are now, along with some of that monthly Fed stimulus. Greenspan is correct, however, in that the market did buck like a bronco when the Fed recently once again discussed tapering. The bond market sold off and rates shot up. Kind of like Friday.


MARKETS:

OTHER MARKETS
Dollar was basically flat: 1.3224 versus 1.3224. Tested the 200 day SMA again and bounced again. Dollar should rally on Fed taper, stronger economy. Hmmm. It is still higher than it was to start the year, but quite a dive of late EVEN WITH the Fed talking of tapering, a move that SHOULD increase the dollar's value.

Bonds tumbled: 2.15% versus 2.08% 10 year. New closing low on this move. The 10 day EMA stopped it.

Oil surged: 96.03, +1.27. With all of that great US economic activity surely more oil will be required.

Gold was pounded: 1383.00, -32.70. Sharp turn lower from the 20 day EMA after just breaking over it Thursday. Ironic given the supposed reason stocks rallied was because the Fed was going to continue $85B/month in bond purchases.



TECHNICAL SUMMARY

NASDAQ
Stats: +45.16 points (+1.32%) to close at 3469.21
Volume: 1.63B (-8.12%)

Up Volume: 1.17B (-120M)
Down Volume: 445.35M (-45.92M)

A/D and Hi/Lo: Advancers led 1.87 to 1
Previous Session: Advancers led 2.38 to 1

New Highs: 128 (+57)
New Lows: 26 (0)

S&P
Stats: +20.82 points (+1.28%) to close at 1643.38
NYSE Volume: 642M (-5.45%)

A/D and Hi/Lo: Advancers led 1.98 to 1
Previous Session: Advancers led 3.1 to 1

New Highs: 135 (+78)
New Lows: 108 (-34)

DJ30
Stats: +207.5 points (+1.38%) to close at 15248.12

Volume: Significant volume drop on an upside session. Below average on NASDAQ and just average on NYSE. Not commensurate with a surge upside, but you can also argue volume was solid Thursday when the indices reversed off the selling.

Breadth: Pretty lousy, below 2:1 and not even as good as the Thursday reversal session (2.4:1 NASDAQ and 3:1 NYSE).


THE CHARTS:

SP500/DJ30. Bounced off the Thursday reversal from an undercut of the 50 day EMA. Acting just as if QE was here to stay. Now we see if they can parlay the reversal and initial bounce into another run up to the top of the range.

NASDAQ. Nicely done with the Thursday reversal at the November trendline that established an ABCD pattern. Gapped and ran though on below average volume. That trade is a bit worrisome as NASDAQ moves back up to take on the May post-bear market highs.

SP400. Reversed from the 50 day EMA breach on Wednesday, gapped upside Friday. Nice little ABCD of its own. A market leader late in the week.

RUTX. Held the 50 day EMA Wednesday, bounced Thursday, added upside Friday. Really took the lead late in the week though not on Friday. It was not a small cap day as the breadth suggested. Solid, just not leading the move Friday. Given the weak Friday breadth, really watch how the small caps perform this coming week.

SOX. Held the 20 day EMA last week, reversing Thursday with a doji. Good upside break Friday, but right back in the fight with the 2011 resistance it broke but then could not hold. Important group this coming week.


LEADERSHIP:

Rotation looked to start up again but it was a narrow group receiving the money.

Upside: Chinese internet and US internet: BIDU, SOHU, WWWW.

Retail still looks good in particular areas: PCLN, AMZN, TJX, KORS.

Electronics is interesting: FEIC broke higher again. LEDS continues to tantalize.

Drugs: Trying to recover but did some damage. CELG, GILD, TSRO.


Downside or still struggling:

Personal Products: CL, PG


Maybe ready to bounce: Utilities. DJ-15, AEP.



