Stocks Still at Resistance

MARKET SUMMARY

- Stocks start with a lead for a change, blow it, still at resistance.
- Important market inflection point after a big run. Normal for a rest, normal for a test, but the market also refuses to give in thus far.
- Managing your trading money: risk/reward profile per trade, money risked, taking gain. The keys to turning good play selection into good money.
- Expecting a pullback, still looking for leaders upside to set up, willing to play some downside on the test.

Market gets early upside but it is too hot to hold.

The stock market actually had an early bid on Friday expiration versus the typical soft start for the week. Those soft starts mostly led to gains. The Friday open higher set the stage for a break through resistance and some of the indices toyed with that idea into midmorning. Then the Friday effect we anticipated the prior Friday but never showed made an appearance. Stocks faded, faded some more. A pair of afternoon bounce attempts failed and left the indices mixed around the flat line.

SP500 -3.53, -0.19%
NASDAQ -4.14, -0.10%
DJ30 -29.93, -0.19%
SP400 0.08%
RUTX 0.22%
SOX -0.51%

Volume: Rallied, but it was expiration Friday on a lower volume week so it was a pretty safe bet volume would be up. NYSE +11%, NASDAQ +8%. Both above average.

Breadth: Advancing issues still pulled out a narrow win in the mixed action. NYSE 1.3:1, NASDAQ 1.1:1.

There was not much excitement on the session, just in keeping with the rest of the week. Last Friday through Tuesday most of the indices made next resistance. This week they spent struggling there, trying to figure out if they wanted to test or break on through. Wednesday looked like the former, Thursday the latter, Friday it was back to looking for a test. Basically the indices have rallied well, pushed to resistance, and given the back and forth this week it is clear some sellers have entered, though thus far not enough to roll the move back down.

There was reason for some reconsideration of the rally. The FOMC commentary from some dovish members was not so dovish, saying the taper was on until something serious came to throw it off track. The FOMC minutes demonstrated a clear desire to end the QE and some even suggested it was close to the time to start hiking rates.

Some pretty salty stuff for a stock market built on QE and rate hikes. Moreover, the economic data is not suggesting the kind of strength that would propel stocks higher. Perhaps it is just the weather, perhaps more. Here is the crux in our view: the economy, weather or no, is only going to be so good (or so bad depending upon your point of view) given the regulatory environment (a new regulation every three hours) and policies (e.g. the ACA). Anything else that hits it only degrades the already mediocre performance.

So stocks struggled through the week, but the important aspect is the market has not given in yet. That is good in the sense the buyers were not so weak that when they paused sellers overran them. Good, but it does not mean stocks won't test. They will likely need at least a modest pullback similar to late December 2013 or a bit deeper a la late October/early November.

Perhaps the stock market can continue higher from here but it has not pulled off such a move after such a run in a long time. There is much to consider now with the last FOMC minutes, earnings in the bank, and everyone waiting on the next round of data to see if the weather really is causing trouble. Of course the February data still has a couple of major storms in it so no clear picture (get it?) even when that data arrives.

With SP500, DJ30 and indeed SOX at resistance on top of a solid straight back up recovery run we anticipate at least a test from these indices. NASDAQ and RUTX look very good, attempting to consolidate in place; they could pull that off while the other indices fade some. Given that, we have some downside plays already on and perhaps can play a few on another test.

At the same time there are leadership groups that still look very solid and that is a good indication for further upside afterward if the market does take some time to consolidate. Indeed some of these groups act as if they don't care what the market overall does; those continue to present upside plays that I don't want to ignore.

Overall a bit extended but still holding up with few sellers. A test likely comes but I anticipate the leaders using it to set up for a new run and if the news stays the same, work toward a next run upside.

Problem is, for now that leaves downside plays for relatively short term given much of the market is extended thanks to the last run. Fewer upside possibilities as well, and that means a bit of patience to let things set up no matter which direction.


THE MARKET

OTHER MARKETS

Euro/Dollar: Dollar weakened versus the euro as it continues a back and forth in its range, coming off a recent low.

1.3746 versus 1.3720 versus 1.3738 versus 1.3758 versus 1.3698 versus 1.3681 versus 1.3591 versus 1.3625 versus 1.3645 versus 1.3633 versus 1.3588 versus 1.3537 versus 1.3514 versus 1.3529

Dollar/Yen: Dollar jumped through the 50 day EMA but could not make it stick, fading off the high. As noted Thursday, the dollar still looks as if it could break higher off an inverted head and shoulders consolidation at the bottom of the test of the October to January run.

102.51 versus 102.35 versus 102.25 versus 102.43 versus 101.86 versus 102.14 versus 102.41 versus 102.41 versus 102.21 versus 102.33 versus 102.10 versus 101.37 versus 101.62 versus 101.37 versus 101.40 versus 102.30 versus 102.72 versus 102.11 versus 102.89 versus 102.64.


Bonds: Still in the test of the January surge, bouncing higher Friday off the second bottom at the 50 day EMA in this test.

10 year: 2.73% versus 2.75% versus 2.73% versus 2.71% versus 2.75% versus 2.73% versus 2.76% versus 2.72% versus 2.67% versus 2.68% versus 2.70% versus 2.67% versus 2.62% versus 2.60% versus 2.67% versus 2.70% versus 2.68% versus 2.75% versus 2.76% versus 2.73% versus 2.77% versus 2.86%


Oil: 102.20, -0.55. Fading back some after that Tuesday surge started the week off to the upside. Nice test of the breakout from the double bottom with handle spanning October to last week.

Gold: 1323.60, +6.70. Gapped upside for a modest gain Friday, coming off the 200 da test after the breakout over that level.


MARKET STATISTICS

NASDAQ
Stats: -4.13 points (+0.1%) to close at 4263.41
Volume: 2.113B (+8.25%)

Up Volume: 915.01M (-674.99M)
Down Volume: 1.17B (+786.97M)

A/D and Hi/Lo: Advancers led 1.08 to 1
Previous Session: Advancers led 2.36 to 1

New Highs: 207 (+68)
New Lows: 19 (0)

S&P
Stats: -3.53 points (-0.19%) to close at 1836.25
NYSE Volume: 667M (+11.35%)

A/D and Hi/Lo: Advancers led 1.34 to 1
Previous Session: Advancers led 1.92 to 1

New Highs: 202 (+57)
New Lows: 68 (+61)

DJ30
Stats: -29.93 points (-0.19%) to close at 16103.3


CHARTS:

SP500: Still bumping the December and January peaks. A test of 1810 still looks to be a good initial try for a test.

DJ30: Struggling at the trendline, breaking above it Friday then reversing for a loss. Still at the November peak, a key level here where DJ30 could form a right shoulder to a head and shoulders off the November interim high.

NASDAQ: Gapped higher then reversed the move for a modest loss. Holding the break over the January prior high. NASDAQ looks better than SP500, DJ30, better able to hold the upside move. Still, a bit of a test toward 4200 would not hurt . . .

RUTX: Gapped, held part of the gain. Not showing a lot of wear and tear after the move, indeed trying a lateral consolidation. RUTX turned into a leader in the back part of the last run so it could just hold the line, rest, then move on.

SOX: Again at the trendline, but this time turning back. Heck of a run, slowed the move a bit the past week, primed for a test toward the 10 day EMA at 553. That would be a good test indeed.


LEADERSHIP:

More of the same with the same leader providing the firepower.

Electronics: AEIS, IMOS, NEON, RBCN

Tech: WDC, RVBD, SWI

Drugs, Medical: BCRX, CLDX, CLVS, INO, KERX

Internet: QIHU, OPEN, WWWW



SENTIMENT INDICATORS

VIX: 14.68; -0.11
VXN: 15.81; -0.1
VXO: 12.85; -0.97

Put/Call Ratio (CBOE): 0.69; -0.17


Bulls and Bears:

Bulls recover some lost ground to 46.5 from 41.8.

Bears fade just a bit to 17.2 after two weeks at 17.4. Not that convinced.

Theory: 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: 46.5% versus 41.8% versus 45.9% versus 53.1% versus 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: 17.2% versus 17.4% versus 17.4% versus 15.3% versus 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%.

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.


MONEY MANAGEMENT and PLAY SELECTION

Being a great stock picker is a key to market success. You have to have good technical plays to choose from, but that is just a part of the picture. A very important part, but just a part. There is also the entry, the exit, and how much money to allocate to any particularly play. If you have issues in any one area it can hamper your returns. Some subscribers have had questions on money management so as the market peaks a bit and may pullback for a test, it is a good time to talk money management in preparation for the next run.

It is best to put no more than 2% to 5% of your portfolio into any one play. That means you are not going to risk anymore than that on a play. To further clarify, you can put more money at risk, but you are not going to take more than that amount of loss. With options that becomes harder because an option play is based upon the movement of the underlying stock, and as the stock moves the option moves in a more exaggerated manner in terms of value. We typically use the stock as our guide, not the option value. Of course that means we have to put less on the table for an option play but then again, the reward is greater.

When you are first starting it is hard to keep emotion out of the way and let plays work for you. They will move up and down intraday and day to day, and your brokerage account will reflect that movement in your positions. You have to get used to that. But, as long as the play keeps to the pattern it is important to let it work for you. Too many times a trader or investor will get frustrated with lack of movement, but the pattern is holding and indeed setting up better. Let the pattern work unless you get to a point where perhaps option time decay becomes a consideration. Typically that does not become an issue because we effort choosing the right expirations for the pattern and expectations of gain.

We select plays such that we can set stops with support and resistance in mind that keeps our risk/reward at a level that will allow us to win on a majority of plays over time. Typically the risk/reward ratio is 3:1, i.e. we can gain $3 minimum for every $1 we risk. So, if a play has a potential to return $9 by running to a resistance point or Fibonacci extension we are willing to risk $3 to the downside. By keeping that risk/reward ratio, by not risking more than 2% to 5% of your account on any one play, and letting plays that are holding their patterns and reason for the play work, you will make money.

Another key to taking the emotion out of a play and thus being able to let it work for you is not trying to knock the ball out of the park every time. Partial profits are a key. Logical initial targets, e.g. to a resistance point, to a trendline, to a Fibonacci extension, where a first solid move will pause and test are good points to bank a portion of your gain. Half, a third, it depends upon your comfort level. Take part and bank it. Then you don't worry about losing a big chunk of what you made with a good stock pick and entry in the event something unforeseen occurs. Let the rest run to the next logical resistance, bank another half or third. Then with the rest, let it run until the market takes you out, i.e. until the trend you are playing breaks. Of course with a stock such as PCLN we kept the last part of those positions for 4 or so years now. Cool.

If you let your winners work for you as long as they are trending in your favor, take partial profits at logical points, and keep your losses low by the methods described above, you can actually be wrong half the time and still make good money. Our ratio is well, well above that level so if you stick to your rules you will do well.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4263.41

Resistance:
4289 is the July 2000 recovery high.

Support:
4246.55 is the January 2014 peak
4202 is the upper channel line for the November 2012 to present uptrend.
The 50 day EMA at 4125
4104 is the lower gap point from 12/20/13
4092 is the November 2012 trendline
4070 is the series of highs from late November/early December
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 200 day SMA at 3795
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.


S&P 500: Closed at 1839.78

Resistance:
1849.44 is the recent all-time high.

Support:
1808 is the November and December 2013 twin peaks
The 50 day EMA at 1806
1799 is the December 2012 up trendline
1775.22 is the October prior all-time high
1768 is the December 3013 low
1730 is the September 2013 peak
The 200 day SMA at 1722
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
1657 is the late August upper gap point
1654 is the June 2013 peak
1646 is the October 2013 low just before the surge into early 2014
1627 is the August 2013 low


Dow: Closed at 16,103.30

Resistance:
16,136 is a lower trendline off the 11/2012 low
16,175 is the November 2013 peak.
16,257 is the January 2014 low
16,589 is the December 2013 all-time high

Support:
The 50 day EMA at 15,999
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 15,542
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

February 21 - Friday
Existing Home Sales, January (10:00): 4.62M actual versus 4.70M expected, 4.87M prior

February 25 - Tuesday
Case-Shiller 20-city, December (9:00): 13.6% expected, 13.7% prior
FHFA Housing Price I, December (9:00): 0.1% prior
Consumer Confidence, February (10:00): 80.8 expected, 80.7 prior

February 26 - Wednesday
MBA Mortgage Index, 02/22 (7:00): -4.1% prior
New Home Sales, January (10:00): 400K expected, 414K prior
Crude Inventories, 02/22 (10:30): 0.973M prior

February 27 - Thursday
Initial Claims, 02/22 (8:30): 335K expected, 336K prior
Continuing Claims, 02/15 (8:30): 2975K expected, 2981K prior
Durable Orders, January (8:30): -1.1% expected, -4.2% prior (revised from -4.3%)
Durable Goods -ex tr, January (8:30): -0.3% expected, -1.3% prior (revised from -1.6%)
Natural Gas Inventor, 02/22 (10:30): -250 bcf prior

February 28 - Friday
GDP - Second Estimate, Q4 (8:30): 2.6% expected, 3.2% prior
GDP Deflator - Second, Q4 (8:30): 1.3% expected, 1.3% prior
Chicago PMI, February (9:45): 56.0 expected, 59.6 prior
Michigan Sentiment - Final, February (9:55): 81.5 expected, 81.2 prior
Pending Home Sales, January (10:00): 0.8 expected, -8.7% 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

Market Again Overcomes Early Slop

MARKET SUMMARY

- Market again overcomes early slop, rallies to close out the week.
- Market straight up for two straight weeks, but no one taking off the upside ahead of a 3-day weekend.
- Some say market move has to end, others say it just the start of more upside to come. Some index patterns look terrible near term, others look just fine. Same with individual stocks. The market nonetheless keeps producing solid upside stock patterns and moves.

Impressive low to high again even if the internals stink. Hey, it was a 3-day weekend Friday.


What's the password?
Mattress?
Impressive, sir!

Once more futures were lower, but as on Thursday, the lower open gave way to gains. Stocks started soft, rallied the first hour, paused into lunch, then rallied to late afternoon. Could not quite stick a close at session highs, volume and breadth were lower and lackluster, but it was Friday ahead of a three-day weekend with SP500 up 6 of 7 sessions and knocking at the January all-time high. Even so, no one was taking their upside risk off the table. That gives you an indication of the investor mentality right now, sticking with the upside for now.

SP500 8.80, 0.48%
NASDAQ 3.36, 0.08%
DJ30 126.80, 0.79%
SP400 0.39%
RUTX 0.12%
SOX 0.56%

Volume faded ahead of a 3-day weekend: -17% NASDAQ, -2% to an already lower volume NYSE.

A/D tepid: 1:1 NASDAQ, decent at 2:1 NYSE

The week saw a continuation of the sharp recovery off of the sharp selloff. RUTX joined the land of the upside with a break back in its channel on Thursday. DJ30 threw in its hand as well, clearing its trendline Friday. Slowly the laggards joined in with SOX and NASDAQ, SOX being the clear leader on the week, putting in three higher post-bear market highs.

Not all is candy and nuts. Impressive recovery with SOX and NASDAQ at new post-2009 highs (NASDAQ at its highest in 13.5 years) but SP500 and SP400 still have to deal with the January high that is close at hand while DJ30 and RUTX are up, but they are also late to the party and sport some pretty ugly patterns.

That leads to a sharply divided view of the market future as well as the economic future. As has been the case in the entire stock market rally, the debate/feud/name calling regarding the market and the economy has only escalated as the stock market climbs to new highs. One of, but not the only, points of debate is the FOMC and its taper. Will that end the market expansion as the Fed tightens (and tapering is tightening from where the Fed was)? Is it just the logical next step in a recovering economy and the market continues its gains, this time based upon economic growth versus Fed balance sheet growth? I still view the economy as a form of the old t-shirt you see: "The Fed printed $4T of debt in four years and all the economy got was three quarters of 4% GDP growth.' Not even back to back but spaced out over years. Impressive indeed.

I could go into great detail, as I am known (likely infamously) for doing. At this stage, however, we all know the arguments, the talking points, and you know where I stand on the matter. While extremely important in the long run and we must be cognizant of the economic potentiality in planning for the future, while trading, investing in, or just watching the stock market, it is the here and now that matters.

The indices broke key trendlines from November 2012 when the $85B/month asset buying commenced.

The indices recovered those trendlines last week as part of the two week surge right back up. Some were early, some such as DJ30 and RUTX came late.

Volatility, not as measured by the VIX, but as in the day to day and week to week up and down, has jumped: sharp, ugly selloff followed by an equally sharp and ugly (if you were short) recovery. Volatility after long trends up or down suggests a change is occurring. Just as violent storms appear in the spring and the fall when seasons change you see violent stock market moves when a trend is threatened. Dennis Gartman infamously stated the market character had changed three weeks ago only to see those words stuffed back in his mouth as the market shot higher. Indeed NASDAQ followed SOX to new post-bear market highs. Ouch. Hey, it happens to all of us who make market calls for a living.

Some stocks getting slammed, some stocks sporting excellent patterns and strong upside runs. The market is somewhat split as some sectors continue to set up great patterns and rally (medical appliances, biotechs, electronics/chips, internet. They are joined by some industrial metals, precious metals, some homebuilders, materials, etc. MONEY is rotating in the market. Some is leaving, but we keep seeing certain sectors set up, rally, consolidate, set up, then rally again. That is money moving inside the market, not out.

Quality patterns continue to emerge and continue to deliver solid upside breaks.

Even with several indices in worrisome patterns near term (DJ30, RUTX, SP500), they could sell back to test the recent rally and set up a good pattern to resume the upside.

How hold trends on next test will tell much of that story. Near term for us we just have to play the patterns presented, be aware of where a stock or index is in its bigger picture, and make logical plays inside of that context. In short, you continue to evaluate and examine individual plays in the context of the market and the individual stock's life cycle. That way you can play the upside when it is there, knowing logical points for targets, and you can play the downside even inside of an overall uptrend because you know where a stock is in its overall move.

For example, recall during the stock market run as each different sector made its move off the lows. It was not an en masse move, but leaders took off, followed by new groups and sectors as more money worked into the market. A predominant pattern off the low and indeed off each subsequent test and basing period was the inverted head and shoulders. We have seen that pattern time and time again set up excellent, indeed outstanding, upside moves.

VIPS, BDSI, XON, TKMR, AEIS, WBMD, CLVS, SRPT, EGHT, LVLT, SP500, SP400. The list is long.

Right now we see a lot of ABCD consolidations setting up in the market volatility. The ABCD is a pattern that forms in bigger pullbacks that don't reach the base stage. Sometimes you see them in modest pullbacks to the 38% Fibonacci retracement, still a good signal, but more times you see them to the 61% or 78% Fibonacci retracement. Lots of the latter right now. That suggests these stocks are still trending higher but are just using the back and forth action to consolidate and set up the next move.

FTEK, OPEN, RRGB, WDC, STXS, LIVE, MXWL, SMCI.

Right now DJ30 could be forming an ABCD. A solid run from October to January, a dip to the 61% Fibonacci Retracement, and now a rebound. Maybe. It has that November/December dip in the run higher that mitigates the pattern, but almost ironically, that dip was an ABCD itself that set up the December to January run.


THE POINT: We are not trading or investing in theories. We are acting based upon what the market tells us, factoring in the overall context as to what the moves might mean, but not letting theories or human biases direct what we do. It is interesting as much as aggravating to listen to financial stations such as CNBC, Bloomberg, Fox Business. If you also listen to the people talking their book that is called 'advice' on those stations, well you are in most cases doomed to fail. Those stations are part of the noise, the distraction from what the market is telling you versus what they want you to believe. As Woody Harrelson playing Roy Munson in 'Kingpin' said, a bowler's two worst enemies are his eyes and his ears.



Hate to compare bowling to stock market trading and investing, but the point is the same for both: stay focused on what you should be looking at versus getting distracted by what someone wants you to believe about a stock he or she likely already owns or is already short.

Summary

Looking at just the indices right now, I really don't like the market. Yes it showed great resilience in its reversal off the selling to storm right back, to new highs in some instances. The patterns, however, are worrisome.

Individual stocks, however, continue to show some excellent action. The same stocks that started 2014 in the lead have undergone and some are still undergoing consolidations and are moving back up. Big manes such as CMG, PCLN, NFLX still look to have some life. Others are moving up such as energy and industrial metals.

Good quality though not all of the market quality is represented on the move. Thus the so-so index patterns that leave you less than satisfied.

Even so, I go back to what I mentioned at the outset: ahead of a 3-day weekend and a two week shot upside, no one was taking off risk. Combined with the good patterns that is not a bad indicator. The market will likely undergo some further testing in the near future even if it is going to move higher ultimately. How the market tests the 2012 trendlines on the next pullback from this 2 week rally will put the overall market strength in much clearer perspective.


THE MARKET

OTHER MARKETS

Euro/Dollar:

1.3698 versus 1.3681 versus 1.3591 versus 1.3625 versus 1.3645 versus 1.3633 versus 1.3588 versus 1.3537 versus 1.3514 versus 1.3529 versus 1.3496 versus 1.3551 versus 1.3655 versus 1.3667 versus 1.3671 versus 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.

Dollar/Yen: Dollar fell further versus the yen.

101.86 versus 102.14 versus 102.41 versus 102.41 versus 102.21 versus 102.33 versus 102.10 versus 101.37 versus 101.62 versus 101.37 versus 101.40 versus 102.30 versus 102.72 versus 102.11 versus 102.89 versus 102.64.


Bonds: Held steady after gapping back off the 50 day EMA test.

10 year: 2.75% versus 2.73% versus 2.76% versus 2.72% versus 2.67% versus 2.68% versus 2.70% versus 2.67% versus 2.62% versus 2.60% versus 2.67% versus 2.70% versus 2.68% versus 2.75% versus 2.76% versus 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%


Oil: 100.29, +0.01

Gold: 1319.00, +18.60. Big week for gold, breaking through the 200 day SMA Friday.


MARKET STATISTICS

NASDAQ
Stats: +3.35 points (+0.08%) to close at 4244.03
Volume: 1.846B (-17.26%)

Up Volume: 1.06B (-350M)
Down Volume: 754.9M (-56.12M)

A/D and Hi/Lo: Advancers led 1.09 to 1
Previous Session: Advancers led 2.64 to 1

New Highs: 134 (-1)
New Lows: 10 (-10)

S&P
Stats: +8.8 points (+0.48%) to close at 1838.63
NYSE Volume: 549M (-2.18%)

A/D and Hi/Lo: Advancers led 2.02 to 1
Previous Session: Advancers led 2.87 to 1

New Highs: 158 (+8)
New Lows: 71 (-10)

DJ30
Stats: +126.8 points (+0.79%) to close at 16154.39



SENTIMENT INDICATORS

VIX: 13.57; -0.57
VXN: 14.8; -0.69
VXO: 12.13; -0.57

Put/Call Ratio (CBOE): 0.83; +0.04


Bulls and Bears:

Bulls fade to 41.8 in another big drop of 4.1 on top of the prior week's 7.2 point decline.

Bears steady at 17.4 after clearing the 15.3 resistance two weeks back.

Theory: 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: 41.8% versus 45.9% versus 53.1% versus 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: 17.4% versus 17.4% versus 15.3% versus 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%.

Finally breaking 15 and in a big way.

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.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4244.03

Resistance:
4246.55 is the January 2014 peak

Support:
4185 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 4102
4076 is the November 2012 trendline
4070 is the series of highs from late November/early December
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 200 day SMA at 3777
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.


S&P 500: Closed at 1838.63

Resistance:
1849.44 is the recent all-time high.

Support:
1808 is the November and December 2013 twin peaks
The 50 day EMA at 1801
1775.22 is the October prior all-time high
1792 is the December 2012 up trendline
1768 is the December 3013 low
1730 is the September 2013 peak
The 200 day SMA at 1717
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
1657 is the late August upper gap point
1654 is the June 2013 peak
1646 is the October 2013 low just before the surge into early 2014
1627 is the August 2013 low


Dow: Closed at 16,154.39

Resistance:
16,175 is the November 2013 peak.
16,257 is the January 2014 low
16,589 is the December 2013 all-time high

Support:
16,088 is a lower trendline off the 11/2012 low
The 50 day EMA at 15,981
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 15,519
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

February 14 - Friday
Export Prices ex-ag., January (8:30): 0.2% actual versus 0.5% prior (revised from 0.3%)
Import Prices ex-oil, January (8:30): 0.3% actual versus -0.1% prior
Industrial Production, January (9:15): -0.3% actual versus 0.3% expected, 0.3% prior
Capacity Utilization, January (9:15): 78.5% actual versus 79.4% expected, 78.9% prior (revised from 79.2)
Michigan Sentiment, February (9:55): 81.2 actual versus 80.2 expected, 81.2 prior

February 18 - Tuesday
Empire Manufacturing, February (8:30): 7.5 expected, 12.5 prior
Net Long-Term TIC Fl, December (9:00): -$29.3B prior
NAHB Housing Market , February (10:00): 56 expected, 56 prior

February 19 - Wednesday
MBA Mortgage Index, 02/15 (7:00): -2.0% prior
Housing Starts, January (8:30): 964K expected, 999K prior
Building Permits, January (8:30): 980K expected, 986K prior
PPI, January (8:30): 0.2% expected, 0.4% prior
Core PPI, January (8:30): 0.1% expected, 0.3% prior
FOMC Minutes, 1/29 (14:00)

February 20 - Thursday
Initial Claims, 02/15 (8:30): 335K expected, 339K prior
Continuing Claims, 02/08 (8:30): 2973K expected, 2953K prior
CPI, January (8:30): 0.1% expected, 0.3% prior
Core CPI, January (8:30): 0.1% expected, 0.1% prior
Philadelphia Fed, February (10:00): 7.4 expected, 9.4 prior
Leading Indicators, January (10:00): 0.4% expected, 0.1% prior
Natural Gas Inventor, 02/15 (10:30): -237 bcf prior
Crude Inventories, 02/15 (11:00): 3.267M prior

February 21 - Friday
Existing Home Sales, January (10:00): 4.70M expected, 4.87M 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 Show Surprising Upside Strength

MARKET SUMMARY

- Jobs report clinker, but apparently enough for stocks to rally.
- More of the same on the jobs report: disappointing, stagnant, but we are told not to worry about jobs.
- Funds drain from various equity vehicles, seek bonds.
- Indices move back up through cracked support, some don't, but didn't flinch, much, at jobs.
- Stocks show surprising upside strength, setting up an interesting inflection next week.

Friday was setting up for a more traditional look at economic data: good would be good, bad would be bad. The problem: the jobs report was just malaise. Non-farms missed but participation recovered from the lows though remained in its slow trend lower. Less people were long-term unemployed, but still way too many are unemployed.

Thus when the news came out the market was not quite sure how to take it. A dive on the news (indeed just ahead of it as early leaks emerged) was quickly reversed.

In a week that saw no other than the venerable CBO pronounce that the Affordable Care Act was indeed negatively impacting jobs and would continue to negatively impact jobs, it should be no surprise that the January jobs report was a disappointment, even with the extension granted by fiat of the Executive. Plenty of evidence already existed that companies were altering their hiring habits, extension or no, as the part-time jobs creation versus full-time jobs shows, but it takes the 'nonpartisan CBO' to get on board before some will even begin to warm to an idea.

Nonetheless, the administration's jobs lap dog Bureau of Labor Statistics is still in denial, blaming poor job performance on the weather in January. It was interesting to note that December's horrid result was not blamed on the weather. Go figure. In any event, the 'weather made me do it' asterisk on the January 113K miss was quite a bit more interesting given that in January, another month marked by ice storms and people stranded on freeways, construction jobs ROSE 48,000. It is ironic, if not appropriate then, that government jobs FELL 29,000. Despite rain, sleet, snow or cold of winter, construction workers did their job while government workers took time off. The old adage appears still true today, but things are different in one way: now government workers, particularly federal workers under this Administration, are paid MORE than their average private counterpart. Puts a whole new meaning on the phrase good enough for government work.

As you know, the jobs report was a miss on the non-farms payrolls.




Provided by Briefing.Com

For about 1 minute, stocks acted as you would expect on bad news. Dow futures were up 40 points heading into the number and within minutes, indeed even BEFORE the number was officially released, they plummeted, swinging 80 points to -40.

Then as quickly as they left, bids returned and futures not only returned to +40 but they improved upon that into the open. They opened higher, tested in the first hour, then continued to show strength into the afternoon and into the close, holding the session's gains without flinching late in the day.

SP500 23.59, 1.33%
NASDAQ 68.74, 1.69%
DJ30 165.55, 1.06%
SP400 1.05%
RUTX 1.14%
SOX 1.64%

Volume: Finally moved up on an upside session, +2% NYSE, +7% NASDAQ. That moved NYSE just a bit above average once more, an popped NASDAQ back above average. Still, the volume is relatively notably lighter than the recent volume, particularly the upside volume.

A/D: solid 3.4:1 NYSE, 2.3:1 NASDAQ.


Why did stocks rally on a non-farms miss? Damn good question.

It wasn't wages, at least from a worker's perspective. If you are not one of the 100+M that do not have a job, your wages are not instilling any confidence. Wages were low last year at 1.9% for all of 2013, just 0.4% when inflation adjusted. That is lower than 2012 and half the average gains for the 20 years preceding the ongoing recession.

It was postulated that a stronger participation rate coupled with a lower unemployment rate (6.6%) 'proved' the jobs market was improving. The participation rate did improve and it was lauded as a great breakthrough.

Really? The recent series:
63.0% January
62.8% December
63.0% November
62.8% October

Great improvement indeed. Hey, it's better than falling to another record low, but it is not a turn.

Long-term unemployment fell by 232K to only 3.6M people. Average jobless duration (how long you are out of a job) fell to 35.4 weeks (just under the time it takes to have a baby). That is the lowest in a year but well, well above pre-recession levels. This after 5+ years of recovery in a 'fundamentally' changed America. Fundamentally changed? I'll agree with that.

Last of all, it was the old standby, 'it was the weather.' Major ice storms hit in December, January, and now February. Easy to pick on the weather. Once again, history gets in the way of any claims made by the federal government. Those classified as 'out of work due to weather' came in at 262,000. Seems high, but historically it is nothing. Higher levels were recorded in . . . 2008, 2009, over 1,000,000 in early 2010, 900K in early 2011, and almost 400K in late 2012. The weather? Really? As noted earlier, it apparently only impacted the government workers.

Commentator statements sum up yet another weak-kneed jobs report: "On an absolute kind of real-economy basis, this does confirm there's probably some degree of slowness out there, but I don't think it's catastrophic." 'Probably some degree'? Another from BNP Paribas's former Fed economist: "It's another disappointment, but it's not anything disastrous . . . There isn't . . . momentum in hiring." That is about as firm as anyone could be given the divergences in the report. Fortunately we learned, thanks to CNBC's Steve Leisman in his analysis of the report, 'jobs are not critical for growth.' Now THAT is a new normal, smacking of the notion that the ACA allows people to pursue their passion . . . without having to work.



THE MARKET

OTHER MARKETS

Euro/Dollar: Falling versus the euro on weaker jobs and the ECB holding everything steady on Thursday.

1.3633 versus 1.3588 versus 1.3537 versus 1.3514 versus 1.3529 versus 1.3496 versus 1.3551 versus 1.3655 versus 1.3667 versus 1.3671 versus 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.

Dollar/Yen: Dollar climbed again versus the yen in a bounce, albeit modest, on the week.

102.33 versus 102.10 versus 101.37 versus 101.62 versus 101.37 versus 101.40 versus 102.30 versus 102.72 versus 102.11 versus 102.89 versus 102.64.


Bonds: Surged on the initial jobs news with the 10 year yield falling to 2.63%. Faded off of that surge to a more modest gain by the close.

2.68% versus 2.70% versus 2.67% versus 2.62% versus 2.60% versus 2.67% versus 2.70% versus 2.68% versus 2.75% versus 2.76% versus 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.


Oil: 99.87, +2.03. Even with a stronger dollar oil surged on the week, breaking the 200 day SMA for the first time since December when it broke then folded. Moving off a double bottom now and that is a stronger pattern. Prepare for higher prices in the 105 range.

Gold: 1262.90, +6.10. Muddled laterally all week, but holding its move over the 50 day EMA.


MARKET STATISTICS

NASDAQ
Stats: +68.74 points (+1.69%) to close at 4125.86
Volume: 2.041B (+6.86%)

Up Volume: 1.7B (+240M)
Down Volume: 306.62M (-148.82M)

A/D and Hi/Lo: Advancers led 2.33 to 1
Previous Session: Advancers led 1.87 to 1

New Highs: 57 (+17)
New Lows: 36 (0)

S&P
Stats: +23.59 points (+1.33%) to close at 1797.02
NYSE Volume: 671M (+1.82%)

A/D and Hi/Lo: Advancers led 3.42 to 1
Previous Session: Advancers led 3.02 to 1

New Highs: 81 (+30)
New Lows: 72 (-21)

DJ30
Stats: +165.55 points (+1.06%) to close at 15794.08


THE CHARTS

NASDAQ: Gapped through the November 2012 trenldine and the 50 day EMA Friday, closing out at session highs. Higher but not blowout volume. Hard to argue with this action. AAPL revealed a big share buyback that has been underway, GOOG jumped toward its high, and PCLN blasted off. Plenty of help from big names as NASDAQ moves through the early December peak. Again, hard to argue with this upside recovery that looks more like a recovery now versus a relief bounce.

SP500: Through the November 2012 trendline and closing at the 50 day EMA. Key week for SP500 because it is approaching the December highs that represent a potential left shoulder to a head and shoulders. 1805 to 1815 is an important resistance range to watch.

DJ30: Broke back above the 200 day SMA Thursday after cracking it, added to the move Friday. At some resistance from the December low, but more important is at 16K to 16,200.

SOX: Moved through the 50 day EMA on Thursday and then through one of the 2012 trendlines on Friday. Nice recovery after a three day breach of the 50 day EMA.

SP400: Through the 11/2012 trendline heading to important resistance at 1315 (closed at 1308). Important week today.

RUTX: The small caps continue lagging, just now making the 10 day EMA and still well below the 11/2012 trendline thanks to that Monday flop lower. Hole in the boat. We entered some TWM calls (inverse of RUTX) Friday as they tested the 10 day EMA.

RUTX represents a potential anchor chain on the rest of the market, but the other indices showed more strength. SP500 and SP400 are at important levels for the coming week, however.


LEADERSHIP

Some rotation back into bigger names as the market recovered off the lows. That left some of the January leaders flat. Some. There are still solid leaders in biotech, healthcare, as well as electronics, tech, internet.

Big Names: NFLX surged Friday after its breakaway gap test. PCLN gapped back through its 50 day EMA with a strong upside move. CMG gapped higher a week back, worked laterally, and looks good to continue.

Biotechs, Drugs: Good and bad. BIIB is strong. GILD tested after earnings but looks good again. Some smaller still look great: PETX, KERX, CLVS.

Internet: QIHU, LIVE, Z


SENTIMENT INDICATORS

VIX: 15.29; -1.94
VXN: 16.71; -2.77
VXO: 14.05; -2.5

Put/Call Ratio (CBOE): 0.82; -0.1


Bulls and Bears:

Bulls fade to 45.9, a 7.2 point drop. Finally coming off that extreme 60+ reading from January.

Bears finally break higher to 17.4, clearing the 15.3 resistance.

Theory: 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: 45.9% versus 53.1% versus 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: 17.4% versus 15.3% versus 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%.

Finally breaking 15 and in a big way.

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

Friday's reaction to a lackluster jobs report but one that was not imploding suggests there is more bid strength in the market than revealed itself on the initial bounce from the selloff. That is a positive and it saw NASDAQ and SOX clear two levels of important resistance, SP500 retake the 2012 trendline along with SP400. DJ30 and particularly RUTX still have serious work ahead.

More than that, SP500 needs to clear the December interim high at 1810ish, another 13 or so points. That makes this week, even with the Thursday and Friday rally, the inflection point that tells whether the selling is done and a new leg is on that will push toward a new high.

We did pick up some upside positions on the bounce, stocks showing excellent patterns and that held support/patterns/trendlines on the selling. We are more than happy to play them upside as the rally continues. At the same time we have some downside positions and are looking at some more this week if the market move stalls and reverses. Indeed we picked up some TWM RUTX inverse calls on Friday as RUTX tests the 10 day EMA in a bear flag. A good hedge if things start next week ugly or if the move suddenly runs out of gas early week.

The rebound was better than expected, and that is just fine, but remain skeptical and stick to good patterns that held during the selling. That is precisely what we are doing, and if they continue to show solid bids then we will continue to add them. Keep in mind those key levels on SP500 as the week progresses as your bigger picture view. If the market hits those levels and stalls, we can bank some upside and be ready for the downside if the stall turns into a reversal downside.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4125.86

Resistance:
4161 is the upper channel line for the November 2012 to present uptrend.
4246.55 is the January 2014 peak

Support:
4104 is the lower gap point from 12/20/13
The 50 day EMA at 4079
4070 is the series of highs from late November/early December
4058 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 200 day SMA at 3755
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.


S&P 500: Closed at 1797.02

Resistance:
The 50 day EMA at 1797
1808 is the November and December 2013 twin peaks
1849.44 is the recent all-time high.

Support:
1775.22 is the October prior all-time high
1785 is the December 2012 up trendline
1768 is the December 3013 low
1730 is the September 2013 peak
The 200 day SMA at 1711
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
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 15,794.08

Resistance:
The 50 day EMA at 15,978
16,009 is a lower trendline off the 11/2012 low
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 15,489
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

February 7 - Friday
Nonfarm Payrolls, January (8:30): 113K actual versus 175K expected, 75K prior (revised from 74K)
Nonfarm Private Payr, January (8:30): 142K actual versus 161K expected, 89K prior (revised from 87K)
Unemployment Rate, January (8:30): 6.6% actual versus 6.7% expected, 6.7% prior
Hourly Earnings, January (8:30): 0.2% actual versus 0.2% expected, 0.0% prior (revised from 0.1%)
Average Workweek, January (8:30): 34.4 actual versus 34.4 expected, 34.4 prior
Consumer Credit, December (15:00): $18.8B actual versus $11.5B expected, $12.4B prior (revised from $12.3B)

February 11 - Tuesday
JOLTS - Job Openings, December (10:00): 4.001M prior
Wholesale Inventories, December (10:00): 0.6% expected, 0.5% prior

February 12 - Wednesday
MBA Mortgage Index, 02/08 (7:00): 0.4% prior
Crude Inventories, 02/08 (10:30): 0.440M prior
Treasury Budget, January (14:00): $2.9B prior

February 13 - Thursday
Initial Claims, 02/08 (8:30): 335K expected, 331K prior
Continuing Claims, 02/01 (8:30): 2975K expected, 2964K prior
Retail Sales, January (8:30): 0.0% expected, 0.2% prior
Retail Sales ex-auto, January (8:30): 0.1% expected, 0.7% prior
Business Inventories, December (10:00): 0.4% expected, 0.4% prior
Natural Gas Inventor, 02/08 (10:30): -262 bcf prior

February 14 - Friday
Export Prices ex-ag., January (8:30): 0.3% prior
Import Prices ex-oil, January (8:30): -0.1% prior
Industrial Productio, January (9:15): 0.3% expected, 0.3% prior
Capacity Utilization, January (9:15): 79.4% expected, 79.2 prior
Mich Sentiment, February (9:55): 80.2 expected, 81.2 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

Stock Market Skittish on Currency Issues

MARKET SUMMARY

- Stock market skittish on currency issues ahead of weekend.
- Fear appears pre-market and stocks dive lower. Even with the negativity, indices recover with NASDAQ turning positive, but none of the indices could hold all of the rebound.
- Indices recover from selling, still holding support, but struggling to hang on.
- 2014 leaders are still solid, showing upside moves, good patterns, and good holds of support.

You can take two things from the Friday action.

First, the pre-market and open were about as negative as we have seen all year, all 30 days of it. Even looking further back to other selling events the worry pre-market was palpable and palpably more negative.

Earnings were at issue as AMZN missed the top and bottom line but GOOG, CMG, BRCM, WYNN and others beat and surged.

Personal income fell to flat versus the 0.2% gain expected. Not to worry; spending rose 0.4% when a 0.2% increase was expected, this on top of the November 0.6% rise (revised up from 0.5%). The US consumer continues spending what it apparently doesn't have. Or perhaps a large underground in cash and barter has emerged given over 100M working age people are out of work or completely out of the workforce (at least as the government defines it).



Doesn't seem to be filtering down evenly in the economy, but that is no surprise. As we have discussed before, there are two economies in the US right now. WMT has discovered this. Its clientele are typically in the lower end of the socioeconomic ladder. Indeed as much as 26% of its business is from those on assistance such as food stamps. Friday WMT guided its Q4 lower, blaming the November cutbacks in food stamps and of course, almost a dozen named winter storms.

Problems for sure here in the US, but they were not THE problems on Friday. World currency moves were and are the lion in the room. Currency issues are not readily understood and thus tend to cause inadvertent bodily functions in some investors. Rick Santelli on CNBC did a pretty good job of showing how DJ30 tracks USD/JPY almost tick for tick in the 'new normal,' but that didn't generate a lot of comfort even if some understand the issues better.

So, there was plenty to worry with to start the end of the week. EVEN WITH THAT NEGATIVITY and the gaps lower it engendered, however, the stock indices managed a comeback from the open with NASDAQ even cracking positive just ahead of the last hour. In other words, as bad as things looked at the open with DJ30 futures down 200 points, investors did not jam the exit doors and indeed used the dip to buy a bit and push stocks up well off the lows. Big negatives, but stocks recovered nicely. That is a more bullish response.

SP500 -11.60, -0.65%
NASDAQ -19.25, -0.47%
DJ30 -148.76, -0.94%
SP400 -0.44%
RUTX -0.74%
SOX -0.52%

Volume rallied on selling once more: NYSE +26%, NASDAQ +10%.

A/D was negative but not perversely so as say Monday and its -6:1 levels: -1.7:1 NYSE, -2.2:1 NASDAQ.


Second, though stocks did recover, they did not do that great of a job. The indices are still dancing at the trendlines/50 day EMA. All of them. They are hanging around that level, unable to make a break higher. It is darn impressive that they are able to hold on at all given all of the global intrigue that is dominating the financial world. US earnings are better than expected, GDP was solid enough, the other economic reports are decent (though December jobs and Durable Orders stunk up the place), but big monetary moves, even if they result in more money coming to the US, are disquieting to all markets at first.

Thus, the inability to make a move off key support has several calling for a breach of the trendlines and further selling. Looking at the patterns that is not an outrageous call. Indeed, there are quite a few bear flags out there (modest bounces back to former support after sharp falls through support) that we will look at as plays for next week in the event the indices break.

Another aspect of Friday and indeed the week (so I guess there were three things to take away from the day though this one is related to the first), the 2014 quiet leaders that have produced great gains for us and have used the selling to set up new solid patterns, are still holding great patterns as of the Friday close with many posting gains: AEIS, ATHN, ATK, DHI, GMCR, LCAV, PACB, TKMR, TWTR, QIHU, XON. Others sold early but surged back to support as buyers still entered or just held up well all around: END, ELOS, MONT, RVBD, SCON, SCTY, etc. Great action, great shakeouts and recoveries. The question is, will they continue to hold on and resume the moves? If the indices bounce, sure they will. If the indices crack and tumble through support, problematic.

So the indices enter the weekend and next week still holding support though looking somewhat beleaguered. Leaders remain solid with some good moves upside even on Friday along with some excellent patterns ready to move up. We will continue our positions as long as they continue to perform in a bullish manner. We will also prepare for some more downside if the support breaks. How the upside leaders perform at that time determines what we do with them.

Basically while many are predicting a further market decline (and with the way the indices look, that is not an outlandish belief), all market calls are personal, i.e. based upon that person's beliefs and views toward many things including market action. In short, they are not the market and its millions of individual minds forming action. So while I too believe the indices look poor right now, I also see the 2014 leaders, stocks that performed when the indices were not, still showing buyers stepping in. I am not, and I don't know anyone who is, smart enough to say which is right and what kind of probability you can assign to which side wins. Of course there is the other option, that both happen similar to what occurred at the end of 2013 and the first part of 2014. The odds of that would typically be low as well, but that is how this market is working right now.

In the end, Friday (and the end of the month) did not resolve anything, but the indices are indeed still at support and the 2014 leaders are still in good shape. That much is true. We will simply be ready for whichever way this situation resolves.


THE MARKET

OTHER MARKETS

Euro/Dollar: Rallying further, reaching resistance below the 200 day SMA. Money flowing to the dollar out of foreign markets.

1.3496 versus 1.3551 versus 1.3655 versus 1.3667 versus 1.3671 versus 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.

Dollar/Yen: Dollar falling versus the yen after the late December peak. With it goes the US market. 102.30 versus 102.72 versus 102.11 versus 102.89 versus 102.64.


Bonds: 2.67% versus 2.70% versus 2.68% versus 2.75% versus 2.76% versus 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.

Gapped through the 200 day SMA Friday, still just below the late October high. Bonds are on the run for two reasons: overseas money coming to America, still questions about the US economy.


Oil: 97.53, -0.72. Holding the bounce, trading just below the 200 day SMA.

Gold: 1239.80, -2.10. Even with the Global issues gold faded more of the prior week's move.


MARKET STATISTICS

NASDAQ
Stats: -19.25 points (+0.47%) to close at 4103.88
Volume: 2.308B (+10.06%)

Up Volume: 919.24M (-860.76M)
Down Volume: 1.36B (+994.66M)

A/D and Hi/Lo: Decliners led 2.24 to 1
Previous Session: Advancers led 2.89 to 1

New Highs: 76 (-5)
New Lows: 41 (+20)

S&P
Stats: -11.6 points (-0.65%) to close at 1782.59
NYSE Volume: 732M (+25.99%)

A/D and Hi/Lo: Decliners led 1.66 to 1
Previous Session: Advancers led 3.25 to 1

New Highs: 59 (-21)
New Lows: 142 (+29)

DJ30
Stats: -149.76 points (-0.94%) to close at 15698.85


THE CHARTS

Started ugly, managed to hold above key support again, then moved up off the lows. Good initial response but faded in the last hour, unable to hold onto all of the recovery. Perhaps just some more pre-weekend nervousness scuttled the last part of the session.

Lots of day to day volatility as the indices test an important support. Volatility often signals change. It definitely signals a fight between buyers and sellers. The back and forth at the 2012 trendlines and the 50 day EMA shows this is indeed a key level. Buyers are stepping in for support, but they cannot overcome the selling and run the indices higher. While volatility can signal change and thus might suggest a bounce here, it is going to have to make that move as they tend to run out of ammunition at some point as the buyers eventually pull their bids and wait.

