MARKET SUMMARY
- Stocks sell, recover off lows, still unsure of next step, still consolidating.
- Mixed economic data: some good, some bad, some viewed as good that is actually bad.
- Jobs data termed 'just right,' but market struggles and the jobs created and those employed again tell another story.
- Construction non-spending rises.
- ISM hits a 3 year high driven by new orders that hit a new 2014 high if adjusted, a new 2014 low if unadjusted.
- Indexes oversold near term, NASDAQ holding its range, likely leading a relief bounce attempt this week.
- Stocks likely try to bounce, and some more selling early in the week would not be a bad way to deliver that bounce.
So much important data the past week, and the data, as well as how the market reacts to the data, tells the tale. Jobs were lower but decent and spending rose as expected, but futures struggled and entered the session negative. Stocks managed an early rise off those weaker futures, however. Promising, but they then stalled and rolled over into midday. Short double bottom into early afternoon yielded a recovery into mid-afternoon. Stocks wandered laterally into the last hour but then faded into the close, leaving SOX, the relative strength leader all session, the only positive index.
SP500 -5.52, -0.29%
NASDAQ -17.13, -0.39%
DJ30 -69.93, -0.42%
SP400 -0.26%
SOX 0.36%
RUTX -0.46%
Volume: Faded roughly 10% on both NYSE and NASDAQ
A/D: -1.7:1 NYSE, -1.8:1 NASDAQ. Equal opportunity downside, but after the massively extreme Thursday breadth (-5:1 NASDAQ, -9.5:1 NYSE), not much excitement. Of course the Thursday numbers were the extreme; that is what indicates a turn, even if short term, could be at hand.
The data was the usual, something of a mix between pretty good, mediocre, and bad. Enough good to keep investors from throwing up their hands, enough bad to keep them guessing about just what the FOMC will really do. Jobs beat, but the mix is again highly questionable. Construction posted the biggest drop since 2011; ISM hit a 3 year high though new orders collapsed; personal spending rose to 0.4% on a 1.67% gain in energy costs, the biggest jump in 12 months. As I said, a mix of data almost to the point that no one can really figure it out. The 'experts' all say things are going well, likely because the headlines are better and we all love headlines and discount the fine print that tells the real story.
The key point: though data was once again 'good' as per what we are told is good, both Wednesday (GDP) and Friday (jobs, ISM), stocks were unable to advance.
Now maybe that is because investors are worried as to what the Fed is going to do, and there could be some play in the Fed's actions based upon a little hotter or a little softer data, but barring some major surge or purge in the economic data, the die is cast as to the Fed's course of action. QE ends in October, rates rise, regardless of Yellen's retraction of some loose comments four months back, about six months afterward.
Thus this is just old-fashioned selling after a run . . . at least at this juncture. It can always turn into serious selling due to the Fed is leaving its stimulus game, and indeed this initial downdraft could be the start of that.
Thing is, stocks have sold hard, many of the indices have come down close to key support, and despite finishing mostly lower Friday, showed good action off the support. In short, they sold enough to bounce and likely try to bounce this coming week barring any downturns in the geopolitical climate. That is why we were banking gain on the downside Friday: close to the targets, started to bounce after heavy selling, time to bank some bucks.
The key will be vehicles to ride higher, and there are a few that we see, stocks still with momentum even after the selling. A lot of technical damage was done, but as in May, if there are setups forming out of the selling, the ride back up is nice. Again, there are some of those, just not that many thus far.
Tough spot to get fully committed, but if there are some good moves out of good patterns, we will put some money in on the upside once more. Still overall not convinced this particular attempt at a bounce plays out as mid-May, but pick the good vehicles and see if they take you for the ride.
To recap: Failed to respond well to news viewed as generally positive, we banked some nice downside gain, possibility of some upside plays this coming week, has to get through the always tricky Monday and Tuesday after such an ugly selling surge as on Thursday, but some decent patterns and a bit oversold. That can work and work nicely.
