Monday, August 26, 2013

New Home Sales Tumble

MARKET SUMMARY

- Decent end to the week continues the bounce started Tuesday, though some fare better than others in on again, off again bounce.
- New Home sales Tumble in a perhaps not so surprising miss.
- Fed speakers talk out of both sides of the taper.
- Gallup reports higher unemployment.
- New Fed chair faces new normal lower GDP.
- Relief bounce continues, leaders still solid, but the move is still a relief bounce.

Relief bounce continues.

Tuesday the relief bounce was on for all indices, Wednesday it was not. Thursday it was back on. Friday it was on, but more on for some indices than for others.

SP500 6.54, 0.39%
NASDAQ 19.08, 0.52%
DJ30 46.77, 0.31%
SP400 0.14%
RUTX 0.20%
SOX flat

Early in the week and on Thursday, growth indices moved better. Friday the large caps, both NASDAQ and NYSE, were favored. That was not necessarily a good thing for the market even if it suggested the move broadening out. As the larger caps improved the smaller issues didn't look all that good, at least in terms of their index patterns.

SP400 bumped the 10 day EMA with a hangman doji. It is trying to get up to its gap down point from two weeks back, but Friday it was tougher trekking.

Russell 2000 broke through the 20 day EMA and is at the lower gap point from two weeks back. Still looking for a gap fill before this move fizzles. A bit better than the midcaps but just a bit better. At least the bounce is going according to plan

SOX was rather disappointing. It didn't want to move higher until Thursday as it gapped and ran. Friday it had to come back from losses to close flat. Holding where it needed to but it didn't lead the move higher. It started with its hold of support as the other indices were still falling, but it could not convert that into upside leadership.

NASDAQ was not bad with a gap back into the uptrend. After the 3 hour Thursday hiatus some volume returned as NASDAQ rallied. That works.

SP500 gapped and rallied through the 50 day EMA. Still on the bounce that for SP500 really started Thursday given Wednesday it gave up all of the Tuesday upside and a bit more. Still room to run up to the gap point (lower at 1679 or 16 points).

DJ30 posted its second upside session after a nasty fall the prior two weeks. Definitely relief here.

Overall yes the market is bouncing. The index patterns, however, still suggest nothing more than a relief move. Not a lot of power on the move and that can be okay as it does not shoot its ammo up in a couple of moves. The patterns, however, as noted, just don't scream a major break higher.


Leadership is interesting in its contrast. Still plenty of stocks in good positions to move higher and many that are moving higher. Others are coming up off of selloffs that brought them to key support. We have a few of those stocks on the report for a rally back up in some well defined trading ranges. DO, RL, LPX are a few that are in position to roll back up in ranges. ANSS, ININ, SLB and many others are in position to run higher while others are on good moves.

The leadership versus index pattern dichotomy is indeed curious. Typically when there are many leaders moving the market reflects this. Problem is, the large cap indices are dominated by the big names and those indices move with those names. Thus the irony when those issues are struggling in their businesses and thus stock patterns when our economy the past 5 years has been geared to benefit them. Now THEY are having a hard time and that is hurting the action of the large cap indices.

THUS . . . the action remains a relief bounce until further notice. A relief bounce with A LOT of nice looking upside plays, but a relief bounce all the same. Until the leaders break up the negative of the index patterns will we turn off the 'relief bounce only' sign. The beauty is, if these leaders do change the character of the rebound then we profit handily from that.


The News.

July New Home sales tumbled 13.4% to just 394K annualized, well off the 485K expected and 455K prior (revised down from 497K). Largest drop since May 2010 and now at the lowest since 10/12.

The cause? A confluence of calamities for the economy. The 30 year mortgage hit a 2 year high as the Fed, who wanted a little inflation, is losing control of interest rates. Affordability just tanked and inventories jumped 4.3% to a 5.2 month level up from 4.0 months.

Then there is employment. Gallup reported Friday its rate at 8.6% for August, surging from 7.8% in July. Under-employed is at 17.7%. By the way, the 8.6% rate is the highest since 8.7% in March 2012. Last week more jumped on the 'story' that part-time jobs were the new normal for the US jobs market. The administration denies it is the healthcare act causing it, but with UPS said it had to drop 15K spouses from health insurance in order to save $60M in INCREASED costs since the healthcare law came into effect, it is pretty clear the healthcare law is indeed impacting how jobs are created and manned.

It only makes sense; it is how economics and regulation interact. Remember when Congress passed a bill prescribing fees on ATM transactions? Banks simply switched the fees to debit card usage. Basic economics.

The Fed is still trying to act as if a September taper is something that is still just a possibility. Bullard said there was no need to hurry in a taper. Lockhart, however, said he was 'comfortable' with a September taper if the economic data remained good enough.

You know what? I can guarantee you the economic data will be good enough barring an absolute implosion in the economy. The Fed, mainly Bernanke, is desperate to get out of the QE business. Fear of inflation talk is starting on the Fed as the Wednesday minutes reported. THAT IS ALWAYS the sure indication the Fed is going to end any easy money policy.

Bloomberg could not resist moving into the argument, opining as to the new Fed chairman's predicament of handling the sub-new normal GDP growth of 1.75%. Of course is that the Fed's business? Is the Fed really needed for anything? All it has done in the past fifty years is reduce our currency to a shell of what it once was. A currency is strong and at the 'right level' when your economy is strong, your markets open, your laws just and justly enforced. When that occurs people from all over the world want to put money into your economy and your economy grows, throws off excellent jobs, and your currency is strong and your citizens are happy and prosperous.

Are we there right now? Tens of thousands, yeah verily, hundreds of thousands of new regulations in the past five years, trillions of stimulus dollars (fake money) printed and spent, food stamps paid to 50M people, fewer working age people working now than four years ago, laws not uniformly enforced (healthcare law waived for businesses and Congress but not individuals, DOJ sues Texas for requiring voters to produce ID showing they are who they say so as not to cheapen the vote of each citizen yet the DOJ does not pursue club wielding thugs as voting precincts), etc, etc. The antithesis of what attracts capital. Singapore attracts more capital, new companies, and new money than the US now.

Oh well. I am not feeling well this weekend and this discussion is not helping. It is, however, a discussion that needs to be had because we are going headlong into history as another Rome without any substantive debate other than name calling.



THE MARKET

TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +19.08 points (+0.52%) to close at 3657.79
Volume: 1.488B (+63.16%)

Up Volume: 1.02B (+260.8M)
Down Volume: 440.57M (+277.97M)

A/D and Hi/Lo: Advancers led 1.13 to 1
Previous Session: Advancers led 3.54 to 1

New Highs: 95 (+95)
New Lows: 16 (+16)

S&P
Stats: +6.54 points (+0.39%) to close at 1663.5
NYSE Volume: 533.022M (+2.9%)

A/D and Hi/Lo: Advancers led 2.3 to 1
Previous Session: Advancers led 4.12 to 1

New Highs: 86 (-14)
New Lows: 116 (-71)


DJ30
Stats: +46.77 points (+0.31%) to close at 15010.51


SENTIMENT INDICATORS

VIX: 13.98; -0.78
VXN: 14.62; -0.82
VXO: 13.91; -0.81

Put/Call Ratio (CBOE): 0.81; -0.01


Bulls and Bears:

Bulls faded again, getting back down near the late June levels. Bears rose but are still basically in eh long flat range of the past five months. Not really showing any extremes.




Bulls: 43.3%. Trending lower after holding all around 50 for a month. Back down to the early July, late June levels. 48.4% versus 51.5% versus 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: 21.6%. UP from the 20 level held for three weeks, but well below the highs form late June and early July. Not in any position to propel a big upside move. 19.6% versus 19.6% versus 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%.

Background: 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

The index patterns still look weak on the bounce but plenty of leaders look strong. The issue are stocks such as GOOG and AMZN that are lagging and thus holding the indices lower. It could be a money switch back to less well known names. We will see. It will require the less well known leaders we are seeing stepping up. Maybe they cannot move the entire market but can move themselves. If that is the case we make some great money on those leaders. We will be willing to again put some money to work on a continued move but still in the context of a relief bounce.



Support and resistance

NASDAQ: Closed at 3657.79

Resistance:
3716 is the upper channel line for the November 2012 to present uptrend.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
The July 2013 intraday high at 3625
3634 is the November 2012 up trendline
The 50 day EMA at 3570
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3346
3295 is the June 2013 low selloff
The 200 day SMA at 3282
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1663.50

Resistance:
1687 is the May high and post-bear market high
The November up trendline at 1745

Support:
The 50 day EMA at 1661
1654 is the June 2013 peak
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
The 200 day SMA at 1556
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
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 15,010.51

Resistance:
The 50 day EMA at 15,243
15,318 is the June closing high
15,542 is the May 2013 intraday high

Support:
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 (14,659 closing)
The 200 day SMA at 14,384
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


Economic Calendar

August 23 - Friday
New Home Sales, July (10:00): 394K actual versus 485K expected, 455K prior (revised from 497K)

August 26 - Monday
Durable Orders, July (8:30): -5.0% expected, 3.9% prior (revised from 4.2%)
Durable Goods -ex tr, July (8:30): 0.6% expected, -0.1% prior (revised from 0.0%)

August 27 - Tuesday
Case-Shiller 20-city, June (9:00): 12.0% expected, 12.2% prior
Consumer Confidence, August (10:00): 77.0 expected, 80.3 prior

August 28 - Wednesday
MBA Mortgage Index, 08/24 (7:00): -4.6% prior
Pending Home Sales, July (10:00): 0.2% expected, -0.4% prior
Crude Inventories, 08/24 (10:30): -1.428M prior

August 29 - Thursday
Initial Claims, 08/24 (8:30): 330K expected, 336K prior
Continuing Claims, 08/17 (8:30): 2969K expected, 2999K prior
GDP - Second Estimate, Q2 (8:30): 2.1% expected, 1.7% prior
GDP Deflator - Second Est., Q2 (8:30): 0.7% expected, 0.7% prior
Natural Gas Inventories, 08/24 (10:30): 57 bcf prior

August 30 - Friday
Personal Income, July (8:30): 0.1% expected, 0.3% prior
Personal Spending, July (8:30): 0.3% expected, 0.5% prior
PCE Prices - Core, July (8:30): 0.2% expected, 0.2% prior
Chicago PMI, August (9:45): 53.0 expected, 52.3 prior
Michigan Sentiment - Final, August (9:55): 80.0 expected, 80.0 prior



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

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

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Monday, August 19, 2013

Fed Set to Taper, Data Tapering as Well

MARKET SUMMARY

- Stocks sell modestly, a bit oversold at potential support.
- Fed set to taper, data tapering as well.
- Economic data remains so-so to decent.
- TV economists say 'wait until the second half,' but Consumer data suggests the economy is heading the other direction.
- About time for an oversold bounce but that is likely all it will be so use it accordingly.

Tough week takes indices to next potential support.

The stock indices finished the week with losses, though moderating quite significantly from the Thursday slam lower that broke the back of the consolidation attempt at near support.

SP500 -5.49, -0.33%
NASDAQ -3.34, -0.09%
DJ30 -30.72, -0.20%
SP400 -0.32%
RUTX -0.32%
SOX 0.35%

Tough decline but most of it happened in a couple of sessions. After holding at near support for a week the bottom broke and the damage came in a torrent. Look familiar? This is what happened three weeks back: the indices moved to a new high, tested a bit, then two quick days of selling crashed them back to the pre-breakout levels.

Stocks stair-step higher on the way up, they do the same thing on the way down. The step lower this week just happened to crash some important support. Not everything crashed; of course some solid leaders held the line, e.g. PCLN.

There was damage done, however, and it is very likely that the selling is not over. Sure the indices are now a bit oversold and they will bounce again; they always do in stair-steps, right? As there is some support where they closed out the week the bounce odds are up, particularly if there is some more downside to start next week. That would allow for the old slingshot move when investors panic some as the selling continues.

After this move, however, unless there is some catalyst to change the character, any bounce, whether from the Friday close or after a bit more early week selling, simply sets up more downside. Thus, use a bounce wisely.


He chose poorly.

THE ACTION

Futures tried to start higher Friday, but as the open approached they crumbled. Overnight China was up 6%! For about 5 minutes. Someone pushed the wrong button, the old 'oh you meant 5000 shares, not 500,000?' Easy come, easy go. by the close China was lower.

Europe took its cue from China, but it waived the spike and just stayed flat all day.

In the US, as noted, futures were higher, rebounding from Thursday's face plant. Hope springs eternal. It sprung for about two hours, peaked, then sprung a leak.

July housing starts were in line and permits beat a bit, but single family homes were the weakest since 11/2012.

