- Indexes bounce from the next lower support.
- Internals weaker but trying to set up an oversold bounce.
- GDP revised to 4.6%. Never have so few not worked for supposedly so much.
- Stocks oversold heading to earnings providing an opportunity and reason to recover some lost ground.
The return of the buy-side. Kind of.
Hans Solo Peter Griffin is not. Similarly, Friday did not start a new buying surge.
After a tough week through the tail kicking Thursday session, the indices held support, or at least close enough to it, and rallied back with some nice percentage gains. The fact that Thursday was so negative was a positive: the indices were overdone, the smaller cap indices sold out and holding support.
Stocks threatened to sell off big after the third revision to Q2 GDP rose to 4.6% from 4.2%, the largest increase since Q4 2011. I think that brought the total 4%+ GDP quarters in this 6 year recovery to four, maybe five. A year of GDP growth at 4% in 6 years? Oh yes; we are on an improving trajectory we are told. Just as we were in 2010, 2011, 2013. Those years were even before the force Obamacare expenditures hit companies. In this read we learned that healthcare outlays rose a whopping 17.5% thanks to the Affordable Care Act's requirements. Nothing like forced spending programs to produce 'organic' GDP growth. In any event, if there is an improving trajectory I think we need NASA's finest calibrated instrumentation to detect it. Why not? They want to repurpose NASA for other areas, right?
Ah, but the market was up. From getting hammered on the week to a blaze of 1+% gains on Friday. Well, not across the board, and really only two indices were above 1%, but it was a rebound damn it, 'proof' that the uptrend would not be denied as stocks rallied from what we called 'lick log' levels Thursday night.
SP500 16.86, 0.86%
NASDAQ 45.44, 1.02%
DJ30 167.35, 0.99%
Volume faded sharply: -14% NYSE, -15% NASDAQ
A/D: Solid 2.7:1 NYSE, 2.1:1 NASDAQ, but well off the -4+:1 on the Thursday selling.
Thursday we noted that SP400, RUTX, SOX had obviously been hammer kicked lower but all were at key levels on Thursday, holding those levels as NASDAQ and DJ30 were selling through support, 'catching down' to the small and midcaps that had already sold hard. It looked as if the smaller issue indexes were sold out and ready to bounce. Friday the futures were up, they overcame some negatively viewed data, and rallied back.
That jumped SP400 off the 200 day SMA, SOX off the 50 day EMA, and RUTX off the July/August lows. SP500 moved off the lower trendline in its channel while DJ30 found support at the 50 day SMA and jumped. They all bounced where they needed, moving up from the what we style the 'lick log,' that is, the point where the critical moves or decisions are made.
'Now let's get down to the lick log . . . ' District Attorney Trotter in 'My Cousin Vinny,' 1992.
They did it. They bounced. But volume was lower and in comparison the recent selling the bounce was so-so, particularly on RUTX. Of course many individual stocks bounced from the recent selling but many moves were very mediocre, not repairing the damage the selling wrought. This was more or less what we anticipated from a rebound attempt, i.e. lower volume, not fixing the damage patterns, internals not as strong as the selling, but some of the price moves were no doubt strong. 1% moves on NASDAQ, DJ30, and SOX are not scoff-worthy.
'Yes, but are you [scoff]-worthy?' Elaine from 'Seinfeld.'
In sum, the day turned out pretty much as expected with a bounce ahead of the weekend after some fairly ugly selling.
The question is, of course, what does Friday mean in the bigger market picture? For SP500 and DJ30 it was just a walk in the park as they held key levels (lower channel line, 50 day SMA, respectively) and bounced. NASDAQ, SP400, RUTX also held key levels and bounced, but they fell off of the trail and rolled down the hill first, particularly the small and midcaps.
That all of the indices held a support level and bounced, albeit some several rungs lower, demonstrates buyers are still respecting support, at some level. Of course just because the machines in 'The Matrix' trilogy were willing to accept existence on a very low level if required doesn't mean the buy-side of the market can do the same or that we want to ply that ground if only the slugs are leading. The market is not at that level yet by any measure, but growth, the market's most fertile areas when it performs, is under pressure.
Thus this low volume rebound Friday on the heels of the Thursday high volume and strong negative breadth selloff needs to be viewed as just a relief move. It was setting up in the growth indices midweek when they started to test and hold next support. Volatile as all get out, but testing it. We posited it could be one day, two, three or more, but unless volumes improve, the recoveries improve (again, many stocks bounced Friday but very modestly), we don't anticipate more than that.
There are some new areas looking good. Restaurants are perking up. Chips are as always mixed, but some strong performances continue. Financials are still strong. Some energy stocks are getting quite interesting with good patterns post-selling. In addition, many non-name brands or at least some forgotten or disdained names are making turns from long bases, e.g. VVTV, CRAY, SFUN. As discussed last week, perhaps they can gel and provide upside leadership. They could not do it last week and their roles may be more relegated to some nice relief bounce moves and plays. That remains to be seen as in how well they move and how the overall market responds as well.
Friday we opted to let upside positions recover. Some looked quite solid but many, indeed more, did not put in moves commensurate with the overall market rally. The lack of volume, the diminished breadth, and the lack of a lot of serious upside moves place Friday in the relief bounce category . . . unless and until is shows otherwise.
DJ30: Surged off the 50 day SMA after making a lower low for September. The rebound occurred on notably less volume, so a good price move that lacked a lot of buying punch. The pattern is still less than pretty as DJ30 is back at the July and September twin peaks, resistance the Dow has yet to shake.
SP500: Ugly week through Thursday with a lower selloff low, but it held the lower trendline in the long uptrend channel from November 2012 and bounced Friday. Volume fell off markedly, falling below average for the first time in over two weeks. As with the Dow, a good price move but hardly a move backed by a lot of buyers.
NASDAQ: After breaking the 50 day EMA Thursday, NASDAQ recovered Friday, moving back through the 50 day to close. Volume faded below average, and similar to SP500, it was the first sub-average volume session in over two weeks. Not a strong rebound, lower MACD remains, and it has the look of an unfinished head and shoulders pattern.
RUTX: Gapped higher off of the late July lows after testing that level Thursday. Bounced where it had to, at the lick log. That is all.
SP400: Bounced from the 200 day SMA after a weeklong flop to that level. SP400 held the 200 day in early August and rallied five weeks off that test. Perhaps SP400 is forming a bigger triangle pattern. Long way to go to prove that, but holding at a very logical support point and starting a relief bounce.
SOX: Gapped off the Thursday 50 day EMA test. SOX continues holding that support; bounced off it in mid-September. Not a pretty pattern, but a pretty gritty group of stocks that are holding support.
Energy: Every time oil and gas improves its patterns it suffers a blowout. Some of the service stocks, however, look solid, e.g. SLB, HAL.
Eateries: Some interesting patterns, e.g. PNRA, CHUY, BKW.
Biotech/Drugs/Medical: Still good looking patterns and moves. INSY, CELG, BIIB, VRTX, ANIP.
Chips: SWKS, RMBS remain strong. SIMO is interesting.
Retail: Broad and not bad. CVS (drug stores), LB (apparel stores), BBBY. Very interesting.
Financial: GS with an easy 20 day EMA test. JPM testing the same level.
Stats: +45.45 points (+1.02%) to close at 4512.19
Volume: 1.594B (-15.61%)
Up Volume: 1.29B (+1.044B)
Down Volume: 314.45M (-1.366B)
A/D and Hi/Lo: Advancers led 2.12 to 1
Previous Session: Decliners led 4.2 to 1
New Highs: 34 (+9)
New Lows: 106 (-62)
Stats: +16.86 points (+0.86%) to close at 1982.85
NYSE Volume: 630.6M (-14.4%)
A/D and Hi/Lo: Advancers led 2.74 to 1
Previous Session: Decliners led 4.84 to 1
New Highs: 16 (+6)
New Lows: 142 (-48)
Stats: +167.35 points (+0.99%) to close at 17113.15
VIX: 14.85; -0.79
VXN: 16.85; -1.27
VXO: 13.62; -0.98
Put/Call Ratio (CBOE): 1.13; -0.02
Bulls and Bears:
Bulls continue their tumble, not surprising given the market losses: 48.0% versus 52.5% versus 57.6%
Bears flat-lined: 15.3% versus 15.2% versus 14.1%
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.
Bulls: 48.0% versus 52.5%
52.5% versus 57.6% versus 56.1% versus 52.5% versus 49.5% versus 46.4% versus 50.5% versus 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
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
Bears: 15.3% versus 15.2%
15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2% versus 16.2% versus 17.1% versus 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%
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.
Bonds: 2.53% versus 2.51% versus 2.56% versus 2.53% versus 2.56% versus 2.58% versus 2.63% versus 2.62% versus 2.59% versus 2.59% versus 2.61% versus 2.55% versus 2.54% versus 2.50% versus 2.47% versus 2.45% versus 2.45% 10 year.
Recovered last week then paused more or less Friday after retaking the 50 day EMA on the week.
Oil: 93.55, ++1.06. Bounced on the week, but just up to the 20 day EMA, the resistance that has held oil in check since July.
Gold: 1215.50, -6.20. Lateral move all week as gold tries to break higher but struggles at the 10 day EMA.
$/JPY: 109.287 versus 108.70 versus 109.12 versus 109.04 versus 108.89 versus 108.78 versus 108.982 versus 109.17 versus 108.265 versus 107.13 versus 107.19 versus 107.34 versus 107.13 versus 106.80.
Dollar resuming its upside after a 10 day EMA early in the week.
Euro/$: 1.2747 versus 1.2780 versus 1.2847 versus 1.2850 versus 1.2831 versus 1.2916 versus 1.2875 versus 1.2960 versus 1.2940 versus 1.2963 versus 1.2912.
Surging higher Wednesday to Friday to new 10+ year highs.
Next week sees the stock indexes trying to keep alive a bounce from support at various levels. The buyers are trying to move in, coming back after the Wednesday attempt was sold hard Thursday. That they came back at all suggests they will attempt to push it higher again.
Whether they succeed is another story and our working thesis, whether it works or not, is that the market bounces in relief but the move fails to deliver any new highs or a lasting upside move.
There will be plenty of data to ponder. Personal Income and Spending Monday, Chicago PMI Tuesday, ISM Wednesday, Factory orders Thursday, Jobs Report Friday. With a 4.6% GDP you would expect jobs in the 300K range. But those are not the expectations.
Why? Because this isn't really a 4.6% GDP economy. More and more news outlets are finally realizing and reporting the facts, e.g. 100+M working aged people not working, real wages are falling, low quality low pay jobs created, the age 24 to 54 range, the most productive and highest earning ages, are still millions of jobs light. The capper is that the US still destroying more companies than creating.
Never in the history of the US have so many not worked, lost their job, lost their business, or had to take a low paying, part-time job when there was such 'bounty.' This economy's low paying jobs, the jobs that put the people to work who serve those who benefit from the Administration's favoritism policies and the Fed's focus on increasing financial asset wealth of those at the top, are the equivalent of the 1930's soup lines. They put a bit of food in your belly but there is no hope for anything better.
Or if you prefer, let's say they are the equivalent of the busy work projects of the Great Depression. Massive amounts of dollars were conjured and spent on painting bridges and infrastructure patches, basically keeping the assets of those with the assets and the power from deteriorating. This supposedly helped because it gave people a 'job,' but it did nothing to solve the depression.
How can you have 4.6% GDP growth destroying more companies than creating? You have what we have reported all along: concentration of all growth in fewer large companies that received free money and then competitive protection from the federal government at the start of the Obama administration with the stimulus package. Then you add on the onerous burdens on smaller businesses of the ACA, the EPA, the BLM, etc. The result is a very few enjoying all the gains, similar to those who are wealthy and own financial assets receiving all the financial gain; the breakdown of the sentiment polls shows this as the wealthy are happy and confident while the other economic spectrums are not. Those states where the oil and gas industry operates are ahead of all others and help prop up the economy. Without it we would really be in bad shape, but the numbers wouldn't show it because they measure only what the federal government wants to measure. It is likely time we stop spending our money on funding what amount to worthless exercises in number fiction.
Okay, so much for the economic condition. It is great according to reports but not really great, kind of like the economic data: headlines sound great, the details are not.
With some newer areas trying to move higher and some other groups testing and setting up decent patterns, e.g. oil and gas services, the bounce strength looks better and we will still look at and pursue some upside positions that are again in good risk/reward position.
With the fall earnings season here and stocks oversold near term there is a natural opportunity for some upside as stocks recover some ground in anticipation of results. The 'warnings' season is thus far quiet with those saying anything being mostly positive in their comments/guidance. A bit more of that and the bounce can gel.
Overall any upside move is still viewed as a bounce and current upside that is struggling or lagging can be pared as the move continues. Then we see how good the move is. Of course if the Wednesday and Friday was just a head fake and the market starts the week weak, that says a lot and we will need to move into downside plays.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4512.19
The 10 day EMA at 4532
4610 is the September 2014 post-bear market high.
The 50 day EMA at 4495
4486 is the July 2014 high
4372 is the March 2014 high
The August low at 4321
4289 is the July 2000 recovery high
The 200 day SMA at 4282
4277 is the March lower gap point
4246.55 is the January 2014 peak
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 1982.85
1991 is the July 2014 high
2011 is the all-time high
2017 is the December 2012 up trendline
The 50 day EMA at 1978
1963 is the lower trendline from 11/2012
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
The 200 day SMA at 1898
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
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 17,113.15
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
The 50 day EMA at 16,983
17,068 is the early July 2014 peak
17,152 is the mid-July post bear market high
17,351 is the September 2014 all-time high.
16,736 is the penultimate all-time high from May 2014
16,341 is the May low
16,334 is the August 2014 low
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
The 200 day SMA at 16,550
16,506 is the March 2014 peak
16,334 is the August 2014 low
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
September 26 - Friday
GDP - Third Estimate, Q2 (8:30): 4.6% actual versus 4.6% expected, 4.2% prior
GDP Deflator - Third, Q2 (8:30): 2.1% actual versus 2.1% expected, 2.1% prior
Michigan Sentiment -, September (9:55): 84.6 actual versus 85.0 expected, 84.6 prior
September 29 - Monday
Personal Income, August (8:30): 0.3% expected, 0.2% prior
Personal Spending, August (8:30): 0.4% expected, -0.1% prior
PCE Prices - Core, August (8:30): 0.0% expected, 0.1% prior
Pending Home Sales, August (10:00): -0.2% expected, 3.3% prior
September 30 - Tuesday
Case-Shiller 20-city, July (9:00): 7.4% expected, 8.1% prior
Chicago PMI, September (9:45): 61.5 expected, 64.3 prior
Consumer Confidence, September (10:00): 92.0 expected, 92.4 prior
October 1 - Wednesday
MBA Mortgage Index, 09/27 (7:00): -4.1% prior
ADP Employment Chang, September (8:15): 202K expected, 204K prior
ISM Index, September (10:00): 58.5 expected, 59.0 prior
Construction Spendin, August (10:00): 0.4% expected, 1.8% prior
Crude Inventories, 09/27 (10:30): -4.273M prior
Auto Sales, September (14:00): 6.2M prior
Truck Sales, September (14:00): 7.9M prior
October 2 - Thursday
Challenger Job Cuts, September (7:30): -20.7% prior
Initial Claims, 09/27 (8:30): 297K expected, 293K prior
Continuing Claims, 09/20 (8:30): 2458K expected, 2439K prior
Factory Orders, August (10:00): -9.3% expected, 10.5% prior
Natural Gas Inventor, 09/27 (10:30): 97 bcf prior
October 3 - Friday
Nonfarm Payrolls, September (8:30): 210K expected, 142K prior
Nonfarm Private Payr, September (8:30): 205K expected, 134K prior
Unemployment Rate, September (8:30): 6.1% expected, 6.1% prior
Hourly Earnings, September (8:30): 0.2% expected, 0.2% prior
Average Workweek, September (8:30): 34.5 expected, 34.5 prior
Trade Balance, August (8:30): -$40.9B expected, -$40.5B prior
ISM Services, September (10:00): 58.9 expected, 59.6 prior
By: Jon Johnson, Editor
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