Monday, August 11, 2014

Expiration Week and Stocks are Bouncing Into It


- Air strikes in Iraq send market down, Russia ending another military exercise bounces it back up.
- NASDAQ moves back up into its range after cracking the bottom of it Thursday, but DJ30 leads the Friday move.
- Expiration week and stocks are bouncing into it.
- Still split leadership and a split market. This week it looks as if they want to come together a bit, but that is likely just temporary.

Thursday saw NASDAQ break the bottom of its 5 week range and the overnight futures looked grim after US air strikes against ISIS were authorized and indeed occurred on Friday. Dow futures were off triple digits on top of the Thursday sharp selling.

Then they weren't. Why? Because word hit that Russia was going to de-escalate the situation in Ukraine. What Russia did was end some military exercise on the exact date it said it would end the exercises. That was somehow viewed as a positive, likely because the West imputed Russia's actions at the border meant invasion. The irony is that Putin has done this several times during this ongoing fight, saying he is pulling back but never really pulling them all. Think of it as gasoline prices: every time there is a reason that spikes prices higher, they never seem to give up all of the spike even after the reason for the spike is alleviated. Prices remain a bit higher even after things normalize. Putin may have ended the war exercises, but likely more troops and war equipment remain.

That doesn't matter now does it? At least to the market and the day at hand. Sure when Putin cranks up the war machine again stocks will suffer, but Friday the notion Russia was packing up brought bids back into the market with big reversals on the indices.

SP500 22.02, 1.15%
NASDAQ 35.93, 0.83%
DJ30 185.66, 1.13%
SP400 1.02%
RUTX 1.04%
SOX 1.14%

Volume: Of course it fell on both NYSE (-8.2%) and NASDAQ (-10.7%). Once again volume is lower on the upside versus the downside, the opposite of what the upside desires.

A/D: 2.7:1 NYSE, 3:1 NASDAQ. Nothing shabby about the upside breadth.

Note how the indices were all up roughly 1%. Pretty even buying across the board. Also note that NASDAQ, the relative strength leader up to last Thursday, lagged Friday. The last holdout threatening a further break of its lateral range? Will it get a bailout from the large cap NYSE indices?

The problem Friday was not the bounce though that is part of the scenario. The market tends to show upside ahead of the weekend then geopolitical issues arise anew and stocks open lower Monday.

All in all, NASDAQ didn't really help its pattern, neither did RUTX. SOX threw in with NASDAQ as well, with a little gain in an ongoing trend lower below the 10 day EMA. Up, but outside of the large cap NYSE indices not a lot of power.

Nonetheless, SP500 and DJ30 were precisely in position to bounce even if NASDAQ was a bit sloppy Thursday. The large cap NYSE indices bounced off a sharp pullback to key support, and NASDAQ was able to recover its range. NASDAQ is still quite problematic after that Thursday lower closing low, but if SP500 and DJ30 want to put in a rather normal bounce from important support in an oversold condition, NASDAQ at least gets a reprieve.



NASDAQ: The market relative strength leader for over a month is now having issues of its own. Broke to a lower closing low Thursday on higher volume, cracking its trading range and opening the door to further selling a la the rest of the indices. Recovered Friday, moving back over the 50 day EMA. Perhaps just a shakeout as some of its key components, e.g. AAPL, have put in nice pullbacks to consolidate good runs.

DJ30: Strong price surge off a full test of the 200 day SMA. Recaptured almost the entirety of the Tuesday and Thursday losses in one session. Doesn't mean it rallies to a new high, but it did bounce at key support after a 750 point drop in two weeks. In that light the bounce makes a lot of sense but damage was done and the question is what kind of base it needs to put in.

SP500: After closing just below the lower trendline from 2012 on Thursday, SP500 bounced as well, surging nicely. Lower volume, however, shows a lack of consensus on the upside move. Oversold, at a logical support level, surging upside.

SOX: Ugly downside engulfing pattern Thursday (gapped higher reversed to close lower than Wednesday), but gapped upside Friday. This pattern doesn't really change the Thursday downside engulfing pattern, leaving SOX in a more negative pattern that may bounce some with the market but is still weak.

