Detroit files for bankruptcy. Some recovery

MARKET SUMMARY

- Some resilience despite GOOG, MSFT earnings bombs yet market just takes a moment.
- Money moving into US equities funds.
- Slow day but doing what it needs to do.
- Global economies slowing but oil is spiking.
- Detroit files for bankruptcy. Some recovery.
- Getting toward the limits of recent runs. Will earnings and money push indices higher or will they wait for the new month?
- Leaders still there and as they set up, with the money moving in, we will look at more.

Despite GOOG and MSFT's earnings misses, the session was, by any measure, pretty darn boring and pretty darn resilient. A little boring and a little sluggish is what happens when you have a great three week rally, new highs, some resistance, and investors looking for the next reason to buy.

Now they might indeed be finding that reason, at least the big money managers who truly move the market, and thus the market's resilience in the face of some fairly crappy revenue reports yet again. Friday we all learned that cash inflows to US equities funds surged the most since money was dumped into the market to start the year. Remember that January 2 gap higher on NASDAQ a month into the bounce off the November low? You can see it on the chart. That triggered the next leg in the November to present rally. Can it keep this rally running with just a modest consolidation?

Of course there was no NASDAQ upside gap Friday thanks to MSFT and GOOG stinking the place up. Indeed a gap down was the actual result. Even so, the indices were mixed with a rather casual session, particularly for expiration, as stocks overall continue to take a moment after the three week run from June.


'We should all take a moment and remember the real victim in this incident. The pig.'
--John 'the Biscuit' Cage in 'Ally McBeal' addressing the jury in court.

I mean the market is showing some effect from a bevy of big name top line misses (GE, MSFT, GOOG, KO, UPS, etc.) and other out and out misses period (again, GOOG and MSFT), but you would not know it from looking at Russell 2000 or SP400. Of course those don't have the likes of MSGOOG so there you go. Even NASDAQ, the index taking it for the team with two big players missing, easily held above the 10 day EMA and the May peak, the last high in the move.

What is going on with tech? MSFT you can understand. It has not had an original idea since DOS and it bought the first DOS from some unsuspecting schmuck for $50K after Gates told IBM Gates' company had developed a disk operating system. It succeeded when Steve Jobs trusted Gates with the guts of the Mac operating system. Jobs was livid, Gates laughed all the way to the bank.



You ****ed up, you trusted us. I think I ****ed up, I trusted him.
(PG-13)

Of course Apple got its Macintosh ideas from Xerox because Xerox management balked at the idea of the company selling anything that had a mouse. Vision. It is a great thing.

Overall, however, the 'old' tech is struggling as the PC morphs into something else whether a tablet, phone, watch, glasses, suit, or whatever. There is a big struggle for Dell, and it is a big cash cow, but frankly it is not the future. Those vying for it are simply trying to buy a cash stream for as little as possible. Period. Michael Dell may have some other romantic notion as it is his company since college days, but he is the only one.

Reasons for Google's miss? Perhaps sharing data with the government is not what people really want after all. People still do have a choice of search engines to use. Not much of a choice, however, as there are few alternatives that do not track everything you do on the web and then grab their toes every time the feds ask for the data (PG-13 reference). In any event, a miss by any other name.


Boring and resilient equals slow. Earnings are in full swing and the market is feeling the effects of a bevy of top line misses, and in some cases, bottom line as well. Overall, however, this is a very casual pullback and in many cases not a pullback at all. NASDAQ and SOX are taking the brunt of the 'blow' in the consolidation, but it is more akin to a slap on the wrist as both hover just above the 10 day EMA. Quite a selloff indeed.

The action Friday was low to high, some indices higher than others. NASDAQ struggled all session with the twin albatrosses GOOG and MSFT. Those did not help SP500, but it had other outlets to push it higher. For the large cap NYSE indices it was another day of lateral to slightly higher gains. The prior Friday to Thursday the big indices worked laterally in an 'in place' consolidation. Thursday they again rallied; Friday they held steady, not quite making that big break yet. SP400 midcaps and RUTX small caps never really stopped to consolidate, just slowed the move a bit.

With the money flowing into equity funds, it seems the indices want to keep moving higher, or at least hold their gains versus selling back. Resilient again comes to mind given the earnings, Bernanke's testimony (many still say no taper in September; I think they will be sad), and spiking oil and gas. Regional manufacturing reports from Philly and New York, however, managed to buoy spirits as to the economic outlook.

SP500 2.72, 0.16%
NASDAQ -23.67, -0.66%
DJ30 -4.80, 00.03%
SP400 0.13%
RUTX 0.02%
SOX -0.22%

Volume surged on NYSE by 28% and bumped 4.5% on NASDAQ, both above average, as expiration spurred Friday's trade.

Breadth modest but higher on NYSE (1.2:1), slightly down on NASDAQ (-1.1:1), indicating it was indeed a large cap issue for techs (NASDAQ 100 declined 1.07%; tells the story).


THE NEWS

There was some end of the week news, but even though significant, it appeared to be lost versus Bernanke's congressional testimony and the high profile earnings.

Detroit filed for Chapter 9 'uncle' bankruptcy, as the same city the President promised he would not let fail is now saying the city gets no bailout. Someone said the city should be bulldozed in strips and rebuilt. I posted pictures awhile back of Hiroshima and Nagasaki Japan versus Detroit. Utter devastation to current modern metropolises. Not saying Detroit should be nuked; it still has beautiful buildings, but some areas are forsaken, and those comparisons give the bulldozing idea some appeal. Of course it would need some new industry; that is a matter of the available labor force, whether local government will embrace growth policies, and if they get the mindset away from government handouts.



US equity funds, as noted above, received $16.4B the past week, the fifth largest injection ever.

Goldman Sachs' Global Leading Indicator shows that the global cycle is back to slowing. Still positive, but momentum is slowing toward the flat line yet again. At the same time Markit's global business confidence survey fell to a post-2007/2008 crisis low in June. The US and China are key components in the slowing as money supply growth is slowing in China and in the US, already slow commercial bank lending is slowing at a sharper pace.



WTI oil moved past Brent for the first time in three years even as more and more US oil is produced.

SEC sues hedge fund manager Steve Cohen in a CIVIL SUIT for failing to prevent insider trading among other claims. It seems inherently wrong that the government can sue an individual in civil court versus criminal court for breaking laws in order to achieve a lower burden of proof than in a criminal case. In the 'old days,' civil suits were left for citizens and non-government entities. In an all-powerful government, however, this is not surprising.

This as the Washington Post reports the NSA in testimony to Congress said they sure tried to keep their data gathering program secret in response to inquiries as to how they thought they could keep us in the dark. Hero or villain, Snowden let us see something we all suspected was happening was indeed actually happening. In a case of strange bedfellows, former President Carter says Snowden's actions were a net positive as he informed us of illegal actions by the NSA. There you go.



THE MARKETS

OTHER MARKETS
Dollar modestly weaker: 1.3136 versus 1.3109 euro. The dollar is under pressure once the market decided the Fed may not be so bent on cutting the taper.

Bonds bouncing: 2.49% versus 2.53%. After breaking lower Thursday and looking like a rollover, TLT bounces right back to the 20 day EMA. Key level. This looks as if bonds could rally again off of this low as MACD was at a higher low on the early July low.

Oil surging, kind of: 108.05, +0.01. WTI moved past Brent for the first time in three years though WTI closed well off its intraday high. Oh well, right? It broke higher from the lateral consolidation and has no weakness. Why is this with a slowing world economy and more petroleum output? Money, dear Watson. The dollar is weaker and the world is awash with liquidity. Thus even though less oil is being used and more produced, the price in dollars and the amount of money is inflating oil prices.

Gold: 1292.80, +8.60. Gold won't give up at the 20 day EMA, stretching its lateral move to over a week. Gold may just make the break higher.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -23.66 points (-0.66%) to close at 3587.61
Volume: 1.75B (+4.48%)

Up Volume: 684.59M (-236.45M)
Down Volume: 1.07B (+338.99M)

A/D and Hi/Lo: Decliners led 1.1 to 1
Previous Session: Advancers led 1.64 to 1

New Highs: 224 (-122)
New Lows: 13 (+5)

S&P
Stats: +2.72 points (+0.16%) to close at 1692.09
NYSE Volume: 765M (+27.93%)

A/D and Hi/Lo: Advancers led 1.12 to 1
Previous Session: Advancers led 2.04 to 1

New Highs: 347 (-147)
New Lows: 96 (-20)


DJ30
Stats: -4.8 points (-0.03%) to close at 15543.74


CHARTS

SP500/DJ30: After a weeklong lateral move on SP500 and DJ30 into Thursday, those indices started higher Thursday and they held the move Friday. Not over near resistance, however.

NASDAQ slid up the upper channel line all week but Friday gapped lower gratis MSFT, GOOG. Held over the 10 day EMA so not a major crack and easily inside the channel. Now we see if it can regroup and move on the remaining earnings.

SP400: New highs on the week after a one-day pause Tuesday. Slowing the move but still moving higher.

RUTX: Just managed to scratch out a new closing high Friday after punching new highs Monday and Thursday. Took a midweek breather and then continued the move. Stretched thin right now, likely pulls back, but money keeps rotating and moving the small and midcaps higher.