Q2 Productivity topped expectations, but Q1 was revised lower by a factor of 3 (-1.7% versus 0.5% previously reported). Kind of a yea!, then ugh.

Labor costs spiked 1.4% versus -0.3% expected.

Not quite awe inspiring or, as seen with better data, not enough to forestall a Fed taper. Thus by the open futures were comfortably (uncomfortably?) negative.

But a lower open led to bids. For an hour. Stocks rallied, matched pre-market futures into midmorning, assisted by a weaker than expected August Preliminary Michigan Sentiment read (80.0 versus 85.1 expected, 85.1 prior). Stocks even rallied after the weaker Michigan number, as those still clinging to the hope of no Fed taper bought the data miss.

Then at 10:00CT, the midmorning bell, stocks peaked. They rolled, sold to session lows even undercutting the pre-market low. It was expiration so there was another obligatory bounce into the last hour but that was sold off hard at the close leaving the indices at session lows.

THE END RESULT

Closed at session lows, relatively modest losses, testing the next support levels on the indices.

DJ30 is down 7 of 10 sessions. SP500 8 of 10. NASDAQ 6 of 10. In May, DJ30's first leg lower before a relief bounce was 10 days in length. SP500 sold 9 sessions and then found a bottom to bounce in a relief move.

DJ30 is at the 50% Fibonacci retracement of the June to early August move. SP500 is at the 50 day SMA and the 38% Fibonacci retracement as well as the mid-June interim peak.

RUTX is showing a tight doji at the 50 day EMA. SP400 is at the 50 day SMA. SOX is at support from the bottom of the May to June trading range, a level that acted as lower support in several prior trading ranges over the past years.

In short, all indices are more or less at a significant support level after 10 days of selling. Indeed SOX is on its second downside leg of its pullback. Down an equal amount of days of other selloffs so a bit oversold, at support levels. Basically primed for a bounce.

It may come right away, it may come after a further selloff to start the week, kind of the move that flushes the near term sellers out and clears the move for a bounce.

As noted above, a selloff is likely not a new bottom to start the next leg. The May to June selling suffered two legs lower, so if this is like that there could easily be another leg. Of course as discussed Thursday, this last rally was the fifth leg since the November low. Five upside runs are about all you get in a move before it breaks down as volatility in the moves jumps. Volatility has jumped in the moves and this looks very much like a typical breakdown.

Again, the indices are oversold near term, getting close to a bounce, but even a bounce likely is just a relief move that sets up more selling. Either a selloff as in June and thus another 2 to 3 weeks of downside, or something more significant related to the Fed starting to pull the QE with what we are told is better data in the economic reports, but data that is not really corroborated in the earnings and outlooks of companies, particularly the retailers and other consumer related stocks.


THE NEWS

It was the best of times, it was the worst of times.



This past week saw more passable economic data in the mainstream monthly reports. Retail sales in line at 0.2%. PPI flat versus a 0.3% price rise anticipated. Initial jobless claims fell to 320K. New York PMI beat at 8.6. Philly Fed was solid at 9.3, Housing starts and permits beat.

Decent but not trending to recovery. Retail sales were inline but a third of June's read. Layoffs are finally slowing but hiring is not surging, and those jobs created are not the breadwinner jobs of past recoveries but the new US style of part-time jobs to get under the 30 hour threshold of the healthcare act.

New York manufacturing was lower than July. Philly manufacturing missed expectations and was less than half of June. Michigan Sentiment for August missed pretty big (80.0 versus 85.1 expected and prior). Industrial production and Capacity utilization missed.






In sum, the numbers are better but not anywhere near surging. The apologists on the financial stations say the data is not bad, that it takes a long time when you have a major collapse, etc.

BS. We suffered mightily in the 1970's with similar issues of gasoline shocks, massive new regulations, the effects of the 1960's massive new social programs. Hell, throw in impressively oppressive inflation and interest rates at 15% to 20%. It was a hell of a lot worse in many ways, yet when the right policies were implemented the economy roared back.

The policies in place now, after four initial years, are being rolled over into another four years unlike in the early 1980's. No pro-entrepreneur, no pro-growth policies to spark new businesses and thus generate new 'breadwinner' jobs as David Stockman calls them. No policies that rewarded investing in new businesses here in the US, that rewarded innovation and new ideas. In the 1980's, the policies implemented sparked massive US investment in R&D and new ideas, resulting in the explosion of the PC era. AAPL, MSFT, CSCO, INTC, DELL, and many, many thousands of companies exploded onto the scene and launched an entire new economy.

Today there are a few new companies that are innovating, but the hurdles to compete are so high, the reward for risk taking so limited that the numbers are a fraction of those in the past. Thus fewer and fewer new companies form in the US, and our companies that were once leaders are now trying to hang on. Indeed, CSCO just announced another 5% (4K) staff layoff to 'restructure' its employment structure, code for lowering its average worker hours to lessen the impact of the healthcare act.

That is what we get now: not companies that are thinking of expanding and increasing the workforce, but the majority, the vast majority, structuring to get through the bad times that are supposedly good times. Some are benefitting, but they are the huge conglomerates that were favored in the stimulus and the tax code changes. They are the equivalent of the French elite in the 'Tale of Two Cities.'

On the other side there are the small businesses that received no stimulus benefits and saw their taxes rise in so many ways: marginal rates, insurance costs spikes, more EPA and other federal agency regulations, less access to markets, less favored tax status. They have been crushed in this 'recovery' and millions have gone under while millions more are fighting a losing battle to keep the doors open and their employees at full time if they can or just keeping their jobs in place.


And let's not forget the consumer side, the reality to counterbalance the economic reports.

We hear from the experts and the clowns in DC that by golly things are just getting better. Slow, but my goodness progress. As noted, that is BS for the most part; this is the worst recovery in the entire modern era of the US.

Then there is the real data, the data the government reports don't cover or ignore. We saw this the past few weeks with reports, really coming to the fore of late.

I am talking about retailers and other consumer oriented companies warning about the future. The TV economists say the second half 2013 will see the recovery, that things are trending in the right direction. The consumer stocks say 'no.'

Sentiment is falling again. Gasoline, the healthcare act, crappy jobs, higher tax burdens, moochers on the system.

Friday saw JWN beat earnings but lower its entire 2014 guidance along with the second half of 2013 same store sales. Trending nicely higher, eh? JOSB warned about the rest of the year on Friday as well. Thursday Wal-Mart cut its sales forecast. Wednesday Macy's missed, noting taxes, gasoline and other drains on the consumer. RL and AEO lowered guidance.

