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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