NASDAQ: Even with GOOG providing a big lift, NASDAQ closed lower. AMZN provided a big decline. In any event, NASDAQ gapped back below its 50 day EMA but easily held above the 11/2012 up trendline. It recovered back up through the 50 day EMA and made it to positive only to backslide into the close. Still above the trendline, still holding where it has to, trying to overcome the selling. We will see.

RUTX: The small caps are struggling, more so than NASDAQ. Sold back to the trendline, undercut it again intraday managed to hold it on the close. Unlike the October test, not a quick test and rebound. It did hang around more in August and still held and bounced, but it is finding it hard to get traction off this level.

SOX: Gapped up off the 50 day EMA and moved through the trendline, but could not make that move stick. Still holding key support as NASDAQ and RUTX, looks a bit better than RUTX, but still in the same situation.

SP400: After bouncing up to the 50 day EMA Thursday, SP400 tried again to move through that resistance but faded modestly. Very modest fade indeed, but SP400 also did not test the trendline on the selling. Something of a bear flag below the 50 day resistance.

SP500: Holding the 11/2012 trendline, undercutting it slightly on the low, rebounding to hold at the close. Similar to RUTX, struggling to hold the line. Volume jumped as it sold, but also held support. That is not a bad indication, holding key levels on high volume as it suggests that buyers stepped in. Certainly they did, but hardly the end as volatility remains high day to day.

DJ30: Delving lower on the close but holding the July and September peaks on the low and cutting the losses modestly. Still looks heavy, just undercutting the December low on the Friday move.


LEADERSHIP

Big Names: Good and not so good. GOOG gapped to a new all-time high, fought off some selling and recovered to the high. AMZN gapped and sold to next support. AAPL is still floundering above the 200 day SMA after its gap lower. NFLX moved to a new high.

Not great:

Financial: JPM is weak below its 50 day EMA. BAC is decent, trying to hold the 20 day and bounce again. WFC is heading to its 50 day EMA.

Metals: Mixed bag, mostly lower. MTL way down. SID trying to find support at the 200 day SMA. STLD also trading around its 200 day SMA. AKS is actually decent, moving back up over the 50 day EMA on the week. FCX (copper) is similar to STLD, i.e. at the 200 day SMA all week long.

Not bad:

Machinery: CAT is surging toward 100. TEX fell to the 50 day EMA but held and is bouncing on big volume similar to CAT. CMI is at the 200 day SMA.

Good:

Biotechs: BIIB, GILD solid. CELG heading to the 200 day SMA for a new base after a long, long upside run. Smaller biotechs solid: XON, TKMR, PACB, INO.

Medical Equipment: Not bad. ELOS, STXS.

Internet: WWWW rising again. QIHU surging. VIPS trending higher. TWTR

Electronics: AEIS, MONT, SCTY, LEDS



SENTIMENT INDICATORS

VIX: 17.29; -0.06
VXN: 18.65; -0.04
VXO: 15.78; -0.8

Put/Call Ratio (CBOE): 0.83; -0.14


Bulls and Bears:

Bulls fade to 53.1, tumbling through the prior week's 57.6 and the 56.1 from the week before that. A bit of selling pushing the bulls down as you would expect. As noted before, the 60+ reading was extreme and logged a peak that should result in some selling as seen the past week.

Bears at 15.3 remain steady in the low 15 range for another week in its 5 week lateral move. (15.1 last week, 15.3 before that). Unable to push higher 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: 53.1% versus 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: 15.3% versus 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.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4103.88

Resistance:
4104 is the lower gap point from 12/20/13
4144 is the upper channel line for the November 2012 to present uptrend.
4246.55 is the January 2014 peak

Support:
The 50 day EMA at 4086
4070 is the series of highs from late November/early December
4041 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 3734
3697 is the August high and a prior post-bear market high in the recovery.


S&P 500: Closed at 1782.59

Resistance:
The 50 day EMA at 1804
1808 is the November and December 2013 twin peaks
1849.44 is the recent all-time high.

Support:
1775.22 is the October prior all-time high
1777 is the December 2012 up trendline. Trying to hold
1768 is the December 3013 low
1730 is the September 2013 peak
1710 is the August 2013 peak.
The 200 day SMA at 1706
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 15,698.85

Resistance:
15,739 is the December 2013 low
15,970 is a lower trendline off the 11/2012 low
The 50 day EMA at 16,074
16,175 is the November 2013 peak.
16,257 is the January 2014 low
16,589 is the December 2013 all-time high

Support:
15,696 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 15,466
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 31 - Friday
Personal Income, December (8:30): 0.0% actual versus 0.2% expected, 0.2% prior
Personal Spending, December (8:30): 0.4% actual versus 0.2% expected, 0.6% prior (revised from 0.5%)
PCE Prices - Core, December (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Employment Cost Index, Q4 (8:30): 0.5% actual versus 0.4% expected, 0.4% prior
Chicago PMI, January (9:45): 59.6 actual versus 58.0 expected, 60.8 prior (revised from 59.1)
Michigan Sentiment - Final, January (9:55): 81.2 actual versus 80.4 expected, 80.4 prior

February 3 - Monday
ISM Index, January (10:00): 56.0 expected, 56.5 prior (revised from 57.0)
Construction Spending, December (10:00): 0.1% expected, 1.0% prior
Auto Sales, January (14:00): 5.3M prior
Truck Sales, January (14:00): 6.6M prior

February 4 - Tuesday
Factory Orders, December (10:00): -1.7% expected, 1.8% prior

February 5 - Wednesday
MBA Mortgage Index, 02/01 (7:00): -0.2% prior
ADP Employment Change, January (8:15): 178K expected, 238K prior
ISM Services, January (10:00): 53.8 expected, 53.0 prior
Crude Inventories, 02/01 (10:30): 6.421M prior

February 6 - Thursday
Challenger Job Cuts, January (7:30): -5.9% prior
Initial Claims, 02/01 (8:30): 335K expected, 348K prior
Continuing Claims, 01/25 (8:30): 2993K expected, 2991K prior
Trade Balance, December (8:30): -$36.0B expected, -$34.3B prior
Productivity-Preliminary, Q4 (8:30): 2.4% expected, 3.0% prior
Unit Labor Costs, Q4 (8:30): -0.5% expected, -1.4% prior
Natural Gas Inventories, 02/01 (10:30): -230 bcf prior

February 7 - Friday
Nonfarm Payrolls, January (8:30): 175K expected, 74K prior
Nonfarm Private Payrolls, January (8:30): 161K expected, 87K prior
Unemployment Rate, January (8:30): 6.7% expected, 6.7% prior
Hourly Earnings, January (8:30): 0.2% expected, 0.1% prior
Average Workweek, January (8:30): 34.4 expected, 34.4 prior
Consumer Credit, December (15:00): $11.5B expected, $12.3B prior

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

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

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