Reports trending higher, recovery underway we are told, yet the companies dealing directly with the consumer are cutting their second half 2013 and 2014 outlooks even as we are told the second half will see a faster recovery. I have to call BS.


Queue the Fed for another grand irony.

And in all of this the Fed is going to taper. It may not have a choice. It is the only market for US treasury sales as for the past six months foreign buyers have conducted a taper of their own, tapering their purchases of US securities each month. As Bill Gross of PIMCO tweeted Friday, 'W/o central bank ck writing we only have ourselves 2sell2.' The Fed is the market, but it knows it has to get out of the market.



Thus, we see the data pumped and polished as best as possible, and when it still comes in just barely passable we are told the trend is good, recovery is imminent, blah, blah, blah. As I have said before, $85B/month and THIS GDP is all we get?

The grand irony is the Fed is set to taper EVEN AS the data in the second half, the supposed breakout period for the economy (how many such 'breakout periods' have we had in this grand recovery?) tapers itself.

Tapering into the taper. How poetic.


THE MARKET

OTHER MARKETS

Dollar: 1.3331 versus 1.3356 versus 13225 versus 1.3265 versus 1.3305 versus 1.3341 versus 1.3384 versus 1.3341 euro. Dollar cannot get up off the mat even as the Fed preps for tapering. Now to be fair the dollar index has set up a short double bottom at support and is primed to bounce back up in its range But, it should be jumping on a taper if everything was great, capiche? (watching 'The Godfather')

Bonds diving further: 2.83% versus 2.77% versus 2.71% versus 2.72% versus 2.62% versus 2.58% versus 2.59% versus 2.60% versus 2.64% versus 2.64% versus 2.60% ten year. Two big gaps lower on the week. Friday sold off further but then reversed off the lows and close to an old support level. Prepping for a relief move. Has the Fed lost control of the bond market? It is damn close.

Oil: 107.46, +0.13. Up on the week but slowing as it approaches the June and July peaks that are coincident with the peak in early 2012. Natural resistance here and slowing modestly.

Gold : 1371.00, +11.30. Gold has reversed. A bounce, a test after hitting the 50 day EMA, then a break through the 50 day EMA Thursday. The next test is a good entry.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -3.34 points (-0.09%) to close at 3602.78
Volume: 1.49B (-13.27%). Strangely quiet on expiration.

Up Volume: 721.28M (+520.4M)
Down Volume: 781.43M (-748.57M)

A/D and Hi/Lo: Decliners led 1.19 to 1
Previous Session: Decliners led 4.28 to 1

New Highs: 48 (+12)
New Lows: 32 (-14)

S&P
Stats: -5.49 points (-0.33%) to close at 1655.83
NYSE Volume: 728M (+9.64%)

A/D and Hi/Lo: Decliners led 1.86 to 1
Previous Session: Decliners led 4.45 to 1

New Highs: 67 (+18)
New Lows: 341 (-34)


DJ30
Stats: -30.72 points (-0.2%) to close at 15081.47


CHARTS

See analysis in the market overview of the Friday action.


LEADERSHIP

Some former leaders show clear near term rollovers that suggests more downside even if there is a near term relief bounce. UTX, MMM, GOOG, AMZN, MNKD, JPM.

Other leaders look solid still: LL, PCLN, NFLX, VRX, CLDX, WWWW, KORS, YNDX.

Precious metals are not bad: NG, IAG, NEM. They tested Friday, and if they can put in another couple of days of a test, they will be great.

Steel is not bad. CLF is in a nice test of its last move. STLD is trying to break from a range. MTL looks as if it wants to run again.

Money leaves some areas but it is very encouraging for further upside that the market is showing some beaten down areas looking ready to make an upside break.



SENTIMENT INDICATORS

VIX: 14.37; -0.36. Nothing in the VIX suggests a major selloff is brewing. Now don't put too much into that, or should I say more than is due. You may have heard this discussion before but it is worth a mention again. When the relationship between the VIX and the market changes such that VIX rises as the market rises, THAT is a true negative indication. That occurred in early 2000. It is not occurring now.

You can see SP500 rising since November 2012. Volatility, however, faded and has range-traded since. Volatility jumped up in May and June but as it rallied SP500 faded in a test, the most significant of the run. That is still normal action: market tests, VIX rises. Then on the last strong upside leg in June and July volatility tanked.

There is no rise in volatility as the stock market rises. Thus there is no VIX market top indication right now.

VXN: 14.73; -0.17
VXO: 14.37; -0.49

Put/Call Ratio (CBOE): 0.93; -0.03


Bulls and Bears:

Bulls faded just a bit while bears again held basically steady as both sides wait out the consolidation in the market after that last run. Good break upside Thursday in the midst of the caution.




Bulls: 48.4% versus 51.5% versus 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: 19.6% versus 19.6% versus 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.


THIS WEEK

Wednesday and Thursday I went into detail about how to handle this market. I talked of two scenarios, a June-like pullback and a deeper pullback. Either one, of course, meant more selling.

Regardless of the scenario that shapes up, it is not a great time to commit a lot of new upside money to the market. Sure there will be good buys from great stocks such as PCLN on Friday. Other leaders look good as noted earlier, e.g. NFLX, LL, VRX . . .

There are stocks turning the corner as well, e.g. steel, homebuilders, precious metals. Some need tests, but they present upside opportunity because they are not in the limelight, i.e. they have not rallied substantially and are thus a target for sellers.

So there is upside possibilities, very real ones. But we are also looking at downside opportunity this week. Now it won't be right away. As noted above, the market likely bounces without a lot more downside given it is stretched two weeks lower; another push lower early in the week likely leads to a rebound. After the rebound more downside positions will present themselves.

On any oversold bounce, some upside leaders will set up and those stocks turning the corner will come off of tests of the initial breaks. On these we can play upside as they are the select, and if they survive the selling they are the ones that will rise well.

Ultimately I am not certain if this is the market top or not. Have my suspicions, but those are just good for the office pool. I want to make money so I do what the market and individual stocks tell me to do. Right now that has been go more into cash, watch for the true strong stocks to show they have the right stuff, and after the test of this initial selloff, look for downside to get into. That means not to start the week but after a relief bounce fails.



