Money Moves In and Stocks Move Up

MARKET SUMMARY

- With $1T more spending cushion, $85B/month firmly entrenched, money moves in and stocks move up.
- Earnings are more than good enough in a market ready to rally: GOOG blows it out while CMG's miss is forgiven on a gushing view of Q4.
- All is well in China and Europe. Just don't pay attention to dropping exports, lower equipment purchases, or bad loans at record highs in Spain.
- Stock market rally approaches levels from the 1980's, but for entirely different and very worrisome reasons.
- Nothing was really changed or saved from future trouble this week, but the market is not worried about that right now and in terms of making money in the market, we shouldn't be either.

New highs again as money jumps in from the sidelines.

With no debt ceiling, shutdown, or faux default to worry about, stocks got back to what they usually do, focusing on earnings to price stocks. Some big names posted solid numbers. Other big names missed, but said the right things. CMG was one of the latter, but nonetheless enjoyed a 16% surge because it gushed about Q4 and beyond. SLB and GE joined in with beats and they rallied nicely as well.

GOOG of course set the stage last night with its massive beat and massive post-market surge, jumping almost 14% as it became the second stock this year to break the $1,000 price barrier (PCLN did it exactly one month back on 9/18). The market loved it, and with the big names driving, big gains continued. Good things.

As stocks were already rallying post-deal (and really didn't sell that much during the sausage making that is our legislative process), pushed onward by money piling into the market post-shutdown, the news simply added fuel to the fire, popping the indices to new highs yet again.

SP500 11.35, 0.65%
NASDAQ 51.13, 1.32%
DJ30 28.00, 0.18%
SP400 0.86%
RUTX 1.13%
SOX 0.27%

As you can see, buying started to concentrate in some areas after the even, across the board buying the prior two sessions that followed the debt deal. With earnings playing the role of stock price driver again, it made sense that growth areas pushed to the lead. Nice when the market acts according to what people think is logical. Doesn't happen all that often.

Volume surged, but it was expiration, so that was expected: +20% NYSE; -1.8% NASDAQ. NASDAQ volume was lower but still very high, having surged back above average on Thursday.

A/D backed off but still solid: 2:1 NASDAQ, 2.5:1 NYSE


THE MARKET

THE CHARTS

New highs: SP500, RUTX, SP400

New Post-bear market highs: NASDAQ, SOX

Voting present: DJ30 with its whopping 0.18% gain as it remains stuck in the mud mid-range.

At this stage of the game you start watching for how far the indices get above their 200 day SMA. At some point they get top-heavy from their advance above any support level and they need to come back and rest. Not really an issue just yet.

Also watch for the channel lines. NASDAQ is back at its upper channel line, indeed breaking through. The last three times it hit this level it faded to the 50 day EMA or thereabouts. This time it gapped on through. Likely will want to test that, but always better to test from a position of strength as it is now.

RUTX small caps are closing in on their upper channel line as well though they still have a good ways to go.

SP400 is cracking its upper channel trendline as of Friday's close.

SOX is back in its larger channel and while up the past week, not surging along with the other growth indices. Not overbought here at all.

SP500 shot to another new high on volume, putting some distance on the late September high. SP500 has shot higher, rising six of the past seven sessions in a move much steeper than 45 degrees.

DJ30 is in the upper half of its range, but after a noble comeback to flat following IBM's earnings release the index is somewhat stalled. As noted, it is voting 'present,' showing up but not doing much of anything else.


Basically at this juncture you start looking at how fast and steep this move has been. Even with the supposed fear of a default, the market was down only 1 session in the past 8 as measured by SP500. A sharp, steep 6% move on SP500, 7.5% by RUTX, 7.2% NASDAQ starts begging for some testing in the not too distant future. Thus we were buying early on and now more letting positions run.


LEADERSHIP

Still fairly broad, but skewed toward growth as the index gains show. Huge moves from GOOG, CMG STX, AFOP, FSLR, FNSR led the way.

Energy was still solid with SLB's solid earnings beat rallying that stock. The smaller plays worked as well as PTEN posted a 3.3% move. KEG and HFC, some smaller names, performed well.

Even industrials moved as CMI broke higher though not nearly as spectacular.

Drugs continued upside, e.g. CELG, GILD. Medical appliances enjoyed a good week as well, e.g. RMTI.

The week, however, was dominated by tech: CRM, VIPS, CAMP (telecom), AFOP, FSLR, DDD, UBNT, AMT.

Good things.


OTHER MARKETS:

Dollar : 1.3677 versus 1.3528 versus 1.3524 versus 1.3565 versus 1.3544 versus 1.3520 versus 1.3524 euro. Why diving lower if such a good deal? Hint: it did nothing!

Bonds: 2.59% versus 2.68% versus 2.73% versus 2.69% versus 2.68% versus 2.66% 10 year. A big break upside. $85B/month yes, not so strong an economy? Yes.

Oil: 100.67, -1.62. Still holding the same support but well out of the range.

Gold: 1322.60, +40.60. Surging. All is well, right?


MARKET INTERNALS and STATS

NASDAQ
Stats: +51.13 points (+1.32%) to close at 3914.28
Volume: 1.907B (-1.85%)

Up Volume: 1.28B (+60M)
Down Volume: 632.44M (-107.84M)

A/D and Hi/Lo: Advancers led 2.09 to 1
Previous Session: Advancers led 2.06 to 1

New Highs: 403 (+146)
New Lows: 13 (-11)

S&P
Stats: +11.35 points (+0.65%) to close at 1744.5
NYSE Volume: 774M (+20.75%)

A/D and Hi/Lo: Advancers led 2.52 to 1
Previous Session: Advancers led 4.88 to 1

New Highs: 478 (+149)
New Lows: 78 (+1)

DJ30
Stats: +28 points (+0.18%) to close at 15399.65


SENTIMENT INDICATORS

VIX: 13.04; -0.44 . Volatility has moved to the bottom of its trading range for 2013. That has meant some market selling to follow.
VXN: 13.69; -0.8
VXO: 11.77; -1.1

Put/Call Ratio (CBOE): 0.69; -0.18. This is getting low.


Bulls and Bears:

A mixed picture with bulls falling and bears rising as the market surges. That is the debt debate having an impact. This week will see the numbers move the opposite way.





Bulls: 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: 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.


MONDAY

Friday we picked up a position or two such as AFOP, a leader that tested for a few weeks and is now looking great as it breaks higher. We had already picked up some great positions this week, however, so mainly we used the day, as per our plan, to bank some gain after a 7 day move in the indices. NFLX options gave us over 300%, FSLR 100%, UBNT 100+%.

Good things.

Not much commentary to add. One can rail about the foolhardiness of believing the budget deal did anything at all, but let's face it, the majority of the American people wanted to duck that one as much as did the majority in Congress. That assures more food stamps, more disability, more everything; after all, we just raised the debt ceiling $1T so let's go play now that Uncle Sam wrote a bigger IOU.

After all, we are told again and again Europe is recovering (as Spain reports a 30% surge in bad loans, now 12+% of all loans outstanding), and China reported 2.2% quarterly GDP growth, up to 7.8% year/year. Of course exports, the only data that can be confirmed out of China, fell hard as we learned early in the week even as its CPI surged. That combination led to the comment that China had hit the Great Wall of economic trouble: stagflation. And don't forget that IBM said hardware sales to China fell 40%. So, do you believe the GDP figures from the Chinese government versus the verifiable figures? Does the phrase 'communist government' have the same meaning it did say 20 years ago, i.e. propaganda machine? Seems we have forgotten that. As James Bond said in 'Golden Eye,' governments change, the lies stay the same.


'Governments change . . . the lies stay the same.'

But of course this means nothing to the market because we have $85B/month and Yellen coming in to pitch at the top of 2014. No way the Fed tapers before her reign over our wealth starts, and no way she is going to taper in her first meeting at the helm. Or her 31st one for that matter.

Thus the market is dancing about the fire like 'skins' (the name suggested for the Washington Redskins--does that mean they have to take off their jerseys?), drunk on the liquidity and the new highs. It sure doesn't look as if trouble could spring from that, but it always does at some point. VIX is trying to bottom where it has bottomed since the start of 2013. You know that means some selling, just how much is the question.

Still, we are looking for additional upside, those next wave or two of stocks forming up and ready to break higher and help keep the market heading upside. Those are going to be our plays in the coming week, if they show themselves, plus some stocks that rallied early and then rested as the rest of the market partied. Catching the waves as they each start is how we keep rolling into new plays as we bank some gain on existing plays as we did today. For now that is working as the market celebrates how we have fixed our debt problems by simply writing a check for another trillion dollars. How easy. How terribly dangerous. But those worries are pass given the market wants to celebrate liquidity right now, not the time when excess liquidity won't even be enough to rescue markets.

So, for now, play the rather crazy drive, one that is closing in on the rally during the Reagan presidency. One was driven by investment, real growth, indeed impressively strong growth, smaller government, less regulation, empowering the individual, a technology renaissance, and a return of the US as a world power. One is characterized by weak GDP performance, high unemployment, low quality jobs, record numbers on food stamps, disability or other government assistance, the rise of larger government and massive regulation, and a fade of relevance on the world stage. Those are obviously not the driver of the current stock rally; no, this move is due to liquidity provided since March 2009 when QE started and the stock market bottomed because of it. With just two quarters of barely 4% growth in the five years of 'recovery,' it is simply preposterous to believe growth has driven this market rally. Oh well, that is for historians and unfortunately, those of us who have to live the history.

Again, play the crazy drive higher. It cannot last forever, but it certainly was not over as of Friday.

Have a great weekend!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 3914.28

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

Support:
3866 is the upper channel line for the November 2012 to present uptrend.
3819 is the early October high
3799 is the September 2013 high.
3739 is the November trendline
The 50 day EMA at 3724
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 3430
The 2011 up trendline at 3425
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 1744.50

Resistance:

Support:
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
The 50 day EMA at 1686
1685 is the mid-August 2013 upper gap point
1673 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 1609
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 15,396.86

Resistance:
15,542 is the May 2013 intraday high
16,659 is the August 2013 peak

Support:
15,318 is the June closing high
The 50 day EMA at 15,203
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
The 200 day SMA at 14,802
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 21 - Monday
Existing Home Sales, September (10:00): 5.30M expected, 5.48M prior
Crude Inventories, 10/12 (10:30): 6.807M prior

October 22 - Tuesday
Nonfarm Payrolls, September (8:30): 183K expected, 169K prior
Nonfarm Private Payrolls, September (8:30): 183K expected, 152K prior
Unemployment Rate, September (8:30): 7.3% expected, 7.3% prior
Hourly Earnings, September (8:30): 0.2% expected, 0.2% prior
Average Workweek, September (8:30): 34.5 expected, 34.5 prior
Natural Gas Inventor, 10/12 (10:30): 90 bcf prior

October 23 - Wednesday
MBA Mortgage Index, 10/19 (7:00): 0.3% prior
Export Prices ex-ag., September (8:30): -0.1% prior
Import Prices ex-oil, September (8:30): -0.2% prior
FHFA Housing Price I, August (9:00): 1.0% prior
Crude Inventories, 10/19 (10:30)

October 24 - Thursday
Initial Claims, 10/19 (8:30): 341K expected, 358K prior
Continuing Claims, 10/12 (8:30): 2860K expected, 2859K prior
JOLTS - Job Openings, August (10:00): 3.689M prior
New Home Sales, September (10:00): 432K expected, 421K prior
JOLTS - Job Openings, August (10:00): 3.689M prior
Natural Gas Inventor, 10/19 (10:30)

October 25 - Friday
Durable Orders, September (8:30): 3.5% expected, 0.1% prior
Durable Goods -ex tr, September (8:30): 0.3% expected, -0.1% prior
Michigan Sentiment - Final, October (9:55): 74.5 expected, 75.2 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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