New York PMI Flips Negative

MARKET SUMMARY

- Market continues midweek surge on a week that turned some weariness into renewed strength.
- Lots of very interesting news Friday.
- New York PMI flips negative. Does the contrapositive apply?
- Industrial production, capacity stumble.
- Gallup: Christmas spending plans not galloping along.
- Stocks finish a good week, holding or advancing their gains.

Futures rose Friday as stocks set up to continue the new upside advance started Wednesday. Whatever heaviness indices such as NASDAQ showed was swept aside Wednesday with a new strong upside break. It was no one-day wonder; stocks continued higher Thursday and put emphasis on the move Friday. Not all stocks were up but most did a very good job of holding onto the week's gains if they did not add to the advance Friday.

SP500 7.56, 0.42%
NASDAQ 13.23, 0.33%
DJ30 85.48, 0.54%
SP400 0.31%
RUTX 0.43%
SOX 0.70%

Volume mixed: NASDAQ trade -4%, NYSE +19%

Breadth: Again decent on NYSE at almost 2:1, a mediocre 1.5:1 NASDAQ.


THE NEWS

Friday saw many stories hit, most tangentially related to stocks as they dealt with the economy, but there were some stock specific stories.

Banks Downgraded.

Moody's decided it needed to downgrade four banks (JPM, BAC, GS, BK) on concerns their run of gains on free money might be upset if the Fed has to start tapering and as interest rates move higher. Didn't seem to hurt the action all that much.

New York PMI flips.

Empire Manufacturing, November: -2.2 actual versus 4.3 expected, 1.5 prior

Quite the turn of events as it was supposed to triple the 1.5 from October but instead missed by 6.5 points. That was the lowest reading since January 2013. The government shutdown was blamed.

Recall the string had been moving higher and in general PMI readings were stronger. As ECRI and others pointed out, however, the PMI results that are designed to PREDICT ultimate sales are not doing so over the past few years. Not only is the predictability less than accurate, the numbers are actually negatively correlated to sales.

The question that has not been answered is whether the contrapositive applies, i.e. a negative PMI means positive sales. Doubt it.


Industrial production and capacity slip.

Industrial Production, October: -0.1% actual versus 0.1% expected, 0.7% prior (revised from 0.6%)
Capacity Utilization, October: 78.1% actual versus 78.3% expected, 78.3% prior


Gallup: Christmas spending plans curtailed.

A new Gallup poll Friday suggests consumers are not as confident, that retail is not as 'smoking' as Macy's results suggested to some earlier in the week. Macy's pumped up sales with regional promotions that brought in enough volume to offset decreased margins. As we saw last week, others week not so fortunate. Not bad companies, but unable to bring in the sales.

Is it because they are poorly managed as some on CNBC say about any company that cannot make earnings in this economy? We have detailed the decreased buying power that slack wages are losing ground against inflation rates at double the wage gains. That is now showing up in Christmas shopping plans.

A majority of 'average Americans' as polled by Gallup shows they will spend 10% less than in 2012. Moreover, they will spend 19% less than in 2007. In 2007 recall that the financial crisis had started to unfold in September. We are now, according to our leaders, in the fifth year of recovery. Yet, we are going to spend almost 20% less than we spent the Christmas the crisis unfolded. What a recovery!


THE MARKET

There is not a lot of commentary you can add to the Friday action. The indices, and many stocks as well, basically extended the move that renewed itself on Wednesday. All of the misgivings we may have had about NASDAQ's heavy look and churn/distribution was gone with the surge. RUTX, SOX, and SP400 all tested to the 50 day EMA the prior week and reversed after one session. That was apparently enough for the large cap indices as they held their gains, using the tests of the smaller cap indices to their advantage.

New highs on SP500, DJ30 and SP400. A new post bear market high for NASDAQ and a new post-bear market closing high for SOX. The Russell 2000 was left out, but it was not down and out. That index continued its bounce off the 50 day EMA and the bottom of its channel, moving back up in its uptrend.

Leaders showed strong moves on the day while some simply held onto gains. Ending an up week holding gains is not bad. It would be nice to get a test and set up some new buys on stocks that have run and are extended, at least to extended to initiate plays, but the market doesn't want that. Money was ready to come in and it did, ready or not. That pushed stocks upside across the board.

Friday leaders: AMX, AXLL, BABY, KIRK, EDU, GNRC, LNKD, VISN. There are many more but as you can see, leaders crossed many sector boundaries.


OTHER MARKETS:

Dollar: 1.3496 versus 1.3456 versus 1.3459 versus 1.3434 euro. Faded all week but holding the break higher over the 50 day EMA.

Bonds: 2.70% versus 2.71% versus 2.71% versus 2.73% versus 2.77% versus 2.75%. Relief bounce on the week. Still look weak after the three week plunge to support.

Oil: 93.82, +0.07. Lateral move overall the past two weeks after the decline from the September highs. Trying to set up a bounce. Trying.

Gold: 1287.50, +1.00. Modest bounce Wednesday to Friday as gold sold to interim support and is putting in a modest bounce.


MARKET INTERNALS and STATS

NASDAQ
Stats: +13.23 points (+0.33%) to close at 3985.97
Volume: 1.871B (-3.8%)

Up Volume: 1.2B (+291.14M)
Down Volume: 600.04M (-439.96M)

A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Decliners led 1.09 to 1

New Highs: 172 (-13)
New Lows: 46 (-13)

S&P
Stats: +7.56 points (+0.42%) to close at 1798.18
NYSE Volume: 688M (+18.83%)

A/D and Hi/Lo: Advancers led 1.93 to 1
Previous Session: Advancers led 1.9 to 1

New Highs: 242 (-7)
New Lows: 75 (-4)

DJ30
Stats: +85.48 points (+0.54%) to close at 15961.7


SENTIMENT INDICATORS

VIX: 12.19; -0.18. Fading further toward the 2013 range lows. Three days down to end the week. This suggests market selling, but it does not trump some pretty good technical action.
VXN: 13.13; -0.13
VXO: 11.41; -0.52

Put/Call Ratio (CBOE): 0.75; -0.08

Bulls and Bears:

Confidence started to flag just as the market was ready to rise. That is how it works. Even we were getting downbeat on the market but at least we recognize when we are negative and then look doubly at the technical picture to see if it warrants the worry.





Bulls: 52.6 versus 55.2% versus 52.6 versus 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%. Stemmed the climb just a bit.

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

Bears: 15.5% versus 15.6% versus 16.5% versus 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%. Faded just a bit after bouncing 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

A good 1-2-3 rally to end expiration week, busting the indices to new highs. Many times an upside move in expiration week leads to a bit of weakness at the start of the next week. There are plays in great position and ready to make us money if that is the case. There are plays ready to go and make us money if that is not the case.

It took awhile, but clearly new money hit the market, trying to chase some performance into yearend. That is the yearend rally we talked about in October, and after a pause the move started. New money from the money managers and still $85B/month from the Fed. A pretty powerful combination, and if it continues, either after a pause early in the week or no pause, we want to continue if our plays show the right moves.

Pretty straightforward plan of attack, but with new money hitting and clearly turning back to the buy mode, you don't want to over-think it. Keep an eye on the VIX as it tests the 2013 lows, but if the technical picture remains strong and money keeps putting a bid in the market, it will override the technical picture as VIX does not have to bounce at those lows; it can remain low for quite some time if a steady bid hits the market.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 3985.97

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

Support:
3967 is the October 2013 post-bear market high.
3933 is the upper channel line for the November 2012 to present uptrend.
3855 is the November low
The 50 day EMA at 3840
3819 is the early October high
3818 is the November 2012 trendline
3801 is the September 2013 high.
The October low at 3750
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.
The 200 day SMA at 3510
3502 is the May 2013 closing high
The 2011 up trendline at 3471
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 1798.18

Resistance:
8.9% over the 200 day SMA, not so extended.

Support:
1775.22 is the recent all-time high
The 20 day EMA at 1761
1730 is the September 2013 peak
The 50 day EMA at 1731
1710 is the August 2013 peak.
1704 is the December 2012 up trendline
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
1657 is the late August upper gap point
1654 is the June 2013 peak
The 200 day SMA at 1637
1627 is the August 2013 low
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 15,961.70

Resistance:

Support:
15,798 the November 2013 high
The 10 day EMA at 15,773
15,696 is the September 2013 peak
15,659 is the August 2013 peak
The 50 day EMA at 15,464
15,542 is the May 2013 intraday high
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
The 200 day SMA at 15,001
14,888 is the April peak and prior all-time high
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

November 15 - Friday
Empire Manufacturing, November (8:30): -2.2 actual versus 4.3 expected, 1.5 prior
Export Prices ex-ag., October (8:30): -0.4% actual versus 0.3% prior
Import Prices ex-oil, October (8:30): 0.0% actual versus 0.2% prior (revised from 0.1%)
Industrial Production, October (9:15): -0.1% actual versus 0.1% expected, 0.7% prior (revised from 0.6%)
Capacity Utilization, October (9:15): 78.1% actual versus 78.3% expected, 78.3% prior
Wholesale Inventories, September (10:00): 0.4% actual versus 0.3% expected, 0.8% prior (revised from 0.5%)

November 18 - Monday
Net Long-Term TIC Fl, September (9:00): -$8.9M prior
NAHB Housing Market , November (10:00): 55 expected, 55 prior

November 19 - Tuesday
Employment Cost Inde, Q3 (8:30): 0.5% expected, 0.5% prior

November 20 - Wednesday
MBA Mortgage Index, 11/16 (7:00): -1.8% prior
Retail Sales, October (8:30): 0.1% expected, -0.1% prior
Retail Sales ex-auto, October (8:30): 0.1% expected, 0.4% prior
CPI, October (8:30): 0.0% expected, 0.2% prior
Core CPI, October (8:30): 0.2% expected, 0.1% prior
Existing Home Sales, October (10:00): 5.20M expected, 5.29M prior
Business Inventories, September (10:00): 0.4% expected, 0.3% prior
Crude Inventories, 11/16 (10:30): 2.640M prior
FOMC Minutes, 10/30 (14:00)

November 21 - Thursday
Initial Claims, 11/16 (8:30): 333K expected, 339K prior
Continuing Claims, 11/09 (8:30): 2863K expected, 2874K prior
PPI, October (8:30): -0.2% expected, -0.1% prior
Core PPI, October (8:30): 0.1% expected, 0.1% prior
Philadelphia Fed, November (10:00): 11.9 expected, 19.8 prior
Leading Indicators, October (10:00): 0.7% prior
Natural Gas Inventor, 11/16 (10:30): 20 bcf prior

November 22 - Friday
JOLTS - Job Openings, September (10:00): 3.883M prior

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

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