Support and resistance

NASDAQ: Closed at 3602.78

Resistance:
3616 is the November 2012 up trendline
The July 2013 intraday high at 3625
3695 is the upper channel line for the November 2012 to present uptrend.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
The 50 day EMA at 3558
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3333
3295 is the June 2013 low selloff
The 200 day SMA at 3266
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1655.83

Resistance:
The 50 day EMA at 1664
1687 is the May high and post-bear market high
The November up trendline at 1734

Support:
1654 is the June 2013 peak
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
The 200 day SMA at 1550
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
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 15,082.16

Resistance:
The 50 day EMA at 15,302
15,318 is the June closing high
15,542 is the May 2013 intraday high

Support:
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 (14,659 closing)
The 200 day SMA at 14,338
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


Economic Calendar

August 16 - Friday
Housing Starts, July (8:30): 896K actual versus 895K expected, 846K prior (revised from 836K)
Building Permits, July (8:30): 943K actual versus 934K expected, 918K prior (revised from 911K)
Productivity-Preliminary, Q2 (8:30): 0.9% actual versus 0.0% expected, -1.7% prior (revised from 0.5%)
Unit Labor Costs, Q2 (8:30): 1.4% actual versus -0.3% expected, -4.2% prior (revised from -4.3%)
Michigan Sentiment, August Preliminary (9:55): 80.0 actual versus 85.1 expected, 85.1 prior


August 21 - Wednesday
MBA Mortgage Index, 08/17 (7:00): -4.7% prior
Existing Home Sales, July (10:00): 5.20M expected, 5.08M prior
Crude Inventories, 08/17 (10:30): -2.812M prior
FOMC Minutes, 7/31 (14:00)

August 22 - Thursday
Initial Claims, 08/17 (8:30): 337K expected, 320K prior
Continuing Claims, 08/10 (8:30): 2959K expected, 2969K prior
FHFA Housing Price Index, June (9:00): 0.7% prior
Leading Indicators, July (10:00): 0.5% expected, 0.0% prior
Natural Gas Inventor, 08/17 (10:30): 65 bcf prior

August 23 - Friday
New Home Sales, July (10:00): 490K expected, 497K prior



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

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

Technorati tags:

Monday, August 12, 2013

Indices Finish the Week Still Testing

MARKET SUMMARY

- Another session of feeling out near support, looking a bit top heavy.
- Indices finish the week still testing, unable to find the buyers to make the bounce.
- The news was just about as exciting as the session: China make believe data, Japan's debt marvel, wholesale inventories not moving.
- Leadership shows some breaks, but there are still a lot of great looking leaders in pullbacks to support.
- Investors now have to decide if the economy can make it on its own without $85B/month.

Definition of a boring session: Friday. Oh it had promise. Yes futures were lower after Thursday's bounce from three down sessions, but they moved up into the open and indeed stocks rallied to positive as trade opened up. Then, once again, the bids dried up and so did the gains. An hour and one-half later and stocks were negative. So much for Thursday's thrust upward.

But even the sellers didn't want to hang around Friday. Stocks bounced back though never made it to positive. They hit the afternoon recovery high right after lunch and then just wandered back down into the close. No bids, no sellers, just late summer Friday blahs.

SP500 -6.06, -0.36%
NASDAQ -9.01, -0.25%
DJ30 -72.81, -0.47%
SP400 0.05%
RUTX -0.10%
SOX -0.54%

Volume: At least it slipped on the session. -6.8% NYSE, -13% NASDAQ.
Breadth: Flat and that is that. But not a bad showing, matching the market.


THE NEWS

The news was along the lines of the overall session: not enough to get a rise out of anyone.

China reported stronger industrial production that topped expectations. That combined with the higher export data from Thursday managed to provide . . . no lift. It would appear that China has overinflated its data just a few too many times for anyone to really believe it. Thus the underwhelming response.

More earnings were out but with the season all but over the damage/gains were pretty much specific to the stocks reporting. Thus far SP500, with 442 SP500 companies reported, has 72% beating the bottom line and 56% beating the top line. Once again its all about cost cutting and not much about sales growth.

Japan's debt reached past one quadrillion yen (1,000,000,000,000,000). Impressively bad news.

June Wholesale inventories fell 0.2%. Perhaps buying surged, emptying out inventories? Well the inventory to sales ratio did fall to 1.17 from 1.18 months, but sales were meager at 0.4%. No surge in buying as there was 1.5% in May. Kind of makes you wonder about all that surging manufacturing and exports and general economic surge we are supposedly enjoying. Just a little bit. Nothing to get worried over. Nothing at all.




THE MARKET

OTHER MARKETS

Dollar rebounded modestly: 1.3341 versus 1.3384 versus 1.3341 versus 1.3305 versus 1.3259 euro. Modest gain as the dollar bounces off support after a week of getting drummed.

Bonds ticked higher: 2.58% versus 2.59% versus 2.60% versus 2.64% versus 2.64% versus 2.60% ten year. Modest moved higher all week, but just edging upside. Relief move and rather contrary to the notion the Fed will start a taper soon.

Oil rebounded after selling: 105.97, +2.57. Jumped after the Thursday tap of the 50 day EMA and rebound.

Gold adds a bit: 1312.20, +2.30. Not much left after a good blast higher Thursday.


TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: -9.02 points (-0.25%) to close at 3660.11
Volume: 1.531B (-12.76%)

Up Volume: 712.73M (-307.27M)
Down Volume: 812.38M (+166.22M)

A/D and Hi/Lo: Decliners led 1.5 to 1
Previous Session: Advancers led 1.44 to 1

New Highs: 128 (-7)
New Lows: 24 (+1)

S&P
Stats: -6.06 points (-0.36%) to close at 1691.42
NYSE Volume: 575M (-6.81%)

Up Volume: 1.48B (-920M)
Down Volume: 1.5B (+652.71M)

A/D and Hi/Lo: Advancers led 1.03 to 1
Previous Session: Advancers led 2.1 to 1

New Highs: 157 (-33)
New Lows: 162 (+8)


DJ30
Stats: -72.81 points (-0.47%) to close at 15425.51


THE CHARTS

As for the indices it was more of the same, but that was not necessarily good for all. Most of the indices look heavy, and the risk/reward right here is not as good. Still holding the trends, but has rallied well and the move has slowed to a crawl as volume falls as the late summer doldrums hit with the indices at a peak.

SP500: Fine with a third straight test of the 20 day EMA and a third straight bounce off that level. Some buyers are still there pushing at that near support even if the index didn't turn back to positive. Now SP500 has basically the same pattern as RUTX and SP400 in that short head and shoulders, working on what could be the right shoulder. These things often don't fully develop, but the bottom line is that the recent action is heavy even if SP500 is still holding its near support and its trend. Hanging in the uptrend but it still has to show it can overcome the heaviness and continue.

