Monday, May 12, 2014

A Tale of Two Markets


- DJ30 posts a new closing high, RUTX hits a new selloff low. A tale of two markets.
- Volatility remains but near term the growth sectors finally look a bit sold out.
- March Wholesale Inventories spike, raise hope for a positive Q1 GDP revision, though history shows it likely pulls from Q2.
- JOLTS: confirms the 'issues' with the monthly jobs report, indicate non-farm numbers to fall and a possible 'jobs' recession.
- Looking at the indices, sectors, stocks, the market looks as if it wants to try a bounce.

Volatility calms down, just a bit, for a session as indices close Friday mostly positive.

Not as dramatic an intraday swing, but once again stocks were heading in one direction (lower) and reversed field to close higher. No big intraday gyrations though the morning was again up and down and back and forth before stocks pulled into an upside trend. Even then the afternoon was a bit shaky as NASDAQ swung 20 points from the high to the mid-afternoon low.

Still, it was a comparatively quiet session to end the week. The market covered a lot of ground but really didn't go anywhere on the week. It needed a rest. It took it. Boring session, but boring can be good as it appears RUTX and NASDAQ may be a bit sold out for the near term.

SP500 2.85, 0.15%
NASDAQ 20.37, 0.50%
DJ30 32.37, 0.20%
SP400 0.24%
RUTX 0.89%
SOX -0.32%

Volume faded on the upside: 583M (-7.1%); 1.953B (-18.3%)

A/D: 1.3:1 NYSE, 1.7:1 NASDAQ. Yes, somewhat quiet but as with boring, quiet can be good.

The action left the indices little changed from Thursday and most of them down for the week, but the work may be done for now. By 'work' I mean putting in a short term bottom.

NASDAQ tested the lows from three weeks back and is showing improved MACD. Its overall pattern still makes you queasy, but near term it looks as if it wants to try a bounce. RUTX is similar. It put in a new selloff low on Friday's open but it recovered to hold its lows form the past 5 weeks. If NASDAQ wants to bounce, RUTX likely goes with it. Ringing endorsement that is not; RUTX still looks like warmed over road kill but it is at the February and November lows and if there is an inkling to bounce, then it is at least at a point where there is some footing.

I would not anticipate anything spectacular, but a relief/recovery bounce by the growth indices may give SP500 and DJ30 the push to make new highs. Indeed DJ30 pushed to a new closing high Friday even as RUTX gapped to a new low on the selling. A split market for certain, but if the laggards bounce, the leaders might make some hay out of that, at least for the short term.



Wholesale Inventories, March: 1.1% vs 1.0% vs 0.7% (0.5%)

With the jump in inventories, hope for Q1 GDP jumped as well. The surge will add 0.3% or so back onto GDP and at first blush that is good news. Beats downward revisions into negative territory as GS and JPM predicted early last week.

But WHY the jump? Because things slowed so much that inventories piled up. Businesses could not sell them and in some cases had a hard time getting inventory delivered if they wanted it.

So, inventories grew (read piled up) and somewhat artificially pumped back up GDP. What has happened every time inventories jumped one month in the past several years, however, is a commensurate decline the following month. Thus what Inventories gave in March they likely take away in April.

JOLTS: Job openings, hires versus fires.

April: 4.014M vs 4.125M prior (from 4.173M)

Job openings are a leading indicator of the payroll numbers. If they fade, jobs fade. If they rise, jobs rise. Makes sense. There is a six month lag between the openings report and then the result showing up in the non-farm payrolls. Jobs openings posted a miss, and data from several sources shows they have already started to lag the non-farms monthly readings. If it continues . . . non-farms have likely peaked on this cycle.

Hires versus 12 month change in payrolls: Hires are lagging the move in payrolls as well, recovering to just half of the prior cycle high.

Bloomberg reports gap between job openings and reported jobs looks just the same as it did 6 months ahead of the 2007 recession. Remember, openings lead non-farm payrolls by . . . 6 months.

Manufacturing openings from JOLTS: April makes 4 straight months of declines, the longest negative stretch in this recovery cycle. The last time this occurred back in 2007, the economy entered a recession that very month.

The Point: There is a divergence between the JOLTS data showing openings and net hires/fires and the non-farm jobs being reported. That divergence will show up in the non-farms numbers. The manufacturing quad decline indicates recession levels. The non-farms payrolls, just as they were touted creating 288K jobs, are just about to turn lower. We could be facing a jobs led recession in the summer.



SP500: Flat on the day again as SP500 continues its lateral walk over the 50 day EMA and below the all-time high. MACD has improved but lags. The index is now 10 weeks in this lateral move, holding up while NASDAQ, RUTX and growth in general sells off. The rotation to SP500 stocks has allowed it to hold its ground, but there is no breakout yet. That says a lot, but if NASDAQ and company decide to bounce, SP500 might be pushed higher as well. Some money might leave to support the move in growth stocks, but likely not enough to keep it from a general rise with them.

DJ30: New closing high Friday, but just semantics really as volume was low and DJ30 sports the same pattern as SP500. Same pattern, same issues, same positives.

NASDAQ: As noted above, NASDAQ looks still hideous in a head and shoulders top spanning December 2013 to present, but it also looks as if it is trying to bounce here. That may be a total head fake, but a lot of beaten down stocks act as if they want to bounce near term, and of course a majority of those are in residence at NASDAQ. Thus a near term bounce toward 4150ish is possible

RUTX: Similar to NASDAQ, hitting a new selloff low on the Friday open but rebounding to positive, holding a series of lows back to November 2013. A bit oversold and note that MACD put in a higher low as the stock put in a lower low Friday.

SOX: Hugging the 50 day EMA and lower trendline . . . still. Looks heavy, stumbling ever since hitting that recovery high in early April. Heavy but not giving up ground, holding the trend. Many chips look good, many are not so good. Thus the test, and if NASDAQ bounces SOX will find some support and bounce.


Big Names: How the mighty have fallen. AMZN, EBAY, GOOG, NFLX, PCLN. At least GOOG looks as if it wants to bounce off support and AAPL has put in a nice test of its gap and run. Outside of those, the big names in NASDAQ look bad. They can bounce given how oversold they are, but they look bad.

Energy: Continued to struggle to end the week. Good run, taking a breather.

Personal products: Still a sign of the defensive attitude of the market as CL and PG scored gains Friday, resuming their upside moves this past week.

Utilities: two days of struggling to end the week. AEP, EDN.

With the beat down in the growth areas, we are seeing some stocks prepping to bounce in relief. TRIP, Z (continues a good though volatile pattern), AAPL, MBT, NBIX. Many that were roughed up are now in position for a decent upside move.


Euro/Dollar: Dollar exploded higher versus the Euro, trying to break through the 50 day EMA. Tested the low in the range and found support thanks to Draghi promising action in June.

1.3754 versus 1.3853 versus 1.3914 versus 1.3928 versus 1.3878 versus 1.3875 versus 1.3865 versus 1.3868 versus 1.3814 versus 1.3851 versus 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

Dollar/Yen: Dollar started to bounce off the 200 day SMA versus yen.

101.81 versus 101.53 versus 101.73 versus 101.68 versus 102.11 versus 102.24 versus 102.30 versus 102.22 versus 102.62 versus 102.49 versus 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

Bonds: Tested on the week, fading to the 20 day EMA after a big move. Normal test.

10 year: 2.62% versus 2.60% versus 2.59% versus 2.59% versus 2.61% versus 2.59% versus 2.67% versus 2.69% versus 2.70% versus 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%

Oil: 100.02, -0.22 Bounced to the 200 day SMA on the week, but is stalling there, turning down Friday. Very important point for oil. If it falls it likely takes out 97 where it held on the last pullback.

Gold: 1287.60, -0.40. Stumbling around the 200 day SMA the past four weeks as gold continues to test the recovery rally to the mid-March peak.


Stats: +20.37 points (+0.5%) to close at 4071.87
Volume: 1.953B (-18.39%)

Up Volume: 1.1B (+186.64M)
Down Volume: 726.1M (-713.9M)

A/D and Hi/Lo: Advancers led 1.74 to 1
Previous Session: Decliners led 2.14 to 1

New Highs: 19 (-34)
New Lows: 136 (-5)

Stats: +2.85 points (+0.15%) to close at 1878.48
NYSE Volume: 583M (-7.17%)

A/D and Hi/Lo: Advancers led 1.29 to 1
Previous Session: Decliners led 1.38 to 1

New Highs: 85 (-84)
New Lows: 105 (+12)

Stats: +32.37 points (+0.2%) to close at 16583.34


VIX: 12.92; -0.51
VXN: 16.52; -0.9
VXO: 11.6; -1

Put/Call Ratio (CBOE): 0.94; 0

Bulls and Bears:

Bulls continue the move: 55.8% versus 54.7%. Higher high on this move, working toward the 60+ from January.

Bears fade again: 19.7% versus 20.6

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: 55.8 versus 54.7
51.6 versus 50.5 versus 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: 19.7% versus 20.6%
21.7% versus 20.6 versus 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.


On the day we did little, closing a position or so that was not performing. There were some moves on potential buys that were pretty good, but after this kind of volatility and heading into the weekend, pretty good was not good enough.

As noted earlier in the week, the indices could work through this volatility and come out on the other side looking great as patterns have time to set up, new leaders can appear, etc. There is some tenacity in the unwillingness to roll over. There is money rotating around, and not necessarily leaving the market. They may be moving to more staid, boring areas, but it is not going down.

With NASDAQ and RUTX patterns suggesting they want to put in an oversold bounce off support, perhaps the process will be complete. Something in the action does not suggest that is the case, and even if NASDAQ and RUTX bounce and help life the NYSE large cap indices, unless something changes in the growth areas I don't believe any move upside ultimately holds.

Frankly, I would prefer down as that is fast money, a lot of money, and leads to setting up new upside moves all the faster. Okay, I know; the market doesn't give a flip about our preferences. So, this weekend we will look at some upside where the money is rotating and where it looks as if some very tradable bounces are set. There are some stocks in sectors that were sold that nonetheless held up very nice patterns or have used this recent lateral action to set up at least an interim bounce. We look to take advantage of those, and then after the bounce there should be a lot of downside setups if the bounce runs out of gas.


NASDAQ: Closed at 4071.87

4070 is the series of highs from late November/early December
4104 is the lower gap point from 12/20/13
4131 is the March 2014 low
The 50 day EMA at 4142
4246.55 is the January 2014 peak
4277 is the March lower gap point
4289 is the July 2000 recovery high
4304 is the lower November 2012 trendline
4372 is the March 2014 high
4404 is the upper channel line for the November 2012 to present uptrend.

3991 is the prior November 2013 high and the post-bear market high.
The 200 day SMA at 3990
3968 is the February 2014 low
3946 is the April 2014 intraday low
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 1878.48

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

1879 is the December 2012 up trendline
The 50 day EMA at 1861
The December and January highs at 1848
1829 is the lower trendline from 11/2012
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
The 200 day SMA at 1782
1775.22 is the October prior all-time high
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

Dow: Closed at 16,583.34

16,589 is the December 2013 all-time high
16,632 is the April 2014 all-time high
16,770 is a lower trendline off the 11/2012 low

16,506 is the March 2014 peak
The 50 day EMA at 16,366
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 15,856
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

May 9 - Friday
Wholesale Inventories, March (10:00): 1.1% actual versus 1.0% expected, 0.7% prior (revised from 0.5%)
JOLTS - Job Openings, March (10:00): 4.014M actual versus 4.125M prior (revised from 4.173M)

May 12 - Monday
Treasury Budget, April (14:00): +$114.0B expected, +$112.9B prior

May 13 - Tuesday
Retail Sales, April (8:30): 0.3% expected, 1.2% prior (revised from 1.1%)
Retail Sales ex-auto, April (8:30): 0.6% expected, 0.7% prior
Export Prices ex-ag., April (8:30): 0.5% prior
Import Prices ex-oil, April (8:30): 0.3% prior
Business Inventories, March (10:00): 0.4% expected, 0.4% prior

May 14 - Wednesday
MBA Mortgage Index, 05/10 (7:00): 5.3% prior
PPI, April (8:30): 0.2% expected, 0.5% prior
Core PPI, April (8:30): 0.2% expected, 0.6% prior
Crude Inventories, 05/10 (10:30): -1.781M prior

May 15 - Thursday
Initial Claims, 05/10 (8:30): 325K expected, 319K prior
Continuing Claims, 05/03 (8:30): 2700K expected, 2685K prior
CPI, April (8:30): 0.3% expected, 0.2% prior
Core CPI, April (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, May (8:30): 4.8 expected, 1.3 prior
Net Long-Term TIC Fl, March (9:00): $85.7B prior
Industrial Production, April (9:15): 0.1% expected, 0.7% prior
Capacity Utilization, April (9:15): 79.2% expected, 79.2% prior
Philadelphia Fed, May (10:00): 9.1 expected, 16.6 prior
NAHB Housing Market , May (10:00): 48 expected, 47 prior
Natural Gas Inventor, 05/10 (10:30): 74 bcf prior

May 16 - Friday
Housing Starts, April (8:30): 975K expected, 946K prior
Building Permits, April (8:30): 1000K expected, 990K prior
Michigan Sentiment, May (9:55): 84.5 expected, 84.1 prior

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

Jon Johnson is the Editor of The Daily at

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