- 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 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%
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.
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.
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)
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)
Stats: -318.24 points (-1.96%) to close at 15879.11
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).
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.
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.
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
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
The 50 day EMA at 1809
1849.44 is the recent all-time high.
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
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
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
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
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