- Stocks indecisive Friday, but rally back from midday weakness.
- NASDAQ, SOX still a no-decision at key resistance. Heck, throw in DJ30 as well.
- Leadership pausing, some already in good position to break back up.
- Spending fails to show a Q2 rebound. Indeed it flips negative for the first time in a year.
- Chicago PMI solid thanks to autos.
- Gasoline consumption reported down 75% from peak.
- Now we see if the leaders can pull NASDAQ, SOX through resistance.
Friday did not answer any questions about resistance, or at least nothing definitive. NASDAQ is still right at the January peak and SOX is still bumping the April peak while SP500 continues to press on with yet more new highs.
Stocks started sloppy but hardly under pressure. Midday, however, the pressure arrived and shoved stocks down hard. Some firings, er, layoffs in the Obama Administration appeared to rattle the market. Maybe it was not so much the resignations/firings but the notion that the VA is just ONE of the many massive bureaucracies in the federal government. You would think that one charged with caring for our veterans would have people doing it as a labor of love. Perhaps they are; perhaps this is just more proof that huge government is bad for everyone with its waste and corruption. Perhaps that had a sobering effect on investors. Nah. It should, but that was not it.
In any event, stocks recovered in the afternoon session. They didn't get back to positive across the board, but for the most part they got pretty darn close. That at least showed some character as stocks did not dive after a decent rally upside and indeed came back from some selling.
SP500 3.54, 0.18%
NASDAQ -5.33, -0.13%
DJ30 18.43, 0.11%
Volume: +8% on both NYSE and NASDAQ. Don't take much from that excess volume (back above average on NYSE) as it was rebalance time and that rushed volume higher late.
The week was something of a draw. Tuesday a solid upside session to start the shortened week. Wednesday a stall or pause, Thursday the upside resumed though likely before stocks were ready (at least across the board), and Friday it was back to resting, more or less.
NASDAQ: Slipped back below the January peak after closing above that level Thursday. Until it clearly breaks it and puts it out of our misery that January high is important. Thursday's slight break on lower volume was nothing to hang a hat on. With the big names that led NASDAQ to the January high taking a breather or at least slowing their ascent, it is no surprise that NASDAQ stalled at this level. Some of those stocks are ready to go yet again, e.g. GOOG. Others are just now taking a breather (e.g. TRIP, PCLN, AAPL) so NASDAQ needs to find some more drivers or wait for these others to finish their pause/test/rest or whatever they intend after the rally to this point.
SOX: Great run to the April peak and then three days this week testing it. Not selling, just slowing its move and working laterally. Good enough, but as noted earlier, the action is indeterminate whether it will hold and continue or stall out. Recall MACD, while moving back up, is still lagging considerably behind the price move.
SP500: New session, new price high. Volume surged but there was a lot of NYSE rebalancing ongoing.
DJ30: Similar to SOX as the Dow approaches the mid-May all-time high, still below it, still showing lagging MACD.
RUTX: Down the most of any index on the Friday session, but still in a good consolidation as it tested the 50 day EMA and held. Again, a very good consolidation in place, and the Russell has itself in position to hold and resume the move.
SP400: Cruised higher into Tuesday then started to stutter, but no issues. The midcaps simply slid slightly higher up the trendline recaptured on the Tuesday gap and run. Not bad positioning, and if RUTX and the small caps can pull off the consolidation and continue upside, SP400 likely goes with them.
Basically a day where the leaders paused or continued their pause after good upside moves.
Techs: Some decent moves, e.g. STX, RVBD, but at this stage there are a lot of stocks with good moves under their belts so the session was slower.
Big names: A lot of pauses: PCLN, TRIP, AAPL. GOOG is in a great pullback and NFLX continued upside yet again.
Chips/Electronics: Mostly took the day off though OVTI exploded higher on its earnings beat, letting us bank some almost 200% gain on the options. AFFX, KLIC and others are in nice pullbacks.
Social, internet-based: Took a breather, e.g. FB, TRLA, Z
Energy: Very mixed. After starting a bounce post-pullback, many stalled, e.g. AXAS, OAS, TPLM. HAL and SLB (service companies), however, managed nice gains.
