Market Draws Its Lines

MARKET SUMMARY

- Without another AAPL, the Weekend, WWIII talk blamed for spooking the market.
- Stocks fade the rally further. NASDAQ and RUTX go beyond just a fade, others try to hold the line.
- Fed tapering, economic data mixed. So are the market calls.
- Market draws its lines: SP500 holding the line with its defensive leaders versus NASDAQ selling as growth leaders grow thin.

WWIII and the weekend. Too much for a still pensive market.


This was not what 'more flexibility' means. (What an ass) (What a Pussy)

Fears of the unknowns the weekend may bring received the credit for stocks selling Friday. We anticipated more of the test of the move higher and the futures suggested that would be the case. NASDAQ led the early weakness thanks to AMZN's perpetual earnings misses finally catching up to it. As one analyst said, the company is 20 years old and it is still in the process of establishing itself. Friday AMZN established a new low on this selling, filling the upside gap from October 2013.

As for the test of the rebound move, the only index that looks like a test versus trying to dump the entire rebound move is SP500. Well, SP400 is not that bad; it is at the trendline as it too still holds most of the upside move. For that matter you can throw DJ30 in the category though its pattern remains less than lovable. Okay, three NYSE indices are still testing more or less.

Growth, however, is where things get interesting as the Chinese say. RUTX gave up over half of the 6 day upside move. Hard come, easy go for the small caps. NASDAQ is still holding onto more than half its upside recovery, but its gap and selloff on still significant volume (compared to the upside volume on the rebound) has many buzzing about head and shoulders patterns. You bet. That is the pattern we have watched it develop. SOX gave up a big bite of its rebound move and now holds less than half the recovery. In fairness, SOX did not sell as much as the other indices in the prior selloff, so its fade still leaves it over the support of the 50 day EMA and easily holding its uptrend. Have to have something to be happy about.

SP500 -15.21, -0.81%
NASDAQ -72.78, -1.75%
DJ30 -140.19, -0.85%
SP400 -1.18%
RUTX -1.86%
SOX -3.29%

Volume flat: NYSE +2%, NASDAQ -1.5%

A/D: Bad breadth on NASDAQ at -4.9:1. NYSE no issues at -2:1.


CHARTS and LEADERSHIP

NASDAQ: Made the 50 day EMA on the rebound and started to fade that move. That fell 45 points short of the January high at 4245ish, the level that would be a perfect match for a right shoulder. Didn't have to make it that far to roll, however, and Friday it faded the move hard and on significant volume versus the rebound trade. Unless this was just some jangled nerves ahead of a weekend where WW III comments are being rather recklessly tossed around, NASDAQ looks to be in trouble once again. Of course if it was my country on the threshold of invasion I might be kind of reckless with my language as well.

SP500: NASDAQ's foil is SP500. Sure it faded Friday, but it is holding the 20 day EMA and the upper channel line. That keeps it over the December and January peaks as well. Holding support, maintaining its trend. Foil for NASDAQ indeed. It is struggling itself; MACD posted a lower high as the index price posted an all-time high. The index is working laterally, trying to consolidate the February run and continue the trend. Not powerful, but hanging in the trend and performing because market leadership resides in the NYSE more defensive areas such as utilities, personal products, metals. At least energy is performing and a bit more exciting.

The other indices fall into their respective sides of this bifurcation. RUTX is selling with NASDAQ. SOX is suddenly problematical, selling hard Friday. Still in the trend but weakened.

DJ30 is with SP500, working laterally, but has that threat of a weaker third top that has signaled market tops in the past.

SP400 is something of the swing man, holding its trend but will need to show some strength to avoid its third straight break of the trend.

That raises the question yet again, the one discussed when NASDAQ sold off in March and early April while again SP500 showed relative strength: will the NYSE with its more staid and stoic stocks (utilities, consumer products) outperform AND be able to drag the growth areas along with it, or will NASDAQ, if it continues with the break lower, drag the rest of the market with it?

NASDAQ is not without its group of leaders, but the list is thinning. Electronics remain its bright spot and they are performing, e.g. LSCC, FSLR, OVTI. NASDAQ has some energy stocks as well. Both areas help but they haven't kept NASDAQ afloat now have they?




OTHER MARKETS

Euro/Dollar: A modest dip on the week testing the bounce to midmonth. In position to rebound and move back up in the range.

1.3839 versus 1.3831 versus 1.3817 versus 1.3805 versus 1.3794 versus 1.3815 versus 1.3815 versus 1.3814 versus 1.3820 versus 1.3883 versus 1.3886 euro versus 1.3855 versus 1.3797 versus 1.3742 versus 1.3701 versus 1.3712 versus 1.3760 versus 1.3794 versus 1.3779 versus 1.3752 versus 1.3748 versus 1.3788 versus 1.3823 versus 1.3842 versus 1.3794

Dollar/Yen: Also a modest fade on the week after bouncing off the 200 day SMA and the bottom of the three month range to start April. Dollar ready to advance versus the yen as well.

102.13 versus 102.32 versus 102.44 versus 102.61 versus 102.62 versus 102.44 versus 102.27 versus 101.80 versus 101.72 versus 101.43 versus 102.00 versus 101.70 versus 102.59 versus 103.10 versus 103.24 versus 103.92 versus 103.76 versus 103.68 versus 103.21 versus 102.81 versus 101.24 versus 101.99 versus 102.26 versus 102.25 versus 102.25


Bonds: A modest gain Friday on top of the upside week. A big move early to a new recovery high could not hold, but bonds continue in a breakout uptrend.

10 year: 2.67% versus 2.68% versus 2.69% versus 2.73% versus 2.71% versus 2.72% versus 2.64% versus 2.62% versus 2.64% versus 2.62% versus 2.65% versus 2.69% versus 2.68% versus 2.70% versus 2.73% versus 2.79% versus 2.80% versus 2.75% versus 2.73% versus 2.71% versus 2.68% versus 2.70% versus 2.75% versus 2.73% versus 2.77%


Oil: 100.58, -1.37. Ever since oil came within a dollar of the last high in February it has turned and rolled. Friday it cracked the 200 day SMA. Didn't smash it, but showing surprising weakness. Okay, so it is rolling in a higher range now.


Gold: 1300.80, +9.80. Second day of upside off of the double bottom at the 78% Fibonacci retracement. Held with a nice intraday reversal Thursday, continued higher Friday. Good start.


MARKET STATISTICS

NASDAQ
Stats: -72.78 points (-1.75%) to close at 4075.56
Volume: 2.071B (-1.52%)

Up Volume: 331.5M (-624.04M)
Down Volume: 1.74B (+610M)

A/D and Hi/Lo: Decliners led 4.88 to 1
Previous Session: Decliners led 1.38 to 1

New Highs: 27 (-33)
New Lows: 59 (+32)

S&P
Stats: -15.21 points (-0.81%) to close at 1863.4
NYSE Volume: 612M (+1.83%)

A/D and Hi/Lo: Decliners led 1.94 to 1
Previous Session: Advancers led 1.05 to 1

New Highs: 82 (-60)
New Lows: 79 (+12)

DJ30
Stats: -140.19 points (-0.85%) to close at 16361.46


SENTIMENT INDICATORS

VIX: 14.06; +0.74
VXN: 18.59; +1.42
VXO: 13.89; +1.07

Put/Call Ratio (CBOE): 1.14; +0.35

Bulls and Bears:

Bulls recover some ground but just a small part of the drop from 54.6: 51.6 versus 50.05 versus 54.6

Bears bounce higher again: 21.6 versus 20.6 versus 18.6.

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: 51.6 versus 50.5
54.6% versus 50.5 versus 54.7% 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: 21.7% versus 20.6
18.6% 18.6% 17.5% 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.


THE ECONOMY

The week brought more economic data points and it remains puzzling. That is a technical market term. Tantalizingly better in some cases, more of the same nothing in others.

Friday we learned Michigan Sentiment hit its highest level since 7/13 (84.1), just a click below the post-2007 high (85.1). Durable Goods orders reported Thursday were much better.

Yet, mortgage apps have tanked, New home and Existing Home sales are falling hard as the WSJ reports that demand for home loans is plunging. Q1 2014 saw a 58% decline over same time 2013 and off 23% from Q4 2013 as the end of 2013 saw its drop entirely due to lack of refinancing. With 30 year rates at 4.5% versus 3.6% in May 2013, you can see the reason refi's are lower. Even with rates still at historic lows, affordability is worsening as wages are not rising as weekly wages continue to decline.




How can there be a recovery with no housing? How can there be a continued housing recovery when wages are NOT recovering? The middle class is going away in many states, and with it, the middle of the housing market is gone. For the first time in modern history, another country has caught up with the wealth of the American middle class; Canada has done it first. We are losing our middle class, we are losing our standard of living. Wake up. That is your wakeup call right there. The policies we are on are simply the wrong policies.

Very puzzling data as this recovery continues to track like no 'recovery' since the Great Depression. Could it be . . the policies in place? I think you know where I stand on that one and I just don't have it in me to go there tonight. Suffice it to say we are doing ourselves no favors turning away from what made the US so economically strong and its middle class the greatest the world had ever seen.

And you can expect more turning away as the Administration plays host to the author of the most recent book touting socialism and 80% tax rates on the 'rich,' claiming that free enterprise class mobility was a myth. There they go again.


'There you go again . . .' -- Ronald Reagan to Jimmy Carter

What does conflicting data do to stocks? Stocks are peculiar when it comes to uncertainty, and that includes economic uncertainty. If they cannot figure it out, if the mix of fiscal and social policies from the federal government and the monetary policies of the Fed cause such flux that the future is hard to see, or what they see they do not like, investors drop back and punt and will wait for better field position to get back on offense.


MONDAY and THE WEEK AHEAD

Huge week in terms of data culminating with the April jobs report, lots more earnings, the Ukraine/Russia confrontation, and of course the resolution of the selling experienced to end the week.

Remember the bigger picture. This move upside from the get go was just seen as a bounce, particularly for NASDAQ. The question was how far it would go. NASDAQ recovered to a significant resistance point (50 day EMA), started to test, then started to sell Friday as the Russia/Ukraine situation devolved further and investors wanted out ahead of the weekend.

Next week we will see if the bounce is officially over, but it might be safe to assume that is the case. When the going got tough investors started for the exits. Of course Ron Insana just joined Dennis Gartman in turning bullish from bearish. That is Gartman's third call in the past two months just as stocks reversed the other direction. Seems Ron has joined Gartman but may be late to the party, at least on THIS particular move.

Overall the market volatility as we have discussed over the past few weeks remains and is still an indication the market uptrend is getting seriously tested. NASDAQ and RUTX are already trend breakers, working to find the bottom of their bases. SP400 is attempting to hang on. Definite erosion of the trends that started when the Fed indicated it would taper and then ratcheted up in intensity with Yellen's '6 month' comment.

Ironically, some on the financial stations claimed over the past week or two that the market is stronger since the Fed started to pull back on stimulus. Heard this again this week. I would say that the new highs are deceptive and that you have to look at the increasing volatility in what used to be a steady trend. You will get big moves up and big moves down in succession. Almost by definition you will get new rally highs because the index has rallied to highs and then careens back and forth in wider, more volatile swings.

On top of the increased volatility in the trend there is the very important decline of growth leadership and the transition to defensive leadership as well as the trend breaks by NASDAQ and RUTX, two former market leaders.

If the recovery attempt from those leaders fail and all that is left is the defensive leadership, the prognosis near term is not positive. Next week will be an important one, i.e. whether NASDAQ and RUTX can stem the Friday decline and resume the upside move with some leadership rebounding. If it is just nerves over Russia, that could very well happen. That would indicate the passing of the baton to the next leg upside and a continued rally, likely to new highs. As noted above, however, we are not going to count on that and will be watching for more downside as a definite possibility as the NASDAQ tries to base after breaking its trend.


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4075.56

Resistance:
4104 is the lower gap point from 12/20/13
4131 is the March 2014 low
The 50 day EMA at 4166
4246.55 is the January 2014 peak
4262 is the lower November 2012 trendline
4277 is the March lower gap point
4289 is the July 2000 recovery high
4363 is the upper channel line for the November 2012 to present uptrend.
4372 is the March 2014 high

Support:
4070 is the series of highs from late November/early December
3991 is the prior November 2013 high and the post-bear market high.
3968 is the February 2014 low
The 200 day SMA at 3965
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 1863.40

Resistance:
1883.57 is the recent all-time high hit in early March.
1897 is the all-time high hit in April 2014

Support:
1864 is the December 2012 up trendline
The 50 day EMA at 1852
The December and January highs at 1848
The April 2014 low at 1814
1815 is the lower trendline from 11/2012
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
The 200 day SMA at 1772
1768 is the December 3013 low
1738 is the February 2014 low
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 16,362.90

Resistance:
16,506 is the March 2014 peak
16,589 is the December 2013 all-time high
16,632 is the April 2014 all-time high
16,656 is a lower trendline off the 11/2012 low

Support:
The 50 day EMA at 16,289
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 15,806
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak
15,542 is the May 2013 intraday high
15,340 is the February 2014 low
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)


Economic Calendar

April 25 - Friday
Michigan Sentiment -, April (9:55): 84.1 actual versus 82.6 expected, 82.6 prior

April 28 - Monday
Pending Home Sales, March (10:00): 1.0% expected, -0.8% prior

April 29 - Tuesday
Case-Shiller 20-city, February (9:00): 13.0% expected, 13.2% prior
Consumer Confidence, April (10:00): 83.6 expected, 82.3 prior

April 30 - Wednesday
MBA Mortgage Index, 04/26 (7:00): -3.3% prior
ADP Employment Chang, April (8:15): 215K expected, 191K prior
GDP-Adv., Q1 (8:30): 1.0% expected, 2.6% prior
Chain Deflator-Adv., Q1 (8:30): 1.8% expected, 1.6% prior
Employment Cost Inde, Q1 (8:30): 0.5% expected, 0.5% prior
Chicago PMI, April (9:45): 56.5 expected, 55.9 prior
Crude Inventories, 04/26 (10:30): 3.524M prior
FOMC Rate Decision, April (14:00): 0.25% expected, 0.25% prior

May 1 - Thursday
Challenger Job Cuts, April (7:30): -30.2% prior
Initial Claims, 04/26 (8:30): 315K expected, 329K prior
Continuing Claims, 04/19 (8:30): 2725K expected, 2680K prior
Personal Income, March (8:30): 0.4% expected, 0.3% prior
Personal Spending, March (8:30): 0.6% expected, 0.3% prior
PCE Prices - Core, March (8:30): 0.2% expected, 0.1% prior
ISM Index, April (10:00): 54.5 expected, 53.7 prior
Construction Spendin, March (10:00): 0.4% expected, 0.1% prior
Natural Gas Inventor, 04/26 (10:30): 49 bcf prior
Auto Sales, April (14:00): 5.5M prior
Truck Sales, April (14:00): 7.6M prior

May 2 - Friday
Nonfarm Payrolls, April (8:30): 210K expected, 192K prior
Nonfarm Private Payr, April (8:30): 205K expected, 192K prior
Unemployment Rate, April (8:30): 6.6% expected, 6.7% prior
Hourly Earnings, April (8:30): 0.2% expected, 0.0% prior
Average Workweek, April (8:30): 34.5 expected, 34.5 prior
Factory Orders, March (10:00): 1.6% expected, 1.6% 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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