NASDAQ: Held the 10 day EMA also for the third session. Just below the upper channel line, also holding in its trend. Last time NASDAQ moved over the upper channel line in May, that was the peak of that leg and it put in a four week pullback. MACD put in a lower high on the last peak similar to the other indices. NASDAQ remains in its uptrend and near its recovery highs, but it too is heavy.

DJ30: Sold further below the 50 day EMA and indeed reached toward the 50 day EMA before rebounding to cut the losses. That rebound brought the Dow back to the mid-May closing highs. A great place for the Dow to hold and continue higher, and that move would help break up any potential head and shoulders.

SP400: Modest gain for the second session, again nothing really to change the pattern. Looks decent holding the 20 day EMA and can put in a higher low here, but it also has not broken up the potential head and shoulders. Trying to bounce off near support, still in the uptrend, but thus far not ready to really try to move higher again. Indeed it gave up the last break higher similar to SP500.

RUTX: Very similar to SP400, but showing a second tight doji at the 20 day EMA. Also the potential head and shoulders, but also those often don't consummate. Just heavy, however, with the lower MACD and the inability to hold the break higher from just over a week back.

SOX: Lost some more ground and fell to close just below the 50 day EMA. Still can put in a higher low over the late July low, but as with the other indices, SOX is heavier right now, unable to launch off support. Indeed, it is not really trying just now, as its hands are full simply trying to hang on.


LEADERSHIP

There were some breakdowns, e.g. WWWW and others look heavy, e.g. WWW, SLB, MNKD, LOPE.

At the same time, there are leaders that are setting up beautifully. Recall we said a test would set up some solid names in position. It is. Now these leaders need to live up to their leader status and make the new upside break and make it stick.

AMZN, EVR; ATHN; CELG; KKD; NFLX; NUS; SBUX; VMW; VRX; WBMD; YNDX; ZMH. They are out there.


SENTIMENT INDICATORS

VIX: 13.41; +0.68
VXN: 13.63; +0.37
VXO: 12.63; +0.96

Put/Call Ratio (CBOE): 0.9; +0.14


Bulls and Bears:

Bulls faded just a bit while bears again held basically steady as both sides wait out the consolidation in the market after that last run. Good break upside Thursday in the midst of the caution.




Bulls: 48.4% versus 51.5% versus 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: 19.6% versus 19.6% versus 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

It is late summer, hot, people are on vacation, earnings are mostly done, the major economic data for the month is out, and the general consensus is the Fed starts to taper sooner than thought (except for us, right?), likely in September. As you recall, we figured investors would have to come around to that conclusion and our worry was it would not be a pretty thing for the market if it was not determined until the meeting. This 'early' realization helps it prepare, and indeed the loss to this point has been very well contained.

The fate of the market, more or less, is this: do investors and the new money coming into the market believe that without $85B/month that the economy can 'continue' to 'grow' and thus allow for pricing in future earnings growth versus future QE injections being needed to keep things afloat? That is the key question. Can the economy sustain, as a first step, the limited economic growth it has 'enjoyed' during huge QE injections, and, as would be necessary, actually grow beyond it.

For now the market is pondering that question as it fades. Again it is holding up nicely all things considered, but it has not answered this test yet as the modest Thursday bounce and sluggish Friday nothing session left them in the same near term heavy position. Leadership is hanging in as well, but it is spotty and the leaders are themselves testing. Again, the risk/reward is not that great for the upside right now until this test and these near term bearish patterns resolve.



Support and resistance

NASDAQ: Closed at 3660.11

Resistance:
3676 is the upper channel line for the November 2012 to present uptrend.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
The 10 day EMA at 3652
The July 2013 intraday high at 3625
3591 is the November 2012 up trendline
The 50 day EMA at 3538
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3324
3295 is the June 2013 low selloff
The 200 day SMA at 3250
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1691.42

Resistance:
The November up trendline at 1724

Support:
The 20 day EMA at 1686
1687 is the May high and post-bear market high
The 50 day EMA at 1661
1654 is the June 2013 peak
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
The 200 day SMA at 1543
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
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 15,423.15

Resistance:
15,542 is the May 2013 intraday high
The November up trendline at 16,029

Support:
15,318 is the June closing high
The 50 day EMA at 15,308
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
The 200 day SMA at 14,285
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


Economic Calendar

August 9 - Friday
Wholesale Inventories, June (10:00): -0.2% actual versus 0.4% expected, -0.6% prior (revised from -0.5%)


August 12 - Monday
Treasury Budget, July (14:00): -$96.0B expected, -$69.6B prior

August 13 - Tuesday
Retail Sales, July (8:30): 0.2% expected, 0.4% prior
Retail Sales ex-auto, July (8:30): 0.3% expected, 0.0% prior
Export Prices ex-ag., July (8:30): -0.2% prior
Import Prices ex-oil, July (8:30): -0.3% prior
Business Inventories, June (10:00): 0.1% expected, 0.1% prior

August 14 - Wednesday
MBA Mortgage Index, 08/10 (7:00): 0.2% prior
PPI, July (8:30): 0.3% expected, 0.8% prior
Core PPI, July (8:30): 0.2% expected, 0.2% prior
Crude Inventories, 08/10 (10:30): -1.320M prior

August 15 - Thursday
Initial Claims, 08/10 (8:30): 339K expected, 333K prior
Continuing Claims, 08/03 (8:30): 3000K expected, 3018K prior
CPI, July (8:30): 0.2% expected, 0.5% prior
Core CPI, July (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, August (8:30): 6.0 expected, 9.46 prior
Net Long-Term TIC Fl, June (9:00): -$27.2B prior
Industrial Production, July (9:15): 0.4% expected, 0.3% prior
Capacity Utilization, July (9:15): 78.0% expected, 77.8% prior
Philadelphia Fed, August (10:00): 10.0 expected, 19.8 prior
NAHB Housing Market , August (10:00): 57 expected, 57 prior
Natural Gas Inventor, 08/10 (10:30): 96 bcf prior

August 16 - Friday
Housing Starts, July (8:30): 895K expected, 836K prior
Building Permits, July (8:30): 934K expected, 911K prior
Productivity-Preliminary, Q2 (8:30): 0.0% expected, 0.5% prior
Unit Labor Costs, Q2 (8:30): -0.3% expected, -4.3% prior
Michigan Sentiment, August preliminary (9:55): 85.1 expected, 85.1 prior



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

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

Technorati tags:

Saturday, August 03, 2013

Overall Numbers Week

MARKET SUMMARY

- Jobs report continues a 'new tradition' of weak overall numbers, bad quality, and terrible internals.
- Stocks overcome bad jobs and weak personal income, pull a low to high intraday move.