RUTX: Continued its weeklong recovery from the second leg lower in its selloff from the early July lower high. Closed out the week right at the 10 day EMA, the point where it failed in mid-July and late July on its way to a lower low in the selloff. RUTX is bouncing from its last downside leg, but thus far that is no change from its weaker pattern.

SP400: The midcaps spent all week working laterally after the sharp late July drop. Holding over the 200 day SMA and working laterally, SP400 bounced Friday to a higher high but closing just below the 10 day EMA. SP400 has put in a full decline from its head and shoulders pattern and that means it can start to base from here, using this low as its low, or close to it, for the pattern/base that sets up. That means how it trades is a good indication for the rest of the market.

Summary: NASDAQ was a relative strength leader but started to crack on Thursday, threatening a drop that would certainly indicate the market had more consolidation, perhaps at deeper levels than last week's lows. Just as it was breaking, DJ30, SP400, SP500 bounced off of support. They can provide upside support and allow NASDAQ to continue its hold of the trend. SOX remains weak, however, and its move lower foretold SP500's and DJ30's break. Its Friday bounce was less than convincing, so watching SOX, NASDAQ in its trading range, and SP400 and its action after completing the downside pattern.


Big Names: AAPL put in a nice test of the 50 day EMA. Rallied up the 20 day EMA several times, tested the 50 day, should be ready to rally some more if the trend holds. GOOG spent the week at support and the 200 day SMA is rising just below it. In position to bounce as well but the pattern still looked head and shoulderish. NFLX bounced nicely Wednesday and Thursday. PCLN surged Monday, consolidated nicely the rest of the week. These all look pretty solid and that bodes well for NASDAQ.

Consumer products: Up last week but somewhat precarious, e.g. CL, CLX. PG recovered but its pattern is so wild. Somewhat of a good sign investors are not flocking to these stocks.

Energy: Good recoveries Friday. APC bouncing off the 50 day EMA. CVX recovering but it broke the 50 day EMA and damaged its pattern. HAL is also struggling below the 50 day. Stocks are not collapsing but are undergoing a 3 week consolidation.

Metals: Still strong, e.g. STLD, AKS. Industrial metals/minerals still solid, e.g. CLF.

Chips/electronics: Still widely mixed. INTC, SWKS, MLNX, NVDA performing well. SLAB, ANAD, TXN are not.


Stats: +70.91 points (+1.72%) to close at 4183.9
Volume: 1.929B (-10.74%)

Up Volume: 1.66B (+150M)
Down Volume: 266M (-407.54M)

A/D and Hi/Lo: Advancers led 2.95 to 1
Previous Session: Advancers led 1.95 to 1

New Highs: 41 (+14)
New Lows: 27 (-13)

Stats: +20.22 points (+1.09%) to close at 1872.18
NYSE Volume: 622M (-8.26%)

A/D and Hi/Lo: Advancers led 2.72 to 1
Previous Session: Advancers led 2.16 to 1

New Highs: 91 (+45)
New Lows: 65 (-8)

Stats: +181.04 points (+1.11%) to close at 16437.18


Bonds: Strong move on the week though Friday bonds were off: 2.42% versus 2.39%

Oil: 97.65, +0.03. Jumped off the early week selling but faded to flat. Down hard the past two months but trying to set up an oversold bounce.

Gold: 1311.00, -3.50. Bounced on the week but was off Friday, unable to hold a nice early surge. Held the 200 day SMA midweek and surged nicely.

USD/JPY: 102.01 versus 102.10.


VIX: 13.82; -1.07
VXN: 17.72; -1.39
VXO: 12.64; -1.37

Put/Call Ratio (CBOE): 0.61; -0.3

Bulls and Bears:

Bulls fall hard: 50.5% versus 55.6%

Bears climb back modestly: 17.1% versus 16.2%

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: 50.5% versus 55.6%
55.6% versus 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: 17.1% versus 16.2%
16.2% versus 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.


A very full week of economic data though Monday starts quiet. JOLTS, Retail Sales, PPI, New York PMI, Industrial production. August expiration as well.

That is just the domestic economics. There is still the European economic crisis redeveloping, though is it a crisis when nothing was really done to fix the problems and they not surprisingly show up again?

Will Russia re-escalate after de-escalating? At some point it will happen again. More air strikes in Iraq? The President said it could be 'long-term' as his vacation in Martha's Vineyard starts.

Oftentimes in these geopolitical environments the market bounces Friday then is off on Monday. That is short term bobbles in the overall picture, however. The index patterns and the leadership tell the story. As of Friday, the market was still split with NASDAQ, despite Thursday, still the leader. As pointed out, many NASDAQ stocks are in good position to provide the index support after a couple of weeks pullback. With SP500 and DJ30 bouncing off of important support as you would expect after an oversold condition, this week, barring any new geopolitical surprise, is in good shape to rebound for expiration. Indeed, despite all of the geopolitics the past several weeks, the market is not all that bad. Thus when the indices fall to support and the negatives dissipate some, a bounce is pretty normal.

That said, we see a lot of mixed plays, i.e. a lot of downside possibilities and a lot of upside possibilities. Wow, nothing new there. That is the market's MO the past 6 weeks. Thus while AAPL, BABY, UA, ATHM, SFUN and others look in position to rally, FDX, SNDK and others look ready to fall further.

Eventually they come together. The question is whether it is to the upside or downside. This week it looks as if they want to merge a bit toward the upside overall as SP500 and DJ30 bounce toward NASDAQ. That works, but we would not be surprised to see the bounce run out of gas.


NASDAQ: Closed at 4370.90

4372 is the March 2014 high
The 20 day EMA at 4394
4486 is the July 2014 high
4558 is the lower November 2012 trendline
4641 is the upper channel line formed off the 11/2012 low.

The 50 day EMA at 4361
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 4186
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 1931.59

The 50 day EMA at 1945
1966 is the December 2012 up trendline
1991 is the July 2014 high

1915 is the lower trendline from 11/2012
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The 200 day SMA at 1863
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 16,553.93

16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,775
16,970 is the June 2014 former all-time high
The 20 day EMA at 16,730

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 16,349
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)


August 8 - Friday
Productivity-Prel, Q2 (8:30): 2.5% actual versus 1.4% expected, -4.5% prior (revised from -3.2%)
Unit Labor Costs, Q2 (8:30): 0.6% actual versus 2.0% expected, 11.8% prior (revised from 5.7%)
Wholesale Inventories, June (10:00): 0.3% actual versus 0.4% expected, 0.3% prior (revised from 0.5%)

August 12 - Tuesday
JOLTS - Job Openings, June (10:00): 4.635M prior
Treasury Budget, July (14:00): -$96.0B expected, -$97.6B prior

August 13 - Wednesday
MBA Mortgage Index, 08/09 (7:00): 1.6% prior
Retail Sales, July (8:30): 0.3% expected, 0.2% prior
Retail Sales ex-auto, July (8:30): 0.3% expected, 0.4% prior
Business Inventories, June (10:00): 0.4% expected, 0.5% prior
Crude Inventories, 08/09 (10:30): -1.756M prior

August 14 - Thursday
Initial Claims, 08/09 (8:30): 305K expected, 289K prior
Continuing Claims, 08/02 (8:30): 2523K expected, 2518K prior
Export Prices ex-ag., July (8:30): -0.3% prior
Import Prices ex-oil, July (8:30): -0.1% prior
Natural Gas Inventor, 08/09 (10:30): 82 bcf prior

August 15 - Friday
PPI, July (8:30): 0.2% expected, 0.4% prior
Core PPI, July (8:30): 0.2% expected, 0.2% prior
Empire Manufacturing, August (8:30): 15.5 expected, 25.6 prior
Net Long-Term TIC Fl, June (9:00): $19.4B prior
Industrial Production, July (9:15): 0.3% expected, 0.2% prior
Capacity Utilization, July (9:15): 79.2% expected, 79.1% prior
Michigan Sentiment, August (9:55): 81.7 expected, 81.8 prior

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

Jon Johnson is the Editor of The Daily at

Technorati tags:

No comments: