Monday, February 03, 2014

Stock Market Skittish on Currency Issues


- 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.



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.


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)

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)

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


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.


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.


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


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.


NASDAQ: Closed at 4103.88

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

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

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

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

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

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
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Jon Johnson is the Editor of The Daily at

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