THE MARKET

SENTIMENT INDICATORS

VIX: 15.14; -1.49
VXN: 15.88; -1.52
VXO: 14.59; -2.23

Put/Call Ratio (CBOE): 1.13; -0.09


Bulls versus Bears

So often the case: bulls plunged to 45.8% from 52.1% JUST as the market pulled back and bottomed, showing exellent price aciton. Bears were as usual less volatile, but they rose to 20.8%, also believing the market was primed to fall . . . as if fell. As noted last week, the levels hit points where the market would pull back, BUT it was ALREADY in the pullback.



Bulls: 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 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.

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: 20.8% versus 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 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

Friday we picked up some upside positions, e.g. AMZN, but the gaps higher kept us out of the index plays and other plays. We were not going to chase a big gap and run with a lot of new positions ahead of the weekend when there is so much jawboning around the possible Fed actions. When we saw the breadth numbers and the volume, there was even less reason to dive in.

Moreover, while the indices surged, as noted above, many stocks were just so-so. There were not a plethora of 'gotta' have this one' buys Friday. Indeed, I really was not that wild about buying a surge on Friday in the first place. Many times after such a big surge, particularly on some weaker breadth and volume, some weakness to start next week provides opportunity to pick up some positions on those stocks that gapped and ran away Friday.

Typically works that way and that will be the focus: picking up good stocks on a test . . . as long as the test holds and bounces. The internals raise some questions that will need to be resolved, but they really don't overshadow the setup and then bounce the overall market showed. If stocks test the move, hold and then bounce, it wouldn't be that wise to parse the internals too much and worry. Play good, leadership quality stocks and you come out in great shape.


Support and resistance

NASDAQ: Closed at 3469.22

Resistance:
3503 is the upper channel line for the November 2012 to present uptrend
3521 is the August 2000 low.
3532 is the early May high

Support:
3407 is the November 2012 up trendline
3401 is the May 2000 closing low
3371 is the early May 2013 upper gap point
The 50 day EMA at 3373
3321 from April 2000
The 2011 up trendline at 3236
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 200 day SMA 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
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


S&P 500: Closed at 1643.38

Resistance:
1687 is the May high and post-bear market high
1702 is the upper trendline in the channel

Support:
The November up trendline at 1634
The 50 day EMA at 16010
1598 is the April 2013 high and former all-time high
1576 from October 2007, the prior all-time high
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
1499 from January 2008
The 200 day SMA at 1495
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation


Dow: Closed at 15,248.12

Resistance:
15,542 is the May 2013 high
15,734 is the upper channel line for the trend off the November low.

Support:
The November up trendline at 15,172
The 50 day EMA at 14,936
14,888 is the April peak and prior all-time high
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
The 200 day SMA at 13,865
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
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

June 3 - Monday
ISM Index, May (10:00): 49.0 actual versus 50.9 expected, 50.7 prior
Construction Spending, April (10:00): 0.4% actual versus 1.1% expected, -0.8% prior (revised from -1.7%)
Auto Sales, May (14:00): 5.1M prior
Truck Sales, May (14:00): 6.8M prior

June 4 - Tuesday
Trade Balance, April (8:30): -$40.3B actual versus -$41.0B expected, -$37.1B prior (revised from -$38.8B)

June 5 - Wednesday
MBA Mortgage Index, 06/01 (7:00): -11.5% actual versus -8.8% prior
ADP Employment Change, May (8:15): 135K actual versus 157K expected, 113K prior (revised from 119K)
Productivity-Rev., Q1 (8:30): 0.5% actual versus 0.5% expected, 0.7% prior
Unit Labor Costs, Q1 (8:30): -4.3% actual versus 0.6% expected, 0.5% prior
Factory Orders, April (10:00): 1.0% actual versus 1.6% expected, -4.7% prior (revised from -4.9%)
ISM Services, May (10:00): 53.7 actual versus 53.5 expected, 53.1 prior
Crude Inventories, 06/01 (10:30): -6.267M actual versus 3.0M prior

June 6 - Thursday
Challenger Job Cuts, May (7:30): -41.2% actual versus -6.0% prior
Initial Claims, 06/01 (8:30): 346K actual versus 348K expected, 357K prior (revised from 354K)
Continuing Claims, 05/25 (8:30): 2952K actual versus 2980K expected, 3004K prior (revised from 2986K)
Natural Gas Inventor, 06/01 (10:30): 111 bcf actual versus 88 bcf prior

