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

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