THE NEWS
Jobs lower but we are told right on track. What is never reported, at least by the main news outlets and the financial stations is the mix of the jobs, the quality and who is getting them. the headlines tell part of the story, but the story is not complete without the details of the jobs type and who gets them. Indeed the latter tells a lot as to the quality and type.
Participation rate: 62.9% versus 62.8%. Thus the increase in the unemployment rate to 6.2%.
It has been awhile, but the unemployed increase outpaced the employed increase.
Long-term unemployed: increased to 3.2M
U6: Unemployed and underemployed due to economic conditions rose to 19M.
Earnings flat, meaning they were negative on a real basis.
Workweek going nowhere at 34.5 hours.
Really mediocre numbers and very disappointing to see the backsliding, but that does happen from time to time even in runs upside.
Who gets the jobs?
Still very important, still not reported. Sobering, and shows why our economy remains in the doldrums with declining real wages and lower living standards despite a recovery and 4% GDP growth in Q2 (that as you recall showed declining real sales over Q2 and Q3).
Worker age: Workers aged 55 and over hit an all-time record high (32.5M) as this group of Americans is forced to work much later on average than prior generations because of the massive losses the financial crisis inflicted upon their primary asset (house) and their retirement accounts. They are forced to go back to work to pay for what was lost AS WELL AS the public pensions that are paid through their taxes even as their pensions are not replenished.
Where the jobs went:
Age 55 to 69: +159k
Age 16 to 19: +44K (summer jobs)
Age 20-24: +43K
Age 25-54, the group traditionally with the highest earning power: -142K!
Again, the group that would help the most loses jobs. Indeed, that demographic is still 2.5M jobs BELOW the 2007 level.
Does this not fit with the argument I made regarding the folly of Mr. Gates, Zuckerburg, and Buffet? They argue for more visas and open immigration for young workers and look who is getting the jobs: 20-24 over 25-54. Hire younger, foreign, pay less, improve profits. Nothing wrong with improving profits, but be honest about it. Don't say there are no qualified workers for STEM jobs (Science, Technology, Engineering, Mathematics) when the latest research shows 74% of the graduates with STEM related degrees are employed in jobs OTHER than their field of choice. Someone is lying, and I don't think it is the people who spent four years of their lives getting a degree in a STEM field who now have to work in a lesser field because they cannot get a job in their field of choice.
ISM surges to a 3 year high on the back of surging New Orders . . . that really didn't.
Impressive. New Orders jumped 7.6%, accelerating the rate of gain. But for some reason this survey, just a survey of the OPINIONS of purchasing managers in the US, is adjusted. In other words, the ISM takes the responses that simply tell ISM what the company is planning to do, and it adjusts the responses. What, did the purchasing managers NOT mean what they said?
Does it make a difference? Well if you consider turning a DECLINE to the LOWEST level of the year into a GAIN to the HIGHEST level of the year material, the answer is yes.
I have said it before: adjustments are the bane of data. Arbitrary re-writes of the actual numbers is insane, even more so when it is an OPINION survey. Hell, even with the data that varies based upon the season of the year, the market and individuals are indeed smart enough to know what the typical increases and decrease are at various times of the year.
There is simply no reason to 'adjust' a purchasing manager's opinion as to what the company is going to do. How does the data collector have a better understanding of a company's business than the company's purchasing manager? He can't. But, if the BLS can adjust the employment data at will, why cannot private surveys as well? Equal protection to doctor the data, right?
Construction Spending June flops 1.8%
Largest drop since 1/2011.
Communication: -5.4%
Lodging: -3.8%
Power: -3.6%
Commercial: -1.3%
Office: +0.4%
As many put it, there is no sign of any surge in construction post-Polar Vortex. Theories of pent up demand due to the cold face harsh reality of no new construction projects.
Spending rises 0.4%, income rises 0.4%
The numbers look good and rising is better than falling. The bulk of the spending increase, however, was on energy costs, e.g. utilities and gasoline. Those are costs that you have to pay to live, to get to work. You cannot decide to ride a bike to work if you live 20 miles away and wear a suit or other special attire. If costs go up, your spending either rises overall as you use more disposable income for those items, or you cannot afford to increase spending and must cut out other expenditures.
