- Stocks blow a modest bounce attempt, but it was Friday pre-FOMC and they were not ready.
- DJ30 holding the 50 day EMA, SP500 and SOX may help out after a bit more downside.
- PPI falls for third month.
- IMF wants more US taxes.
- Holiday sales: CNBC poll corroborates Bloomberg poll.
- Poole talks of a political Fed.
- Leaders are holding on but after the week are a bit more ragged.
The big Friday blah. Sure there was some pre-market life but it was frittered away pretty much at the open. Without much ceremony stocks opened higher, kicked upside even more, then dropped the ball. Stocks faded to midmorning, bounced decently into mid-afternoon, then rolled over to lower lows. A decent rebound the back half of the afternoon session kept the indices bracketing the flat line, some up, some down.
A good day in that it didn't sell off hard, a bad day in that the indices couldn't advance off support. That left the indices down for the week, some such as DJ30 in a nice pattern, others e.g. RUTX and SP400 need to work on it. The session and the week was similar to Michael Fox in 'Back to the Future' kissing his mom: just not right, indeed it just felt wrong. Friday itself was an oxymoron day. Sweet and sour. Jumbo shrimp. Good disco. Bad day fishing. Angry love.
Reminds me of the line in 'The War of the Roses' when Barbara Rose (Kathleen Turner) says to Gavin (Danny DeVito) 'have you ever made angry love?' Gavin responds, 'Is there any other kind?'
Barbara Rose: 'Have you ever made angry love?'
Gavin: 'Is there any other way?'
SP500 -0.18, -0.01%
NASDAQ 2.58, 0.06%
DJ30 15.93, 0.10%
Volume faded: -13% NYSE (how appropriate on Friday the 13th), -15% NASDAQ
The end result? A week downside that left DJ30 and you can even argue SOX in decent shape to bounce. SP500 is at some support but could also easily fall to the 50 day EMA. NASDAQ is hanging onto its break above the channel by a thread while the other growth indices, SP400 and RUTX, struggle to retake the 50 day EMA.
The action suggests there is more downside this coming week ahead of the FOMC as investors jockey positions, attempting to place themselves where they want ahead of the decision. As noted Thursday, even the 'experts' from the many funds and analysis firms are as split as a coin flip. Nice job on the transparency FOMC, but then again, there is not much transparency in any branch of government or pseudo-government such as the Fed.
Stocks themselves are split with some breaking, many testing lower support, and quite a few leaders holding near support and setting up some good upside patterns. A continuation of the year end run is still very much on the table now that DJ30 has tested the 50 day EMA and put in a good pattern while SP500 and SOX are just a half session away from completing their tests and being in position as well.
There was some real news in the form of economic reports, but it was Friday the 13th before an important FOMC meeting heading into the holidays and the news outlets were searching for something to talk about. As a result, there was more than a bit of 'stupid' news as I term it.
PPI: -0.1% as expected versus -0.2% prior. Third straight decline, something not seen in the past year.
PPI Core: 0.1 as expected versus 0.2% prior. Energy fell 0.4% on a big decline in heating oil. THAT will change with the twin storms that moved through recently.
Last week we reported that negative pre-announcements are running 11:1 over positive pre-announcements, almost 5 times average. Friday saw more of the same.
ADBE beat top and bottom but guidance fell short.
ZQK (teen apparel) missed the top and bottom line.
UTX, a venerable Dow component, guided 2014 lower
CNBC echoed Bloomberg's survey from earlier in the week as it released its own survey. Everyone has a survey it seems. In any event, the same conclusion: the wealthy are spending less this holiday season. Skepticism about the stock market's rise is cited in this survey as well. Again the wealthy see the gains are built on easy money versus strong economic underpinnings.
The world to the US: Raise taxes.
The IMF saying the US should raise taxes on the highest bracket to 71%.
Just a little bit higher . . . from 40% to 71%
Been there, done that, bad results. At high tax rates those with excess money hide it. It leaves the economy. Stagnation results until better times when the risk/reward ratio is right. As Ronald Reagan said to his son when asked why he only made one movie a year, when the tax rate is so high on the marginal dollars you make, why take the risk, bust your tail with the extra work, etc. when you are only going to get 30 cents or less on the dollar IF everything goes perfect? So money goes into hiding, waiting for a better day, a better time to be put to work. It can wait. It always does.
The ACA and layoffs
There was some sobering news as well. The President has publicly stated there is no proof the ACA is or has led to layoffs. That is patently incorrect, and more evidence is piling up. A Duke University study/survey found that 48% of US CFO's indicated they will reduce employment in 2014 because of the ACA. Yet another less than savory after effect of the planned 'market' for health insurance, the market that will find coverage available but 1) many won't be able to afford the premiums and the deductible so they will be covered but have no access, and 2) if they can afford the upfront costs their doctor and hospital won't be part of the system. What a plan indeed!
The Fed is simply politics on a different scale.
The FOMC's Poole made some rather astonishing statements earlier in the year that were not released until recently. Astonishing, but nonetheless suspected given the Fed's actions.
So much is made of the Fed's political autonomy, how it has to be so in order to get the top notch analysis and action necessary to do the right thing to effectuate the Fed's mandate of price stability and maximum economic growth. It cannot be beholden to any group other than the United States in so doing.
Alas, as our framers knew, when you split off any group from fear of the electorate, the group has no fear of the electorate. Some say that is the purpose, but what invariably happens is that these groups, necessarily made up of humans, succumb to human frailties such as political pressure. Thus a body created to be free from political pressure is still ruled by political pressure. Thus Poole says the Fed does NOT base its decisions on rational, logical, dispassionate application of economics, but those decisions are politically influenced:
'The real issue is the politics of monetary policy . . . I am not a political expert or a political analyst by trade. My qualifications for speaking on this topic is that I have followed the interactions between monetary policy and politics for a very long time.'
'As with all things political, the politics of the Fed means that realities often fail to match outward appearances . . . the pressure on the Fed will come from inside the government and may not be very visible; it may be limited to a few op-ed articles from the housing lobby. The true amount of political pressure will be largely hidden.'
A long-time FOMC member tells it like it is: any entity created by government to perform a governmental function (whether in the Constitution or not) is political and will act political. The ONLY checks on such a body is the electorate yet the electorate is so far removed it has virtually no control over the Fed, the most powerful entity in the government regarding our currency and thus our store of wealth. Heck, CONGRESS cannot even control it because it cannot get an audit from the Fed. When the members of the body start to question its integrity when that is paramount for its functioning, you KNOW you have trouble.
Dollar: 1.3733 versus 1.3752 versus 1.3787 versus 1.3763 versus 1.3738 versus 1.3704 versus 1.3671 versus 1.3589 versus 1.3593 versus 1.3538 versus 1.3592 euro. Rallied Thursday and some Friday, but hit near resistance and faded. Not much of a bounce after the selloff, and still strange given the Fed is supposed to taper.
Bonds: 2.86% versus 2.88% versus 2.84% versus 2.80% versus 2.85% versus 2.875% versus 2.875% versus 2.83% versus 2.78% versus 2.78% 10 year. Bounced off the Wednesday and Thursday selling. Bonds are bouncing around in a narrow range just over support ahead of the FOMC meeting. The move from here, is key. If the 10 year breaks 3% post-FOMC, trouble for stocks near term.
Oil: 96.53, -0.93. Rallied to the 200 day SMA early week, then started to roll back down. Up off the lows, testing that move, but below key resistance.
Gold: 1235.10, +10.40. Gold is acting as confused as other markets, bouncing up and down session to session, holding over support. As with bonds, it is waiting on the Fed.
MARKET INTERNALS and STATS
Stats: +2.58 points (+0.06%) to close at 4000.98
Volume: 1.588B (-14.81%)
Up Volume: 847.45M (+41.97M)
Down Volume: 720.24M (-319.76M)
A/D and Hi/Lo: Advancers led 1.41 to 1
Previous Session: Decliners led 1.08 to 1
New Highs: 56 (+10)
New Lows: 35 (-13)
Stats: -0.18 points (-0.01%) to close at 1775.32
NYSE Volume: 555M (-13.55%)
A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Decliners led 1.43 to 1
New Highs: 59 (+32)
New Lows: 169 (-83)
Stats: +15.93 points (+0.1%) to close at 15755.36
DJ30 tried a bounce off the 50 day EMA. Once, twice, three times. Didn't take. It shows, however, a very nice tight doji at that support.
SP500 held right on top of the late October/early November. Still may want to test the 50 day EMA. Wish it would have got it out of its system and rebounded.
NASDAQ gapped higher then as GOOG, AAPL, NFLX and other names faded from recent decent action, it too faded, closing a bit further under its upper channel line. Still not a pattern you say 'got to buy that one.'
SP400 and RUTX (midcaps and small caps) bounced, but bounces that meant nothing in terms of changing the character. Big drop Wednesday, anemic bounces Thursday and Friday not making any significant headway, not changing the bias.
SOX actually is one we like better. It faded further after starting higher, fading closer to the 50 day EMA where it has found support time and time again on this last leg (4 times prior). Can it do it a fifth time?
DJ30 looks good, SP500 with a bit more of a quick 50 day EMA test would look good. Between those two and SOX they might get the job done. But, from the Friday close it looks as if some more near term softness is in store before a new move.
That really makes sense, however, when you factor in the FOMC meeting ahead, the market has faded ahead of the meeting, the indices are holding at or above support. If the Fed comes in with a light taper of $5B to $10B the market will have no issues with that and will be in place to rally. What would hurt would be a $25B or more taper.
As noted, some of the big NASDAQ names faltered. AAPL looked so solid over the 10 day, but it slipped through that level on volume. GOOG was off. AMZN was up after being down when the other NASDAQ names were up. Kind of zen, relating to the opening paragraph about the market overall.
Financial: Still holding decent patterns.
Industrial Equipment: Started to move back up. Nice test, trying to lead again.
Personal Products: Still watching this group after it jumped on the jobs numbers. Has faded since but has not broken down. Could be that when the FOMC meets and if it does taper that these stocks will bounce again.
Many other stocks in many sectors continued to struggle, but many have faded, are holding support, and if the right mood comes along, they are set to bounce.
VIX: 15.54; +0.12
VXN: 16; +0.12
VXO: 15.3; +0.69
Put/Call Ratio (CBOE): 0.7; -0.25
Bulls and Bears:
Bulls crossed 58 while bears held steady, but the point: the divergence continues AND it is extreme. Now, I have seen readings near 65% on bulls, so there is room to move. It is, however, at a level that is flashing extreme. As noted last week, these levels lead to corrections, but timing is the trouble. At this point you look at technicals and leaders. Technicals are weaker but not broken. Leaders are still quite nice. There can be another run to year end. After that, dicey.
Bulls: 58.2 versus 57.1 versus 55.7 versus 53.6 versus 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%. Getting even more extreme . . .
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 14.3 versus 14.3 versus 14.4 versus 15.5 versus 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%. Held steady basically for the third straight week. Seems bears fall after each three weeks. Frankly, how much more can it fall? Further, I suppose.
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.
Overall the market is heavy after a week of declines (more than a week in some cases), and there is no unified front on the indices or in leaders that make you say 'this market is set right now to make the next upside break.' It likely takes a bit more this coming week to get them set. Makes sense given the FOMC meeting result mid-week.
Again, the indices are split on the next move. DJ30 looks ready while SP500 and SOX could be there with just one intraday test and recovery. Of course, they have to show that move, and that comes from the leaders that are also making tests and will have to hold and them actually make good on the setups after the pullback. Indeed, a continued test/pullback early next week will put more stocks in position to rally once the information comes out post-Fed.
We see stocks that look good and are actually starting to move already, e.g. MONT, PACB, FB, RMTI, TWTR, LNKD and we will see if they are indeed the early leaders setting the early pace.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4000.98
4009 is the upper channel line for the November 2012 to present uptrend.
4069.70 is the post-bear market high.
Next major resistance is around 4100 as NASDAQ hits 13 year highs
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
The 50 day EMA at 3934
3894 is the November 2012 trendline
3855 is the November low
3819 is the early October high
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
The 200 day SMA at 3591
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
The 2011 up trendline at 3504
3502 is the May 2013 closing high
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 1775.32
The 20 day EMA at 1788
1813.55 is the November 2013 peak
1775.22 is the October prior all-time high
The 50 day EMA at 1765
1734 is the December 2012 up trendline
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
1685 is the mid-August 2013 upper gap point
The 200 day SMA at 1664
1657 is the late August upper gap point
1654 is the June 2013 peak
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 15,755.36
15,798 the November 2013 high
16,175 is the November all-time high
The 50 day EMA at 15,721
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
15,318 is the June closing high
The 200 day SMA at 15,190
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
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
December 13 - Friday
PPI, November (8:30): -0.1% actual versus -0.1% expected, -0.2% prior
Core PPI, November (8:30): 0.1% actual versus 0.1% expected, 0.2% prior
December 16 - Monday
Empire Manufacturing, December (8:30): 5.0 expected, -2.2 prior
Productivity-Rev., Q3 (8:30): 2.7% expected, 1.9% prior
Unit Labor Costs, Q3 (8:30): -1.3% expected, -0.6% prior
Net Long-Term TIC Fl, October (9:00): $25.5B prior
Capacity Utilization, November (9:15): 78.1% prior
Industrial Productio, November (9:15): 0.4% expected, -0.1% prior
Capacity Utilization, November (9:15): 78.4% expected, 78.1% prior
December 17 - Tuesday
CPI, November (8:30): 0.1% expected, -0.1% prior
Core CPI, November (8:30): 0.1% expected, 0.1% prior
Current Account Bala, Q3 (8:30): -$101.0B expected, -$98.9B prior
NAHB Housing Market , December (10:00): 55 expected, 54 prior
December 18 - Wednesday
MBA Mortgage Index, 12/14 (7:00): 1.0% prior
Housing Starts, September (8:30): 915K expected, 891K prior
Housing Starts, October (8:30): 920K expected,
Housing Starts, November (8:30): 950K expected,
Building Permits, November (8:30): 983K expected, 1034K prior
Crude Inventories, 12/14 (10:30): -10.585M prior
FOMC Rate Decision, December (14:00): 0.25% expected, 0.25% prior
December 19 - Thursday
Continuing Claims, 12/07 (8:30)
Initial Claims, 12/14 (8:30): 333K expected, 368K prior
Continuing Claims, 12/07 (8:30): 2760K expected, 2791K prior
Existing Home Sales, November (10:00): 5.00M expected, 5.12M prior
Philadelphia Fed, December (10:00): 5.0 expected, 6.5 prior
Leading Indicators, November (10:00): 0.6% expected, 0.2% prior
Natural Gas Inventor, 12/14 (10:30): -81 bcf prior
December 20 - Friday
GDP - Third Estimate, Q3 (8:30): 3.6% expected, 3.6% prior
GDP Deflator - Third, Q3 (8:30): 2.0% expected, 2.0% prior
By: Jon Johnson, Editor
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