Monday, September 02, 2013

Investors Wait on the War


- Coming in heavy to end the month. Indices sport poor performance to close out August as investors wait on the war.
- Spending and income limp in positive.
- Chicago PMI still benefitting from the cars.
- Michigan Sentiment remains rosy.
- Leadership takes a day off.
- Down as long as the May to June selling, but the patterns still look heavy and no resolution to the issues of the day. At least on Friday.

NASDAQ getting lonely as the only index holding support.

The President talked and the Secretary of State talked Friday, and between the two the markets were somewhat confused. Secretary Kerry talked of 'high confidence' the Syrian government was responsible for the death of 1400+ from chemical weapons and sounded very resolute while the President was more sanguine, stating that no decision about military action against Syria was yet made.

A market that took quite a bit of air out Tuesday when it looked as if an attack was certain and was waiting around for the Tomahawks to fly, didn't take the good cop, bad cop routine well.

Stocks opened decently but sold to lunch. A sharp rebound looked promising, but it faltered as the last hour began and flopped to the close. A last minute bounce took some of the sting out of the session. Some. The finish was still pretty ugly.

SP500 -5.20, -0.32%
NASDAQ -30.43, -0.84%
DJ30 -30.64, -0.21%
SP400 -1.45%
RUTX -1.56%
SOX -0.89%

NASDAQ, and to a lesser extent SOX and RUTX, looked fairly solid after Thursday's action. Friday didn't totally trash SOX or RUTX, but they were wobbly. SOX cracked back through the bottom of its range, but it was a very small break. RUTX undercut the twin lows of the past two weeks though it too was a small breach. They don't look that strong and that left NASDAQ pretty much as the only index still holding some support. Of course NASDAQ was no pillar of strength, flopping on the high side of 1% though it still held the 50 day EMA and the early July upside gap point.

DJ30 was a bit weaker as was SP500, but they did not give up any new ground, indeed holding above the early week low. Perhaps they found a little strength, but they are going to have to prove it next week . . . along with SOX and RUTX.

The SP400 midcaps were quite bad, breaking below the lows of the week as well as the mid-June interim peak. Not looking good, in a full dive.

So you have the split still: NASDAQ along with SOX and RUTX, though not much of the latter two, versus DJ30, SP500, and now SP400, indices that are in retreat and their patterns suggest further retreat.

Basically it is NASDAQ versus everyone else. A lot of the leaders are in NASDAQ, a lot of those leaders that are getting money put their way despite the woes of SP500, DJ30 and company. For a new move upside NASDAQ has to hold and get some help from SOX. SP500 and DJ30 need to change their ways as well.

The patterns of the latter don't suggest any change in the offing. Perhaps when the rumor of war (that was a book about Vietnam) becomes the fact stocks will rally as they have done in past episodes. For now it is still a waiting game and the better and not better economic data Friday could not push the hedge fund managers from leaning negative near term . . . that and the 3-day Labor Day weekend that is here.


The data keeps looking better so the expectations of a second half recovery are more plentiful. Today more economists that get a lot of airtime were talking about acceleration in the second half.

Fortunately for us all the data is not diving off a cliff. Unfortunately for us all, it is still a weak recovery.

There was the headline data for the day. Personal income posted a 0.1% gain. Wow. Spending rose 0.1% as well when 0.3% was expected. Limping in.

Personal Income, July (8:30): 0.1% actual versus 0.1% expected, 0.3% prior
Personal Spending, July (8:30): 0.1% actual versus 0.3% expected, 0.6% prior (revised from 0.5%)

Chicago PMI did jump nicely to 53.0, matching expectations. New orders hit 57.2, posting a nice gain. Backlogs rose 3.5 to 46.5. Inventories rose 7.3 to 45.

Chicago PMI, August (9:45): 53.0 actual versus 53.0 expected, 52.3 prior

Some encouraging news. The Midwest is doing better due to autos. Anything you can get in this economy.

Michigan Sentiment continued to rise, moving above 80 again.

Michigan Sentiment - Final, August (9:55): 82.1 actual versus 80.0 expected, 80.0 prior

Again there is promise but it never hits stride and takes off. Look at the GDP revision. 2.5% was better than expected and the prior 1.7% read. As noted Thursday that was due to trade data regarding improved exports while key areas fell, e.g. consumption and investment.

Bloomberg looked at the data and realized that final sales are in trouble. More importantly they point to trouble. They have hit a level that historically means recession. Each time they hit the level shown in the red line, recession followed.

ECRI says we are already in recession in terms of wages and sales. It has predicted the western world has entered into a period of slow economic growth punctuated by much more frequent recessions.

I am not sure what the reasons are for ECRI's conclusions, but my take on it is that the major growth engine of the world has adopted policies that truncate investment and risk taking, thus making innovation slower and that means fewer new companies and fewer new quality jobs.

