Monday, October 27, 2014

Great Bounces But to What?

MARKET SUMMARY

- Another gain Friday but after good moves resistance starts to factor in.
- Great bounces but to what? Pretty ugly large cap index patterns.
- Excellent patterns still exist in the leading groups with new stocks break higher. The rebounding large caps, you would think, need to set up better patterns.
- Stocks are rallying even as wage growth stymies and huge percentages of US citizens make very little.

With Friday's gains on top of the past week and one-half recovery, SP500 managed to close a week higher for the first time in quite awhile. Friday, and indeed earlier in the week outside of Thursday, the large cap indices led the move, though all indices logged gains.

SP500 13.76, 0.71%
NASDAQ 30.93, 0.69%
DJ30 127.51, 0.76%
SP400 0.37%
RUTX 0.21%
SOX 1.06%

Volume: Faded on both exchanges. NYSE -10%, NASDAQ -12%

A/D: Weak given the moves. 1.6:1 NYSE, 1.2:1 NASDAQ.

Nice, solid advances, not on the same scale as shown last week or earlier this week, but solid.


THE MARKET

CHARTS

Thing is, not a lot of headway was made. Indeed, given the indices are up 1.5 to 2 weeks rut-depending upon which one you look at, you could expect stocks in general to start slowing the move some.

RUTX: Case in point, Friday RUTX was up but could not make any serious moves, butting into the 50 day EMA. Thursday RUTX traded through the 50 day but then faded to close. Friday a doji at that level on low volume. 7 of 9 days to the upside, at the 50 day EMA, at the August lows. Early to lead, now maybe needs a break with only two days off during the two weeks.

SP400: Similar action as SP400 posted its 7th gain in 8 sessions. It is not only at the 50 day EMA but the 200 day SMA as well. Thursday it moved through the latter but faded to close below it. Friday it moved up to the 200 day, but as with RUTX it is at the August low resistance as well. Strong recovery but the question is how much gas is in the tank? A pause or is it done?

SOX: At the 50 day EMA as well, having filled the MCHP warning gap lower. Great recovery but a lot of the big names on SOX are in bear flag patterns, e.g. INTC. If they go down, SOX goes down. Bigger picture, look at the double top spanning July and September, the hard decline and gap, the sharp rebound. Not a great pattern, not one you would buy into right at this moment.

SP500: SP500 rallied through the 50 day EMA and up to the 50 day SMA. In seven days it recovered all it lost in the five days to the downside. Isn't that the way it always is? The downside is so fast. Anyway, SP500 has recovered, but to what? The pattern wasn't great BEFORE it tanked. It has the July peak at 1990ish (closed at 1964) then the September peak. Not saying it has to fail. If it is going higher, however, it is going to have to take a breather at some point, regroup, and take on the highs.

DJ30: Up just over the 50 day EMA Friday as the Dow lags a bit. It is closing in on resistance at 16,900 to 17,150. Dutifully following SP500, but not much more.

Nice moves higher, extending the gains with bids holding. But, again, just where are they now?

You have to look at the indices' relative position after more than a week of upside. The leading indices that started the move (small and midcaps) have slowed and are actually pausing, trying to consolidate. The large caps likely show some of that next week as they continue to catch up to the move the smaller caps started.

This is all very normal action just looking at the sharp upside move the past two weeks. Even so it means the upside likely has to test. We thought we would get 2 to 3 sessions of testing last week but instead the market took a day off and then continued higher Thursday and Friday. So, with a bit more gain in the books the indices likely test.

Okay, so we get the test. Then stocks have to hold and continue the move. In so doing they would have to overcome some pretty ugly patterns that formed just prior to the dive lower on Ebola, MCHP, Europe, earnings worries, etc. Again, they can do it, we just have to realize that the indices bounced sharply to resistance so likely 1) need a test/rest before going much higher, and 2) have to overcome the pre-existing ugly patterns.

What is the import of that? Well, you don't go piling into every stock on the upside after a 2 week run. That is why our buys scaled back though we still bought positions on good stocks making solid breaks.

Indeed, we STILL see a lot of leadership quality stocks in position to make upside breaks and have more on the weekend report. Many leaders keep stepping up and we note that some of the early leaders that surged but spent the past 1.5 weeks testing as the rest of the market rallied, are set up to break higher or started on Friday (e.g. TGTX, XLRN)

Of course we also banked gain on plays as well, e.g. AMZN, VIPS Friday, AGIO, BABY, etc. earlier in the week. Interesting that AMZN and VIPS are heading in opposite directions, but that doesn't make the profits any less appealing, and it shows you also that you can make money looking both ways, STILL, in this market.

Friday we did pick up some TGTX as it broke higher from a very nice 3 week consolidation. YY is a play we bird-dogged Thursday night and sure enough it surged higher Friday. Plenty of room for these plays to run, and they appear to be making their own wake, i.e. moving without a lot of concern for the market's moves.

The market still has to deal with a lot of extraneous issues, e.g. Ebola, school shootings, Putin, ISIS, China, yet the market continues to move higher. Remember, this is the 'no respect' Dangerfield rally and we hear many still want to short it. That works for us.

We are looking at more upside plays for next week because very good stocks continue to set up very good patterns as money is put to work in some areas after being pulled from others. If the money stays in the market, it behooves us to find where it is going, and thus far we are indeed doing just that.

We could see more money being pulled from other areas this week after the strong rebound moves off the lows. Stocks sold hard, rebounded hard, and now face the reality of resistance and pre-existing ugly patterns as noted earlier.

That is why we also have several new downside plays in addition to the other ones we are watching, waiting to see if they break lower. If so, we could make some rapid downside money once again.


THE ECONOMY

September hourly wages show a continued disturbing trend.

The BLS released its September hourly wages data and it shows more trouble for the US worker.

$10.32/hour versus 10.34/hour, -0.2% (1982-1984 constant dollars).

This may not seem to be much, but since 3/2014 only 1 month has shown wage gains. The other 5 were wage losses. The US worker, despite burgeoning gains in corporate profits, continues to suffer wage declines.

I have posited the question before: how can the US be in recovery if wages continue to decline?


Social Security Administration releases its tally of US citizen earnings.

The SSA reports that 2013 saw 50% of US workers earning less than $28K per year. 50%! 39% earned less than $20K. 63% less than $40K. 72% less than 50K.