Euro/Dollar: Broke through the 200 day SMA Wednesday, faded to test through Friday, still a solid move and in the upper half of the range.
1.633 versus 1.3603 versus 1.3593 versus 1.3635 versus 1.3632 versus 1.3654 versus 1.3687 versus 1.3704 versus 1.3170 versus 1.3698 versus 1.3716 versus 1.3713 versus 1.3702 versus 1.3754 versus 1.3853 versus 1.3914 versus 1.3928 versus 1.3878 versus 1.3875 versus 1.3865
Dollar/Yen: Up Friday after fading on the week. in the lower half of the range.
101.7765 versus 101.775 versus 101.7435 versus 101.985 versus 101.98 versus 101.80 versus 101.37 versus 101.2895 versus 101.40 versus 102.65 versus 101.49 versus 101.52 versus 101.84 versus 102.27 versus 102.15 versus 101.73 versus 101.81 versus 101.53 versus 101.73 versus 101.68 versus 102.11
Bonds: Flat Friday after a big upside Wednesday gap. Testing back after another surge higher in the continuing uptrend up the 20 day EMA.
10 year: 2.47% versus 2.47% versus 2.44% versus 2.52% versus 2.53% versus 2.55% versus 2.53% versus 2.51% versus 2.54% versus 2.51% versus 2.50% versus 2.54% versus 2.61% versus 2.66% versus 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: 102.75, -0.65. Faded to the 20 day EMA to test the run to the top of the range. Holding at some support for now but could easily roll back down given the top of the range held again.
Gold: 1246.00, -10.30. Harsh week for gold even as the gold commercials on the radio predict $2000/oz gold this year. Broke below the prior lows in the test that formed since early April and still has not found bottom on this decline.
Stats: -5.33 points (-0.13%) to close at 4242.62
Volume: 1.808B (+8.46%)
Up Volume: 734.28M (-395.72M)
Down Volume: 1.06B (+526.39M)
A/D and Hi/Lo: Decliners led 1.55 to 1
Previous Session: Advancers led 1.43 to 1
New Highs: 71 (-13)
New Lows: 31 (+3)
Stats: +3.54 points (+0.18%) to close at 1923.57
NYSE Volume: 527M (+8.21%)
A/D and Hi/Lo: Advancers led 1.05 to 1
Previous Session: Advancers led 2.04 to 1
New Highs: 202 (+2)
New Lows: 71 (+9)
Stats: +18.43 points (+0.11%) to close at 16717.17
VIX: 11.4; -0.17
VXN: 13.77; -0.07
VXO: 10.56; -0.29
Put/Call Ratio (CBOE): 0.89; +0.17
Bulls and Bears:
Bulls are up yet again, moving ever closer to that level that upended the runs upside in January. 58.3% versus 57.2% versus 55.1%
Bears fade again: 17.3% versus 18.3% versus 19.4%
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.
57.2% versus 55.1 versus 55.7 versus 54.7 versus 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.
18.3% versus 19.4% versus 20.6% versus 19.7% versus 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.
As usual, the good, the bad, the irrelevant. Incomes in April were the smallest gain in a year while spending turned negative for the first time in a year as well. On the other hand, Chicago PMI surged to 65.5 (along with prices and declining employment). Michigan sentiment May final was 81.9; the irrelevant.
Income, April: 0.3% versus 0.3% expected versus 0.5% March.
Smallest rise in a year and well off the March level when all of that bad weather buffeted the nation. So we made less money in a month that was supposed to show a rebound with people getting back to work?
Spending, April: -0.1% versus 0.2% expected, 1.0% March (from 0.9%).
You would think that surely spending would surge as Americans emerged from the forced hibernation, as hungry for consumption as a bear emerging from its winter slumber. Yet spending DECLINED for the first time since April 2013, and the drop from 1.0% in March to -0.1% was the largest since September 2009. First month of Q2 and its supposed 4% GDP growth. You have to wonder if GS, after raising its Q2 GDP forecast following the horrid -1% tally in the second Q1 iteration, is reconsidering already.
PCE: Despite changing calculations to avoid showing inflation, the PCE is starting to show . . . inflation.
0.2% as expected versus 0.2% in March.
Year/year: 1.6%, the largest increase since 3/2013. Seems everything is rising except for wages.
Chicago PMI, May: 65.5 versus 60.3 expected versus 63.0 April.
Strongest reading since 3/2011. Very solid, screaming upside. Could it be . . . autos? Sure it can! We learned this past week that GM ramped up production for its Cadillac ELR even though it is not selling worth a flip. It costs more than Tesla yet gets far less electric mileage. We read reports of new autos stockpiled all over the US and indeed the world, parked in open spaced (not car lots) because there is even too much inventory to cram down on dealers. Of course autos fall in Chicago's Midwest region . . .
Still, it was a good overall report as long as autos are not the root of the growth: if they are and inventories are indeed so massive, it cannot last. For now, however, as with all things economy, the attitude seems to be don't look too deep and discover there are real problems.
New orders: 70.2 versus 68.7 April
Employment: fell to 54.6 from 57.8.
Prices: Exploded higher to 66.8 from 55.2. Inflation anyone?
Scary Statistic of the Week: Gasoline usage is 75% off of its peak from 1998. Sure there are more efficient cars out there now, but not enough on the road and not efficient enough to account for a 75% reduction in consumption.
My opinion? We never really recovered from the recession that started at the end of the Clinton administration and ran into Bush 2. Bush had some decent policies but some bad ones as well, and they worked at cross purposes, undermining the recovery. Then there was Medicare Part D (prescription drugs) and that burden on top of all the wars.
Much of the rebound was built on Greenspan keeping rates low forever, Congress ignoring the housing issues (remember Dodd, Frank, etc. and their comments about the housing market and Schumer's threats against lenders if they did not make sub-prime loans?), and Bush complicit in wanting everyone to have a house whether they could afford it or not. In retrospect it was a grand Ponzi scheme. Where was the money coming from?
Then Obama took over and everything was blamed on capitalism when it was government and quasi government entities keeping money artificially high and rates artificially low in an attempt by government to provide everything to everyone. Obama took that to a new level. At least Bush allowed business to thrive and thus we had jobs and the taxes to pay for a lot of it. A partially real economy.
Obama attacks business, has wiped out the small business sector, and in so doing has decimated the middle class while further enriching the very high end. Five years of a recovery and the US sees more businesses closing than opening. Most of the wage gains in the 'recovery' are actually transfer payments, i.e. taxes taken from those who benefitted the most from the policies that favor the huge corporations, the very wealthy (ironic, isn't it, given Obama claims to be the champion of the small guy?), and those in the middle class lucky enough to still have decent jobs, and given to the lower end of the socioeconomic scale. Unfortunately and sadly, that lower end continues to grow as the numbers of people out of the workforce and the unemployed is staggering, fully one-third of the population. 20% of the US households have NO ONE with a job.
With one/third of the population out of the workforce and out of work, 20% of households with no jobs at all, inflation surging in food, gasoline, and housing (rents, home prices), weekly wages falling in a fifth year of recovery, the 24 to 54 age demographic still down 2.3M jobs from pre-recession levels, $1.3T in unpaid student loans because graduates cannot find jobs, it is no wonder gasoline usage is down.
Another statistic that shows the sad state of the US 'recovery' that is not. Just as the Bush recovery never really got the US back on track of the Reagan/Clinton economic expansion, the Obama recovery has only kept the US from falling over the brink, and I am not sure that is such a good thing as that would at least clear out the dead wood. Since 2000 the US has been in decline, and the past 5 years that decline has accelerated. Think of it as the PMI reports where they are in contraction but just not contracting at as fast a rate.
Thus when I hear those analysts and guests on the financial shows discussing how the economy is finally recovering, how the long drought in the economy is ending, I realize they are talking hopes and wishes, not facts. The economy is better than it was in 2008, but that is no claim to fame, like a basketball team losing by just 30 points instead of its usual 50 points. As things are going, as a nation we will be the first generation in modern times to hand our children a lower standard of living. The even sadder thought is that we also hand them no hope for anything better.
Friday we did not do much but we did hedge a bit. CAT and AIRM are in bearish patterns, they broke lower, we picked up some put options. On the week we added to some good upside positions and banked some nice gain on those taken as the rally got underway, e.g. IDCC, PCLN, OVTI, YELP, TRLA, Z. Other positions are close to the targets, and on a renewed push next week we can bank some more.
Overall the rally looks to be in good shape what with RUTX testing nicely, SP400 more or less doing the same, and SP500 moving to higher and higher highs. Still some serious unanswered questions, however, from NASDAQ and SOX, and those are the issues to be resolved next week. Good action to this point, stalling for now at the prior highs, but with big names still looking very good and providing a lot of support.
It is Jobs Report week and the associated drama that entails. Before that, however, there is the ISM, construction, factory orders, the Fed Beige Book . . . plenty to keep investors occupied as stocks test the run in the relief rally.
Yes, still a relief rally to this point even with new highs on SP500. Low volume, lagging MACD, still serious resistance for growth indices. Counter that with some good action on RUTX and SP400, trying to set up a next leg in the rally.
We will watch how the initial leaders test, how the next wave is setting up, and be ready with buys if they show up. The rally is still in relative disdain pretty much everywhere, and that is not bad if the patterns continue to set up. That is exactly what they did when this move started three weeks back, and if they do it again, so be it.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4242.62
4246.55 is the January 2014 peak. Key level.
4277 is the March lower gap point
4289 is the July 2000 recovery high
4361 is the lower November 2012 trendline
4372 is the March 2014 high
The 50 day EMA at 4152
4131 is the March 2014 low
4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
The 200 day SMA at 4025
3991 is the prior November 2013 high and the post-bear market high.
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 1923.57
1902 from early May was the intraday all-time high.
1901 is the December 2012 up trendline
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The 50 day EMA at 1877
The December and January highs at 1848
1848 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 1796
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
Dow: Closed at 16,717.17
16,736 is the all-time high from May 2014
16,951 is a lower trendline off the 11/2012 low
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
The 50 day EMA at 16,464
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 15,931
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)
May 30 - Friday
Personal Income, April (8:30): 0.3% actual versus 0.3% expected, 0.5% prior
Personal Spending, April (8:30): -0.1% actual versus 0.2% expected, 1.0% prior (revised from 0.9%)
PCE Prices - Core, April (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Chicago PMI, May (9:45): 65.5 actual versus 60.3 expected, 63.0 prior
Michigan Sentiment -, May (9:55): 81.9 actual versus 81.4 expected, 81.8 prior
June 2 - Monday
ISM Index, May (10:00): 55.6 expected, 54.9 prior
Construction Spending, April (10:00): 0.7% expected, 0.2% prior
June 3 - Tuesday
Factory Orders, April (10:00): 0.5% expected, 1.1% prior
Auto Sales, May (14:00): 5.3M prior
Truck Sales, May (14:00): 7.5M prior
June 4 - Wednesday
MBA Mortgage Index, 05/31 (7:00)
ADP Employment Change, May (8:15): 200K expected, 220K prior
Trade Balance, April (8:30): -$41.3B expected, -$40.4B prior
Productivity-Rev., Q1 (8:30): -2.5% expected, -1.7% prior
Unit Labor Costs, Q1 (8:30): 4.8% expected, 4.2% prior
ISM Services, May (10:00): 55.5 expected, 55.2 prior
Crude Inventories, 05/31 (10:30): 1.657M prior
June 5 - Thursday
Challenger Job Cuts, May (7:30): 5.7% prior
Initial Claims, 05/31 (8:30): 310K expected, 300K prior
Continuing Claims, 05/24 (8:30): 2650K expected, 2631K prior
Natural Gas Inventor, 05/31 (10:30): 114 bcf prior
June 6 - Friday
Nonfarm Payrolls, May (8:30): 220K expected, 288K prior
Nonfarm Private Payrolls, May (8:30): 230K expected, 273K prior
Unemployment Rate, May (8:30): 6.4% expected, 6.3% prior
Hourly Earnings, May (8:30): 0.2% expected, 0.0% prior
Average Workweek, May (8:30): 34.5 expected, 34.5 prior
Consumer Credit, April (15:00): $15.0B expected, $17.5B prior
By: Jon Johnson, Editor
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