With real wages (i.e. those adjusted for inflation) negative, it is not a choice to simply spend more of your paycheck. You have to cut out other expenditures as you cannot go without electricity or gasoline. The irony is, while many electricity generators are forced out of the market (e.g. coal fired plants) because of the EPA setting stricter standards the Obama administration wants ("electricity rates will necessarily skyrocket"), those in favor, those receiving the subsidies and those that are left after the competition is eliminated are making billions.
THAT is what I am talking about when I say the regulations are erecting barriers to competition and forcing more limited, and costly, choices upon us. Competition is eliminated, costs go up, we suffer more and more as the economy fails to produce the kinds of jobs and thus wage increases that we can use to offset costs. Controlled, dictated economies always benefit those in the favored group, and that group is never the average citizen.
SUMMARY: What to make of the headlines and the internal data below the big print? The same as it has been. With the policies in place, the costs on small business, the inability to compete with larger and favored businesses, wealth creation and thus jobs creation remains poor. The allocation of economic activity remains concentrated. But for the oil and gas industry and its coattail effect on other industries such as machinists and fabricators, the recovery would be limited to those in the administration's favor. Despite trying to stop the oil and gas industry from expanding, new technologies have driven that industry regardless.
Think there is no favoritism? Just look at the treatment of migratory and protected bird deaths at the hands of the oil and gas industry versus say the wind industry. The latter has a pass; an executive order grants them immunity from killing protected species such as eagles and migratory game birds that are being slaughtered as they fly into the blades turning in their ecosystems or in their migratory flight paths. If one duck, however, lands in a puddle of oil and dies, major fines are levied. Equal protection. Doesn't exist even though our founding document says it must.
THE MARKET
CHARTS
NASDAQ: gapped below the 50 day EMA, sold to 4325 (upper gap point from way back in early March), then recovered hold the prior two lows in its 5 week range making up the consolidation of the 7 week run from mid-May. Looked bad intraday, recovered to the range, showing a candlestick chart doji. That means the sellers were ahead, then the buyers stepped back in. That suggests it tries to bounce back up in the range unless there is some other geopolitical issue to disrupt the technical action.
SP500: Sold further below the 50 day EMA, found support at the late may lateral move. Not much of a support level, but I suppose when NASDAQ turned SP500 followed. Never made it positive, but a doji similar to NASDAQ.
DJ30: Continued its selloff as well, falling into the middle of the April to May lateral trading range. Rebounded off the lows but did not recapture as much ground as NASDAQ, thus not showing the same doji.
SOX: Only index to post a gain, holding at the Thursday low in the Friday low, then recovering lost ground. Tested just over the early April high. Still quite weak, however, after that sharp selloff. SOX was leading; I guess it still is because when it failed the market followed it lower.
RUTX: A big reach lower Friday as well, testing some lows from the April-May bottoming on RUTX. Bounced off those lows, cut some losses, but still closed almost a half percent lower. You could call this an ABCD pattern with a test of the 78% Fibonacci retracement; the initial run higher is a bit ragged, but it was a solid run. Similar to NASDAQ, that pattern suggests a bounce near term, even if it is an oversold bounce.
SP400: Impressive Thursday dive lower. Friday, a test close to the 200 day SMA and right in the middle of the April to May lateral trading range then a sharp rebound to a nice doji. This is a bit better ABCD pattern than RUTX, showing a better initial run and the same stair-step lower to the 78% Fibonacci retracement. Looks ready for at least an oversold bounce.
LEADERSHIP
Big Names: GOOG and AAPL look okay but questionable as to whether they want to bounce just yet. On the other hand PCLN still looks solid, and NFLX has shown improved action as it works laterally, trying to hold near the 50 day EMA and turn the tables on the June to July head and shoulders pattern.
Electronics/Chips: Some good moves remain, e.g. OVTI. SWKS looks ready to bounce again On the other hand, some still look weak, e.g. MU, ALTR. It is a big industry with many sub-sectors, so not surprising some are up, some are down.
Financial: Diving much harder, e.g. JPM, GS, WFC. But some may be ready to rebound, e.g. V, MA.
Equipment: Ready to rebound after getting pounded lower. CMI, CAT showing nice doji at support.
Personal products: Big surges Friday after a gutting over the past two weeks. Oversold yes; buying defense finally? Yes. Good for the outlook for stocks? Not really if defense is the game. CLX, CL, PG.
Drugs: Interesting. SLXP showed great relative strength in the selling. TKMR rallying. PCYC in a great test of its last move.
OTHER MARKETS
Euro/Dollar: Stiff drop but this after 5 weeks upside took it to the November 2013 high.
1.3427 versus 1.3388 versus 1.3395 versus 1.3409 versus 1.3433 versus 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
Dollar/Yen: Big surge through the 200 day SMA midweek, fell back to the 200 day on the Friday close. Testing the move.
102.61 versus 102.84 versus 102.84 versus 102.12 versus 101.87 versus 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
Bonds: Sold off Wednesday and Thursday after a strong run to a new rally high. Sold further to the 50 day EMA Friday then reversed for a big gain. Didn't like the data that much.
10 year: 2.49% versus 2.56% versus 2.55% versus 2.46% versus 2.49% versus 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: 97.85, -0.27. Doji after tow massive back to back drops Wednesday and Thursday took oil below the 200 day SMA. Oversold, ready to try a bounce to test the 200 day SMA breach.
Gold: 1294.60, +11.50. After selling below the 200 day SMA Thursday, gold rebounded right back over that level, holding the support. Sold off all week on thoughts the Fed would act perhaps sooner. Friday's weak-ish data brought the bond buyers right back in.
MARKET STATISTICS
NASDAQ
Stats: -17.13 points (-0.39%) to close at 4352.64
Volume: 2.008B (-9.51%)
Up Volume: 687.54M (+348.89M)
Down Volume: 1.32B (-580M)
A/D and Hi/Lo: Decliners led 1.79 to 1
Previous Session: Decliners led 5.13 to 1
New Highs: 20 (-5)
New Lows: 141 (+21)
S&P
Stats: -5.52 points (-0.29%) to close at 1925.15
NYSE Volume: 694M (-9.28%)
A/D and Hi/Lo: Decliners led 1.7 to 1
Previous Session: Decliners led 9.54 to 1
New Highs: 14 (-9)
New Lows: 100 (+6)
DJ30
Stats: -69.93 points (-0.42%) to close at 16493.37
SENTIMENT INDICATORS
VIX: 17.03; +0.08
VXN: 17.26; +0.44
VXO: 16.06; -0.03
Put/Call Ratio (CBOE): 1.24; +0.25
Bulls and Bears:
Bulls hold near 56% after coming off the high: 55.6% versus 56.5%
Bears fall back down just as the market sells: 16.2% versus 17.2%
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: 55.6% versus 56.5%
56.5% versus 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: 16.2% versus 17.2%
17.2% versus 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.
MONDAY and the WEEK AHEAD
Lots of news is in the books. Despite headlines that many heralded as proving the economic recovery continues, the data internals again suggest that any gains are mostly hollow, still benefitting few versus the many, lifting just some boats as the rising tide is only allowed to move to certain areas. Indeed the stock market failed to capitalize on the purported better data. Either it fears the Fed more than it likes the numbers and the strength of the economic recovery they suggest, or it doesn't like the numbers but believes they are not weak enough to change the Fed's course of performance.
Either way the stock market struggled then broke lower. As noted in the Technical Summary, however, the selling was so intense the indices became near term oversold and show doji, suggesting a bounce this week. NASDAQ at the bottom of its range, not breaking down as the other indices, suggest this. SOX even bounced positive Friday.
It thus looks as if there could be a bounce this week. Either that or the Friday action was just a continuation doji and the selling picks up next week. The latter is always the problem with such a sharp selloff: a Friday recovery in ongoing selling many times simply leads to a more severe selloff Monday or Tuesday of the next week. If that occurs, then you typically do get quite the relief bounce.
We banked some gain on the downside Friday when we saw stocks hold and start to recover. There are some nice momentum upside plays that used the market selling to test strong moves and are in position to rebound as the selling pressure relents. Z is a possibility that is quite obvious, but others are out there. Looking for solid moves that can be consummated quickly; no guarantees a bounce leads to a sustained recovery, and indeed, given the time of year and the intensity of the selling, we are not expecting any lasting move. That said, August can be a good month for technology to move higher and the fact that NASDAQ is not breaking down but is holding its range holds that out as a possibility.
Of course that means after playing some obvious upside setups back near the prior highs of the move pre-pullback, we again look at downside setups to profit from any further rollover and selloff. Until the market sets up better upside patterns, you have to presume that is the case.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4352.64
Resistance:
The 50 day EMA at 4361
4372 is the March 2014 high
The 20 day EMA at 4416
4486 is the July 2014 high
4537 is the lower November 2012 trendline
4621 is the upper channel line formed off the 11/2012 low.
Support:
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 4174
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 1925.15
Resistance:
The 50 day EMA at 1949
1959 is the December 2012 up trendline
1991 is the July 2014 high
Support:
1902 from early May was the intraday all-time high.
1908 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 1858
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 16,493.37
Resistance:
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,841
16,970 is the June 2014 former all-time high
The 20 day EMA at 16,898
17,051 is a lower trendline off the 11/2012 low
Support:
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 16,322
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
August 1 - Friday
Nonfarm Payrolls, July (8:30): 209K actual versus 220K expected, 298K prior (revised from 288K)
Nonfarm Private Payrolls, July (8:30): 198K actual versus 225K expected, 270K prior (revised from 262K)
Unemployment Rate, July (8:30): 6.2% actual versus 6.1% expected, 6.1% prior
Hourly Earnings, July (8:30): 0.0% actual versus 0.2% expected, 0.2% prior
Average Workweek, July (8:30): 34.5 actual versus 34.5 expected, 34.5 prior
Personal Income, June (8:30): 0.4% actual versus 0.4% expected, 0.4% prior
Personal Spending, June (8:30): 0.4% actual versus 0.4% expected, 0.3% prior (revised from 0.2%)
PCE Prices - Core, June (8:30): 0.1% actual versus 0.2% expected, 0.2% prior
Michigan Sentiment -, July (9:55): 81.8 actual versus 82.0 expected, 81.3 prior
ISM Index, July (10:00): 57.1 actual versus 55.9 expected, 55.3 prior
Construction Spending, June (10:00): -1.8% actual versus 0.3% expected, 0.8% prior (revised from 0.1%)
Auto Sales, July (14:00): 5.9M prior
Truck Sales, July (14:00): 7.5M prior
August 5 - Tuesday
Factory Orders, June (10:00): 0.5% expected, -0.5% prior
ISM Services, July (10:00): 56.5 expected, 56.0 prior
August 6 - Wednesday
MBA Mortgage Index, 08/02 (7:00): -2.2% prior
Trade Balance, June (8:30): -$45.2B expected, -$44.4B prior
Crude Inventories, 08/02 (10:30): -3.697M prior
August 7 - Thursday
Initial Claims, 08/02 (8:30): 308K expected, 302K prior
Continuing Claims, 07/26 (8:30): 2525K expected, 2539K prior
Natural Gas Inventor, 08/02 (10:30): 88 bcf prior
Consumer Credit, June (15:00): $15.8B expected, $19.6B prior
August 8 - Friday
Productivity-Preliminary, Q2 (8:30): 1.4% expected, -3.2% prior
Unit Labor Costs, Q2 (8:30): 2.0% expected, 5.7% prior
Wholesale Inventories, June (10:00): 0.4% 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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