Monday, July 28, 2014

Jobless Claims Heralded As An All Clear

MARKET SUMMARY

- AMZN, Durable Orders blamed for selling, but good data was credited for the Thursday move higher. In short, the volatility continues as does the pullback.
- DJ30 breaks the 20 day EMA for the first time since May.
- Jobless claims heralded as an all clear. Perhaps there is no one left to fire.
- Economic data continues its mediocre showing.
- Earnings reflect the economic data: bottom line beats are not the best indicator of economic status.
- SP500, 2+ years without a 10% correction, is the lone index holding its May uptrend.

Friday the stock market was down, but as has been the case, the losses were uneven. This session, however, the selling wasn't focused on just the growth indices. Sure SP500 held up just fine, as usual, and NASDAQ, while down a half percent, managed to hold the 10 day EMA.

SP500 -9.64, -0.48%
NASDAQ -22.55, -0.50% (came 19.5 points off its low)
DJ30 -123.23, -0.72%
SP400 -0.68%
RUTX -1.00%
SOX -1.98%

Volume faded: -11% NYSE, -10% NASDAQ

A/D: -2:1 NYSE, -2.1:1 NASDAQ

While SP500 managed the session business as usual, DJ30 broke the 20 day EMA. SP400 broke its uptrend channel's lower trendline. RUTX gapped lower, managed to hold at the 200 day MA on the close. SOX is ominous, gapping below the 50 day EMA and continuing to the downside, closing near the session low.

The big moves for the week:

SOX breaking below the low in its trading range and undercutting the late June low with no attempt to hold that level.

DJ30 showing it is vulnerable, breaking its 20 day EMA.

NASDAQ: Rallied to the early July high then gapped lower Friday. Very similar to SOX as it bumped the high then rolled over . . . hard.

Bigger picture: The stock market continues its consolidation of the 7 week run off of the mid-May low that followed 2.5 months of selling or lateral consolidation (depending upon the index) off the March peak.

That tally thus far: RUTX, SOX breaking trend and breaking down. SP400 breaking trend but not breaking down as of yet. NASDAQ is hanging onto trend, SP500 is holding trend.

The next most interesting move appears to belong to DJ30. It closed below the 20 day EMA for the first time since mid-May, the time the market overall bottomed and started this rally. The 50 day EMA is just 100 points away, less than the Friday point total. That looks like a logical support point and where DJ30 held in mid-May when DJ30 bottomed.

Is the market topping now or just consolidating a 7 week run? Each new high and each new selling bout from those highs raises the question of a bigger market top and rollover. Remember, however, the market sold for 2.5 months in the spring to early summer and it was nowhere near topping.

Perhaps this is it, the 'big' selloff. Perhaps it is just another consolidation of another run higher. Predictions of a market collapse are as common as predictions of another 500 points upside on SP500. Yes, Friday we saw SP500 2500 predictions.

I am not that smart to know which is which. No one in this group of highly successful traders and investors knows which one it is. We do know that bigger tops after long runs take quite a bit of time to set up. Heck, even shorter tops typically take time to set in. NASDAQ is three weeks into this choppy action and it is showing a double top; sure looks as if it has put in the peak on the 7 week run and is in for some kind of test, following RUTX and now SOX lower.

Again, the most interesting aspect, outside of whether this is the top of tops on this run (the Fed is, after all, getting out of the stimulus game . . for the moment), is if DJ30 and then SP500 join into the selling versus simply marking time laterally as they did from March to May.


OTHER MARKETS

A mush of conflicting signals. Dollar surges on the dollar index versus other currencies. Bonds hit a new recovery high. Gold jumps at the same time.

Euro/Dollar: Dollar surging past the June peak, now heading toward the November and January highs.

1.3433 versus 1.3464 versus 1.3460 versus 1.3468 versus 1.3522 versus 1.3524 versus 1.3526 versus 1.3523 versus 1.3568 versus 1.3619 versus 1.3608 versus 1.3600 versus 1.3644 versus 1.3611 versus 1.3605 versus 1.3608 versus 1.3658 versus 1.3769 versus 13693 versus 1.3648 versus 1.3612 versus 1.3630 versus 1.3604 versus 1.3603 versus 1.3600 versus 1.3603 versus 1.3592 versus 1.3545 versus 1.3573

Dollar/Yen: Up through the 50 day EMA as the dollar tries to work higher in the range against the yen. Typically not good for the market when the dollar strengthens, but offset by stronger bonds.

101.82 versus 101.82 versus 101.54 versus 101.45 versus 101.39 versus 101.34 versus 101.25 versus 101.63 versus 101.68 versus 101.57 versus 101.30 versus 101.325 versus 101.60 versus 101.564 versus 101.855 versus 102.210 versus 101.7595 versus 101.534 versus 101.3150 versus 101.4413 versus 101.722 versus 101.8695 versus 101.9195 versus 101.925 versus 102.059 versus 101.9595 versus 101.9335 versus 102.13 versus 101.955


Bonds: New high on this move as it puts some distance on the May prior high.

10 year: 2.47% versus 2.50% versus 2.47% versus 2.46% versus 2.47% versus 2.48% versus 2.46% versus 2.55% versus 2.55% versus 2.52% versus 2.54% versus 2.55% versus 2.56% versus 2.61% versus 2.64% versus 2.62% versus 2.56% versus 2.52% versus 2.53% versus 2.53% versus 2.56% versus 2.58% versus 2.61% versus 2.61% versus 2.63% versus 2.60% versus 2.65% versus 2.60%


Oil: 102.10, +0.04. Trying to hold the bounce off the 200 day SMA.

Gold: 1303.30, +13.10. Bouncing off the weeklong drop to the 200 day SMA.


MARKET STATISTICS

NASDAQ
Stats: -22.54 points (-0.5%) to close at 4449.56
Volume: 1.684B (-9.85%)

Up Volume: 607.47M (-432.53M)
Down Volume: 1.03B (+162.93M)

A/D and Hi/Lo: Decliners led 2.11 to 1
Previous Session: Decliners led 1.2 to 1

New Highs: 54 (-19)
New Lows: 58 (+25)

S&P
Stats: -9.64 points (-0.48%) to close at 1978.34
NYSE Volume: 499M (-10.73%)

Up Volume: 852.65M (-837.35M)
Down Volume: 1.74B (+320M)

A/D and Hi/Lo: Decliners led 1.95 to 1
Previous Session: Decliners led 1.12 to 1

New Highs: 78 (-119)
New Lows: 39 (+22)

DJ30
Stats: -123.23 points (-0.72%) to close at 16960.57


SENTIMENT INDICATORS

VIX: 12.69; +0.85
VXN: 13.36; +0.28
VXO: 11.07; +0.71

Put/Call Ratio (CBOE): 0.95; +0.04


Bulls and Bears:

Bulls flatten out after that 4 point drop: 56.5% versus 56.6%

Bears finally rise and rise sharply, at least relatively: 17.2% versus 15.1%

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: 56.5% versus 56.6%
56.6% versus 60.6% versus 57.6% versus 60.2% versus 61.4% versus 62.6% versus 62.2% versus 58.3% versus 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.

Bears: 17.2% versus 15.1%
15.1% versus 15.2% versus 16.1% versus 16.3% versus 17.2% versus 17.4% versus 17.3% versus 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.



THE NEWS

Friday the last piece of Q2 economic data was released with Durable Goods Orders. They were up over May's decline, showing some promise, though year/year they fell 1.6%, the first decline since February 2014.

0.7% versus 0.3% versus -1.0% (from -0.9%) May

The rub: Capital Expenditures

Cap-Ex non-defense ex-transports: 1.4 versus 0.5% expected (good) versus -1.2% versus +0.7% May (bad as it is more than a negative wash).

Core CapEx: -1.0% versus 0.4% expected versus 0.1% prior (from 0.4%).

That low capital investment weighed on stocks and shot bonds to a higher high on this current rally.

Low to no cap-ex is the ongoing weakness in the recovery. Companies prefer to 1) pay dividends, 2) buy back stock (some big buybacks this week) to up EPS without selling one item more, and 3) buy other companies (Z covets TRLA). M&A is a cheaper alternative to developing your own products. Think of it as buying a house with a barn on ranch acreage versus buying the acreage then having to build a road, put in electricity, drill for water, install septic tanks, build a barn, erect fences, build the house . . . you may get exactly what you want building, but it is always cheaper to buy what is already there if you can make it work.

The point: companies, even after 5.5 years in this recovery, still the worst in US history by the way, still do not want to fork out the money for old fashioned, organic growth. That shows 1) a lack of comfort in so doing (again, the worst recovery ever), 2) the lack of need given so-so demand, 3) the lack of need given other companies are ripe for the picking. The only problem with this is, as is usual, companies are buying other companies at peak prices versus at value. So many companies still beating on the bottom line but missing the top line, i.e. showing no growth in sales. With so much excess money in the system, however, prices are higher, exactly what Mr. Bernanke desired. So, prices are up, there is some better sentiment, organic investment is still down, but with the excess money, companies want to use it. So, dividends, buybacks, and now acquisitions at inflated prices. What is new, right?

So despite Thursday's jobless claims below 300K that supposedly show how strong the jobs market and thus the economy is, the falling new home sales, a sharp drop in the Markit US PMI, declining annual wages, weak capital investment, etc. all suggest the economy, while not stumbling lower is not powering higher.

There are no doubt pockets of strength thanks to the O&G industry, but very, very uneven and very nonexistent for most of the middle class. With well over 100M able bodied US citizens not in the workforce, perhaps jobless claims are so low because there is truly no one left to fire. We hear from CEO's on the financial stations that there are no skilled workers available, but again, with so many college graduates living at home jobless with stacks of student loan bills, how can that be? Is this the final crippling indictment of our education system run by the Department of Education the past 30 years?

Are the colleges producing crops of unemployable test takers? Is the companies' claims they cannot find workers just bogus talk by CEO's who want to sound good but have no intention of hiring given the lack of sales growth? Are the college graduates turning their noses up at entry level jobs because their heads have been filled with delusions of starting at the top? All of the above? Something else?

Whatever the reason, it does not appear that the solution is readily apparent.

Earnings: Earnings are not bad, though still somewhat mixed. Friday was all about AMZN's miss and 'don't give a damn attitude' on the conference call, but there were some very good stories from DECK (Ugg's), SKX, and UA on Thursday. Of course V, KLAC, P, KO, MCD, TXN, QCOM, etc. didn't have stories that great.

Then there are the beats that are not. MSFT, AAPL, PEP, CAT. They miss either top or bottom line but they are still rewarded or at least called a beat. As I said earlier in the week, how can lower revenues on the top line be considered good news, particularly if the bottom line beat is due to share buybacks, personnel cutting, or other cost reduction/share reduction actions. Again, how is it such a great recovery if companies cannot beat the top line with sales so they have to resort to bottom line tactics to produce higher profits with lower sales?


NEXT WEEK

Friday we picked up some downside positions but unfortunately could not get all we wanted, e.g. SMH as it gapped sharply lower. Still, we did get some more good downside going to take advantage of any further weakness, a good offset to our upside.

The market remains split with some groups/stocks moving higher, others heading south. The notable move to end the week was DJ30 breaking the 20 day EMA for the first time since the May run began. Another index breaking lower, not higher, off its trend form the May low, leaving SP500 as the index holding the trend. As in the old 'Seinfeld' episode about each character holding out against self gratification of their desires and frustrations, and then there was one.




This split will have to resolve, but for now it looks as if the market is going to test some more, then show its next step. There is plenty of news this week to influence the action: earnings, the next FOMC rate decision, the monthly Jobs Report on Friday.

As noted earlier, selling after a run higher doesn't have to mean a major selloff. Sure it has been some incredibly long period since SP500 posted a 10% correction (800 days, 2.2 years), but one thing years in the market show: oversold or overbought conditions can last much, much longer than you rationally think they could.

Thus while the near term is in the throes of downside similar to the March to May selling and the SP500, as the lone holdout holding the near trend as well as holding out from a real correction for over two years, remains overbought, it doesn't mean there cannot be another March to May consolidation that sets the next move upside.

Near term it looks as if the volatility we saw starting up a few weeks back and the subsequent weakness is not over. There is still solid upside action just as there was from March to May, but many stocks in the smaller cap indices and now SOX are correcting again and thus our downside plays as well. Watching DJ30 and after that SP500 tell a big part of the tale: they held off the sellers in the last market dip (though there were some tense sessions mid-April during that earnings season). If they break there is a deeper test coming. For reference, however, both SP500 and DJ30 broke the 50 day EMA in April, but after just a couple of sessions, they both recovered.

So, we play the obvious downside, pick up the upside in groups that are obviously stronger, e.g. industrial metals, letting the market work through this next round of testing the last move. The Fed is leaving the game it says, so perhaps this is the last top of the monetary policy market rally, but as noted, it takes a long time for tops to set in, particularly tops to long, 5 year runs.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4449.56

Resistance:
4486 is the July 2014 high
4516 is the lower November 2012 trendline
4603 is the upper channel line formed off the 11/2012 low.

Support:
The 20 day EMA at 4420
4372 is the March 2014 high
The 50 day EMA at 4350
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak. Key level.
The 200 day SMA at 4158
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
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


S&P 500: Closed at 1978.34

Resistance:
1986 is the July 2014 high

Support:
The 20 day EMA at 1972
1953 is the December 2012 up trendline
The 50 day EMA at 1948
1902 from early May was the intraday all-time high.
1902 is the lower trendline from 11/2012
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The 200 day SMA at 1852
The December and January highs at 1848
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
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 16,960.57

Resistance:
16,970 is the June 2014 former all-time high
The 20 day EMA at 17,001
17,380 is a lower trendline off the 11/2012 low

Support:
The 50 day EMA at 16,860
16,736 is the penultimate all-time high from May 2014
16,341 is the May 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 200 day SMA at 16,281
16,257 is the January 2014 low
16,179 is the November 2013 peak.
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

July 25 - Friday
Durable Orders, June (8:30): 0.7% actual versus 0.3% expected, -1.0% prior (revised from -0.9%)
Durable Goods -ex tr, June (8:30): 0.8% actual versus 0.7% expected, -0.1% prior (revised from 0.0%)

July 28 - Monday
Pending Home Sales, June (10:00): -0.8% expected, 6.1% prior

July 29 - Tuesday
Case-Shiller 20-city, May (9:00): 10.0% expected, 10.8% prior
Consumer Confidence, July (10:00): 85.6 expected, 85.2 prior

July 30 - Wednesday
MBA Mortgage Index, 07/26 (7:00): 2.4% prior
ADP Employment Change, July (8:15): 215K expected, 281K prior
Chain Deflator-Adv., Q2 (8:30): 1.3% prior
GDP-Adv., Q2 (8:30): 3.2% expected, -2.9% prior
Chain Deflator-Adv., Q2 (8:30): 2.1% expected, 1.3% prior
Crude Inventories, 07/26 (10:30): -3.969M prior
FOMC Rate Decision, July (14:00): 0.25% expected, 0.25% prior

July 31 - Thursday
Challenger Job Cuts, July (7:30): -20.2% prior
Initial Claims, 07/26 (8:30): 310K expected, 284K prior
Continuing Claims, 07/19 (8:30): 2525K expected, 2500K prior
Employment Cost Index, Q2 (8:30): 0.4% expected, 0.3% prior
Chicago PMI, July (9:45): 61.8 expected, 62.6 prior
Natural Gas Inventor, 07/26 (10:30): 90 bcf prior

August 1 - Friday
Nonfarm Payrolls, July (8:30): 220K expected, 288K prior
Nonfarm Private Payrolls, July (8:30): 225K expected, 262K prior
Unemployment Rate, July (8:30): 6.1% expected, 6.1% prior
Hourly Earnings, July (8:30): 0.2% expected, 0.2% prior
Average Workweek, July (8:30): 34.5 expected, 34.5 prior
Personal Income, June (8:30): 0.4% expected, 0.4% prior
Personal Spending, June (8:30): 0.4% expected, 0.2% prior
PCE Prices - Core, June (8:30): 0.2% expected, 0.2% prior
Michigan Sentiment -, July (9:55): 82.0 expected, 81.3 prior
ISM Index, July (10:00): 55.9 expected, 55.3 prior
Construction Spending, June (10:00): 0.3% expected, 0.1% prior
Auto Sales, July (14:00): 5.9M prior
Truck Sales, July (14:00): 7.5M 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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Monday, July 14, 2014

Recovery, But Not Convincing for Small Caps

MARKET SUMMARY

- Friday stocks pull the high to low early, but again recover.
- Recovery, but not convincing for small caps. Much of the rest of the market looks fine, but it did that in March to May as well.
- Some nervous big names, e.g. Icahn, but this time they are nervous AFTER the market rallied to new highs.
- Retailers worried about slowing traffic.
- Stocks may try to bounce after the selling, and unless shown otherwise, we view that as only a relief move for RUTX and perhaps NASDAQ.
- Looking at some rebound plays into earnings.

I apologize for just a text market summary. I had to travel this weekend and on top of that found myself feeling under the weather. So, a shorter report. Will be back at it on Monday.

Last week the stock market experienced some harsh selling early, some recovery late. As far as the financial stations and many of the other experts they have lined up on the set day after day, hour after hour, segment after segment (need to be careful; I am one of those from time to time . . .), that was good enough. Sold off, came back, holding near support.

The problem is in the process. Once again as in March we see day to day and intraday volatility moving back into the market. Good solid 7 week run then a week of wild swings. Perhaps it dies right down and stocks rally yet again. Perhaps it does not. These episodes tend to require working themselves out and a week of wild action typically does not do that, particularly if you have earnings coming.

Yes there were some misses and warnings, and key ones, last week. RCII (consumer rent to own), TSCO, FDO (dollar store), LL (flooring), PBPB (sandwich shops), TCS (home items), WDFC (WD-40).

Enough worry is out there that the WSJournal ran a story discussing how worried retailers are regarding slowing retail traffic. CNBC even ran an article discussing how the US needs a 'Reagan-style overhaul.'

The worry hit a crescendo Friday morning with Karl Icahn stating it was "time to be cautious" on US stocks. A Tepper "I am nervous" moment as in mid-May? Maybe the market bottoms off of that comment, but the selling is just a week's worth and is on top of a big 7 week move.

In May the market was down after 2.5 months of selling and there were a LOT of big name stocks with very positive patterns. The stage was set. Right now, while there are some very good upside setups we can play for bounces, the number of great names with great patterns is thin. Ironically, I read over the weekend stories about how the internet stocks led the Friday move, citing GOOG and FB. Yes GOOG and FB were up Friday, but they were just about the ONLY internet stocks that were. A pretty thin list of leaders as noted.


Thus, while we are looking at some upside bounce plays ahead of earnings, the volatility last week warns to be careful and not fully commit to the upside just yet. Indeed, the downside is not a full commitment either; as noted during the week, you want to see a test of the initial selling and see how that plays out. If it stalls and rolls over, THAT is the first solid entry point for downside plays. Sure we have a couple of downside plays on the report that are ready to head lower right now. You have to be ready to make plays in the event the market doesn't give you just what you want when you want it. We will take what the market gives, but with the reintroduction of the day to day volatility (not VIX, but day to day back and forth), it is time to be careful, throttle back on the number and size of positions entered, take what the market gives, but aware all the time that the volatility, if it stays, is yelling to you that the trend may be changing.



THE MARKET

SP500 2.89, 0.15%
NASDAQ 19.29, 0.44%
DJ30 28.74, 0.17%)
SP400 -0.16%
RUTX -0.17%
SOX 0.06%


OTHER MARKETS

Euro/Dollar:

1.3608 versus 1.3600 versus 1.3644 versus 1.3611 versus 1.3605 versus 1.3608 versus 1.3658 versus 1.3769 versus 13693 versus 1.3648 versus 1.3612 versus 1.3630 versus 1.3604 versus 1.3603 versus 1.3600 versus 1.3603 versus 1.3592 versus 1.3545 versus 1.3573

Dollar/Yen:

101.30 versus 101.325 versus 101.60 versus 101.564 versus 101.855 versus 102.210 versus 101.7595 versus 101.534 versus 101.3150 versus 101.4413 versus 101.722 versus 101.8695 versus 101.9195 versus 101.925 versus 102.059 versus 101.9595 versus 101.9335 versus 102.13 versus 101.955


Bonds: Surged back upside on the week, matching the late June lower high following the rally to a high in May.

10 year: 2.52% versus 2.54% versus 2.55% versus 2.56% versus 2.61% versus 2.64% versus 2.62% versus 2.56% versus 2.52% versus 2.53% versus 2.53% versus 2.56% versus 2.58% versus 2.61% versus 2.61% versus 2.63% versus 2.60% versus 2.65% versus 2.60% versus 2.60% versus 2.60% versus 2.64% versus 2.64% versus 2.61% versus 2.59% versus 2.58% versus 2.60% versus 2.60% versus 2.53% versus 2.47% versus 2.47%

Oil: 100.79, -2.13. Plunging, diving down toward the 200 day SMA. What a break.

Gold: 1337.30, -0.22.


MARKET STATISTICS

NASDAQ
Stats: +19.29 points (+0.44%) to close at 4415.49
Volume: 1.501B (-10.12%)

Up Volume: 825.06M (+316.6M)
Down Volume: 645.77M (-484.23M)

A/D and Hi/Lo: Decliners led 1 to 1
Previous Session: Decliners led 3 to 1

New Highs: 35 (+14)
New Lows: 39 (-23)

S&P
Stats: +2.89 points (+0.15%) to close at 1967.57
NYSE Volume: 496M (-15.07%)

A/D and Hi/Lo: Advancers led 1.22 to 1
Previous Session: Decliners led 2.27 to 1

New Highs: 80 (+2)
New Lows: 16 (-16)

DJ30
Stats: +28.74 points (+0.17%) to close at 16943.81


SENTIMENT INDICATORS

VIX: 12.08; -0.51
VXN: 13.66; -0.47
VXO: 10.44; -0.54

Put/Call Ratio (CBOE): 0.89; -0.17


Bulls and Bears:

Bulls surge back above 60 to more of an extreme: 60.6% versus 57.6%.

Bears drop sharply: 15.2% versus 16.1%

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: 60.6% versus 57.6%
57.6% versus 60.2% versus 61.4% versus 62.6% versus 62.2% versus 58.3% versus 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.

Bears: 15.2% versus 16.1%
16.1% versus 16.3% versus 17.2% versus 17.4% versus 17.3% versus 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.




SUPPORT AND RESISTANCE

NASDAQ: Closed at 4415.49

Resistance:
4477 is the lower November 2012 trendline
4566 is the upper channel line formed off the 11/2012 low.

Support:
The 20 day EMA at 4385
4372 is the March 2014 high
The 50 day EMA at 4307
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak. Key level.
4131 is the March 2014 low
The 200 day SMA at 4125
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.
3968 is the February 2014 low
3946 is the April 2014 intraday low


S&P 500: Closed at 1967.57

Resistance:

Support:
The 20 day EMA at 1960
1939 is the December 2012 up trendline
The 50 day EMA at 1933
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1890 is the lower trendline from 11/2012
1883.57 is the early March high.
The December and January highs at 1848
The 200 day SMA at 1837
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
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 16,943.81

Resistance:
17,260 is a lower trendline off the 11/2012 low

Support:
16,970 is the June 2014 former all-time high
The 20 day EMA at 16,901
The 50 day EMA at 16,762
16,736 is the penultimate all-time high from May 2014
16,341 is the May 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
16,257 is the January 2014 low
The 200 day SMA at 16,183
16,179 is the November 2013 peak.
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

July 15 - Tuesday
Retail Sales, June (8:30): 0.7% expected, 0.3% prior
Retail Sales ex-auto, June (8:30): 0.6% expected, 0.1% prior
Empire Manufacturing, July (8:30): 13.2 expected, 19.3 prior
Export Prices ex-ag., June (8:30): 0.1% prior
Import Prices ex-oil, June (8:30): 0.0% prior
Business Inventories, May (10:00): 0.6% expected, 0.6% prior

July 16 - Wednesday
MBA Mortgage Index, 07/12 (7:00): 1.9% prior
PPI, June (8:30): 0.2% expected, -0.2% prior
Core PPI, June (8:30): 0.2% expected, -0.1% prior
Net Long-Term TIC Fl, May (9:00): -$24.2B prior
Industrial Production, June (9:15): 0.4% expected, 0.6% prior
Capacity Utilization, June (9:15): 79.2% expected, 79.1% prior
NAHB Housing Market , July (10:00): 50 expected, 49 prior
Crude Inventories, 07/12 (10:30): -2.370M prior

July 17 - Thursday
Initial Claims, 07/12 (8:30): 311K expected, 304K prior
Continuing Claims, 07/05 (8:30): 2563K expected, 2584K prior
Housing Starts, June (8:30): 1020K expected, 1001K prior
Building Permits, June (8:30): 1037K expected, 991K prior
Philadelphia Fed, July (10:00): 12.5 expected, 17.8 prior
Natural Gas Inventor, 07/12 (10:30): 93 bcf prior

July 18 - Friday
Michigan Sentiment, July (9:55): 84.0 expected, 82.5 prior
Leading Indicators, June (10:00): 0.5% expected, 0.5% 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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Sunday, July 06, 2014

Bonds Sold on Jobs Report Headlines

MARKET SUMMARY

- Jobs report headlines improve, good-news starved analysts gush, stocks like it.
- Bonds sold on the news, but rebounded after digesting the details beyond the headlines.
- Same issues underlay the jobs top line numbers, and they still indicate, unfortunately, a so-so economy.
- A bit extended on this leg but the uptrend is strongly entrenched overall.

Thursday's action was mostly about jobs and the perception of what the Jobs Report means. The numbers were much better than expected in terms of non-farm payrolls and the unemployment rate. Unfortunately it was not a new surge of hiring, but more of what the economy has shown before. Indeed this recovery has shown better itself, but as we know, they were never lasting trends, just blips. Even then, the numbers just have never been that great. They were not that great in June either.

As I said earlier this week, however, this is a market and to a certain extent a society (though much less so now as reality of continuing crappy recovery sinking in) that is only interested in headlines. Leave it to the bond market, even with the massive ongoing Fed intervention, to see the core issues.

Thus, stocks rose again and bonds, after selling initially, rebounded from a 2.69% intraday high read on the 10 year.

SP500 10.82, 0.55%
NASDAQ 28.20, 0.63%
DJ30 92.02, 0.54%
SP400 0.54%
RUTX 0.72%
SOX 0.74%

Volume: Rose on NYSE, faded on NASDAQ, but on a holiday weekend and a half day session, it does not really matter.


THE NEWS

Jobs seem to be good, are improving, but the same old structural issues remain, reflecting the problems with the new US economy.

5 months over 200K jobs. The past six months average is 230K.

Unemployment rate: 6.1% versus 6.3% expected, 6.3% May.

Seemingly impressive numbers, but 2 points.

First, they seem impressive only because the numbers have been unimpressive for so long. We are used to mediocrity or worse, and when a fairly decent number is produced we act as if 500K jobs were created (not even saved; created). 288K? Mediocre.

Second, as we know, the numbers just don't tell the story.

Jobs are up, unemployment rate is down. As we all know, this is the same story. Just as corporations are buying back shares to decrease the float to improve earnings per share, the unemployment rate falls because the number of people in the labor pool is lower and lower. Bigger percentage working.

Indeed, 92,120,000 working age people are out of the workforce.

Participation rate holding for the third month at 62.8%, another tie with the all-time low.

Jobs quality:

There is hope this is a change in the jobs market and investment climate. But policies have not changed so why should it? They say time heals all wounds, but time does not change bad policies.

Part-time jobs rose 799K, the most since 1993. Full-time jobs LOST 523K.
We are still losing full-time jobs. This is still part of the Obamacare shift.
For 2014, 926K full-time, 646K part time (70% of full-time jobs, 41% of all jobs created).
Since 2009, low-wage jobs make up 62% of all jobs. That is NOT an economy that is producing the new companies and getting the investment that creates the cutting edge jobs and raises our standard of living.

Wages rose 0.2% or 2.0% year/year. Still 'soft' as Larry Kudlow and others put it. Indeed, this is the same since 2009. Real wages were FLAT for May and June. Indeed, ANNUAL real wages are flat SINCE THE RECOVERY STARTED. No wonder; this comes from the jobs quality issue.

Some say this is great because there is no 'wage-led inflation' present. Well, there NEVER is, but even if there was such a thing, that would be a GOOD thing to worry about, the problems of success. That would mean there are good jobs out there that require good workers and companies were bidding up wages to attract them. The problems of the rich, right? You WANT those problems. We don't have them because the good jobs are showing up on shores other than ours.

Solution: Decrease regulation? Reduce small business costs? Lower taxes? Provide other incentives to invest in new business in the US? No! Allow millions across the border without documentation and raise the minimum wage! Let's become a minimum wage country, not a cutting edge country, and frankly, the jobs make-up for the past several years shows that is EXACTLY what we are (or have) become.

Conclusion: We are recovering. Just slightly. The economy is creating more jobs but the quality remains low, wages remain low, and this won't change without changing policy. In 2010 there was a burst of activity as the monetary policy reached its maximum impact. Then, because the fiscal and regulatory policies did not soften but indeed were ratcheted up as even more unfriendly to investment and risk-taking, the economy slid back to a low level of activity, maintained by the Fed's monetary policy, but unable to improve further thanks to the anti-investment, anti-risk taking policies, indeed anti-growth policies, of the Administration.



THE MARKET

CHARTS

Wednesday I discussed some issues with SP400, RUTX, and to some extent NASDAQ, as they showed indications of a near term pullback. Big news Thursday can trump the pattern near term. We were watching to see how the indices handled the news, good or bad. The news was reported as good, stocks took it that way, they rallied. They did not give it back. SP400 didn't turn the pattern but it mitigated downside. RUTX continued upside toward its long-term trendline, better but it too didn't wash away the next resistance.

The large cap indices and SOX continued to push higher, adding gains on top of gains. New highs, new post-bear market highs yet again. The move on this last leg spans 7 sessions. This is the latest leg in the rally that started mid-May, the rally about nothing other than a lot of people were 'nervous'. Enough sold out so the market was sold out after 2.5 months, and voila, rally.

The rally is now just a few weeks short of the nervous correction, getting rather old in itself. Did you notice how the folks on the financial stations, anchors and guests, became cheerier as the week progressed? A resumption of the rally after a short test and they were just about ebullient regarding economic and market prospects.

The Dow hit 17,000. Some are saying 20,000. Some are saying SP500 2300. This rally about nothing bottomed when fears were spiking. The rally likely ends when you see confidence spiking. It might not be there just yet, but with everyone feeling pretty darn good about themselves, it is time to start watching for signs the move is running thin.

There was a bit of volatility two weeks back but stocks pushed it aside and rallied on this last move. Avoided that issue. After this leg the indices look a bit extended as noted, but there is very good leadership in charge, testing, and up and coming. As long as new blood continues to move in and build patterns to follow the current leaders, the uptrend is in good shape. There will be tests just as there have been on the way up. Again, with the current rally at seven weeks, it is time to start watching for the return of volatility, particularly if leaders break trends and no new leaders are coming up to take their place.


LEADERSHIP

Internet, tech, drugs, electronics have all chipped in and contributed to pushing this rally higher. With the notion that the economy may be better off post-jobs report, industrials, transports, financial stocks performed better.

The current leadership is still holding up just fine, but along with volatility we need to watch for rotation into other areas that may leave recent leaders with less backing.

Internet-based: TRIP is in a nice test right at the March high. TRLA is bouncing after a test. Z is bouncing off a 10 day EMA test. Pretty normal action. AKAM is holding over the 10 day EMA but is a bit off in power just below the February and March peaks.

Tech: AAPL still moving up off its test but it has to deal with its early June high. STX is still solid in its advance.

Electronics: AFFX continued its move off the 10 day EMA test. Other leaders that were out in front are not showing they are coming back. CAVM has a worrisome pattern. MXWL slipped below the 50 day EMA and is no position to do much now. Some cracks in some of the leaders.


OTHER MARKETS

Euro/Dollar: Surging back up after breaking down last week. Back to the 200 day SMA on the high.

1.3608 versus 1.3658 versus 1.3769 versus 13693 versus 1.3648 versus 1.3612 versus 1.3630 versus 1.3604 versus 1.3603 versus 1.3600 versus 1.3603 versus 1.3592 versus 1.3545 versus 1.3573 versus 1.3539 versus 1.3551 versus 1.3531 versus 1.3545 versus 1.3589 versus 1.3644 versus 1.3664 versus 1.3601 versus 1.3630 versus 1.3597 versus 1.3633 versus 1.3603

Dollar/Yen: Surging again up off the bounce that started Monday.

102.210 versus 101.7595 versus 101.534 versus 101.3150 versus 101.4413 versus 101.722 versus 101.8695 versus 101.9195 versus 101.925 versus 102.059 versus 101.9595 versus 101.9335 versus 102.13 versus 101.955 versus 102.055 versus 101.735 versus 102.0370 versus 102.335 versus 102.5305 versus 102.540 versus 102.415 versus 102.7395 versus 102.5350 versus 102.365 versus 101.7765 versus 101.775


Bonds: Tough week for bonds, and they gapped lower Thursday as well. Jobs sent them lower but they recovered off the lows. Still struggling.

10 year: 2.64% versus 2.62% versus 2.56% versus 2.52% versus 2.53% versus 2.53% versus 2.56% versus 2.58% versus 2.61% versus 2.61% versus 2.63% versus 2.60% versus 2.65% versus 2.60% versus 2.60% versus 2.60% versus 2.64% versus 2.64% versus 2.61% versus 2.59% versus 2.58% versus 2.60% versus 2.60% versus 2.53% versus 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%


Oil: 104.46, -0.42. Faded a bit further, near the 50 day EMA in this test.

Gold: 1320.80, -10.40.


MARKET STATISTICS

NASDAQ
Stats: +28.19 points (+0.63%) to close at 4485.93
Volume: 1.001B (-36.48%)

Up Volume: 667.68M (-108.35M)
Down Volume: 309.45M (-479.36M)

A/D and Hi/Lo: Advancers led 2.07 to 1
Previous Session: Decliners led 1.25 to 1

New Highs: 120 (+6)
New Lows: 19 (-1)

S&P
Stats: +10.82 points (+0.55%) to close at 1985.44
NYSE Volume: 536M (+3.47%)

A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Decliners led 1.66 to 1

New Highs: 182 (+10)
New Lows: 6 (-2)

DJ30
Stats: +92.02 points (+0.54%) to close at 17068.26


SENTIMENT INDICATORS

VIX: 10.32; -0.5
VXN: 11.36; -0.23
VXO: 8.51; -0.41

Put/Call Ratio (CBOE): 1.02; +0.14


Bulls and Bears:

Bulls fade for the fourth week in five, now below 60: 57.6%. Not a lot of faith in this move even as it accelerates.

Bears fade modestly to 16.1%

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: 57.6% versus 60.2%
61.4% versus 62.6% versus 62.2% versus 58.3% versus 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.

Bears: 16.1% versus 16.3%
16.3% versus 17.2% versus 17.4% versus 17.3% versus 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.


NEXT WEEK

Post-holiday, post jobs, nice upside leg. As noted, this particular leg is a bit long in the tooth as measured by other legs in this run. Indeed the overall run is getting rather extended itself. Just in time for earnings season to start, and we already saw the first warning this past week. We anticipate more in the coming week. A run into earnings, and if the warnings ratchet up it could cause the current leg to waffle.

All problems of success. We will keep focused on the leaders and watch if volatility ratchets up, the intraday and day to day type. There is a lot of excitement/hope after the jobs numbers; also watch how many come out bullish on the tube. If they turn super bullish, say we have turned the corner, just keep an eye on leaders. It all comes down to leaders.

We ended the week letting positions run after taking some gain along the way. Continue doing the same and keep looking for stocks setting up new buys in the current leadership sectors as well as any sectors that show some money rotating their way.

The move is older, some leaders are extended, there is a lot of enthusiasm. Watch the leaders and how they act. Watch the intraday and day to day volatility. If volatility jumps and leaders start breaking their near trends, a pullback of a bit larger magnitude than a 10 day EMA test is underway. Not there yet, but with the length of this move, keep an eye out for it.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4485.93

Resistance:
4545 is the upper channel line formed off the 11/2012 low.

Support:
4455 is the lower November 2012 trendline
The 10 day EMA at 4415
4372 is the March 2014 high
4289 is the July 2000 recovery high
The 50 day EMA at 4284
4277 is the March lower gap point
4246.55 is the January 2014 peak. Key level.
4131 is the March 2014 low
The 200 day SMA at 4109
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.
3968 is the February 2014 low
3946 is the April 2014 intraday low


S&P 500: Closed at 1985.44

Resistance:

Support:
1932 is the December 2012 up trendline
The 50 day EMA at 1925
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1880 is the lower trendline from 11/2012
1883.57 is the early March high.
The December and January highs at 1848
The 200 day SMA at 1831
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
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 17,068.26

Resistance:
17,205 is a lower trendline off the 11/2012 low

Support:
16,970 is the June 2014 former all-time high
The 20 day EMA at 16,867
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,719
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
16,257 is the January 2014 low
16,179 is the November 2013 peak.
The 200 day SMA at 16,147
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

June 30 - Monday
Chicago PMI, June (9:45): 62.6 actual versus 61.0 expected, 65.5 prior
Pending Home Sales, May (10:00): 6.1% actual versus 1.5% expected, 0.5% prior (revised from 0.4%)

July 1 - Tuesday
Construction Spending, May (10:00): 0.2% prior
ISM Index, June (10:00): 55.3 actual versus 55.8 expected, 55.4 prior
Construction Spending, May (10:00): 0.1% actual versus 0.4% expected, 0.8% prior (revised from 0.2%)
Auto Sales, June (14:00): 5.7M prior
Truck Sales, June (14:00): 7.7M prior

July 2 - Wednesday
MBA Mortgage Index, 06/28 (7:00): -0.2% actual versus -1.0% prior
Challenger Job Cuts, June (7:30): 45.5% prior
ADP Employment Change, June (8:15): 281K actual versus 200K expected, 179K prior
Factory Orders, May (10:00): -0.5% actual versus -0.4% expected, 0.8% prior (revised from 0.7%)
Crude Inventories, 06/28 (10:30): -3.155M actual versus 1.742M prior

July 3 - Thursday
Challenger Job Cuts, June (7:30): -20.2% actual versus 45.5% prior
Nonfarm Payrolls, June (8:30): 288K actual versus 210K expected, 224K prior (revised from 217K)
Nonfarm Private Payrolls, June (8:30): 262K actual versus 213K expected, 224K prior (revised from 216K)
Unemployment Rate, June (8:30): 6.1% actual versus 6.3% expected, 6.3% prior
Hourly Earnings, June (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
Average Workweek, June (8:30): 34.5 actual versus 34.5 expected, 34.5 prior
Initial Claims, 06/28 (8:30): 315K actual versus 315K expected, 313K prior (revised from 312K)
Continuing Claims, 06/21 (8:30): 2579K actual versus 2580K expected, 2568K prior (revised from 2571K)
Trade Balance, May (8:30): -$44.4B actual versus -$45.2B expected, -$47.0B prior (revised from -$47.2B)
ISM Services, June (10:00): 56.0 actual versus 56.5 expected, 56.3 prior
Natural Gas Inventor, 06/28 (10:30): 100 bcf actual versus 110 bcf 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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