We are told by several think tanks, and the US government, that it takes $50K per year to for a family of four to maintain a middle class life. 72%, however, make less than that threshold level.

Meaning: The middle class is effectively gone as the vast majority of Americans make less than is required to maintain what is considered a middle class lifestyle.

And on top of this, Hillary Clinton today says "Don't let anybody tell you it's corporations and businesses [that] create jobs. The money has to go to the federal government because the federal government will spend that money better than the private sector will spend it."

It does not get any clearer than that. The democratic frontrunner believes government is best at allocating the resources of the American business person, the American entrepreneur? Seriously? Only in a country where the populace is wholly ignorant as to why this nation is a separate country, why this nation of the people, for the people, and by the people was created, can allow this kind of tripe to be uttered without running her out of town on a rail. We get what we deserve.



MARKET STATS

NASDAQ
Stats: +30.92 points (+0.69%) to close at 4483.72
Volume: 1.698B (-10.22%)

Up Volume: 1.13B (-500M)
Down Volume: 585.75M (+291.33M)

A/D and Hi/Lo: Advancers led 1.29 to 1
Previous Session: Advancers led 2.67 to 1

New Highs: 54 (0)
New Lows: 53 (+5)

S&P
Stats: +13.76 points (+0.71%) to close at 1964.58
NYSE Volume: 717.7M (-12.35%)

Up Volume: 1.94B (-950M)
Down Volume: 1.1B (+253.93M)

A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Advancers led 3.39 to 1

New Highs: 81 (-20)
New Lows: 26 (-6)

DJ30
Stats: +127.51 points (+0.76%) to close at 16805.41


SENTIMENT INDICATORS

VIX: 16.11; -0.42
VXN: 17.93; -0.85
VXO: 15.75; -0.17

Put/Call Ratio (CBOE): 0.9; +0.08. Third session below 1.0 in the past two weeks.


Bulls and Bears:

Bulls continue to fall rather sharply: 35.3% versus 37.8% versus 45.5%

Bears finally broke the ice and are rising rapidly, for them: 18.2% versus 17.3% 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: 35.3%
37.8% versus 45.5% versus 47.5% versus 48.0% versus 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: 18.2%
17.3% versus 14.1% versus 15.1% versus 15.3% versus 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% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.


OTHER MARKETS

Bonds: 2.26% versus 2.28% versus 2.22% versus 2.18% versus 2.20% versus 2.16% versus 2.14 versus 2.20% versus 2.28% versus 2.31% versus 2.34% versus 2.42% versus 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 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.


Oil: 81.03, -1.02. Trying to post up the past two weeks and build a bottom to bounce from.

Gold: 1231.80, +2.60 After a nice rally to the 50 day EMA gold failed to end the week, holding the 20 day EMA.

$/JPY: 108.13 versus 108.17 versus 107.20 versus 106.88 versus 106.38 versus 106.875 versus 106.33 versus 105.92 versus 107.05 versus 107.29 versus 107.66 versus 108.12 versus 107.95 versus 108.96

Took a bit of a breather after the Tuesday to Thursday surge.

Euro/$: 1.2670 versus 1.2650 versus 1.2645 versus 1.2723 versus 1.2810 versus 1.2760 versus 1.2809 versus 1.2838 versus 1.2658 versus 1.2683 versus 1.2628 versus 1.2748 versus 1.2680 versus 1.2627



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4483.72

Resistance:
4486 is the July 2014 high
4610 is the September 2014 post-bear market high.

Support:
The 50 day EMA at 4424
4372 is the March 2014 high
The August low at 4321
4316 is the lower gap point from October 2014
The 200 day SMA at 4308
4289 is the July 2000 recovery high
4277 is the March lower gap point
4246.55 is the January 2014 peak
4185, the May lower gap point
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 1964.58

Resistance:
1987 is the lower trendline from 11/2012
1991 is the July 2014 high
2011 is the all-time high
2044 is the December 2012 up trendline

Support:
The 50 day EMA at 1949
1905 is the August 2014 low
The 200 day SMA at 1909
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 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


Dow: Closed at 16,805.41

Resistance:
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
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.

Support:
The 50 day EMA at 16,776
16,736 is the penultimate all-time high from May 2014
16,632 is the April 2014 all-time high
The 200 day SMA at 16,589
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
16,341 is the May low
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


ECONOMIC CALENDAR

October 24 - Friday
New Home Sales, September (10:00): 467K actual versus 475K expected, 466K prior (revised from 504K)

October 27 - Monday
Pending Home Sales, September (10:00): 0.5% expected, -1.0% prior

October 28 - Tuesday
Durable Orders, September (8:30): 0.7% expected, -18.4% prior (revised from -18.2%)
Durable Goods -ex tr, September (8:30): 0.5% expected, 0.4% prior (revised from 0.7%)
Case-Shiller 20-city, August (9:00): 5.5% expected, 6.7% prior
Consumer Confidence, October (10:00): 87.2 expected, 86.0 prior

October 29 - Wednesday
MBA Mortgage Index, 10/25 (7:00)
Crude Inventories, 10/25 (10:30): 7.111M prior
FOMC Rate Decision, October (14:00): 0.25% expected, 0.25% prior

October 30 - Thursday
Initial Claims, 10/25 (8:30): 284K expected, 283K prior
Continuing Claims, 10/18 (8:30): 2375K expected, 2351K prior
GDP-Adv., Q3 (8:30): 3.0% expected, 4.6% prior
Chain Deflator-Adv., Q3 (8:30): 1.5% expected, 2.1% prior
Natural Gas Inventor, 10/25 (10:30): 94 bcf prior

October 31 - Friday
Personal Income, September (8:30): 0.3% expected, 0.3% prior
Personal Spending, September (8:30): 0.1% expected, 0.5% prior
PCE Prices - Core, September (8:30): 0.1% expected, 0.1% prior
Employment Cost Inde, Q3 (8:30): 0.5% expected, 0.7% prior
Chicago PMI, October (9:45): 60.0 expected, 60.5 prior
Michigan Sentiment -, October (9:55): 86.4 expected, 86.4 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, October 20, 2014

Large Caps Finally Show Some Life

MARKET SUMMARY

- Large caps finally show some life, but after such tough selling, still less than impressive.
- Small caps take a breather, SOX and SP400 a bit problematic.
- Smaller biotechs have a tough Friday after a good week.
- Economic data bad and good on the week, but good outweighs.
- ECB ready to buy assets . . . any day now . . . really.
- Yellen 'greatly concerned' about economic inequality.
- Short interest diving, bullish sentiment down 20 points from September.
- Critical juncture for the market bounce.




I'm not dead yet . . . (Monty Python and the Holy Grail, 1975)

A classic from Monty Python portraying the Black Death. Appropriate timing? Bad taste on our part? Likely both but what do we care? Doesn't appear our government does so why should anyone else? In any event, as pertaining to the stock market, while the old man was not dead and stated so, his fate was already sealed as his recovery was cut short when the body collector dispatched him. Kind of a medieval version of the ACA's death panels, eh?

Back to the market. After a hard time getting started, the large cap indices finally bounced, following, somewhat, the footsteps of the small caps. While the small caps bottomed and bounced on the week, the large caps were still catching down to the losses the smaller issues sustained before the bounce. Each to its own timetable I suppose.

SP500 24.00, 1.29%
NASDAQ 41.05, 0.97%
DJ30 263.17, 1.63%
SP400 0.84%
RUTX -0.35%
SOX 0.81%

VOLUME: NYSE flat; NASDAQ -13%.

A/D: 1.9:1 NYSE, flat NASDAQ

New lows: NYSE 24, NASDAQ 46. First day below 100 in 5 weeks. This after NYSE new lows hit 594 on Wednesday. 245 the prior Thursday, 436 the prior Friday, 421 Monday, 358 Tuesday, 594 Wednesday, 176 Thursday, 24 Friday. A definite spike and now a fade, indicating the market is sold out near term.

In any event, Friday the large caps finally bounced. Solid 1%+ moves that closed somewhat off the intraday highs. At this point, despite the solid gains, Friday was just a relief bounce for the large caps. Damaged patterns, not a lot of quality large caps in good patterns to lead a move. It is up to the smaller caps to lead and the large caps to follow, hopefully forming up bases as the smaller issues provide cover in the form of a continued upside move.

So, the market is relying on the small caps along with SOX and SP400. Friday those indices didn't perform all that well. RUTX was not bad. Down, yes, but holding the 10 day EMA and it has the look of just a breather after a nice bottom and surge Wednesday and Thursday.

SOX put in a good bottom on the week and surged also, but Friday it gapped to the 10 day EMA and lower gap point, then stalled. Not the kiss of death, and it is just testing as well, but it has to show next week it can hold and continue the recovery from that ugly gap lower just over a week back.

Same with the SP400 midcaps. Gapped to the 10 day EMA, stalled, but this after a good bottoming process on the week and a nice Thursday move and Friday gap.

The week and indeed the finish of the week kept up the talk of a weak and dying market. Maybe it is, maybe the bounce was just fluff. Friday the smaller biotechs and healthcare stocks, strong in the RUTX' bounce, did not look all that great.

Ebola, Europe imploding, QE ending, US data mixed, television anchors all glum.

New lows jumped to almost 600 Wednesday, and then Friday the combined NYSE/NASDAQ new lows were 52 - - the first sub-100 day in 5 weeks.

Put/call ratio over 1.0 for the past 6 sessions, finally racking up sufficient days to provide ammo for the turn.

NYSE short interest is plunging after holding at highs.

Bullish advisors are dropping dramatically from the recent highs, off 20 points from the September peak and at the lows hit on the last market decline.

Perfect timing for an October bottom.

It would be quite fitting that the market bottoms when everyone is so negative and no one notices the good patterns in certain areas, overlooked areas that don't have the name brands. If the patterns hold up, it can work.

Indeed, there are great patterns in the smaller issues, Russell put in good bottoming action and turned, and Friday was just a day off at near support. Again, next week will tell a big part of the tale. This week we took some great gain on many downside positions and then picked up some of those upside patterns. This coming week we look for them to move higher again and provide a follow through session to the reversal. Of course in the event they cannot, it behooves us to be ready for more downside. Always.


THE MARKET

CHARTS

RUTX: Rallied through the 20 day EMA Friday but could not hold the move, fading to a loss but holding over the 10 day EMA. Strong move Wednesday and Thursday after a good bottom early in the week. Doji Friday, closing well off the high, and that can suggest the move is out of gas with what is called a tombstone doji. Likely just a continuation doji in our view, but as noted, the upcoming week tells the story for RUTX in that it either continues upside and provides the follow through session or fails after this initial bump higher.

SP500: After a doji Tuesday and a pair of big doji with tails Wednesday and Thursday, SP500 finally got into upside gear. Rallied over 1% but gave up 11 points off the high, one-third of the session gain, after tapping at the 10 day EMA on the high. Has the look of just a relief move but for the big volume. Needs RUTX to continue upside this week to give it some cover to put in more work on its pattern. The large caps were badly damaged and need work. Any bounce, until more patterns set up, is just a relief move.

DJ30: Held most of the 1.63% move Friday, its first surge after the Wednesday and Thursday big doji with long tails. Good volume on the tests lower and reversals, and volume moved higher Friday as the Dow surged. Really good action.

NASDAQ: A sharp selloff into Wednesday then a reversal that session. Thursday a gap lower and reversal to a modest gain. Friday a gap higher that tapped the 200 day SMA on the high and faded to close below the open. Doji below a key resistance level. Lots of work to be done, and as with SP500, NASDAQ needs the small caps to continue rallying to let the techs form up behind the scenes.

SP400: Midcaps gapped upside, moved through the 10 day EMA, then faded to close just below the 10 day EMA. Not a great finish but a good bottom similar to RUTX and a good turn back upside. This week is the test, i.e. whether the midcaps stall at the 10 day EMA or continue the move that this week started.


LEADERSHIP

Biotechs/Drugs/Healthcare: Friday the large cap biotechs enjoyed the better session with CELG, GILD, BIIB enjoying gains. But, they look mostly like relief bounces, particularly GILD. The smaller biotechs that led the move had a tougher session, but only in some cases. They have performed so well, any issues are glaring. Some problems in XON, NBIX, ZLTQ were no issue for AGIO, ACAD, CLVS, RGEN, INSY. Still solid, just taking a day off.

Telecom: Another leading group that lost some ground Friday but did not tank. IDCC gapped upside but could not hold it, fading to the 50 day EMA on the close. UBNT Gapped over the 10 day EMA, showing a doji. Good pause after a good reversal off of key support. Seeing that a lot.

Energy: Reversed Wednesday, rallied Thursday, rallied again Friday, but could not make the move stick. Looks very much like a rebound failing.

Big Names: Some look as if they are setting serious bottoms, others look as if they are still trying to figure it out. TSLA looks as if it could have put in a near term bottom at the 200 day SMA. GOOG sold on its earnings but is at an important support level. AAPL looks toppy after gapping through the 50 day EMA and a weak test. CMG is struggling below the 50 day EMA. Still struggling.


MARKET STATISTICS

NASDAQ
Stats: +41.05 points (+0.97%) to close at 4258.44
Volume: 2.18B (-13.66%)

Up Volume: 1.44B (-90M)
Down Volume: 782.85M (-277.15M)

A/D and Hi/Lo: Decliners led 1.02 to 1
Previous Session: Advancers led 2.06 to 1

New Highs: 32 (+12)
New Lows: 46 (-87)

S&P
Stats: +24 points (+1.29%) to close at 1886.76
NYSE Volume: 1.1B (0%)

A/D and Hi/Lo: Advancers led 1.88 to 1
Previous Session: Advancers led 2.33 to 1

New Highs: 37 (+16)
New Lows: 24 (-152). As low Friday as they were high Wednesday.

DJ30
Stats: +263.17 points (+1.63%) to close at 16380.41


SENTIMENT INDICATORS

VIX: 21.99; -3.21
VXN: 23.13; -3.6
VXO: 19.93; -3.01

Put/Call Ratio (CBOE): 1.2; +0.19. The sixth session in a row over 1.0%. That starts putting the pieces in place for a rebound.


Bulls and Bears:

Bulls continue a fairly serious fade. Okay, they tanked: 37.8% versus 45.5%

Bears posted the most substantial climb in months: 17.3% 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: 37.8%
45.5% versus 47.5% versus 48.0% versus 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: 17.3%
14.1% versus 15.1% versus 15.3% versus 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% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.


OTHER MARKETS

Bonds: 2.20% versus 2.16% versus 2.14 versus 2.20% versus 2.28% versus 2.31% versus 2.34% versus 2.42% versus 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 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.

After a massive swing that saw the 10 year below 2% and in the low 2's for much of the week, just not on the closes. After big surges and purges Wednesday and Thursday, showing a doji over the 10 day EMA Friday.


Oil: 82.75, +82.80. Bounced modestly after a big selloff for October.

Gold: 1239.00, -2.20. Rallied up to the 50 day EMA, taking a breather Thursday and Friday.

$/JPY: 106.875 versus 106.33 versus 105.92 versus 107.05 versus 107.29 versus 107.66 versus 108.12 versus 107.95 versus 108.96 versus 109.76 versus 108.42 versus 109.21 versus 109.63 versus 109.390 versus 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.

Nice gain Friday, moving back to the 50 day EMA after crashing through that level Wednesday.

Euro/$: 1.2760 versus 1.2809 versus 1.2838 versus 1.2658 versus 1.2683 versus 1.2628 versus 1.2748 versus 1.2680 versus 1.2627 versus 1.2516 versus 1.2669 versus 1.2608 versus 1.2631 versus 1.2685 versus 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.

Holding a two week pullback following that July to late September run.


MONDAY

Will this week continue the bounce in the small caps, SOX and midcaps that gelled the past week and paused Friday? In other words, will there be follow through to the reversal that continues the rally for another week? Or will the bids fade after the end of the week bounce and more selling ensue?

As noted earlier, the pessimism is high and there is a litany of other reasons to support an argument the market, at least in terms of small and midcaps, has bottomed for a run to year end. You can argue that, but that is not our position. Remember, we are just looking at playing a tradable rally and have chosen plays that can make great moves without having to plow new ground. If it goes further great. Not expecting it to, however, as we focus on working the trades.

There are any number of stories that could trample the bounce, e.g. more US Ebola outbreaks. The outbreak is at a critical point as most cases are 'old' ones and we are at the 21 day incubation period more or less. If no new cases start popping up we could be in the clear in the US . . . IF we had closed the border. One of the persons displaying Ebola just returned from Liberia two weeks ago. Are you kidding me? Totally avoidable.

In any event, note that outside of the death in Dallas, there have been no US deaths. The poor Dallas fellow was turned away; perhaps if the hospital was on the ball it would have recognized the problem and saved him as well.

The point: if no new cases crop up, Ebola fades as a front burner issue, at least in the US.

If the ECB goes QE as it is threatening, then there is even more reason for investors to relax.

All conjecture. What we know are small and midcaps bottomed well last week and surged well. After a day off Friday we see if they can continue to the upside and buy the large cap indices time to form up.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4258.44

Resistance:
4277 is the March lower gap point
4289 is the July 2000 recovery high
The 200 day SMA at 4302
The August low at 4321
4372 is the March 2014 high
The 50 day EMA at 4427
4486 is the July 2014 high
4610 is the September 2014 post-bear market high.

Support:
4246.55 is the January 2014 peak
4185, the May lower gap point
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 1886.76

Resistance:
1897 is the prior all-time high hit in April 2014
1902 from early May was the intraday all-time high.
The 200 day SMA at 1906
1905 is the August 2014 low
The 50 day EMA at 1951
1982 is the lower trendline from 11/2012
1991 is the July 2014 high
2011 is the all-time high
2038 is the December 2012 up trendline

Support:
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 16,380.41

Resistance:
The 10 day EMA at 16,468
16,506 is the March 2014 peak
16,589 is the December 2013 all-time high
The 200 day SMA at 16,586
16,632 is the April 2014 all-time high
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,815
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
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.

Support:
16,341 is the May low
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


ECONOMIC CALENDAR

October 17 - Friday
Housing Starts, September (8:30): 1017K actual versus 1013K expected, 957K prior (revised from 956K)
Building Permits, September (8:30): 1018K actual versus 1030K expected, 1003K prior (revised from 998K)
Michigan Sentiment, October Preliminary (9:55): 86.4 actual versus 84.0 expected, 84.6 prior

October 21 - Tuesday
Existing Home Sales, September (10:00): 5.11M expected, 5.05M prior

October 22 - Wednesday
MBA Mortgage Index, 10/18 (7:00): 5.6% prior
CPI, September (8:30): 0.0% expected, -0.2% prior
Core CPI, September (8:30): 0.2% expected, 0.0% prior
Crude Inventories, 10/18 (10:30): 8.923M prior

October 23 - Thursday
Initial Claims, 10/18 (8:30): 283K expected, 264K prior
Continuing Claims, 10/11 (8:30): 2390K expected, 2389K prior
FHFA Housing Price I, August (9:00): 0.1% prior
Leading Indicators, September (10:00): 0.6% expected, 0.2% prior
Natural Gas Inventor, 10/18 (10:30): 94 bcf prior

October 24 - Friday
New Home Sales, September (10:00): 473K expected, 504K prior


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

Jon Johnson is the Editor of The Daily at InvestmentHouse.com

Technorati tags:

Monday, October 13, 2014

Semiconductors Prove They Are Leaders Yet Again

MARKET SUMMARY

- When the chips are down . . . Semiconductors prove they are leaders yet again.
- SOX smashes support, DJ30 undercuts 200 day SMA, but SP500 holds that key level, CAT shows a doji at the 78% Fibonacci retracement.
- Biotechs and bonds: biotechnology holds up well, bond funds receive record inflows.
- Cramer: "just go own Kroger." That should be good enough for a bounce.
- Perhaps more selling to set a rebound, but even then the market will need more leadership than just the biotechs.

Chips ahoy.

There were some earnings beats from INFY, FAST, and CUDA. There was a miss from FDO. Misses and beats. That is earnings season.

There are also warnings. Again, that is earnings season. JNPR warned and tanked. JNPR is an important tech stock for certain. But, there are warnings and there are warnings. Friday it was the latter. MCHP warmed as to its results to come and then added a tad bit more. Its CEO said that its results this quarter "suggest" a chip "industry correction" is coming.

If there was any inkling that stocks might stage a recovery, that comment ended it. Even with that warning we posited that stocks may sell early then try an afternoon short covering rebound. Didn't happen. The blow torches were out and stocks were scorched lower once more, adding to the Thursday downside.

SP500 -22.08, -1.15%
NASDAQ -102.10, -2.44%
DJ30 -115.15, -0.69%
SP400 -1.74%
RUTX -1.37%
SOX -6.89%

VOLUME: NASDAQ +24%, NYSE +0.5%.

A/D: NYSE -3.6:1, NASDAQ -2.7:1. Not the Thursday -7:1 NYSE, -5.7:1 NASDAQ, but still hefty to the downside yet again.

SOX -6.89%. The index imploded, gapping through the 200 day SMA and selling down to the bottom of the March/April range. Pretty hefty selloff. NASDAQ's 100 point decline wasn't chopped liver either as it pierced the 200 day SMA, undercutting the August low. So much for a higher low. DJ30 cracked the 200 day SMA as well while RUTX and SP400 are so far below their 200 day level they probably wouldn't recognize it if they saw it.

Just an old-fashioned October selloff with all kinds of issues swirling, making the things seem just horrible. Almost time to open the upper story windows based upon what the financial stations are peddling. The Fed is dovish, yea! Let's rally stocks. Oh, the Fed is dovish; wonder what it sees wrong with the economy, the world monetary system, other world economies? Let's sell stocks. How about weak world economics? A 'too strong' dollar (really?)? Ebola?

The point: there are many possible reasons, catalysts for the selling. MCHP's particularly clear and dire warning seemed to be the final catalyst. As Val Kilmer, playing Doc Holiday said of Johnny Ringo after putting a bullet in his brain,

"Poor soul . . . I'm afraid the strain was more than he could bear." Tombstone, 1993

The MCHP warning was bad and had an impact: SOX -6.89%. After the worries of a slowing world economy, the IMF warning about bubbles and slowing growth, the Fed going cautious when the economy is supposedly going strong, Jobs so strong for . . . the service sector and elderly Wal-Mart greeters, the MCHP news was indeed more than the market could bear.

Things looked so bad that Jim Cramer, who has unfortunately and likely unplanned by the network, taken over CNBC in the morning, quipped that people should 'just go own Kroger.' Perhaps he is being facetious, but it is hard to tell; he obviously has mood swings and suffers from bipolar condition not to mention severe memory lapse when it comes to recommendations he makes, never withdraws, then after the stock tanks talks about how bad it is and how everyone should have seen the troubles. But he is working for the common man, the sleeves rolled up individual investor and will shout down anyone who dares to disagree with him.

But I digress.

Just look at bond flows. The prior week bond funds showed the largest inflows on record. Ever. Perhap we have the old Greenspan 'conundrum.' Why would rates be low when the Fed wants some inflation? Perhaps it is foreign investment running to the only safe asset. Perhaps the US economy is not that strong; surely if the other world economies fade the US will have some issues as well no matter how strong it may be.

The next point: the bond markets historically tell the real tale of economies. Despite massive Fed intervention in the past and still in the present, bonds still tell the true story if not by their actual levels then by the relative moves to other markets and to news.

The result thus far is money running from stocks to bonds. Well not running from biotech and related stocks, but most of them. Most of the stock indices are breaking support but SP500 managed to hold the 200 day MA on Friday. Perhaps it can hold and turn a selling and oversold market into a bounce. CAT, one of the early losers in this selloff, showed a big doji Friday at the 78% Fibonacci retracement. It too may have finally sold enough for a relief rally of some substance.

THE MARKET

CHARTS

SP500: As noted in the market summary, SP500 was the lone index that managed to hold the 200 day SMA during last week's selling. NASDAQ and DJ30 cracked that level, but really quite modest; perhaps they are all ready to bounce. SP500 has basically sold to the August low, undercutting it slightly. MACD is still right at the prior low's level. It can bounce, and if it does we see if the move forms a right shoulder to a possible head and shoulders top.

SOX: SP500 held the 200 day SMA, SOX gapped through it. Way through it. In one move SOX finds itself at the bottom of the April/May consolidation. Double topped, sold to the August low just over the 200 day SMA, avoided the Christmas rush and imploded ahead of Halloween.

NASDAQ and DJ30: both find themselves testing the 200 day SMA, both breaking below it Friday on pretty hefty increases in above average volume. Rather modest breaks and they could easily show a false break reversal. On the other hand, this is the first time NASDAQ has broken the 200 day SMA in a couple of years.


LEADERSHIP

When looking at leaders you pretty much have to start and end with the biotechs. While the market burns off in most sectors, the biotechs are holding strong, forming up patterns in the selling, whether bases or testing breaks higher. Heck, some are even moving higher during the seller, e.g. BABY.

BABY surged Friday. XLRN is an example of a stock making the turn, setting up well in the market selling and ready to produce a bounce upside.

On the report most of the upside positions are in the biotech area.


MARKET STATISTICS

NASDAQ
Stats: -102.1 points (-2.33%) to close at 4276.24
Volume: 2.718B (+24.01%)

Up Volume: 334.17M (-83.1M)
Down Volume: 2.42B (+580M)

A/D and Hi/Lo: Decliners led 2.68 to 1
Previous Session: Decliners led 5.76 to 1

New Highs: 20 (-7)
New Lows: 374 (+151)

S&P
Stats: -22.08 points (-1.15%) to close at 1906.13
NYSE Volume: 900M (+0.47%)

Up Volume: 665.96M (+342.59M)
Down Volume: 3.86B (-160M)

New Highs: 13 (-27)
New Lows: 436 (+191)

DJ30
Stats: -102.1 points (-2.33%) to close at 4276.24


SENTIMENT INDICATORS

VIX: 21.24; +2.48
VXN: 22.62; +2.85
VXO: 20.2; +2.1

Put/Call Ratio (CBOE): 1.2; +0.23. Finally broke higher, cracking 1.00 in the selling. For so many people supposedly bearish, the put ratio was quite low. That simply makes this indicator more telling when it does break, as it did this past week. As the ratio moves higher and shows closes over 1, the market is getting closer to a more significant bounce.


Bulls and Bears:

Bulls on f the fade again: 45.5% versus 47.5%

Bears dropped a point: 14.1% 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.




Bulls: 45.5%
47.5% versus 48.0% versus 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: 14.1%
15.1% versus 15.3% versus 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.


OTHER MARKETS

Bonds: 2.28% versus 2.31% versus 2.34% versus 2.42% versus 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 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.

Breaking to a higher high yet again.


Oil: 85.82, +0.05. Gapped lower, reversed to flat.

Gold: 1221.78, -3.60.

$/JPY: 107.66 versus 108.12 versus 107.95 versus 108.96 versus 109.76 versus 108.42 versus 109.21 versus 109.63 versus 109.390 versus 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.

Euro/$: 1.2628 versus 1.2748 versus 1.2680 versus 1.2627 versus 1.2516 versus 1.2669 versus 1.2608 versus 1.2631 versus 1.2685 versus 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.


MONDAY

Friday stocks continued to sell across the board with indices again popping next support. SP500 managed to hold the 200 day SMA, something unique in this market. Perhaps with stocks such as CAT showing doji at key levels after some harsh selling, the SP500 hold and do just that, providing a place to bounce. Right now it is more a matter of watching where they hold.

Another thing to watch is leadership. As noted, most stocks are down. Of course not all, but most sectors are down. One of the most prominent holdouts is the biotech sector and some other related healthcare groups. Thus far they have used the selling to set up nice patterns. We are looking at several on the report this weekend for potential upside plays this coming week. they are primed to move higher, and with the indices oversold, SP500 holding the 200 day SMA and NASDAQ and DJ30 just breaking that level, there could be a bounce coming. Sure there is a bounce coming; it always does . . . at some point.


'Don't flatter yourself; I was following her . . . I always do . . . ' Norm the pizza boy from 'There's Something About Mary,' 1998.

There will be bounces, but will there be leadership? A market without leadership cannot sustain bounces. They fizzle and roll back over, sell again, try to rally again, and if there is no leadership, they fall once more. Finally you get enough leaders and the move sticks.

If only the biotechs are providing leadership, that is not enough for the market to sustain a move. They can make us money in the bounces and hang on in the pullbacks, but they cannot alone turn the market.

Thus while a bounce is coming as soon as this week, it likely won't stick. CAT is ready to bounce, SP500 is at the 200 day SMA; if they move, a lot of stocks follow. Most, however, are in poor technical patterns and will bounce then roll back over. Some will work on bases, others will continue to let more air out. Again, at some point there are enough stocks in position to move that they do indeed move and the gains stick. Just not there yet.

There could be further downside to start the week. Typically in these October selloffs there is serious selling in a week and then really ugly downside on a Monday and/or Tuesday the week following. Often that marks the bottom and stocks turn. Maybe that shows up next week with a hard selloff to shake out and provide the recovery that sets the bottom. Certainly the timing is better as the market moves into mid-October, the time of bottoms.

Again, there is darn little leadership and chips just broke down. Thus the odds of an upside move sticking are lower. Not impossible, but the probabilities are lower.

Nonetheless the market is sold enough for a rebound after some more early week downside. If we get more downside early in the week we will be patient, let the downside plays work, and when it looks as if a reversal is showing up maybe Tuesday, we bank gain and see what we can pick for the upside rebound to make us money.

We have some upside plays this weekend that are in great shape. If they weather any early week selling, holding their patterns, they will be great plays to the upside and we will look at playing some. It is also earnings season and we need to factor that in; look at upside plays to make runs ahead of results and taking gain ahead of results. The selling is priming stocks to run upside into results as some shorts cover just in case. We don't anticipate holding the upside positions through earnings, however, as the results may be somewhat disappointing given the tone of the warnings.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4276.24

Resistance:
4289 is the July 2000 recovery high
The 200 day SMA at 4300
The August low at 4321
4372 is the March 2014 high
The 50 day EMA at 4472
4486 is the July 2014 high
4610 is the September 2014 post-bear market high.

Support:
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 1906.13

Resistance:
The 50 day EMA at 1969
1975 is the lower trendline from 11/2012
1991 is the July 2014 high
2011 is the all-time high
2027 is the December 2012 up trendline

Support:
1905 is the August 2014 low
The 200 day SMA at 1905
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 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 16,544.10

Resistance:
16,589 is the December 2013 all-time high
The 200 day SMA at 16,592
16,632 is the April 2014 all-time high
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,940
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
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.