The fastest growing jobs sectors are in 'service,' i.e. retail, hospitality, etc. Those are also the lowest paying sectors. No longer does the US produce a plethora of high quality jobs that people from around the world envy. Welcome to an economy designed, whether by intention of just idiocy, to produce low paying jobs and push would be companies overseas.

With that background it is easy to see why ECRI is drawing its conclusion: Japan is in decline, Europe is improving out of its depression, but the southern countries won't. The US is muddling along just above stall speed. Heck, the Fed's Lacker noted Friday that the US economy would stumble along at 2%, just above stall speed, for the foreseeable future.



Dollar: 1.3211 versus 1.3243 euro. Bounced again, not much strength, but continuing the break higher off the test of support at the bottom of the range.

Bonds: 2.77% versus 2.75% versus 2.77%. Backed off modestly but still moving up off of the test of support. Long selloff, trying to set up an inverted head and shoulders to put in a more substantial move. Now why would bonds be doing that if the Fed is going to taper? If the economy is better? It has not done it yet; this is just an oversold bounce so far. But, it is curious.

Oil faded: 107.65, -1.15. Faded for the second session, holding the 20 day EMA on the low and rebounding to the 10 day EMA on the close. Broke out on the week with the Syria war drums, faded some as the drums didn't beat as loudly, but still looks good to move higher.

Gold: 1396.10, -20.50. Faded to the 10 day EMA after a solid move the prior week. Broke the downtrend, tested, rallied through Wednesday, now testing again.



Stats: -30.43 points (-0.84%) to close at 3589.87
Volume: 1.262B (-4.18%)

Up Volume: 303.12M (-693.77M)
Down Volume: 982.82M (+651.6M)

A/D and Hi/Lo: Decliners led 3.2 to 1
Previous Session: Advancers led 2.51 to 1

New Highs: 37 (-24)
New Lows: 28 (+9)

Stats: -5.2 points (-0.32%) to close at 1632.97
NYSE Volume: 578M (+16.77%)

A/D and Hi/Lo: Decliners led 2.22 to 1
Previous Session: Advancers led 1.68 to 1

New Highs: 34 (-5)
New Lows: 133 (+16)

Stats: -30.64 points (-0.21%) to close at 14810.31


VIX: 17.01; +0.2
VXN: 17.53; +0.13
VXO: 17.62; +0.91

Put/Call Ratio (CBOE): 1.12; +0.16

Bulls and Bears:

Major decline in bulls, -4.8 points, closing rapidly on the 35% level considered bullish for stocks. Bears on the rise, +2.2 points. Convergences are very good for the upside but it is not there yet. Bulls are, however, lower than they have been since October 2012.

Bulls: 38.1% versus 43.3%. Diving below 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: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 23.8% versus 21.6%. Finally breaking free from the 20 level that held for three weeks, and now matching the highs from late June and early July. Starting to get there but needs to jump toward 30.

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.

Even the recent leaders took a break on Friday ahead of the weekend. No one wanted to stick their portfolio out. Well, some did fine. VIPS rallied 7%. Most did not.

NXPI, NFLX, DDD, TEAR, GMCR, PCLN. You name it; they all took a break. But, it was just a break, not any kind of pounding. It was not a great day. It was a long weekend. There is war coming. Even the leaders felt it.


Perhaps the news, i.e. the lack of a clear picture of what military action the US will take (imagine that when you are planning an attack; your opponent not know when and where and how) just accelerated an already dismal picture in the NYSE indices. Or maybe it was just no one wanted to venture out ahead of a three day weekend when the Tomahawks may start flying.

Maybe some questions will be answered this weekend, the long Labor Day weekend. Labor Day has led to some ugly market action in the past. At least the market is already beaten down some. I recall in the past calls from some 'names' that the market had topped for various reasons in September. Some of them came true. Friday Ralph Acampora was reiterating his call for DJ 12,000 (closed at 14,810) though he is still bullish longer term.

We will see. The indices don't look good. NASDAQ is the strongest as its uptrend continues, but it is more or less going lone wolf to the upside, holding its trend, the 50 day EMA and the July gap up point.

Still some great patterns out there but overall the market doesn't look great. NASDAQ and some leaders. SP500 and DJ30 look quite distressed while SP400 dives.

Again, perhaps something breaks over the weekend, but don't count on that. We will keep watching for solid upside, solid downside, keep positions that hold support, dump those that don't. The indices are down about the same amount as in May and June, but this is also further along in the move and the Fed is talking taper; no automatic backstop. It is up to economic growth and stocks reflecting that prospect of growth. Gee, not too comforted by that, but we take what is given.

Support and resistance

NASDAQ: Closed at 3589.87

The July 2013 intraday high at 3625
3655 is the November 2012 up trendline
3694 is the August high and the post-bear market high.
3734 is the upper channel line for the November 2012 to present uptrend.
Next major resistance is around 4100 as NASDAQ hits 13 year highs

The 50 day EMA at 3576
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 2011 up trendline at 3352
The 200 day SMA at 3299
3295 is the June 2013 low selloff
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 1632.97

1654 is the June 2013 peak
The 50 day EMA at 1657
1687 is the May high and post-bear market high
The November up trendline at 1755

1576 from October 2007, the prior all-time high
1573 is the June 2013 closing low
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
The 200 day SMA at 1562
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
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 14,810.31

14,844 is the June intraday low
14,888 is the April peak and prior all-time high
14,934 is the 10 day EMA
15,050 from the August 2013 interim recovery high
The 50 day EMA at 15,170
15,318 is the June closing high
15,542 is the May 2013 intraday high

14,551 is the June 2013 intraday low on the selloff (14,659 closing)
The 200 day SMA at 14,434
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 26 - Monday
Durable Orders, July (8:30): -7.3% actual versus -5.0% expected, 3.9% prior (revised from 4.2%)
Durable Goods -ex transports, July (8:30): -0.6% actual versus 0.6% expected, 0.1% prior (revised from -0.1%)

August 27 - Tuesday
Case-Shiller 20-city, June (9:00): 12.1% actual versus 12.0% expected, 12.2% prior
Consumer Confidence, August (10:00): 81.5 actual versus 77.0 expected, 81.0 prior (revised from 80.3)

August 28 - Wednesday
MBA Mortgage Index, 08/24 (7:00): -2.5% actual versus -4.6% prior
Pending Home Sales, July (10:00): -1.3% actual versus 0.2% expected, -0.4% prior
Crude Inventories, 08/24 (10:30): 2.986M actual versus -1.428M prior

August 29 - Thursday
Initial Claims, 08/24 (8:30): 331K actual versus 330K expected, 337K prior (revised from 336K)
Continuing Claims, 08/17 (8:30): 2989K actual versus 2969K expected, 3003K prior (revised from 2999K)
GDP - Second Iteration, Q2 (8:30): 2.5% actual versus 2.1% expected, 1.7% prior
GDP Deflator - Second Iteration, Q2 (8:30): 0.8% actual versus 0.7% expected, 0.7% prior
Natural Gas Inventor, 08/24 (10:30): 67 bcf actual versus 57 bcf prior

August 30 - Friday
Personal Income, July (8:30): 0.1% actual versus 0.1% expected, 0.3% prior
Personal Spending, July (8:30): 0.1% actual versus 0.3% expected, 0.6% prior (revised from 0.5%)
PCE Prices - Core, July (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Chicago PMI, August (9:45): 53.0 actual versus 53.0 expected, 52.3 prior
Michigan Sentiment - Final, August (9:55): 82.1 actual versus 80.0 expected, 80.0 prior

September 3 - Tuesday
ISM Index, August (10:00): 53.6 expected, 55.4 prior
Construction Spendin, July (10:00): 0.5% expected, -0.6% prior

September 4 - Wednesday
MBA Mortgage Index, 08/31 (7:00): -2.5% prior
Trade Balance, July (8:30): -$38.2B expected, -$34.2B prior
Auto Sales, August (14:00): 5.6M prior
Truck Sales, August (14:00): 6.8M prior

September 5 - Thursday
Challenger Job Cuts, August (7:30): 2.3% prior
ADP Employment Chang, August (8:15): 180K expected, 200K prior
Initial Claims, 08/31 (8:30): 333K expected, 331K prior
Continuing Claims, 08/24 (8:30): 2977K expected, 2989K prior
Productivity-Rev., Q2 (8:30): 1.5% expected, 0.9% prior
Unit Labor Costs, Q2 (8:30): 1.0% expected, 1.4% prior
Factory Orders, July (10:00): -3.7% expected, 1.5% prior
ISM Services, August (10:00): 54.5 expected, 56.0 prior
Natural Gas Inventor, 08/31 (10:30): 67 bcf prior
Crude Inventories, 08/31 (11:00): 2.986M prior

September 6 - Friday
Nonfarm Payrolls, August (8:30): 177K expected, 162K prior
Nonfarm Private Payr, August (8:30): 180K expected, 161K prior
Unemployment Rate, August (8:30): 7.4% expected, 7.4% prior
Hourly Earnings, August (8:30): 0.2% expected, -0.1% prior
Average Workweek, August (8:30): 34.5 expected, 34.4 prior

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

Jon Johnson is the Editor of The Daily at

Technorati tags:

No comments: