Monday, October 28, 2013

Market Still Top Heavy


- Stocks finish out the week with gains and new highs thanks to AMZN, MSFT, and other solid earnings.
- Stocks still hitting highs but some leaders show wear and tear on the week while the defensive utilities rise.
- Internals so-so, NASDAQ volume driven by MSFT, AMZN.
- China inflation fighting weighing on US stocks and Chinese stocks in the US.
- Stockman: US was days away from proving the default threat was but a myth.
- Durables fall without Boeing, capital investment continues its decline.
- Michigan Sentiment hits a year low as citizen's don't like elected officials doing what they were elected to do.
- SOX rebound attempt less than impressive, leaders flagging, market move less lackluster even with much better earnings. Market still top heavy, hasn't given up yet, but worthy of some caution.

Better earnings, more market gains, some trouble comes to town.

'You spell bad cess in letters that stretch from here to Seattle.' Eastwood comes to town on a pale horse to even the playing field in 'Pale Rider.'

Earnings from AMZN (big revenues, bottom line miss) and MSFT (bottom and top line beat) paced a series of top and bottom line beats (SHW, DECK, WDC) and helped push stocks higher once again on the last day of the week.

Not broadly. NASDAQ breadth was negative. NYSE was positive but just 1.4:1. Volume surged 10% and over 2B on NASDAQ, but that was thanks to some big volume on several big issues.

SP500 and NASDAQ hit new highs and new post-bear market highs respectively. At the same time leadership just was not that grand. Some of the stronger market leaders started to roll hard. VIPS, YNDX, SFUN. Not a total rollover by far, but when utilities rise to the leader board on the week the action is shifting from growth to boring. CPN, NRG, GTE, PNG, ITC, GAS, DUK. Some can move decently, but most of the time these are snorers.

Not a rollover of course, just some leaders starting to take a much needed rest and others moving up. That is fine. It is just that some of the ones moving higher are utilities, and those are defensive stocks. Why is money going there? Plenty of areas can move higher, but then again, many areas have moved higher. Perhaps money is just seeking something it feels is left behind while the leaders take a break. More than likely investors were parking money in low beta stocks as they let the leaders test and try to determine the market's next step.

That is fine as well. We likely won't play them, instead waiting for the leaders to finish testing and new ones, more growth-oriented, to set up new patterns.

So stocks started higher Friday, adding to the late week recovery from an early week test of the new highs and post-bear market new highs from a week back. As was the case all week, however, after a start in one direction, the tide reversed. Stocks sold off into lunch, ostensibly on Senator Paul saying he was going to hold up Yellen's confirmation. Perhaps. Didn't matter though because stocks turned and moved back higher into the close. New highs for SP500 and NASDAQ (post-bear market) again. Much rejoicing.

SP500 7.70, 0.44%
NASDAQ 14.40, 0.37%
DJ30 61.07, 0.39%
SP400 0.29%
SOX 0.44%
RUTX -0.04%

No damage of course. The momentum is waning a bit as RUTX faded off a new high but is still of course trending higher. SP400 is moving laterally at the top of its channel. NASDAQ was not bad, but it backed off a gap higher, still holding a post-bear market closing high. On the other hand, SP500 moved to a new high and closed at its session high. DJ30 broke through some resistance and closed out at the session high.

Some leaders showing some high volume selling (SFUN, VIPS, YNDX, YY, JASO). Some just fading modestly (CAMP, FSLR, KORS, PCLN). Others hitting rally highs (AMT, ATK, DDD, AMZN). The indices split but all pretty solid. Good and bad. Yen and yang. Who wins?

Well, not all the indices are solid. SOX broke on Wednesday. It moved to a recovery high Monday and Tuesday, moving just back into its channel. Wednesday it collapsed with a gap and selloff to the 50 day EMA. It held and rebounded Thursday with a gap to a doji that tapped the 20 day EMA on the high. Friday it gapped higher again, hitting the 20 day EMA, again.

SOX is a leader for this market. Has been for at least a year. It doesn't always lead the moves; it hasn't led the upside much of the time, but when it has it was a good indicator. It has led the downside a lot. A lot. Maybe it shakes it off and comes back. The market is still solid. SOX continues to be a very important indicator and it is weak. It is one reason we were not buying a ton on the week. One reason. Another was a lot of stocks were and are extended and need a test to get some good entries again.

How SOX performs off this 50 day EMA dump is very important. If it cannot recover either the market fades with it or a whole new group of leaders will take over. That can be good or that can be bad, i.e. less exciting with slower movers . . . such as utilities. That is why utilities and their move caught our eye. A change in market character should always catch your attention.


China was the quiet story of the week with big implications.

China seems serious this time, at least for the past three days, at fighting its escalating inflation problem. Midweek the PBOC suspended its liquidity injections into the economy. Interest rates started to jump. A second day. They started to spike. They are still spiking. No tightening in the normal sense, just not adding liquidity. But, in this 'new normal' world of central banks, not adding liquidity is viewed as tightening. The Chinese stock market was bumping the down trendline. Thursday it gapped lower form the trendline. Stocks are rebelling as they have each time the PBOC gets 'tough' for a few days.