June 7 - Friday
Nonfarm Payrolls, May (8:30): 175K actual versus 159K expected, 149K prior (revised from 165K)
Nonfarm Private Payrolls, May (8:30): 178K actual versus 175K expected, 157K prior (revised from 176K)
Unemployment Rate, May (8:30): 7.6% actual versus 7.5% expected, 7.5% prior
Hourly Earnings, May (8:30): 0.0% actual versus 0.2% expected, 0.2% prior
Average Workweek, May (8:30): 34.5 actual versus 34.5 expected, 34.5 prior (revised from 34.4)
Consumer Credit, April (15:00): $11.1B actual versus $13.2B expected, $8.4B prior (revised from $8.0B)

June 11 - Tuesday
Wholesale Inventories, April (10:00): 0.2% expected, 0.4% prior

June 12 - Wednesday
MBA Mortgage Index, 06/08 (7:00): -11.5% prior
Crude Inventories, 06/08 (10:30): -6.267M prior
Treasury Budget, May (14:00): -$139.0B expected, -$124.6B prior

June 13 - Thursday
Initial Claims, 06/08 (8:30): 345K expected, 346K prior
Continuing Claims, 06/01 (8:30): 2973K expected, 2952K prior
Retail Sales, May (8:30): 0.3% expected, 0.1% prior
Retail Sales ex-auto, May (8:30): 0.3% expected, -0.2% prior (revised from -0.1%)
Export Prices ex-ag., May (8:30): -0.5% prior
Import Prices ex-oil, May (8:30): -0.2% prior
Business Inventories, April (10:00): 0.2% expected, 0.0% prior
Natural Gas Inventories, 06/08 (10:30): 111 bcf prior

June 14 - Friday
PPI, May (8:30): 0.1% expected, -0.7% prior
Core PPI, May (8:30): 0.1% expected, 0.1% prior
Current Account Balance, Q1 (8:30): -$111.5B expected, -$110.4B prior
Industrial Production, May (9:15): 0.1% expected, -0.5% prior
Capacity Utilization, May (9:15): 77.8% expected, 77.8% prior
Michigan Sentiment, June (9:55): 83.0 expected, 84.5 prior

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

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

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

Bad Economic News, Good Economic News

MARKET SUMMARY

- Bad economic news, good economic news. The market gains some ground, loses some more. Familiar? Still in the post-Fed speak slump.
- Last minute end of month portfolio changes turn 0.5% losses into 1% losses.
- Personal spending and income disappoint as reality takes hold.
- Chicago PMI surges from contraction even as respondents still glum, almost morose.
- April Core Retail Sales cut by 2/3 in revisions.
- Americans have regained less than one-half their wealth lost in the recession.
- Best Buy founder hits the nail on the head as he identifies what is wrong with the economy.
- India economy posts its slowest growth in 10 years.
- Europe sets another unemployment record. The wrong way.
- Still in the taper-tantrum fade, but at least Friday helped move it along toward key support.
- New month, new money? A bit more downside then a reversal would be just right. Okay, so we are now quoting fairy tales.

To sell because of taper, or not to sell because of taper?

The Chicago PMI crushed expectations, but it was not enough to hearten a market that is in the throes of a 'to taper or not to taper' trading range/pullback. Or, perhaps it was too much for a market in the 'taper or not' throes. At this juncture, it is a bit difficult to determine what the market likes and what it dislikes. Too strong could be bad for keeping full-strength QE. Too weak could be bad for stocks if the Fed is hell-bound on starting the QE exit in three months as now three Fed officials have suggests.

Of course the difference this time is that it is clear that the Fed will start removing stimulus in August or September. As noted, three have said so, and last time I checked, three is still the charm. Thus the market, whether it is facing it now or not, will have to factor in a reduction in QE of SOME sort. There is discord on the Fed as just what to do, but Bernanke is on the record over a month ago saying removal of stimulus would consist of charging the banks interest. Heaven forbid; interest on borrowed money. How possibly could the banks survive?

That may sound wise-a**, but even with free money gratis the Fed many big banks STILL struggle to turn profits. That is HOW BAD their condition was and why I believe they should have been allowed to collapse via their own dead weight and bad decisions. Know what? They are STILL in bad shape as loan loss reserves have been siphoned off and are now reported as profits on recent quarterly reports. Indeed loss reserves are close to where they were pre-crisis as if no issues could possible develop again. With the Fed at your back, however, there is NO NEED to change your ways.

But I digress. So yes taper is coming to an end of summer theater near you, but just what will be showing on the marquee, i.e. what kind of QE pullback implemented, is the question. Friday the market was wrestling with its post-Bernanke/Dudley/FOMC taper issues. In the end the resolution was closer. Not there but closer.


Futures were lower even as Japan's Nikkei recovered with a 1.4% gain after dive-bombing over 5% Thursday. As is often the case, however, futures were on the mend as the open approached. Weak Personal Spending numbers relieved fears of any QE take-back anytime soon. As stocks opened they jumped upside and in the first 20 minutes were flat. A quick test and then by midmorning stocks were positive.

That was the last time they were positive for the session. Midmorning proved the recovery peak. Stocks faded into early afternoon, held, then dipped again just before the last hour. SP500 down 0.5%, NASD just negative. A bounce looked promising and carried stocks higher to the last half hour of trade.

Then the bottom dropped. SP500 lost 12 points in the last half hour, HALF of what it lost on the day overall. 1/2% losses turned into 1.4% losses on SP500. Ouch.

SP500 -23.66, -1.43%
NASD -35.29, -1.01%
DJ30 -208.95, -1.36%
SP400 -0.92%
RUTX -0.70%
SOX -1.22%

After hours we heard many spooked journalism majors turned financial anchors querying their imminently informed guests as to what happened. A bunch of pabulum was ladled. It was tapering. It was the weekend. It was the Hindenburg Omen. It was uncertainty. It was the time of the month.

What was it? Well, it WAS the time of the month. It was the end of the damn month and there was some serious position shuffling magnified by an index rebalance. It was not a good finish and volume surged. Was it THE start of THE selling? There were a lot of simultaneous new highs and new lows, something called the 'Hindenburg Omen,' but it is just a possibility. The indices hit new highs, they are struggling with the possibilities of a liquidity drain via the Fed, they are approaching an important test and that will tell the tale for this pullback.

Indeed the first part of next week we could very well see some money put to work. Yes, just because the Fed is talking taper and some are spooked, it does not mean that those running to the market now, late of course, after sitting out four years, are going to turn back now. Thus we could see some early month money come to market next week. The real question is what happens after it is spent.


Wait, wait! This bus has been on a four year trip and now I want to get on!


OTHER MARKETS

Dollar lower: 1.2995 versus 1.3042 euro

Bonds struggled: 2.16% versus 2.13%

Oil fell right back down: 91.7, -1.64

Gold sold off after a rebound: 1393.70, -18.10


THE ECONOMY

Quote of the Day by Jim Rogers: "You are not supposed to take money away from the competent people and give it to the incompetent so that the incompetent can compete with the competent people with their own money."

The data showed a wildly divergent split in the economy. This time it was not just the consumer's feelings, but the Chicago PMI blasted higher even as income and spending faded and retail sales were revised lower.

Personal spending and income disappoint as reality takes hold.

Personal Income, April (8:30): 0.0% actual versus 0.1% expected, 0.3% prior (revised from 0.2%)

Personal Spending, April (8:30): -0.2 actual versus 0.1% expected, 0.1% prior (revised from 0.2%)

I

It appears the consumer feels the sting of increased payroll taxes after all. Taxes do not rise and go quietly unnoticed.

Just look at disposable income, heading negative again. This is the most telling figure. Jobs restructuring to part-time versus full-time and the resultant less hours worked in order to meet the strictures of the healthcare law.

It may very well be that we continue to see a taper in spending (to use Fed parlance) as the summer doldrums hit.


Chicago PMI leaps out of contraction but those surveyed are not happy.

Chicago PMI, May: 58.7 actual versus 49.3 expected, 49.0 prior (no revisions)



The numbers were good in about every category. Weirdly strong. Statistically massively outside norms (a sigma of 8).

Production: 49.9 to 62.7. Absurd. I don't mean to belittle it and wish it was correct, but it is simply not in sync.

The comments were in stark contrast:
-Three months of declining sales in a core product line though some are hanging in.
-Business activity should be picking up and stronger at this time of year, but is delayed.
-New orders light since March, but sales reps remain optimistic.
-Months start good but end bad.

You make the call. The numbers are the numbers, but the comments are the comments.


Core Retail Sales Revert back in Line.

Perhaps the Chicago PMI will revert. Why do I bring that up? Because in mid-May when April Retail Sales ex-autos fell 0.1%, the core sales (ex-gas as well) rose 0.6% after a prior -0.1% showing and an expected 0.3% gain.

Today the Census Bureau released a revision down to 0.2%, one-third of what was originally reported. What was a big beat is now a miss. Makes you continue to wonder about the validity of data.


The irony of confidence versus reality: Michigan Sentiment hits a six year high similar to Consumer Confidence. This as wealth remains lost, disposable income negative.

Michigan Sentiment - Final, May (9:55): 84.5 actual versus 83.7 expected, 83.7 prior (no revisions)

Michigan Confidence and the Conference Board's Consumer Confidence both soared the past week to multi-year highs (84.5 and 76.2, respectively). It is often said that consumers say one thing and do the other. Perhaps they are feeling, as they have from time to time in this failed recovery, that things have to get better.

Problem is, reality is not matching expectations or more accurately, hope.

As noted earlier, the tax increases are hitting consumers with less take home pay, i.e. less disposable income. Indeed, negative disposable income in April. Moreover, the -0.2% in spending reported Friday was the first time in a year consumers cut their spending.

The Washington Post reported Thursday that according to the St. Louis Fed, US citizens have on average regained LESS THAN HALF of what they lost in the recession. Four years of so-called recovery and less than half of the wealth lost recovered. Shocking.

Indeed the Fed stated "A conclusion that the financial damage of the crisis and recession largely has been repaired is not justified."



$16T lost. $7.2T recovered despite four massive QE gambits from the Fed on top of the $900B in stimulus and TARP. Bang for the buck? Hardly. The right kind of stimulus works. History shows it. The wrong kind exacerbates the problem. History shows it: Great Depression, 1970's, 2008-2013 (and still counting).


Best house in a bad neighborhood?

India just reported its slowest growth in 10 years.

Europe just set another record in unemployment at 12.2% for April.

Our 2.4% in Q1 suggests they should try QE as well, right?


Best Buy Founder Speaks Wisdom.

Friday morning the Best Buy founder Anderson was on CNBC. Sage comments that our leaders should listen to and then try to understand. With their Keynesian backgrounds (if even that), it would be hard to grasp, but it is true wisdom.



In discussing the difficulty startups and small businesses are confronting in this economy, he noted BBY could have been stopped or could have failed many times from many different things during its infancy.

Anderson compared today to then and sees today's environment much more hostile to small business or startups. Today's regulatory schema and higher costs for small businesses creates an environment in which they cannot compete with the larger companies.

This is EXACTLY what we have said about this recovery all along: geared toward the large multinationals and established businesses from the original stimulus to the regulations. Those trying to start a business are hampered by the regulations and resultant costs, the latest being rising employee costs thanks to the Healthcare act and the inability to raise prices: they cannot raise prices but they have rising employment costs that threaten their ability to stay open. They are caught in an unworkable trap, and many have failed and many will fail.

It is axiomatic this scenario is NOT good for the jobs market as no new jobs will be created by the typical jobs engine for the US and recoveries. This only exacerbates the poor jobs situation we currently suffer from and it is not improving.




TECHNICAL SUMMARY

NASDAQ
Stats: -35.38 points (-1.01%) to close at 3455.91
Volume: 1.878B (+6.16%)

Up Volume: 400.36M (-999.64M)
Down Volume: 1.54B (+1.16B)

A/D and Hi/Lo: Decliners led 2.56 to 1
Previous Session: Advancers led 2.19 to 1

New Highs: 125 (-28)
New Lows: 28 (+13)

S&P
Stats: -23.67 points (-1.43%) to close at 1630.74
NYSE Volume: 777M (+22.17%)

A/D and Hi/Lo: Decliners led 5.08 to 1
Previous Session: Advancers led 1.47 to 1

New Highs: 171 (-46)
New Lows: 238 (+121)

DJ30
Stats: -208.96 points (-1.36%) to close at 15115.57

Volume: Jumped 6% NASDAQ and 22% NYSE but a lot of that was a rebalance that occurred on the day and those are manifested late in the session just as this one was.

A/D: Heavily downside on NYSE at -5:1. Now that is negative, but it is starting to get in the realm of extreme, and that is a positive for the upside. If things get bad enough you are ready to bounce; that is the theory. A better signal would be -8:1 or worse.


THE CHARTS:

Still working through the post-Bernanke taper talk but picked up speed downside as measured by the close. The silver lining: the sharp selloff puts stocks in a better position to complete this pullback similar to February . . .

SP500. Diving to the downside but closing in on the November up trendline marking the bottom of the uptrend channel. Huge volume but there was a rebalance. The bottom of the range will tell more of the tale. Note that MAC is solid, hitting a higher high on this higher high in the index, a confirmation that momentum remains good.

NASDAQ. Gave up the upper channel line but it has passed through that line this week as much as fecal matter passes through a goose so it doesn't, in terms of a barrier, mean much right now. It does show NASDAQ continuing to struggle after breaking the channel and hitting a new rally high. Still looks as if it has more to fall, but as with SP500 the MACD is solid and it was much more resilient than the other indices.

SP400. Hanging on at the 20 day EMA as it did all week. Not bad consolidation action but sure looks as if it wants to fall a bit more. 1160 looks likely (closed at 1184).

SOX. Down but still strong, closing above the November up trendline. Good relative strength on the week; very good. Maybe a bit topped out for now, but hard to say it is ready to roll over based upon the pattern other than just saying it is at the 2011 peak and that is acting as some resistance.


LEADERSHIP:

Big Names. AAPL down slightly, holding up very well in a down market. GOOG was fine, closing flat and at the same lows from Wednesday to Friday. A solid pullback. NFLX gapped and held some of the gain. PCLN remains solid.

Energy. Refiners still look good, e.g. MPC, VLO. Service companies are struggling maybe a bit but could form up nicely after a bit more testing, e.g. HAL. Still, there is some worrisome look to a few: SLB, WFT.

Financials. A good week, a strong week on the interest rate rise. Friday was off, giving some back after a very solid run. JPM, BAC. V is at an important level, bumping the 20 day EMA all week.

Retail. Taking it on the chin a bit as some leaders sold. KORS lost 4.3% after a great week to the upside. COST was hammered. TJX is trying to turn back up after a problematic midweek. LULU still looks good as does DECK.

Chips. Still solid, e.g. KLAC, ANAD.

Some sectors to consider as the indices hit new highs the past two weeks:

SP500 versus commodities: Commodities diving since February as SP500 soars starting November. The two started their divergence that same month.







THE MARKET

SENTIMENT INDICATORS

VIX: 16.3; +1.77
VXN: 15.99; +1
VXO: 15.82; +1.7

Put/Call Ratio (CBOE): 1.19; +0.33


Bulls versus Bears

Bears held steady . . . at a low level while builss faded a couple of points. Bulls are still at relative highs that have set off minor selling bouts over the past year, suggesting the market is set for a pullback. BUT . . . the market is in a pullback now.



Bulls: 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 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.

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: 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 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

Given the commentary to end the week after that last hour nosedive you would likely approach this coming week with a safety harness, flak jacket, helmet, survival kit, extra toilet paper, and extra batteries.

Maybe bad things happen. At least we likely see the result rather quickly given how SP500 closed near its November trendline, ditto DJ30. Always look at the bright side of life . . .


Jack Nicholson in 'As Good as it Gets.'


There are still quite a few of solid stocks in good position, e.g. GOOG, AAPL, PCLN, NFLX. Of course that can change with horrifying rapidity in a stock market that suddenly sells off after realizing it has floated on air provided by the Fed for the past 4 years.

It is the start of a new month. New money is going to come to the market. Last month it took a session but it got there. That would be pretty perfect: another downside move to the trendline and then new money to push it back up off support.

There is also the jobs report on Friday to add to the mix: Fed taper speculation, mixed economic data, sharp Friday selloff, and again jobs. Depending upon what happens early in the week, the jobs report will have more or less meaning. If things hold support, then it means more. If stocks are diving it won't matter a damn bit.

This pullback may be different this time around given the Fed and a lot of talk about starting to remove stimulus in three months. All the prior pullbacks since November were with the confidence, more or less, that the Fed was not 'there' yet in terms of removing stimulus. It is 'there' now in terms of deciding it needs to get out of this game.

Indeed, late Friday allegedly embargoed Fed Advisory Panel minutes were released and the language was, for the Fed, shocking:

"There is also concern about the possibility of a breakout of inflation . . . and of an unsustainable bubble in equity and fixed-income markets given current prices."

Further:

"Uncertainty exists about how markets will reestablish normal valuations when the Fed withdraws . . . It will likely be difficult to unwind policy accommodation, and the end of monetary easing may be painful for consumers and businesses . . . The Fed may now be perceived as integral to the housing finance system."

Holy crap. This is the Fed. At least it IS cognizant of the issues. Cold comfort for a market mainlining on its stimulus.

Okay, the Fed is on board. I say the next question is how much and what method, but with that statement does it matter? Sure; the Fed won't go all at once. It is, based upon these stated concerns, terrified of screwing up but at the same time it knows that it will likely cause damage. Kind of like the Iranian President who believes the world will come to an end soon and he wants to help it along. He knows damage will be done, but it is for the ultimate greater good. Gracious.


'And when the fire rains down from the sky and destroys the earth, that will be a beautiful wonderment.' Oh yes, and he is the President of a country.

Worrisome words from the Fed, worrisome end to the week. I still don't like the feel of the market here as stated several times the past week. But, alas, that is my gut, my hunch and it can be right or millions of other investors and traders can overpower whatever my gut suggests.

It does, however, appear clear the indices will meet support early on and we will see how they react along with some seriously quality stocks (e.g. GOOG, AAPL, NFLX, PCLN, DDD, PCYC, GMCR). Perhaps it is different this time. We will see soon enough. Keep good stops on current positions and jump on stocks ready to move, up or down.



Support and resistance

NASDAQ: Closed at 3455.91

Resistance:
3485 is the upper channel line for the November 2012 to present uptrend
3521 is the August 2000 low.
3532 is the early May high

Support:
3422 is the prior May 2013 low
3401 is the May 2000 closing low
3389 is the November 2012 up trendline
3371 is the early May 2013 upper gap point
The 50 day EMA at 3358
3321 from April 2000
3227 is the April 2000 intraday low
The 2011 up trendline at 3225
3197 is the September 2012 post-bear market high
3171 is the October intraday high
The 200 day SMA at 3147
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
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 1630.74

Resistance:
1687 is the May high and post-bear market high
1692 is the upper trendline in the channel

Support:
The November up trendline at 1623
The 50 day EMA at 1605
1598 is the April 2013 high and former all-time high
1576 from October 2007, the prior all-time high
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
1499 from January 2008
The 200 day SMA at 1490
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows
1434 from early November 2012
1433 from August 2007 closing lows
1427 is the August 2012 peak
1425 from May 2008 closing highs and the October 2012 low
1408 is the late October 2012 range closing low
1406 is the early May 2012 peak
1402.22 - 1400 is the closing low of the August 2012 lateral consolidation


Dow: Closed at 15,21.30

Resistance:
15,542 is the May 2013 high
15,645 is the upper channel line for the trend off the November low.

Support:
The November up trendline at 15,057
14,888 is the April peak and prior all-time high
The 50 day EMA at 14,892
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
The 200 day SMA at 13,816
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
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

May 28 - Tuesday
Case-Shiller 20-city, March (9:00): +10.9% actual versus 10.1% expected, 9.3% prior (no revisions)
Consumer Confidence, May (10:00): 76.2 actual versus 72.5 expected, 68.1 prior (no revisions)

May 29 - Wednesday
MBA Mortgage Index, 05/25 (7:00): -9.8% prior

May 30 - Thursday
Initial Claims, 05/25 (8:30): 354K actual versus 340K expected, 344K prior (revised from 340K)
Continuing Claims, 05/18 (8:30): 2986K actual versus 3000K expected, 2923K prior (revised from 2912K)
GDP - Second Estimate, Q1 (8:30): 2.4% actual versus 2.5% expected, 2.5% prior (no revisions)
GDP Deflator - Second Read, Q1 (8:30): 1.1% actual versus 1.2% expected, 1.2% prior (no revisions)
Pending Home Sales, April (10:00): 0.3% actual versus 1.5% expected, 1.5% prior (no revisions)
Natural Gas Inventories, 05/25 (10:30): 88 bcf actual versus 89 bcf prior (no revisions)
Crude Inventories, 05/25 (11:00): +3.0 mln actual versus -0.338M prior (no revisions)

May 31 - Friday
Personal Income, April (8:30): 0.0% actual versus 0.1% expected, 0.3% prior (revised from 0.2%)
Personal Spending, April (8:30): -0.2 actual versus 0.1% expected, 0.1% prior (revised from 0.2%)
PCE Prices - Core, April (8:30): 0.0% actual versus 0.1% expected, 0.1% prior (revised from 0.0%)
Chicago PMI, May (9:45): 58.7 actual versus 49.3 expected, 49.0 prior (no revisions)
Michigan Sentiment - Final, May (9:55): 84.5 actual versus 83.7 expected, 83.7 prior (no revisions)

June 3 - Monday
ISM Index, May (10:00): 50.9 expected, 50.7 prior
Construction Spending, April (10:00): 1.1% expected, -1.7% prior
Auto Sales, May (14:00): 5.1M prior
Truck Sales, May (14:00): 6.8M prior

June 4 - Tuesday
Trade Balance, April (8:30): -$41.1B expected, -$38.8B prior

June 5 - Wednesday
MBA Mortgage Index, 06/01 (7:00): -8.8% prior
ADP Employment Change, May (8:15): 157K expected, 119K prior
Productivity-Rev., Q1 (8:30): 0.6% expected, 0.7% prior
Unit Labor Costs, Q1 (8:30): 0.6% expected, 0.5% prior
Factory Orders, April (10:00): 1.5% expected, -4.9% prior (revised from -4.0%)
ISM Services, May (10:00): 53.5 expected, 53.1 prior
Crude Inventories, 06/01 (10:30): 3.0M prior

June 6 - Thursday
Challenger Job Cuts, May (7:30): -6.0% prior
Initial Claims, 06/01 (8:30): 347K expected,
Continuing Claims, 05/25 (8:30): 2960K expected,
Natural Gas Inventories, 06/01 (10:30): 88 BCF prior

June 7 - Friday
Nonfarm Payrolls, May (8:30): 164K expected, 165K prior
Nonfarm Private Payrolls, May (8:30): 174K expected, 176K prior
Unemployment Rate, May (8:30): 7.5% expected, 7.5% prior
Hourly Earnings, May (8:30): 0.2% expected, 0.2% prior
Average Workweek, May (8:30): 34.5 expected, 34.4 prior
Consumer Credit, April (15:00): $13.5B expected, $8.0B 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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