SENTIMENT INDICATORS

VIX: 12.54; -1.23
VXN: 13.75; +0.28
VXO: 12.58; -0.92

Put/Call Ratio (CBOE): 0.79; +0.05


Bulls and Bears:

Bulls continue to surge with another impressive, indeed more impressive, gain. Bears are the lowest in 6 weeks. Nothing like gains to surge sentiment back up from the contraction of the distance between bulls and bears at the start of July. Bulls are closing in on the highs that started pullbacks. Bears are at that level right now.

Note short interest spiking toward highs of the past half year. That is still a bullish indication somewhat in contrast to bulls and bears. Note, however, that short interest has moved more in line with market movements than contrary.




Bulls: 52.1% versus 46.9% versus 43.8% versus 41.7% versus 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: 19.8% versus 22.9% versus 25.0% versus 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

More and more earnings. More data (Existing Home Sales, New home sales, Durables, Michigan Sentiment Final). More money for equities? More rotation? The latter two, with the help of some Fed-speak, have kept the now four week rally moving upside.

Overextended? Yes. Look at the April to May run. Five weeks, 150 SP500 points. Current run is 4 weeks, 133 SP500 points. Some more upside is available, but it is getting thinner. Nickels in front of an oncoming bus?

Rotation remains the key for new positions and indeed in the market further move. It pushes new stocks to the fore as leaders and keeps the market holding steady or moving up slightly as seen this past week.

Thus while the market may be near a peak for this particular leg it is generating new leaders and thus new moves. A move lives by its leaders.

Helping out to create more leaders is the money moving into the market. Fund flows are picking up as bonds sold. Ironically, bonds are set to rebound. Once investors in a certain asset feel jilted, however, the love affair is typically over, and money likely continues to leave in favor of equities.

That keeps upside pressure on stocks. The question is whether they move higher from here or not. Money doesn't defeat all market technicals; they still need pullbacks. Massive money, however, can do that. Likely, however, that money waits for more earnings and the start of the next month to come in full bore.

Earnings will jostle the cart a bit more this week as more big names report. NFLX is early in the week, Monday after the close. AMZN reports next week as well. Some important market leaders on the agenda, again. If they can show revenue growth the market might find more sustaining breath.

We will look for more possible leader plays. With money flowing into funds it will be put to work with some accumulation, and as stocks set up we want to be ready with plays for when they make the break. In addition, as stocks report, we like to make post-earnings plays. Some you can enter right after the move, others have to set up. The latter will play into a new money rush to start August. To say the least, there will be opportunity of various kinds over the next few weeks and we will have plays at the ready depending upon what those stocks and what the market does from here.

Massive move ahead? If money is starting to flow big time from other areas the market could see a big surge. The worry is whether it is the last swoosh higher as the Fed starts to bow out of QE and the last money is sucked into stocks. We will see. Something to keep in mind but not something to make you pull away from making money in stocks as the money comes into the market.



Support and resistance

NASDAQ: Closed at 3587.61

Resistance:
3621 is the upper channel line for the November 2012 to present uptrend. Being tested.

Support:
The 10 day EMA at 3566
3532 is the May intraday high
3530 is the November 2012 up trendline
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 50 day EMA at 3455
3295 is the June 2013 low selloff
The 2011 up trendline at 3293
3227 is the April 2000 intraday low
The 200 day SMA at 3209
3197 is the September 2012 post-bear market high
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


S&P 500: Closed at 1692.09

Resistance:
The November up trendline at 1693

Support:
1687 is the May high and post-bear market high
The 10 day EMA at 1671
1654 is the June 2013 peak
The 50 day EMA at 1633
1576 from October 2007, the prior all-time high
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
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 1525
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


Dow: Closed at 15,528.71

Resistance:
The November up trendline at 15,727

Support:
15,542 is the May 2013 intraday high
The 10 day EMA at 15,404
15,318 is the June closing high
The 50 day EMA at 15,119
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,551 is the June 2013 intraday low on the selloff
14,198 from the October 2007 high
14,149 is the February 2013 high
The 200 day SMA at 14,130
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high


Economic Calendar

July 22 - Monday
Existing Home Sales, June (10:00): 5.28M expected, 5.18M prior

July 23 - Tuesday
FHFA Housing Price Index, May (9:00): 0.7% prior

July 24 - Wednesday
MBA Mortgage Index, 07/20 (7:00)
New Home Sales, June (10:00): 481K expected, 476K prior
Crude Inventories, 07/20 (10:30): -6.902M prior

July 25 - Thursday
Initial Claims, 07/20 (8:30): 328K expected, 334K prior
Continuing Claims, 07/13 (8:30): 2990K expected, 3114K prior
Durable Orders, June (8:30): 1.5% expected, 3.7% prior (revised from 3.6%)
Durable Goods -ex transports, June (8:30): 0.4% expected, 0.5% prior (revised from 0.7%)
Natural Gas Inventories, 07/20 (10:30): 58 bcf prior

July 26 - Friday
Michigan Sentiment - Final, July (9:55): 84.2 expected, 83.9 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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