It was not a beauty of a session, but stocks did pull off a low to high intraday move after starting lower on a jobs report that the media call disappointing and that we call appropriate for the US economy and regulatory scheme in place.

SP500 2.80, 0.16%
NASDAQ 13.85, 0.38%
DJ30 30.34, 0.19%
SP400 -0.31%
RUTX Flat
SOX -0.66%


Back to jobs. Of course there are those such as Mr. Posner formerly of the Fed who said it was 'mixed' with a decent household number and a weak non-farm or 'establishment' number. Perhaps that is why the Fed is so bumbling: if one of its brains thinks this was mixed there is a problem at the Fed.

What about the household survey? It says about 200K jobs were added in July and the unemployment rate fell to 7.4% when 7.5% was expected after June's 7.6%. Why? Participation was backsliding to 63.4% from 63.5%. Those not in the labor force rose 89,957 while the workforce fell 37K. U6 is still in the 14% range (those underemployed due to the economy). Of the jobs created, 35% were full-time (92K). I suppose that is better than June where full time jobs FELL 240K. Stellar Mr. Posner.

As for the other numbers, it is truly sad.

162K versus 175K expected versus 188K June (revised down from 195K).
Earnings: -0.1% versus 0.2% expected versus 0.4% prior Work week: 34.4 versus 34.5 expected versus 34.5 June

Another truly low number. Downward revisions after touted upward revisions the prior month. Seems gravity is pulling the numbers back to reality As Hal said in 'Cliffhanger,' gravity is a b***h.

What about the hourly earnings drop? More indication of the part-time status of workers and the poor quality of jobs. When the vast majority of your jobs are in the low end service industry, wages overall are dragged lower.

Example: Waiters/Bartenders gained 246.5K jobs. Manufacturing: 24K jobs.

The work week? More evidence of the part-time transformation of the US workforce. The workweek has never recovered in this recession and now it is falling again as more jobs are part-time to get below the 30 hour healthcare law cutoff level.

But there is more. Those in the youngest bracket got no job growth. The 25 to 54 demographic, the strongest earning power group, pulled in just 15K jobs! 55 to 69 got the lion's share at 60% of the jobs. Wal-Market greeter syndrome.

Indeed, of the 953,000 jobs created in 2013, a massive 731K were part-time! 77% of the jobs created are part-time!

I asked earlier and I ask again: what is different in this 'recovery' that would cause such a massive shift to part-time from full-time. I mean the big companies have the money; they were favored in stimulus and policies geared to make the US an 'export nation' just like those who used to sell to the US when we were the unquestioned economic power. They are not hiring and have not been hiring. Those that are obviously are hiring part-time.

The administration denies it, but the healthcare law is a huge factor in the part-time. In the overall jobs picture that is just one of the factors. Higher taxes, uncertain costs, massive regulations from EPA to health services with SWAT raids from the EPA on Gibson guitar.

But, you say, the ISM jumped up to 55+ in July so manufacturing is doing fine. Well, it is the same as all other industries: manufacturing is producing for the oil industry that is booming, and it is hiring some people, but even so it could only muster 24K jobs in July. Manufacturing is just not as big of a part of the US economy as it was, and certainly not big enough to support the kind of hiring in the service industry (retail, restaurants). Thus the 10:1 hiring ratio of just waiters and bartenders compared to manufacturing.


I don't mean to bad mouth the economy or talk it down. I just relay the facts that are there and chronicle the obvious denial of the massive restructuring of our jobs force in the US. We have talked about jobs quality for two years now and it is just now catching on in the mainstream as everyone is told jobs are great and the economy is recovering, yet most people in the US do not feel it. The WTF syndrome.

What would change the way companies hire? What would cause companies to totally retool their methodology of its workforce? Regulation and tax policy. The past five years detail a textbook case of how regulatory and tax policy change long-entrenched methodologies. I think only the most ideological would believe that the changes are for the good.

The administration may think things are better; I heard the White House economic advisor today act as if this report was great and that the US was just forging ahead in a flourishing recovery. Of course the numbers are better after trillions in QE money printing. 1.5% is about the best you can do with that kind of money printing. what if you didn't have that? Great Depression 2. What if we didn't have the massive increase in regulations, healthcare law, higher taxes, massive transfer payments to the new class of permanent non-working citizens and those trillions? A 7% GDP and, of course, huge inflation. Take away the overstimulation and you have another great US recovery.

That, however, will NEVER happen in the current environment, and the changing of the US jobs force is only going to cement that into the foundation of our economy. For example, the immigration bill has buried in it a section that eliminates bringing foreign professionals here to act as consultants and contract workers that small and mid-sized companies utilize quite frequently. Why? Because those compete with the businesses of giants such as IBM who want companies to use their services that are, surprise, frequently handled by their overseas operations. IBM lobbied heavily to get this inserted and then lobbied several senators such as Senator McCain (IBM has big presence in AZ) to get on board. He did. Also Flake from Arizona as well who pushed this bill hard, something of a mystery as to why for those in Arizona. Now they know why.

This is just an example of how REGULATIONS impact our jobs here in the US as well as the ability of small and midcap businesses to compete with the big guys who get the benefits from the regulations because they have the lobbyists. Sorry for the long discussion; sometimes the audacity of these actions just makes you mad.

THE ACTION

Anyway, that is a LONG WAY from the Friday market action. It was a solid day after the surge, particularly given the weak jobs number and the post-surge hangover. Some of the odds makers have taper now in late 2013 or early 2014! Frankly, I see nothing in this report that changes the Fed's position. Indeed, even though the unemployment number faded because of more people out of the workforce, again, the Fed has not differentiated in the past as to the cause, just the final number. So it is still September to us, and that, down the road, sets up a possible disappointment.

For now the market continues its rally, or so it looks, after the lateral consolidation, the iffy Wednesday, then the strong Thursday. Whether it surges further from here or tests a bit depends upon the big money funds and how much they still have to put to work.

We didn't buy anything on Friday, instead managing positions with some trailing stops to stay focused on stocks in position to surge for us near term. With this market on a run, that is the way you have to play it, and we will continue to do that this coming week.



THE MARKETS

OTHER MARKETS

With the weaker jobs report bonds sold off again as they continue playing ping-pong this past week.

Dollar weaker: 1.3278 versus 1.3215

Bonds rallied back on weaker jobs: 2.60% versus 2.69%

Oil faded some: 106.94, -0.94

Gold flat: 1310.50, -0.30



TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: +13.84 points (0%) to close at 3689.59
Volume: 1.666B (-9.21%)

Up Volume: 1.013B (-387M)
Down Volume: 627M (+186.18M)

A/D and Hi/Lo: Decliners led 1.15 to 1
Previous Session: Advancers led 2.52 to 1

New Highs: 252 (-66)
New Lows: 34 (+23)

S&P
Stats: +2.8 points (0%) to close at 1709.67
NYSE Volume: 613M (-12.93%)

A/D and Hi/Lo: Advancers led 1.14 to 1
Previous Session: Advancers led 1.65 to 1

New Highs: 329 (-267)
New Lows: 160 (-40)


DJ30
Stats: +30.34 points (0%) to close at 15658.36


SENTIMENT INDICATORS

VIX: 11.98; -0.96
VXN: 12.77; -1.11
VXO: 11.19; -1.52

Put/Call Ratio (CBOE): 0.88; +0.03


Bulls and Bears:

Bulls faded just a bit while bears again held basically steady as both sides wait out the consolidation in the market after that last run. Good break upside Thursday in the midst of the caution.




Bulls: 48.4% versus 51.5% versus 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: 19.6% versus 19.6% versus 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.



Support and resistance

NASDAQ: Closed at 3689.59

Resistance: Next major resistance is around 4100 as NASDAQ hits 13 year highs

Support:
3658 is the upper channel line for the November 2012 to present uptrend.
The July 2013 intraday high at 3625
The 10 day EMA at 3627
3577 is the November 2012 up trendline
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 50 day EMA at 3510
The 2011 up trendline at 3312
3295 is the June 2013 low selloff
The 200 day SMA at 3235
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
3171 is the October intraday high


S&P 500: Closed at 1709.67

Resistance:
The November up trendline at 1712

Support:
1687 is the May high and post-bear market high
The 10 day EMA at 1692
1654 is the June 2013 peak
The 50 day EMA at 1653
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
The 200 day SMA at 1537
1531 is the recent high
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows


Dow: Closed at 15,658.36

Resistance:
The November up trendline at 15,920

Support:
15,542 is the May 2013 intraday high
The 20 day EMA at 15,464
15,318 is the June closing high
The 50 day EMA at 15,266
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
The 200 day SMA at 14,234
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


Economic Calendar

July 29 - Monday
Pending Home Sales, June (10:00): -0.4% actual versus -1.7% expected, 5.8% prior (revised from 6.7%)

July 30 - Tuesday
Case-Shiller 20-city, May (9:00): 12.2% actual versus 10.5% expected, 12.1% prior
Consumer Confidence, July (10:00): 80.3 actual versus 81.6 expected, 82.1 prior (revised from 81.4)

July 31 - Wednesday
MBA Mortgage Index, 07/27 (7:00): -3.7% actual versus -1.2% prior
ADP Employment Change, July (8:15): 200K actual versus 175K expected, 198K prior (revised from 188K)
GDP-Adv., Q2 (8:30): 1.7% actual versus 1.1% expected, 1.1% prior (revised from 1.8%)
Chain Deflator-Adv., Q2 (8:30): 0.7% actual versus 1.2% expected, 1.3% prior (revised from 1.2%)
Employment Cost Index, Q2 (8:30): 0.5% actual versus 0.4% expected, 0.5% prior (revised from 0.3%)
Chicago PMI, July (9:45): 52.3 actual versus 51.5 expected, 51.6 prior
Crude Inventories, 07/27 (10:30): 0.431M actual versus -2.825M prior
FOMC Rate Decision, July (14:00): 0.25% actual versus 0.25% expected, 0.25% prior

August 1 - Thursday
Challenger Job Cuts, July (7:30): 2.3% actual versus 4.8% prior
Initial Claims, 07/27 (8:30): 326K actual versus 345K expected, 345K prior (revised from 343K)
Continuing Claims, 07/20 (8:30): 2951K actual versus 2995K expected, 3003K prior (revised from 2997K)
ISM Index, July (10:00): 55.4 actual versus 51.5 expected, 50.9 prior
Construction Spending, June (10:00): -0.6% actual versus 0.2% expected, 1.3% prior (revised from 0.5%)
Natural Gas Inventor, 07/27 (10:30): 59 bcf actual versus 41 bcf prior
Auto Sales, July (14:00): 5.7M prior
Truck Sales, July (14:00): 6.8M prior

August 2 - Friday
Nonfarm Payrolls, July (8:30): 162K actual versus 175K expected, 188K prior (revised from 195K)
Nonfarm Private Payr, July (8:30): 161K actual versus 195K expected, 196K prior (revised from 202K)
Unemployment Rate, July (8:30): 7.4% actual versus 7.5% expected, 7.6% prior
Hourly Earnings, July (8:30): -0.1% actual versus 0.2% expected, 0.4% prior
Average Workweek, July (8:30): 34.4 actual versus 34.5 expected, 34.5 prior
Personal Income, June (8:30): 0.3% actual versus 0.5% expected, 0.4% prior (revised from 0.5%)
Personal Spending, June (8:30): 0.5% actual versus 0.4% expected, 0.2% prior (revised from 0.3%)
PCE Prices - Core, June (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
Factory Orders, June (10:00): 1.5% actual versus 2.2% expected, 3.0% prior (revised from 2.1%)

August 5 - Monday
ISM Services, July (10:00): 53.2 expected, 52.2 prior

August 6 - Tuesday
Trade Balance, June (8:30): -$43.4B expected, -$45.0B prior

August 7 - Wednesday
MBA Mortgage Index, 08/03 (7:00): -3.7% prior
Crude Inventories, 08/03 (10:30): 0.431M prior
Consumer Credit, June (15:00): $16.0B expected, $19.6B prior

August 8 - Thursday
Initial Claims, 08/03 (8:30): 340K expected, 326K prior
Continuing Claims, 07/27 (8:30): 2975K expected, 2951K prior
Natural Gas Inventories, 08/03 (10:30): 59 bcf prior

August 9 - Friday
Wholesale Inventories, June (10:00): 0.4% expected, -0.5% 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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