Monday, January 06, 2014

Bernanke Midday Rally Fizzles


- 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.



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.


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)

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)

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


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.


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.


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.


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!


NASDAQ: Closed at 4131.91


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

New high.

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


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

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