Monday, December 23, 2013

The Christmas Rally Continue


- The Christmas rally continues aided by upward GDP revisions
- 4+% GDP for the third time in a 5 year recovery. Much rejoicing.
- Lost in the euphoria: China suffers another day of banking liquidity lockup, EU credit downgraded.
- Growth resumes leadership, looking very good.
- Short week but many stocks, even after a surge last week, are in good position to buy and continue higher.

Friday, post-FOMC, post-GDP surge continues the holiday rally.

Duck Dynasty and Q3 GDP dominated the headlines. The reaction to the former shows how difficult it is for us to get along on both sides. The reaction to the latter shows how difficult it is for the government to generate accurate data or perhaps the willingness to generate and report accurate data.

I have a plan: you let me talk and I will let you talk. We can agree to disagree but also agree to civilly let each other speak his or her mind.

There used to be this notion in the US that you may disagree, and disagree passionately, but you would fight for the right of your adversary to believe the way he wanted. That assured open and honest discussion of our differences and we would work out solutions. Today you are attacked and shouted down if you speak what you believe, left, right, middle, fringe. Heck, even those purportedly on your side can call you a fringe lunatic or something like that if the statement will garner poll points.

GDP sports largest revision on record: 45%

There also used to be this notion that you could trust the data the government reported regarding economic activity. From 'I am not a crook' to 'you can keep your insurance/doctor/ period,' however, things have changed. From the IRS, DEA, NSA, HHS (the ACA), to the BLS we have been targeted, used, spied upon, lied to and incompetently served, to downright deceived (the BLS altering employment data ahead of the 2012 elections).

Even so, we want to believe. Thus when the third revision of Q3 GDP showed massive, record-setting revisions, while hard to swallow, investors wanted to believe they numbers. We are a hopeful, optimistic lot. It worked on Friday.

2.8% first read, 3.6% second, and 4.1% third. 45% revision upward from the first read, a record setting revision. The second revision surged due to a massive 100% increase in inventory build. The third revision rose on consumption, mostly in the form of rising healthcare costs:

Personal consumption : 2.0% versus 1.4% originally reported.
60% of the increase was healthcare costs (read insurance cost surges; how is that ACA working for you?) and gasoline costs (27%). Those are not exactly the kind of costs that give you a great feeling about the rise in consumption. Policies cancelled, forced to pay up in new higher priced policies. Not good.

We can only hope the inventory build (115.7B from 56.5B in Q2) gets sold and can avoid the write-offs other inventory builds suffered during this recovery.
To wit, the last time GDP was this high (Q4 2011) it didn't last as inventories had to be liquidated as the late year surge was a false hope. This is the third 4+% GDP read in the recovery, each one occurring late in the year as retailers and manufacturers hoped this would be the turn.

Maybe this will be more of a turn. We need it. Don't be surprised, however, if it is just a blip that fades as the US economy continues to work through a protracted period of slow, sporadic growth. The same policies that produced a stagnant economy are still in place and indeed are even stronger with the ACA going live.

But don't you worry. Friday HHS and the President announced a suspension of the individual mandate for those losing policies as a result of the ACA enactment.

From Drudge Report

Once again the executive decides he is not going to faithfully enforce all parts of the laws passed by Congress but effectively re-write them as he sees fight. How monarch-like. Maybe someone in Congress grows a pair and takes him to task. To be fair some are as lawsuits have been filed. Oh joy. More wrangling. Sad but necessary given the circumstances.

The overlooked stories:

China: Second day of monetary intervention. China decided to get tough at the same time the FOMC tapered. Let's see, that makes about 45 Chinese attempts to reduce liquidity. Last week China's money markets started to freeze, displaying the same illiquidity indicia seen in June. As soon as it tried to taper itself, its markets rebelled. Thus some reverse repo action Thursday and again on Friday.

As noted Thursday, this is a gravely serious situation in China.

EU credit downgraded. Perhaps it is because the federal government sued S&P for its US downgrade this story did not receive much publicity. Whatever the reason, Friday S&P downgraded the EU credit to AA+ from AAA. We are told that all is fine and Europe is growing. Should the data from Europe be trusted any more than ours?


The disquieting stories and the issues with the GDP report itself could not overcome the better feelings engendered by the third 4+% print in the 5 year recovery. In 20 quarters of recovery, just 3 over 4% (15%). Oh well. The holiday rally that started in early November as a continuation of the rally from early September, renewed itself last week with strong surges Monday, Wednesday and Friday.

Friday started higher out of the gate and rallied into early afternoon. It took that long to get a fade. With expiration and rebalance the last 1.5 hours was rather mundane, the fireworks released earlier in the session. We used the late fade to pick up some positions that rallied well on the session and held much of the moves. We also took some gain on some December options, banking 230% on SFUN, 220% on some FSLR, and 300+% on CRR.

SP500 8.72, 0.48%
NASDAQ 46.61, 1.15%
DJ30 42.06, 0.26%
SP400 1.11%
RUTS 1.87%
SOX 0.83%

Volume surged on rebalance and expiration: NYSE +80%, NASDAQ +67%

Breadth solid: 3:1 NYSE, 2.6:1 NASDAQ



Dollar: 1.3675 versus 1.3643 versus 1.3683 versus 1.3765 versus 1.3761 versus 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. Up on the week but after breaking the 50 day EMA Thursday the dollar struggled. Not a surge on the taper.

Bonds: 2.88% versus 2.93% versus 2.88% versus 2.84% versus 2.88% versus 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.

What the heck? Gapped and surged upside off of support. Why are bonds selling and yields falling with stronger GDP, taper, etc?

Oil: 99.33, +0.26. Managed to hold the Thursday break over the 200 day SMA as oil firmed back up on the week.

Gold: 1203.80, +10.20. Reversed some of the massive Thursday losses but still below the support it blew apart that day.


Stats: +46.61 points (+1.15%) to close at 4104.74
Volume: 2.983B (+67.4%)

Up Volume: 2.67B (+1.892B)
Down Volume: 565.29M (-431.62M)

A/D and Hi/Lo: Advancers led 2.58 to 1
Previous Session: Decliners led 1.63 to 1

New Highs: 266 (+127)
New Lows: 28 (+3)

Stats: +8.72 points (+0.48%) to close at 1818.32
NYSE Volume: 1.095B (+80.4%)

Up Volume: 3.39B (+1.79B)
Down Volume: 1.51B (-320M)

A/D and Hi/Lo: Advancers led 3.02 to 1
Previous Session: Decliners led 1.43 to 1

New Highs: 287 (+117)
New Lows: 91 (-32)

Stats: +42.06 points (+0.26%) to close at 16221.14


After Thursday's no change in status, the indices surged Friday, particularly growth. When the market really moves, growth is the driver. Friday was promising in that sense.

SP500: New high, clearing the three peaks formed from mid-November. Not a huge break, but a new high.

DJ30: A similar session to SP500, up but giving back more than it gains. New high. Much rejoicing.

NASDAQ: Excellent surge past the prior peaks and perhaps, just maybe, breaking away from the upper channel line for good.

RUTX: Strongest move of the session and a new closing high. Powerful move off the 50 day EMA test, now closing in on the upper channel line.

SP400: Broke higher from the 50 day EMA early in the week, surging Wednesday, then again Friday after testing back to the 10 day EMA Thursday. New closing high here as well as SP400 moves back up toward the upper channel line.

SOX: Same action as the other growth indices, i.e. moving well off that 50 day EMA test. Very nice and a new post-bear market high.


Big names: Surging, e.g. AMZN, GOOG.

Much of the action, however, was in the smaller caps. We saw many good moves in many sectors. GPOR, MLNX, OPEN, OTIV, AEIS, NPSP. Many others are set to make a move even after that strong last half of the week. Growth stocks leading is great.


VIX: 13.79; -0.36
VXN: 14.48; -0.44
VXO: 11.8; -0.96

Put/Call Ratio (CBOE): 0.75; 0

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.


Christmas falls on Wednesday but outside of that session, operating hours are normal.

The market enjoyed a solid week, particularly the back half as the growth sectors and smaller caps took over. Seems a January effect is coming early, falling in the Santa Clause move. It has done this more and more of late.

As such we picked up a number of positions last week even as we were able to pocket some nice gains. Not bad. Even with the market gains, however, there are a lot more stocks still in great patterns that are not extended. Thus we will, despite a short and typically quiet and light volume week, look at some of these for buys if they show the right stuff. Of course, if the market continues to log gains we will look to bank gain when it presents itself.

As for the reports on the week, we will, as is usual for this time of the year, shorten the evening reports and focus on plays, both new and managing existing positions.


NASDAQ: Closed at 4104.74

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

4031 is the upper channel line for the November 2012 to present uptrend.
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 3957
3917 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 3612
3573 is the August 2013 low
3532 is the May intraday high
3521 is the August 2000 low.
The 2011 up trendline at 3515
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 1818.32

New high.

1775.22 is the October prior all-time high
The 50 day EMA at 1771
1741 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 1671
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 16,221.14


16,175 is the November all-time high.
The 50 day EMA at 15,785
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 15,235
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

Economic Calendar

December 20 - Friday
GDP - Third Estimate, Q3 (8:30): 4.1% actual versus 3.6% expected, 3.6% prior
GDP Deflator - Third, Q3 (8:30): 2.0% actual versus 2.0% expected, 2.0% prior

December 23 - Monday
Personal Income, November (8:30): 0.5% expected, -0.1% prior
Personal Spending, November (8:30): 0.5% expected, 0.3% prior
PCE Prices - Core, November (8:30): 0.1% expected, 0.1% prior
Michigan Sentiment - Final, December (9:55): 83.3 expected, 82.5 prior

December 24 - Tuesday
MBA Mortgage Index, 12/21 (7:00): -5.5% prior
Durable Orders, November (8:30): 2.2% expected, -1.6% prior (revised from -2.0%)
Durable Goods -ex transports, November (8:30): 0.6% expected, 0.4% prior (revised from -0.1%)
FHFA Housing Price I, October (9:00): 0.3% prior
New Home Sales, November (10:00): 433K expected, 444K prior

December 26 - Thursday
Initial Claims, 12/21 (8:30): 350K expected, 379K prior
Continuing Claims, 12/14 (8:30): 2850K expected, 2884K prior

December 27 - Friday
Natural Gas Inventories, 12/21 (10:30): -285 bcf prior
Crude Inventories, 12/21 (11:00): -2.941M prior

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

Jon Johnson is the Editor of The Daily at

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