Currency Issues Swallow Rally For Now

MARKET SUMMARY

- Currency issues swallow the rally for now.
- More possible problems after hours as HSBC has been denying withdrawals.
- Bank issues, currency issues beg the question: can 'things' be that strong if the money holders are so nervous?
- Indices blasting through support. RUTX, SOX, well, still looking pretty darn good.
- Protect positions, watch leaders testing, watch for new leaders forming up, then see if the Fed decides it is indeed a slave to market moves at this week's FOMC meeting.

For a Few Dollars (or Yen?) More. Investors sell as currency issues continue.

Thursday Japan talked of its own taper, taper al la Abe. Stories hit about China's large co-ops closing their doors, refusing to return deposits despite depositor requests. This on top of liquidity issues already arising and the PBOC's rather dramatic liquidity injection that was called 'seasonal'.

Late Friday the word got worse. Of course it was after hours, and as Art Cashen said Friday, when currency issues are, well, at issue, the news tends to come on the weekends.

Seems HSBC could not even wait for Saturday. Of course HSBC wasn't really doing the announcing and it was not really a currency issue. It is a deposit issue, i.e. is the money there, and even if so, can you get it?


Jimmy Stewart in 'It's a Wonderful Life' explains how a savings and loan works as its members demand their money as the late 1920's crash sparks runs on banks.

The BBC reports HSBC has imposed restriction on larger cash withdrawals. Customers are discovering that unless they can provide written documentation of why they need withdrawals in amounts as little as 3,000 Pounds they cannot get the money. Their money. They have to prove to the bank they need it, to explain to the bank why you need your money. HSBC says they have a duty to prevent lawless use of money. HSBC says this policy started in November; it just didn't notify depositors of the policy.


Eastwood in 'For a Few Dollars More.' Will we need a gun to withdraw our own money from our friendly bank?

Can you imagine going to Wells Fargo or Chase and wanting to withdraw $5,000 cash and they refuse to give you the money? They were not doing it as of November here in the US; maybe things have changed and we just don't know it . . .

Nothing like a crescendo of reports involving deposit withdrawals to chill investors. The week also saw an upset in the USD/JPY (dollar/yen) pairing, with the yen rallying through 104 resistance, moving down to 102.5 yen per dollar. Too much flux for investors. They sold here and across the globe, though ironically, China's market rose as Japan's Nikkei dove almost 2%.

Just how great are things?

If banks are reluctant to release deposits to the depositors and Chinese banks don't have the money to release them even if they wanted, that begs the question, where art though recovery?

We are told, a la Kevin Costner in 'The Postman' as he quotes the fictitious President Starkey, 'stuff's getting better.' Yet Macy's lays off 2500, 2000 are canned by another leading retailer, TXN dumps 1100 workers, and Friday we learned late that WMT is cutting 2300 from Sam's Club stores, about 2% of the workforce.

I suppose they are doing what they can to hold up the unemployment rate. After all, 1.37M people fell off the rolls as extended benefits expired. That could push the unemployment rate down near 6%; maybe the layoffs will offset it. Hardly. The end result is the same: more people not working.


Tom Petty: I've heard of you. Your famous.
Costner (Postman): Yeah, I'm the Ben Bernanke of post-apocalyptic America, or at least Bernanke thinks he was me. Hey, weren't you famous once?
Tom Petty: That was a long time ago. Kind of like Bernanke.

In 'The Postman' the postman, inadvertently, raised hopes and in the end, despite his desire to just get by, ended up making the difference in a turn in post-apocalyptic society when his conscience would not let him just slip away. Maybe the Fed members are watching the reruns of the movie and fancy themselves as making the difference in the turn from the post-Great Recession aftermath. Yep, stuff's getting better . . .


THE ACTION

The US indices obviously did not fare well. Lower start, selloff into midmorning, obligatory bounce, rollover to lower lows by the close. Heck, even closed on the low. Doesn't get much weaker than that. Currency issues are stock kryptonite.

SP500 -38.27, -2.09%
NASDAQ -90.70, -2.15%
DJ30 -318.23, -1.96%
SP400 -2.51%
RUTX -2.41%
SOX -2.33%

Volume surged: +15% NYSE, +16% NASDAQ. Shares being dumped.

A/D jumped close to extreme levels quickly: -6:1 NASDAQ, -6.4:1 NYSE.

The hammering was across the board though the recent leaders in the growth indices had their clocks cleaned a bit better.



THE MARKET

OTHER MARKETS

Dollar: 1.3676 versus 1.3695 versus 1.3545 versus 1.3562 versus 1.3528 versus 1.3612 versus 1.3605 versus 1.3683 versus 1.3669 versus 1.3665 versus 1.3603 versus 1.3578 versus 1.3616 versus 1.3633 versus 1.3589 versus 1.3666 versus 1.3757 versus 1.3798 versus 1.3749 versus 1.3690 euro.

The dollar went up and now it is heading back down, trading now near where it traded 20 sessions ago. Still, however, trying to put in a big rounded bottom over the past 6 months.

Bonds: 2.73% versus 2.77% versus 2.86% versus 2.83% versus 2.83% versus 2.84% versus 2.88% versus 2.87% versus 2.83% versus 2.86% versus 2.97% versus 2.99% versus 2.94% versus 2.96% versus 3.00% versus 2.99% versus 3.03% versus 2.97% versus 3.01% versus 2.99% versus 2.98% 10 year.

Unlike the dollar, bonds are not heading back to where they were a few weeks back. They are heading up to where they were in late October and likely beyond. Makes no sense for bonds to be surging if the US economy is stronger and the Fed is tapering. BUT . . . there is worry around the world about China, India, South America and likely other exotic ports of call. When their people worry about their future, the rich get their money out and send it to, you got it, US treasuries.

Oil: 96.70, -0.55. Modest dip to test the 50 day EMA broken midweek. Double bottom from November to early January, and oil has bounced from it.

Gold: 1264.50, +1.90. Gold basically held steady, holding the Thursday surge back through the 50 day EMA. A six session test then a blast higher Thursday. Nice inverted head and shoulders set up the past two months with the bottom coincident with the late June 2013 bottom. Worry in the world, gold moves higher.


MARKET STATISTICS

NASDAQ
Stats: -90.7 points (+2.15%) to close at 4128.17
Volume: 2.469B (+16.24%)

Up Volume: 440M (-208.95M)
Down Volume: 2.02B (+520M)

A/D and Hi/Lo: Decliners led 5.96 to 1
Previous Session: Decliners led 2.19 to 1

New Highs: 49 (-68)
New Lows: 36 (+11)

S&P
Stats: -38.17 points (-2.09%) to close at 1790.29
NYSE Volume: 775M (+14.64%)

A/D and Hi/Lo: Decliners led 6.38 to 1
Previous Session: Decliners led 2.03 to 1

New Highs: 44 (-65)
New Lows: 130 (+31)


DJ30
Stats: -318.24 points (-1.96%) to close at 15879.11


THE CHARTS

NASDAQ crashed through the 20 day EMA but held over the early January lows and the mid-December upper gap point. It also held the November 2012 channel upper trendline. It CAN put in a higher low here, but after slamming to that level and closing at the session low it will have to prove it.

RUTX small caps were crushed through the January lows and landed just over the 50 day EMA. Hey, making that trip to the 50 day EMA after all. Question now is whether it drops further to the lower channel line about 16 points lower from the Friday close.

SP400 midcaps crashed the 20 day EMA as well, also breaking the 50 day EMA where it bounced in October and December. Perhaps it can hang in this area and rebound. It is midrange in the channel and it has tested the bottom before as in early September in a one-month selloff from late July 2013. Closed on the low, selling hard.

SOX slammed through the 20 day EMA as well though it remains well above the 50 day EMA and the lower channel line is just points away. Hard drop, looks as if the 50 day EMA makes sense unless the currency issues evaporate. Cannot count on that in a session or two.

SP500 crashed through the 50 day EMA by a large margin. Heading fast toward the November 2012 up trendline now just 15 points hither. SP500 has the look of a rollover. The high the past week could not punch through the late December all time peak and MACD put in a lower high. The trendline is going to have its work cut out for it as the large cap NYSE lagged the last move and is leading the move lower.

DJ30 was the first to the 50 day EMA as of Thursday and Friday it was a freefall. This even with MSFT rising 2% on its earnings. But, the Dow is a price weighted average and a $35 stock pulls no weight against MMM (130), AXP (87), GS (167), V (221), CAT (86), etc. Next very logical support after this dive: 15,740ish (December low) to 15,650ish (July, September highs).


LEADERSHIP

A bit harder to find as some solid stocks broke trends, e.g. SFUN, but of course even SFUN didn't break the 50 day EMA. A continuation of the Thursday action culled more from the leadership category, as CCMP, ZHNE, VVTV, MMM, gave up some big chunks and key support.

Still, in any pullback you look at the stocks that are not giving away the jewels and there are still present. Some are holding their patterns, at near support (10 or 20 day EMA), at the current up trendline, or at the 50 day EMA.

Big names: AAPL is showing resilience at the 50 day EMA. PCLN Faded Friday, but nominally versus other stocks and holding a nice move off the 50 day EMA. NFLX of course enjoyed a strong week on its earnings. TWTR is holding the 20 day EMA in a nice consolidation. LNKD is testing the 200 day SMA but is in a great pattern.

Biotechs/healthcare: XON holds the 10 day EMA on the fade. PACB tapped the 10 day EMA Friday and bounced. STXS is testing the 10 day EMA. GILD and BIIB remain strong. INO is in position to break higher. NPSP is holding the 10 day EMA, oblivious.

Electronics: AEIS broke the 10 day EMA but is still in a nice test of a big move. AFOP is at the 50 day EMA, in great position to bounce. ALTI is testing the 50 day EMA and in excellent position. CAMT was unfazed. LFUS sold to the 50 day EMA then surged back to the 20 day EMA. MONT is holding the 10 day EMA. SCTY filled the gap higher, still in great shape.

Energy: END remains strong. SN is testing modestly, holding the 10 day EMA.

Telecom: Stumbled some as the week wore one. EGHT sold hard but managed to recover some ground. SWIR started higher but was sold to its trendline Friday. Still can make the move.

Internet: TWTR is holding well as noted. YY fell sharply but this gives us an opportunity. WWWW is hanging in at the 20 day EMA, still trying to make the break.




SENTIMENT INDICATORS

VIX: 18.14; +4.37
VXN: 18.84; +3.51
VXO: 16.33; +3.66

Put/Call Ratio (CBOE): 0.92; +0.04


Bulls and Bears:

Bulls bump back up after a week off (57.6 versus 56.10). Off the recent high still but didn't take much to get them revving again. Still at the point of extreme. Hit it, done its job.

Bears faded to 15.1 from 15.3. Basically holding steady the past three weeks after bouncing up from 14.

When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.




Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 57.6 versus 56.1 versus 60.6% versus 61.6% versus 60.0 versus 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: 15.1 versus 15.3% versus 15.2% versus 15.2% versus 14.0 versus 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.


THIS WEEK

With two sharp sessions lower with the recent leading indices heading for deeper tests, there are three courses of action.

First, protect positions. We did that on the move higher by taking some nice gain along the way. Then as stocks sold we used trailing stops moved up under the gains. If good stocks are holding support, patterns, trendlines, we can let them hold. Those that do are in great position to lead the next bounce, and there are stocks doing that right now.

Second, look for those that are holding well, either near support, patterns, or deeper support such as the 50 day EMA or are completing patterns as the market sells and are preparing to debut. Some great movers that we banked some great gain on are testing the move and if they hold up we look to pick them up on the bounces. Winners test and hold their trends/patterns/support, and we have no qualms about putting more money in them when they hold and bounce in a market recovery. Remember, however, leaders step up first, typically before the market. If they hold and show strength, that is good enough.

Third, after the market finishes selling this round, while we want to play the leaders that are still in position or have set up to become leaders (or at least are in a good risk/reward position to make us money), also keep an eye on stocks that rebound but do not repair the selling damage. Those are potential downside plays, and if the market cannot sustain a recovery, then they are prime candidates to play the next leg lower.

Right now we are simply gauging the selling and as noted in the discussion of the index charts, there is more downside room for SP500 and indeed most of the indices though RUTX and SOX could prove to be the early recovery indices.

What could cause a recovery? The currency issues need to die down and the market needs to digest them. What about the FOMC on Wednesday? Expected to taper another $10B/month, Friday the talk was that a Yellen Fed would not want to chance markets spiraling lower. She believes in wealth effect by stocks and does not want to lose that aspect of the 'recovery.' Of course the Fed cannot dictate market gains, though it has done pretty well since March 2009 . . .

Thus the FOMC is the wildcard. It could really help without a taper, it might hurt with a taper, but it also might hurt with no taper. The old 'what does the Fed know we don't?' issue. Of course the answer is 'nothing,' but changes in direction make investors wonder. It is a crapshoot as to the Fed's action. I would say likely another taper, but Yellen is new, a dove, and the market is down damn hard in two sessions.

Either way we play the same way, just have the added spice of the FOMC.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4128.17

Resistance:

Support:
4124 is the upper channel line for the November 2012 to present uptrend.
4104 is the lower gap point from 12/20/13
The 50 day EMA at 4084
4070 is the series of highs from late November/early December
4022 is the November 2012 trendline
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
3855 is the November low
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
The 200 day SMA at 3714
3697 is the August high and a prior post-bear market high in the recovery.


S&P 500: Closed at 1790.29

Resistance:
The 50 day EMA at 1809
1849.44 is the recent all-time high.

Support:
1775.22 is the October prior all-time high
1773 is the December 2012 up trendline
1768 is the December 3013 low
1730 is the September 2013 peak
1710 is the August 2013 peak.
The 200 day SMA at 1701
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
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


Dow: Closed at 15,879.11

Resistance:
The 50 day EMA at 16,133
16,175 is the November 2013 peak.
16,257 is the January 2014 low
16,589 is the December 2013 all-time high

Support:
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
The 200 day SMA at 15,439
15,318 is the June closing high
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

January 27 - Monday
New Home Sales, December (10:00): 457K expected, 464K prior

January 28 - Tuesday
Durable Orders, December (8:30): 2.1% expected, 3.4% prior (revised from 3.5%)
Durable Goods -ex transports, December (8:30): 0.6% expected, 1.2% prior
Case-Shiller 20-city, November (9:00): 13.8% expected, 13.6% prior
Consumer Confidence, January (10:00): 77.5 expected, 78.1 prior

January 29 - Wednesday
MBA Mortgage Index, 01/25 (7:00): 4.7% prior
Crude Inventories, 01/25 (10:30): 0.990M prior
FOMC Rate Decision, January (14:00): 0.25% expected, 0.25% prior

January 30 - Thursday
Initial Claims, 01/25 (8:30): 325K expected, 326K prior
Continuing Claims, 01/18 (8:30): 3000K expected, 3056K prior
GDP-Adv., Q4 (8:30): 3.0% expected, 4.1% prior
Chain Deflator-Adv., Q4 (8:30): 1.2% expected, 2.0% prior
Pending Home Sales, December (10:00): -0.2% expected, 0.2% prior
Natural Gas Inventories, 01/25 (10:30): -107 bcf prior

January 31 - Friday
Personal Income, December (8:30): 0.2% expected, 0.2% prior
Personal Spending, December (8:30): 0.2% expected, 0.5% prior
PCE Prices - Core, December (8:30): 0.1% expected, 0.1% prior
Employment Cost Index, Q4 (8:30): 0.4% expected, 0.4% prior
Chicago PMI, January (9:45): 58.0 expected, 60.8 prior (revised from 59.1)
Michigan Sentiment - Final, January (9:55): 80.4 expected, 80.4 prior

By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Stocks Still Struggling to Hit Their Stride

MARKET SUMMARY

- Stocks cannot carry the bounce to the long weekend, still struggling to really hit their stride.
- Earnings revealing a tale of two groups: those that get the free money and those that do not.
- Can't create jobs that keep people interested in working? 'Fix' the problem by raising the minimum wage. President threatens and EO to do just that.
- Sluggish indices but still in the uptrends.
- Some more stocks trying to join leadership with some new patterns for this market.

Markets struggle to finish with gains before the 3-day weekend.

From the get go Friday stocks were underwater. The economic data was not bad, not great. December Housing Starts fell 9.8% (ouch) while December Industrial Production posted a nice 0.3% advance. Capacity hit 79.2 the best since 5/08. January Michigan Sentiment faded to 80.4 from 82.5, missing expectations. Yen and yang. Maybe more yang.

SP500 -7.19, -0.39%
NASDAQ -21.11, -0.50%
DJ30 41.55, 0.25%
SP400 -0.31%
RUTX -0.40%
SOX -0.54%

Volume: Up 10% NYSE, 28% NASDAQ, but it was expiration so we can throw that out.

It was a day of lethargy ahead of a weekend, but it had a bite. There was some profit taking in recent leaders that pushed them down a bit more than you want to see, negating in many cases a solid Thursday move. Not death moves, and if you missed some entries you could pick some up on this test . . . when they show they can move back up.

All in all a disappointing finish to the week but not a bad week. The indices remain in uptrends and in decent ones at that. The big names are sluggish though DJ30 was driven higher by a small group of high-priced Dow stocks. Good patterns remain in biotechs, electronics (on fire last week), and now some telecom, internet, and even energy. New areas to mine as money continues to rotate around the market.

The key for this coming week: continued bids in the market with money staying in the market. While the indices stalled some the past two weeks other areas, the smaller stocks, prospered. We want to see these new groups continue to reap the money taken from some of the other groups that led the market during this long rally. That is a certain way for the rally to continue, i.e. money moving to 'undervalued' areas and driving them higher as well.


THE NEWS

Do you have your free money? Better get some. Earning season reveals the new theme.

This earnings season is to us the most revealing in many quarters. Sure it is early, the season is young, there are many more releases to dissect and digest, but a rather clear pattern has emerged: those getting the free Fed money are beating on the top line. Those that are not of the privileged class and thus do not receive the free Fed money are not beating on the top line.

Who gets the free cash? Banks and those companies that the federal government, back in the TARP days and the Obama stimulus days, deemed worthy of the money in order to keep, as they believed at the time, civilized society from collapsing and then to payback allies, I mean, jumpstart the economy by giving funds, subsidies, and monopolies to key businesses (key being defined as 'friend of the administration;' ask HAL under Bush, GE along with several now defunct companies under Obama).

Even so, some of the chosen under the stimulus plan are not doing as well now. GE presented results that were, at best if you squinted real hard, in line. Equipment is piling up at GE, backlogged to record levels. That doesn't sound promising.

Financials can beat the top line using free money.

The financials, however, the true free money recipients (because heaven knows they cannot go under so we followed Japan's 1980's and 1990's model of bailing them out. Oh, and how is that Japanese model working for them?), are posting the best results. MS beats on the top and bottom line. GS top and bottom. WFC top and bottom. BAC top and bottom (though much of that was a loan loss release). JPM beat.

Hell, only the worst of the worst banks were unable to turn the free money into top line beats. That would, of course, include C. COF really stunk it up as well. Shocking as it is to believe, even in a group receiving free money there are some entities that are so bad, so poorly managed, that they cannot turn a profit using money they pay nothing for. You have to ask, why bother?

Perverse results of bad polices.

That is why in the current economy you have 42% saying they are worse off than they were last year, up from the prior year's Gallup survey. Companies are struggling (e.g. retail) and they are certainly not hiring in any kinds of numbers with any kinds of quality, bread-winner jobs. Part-time, sub-29 hours per week (even if the ACA mandate was extended), go nowhere jobs in the lowest paying sectors.

Compare that to the financial entities and the salaries and payouts they are making as of the 2013 year end. It is not their fault; the money is being given away and you are breaching your duties to your shareholders if you don't make the most of it.

Washington, we have a problem. The economy is trying to recover DESPITE the policies implemented, but because of the new laws and taxes, the recovery is pathetically tepid and extremely sporadic and targeted. Bizarre outcomes are emerging such as vast amounts spent on technology to avoid hiring personnel. Jobs that require serious hours and expertise are shipped overseas to avoid the issues the ACA and other regulations create.

Thus the plethora of jobs, the vast majority of jobs created as or converted to (that is my new phrase) part-time, low wage jobs.

Thus workforce participation falling to record lows as frustrated workers leave seeking low-paying, go nowhere jobs.

Those who still can receive unemployment benefits make the economic decision, consciously or subconsciously, to continue doing so while working for under the table cash jobs because they make as much or more and don't have the aggravation of a low pay, dead end job.

Thus 91.8M people out of the workforce. Adding in the unemployed still fighting for a job, you have about 105M able bodied, working age people out of a total population of 317M without employment, unable to contribute or, because of the perverse incentives due to benefits programs, unwilling to contribute, to society.

Thus you have able bodied citizens receiving food stamps jumping from 1.7M in 2007 to 3.9M (130% increase) in 2010 . . . DURING A 'RECOVERY!' Oh my gosh. Don't show me another recession, please.

Thus you have total food stamp usage surging from 26M to 40M. That is what you get when you removed, as the Obama administration did, any requirement of seeking employment to receiving food stamps. Recall, now you can look at the want ads and qualify. You can attend a parent-teacher conference and qualify. You can be ordered to bed rest and you qualify.

Intervention and bad polices lead to bizarre results. We are living that right now in this jobs market.

The DC solution: raise wages.

Friday the President threatened to pen an Executive Order raising the minimum wage for federal workers if Congress did not act. Sorry, that is the VERY REASON we have three branches of government. One CANNOT usurp powers granted to the other branches. We live in a representative republic, not a monarchy.

Besides that minor detail, however, there are other, economic problems with this type of action.

The majority of the jobs created in this economy, as noted above, are low pay, part-time jobs in the service industry. The policies in place for the past five years have failed to produce the usual higher quality, breadwinner jobs that give rise to upside social mobility. As noted, that is why they are leaving the workforce.

The President said and his Labor Secretary on the day of the last jobs report release said getting participation levels up was key in order for a jobs recovery. The solution proposed is to increase the minimum wage. Not create jobs that have progression to higher pay, but to raise the minimum wage so a father in a family of four can work there forever and manage a subsistence standard of living. Why? Because they have failed horribly at creating breadwinner jobs.

In other words, the program to raise the minimum wage is an admission that in the US, the mightiest economy in the world (and some would argue that point) the only jobs the US can create for people are minimum wage jobs. This so a father of four can work out his life at McDonald's to support his family. That is NOT the American Dream, and that is NOT the solution.


THE MARKET

OTHER MARKETS

Dollar: 1.3528 versus 1.3612 versus 1.3605 versus 1.3683 versus 1.3669 versus 1.3665 versus 1.3603 versus 1.3578 versus 1.3616 versus 1.3633 versus 1.3589 versus 1.3666 versus 1.3757 versus 1.3798 versus 1.3749 versus 1.3690 euro.

Breaking to a new high on this latest move off the pullback. The dollar continues to improve, as it should if the economic data is really good.

Bonds: 2.83% versus 2.84% versus 2.88% versus 2.87% versus 2.83% versus 2.86% versus 2.97% versus 2.99% versus 2.94% versus 2.96% versus 3.00% versus 2.99% versus 3.03% versus 2.97% versus 3.01% versus 2.99% versus 2.98% 10 year.

Still moving higher, breaking to a new rally high off of the last test. Bonds and dollars are rising together. Somewhat incongruent as bond gains suggest worry about the future.

Oil: 94.33, +0.37. Flat after an early week bounce off of November support. Hitting some resistance already in its oversold bounce.

Gold: 1251.80, +10.70. Breaking back up through the 50 day EMA after a short test of the last move. Looks pretty solid here. Not sure how far it can go, but for some reason gold and bonds are stronger even as the Fed tapers and says the economy is stronger.


MARKET STATISTICS

NASDAQ
Stats: -21.11 points (+0.5%) to close at 4197.58
Volume: 2.185B (+10.58%)

Up Volume: 817.1M (-43.55M)
Down Volume: 1.35B (+280M)

A/D and Hi/Lo: Decliners led 1.39 to 1
Previous Session: Advancers led 1.01 to 1

New Highs: 178 (-28)
New Lows: 17 (+1)

S&P
Stats: -7.19 points (-0.39%) to close at 1838.7
NYSE Volume: 752M (+28.11%)

A/D and Hi/Lo: Decliners led 1.45 to 1
Previous Session: Advancers led 1.36 to 1

New Highs: 185 (-21)
New Lows: 78 (-3)


DJ30
Stats: +41.55 points (+0.25%) to close at 16458.56


CHARTS

After bumping to new highs midweek stocks faded Thursday and Friday but the indices did no harm to themselves. A volatile start to the week, bids came back, stocks rallied nicely through Wednesday, then more hesitation.

SP400: still at the upper channel line, trying to hold the move and avoid a fade to the 50 day EMA that is now mid-channel in the uptrend.

SOX: rallied the next trendline Wednesday then faded Thursday and Friday, showing a doji at the 10 day EMA Friday. Still very solid though it may want to test back toward the 20 day EMA at 531 as it did the last time it tested the trendline in late December.

NASDAQ: New post-bear market high Wednesday and Thursday then a modest Friday faded, easily holding over the 10 day EMA. Tuesday was a big move and Wednesday gapped upside. Looks solid, but some of the big names continue to struggle and thus the advance while fairly steady (with some really volatile days early in the week) is slow.

DJ30: never made it back to the December peak then settled back to test the 10 day EMA. Trending higher still, but not too enthralled with the pattern.

SP500: Cracked to a fractional new high then faded to the 10 day EMA to close the week. Still trending, but hit the prior high and faded. Will need to break it to keep the move going.


LEADERSHIP

Some of the stocks in biotechs and electronics took a break Friday, but strong weeks for most all.

Electronics: MONT still surging. SCTY enjoyed a strong week. CAMT. AEIS. Solid weeks, some testing Friday.

Biotechs, Medical: XON still moving higher. DSCO started upside on the week. STXS jumped. TKMR, GALE, GILD. Good weeks.

Energy improving: END, SN. Potential: EGN, PXD, KOG

Internets, internet related: QIHU, VIPS, TWTR.

Money is moving to these areas still.


SENTIMENT INDICATORS

VIX: 12.44; -0.09
VXN: 14.2; +0.09
VXO: 11.24; -0.66

Put/Call Ratio (CBOE): 0.71; -0.07

Bulls and Bears:

Bulls back off further, this time dropping over 4 points to 56.1. Bears climbed all off 0.1%.

Hit extremes, now fading some. Still at high and low levels.

When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.




Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 56.1 versus 60.6% versus 61.6% versus 60.0 versus 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: 15.3% versus 15.2% versus 15.2% versus 14.0 versus 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.


TUESDAY (Market closed Monday)

Earnings dominate the news with the floodgates opening. Thus far disappointing outside of some financials, but we discussed that already now didn't we.

The indices hit new highs midweek and now the question is whether they can ride higher with the new crop of earnings

Rotation will continue to play a big role. That has pushed many stocks higher in great moves, making us excellent money to start the year. Now with earnings ramping up we are still looking for those type of plays but have to factor in earnings. Most that we are looking at have earnings in February and March, but some have relatively short fuses. On those we primarily look to play a good pattern that breaks higher and runs to earnings, then bank most if not all of the move ahead of the results. If there is no movement, the same plan likely applies outside of special situations that we will call note to.

Stay up on the earning dates, be ready to take gain ahead of results or at least have a plan of action you will follow. Earnings add that wildcard into the mix. They just require you to be more on your toes, right?


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4197.58

Resistance:

Support:
The 20 day EMA at 4147
4104 is the lower gap point from 12/20/13
4098 is the upper channel line for the November 2012 to present uptrend.
4070 is the series of highs from late November/early December
The 50 day EMA at 4064
3998 is the November 2012 trendline
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
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 200 day SMA at 3694


S&P 500: Closed at 1838.70

Resistance:
1849.44 is the recent all-time high.

Support:
The 50 day EMA at 1805
1775.22 is the October prior all-time high
1765 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
The 200 day SMA at 1696
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
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


Dow: Closed at 16,458.56

Resistance:
16,589 is the December 2013 all-time high

Support:
16,175 is the November 2013 peak.
The 50 day EMA at 16,120
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
The 200 day SMA at 15,408
15,318 is the June closing high
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

January 17 - Friday
Housing Starts, December (8:30): 999K actual versus 986K expected, 1107K prior (revised from 1091K)
Building Permits, December (8:30): 986K actual versus 1000K expected, 1017K prior (revised from 1007K)
Industrial Production, December (9:15): 0.3% actual versus 0.3% expected, 1.0% prior (revised from 1.1%)
Capacity Utilization, December (9:15): 79.2% actual versus 79.1% expected, 79.1% prior (revised from 79.0%)
Michigan Sentiment, January (9:55): 80.4 actual versus 83.0 expected, 82.5 prior
JOLTS - Job Openings, November (10:00): 4.001M actual versus 3.931M prior (revised from 3.925M)


January 22 - Wednesday
MBA Mortgage Index, 01/18 (7:00): 11.9% prior

January 23 - Thursday
Continuing Claims, 01/11 (8:30): 3030K prior
Initial Claims, 01/18 (8:30): 327K expected, 326K prior
Continuing Claims, 01/11 (8:30): 2900K expected, 3030K prior
FHFA Housing Price I, November (9:00): 0.5% prior
Existing Home Sales, December (10:00): 4.90M expected, 4.90M prior
Leading Indicators, December (10:00): 0.2% expected, 0.8% prior
Natural Gas Inventor, 01/18 (10:30): -287 bcf prior
Crude Inventories, 01/18 (11:00): -7.658M prior

By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Jobs Hit a Clinker

MARKET SUMMARY

- Jobs hit a clinker, knock stocks back a bit, but they recover . . . to basically the same position.
- Record numbers not working, half of jobs are temporary, 2013 produced fewer jobs than 2012. Labor Secretary's response: 'imperative to pass' unemployment extension.
- Leaders (the new ones, not the name brands), are performing very well. There IS a January Effect, Virginia.
- Midcaps trying to lead a break higher from the new year indecision.

To ignore or not to ignore? Jobs are the question.


Richard Burton as the melancholy Dane. Mark Zandi as the melancholy Dem.

200K? 225K? More? All we have heard is how the economy is humming along. Then the weather turned, and in December, apparently the jobs market turned as well, relapsing into old, well maybe not so old, habits.


The weather was immediately blamed by the BLS and anyone on the left side of the voting ballot, as many full time workers were forced into part-time status due to inability to get to work. That almost sounds plausible until you apply logic: because of weather companies decided not to hire someone full time but just part-time. This is not hours worked by employees, these are hires. You seriously decide to hire someone part-time versus full-time because of a storm? Seriously? When you look at the construction sector, a sector that truly would be impacted by the weather, you see a 16K decline, seasonally adjusted. Unadjusted, however, the loss was so huge (-216K) that you wonder if something else is at work. Let's be generous (and somewhat hopeful) and say it was the weather. Sure, it was the weather.

Weather or not, the headlines are still bad. So bad that Marc Zandi, the Administration's economic apologist in chief, said to ignore the month because it was so out of step with an economy that, in his words (and he repeated them several times), has turned the corner. Could it be that it was also massively out of step with ADP's jobs survey, the one he helped revamp so it would track the BLS data more closely? Hmmm. But then again, with the BLS known to make up data ahead of important events, say the 2012 elections when it pushed the unemployment rate lower because it wanted to, does the BLS report have any credibility left? Okay, I will say it: no, it does not. But it certainly is interesting in its details.

Even with the headlines blaring anemic job creation, the details are worse.

The 74K jobs created was the smallest in 3 years.

The 6.7% unemployment rate understates the real rate by 380 basis (11.5%) points when you compare apples to apples using simply the average participation rate.

Participation rate: 62.8% versus 63.0%. The lowest since 2/1978.

Jobs Quality: 55% (40K) were part-time, 34K full-time. Temporary, retail, and wholesale trade jobs totaled 111K. Do the math. All other sectors sported a net loss of 35K jobs.

Out of workforce: A record 91.8M working age people out of the workforce. 317M people of all ages in the US. Wow.

In 2013 the household survey (unemployment rate) ran roughly one-half of the non-farm jobs report. They have not converged by they typically do converge, confirming one another. That did not happen in 2013, raising questions concerning the veracity of the data.

2013 saw fewer jobs created than 2012.
Non-Farm: 2.193M in 2012 versus 2.186M in 2013
Household Survey: 2.376M in 2012 versus 1.374M in 2013


December versus the year 2013.

You can argue that December should be ignored, an outrider that does not reflect the 'true' economy and a recovery in progress. There are valid reasons for that such as . . . the weather. Even so, if you take the expected reading for number of jobs in December (197K), 2013 produced at best the same number of non-farm jobs as in 2012.

The Fix?

That does not have the feel of an economy on the upswing. Indeed, the Secretary of Labor hit the financial stations midmorning discussing the jobs report issues. Of course he said the outlook was good, the trend was positive . . . throwing out December of course.


Lenin: Communist revolutionary Perez: Appropriately the 'Labor' Secretary
I had to do a double take the first time I saw Secretary Perez. Hard to tell the difference at times in looks and in labor ideas.

As for what needs to be done? 'Get participation up' Perez cited as a key to a jobs recovery. 'That is why,' he said, it is 'so important to pass the [unemployment benefits] extension.'

Really now. Nothing against those who are struggling to find work, but the argument the Administration is now making that paying extended unemployment benefits does not retard employment recovery flies in the face of every study on the subject. The blanket statements the President and the Labor Secretary are making about everyone on unemployment wanting a job right now is also inaccurate. I have personally witnessed people losing a job and not actively seeking employment until benefits were set to run out. These were not high school dropouts but people with bachelor's degrees. It is a mindset that transcends socioeconomic strata.

Back to Perez' statement. How do you get participation rates up, i.e. more people returning to the workforce, by extending benefits for not working? Most certainly many of those people are seeking work and would do whatever it takes to get work, but if you truly want a job and are looking for work, in the final analysis, having unemployment payments or not won't be the deciding factor. It WILL BE THE DECIDING FACTOR for those who could get a job but won't because they can take unemployment, work some odd jobs here and there for cash, and come out just about as good as if they were busting their butt at one of the many service jobs the Administration's policies have 'created or saved' over the past 5 years.

Unfortunately, that is the situation many, many of the 14M unemployed find themselves in. Where is the incentive to actively seek a part-time job (29 hours or less to avoid the ACA) in the service sector that has no upward mobility potential versus collecting some unemployment and working at some cash-basis jobs here and there and coming out with as much disposable income without the aggravation of that menial job? It is a rational economic decision, and as long as we are making that one of the choices it will be taken by many.


The Bobs: 'Looks like you've been missing a lot of work lately.'
Peter: 'Well, I wouldn't exactly say I've been "missing" it, Bob.'
--From 'Office Space'
Maybe here is the solution?


Got to love 'The Far Side.' We NEED some ingenuity.


Jobs are a lagging indicator, so it could be that the turn higher in Q3 and Q4 will show up in employment in Q1 and Q2 2014. That remains to be seen, and hopefully December will simply be an outlier month that truly can be disregarded in a string of gains versus yet another beginning to the end of a false hope bounce.


"Hope is a good thing, maybe the best of things, and no good thing ever dies.'
May we all end up on a beach with white sand and blue water if that is what we want. Wow, talk about hope.

THE ACTION

Futures were sharply higher as the indices looked ready to breakout from the weeklong lateral move. Tuesday the indices jumped higher after a three day test and it looked as if stocks overall were ready to continue the rally. They did move higher, but it was stumbling, not really hitting stride. Some stocks were setting up and breaking higher quite nicely. Others that led the move higher were not performing that well, e.g. AAPL, PCLN, NFLX. Friday early it looked as if that might change.

Then the jobs report hit and futures took a hit. They gave up the gains but managed to recover ahead of the market open. When the bell sounded stocks jumped, then flipped. At least on the large indices. The sold into lunch, but then staged an afternoon recovery to session highs on all but DJ30 and SOX.

Solid recovery in the face of the weaker jobs report and the notion that the Fed under Yellen will, at least for awhile (read another jobs report or two), stick with taper regardless of what happens. It left the indices positive but for DJ30.

SP500 4.24, 0.23%
NASDAQ 18.47, 0.44%
DJ30 -7.71, -0.05%
SP400 0.68%
RUTX 0.53%
SOX 0.42%

Volume: Faded 3% to 4% on the gain so it was not an accumulation day. Given the big indices are still more or less working laterally, lower volume is better. Lower is, of course, relative. NASDAQ trade is still well above average so it was hardly a low volume session. NYSE trade faded but it too was still average. Not a weak volume session nor a weak volume week. Some churn, i.e. high volume turnover? Yes, in the big names. There was also volume, upside volume, in the smaller names that led the move. Money is rotating and rotating smaller THERE is the January effect.

SP400 midcaps managed to break to a higher high, punching through the upper channel line in the long uptrend from November 2012. Breakout from the channel, new high. Not bad. The big cap indices didn't make a breakout, however, not even close. They are still trending higher, but more in lateral moves after the test. Not in bad in shape, just having a hard time hitting on all cylinders again.

It is the big names, the brand name stocks that everyone knows, that are mostly holding the large cap indices back. The smaller cap indices and a gang of less than well known stocks are leading the move right now. Strong, strong moves from biotechs, healthcare, techs, electronics and other stocks are leading the upside. We experienced 5%, 10%, 15% and 20+% moves in single sessions last week on many positions. Incredible.

A stealth, unseen rally beneath the big names that everyone talks about. We fortunately saw many of them setting up at the end of the prior week and on the weekend, got into them, and reaped the reward. Other stocks we had already entered surged on the week as well. To be sure some struggled as money left some sectors, but they were the minority position for us. Not bad. January Effect.


THE MARKET

OTHER MARKETS

Dollar: 1.3665 versus 1.3603 versus 1.3578 versus 1.3616 versus 1.3633 versus 1.3589 versus 1.3666 versus 1.3757 versus 1.3798 versus 1.3749 versus 1.3690 euro.

Faded further off the rally up off the double bottom at interim support. Jobs issues. Still holding the 50 day EMA and likely bounces from there. The taper is still on, right?


Bonds: 2.86% versus 2.97% versus 2.99% versus 2.94% versus 2.96% versus 3.00% versus 2.99% versus 3.03% versus 2.97% versus 3.01% versus 2.99% versus 2.98% 10 year.

Holy crap. Bonds are supposed to be falling and yields rising. After tapping 3.05% almost two weeks back bonds have done nothing but sell in this strong economy. It is a market axiom that bonds are the 'smart money,' and I suppose that applies even in a highly, highly manipulated market such as the one the Fed has its fingers and toes in right now. Despite better PMI numbers (that ECRI says are actually negatively correlated the past two years) and the GDP reports (buoyed by a massive inventory build), bonds rallied, something that occurs as protection, a safe harbor, when economic times are anticipated to worsen. Bonds are up 5 of 7 sessions, reversing sharply after what was apparently a false break to end the year. Gapped upside Friday, through the 50 day EMA and the December peak. Wow.


Oil: 92.72, +1.06. Starting to recover after falling for two weeks same as bonds. Doji Thursday at support, bounce Friday. Not much, maybe just a relief move, but it held the prior low in November and bounced. Potential double bottom.

Gold: 1246.90, +16.30. Broke back through resistance Monday as it continued the bounce, tested Tuesday to Thursday, surged upside Friday. At the 50 day EMA, but that is noteworthy given the 20 day EMA has bashed gold each time it has tested it the past few months.


MARKET STATISTICS

NASDAQ
Stats: +18.47 points (+0.44%) to close at 4174.66
Volume: 2.126B (-3.1%)

Up Volume: 1.24B (+230M)
Down Volume: 883.26M (-296.74M)

A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Decliners led 1.06 to 1

New Highs: 182 (-34)
New Lows: 16 (-4)

S&P
Stats: +4.24 points (+0.23%) to close at 1842.37
NYSE Volume: 603M (-3.98%)

A/D and Hi/Lo: Advancers led 2.5 to 1
Previous Session: Advancers led 1.1 to 1

New Highs: 213 (0)
New Lows: 74 (-12)


DJ30
Stats: -7.71 points (-0.05%) to close at 16437.05


CHARTS

SP400: Breaking to a new high and clearing the upper channel line. It did this in late December and faded. Still not a done deal, but it is trying to avoid a trip down to the 50 day EMA again.

RUTX: Small caps are still edging higher over the 10 day EMA, pushing against the upper channel line. SP400 has managed to avoid, for now, a test back to the 50 day EMA, instead breaking higher. Can RUTX do the same?

NASDAQ: Bumping the late December high hit post bear market. Holding over the 10 day EMA Tuesday to Friday. Very strong volume all week as it tests that prior high. Churning, higher volume turnover, at that prior high. That indicates selling out of NASDAQ stocks, i.e. sellers selling as fast as buyers are buying (thus no new advance), and looking at some of the big names we are all familiar with, they are showing the same action. That opens the door for some more weakness as money leaves some of these stocks. Opens the door; doesn't guarantee it. There is money moving around. It has not left as the index is still holding up. After a pause we will see if the big names get new money.

DJ30: Struggled the most on the week, but the best pattern of the large cap indices as it puts in a very orderly flag over the 10 day EMA with a pair of doji to end the week. Very much in position to break higher.

SOX: Solid week, gapping upside Wednesday, moving off the 20 day EMA and through the 20 day EMA. Touched the last December high and stalled, but electronics look very solid to continue the move. If they do, they can drag NASDAQ with them.


LEADERSHIP

Big Names: Struggled on the week. AAPL broke the 50 day EMA. PCLN tried to bounce from the 50 day EMA but faded back to it. NFLX broke the 50 day and sold. AMZN, GOOG faded to the weekend but are still holding up quite nicely.

Tech: Pretty solid week in many areas. VMW shot higher early. AKAM jumped. SNDK came to life. WDC and STX tested to end the week but are still very solid. MONT surged. YGE surged.

Biotechs, healthcare. Quite the week as many smaller stocks took off. OXBT, STXS, IPCI, PINC, CGIX, NSPS, FONR, GALE, TKMR. Big names as well, e.g. BIIB.

Lawyers, guns, and money. Okay, maybe just guns and ammo. ATK up 8.5% Friday. SWHC surged on the week. RGR rallied to a new high.

Telecom: EGHT enjoyed a nice week. ZHNE surged early.

Internet: Still solid. SFUN surged. OPEN is in great position to surge. TWTR is setting up an ABCD pattern. Just when everyone was ready to bail. That is how this pattern works.

Retail: And of course, retail is still in trouble. FIVE gapped below the 200 day SMA and the December lateral consolidation. BBBY imploded. LB gapped to a big gain for us. SHLD, ZUMZ. TIF reported solid sales, but Friday it gapped higher and reversed lower with a downside engulfing pattern. Not all is carnage, but there are some massive breakdowns.


SENTIMENT INDICATORS

VIX: 12.14; -0.75
VXN: 14.09; -1.01
VXO: 11.06; -0.87

Put/Call Ratio (CBOE): 0.76; +0.04


Bulls and Bears:

Bulls back off a point to 60.6%, bears hold steady at 15.2%.

Still at extremes even with a modest dip in bulls.

When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.




Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 60.6% versus 61.6% versus 60.0 versus 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: 15.2% versus 15.2% versus 14.0 versus 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.


MONDAY

Earnings. Rehashing FOMC minutes. Earnings. Fed opening door to further easing using ACA as a very real scapegoat. December retail sales. Regional PMI's. Further pondering the jobs report. Earnings.

The events of the week.

Stocks are clear of the FOMC minutes regarding the taper as well as December jobs. But they are not really clear. The FOMC raised the 'valuation' card, worried that smaller cap stocks are becoming stretched in value. Maybe they are not wrong; smaller businesses have not seen the rise in business as the huge multinationals yet the small and midcap indices are hitting new highs. Yes, but valuations always lead actual gains. Of course we are all still waiting for those actual gains to show up in this economy . . .

Jobs? Massively disappointing, but there is the hope it was all the weather. Yes and Philadelphia really won last week and Tony Romo of the Cowboys is a clutch playoffs QB (oh yeah, you have to GET to the playoffs to show that).

Earnings. Thus far a lot of warnings. Thus far either surprising beats or ugly misses. There could be a lot more of that to come.

Then there is the rally itself. What is to keep it going now that the holidays are over and a good holiday rally is in the books? The Fed is tapering, so it has to be up to gold old fashioned anticipation of better economic times, and thus better earnings, ahead.

I am not holding my breath on any of that. As for the patterns, the indices are still trending higher but stumbled along last week after a nice easy first of year test. Volume elevated as they bump along recent highs, showing some churn as stocks run in place on that higher trade. Not very promising there either; not fait accompli, but there are some negative tendencies in that.

What I am looking at most closely is the rise of the smaller caps. Despite the Fed misgivings, a lot of smaller stocks have come onto the scene the past couple of weeks. We picked up on this earlier, then really caught it the past week. Money is rotating to new areas. Not leaving the market as some of the big names turn sluggish and even falter, but finding smaller stocks. As noted, this is the January effect and it was not, at least on any station that we searched, mentioned last week. It is, as noted above, a stealth January effect move.

Thus we will keep looking at those areas for more opportunity as money moves in. Earnings are a concern as is expiration. We have a few January option positions and will be taking gain on those, but if they are moving higher we will take it as late as possible.

With earnings, stocks overall have moved nicely higher. Runs into earnings are not the best time to enter or to ride through. Thus we will look at banking gain ahead of results for positions still near the tops of their runs. Just makes sense to book some gain, particularly on option plays. It also makes sense if they are up but are showing that heavy action that some of the big names displayed last week.

This week continue to watch the big names and whether they continue the sloppy action. Of course watch the smaller names that are moving well to see if more will crop up as money works its way into other areas. If money wants to head their way then we want to take advantage of that once again.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4174.66

Resistance:

Support:
The 20 day EMA at 4120
4104 is the lower gap point from 12/20/13
4082 is the upper channel line for the November 2012 to present uptrend.
4070 is the series of highs from late November/early December
The 50 day EMA at 4036
3991 is the prior November 2013 high and the post-bear market high.
3971 is the November 2012 trendline
3967 is the October 2013 post-bear market high.
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 200 day SMA at 3670


S&P 500: Closed at 1842.37

Resistance:
1849.44 is the recent all-time high.

Support:
The 20 day EMA at 1825
The 50 day EMA at 1798
1775.22 is the October prior all-time high
1756 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
The 200 day SMA at 1689
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
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


Dow: Closed at 16,436.81

Resistance:

Support:
The 10 day EMA at 16,429
16,175 is the November all-time high.
The 50 day EMA at 16,057
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
The 200 day SMA at 15,362
15,318 is the June closing high
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

January 10 - Friday
Nonfarm Payrolls, December (8:30): 74K actual versus 197K expected, 241K prior (revised from 203K)
Nonfarm Private Payr, December (8:30): 87K actual versus 198K expected, 226K prior (revised from 196K)
Unemployment Rate, December (8:30): 6.7% actual versus 7.0% expected, 7.0% prior
Hourly Earnings, December (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Average Workweek, December (8:30): 34.4 actual versus 34.5 expected, 34.5 prior

January 13 - Monday
Treasury Budget, December (14:00): +$44.0B expected, -$1.2B prior

January 14 - Tuesday
Retail Sales, December (8:30): 0.0% expected, 0.7% prior
Retail Sales ex-auto, December (8:30): 0.4% expected, 0.4% prior
Export Prices ex-ag., December (8:30): 0.1% prior
Import Prices ex-oil, December (8:30): 0.0% prior
Business Inventories, November (10:00): 0.3% expected, 0.7% prior

January 15 - Wednesday
MBA Mortgage Index, 01/11 (7:00): 2.6% prior
PPI, December (8:30): 0.3% expected, -0.1% prior
Core PPI, December (8:30): 0.1% expected, 0.1% prior
Empire Manufacturing, January (8:30): 3.5 expected, 1.0 prior
Crude Inventories, 01/11 (10:30): -2.675M prior

January 16 - Thursday
Initial Claims, 01/11 (8:30): 333K expected, 330K prior
Continuing Claims, 01/04 (8:30): 2835K expected, 2865K prior
CPI, December (8:30): 0.3% expected, 0.0% prior
Core CPI, December (8:30): 0.2% expected, 0.2% prior
Net Long-Term TIC Fl, November (9:00): $35.4B prior
Philadelphia Fed, January (10:00): 8.0 expected, 6.4 prior (revised from 7.0)
NAHB Housing Market , January (10:00): 57 expected, 58 prior
Natural Gas Inventor, 01/11 (10:30): -157 bcf prior

January 17 - Friday
Housing Starts, December (8:30): 986K expected, 1091K prior
Building Permits, December (8:30): 1000K expected, 1007K prior
Industrial Production, December (9:15): 0.3% expected, 1.1% prior
Capacity Utilization, December (9:15): 79.1% expected, 79.0% prior
Michigan Sentiment, January (9:55): 83.0 expected, 82.5 prior
JOLTS - Job Openings, November (10:00): 3.925M prior

By: Jon Johnson, Editor
Copyright 2014 | All Rights Reserved

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com

Bernanke Midday Rally Fizzles

MARKET SUMMARY

- Friday deep freeze for the country and market doesn't provide much guidance, but some themes start to emerge.
- Bernanke midday rally fizzles as Bernanke doesn't care to give a farewell rally speech.
- Some reallocation as dollar rises but so does gold and gold stocks.
- Bullish advisors surge as bullish individual investors fade.
- Perhaps a new crop of leaders is emerging.

Whether Friday would reveal anything further about the new year trends was problematic at best. The weather took away pretty much any chance for the session to reveal anything significant as virtually no one showed up for work.

Still, there were some themes for the first week of 2014.

Leadership is still muddled though holding up. Many of the big names that took the large cap indices higher are still questionable; hanging in for the most part, but unable to advance. AAPL was in fact down sharply, receiving a downgrade Thursday and then selling harder Friday.

While some of the big names find it hard to make headway even if they are not selling off, many stocks are setting up very nicely from many different sectors. That is quite encouraging. We have many plays on the report that are in excellent position to move higher. Current plays and new plays. That is very good to see. Money may be shifting around, and if it rotates and keeps coming into the market, that works as we will follow the money.

Consumer products/staples didn't perform that well. That is a relief. We did not want to see that defensive sector start showing strength.

Transports elevated, led Friday by the airlines. Shipping surged the prior two weeks, and though it took a breather last week that sector still looks very solid.

Precious metals started upside. That does not seem to make a lot of sense given the stronger dollar on the week as well as the FOMC taper, and even Bernanke didn't have much to offer stocks Friday in his farewell tour speech. Still, gold is trying to rally, and we see gold stocks breaking some pretty serious downtrends. That may not make a lot of sense economically if the economy is as rosy as many yearend prognosticators suggest, particularly given the Fed taper is here to stay, but it does make some market sense: money being reallocated to beaten down areas, areas that have a lot of room to grow, to start a new year.

That raises an interesting point as to why we do not pay attention to forecasts other than for insight as to what the crowd thinks and for some comic relief. Sure some will be correct in their guesses, but no one got the size of the stock market rise in 2013 correct. It went a LOT farther than anyone predicted. There were those saying it would go down, those that it would go up. Those that got the direction right, great. But who do you follow? Whose prediction do you listen to out of the multitude?

That is why we don't take to heart or heed predictions. Half don't get the direction correct, virtually none get the magnitude of the move correct, and how do you follow blanket suggestions anyway?

No, let the market tell you where the money is going and how LONG it is going to move. Again, no one thought the market would move as far as it did in 2013. Just as we typically always let a part of a play run after taking initial profits simple because we don't know when the move will ultimately stall, prognosticators don't know how long a run, up or down, will last.

As always, look for where the money is going. It shows up in patterns, volume, trend breaks, gaps, rounded bottoms, rounded tops, etc. Use those to give you an edge in getting ready for a move. Then watch for the move to take place and join in. Take profits at logical targets, then let a good portion of the position continue to run. Some like taking half at first then half again, etc. Others take one-third first then another third or a half after that. It depends upon your risk tolerance and your portfolio.

Whether a third or a half, however, taking initial partial profits at a logical point frees up your trading, allowing you to let a position truly run to its potential. It gets you past that mind block of taking all your gain after an initial move then being too afraid to move back in at a higher price. Heck, it even HELPS you move in at a higher price because you still have a winner you are confident in and feel positive about adding to it at the right times.

No, Friday did not answer all questions or even many about 2014. It does show some very interesting promise and we have some of that promise in current positions, plays we are already looking at, and some new plays for this coming week. None of these observations are set in stone. Just two days of light volume trade hardly sets up the rest of the year. It is interesting to note, however, the old saying that 'so goes the first three days of January, so goes the month and year.' That puts some pressure on Monday no doubt given the first two days of 2014 were not that solid.

Friday saw a mixed market on the close. Indeed stocks were mixed all session. Interestingly, Bernanke spoke and managed to rally stocks from their lows, apparently on the hope of a 'bouquet toss' as Art Cashin put it. There was no bouquet. When it was apparent Bernanke was truly lame duck and had nothing to offer, stocks rolled back over to near session lows at the close. The magic appeared to be there, but was not.

SP500 -0.61, -0.03%
NASDAQ -11.16, -0.27%
DJ30 28.64, 0.17%
SP400 0.42%
RUTX 0.47%
SOX -0.20%

Volume was low Thursday the day after New Year's, and it was even lower Friday gratis the storm. Baby it's cold out there.


THE MARKET

OTHER MARKETS

Dollar: 1.3589 versus 1.3666 versus 1.3757 versus 1.3798 versus 1.3749 versus 1.3690 euro. Continued its surge off the recent December higher lows. Not a huge move, still at the low end of the range, but showing more strength as it is now at a key level of 81 on the dollar index. Lots of lows and highs at that level. Should be instructive next week how it handles that.

Bonds: 3.00% versus 2.99% versus 3.03% versus 2.97% versus 3.01% versus 2.99% versus 2.98% 10 year. Still bouncing up and down in this slightly lower new range. It won't give it up, refusing to crater after making the initial break.

Oil: 93.96, -1.48. Continued the pounding after Thursday showed the worst single day drubbing in three years. Again, will gasoline prices follow it lower? They shot up with just a modest rise in petrol. Let's see the opposite effect and give the consumer some relief. A new low on this selling, undercutting the mid-December low. Just about back to the November range.

Gold: 1238.40, +13.40. Quite the week, bouncing off a short double bottom that is part of a larger double bottom. Broke some prior support it fell through AND cleared the 20 day EMA, something it struggled to do the past two months. Interesting. Reallocation trade? Perhaps. Many gold stocks are trying to and some are making the reversal break.


MARKET STATISTICS

NASDAQ
Stats: -11.16 points (+0.27%) to close at 4131.91
Volume: 1.651B (-4.4%)

Up Volume: 893.48M (+174.04M)
Down Volume: 734.99M (-261.34M)

A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Decliners led 1.79 to 1

New Highs: 128 (+20)
New Lows: 7 (-4)

S&P
Stats: -0.61 points (-0.03%) to close at 1831.37
NYSE Volume: 482M (-11.23%)

A/D and Hi/Lo: Advancers led 1.79 to 1
Previous Session: Decliners led 1.98 to 1

New Highs: 103 (+12)
New Lows: 78 (-7)


DJ30
Stats: +28.64 points (+0.17%) to close at 16469.99


THE CHARTS

Sold a bit more, but all held the 10 day EMA on the close. SOX was the most problematical, but it also shows a nice tight doji at the 10 day EMA after undercutting it intraday.

Let's see, over two weeks of gains into year end, and a pullback to the 10 day EMA to start the year. That is not bad action, even if Thursday's loss was more than you want to see. Friday held things in check better. Still really too early in the year to say much of anything regarding serious trends though the first two days have of course not matched the monster days of 2013 and prior years.


LEADERSHIP

Big names: Still sluggish with AAPL downright weaker. GOOG sagged just through the 10 day EMA but is still solid. NFLX is still below the 20 day EMA, falling under it last week. PCLN is similar to AAPL, that is, already at the 50 day EMA. Not helping.

The new crop: NPSP, BONT, ACAD, ELOS, GALE, MONT, SWI, BEE, VISN and more either moved up or set up for new moves. TSLA, SFUN, IPCI, FSLR, Z and others look ready to make new moves.

As you can see, there is a new crop of stocks having money pushed their way. Love to see that: rotation, it's not just good for your tires.


SENTIMENT INDICATORS

VIX: 13.76; -0.47
VXN: 15.85; -0.03
VXO: 12.4; -0.19

Put/Call Ratio (CBOE): 0.9; +0.08

Bulls and Bears:


Bulls and Bears continued to diverge this week: Bulls 61.6%, bears 15.2%.

Extreme levels become even more extreme as advisors turn more bullish. Just listening to the yearend predictions on the financial stations last week would leave you with no doubt bullishness is rampant. I found myself arguing the contrary JUST BECAUSE they were so darn (irrationally it seemed) bullish.

As noted last week: when everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. There is some upside. Then, the individual investor has not been that ebullient about the market advance: most think it is baloney, funny money inflated by the FOMC.

They are right! Consumer Confidence numbers rise, but Bloomberg, Gallup, and AP polls show a lot of distrust in the economy and the financial markets. Indeed, as one reader points out, while advisors as shown in the following chart are gaining in bullishness, the AAII (individual investors) shows more bearishness: Bulls fell to 43.1% versus 55.1% while bear rose to 29.3% from 18.5%. Are the retail investors again missing the call, being too bearish when they should be, as Barney Fife put it in 'The Andy Griffith Show,' a 'plunger?'


Are you a plunger, Andy?

It is not an exact science, but it is part of the picture, a bearish weight on the scale of the market's current position. After the holiday rally runs its course this could play a key role in a pullback.



Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 61.6% versus 60.0 versus 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: 15.2% versus 14.0 versus 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.


MONDAY

The holidays are over, the blizzard has hit, now we should see some indication of what the real trade will be. Of course there is the deep freeze that follows the storm; perhaps we won't see the true indication just yet.

Indeed the market may want to test the 2+ week run into the new year a bit more before it turns up. If it is down the first three days will that ruin the year? I don't know that answer. I do know there are many good looking patterns setting up in stocks that perhaps many are not that familiar with. That is fine. If money wants to rotate to new lesser known areas we can work with that. Indeed, is that not something of the 'January effect,' picking up smaller caps at smaller prices so there is more upside opportunity over the course of the year? Indeed.

So, simply put, we will follow the money by looking at the patterns setting up and moving in as they make the breaks. We found several last week and added several more this week. If the market rallies out of the current test of the pre-yearend move, we will be more than happy to play these stocks as the money pushes them higher.

Have a great weekend!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4131.91

Resistance:

Support:
The 10 day EMA at 4131
4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
4061 is the upper channel line for the November 2012 to present uptrend.
The 50 day EMA at 4011
3991 is the prior November 2013 high and the post-bear market high.
3967 is the October 2013 post-bear market high.
3947 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 200 day SMA at 3648


S&P 500: Closed at 1831.37

Resistance:
New high.

Support:
The 10 day EMA at 1829
The 50 day EMA at 1789
1775.22 is the October prior all-time high
1755 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 1682
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


Dow: Closed at 16,469.99

Resistance:

Support:
The 10 day EMA at 16,380
16,175 is the November all-time high.
The 50 day EMA at 15,968
15,739 is the December 2013 low
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 15,313
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

January 6 - Monday
Factory Orders, November (10:00): 1.7% expected, -0.9% prior
ISM Services, December (10:00): 54.6 expected, 53.9 prior

January 7 - Tuesday
Trade Balance, November (8:30): -$40.4B expected, -$40.6B prior

January 8 - Wednesday
MBA Mortgage Index, 01/04 (7:00)
ADP Employment Chang, December (8:15): 203K expected, 215K prior
Crude Inventories, 01/04 (10:30): -7.007M prior
FOMC Minutes, 12/18 (14:00)
Consumer Credit, November (15:00): $15.2B expected, $18.2B prior

January 9 - Thursday
Challenger Job Cuts, December (7:30): -20.6% prior
Initial Claims, 01/04 (8:30): 338K expected,
Continuing Claims, 12/28 (8:30): 2875K expected,
Natural Gas Inventor, 01/04 (10:30): -97 bcf prior

January 10 - Friday
Nonfarm Payrolls, December (8:30): 197K expected, 203K prior
Nonfarm Private Payrolls, December (8:30): 198K expected, 196K prior
Unemployment Rate, December (8:30): 7.0% expected, 7.0% prior
Hourly Earnings, December (8:30): 0.2% expected, 0.2% prior
Average Workweek, December (8:30): 34.5 expected, 34.5 prior
Wholesale Inventories, November (10:00): 0.2% expected, 1.4% prior

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

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

Technorati tags: stock trading stock market investing Jon Johnson InvestmentHouse.com