Thing is, the PBOC relents and then things are all well, right? No. The stock market is still trending lower. It is as if it knows the PBOC and Chinese government are facing the Kobayashi Maru, the no win scenario: no liquidity and the economic bubbles pop. Keep the liquidity and inflation spikes and the bubbles pop though after a super spike.

Neither Captain Kirk believes in the no-win scenario.

Where is Captain Kirk, old or new?

Stockman says we were just days away from something important and blew it.

'Hundreds of billions of higher taxes coming' to pay our bills given the republican surrender on the debt deal in October.

David Stockman was no fan of the Bush economic policies. He is even less a fan of the Obama economic policies. He also has general disdain for Congress and is quite disappointed in some of the republicans.

Specifically Stockman said the republicans were just days away from exploding the myth that failure to raise the debt ceiling would result in default and we would be free from that bargaining ploy for good. Instead the republicans did what they always do, snatching defeat from the jaws of victory because they feared for their reelection, didn't hang together, and folded their hand, falling to Reid's (it was Reid not Obama) bluff. If they had hung together the President would have been forced to prioritize payments, would have been constitutionally obligated to pay the interest on the debt, and then there would have been a 'fair fight.' Instead, no matter what position republicans take, Reid knows they will be sold down the river by the republican lightweights. What is new?

September Durable Goods Orders crash without Boeing's airplanes.

Durables with Boeing 3.7%. Without -0.1%. Very narrow gains. Less Boeing, the last three of five are negative. That blows.

Business investment: -1.1%. August was barely positive and much less than the prior positive reads in June and May (1.1% and 2.1%). Turning back downside, not investing in business.

THAT is why you can have bottom line beats again and again even as revenues decline: no investment in your business. Add to that cuts in employment and you get bottom line beats and companies looking great on the bottom line in the new normal that ignores sales.

Michigan Sentiment October, Final misses.

Why? It is easy to blame the shutdown. Maybe it had some impact. There are other issues: healthcare costs are becoming clearer, jobs creation is slower and cloudy.

Here is the key: Look at where the blue line has rolled over. Right at the bottom of the 2000 to 2007 range. Technically hit the wall, and with a continuing rather pathetic economy, it is easy to undermine confidence.



Dollar: 1.3802 versus 1.3803 versus 1.3779 versus 1.3783 versus 1.3682 versus 1.3677 versus 1.3528 versus 1.3524 versus 1.3565 versus 1.3544 versus 1.3520 versus 1.3524 euro. Sold again on the week, a new leg lower.

Bonds: 2.51% versus 2.52% versus 2.49% versus 2.51% versus 2.61% versus 2.59% versus 2.68% versus 2.73% versus 2.69% versus 2.68% versus 2.66% 10 year.
Broke higher on the week again, continuing a two week rise off the initial test of the trend reversal.

Oil: 97.85, +0.74. Bouncing a bit more after a sharp punch lower all week.

Gold: 1352.40, +2.10. Solid upside week, building on the big break higher two weeks back. Strong early in the week, solid to end the week.


Stats: +14.4 points (+0.37%) to close at 3943.36
Volume: 2.171B (+10.2%)

Up Volume: 1.02B (-60M)
Down Volume: 1.18B (+241.09M)

A/D and Hi/Lo: Decliners led 1.15 to 1
Previous Session: Advancers led 1.65 to 1

New Highs: 240 (+6)
New Lows: 19 (+3)

Stats: +7.7 points (+0.44%) to close at 1759.77
NYSE Volume: 613M (-4.22%)

A/D and Hi/Lo: Advancers led 1.38 to 1
Previous Session: Advancers led 1.38 to 1

New Highs: 749 (+16)
New Lows: 121 (+1)

Stats: +61.07 points (+0.39%) to close at 15570.28


VIX: 13.09; -0.11
VXN: 14.91; +0.41
VXO: 11.62; +0.28

Put/Call Ratio (CBOE): 0.93; +0.12

Bulls and Bears:

Well, make a bad debt deal but preserve the myth that you saved a default, all the while solidifying the Fed's $85B/month well, well into 2014 and you have bullish sentiment surge.

Bulls: 49.5 versus 42.3% versus 45.4 versus 46.4% versus 44.3% versus 42.3% versus 37.1% versus 37.1% versus 38.1% versus 43.3%. Backed off a hair form the sharp climb. Still a bit over-baked, but has been higher when selling bouts started in earlier moves.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 18.5 versus 21.6% versus 20.6% versus 18.6% versus 20.6% versus 21.6% versus 22.7% versus 23.7% versus 23.8% versus 21.6%. Bounced off the lows from March, April, May and August.

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.


Stocks rallied well on the debt 'resolution' and the QEternity assurance. They continued the move last week, with some early hesitation, as earnings came in solid midweek to the end of the week.

The indices are for the most part at or near highs sans SOX. Leaders surged with them but many are struggling some. The indices themselves look heavy near term though not in danger of selling. SOX is the worry as it looks weak in how hard it fell. It is at support and trying to bounce so that can still turn out fine. The QE bid has always returned. As with Norm in 'Something About Mary,' it always does . . .

Matt Dillon: You were following us!
Norm: Don't flatter yourself. I was following her. I always do . . .
'There's Something About Mary'

Thing is the indices have run into earnings and in the first two weeks of earnings. They are a bit heavy. Many times after earnings season is here and the news is out and the theme is set, stocks fade from a run. Not always; QE is a powerful offset. But, QE won't completely negate the ebb and flow of market moves. Even in QE stocks have to test.

With leaders extended as well and some turning over and SOX struggling, a test will come. At some point. Then we look for good entries from leaders that faded to support first and held, setting up new moves. In addition, new leaders should turn up if the move is going to resume. Hopefully not utilities . . .

This weekend there are some plays but with the lack of a test after three weeks upside the really great entries in stocks that you like to play are just not that plentiful. New leaders are always welcome, but we like to play leaders that can really take off and make us more than 5%. Sure we settled for some 8% to 10% stock gains on this leg, but that was planned because the stocks were moving into earnings. Different times, different goals. In the 'normal' times with good patterns we look for very solid moves from stocks that can deliver those very solid moves.

We will see if they show up this coming week, but it could take several days of testing first.


NASDAQ: Closed at 3943.36

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

3888 is the upper channel line for the November 2012 to present uptrend.
The 10 day EMA at 3888
3819 is the early October high
3799 is the September 2013 high.
The 50 day EMA at 3761
3697 is the August high and a prior post-bear market high in the recovery.
The July 2013 intraday high at 3625
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
The 200 day SMA at 3451
The 2011 up trendline at 3437
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 1752.07

Down to 8.8% over the 200 day SMA, not so extended.

The 10 day EMA at 1737
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
The 50 day EMA at 1698
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1684 is the December 2012 up trendline
1657 is the late August upper gap point
1654 is the June 2013 peak
1627 is the August 2013 low
The 200 day SMA at 1617
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
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

Dow: Closed at 15,570.28

15,659 is the August 2013 peak
15,696 is the September 2013 peak

15,542 is the May 2013 intraday high
15,318 is the June closing high
The 50 day EMA at 15,252
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
The 200 day SMA at 14,854
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)
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

October 25 - Friday
Durable Orders, September (8:30): 3.7% actual versus 3.5% expected, 0.2% prior (revised from 0.1%)
Durable Goods -ex transports, September (8:30): -0.1% actual versus 0.3% expected, -0.4% prior (revised from -0.1%)
Michigan Sentiment - Final, October (9:55): 73.2 actual versus 74.5 expected, 75.2 prior
Wholesale Inventories, August (10:00): 0.5% actual versus 0.3% expected, 0.2% prior (revised from 0.1%)

October 28 - Monday
Industrial Productio, September (9:15): 0.3% expected, 0.4% prior
Capacity Utilization, September (9:15): 78.0% expected, 77.8% prior
Pending Home Sales, September (10:00): -1.3% expected, -1.6% prior

October 29 - Tuesday
Retail Sales, September (8:30): -0.1% expected, 0.2% prior
Retail Sales ex-auto, September (8:30): 0.3% expected, 0.1% prior
PPI, September (8:30): 0.2% expected, 0.3% prior
Core PPI, September (8:30): 0.1% expected, 0.0% prior
Case-Shiller 20-city, August (9:00): 12.4% expected, 12.0% prior
Business Inventories, August (10:00): 0.2% expected, 0.4% prior
Consumer Confidence, October (10:00): 73.1 expected, 79.7 prior

October 30 - Wednesday
MBA Mortgage Index, 10/26 (7:00): -0.6% prior
ADP Employment Change, October (8:15): 125K expected, 166K prior
GDP-Adv., Q3 (8:30): 2.5% prior
Chain Deflator-Adv., Q3 (8:30): 0.6% prior
CPI, September (8:30): 0.1% expected, 0.1% prior
Core CPI, September (8:30): 0.1% expected, 0.1% prior
Crude Inventories, 10/26 (10:30): 5.246M prior
FOMC Rate Decision, October (14:15): 0.25% expected, 0.25% prior

October 31 - Thursday
Challenger Job Cuts, October (7:30): 19.1% prior
Initial Claims, 10/26 (8:30): 335K expected, 350K prior
Continuing Claims, 10/19 (8:30): 2850K expected, 2874K prior
Personal Income, September (8:30): 0.4% prior
Personal Spending, September (8:30): 0.3% prior
PCE Prices - Core, September (8:30): 0.2% prior
Chicago PMI, October (9:45): 55.0 expected, 55.7 prior
Natural Gas Inventories, 10/26 (10:30): 87 bcf prior

November 1 - Friday
ISM Index, October (10:00): 55.0 expected, 56.2 prior
Construction Spending, September (10:00)
Auto Sales, October (14:00): 5.4M prior
Truck Sales, October (14:00): 6.5M prior

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

Jon Johnson is the Editor of The Daily at

Technorati tags:

No comments: