Monday, March 31, 2014

Much of the Market Looks Pretty Solid


- A relief attempt gets the same treatment as other rally efforts.
- Looked ready to go, but was not.
- Outside of some spectacular selloffs, much of the market looks pretty solid.
- Indices still divided, no pattern looks that great, but there are many good upside patterns out there.
- Spending and Incomes rise, but revisions are huge and you just have to question the numbers given the real numbers.
- Cannot count out SP500 rallying from here. Cannot count on it either.

Finally the setup. Growth stocks spending over a week redefining the term 'growth' as community punching bag. Biotech drug stocks in need of their own Rx. Big names such as AMZN, NFLX, PCLN, GOOG suddenly treated as the Rodney Dangerfields of the market.

You want to make your wife scream when having sex? Call her.
Talk about fat. I'm so fat that that when I stand in the corner the police tell me to break it up. I'm so fat that when I lie on the beach the Save the Whales people keep trying to roll me back in.
(surprisingly few good shots of Dangerfield on the web)

The 'F' word mentioned every other hour on CNBC and other financial networks (you know, 'froth'). The actual open questioning of whether the bull market built on FOMC QE could survive given the Fed, similar to the Malaysian government regarding the missing airliner, finally admitted the obvious that yes, someday it would have to remove stimulus.

Thus after 4 of 5 sessions lower on NASDAQ, 5 straight on RUTX, and over a week of floundering along below the prior highs on SP500 and DJ30, we were looking for a bit of a relief move. At least in growth, the doormat for sellers the past week and one-half.

Indeed, stocks did start Friday in good shape with NASDAQ well outpacing the large cap NYSE stocks to the upside. Futures were up 12 points versus fair value, and while a higher open is the de facto kiss of death for this stock market, given NASDAQ was disproportionately down versus the NYSE and since it was ripe for a relief bounce given its gutting, it SEEMED somewhat logical to think a relief move was coming.

It did. NASDAQ jumped up through its lower channel line and RUTX surged up to its 50 day EMA. 52 points upside for NASDAQ (1.25%), 16 for RUTX (1.4%). Even the Dow ran up to its trendline in the surge. Over a week of losses in the growth indices, end of the week, end of the month, end of the quarter (at least on Monday) . . . yes, primed for a relief move and it was starting. Cool.

Well, you know what happened to this relief move. Same old story. All this relief move did was let any pressure to bounce out of the bottle. Kind of an upside relief valve: downside pressure gets too high, pop upside intraday, draw in some bids, then flop back down. Growth stocks were definitely stretched lower with RUTX posting its worst week in almost two years. They were primed for a relief rally. Alas, after Friday are still stretched to the downside, but the intraday surge (again, 52 NASDAQ points!) released whatever demand there was. When the bids were exhausted no one else wanted stocks and the move was sold.

Stocks recovered in the last two hours though 'recovered' is an overly generous, CNBC-perma-bull-type word. They stopped selling is more apt. The sellers had their victory, no reason to get penalized for excessive celebration after the rout. Almost shockingly, given the higher start on all indices, that 'recovery' allowed all indices to close positive on the session.

SP500 8.58, 0.46%
NASDAQ 4.53, 0.11%
DJ30 58.83, 0.36%
SP400 0.54%
RUTX 0.03%
SOX 0.73%

Volume: Sank significantly, -20% NYSE, -10% NASDAQ. Below average on both exchanges, the first time for NASDAQ in six sessions. At least no dumping; traders wanted just to get the week over, and there was plenty of distribution on the week for NASDAQ, with even NYSE suffered some dumping.

A/D: Even with the indices coughing up good gains, breadth was not bad, indeed very good in some cases. NYSE 2.5:1, NASDAQ just positive. You might wonder where the moves were, but outside of the growth areas that are getting hit, and indeed even in some of the sectors getting hit, the action is not that bad. Thus SP500, SP400, DJ30, and SOX are holding up rather nicely all things considered.



Euro/Dollar: Bounced the back half of the week but that after falling early on. The action kept it in a range just below the 50 day EMA.

1.3752 versus 1.3748 versus 1.3788 versus 1.3823 versus 1.3842 versus 1.3794 versus 1.3776 versus 1.3831 versus 1.3930 versus 1.3925 versus 1.3907 versus 1.3858 versus 1.3907 versus 1.3870 versus 1.3869 versus 1.3872 versus 1.3857 versus 1.3735 versus 1.3737 versus 1.3730 versus 1.3805

Dollar/Yen: After a week of lateral moves the dollar broke sharply higher Friday.

102.81 versus 101.24 versus 101.99 versus 102.26 versus 102.25 versus 102.25 versus 102.42 versus 102.51 versus 101.40 versus 101.75 versus 101.29 versus 101.67 versus 102.71 versus 102.90 versus 103.24 versus 103.33 versus 103.07 versus 102.31 versus 102.19 versus 101.38 versus 101.82 versus 102.10 versus 102.38 versus 102.16 versus 102.47 versus 102.51 versus 102.35 versus 102.25 versus 102.43 versus 101.86

Bonds: Faded some Friday but that after a breakout from the 8 week range.

10 year: 2.71% versus 2.68% versus 2.70% versus 2.75% versus 2.73% versus 2.77% versus 2.78% versus 2.77% versus 2.67% versus 2.70% versus 2.65% versus 2.65% versus 2.72% versus 2.77% versus 2.78% versus 2.79% versus 2.74% versus 2.69% versus 2.67% versus 2.60% versus 2.66% versus 2.69% versus 2.67% versus 2.70% versus 2.74% versus 2.73% versus 2.75%

Oil: 101.67, +0.43. A breakout week of sorts for oil as well, finally topping the 200 day SMA Thursday and Friday.

Gold: 1293.90, -0.80. Another down week for gold as it tries to test the prior break but is having a hard time finding a floor.


Stats: +4.53 points (+0.11%) to close at 4155.76
Volume: 2.014B (-10.17%)

Up Volume: 1.07B (+241.96M)
Down Volume: 932.96M (-487.04M)

A/D and Hi/Lo: Advancers led 1.01 to 1
Previous Session: Decliners led 1.54 to 1

New Highs: 34 (+14)
New Lows: 41 (-14)

Stats: +8.58 points (+0.46%) to close at 1857.62
NYSE Volume: 567M (-20.14%)

A/D and Hi/Lo: Advancers led 2.49 to 1
Previous Session: Advancers led 1.15 to 1

New Highs: 85 (+23)
New Lows: 62 (-22)

Stats: +58.83 points (+0.36%) to close at 16323.06


No significant change in the closing prices Friday, and thus the relative positioning remains the same: NASDAQ and RUTX down hard and through support, SP500, DJ30, SP400, SOX holding support.

SP500, DJ30: Holding over the 20 day, still working laterally. DJ30 hit the trendline on the high and faded back to the 20 day EMA. Same lower high, same crappy pattern, but also the same refusal to give in. SP500 is also in the same pattern, but it is sitting on top of support and trying to defy the prior pattern in the uptrend, i.e. selling back off of this kind of top. Still don't expect it to, but as with DJ30, it has not given in.

NASDAQ: Moved up through the lower trendline of its 2012 channel and then gave it up. Less than impressive bounce. Even with the weekend and some lower volume there were not enough buyers to keep NASDAQ up. Instead it could not hold the gains, again, and was dumped back near flat. Still oversold but does not have the votes right now to hold an upside move.

RUTX: Surged upside to the 50 day EMA then coughed up 15 points to close flat. As with NASDAQ, the small caps are oversold, but finding buyers is hard to do, at least buyers that want to stick with the stocks. When buyers move in, sellers swarm and sell more than the buyers can handle. Still a lack of buyers wanting to hold the small caps, and the Friday move likely clears out some more buyers as whatever upside pressure there was released.


Most stocks in the market holding up just fine. Maybe not great, but just fine. It is the spectacular collapse in a few areas such as biotechs, internets, specific leaders in some sectors, and large drops from some big names (PCLN, NFLX, AMZN, GOOG) that gives the market the appearance of significant upheaval. That, and of course, some pretty crappy index patterns.

Biotechs: Some said money was already moving back into these stocks. No bounce. None. BIIB, CELG, GILD.

Financials: Still in the test, but some very decent patterns. Boring, but decent. JPM, BAC, STT, WFC.

Metals: Steel (some of it) looks pretty steely, e.g. AKS, SCHN, MTL. Not beautiful in all cases, but some can actually make money.

Electronics: Big names such as KLAC, SLAB are okay. Smaller names, e.g. ANAD, ALTI not.

Internet: Still under pressure but some of the leaders look very interesting, e.g. YY, VIPS. Of course the Pamplona running of the bulls looks interesting as well; doesn't mean I am going to jump in the middle of action. Have to show the move, but they are set up well.

Energy: Good week and not a bad Friday. We were watching BHI, and we watched it so much it jumped. Rookie mistake, taking pictures versus getting involved. KOG is getting its legs under it again. SPN is breaking to a higher high in a big base. Might be some opportunity even without a pullback.


Notice the number of ads for trading services and 'new' trading schemes that are based upon formulas to produce profits again and again and again (defining probabilities and trading accordingly. Hmmm. Sounds familiar . . .)? Radio, internet, television.

That tells us the retail investor is there and is responding to these ads. They try them periodically and if there is no response they pull them and wait. Now they are getting interest so they are running them with more and more frequency.

Why is this relevant? Because we know the retail player always comes in late and is always enamored with the hottest fad. Right now that is IPO's. Hey, we are playing them as well, but because they are setting up good patterns and surging, attracting money. Not because they are an IPO and they are 'hot.'

At some point all of the money is in and there is no more. The retail investor is usually the last money, the money that buys and has no one to sell to. This can go on, however, for months and months and months (recall the internet boom that was called a bubble for two years before it broke). Even though a stove is hot, you still use it for cooking because you know how to use it. You just have to watch for the signs that it is getting too hot and will burn the food and of course, you.

Keep this in mind as we watch the continuing market action.

VIX: 14.41; -0.21
VXN: 18.09; -0.4
VXO: 13.45; -0.57

Put/Call Ratio (CBOE): 0.96; +0.12

Bulls and Bears:

Bulls bounced right back up: 54.7 versus 52.0. Good grief. Yes, still elevated.

Bears AGAIN holding at 17: 17.5 versus 17.4 versus 17.4 versus 15.1 from 17.2 for two weeks and 17.4 for three weeks prior to that.

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: 54.7 versus 52.0%
54.6% 53.5% 46.5% 41.8% 45.9% 53.1% 57.6 56.1 60.6% 61.6% 60.0%
58.2% 57.1% 55.7% 53.6% 52.6% 55.2% 52.6 49.5 42.3% 45.4 46.4% 44.3% 42.3% 37.1% 37.1% 38.1% 43.3%.

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 17.5% versus 17.4%
15.1% 17.2% 17.2% 17.4% 17.4% 15.3% 15.1 15.3% 15.2% 15.2% 14.0 14.3 14.3% 14.4 15.5 15.5% 15.6% 16.5% 18.5 21.6% 20.6% 18.6% 20.6% 21.6% 22.7% 23.7% 23.8% 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.


Personal Income February: 0.3% versus 0.2% versus 0.3% January

Spending February: 0.3% versus 0.3% versus 0.2% (down from 0.4%)

Income and spending were in line so all must be well. Incomes up 0.3% again. Well that is great given the analysis from the last jobs report shows weekly incomes hitting a 4 year low, falling as the recovery supposedly gains speed. Average hourly rates were reported up nicely that same month. What does this mean? First, the economic recovery is not going well for many in the US. Second, you cannot trust the government's headlines.

Revisions: Spending was revised in half for January as it turns out consumers did not spend a record $70B on services as was heralded in January even with the storms hitting (giving rise to the idea 'just think what it will be like when the storms end'). Indeed, the January Services number was revised down almost 30% to $50B. February service spending fell to $26B, almost half of January's revised lower level.

Higher healthcare costs dominated the spending. Hmmm, were not our costs supposed to be down with all of the great changes in healthcare? $2500 on average? We HAD heard some commentators claiming costs were down, but those claims suddenly grew quiet a couple of months back. Seems they got the word from above to tone it done.

Indeed costs WERE coming down . . . even before the ACA got going. We all know the stories, many from personal experience even if Senator Reid calls us liars, that since the ACA kicked in our policies were cancelled and we had to buy new, more costly policies (yes that is the norm even with the law 'changes' allowing insurers to keep selling 'inferior' policies). Also, despite even more shouts of 'liars' with respect to those saying they were having to pay their ACA penalties now, it turns out that those of us who pay quarterly income tax estimated payments are indeed seeing healthcare related costs go up because the tax form expressly says, pay your estimated penalty this quarter! Many are required to spend money to NOT be insured (the so-called tax that is a penalty).

Now you see it, right? THAT is how you get spending higher: pass a law that requires, despite multiple unilateral executive changes and extensions, people to either buy more expensive insurances or pay a penalty. Think about it: those who already had insurance, not those who are getting subsidies and are riding our wallets, get hit twice: First with higher priced policies and second paying for the subsidies of others through more taxes, e.g. on your home sale. That is a nice little fact in the law that we had to pass to see what was in it.

Now THAT is the kind of spending that really gens up the economy right? Transfer payments and subsidies. We have seen how well this kind of Keynesian redistribution affects 'massive' capital investment in the economy: last week saw cap-ex investment fall in both Durables Orders (-1.5%!) and in Q4 GDP (revised to a measly 0.43%). Indeed, investment in the US economy now goes by the names stock buyback and special dividend. There is virtually no serious capital investment in our country. I have said it before and it is getting worse: we are hollowing out the US economy by the policies our leaders implement and the behavior those policies promote, expectedly or unexpectedly.


Given the Friday surge and purge it may be that a relief bounce does not develop, so we grabbed some BEAV puts, cleared some upside, and this weekend we look at downside and upside plays in order to play the next break. Even with the breakdown in NASDAQ and RUTX, the next move is not that clear. The market is divided, and typically a divided market does not stand, but MANY sectors and stocks are performing quite well. It is the magnitude of the collapses that has everyone's attention, but on close review this weekend we find many sectors and stocks still in quite good position.

Looking at the charts you would think at least a relief bounce is called for. Then you get the Friday up then down action on NASDAQ/RUTX, and you also remember that SP500 has to change its stripes and RALLY off this kind of pattern, something it did not do even during the salad days of full frontal, $85B/month QE.

That said, there is rotation occurring, and when you have rotation you CANNOT count out the market holding, shifting assets elsewhere, and the breaking higher. Thus you cannot assume SP500 will necessarily break lower from this pattern. Indeed, given there is some rotation, however, it may be time for it to do just that.

So, we look at plays upside that fit the rotation scenario (and a few others that could bounce from good patterns in growth sectors), as well as some more downside even without an bounce upside. Based on the action Friday, some stocks that sold through support still look weak given they tried a bounce back through the broken support and were thrown back.

If the market is going to continue selling as we believe, we would love to see a 2-3 day test upside to set things up very nicely. The quarter end/new quarter start may accommodate us though Friday certainly was a disappointment.

This is my grandson Jake, my son Alan, and this is my other son Charlie, a continuing source of disappointment for me.

Of course we would love to see that, but the market doesn't move to accommodate our desires. So, we have to be ready to take our positions whichever way the big M goes. Given SP500, SP400, SOX and even DJ30 are still holding support, more upside from here is still a plausible possible scenario.

As the market turned choppy, however, we got significantly lighter in upside positions and have stepped into more downside. At this juncture we are ready to go either way so to speak. Not that there is anything wrong with that.

Jerry and George with the NYU student reporter.


NASDAQ: Closed at 4155.76

4189 is the November 2012 trendline
The 50 day EMA at 4218
4246.55 is the January 2014 peak
4277 is the March lower gap point
4289 is the upper channel line for the November 2012 to present uptrend.
4289 is the July 2000 recovery high
4372 is the March 2014 high

4104 is the lower gap point from 12/20/13
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.
The 200 day SMA at 3899
3855 is the November low
3819 is the early October high
3801 is the September 2013 high.
The October low at 3750
3697 is the August high and a prior post-bear market high in the recovery.

S&P 500: Closed at 1857.62

1883.57 is the recent all-time high hit in early March.

The December and January highs at 1848
The 50 day EMA at 1841
1837 is the December 2012 up trendline
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
1768 is the December 3013 low
The 200 day SMA at 1749
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point
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 16,323.06

16,416 is a lower trendline off the 11/2012 low
16,506 is the March 2014 peak
16,589 is the December 2013 all-time high

16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 50 day EMA at 16,183
15,739 is the December 2013 low
15,696 is the September 2013 peak
The 200 day SMA at 15,677
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
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

March 28 - Friday
Personal Income, February (8:30): 0.3% actual versus 0.2% expected, 0.3% prior
Personal Spending, February (8:30): 0.3% actual versus 0.3% expected, 0.2% prior (revised from 0.4%)
PCE Prices - Core, February (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Michigan Sentiment - Final, March (9:55): 80.0 actual versus 80.0 expected, 79.9 prior

March 31 - Monday
Chicago PMI, March (9:45): 60.1 expected, 59.8 prior

April 1 - Tuesday
ISM Index, March (10:00): 54.1 expected, 53.2 prior
Construction Spendin, February (10:00): 0.1% expected, 0.1% prior
Auto Sales, March (14:00): 5.2M prior
Truck Sales, March (14:00): 7.0M prior

April 2 - Wednesday
MBA Mortgage Index, 03/29 (7:00): -3.5% prior
ADP Employment Chang, March (8:15): 215K expected, 139K prior
Factory Orders, February (10:00): 1.1% expected, -0.7% prior
Crude Inventories, 03/29 (10:30): 6.619M prior

April 3 - Thursday
Challenger Job Cuts, March (7:30): -24.4% prior
Initial Claims, 03/29 (8:30): 320K expected, 311K prior
Continuing Claims, 03/22 (8:30): 2850K expected, 2823K prior
Trade Balance, February (8:30): -$39.5B expected, -$39.1B prior
ISM Services, March (10:00): 53.5 expected, 51.6 prior
Natural Gas Inventor, 03/29 (10:30): -57 bcf prior

April 4 - Friday
Nonfarm Payrolls, March (8:30): 197K expected, 175K prior
Nonfarm Private Payr, March (8:30): 205K expected, 162K prior
Unemployment Rate, March (8:30): 6.6% expected, 6.7% prior
Hourly Earnings, March (8:30): 0.2% expected, 0.4% prior
Average Workweek, March (8:30): 34.4 expected, 34.2 prior

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

Jon Johnson is the Editor of The Daily at

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