Support:
16,506 is the March 2014 peak
16,341 is the May low
16,334 is the August 2014 low
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


ECONOMIC CALENDAR

October 15 - Wednesday
MBA Mortgage Index, 10/11 (7:00): 3.8% prior
Retail Sales, September (8:30): -0.1% expected, 0.6% prior
Retail Sales ex-auto, September (8:30): 0.3% expected, 0.3% prior
PPI, September (8:30): 0.1% expected, 0.0% prior
Core PPI, September (8:30): 0.1% expected, 0.1% prior
Empire Manufacturing, October (8:30): 20.0 expected, 27.5 prior
Business Inventories, August (10:00): 0.4% expected, 0.4% prior

October 16 - Thursday
Initial Claims, 10/11 (8:30): 290K expected, 287K prior
Continuing Claims, 10/04 (8:30): 2400K expected, 2381K prior
Industrial Production, September (9:15): 0.4% expected, -0.1% prior
Capacity Utilization, September (9:15): 79.0% expected, 78.8% prior
Philadelphia Fed, October (10:00): 20.0 expected, 22.5 prior
NAHB Housing Market , October (10:00): 59 expected, 59 prior
Natural Gas Inventor, 10/11 (10:30): 105 bcf prior
Crude Inventories, 10/11 (11:00): 5.015M prior
Net Long-Term TIC Fl, August (16:00): -$18.6B prior

October 17 - Friday
Housing Starts, September (8:30): 1022K expected, 956K prior
Building Permits, September (8:30): 1040K expected, 998K prior
Mich Sentiment, October (9:55): 84.0 expected, 84.6 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, October 06, 2014

Jobs Report Touches the Right Buttons

MARKET SUMMARY

- Stocks continue the Thursday rebound as Jobs Report touches the right buttons.
- Large cap NYSE indices post nice gains, growth indices rally but patterns lag.
- Low paying jobs heralded in 'jobs recovery' that shows 4 of 5 jobs in the Wal-Mart greeter category.
- Drugs, Healthcare still outperforming in a rather defensive tone.
- New month for the month has taken its shot. Now we see if there is any left and if sellers take their shot.

It's not just the number of jobs, it's type of jobs.

Friday morning the headlines post-jobs report heralded a 'triple digit Dow futures move on jobs.' For the record, Dow futures were sharply higher, just below triple digits before the report's release as stocks continued the Thursday intraday reversal from another sharp decline. The news certainly didn't hurt as Dow futures did top triple digits after the news, but saying the jobs report caused triple digit gains is the same as saying a solo home run in the top of the ninth giving you a 5 run lead won the game; it prevented you from losing to a grand slam in the bottom of the ninth, but it didn't win the game.

September Non-Farm Payrolls: 248K versus 210K expected, 108K prior (from 142K)
Unemployment rate: 5.9% versus 6.1% expected, 6.1% prior
Surely jobs nirvana, surely an economic bonanza is here.

So with the jobs beat in the bank stocks opened higher. Yes, but they tried to throw it away in the first five minutes as some sellers entered. They didn't have enough ammunition, however, and were overrun with a morning upside surge adding onto the higher market open. The Thursday reversal had legs as it appeared the delay in putting new money to work for October ended. Stocks rallied into mid-afternoon and peaked, coasting into the close.

SP500 21.73, 1.12%
NASDAQ 45.43, 1.03%
DJ30 208.64, 1.24%
SP400 0.67%
RUTX 0.76%
SOX 0.56%

VOLUME: NYSE +1.5%, NASDAQ -19%

A/D: Decent at 2:1 NYSE, 1.97:1 NASDAQ

Heady gains but as you can see, the growth indices lagged with gains well below 1%. NASDAQ did manage to crack about 1% but its pattern, along with the smaller growth indices, leaves something to be desired in terms of the upside.

Specifically, NASDAQ gapped and rallied to the 50 day MA, tapping it on the high, fading modestly to the close. Nice reversal, but already at resistance on lower trade. SP400 and particularly RUTX and SOX look very much like modest bounces up off ugly selling, showing doji below resistance and looking a lot like bear flags. Even SP500 has something to prove at its resistance, though it still looks good.

As noted last week, it is still very early in October and the indices have suffered just a single leg lower. Perhaps the large cap NYSE stocks will lead a recovery and pull growth with them. Likely, however, they all need a test of the recent lows to set a sound bottom to rally out of October and into year end.


THE ECONOMY

Jobs numbers again viewed as strong by the gross numbers, but the headlines are not that great and the makeup shows the same weakness.

I suppose you can argue that 248K jobs is a strong number, particularly when compared to 210K expected and 180K (revised from 142K) in August. Nonetheless, 248K jobs only looks good when you have a history of 200K average.





After the initial recovery from the lows, going nowhere the past four years.

A LOOK AT THE REAL NUMBERS

1. Wherefore art thou, workers?

The unemployment rate dropped 0.2% to 5.9% from 6.1%. More employed, right?

Employed +232K. Unemployed -329K. Looks promising.

But, factor in the facts of life:

Participation rate: 62.7%, down from 62.8% in August. From 66.0% in 2008.
That ties the low at February 1978. Recall what a banner year that was for the economy, 2 years after Jimmy Carter's election. A stumbling, bumbling economy that had ups and downs but was a best a malaise. The parallels with the current economy are frighteningly similar.

Workforce overall lost 97K workers

Those Not in the Workforce: +315K
Total not in the Workforce to 92.6M, a NEW ALL-TIME HIGH.

Working age population growth, last 6 years: 248.4M from 234.6M (14M) versus labor force growth of 155.9M from 154.9M (1M). In other words, the labor force grew just 7% of the gain in the working age population (1M versus 14M).

Not in workforce + unemployed = 102M or 41% of the US' adult population.

So, a 'whopping' 248K jobs added but those working continued to fall. Finding it easier not to work than work? Why? Take a look at the jobs quality.


2. Wherefore art thou, jobs quality?

248K jobs created. 207K or 84% were in the services sector, the lowest paying scale of jobs.




Average hourly wages:





Services jobs again dominate the recovery over 'breadwinner' construction, manufacturing jobs and thus it is no surprise the hourly earnings are falling. Note how the hourly earnings are well, well off of the pre-crisis levels. Simply no recovery because of low quality jobs.

3. Wherefore art thou, workers in their prime?



55+: Gained 230K of the 248K jobs, or 93% of all jobs. All-time record high at 32.6M workers. From 12/07 this group has gained 5.5M jobs.

25-54: -10K jobs. Since 12/07 this group is -2.04M jobs!!



SUMMARY OF THE JOBS REPORT:

84% of the jobs created were in the service sector. 93% of the new hires were in the 55+ age group. The breadwinner jobs were just 8% of the total for the month and the important 25-54 demographic lost 10K jobs, sliding further into the hole.

So, the economy and jobs market remains in the 'Hello, welcome to Wal-Mart where I work as a greeter so I can try to scratch out a living in my golden years thanks to the financial crisis and the Administration's worst recovery in US history mode. Been there for 6 years, the entirety of the 'recovery.


But . . . the unemployment rate is 5.9% because more and more people are realizing they don't need to work or even look for work, particularly when it is for the low wage service jobs that dominate the job creation (4 of 5 jobs). Instead, just go ahead on and take disability, childcare assistance, free phones, food stamps, etc. AND take some cash side jobs (of course not paying taxes on those earnings) and come out in better shape than that poor sap working two or three 29 hour a week (thanks to the ACA's hour limits) part-time jobs wondering what the hell he is working so hard for so little for. But don't feel bad for the worker; with the participation rate hitting a 36 year low (1978, remember those golden years?) and keeps falling, the trend in participation shows that 'sap' is wising up and leaving the workforce, adopting a better or equivalent pay scale for much less work.


THE MARKET

CHARTS

SP500: Gapped modestly higher and ran well to close at the lower trendline of the 11/12 channel. That also leaves SP500 just below the 50 day EMA. Good recovery, but after such a selloff of course there is important resistance to take on.

DJ30: Strongest in terms of improvement of pattern, moving up through the 50 day MA up to the 20 day EMA on the high. Cleared some resistance on rising volume. Overall pattern, however, is still somewhat frightening with those twin peaks still in the way, still unable to take them out.

NASDAQ: Gapped and rallied off the Thursday doji, reaching the 50 day EMA on the high. Now is the moment of truth for NASDAQ on a bounce: back at the twin highs from July, the last highs before the September top. Broke them last week, gapped and ran back up. Much lower, average trade after three sessions of really strong volume indicates the Friday move was not that strong and has a more bear flag flavor.

RUTX: Gapped to a doji below the 10 day EMA, tapping at the August low on the high. A long way to recover for the small caps. Way oversold, needed a bounce, but as with NASDAQ, this has the look of a weaker relief bounce, setting up more of a bear flag.

SP400: Moved up off the doji and to the August low. As with RUTX, way oversold and rebounding, thus far in a relief move.

SOX: Very modest gain to a doji off of the Thursday big doji with tail. Gapped upside to a tight doji well below the 50 day SMA. Not a lot of power here.

As noted above, growth lagged. SOX, RUTX look quite weak on the bounce. Up, but lagging the large cap NYSE and also with patterns that are not inspiring in terms of upside.


LEADERSHIP

Drugs/Healthcare: The main market leadership group. CELG, BABY, TKMR, VRTX.

Financial: Another clear market leader. GS surged again. JPM jumped back up off the 50 day EMA.

Tech: Software looks pretty interesting. SPLK, CRM.

Big Names: GOOG looks ready to bounce up in its range. NFLX gapped back over the 50 day EMA on decent trade. AAPL holding at the 50 day EMA where it has held for the entire week.

Chips: Some struggles continue. SWKS trying to recover. ALTR bounced Thursday but flopped Friday. MU continues to set up for some upside.


MARKET STATISTICS

NASDAQ
Stats: +45.43 points (+1.03%) to close at 4475.62
Volume: 1.726B (-19.01%)

Up Volume: 1.29B (+200M)
Down Volume: 445.01M (-547.27M)

A/D and Hi/Lo: Advancers led 1.97 to 1
Previous Session: Advancers led 1.78 to 1

New Highs: 36 (+12)
New Lows: 77 (-113)

S&P
Stats: +21.73 points (+1.12%) to close at 1967.9
NYSE Volume: 812.4M (+1.56%)

A/D and Hi/Lo: Advancers led 2.06 to 1
Previous Session: Advancers led 1.13 to 1

New Highs: 30 (+19)
New Lows: 81 (-172)

DJ30
Stats: +208.64 points (+1.24%) to close at 17009.69


SENTIMENT INDICATORS

VIX: 14.55; -1.61
VXN: 17.54; -1.09
VXO: 13.59; -1.84

Put/Call Ratio (CBOE): 0.92; -0.1

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% 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% 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.


OTHER MARKETS

Bonds: 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 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.

Strong week, bouncing Friday after a Thursday pause. Resistance from the August peak is close at hand, a serious test to this three week move.

Oil: 89.74, -1.27. Turned down from a tap at the 10 day EMA on the high.

Gold: 1192.90, -27.10. Ugly crash below the lows of the past two weeks.

$/JPY: 109.76 versus 108.42 versus 109.21 versus 109.63 versus 109.390 versus 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.

Surging off the Thursday doji after the Wednesday yen rally.

Euro/$: 1.2516 versus 1.2669 versus 1.2608 versus 1.2631 versus 1.2685 versus 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.

Exploding higher to a higher high on this long run from July.


MONDAY

Jobs are out of the way, some new money finally came in after a delaying entry Wednesday and part of Thursday. Earnings are starting up this week along with likely some more pre-announcement warnings.

The market is definitely set up to rally into earnings, and we have some plays from last week and this week that can take advantage of that move, e.g. GS. Juxtapose that with the patterns on RUTX, SOX, SP400 and even NASDAQ: bounced in relief but no volume and very shaky rebound patterns.

More upside from here is a definite possibility as the indices rebound from an oversold condition, very oversold on RUTX and SP400. I guess that is part of the irony: they are so much more oversold than the other indices, but their bounces lagged. That simply shows how they are still very much underperforming the rest of the market.

Thus while there can be more upside from here, the gains are likely limited with the indices bouncing, hitting resistance, then fading again to test the recent lows or more. There they put in some type of bottom for a move higher into year end.

That is the typical scenario during these fall selloffs and that is why we like to play the downside when it presents because the moves can be quite deep if a bit fast. That is also why we look at upside plays that hold the line, holding support and building good patterns to use for a run toward year end when the selling relents. This weekend we look at both upside and downside to take advantage of this scenario. We may not enter the upside for a bit, and there may be a bit more bounce in the market before we enter for the next leg higher, but you have to be ready for when that move starts.

Let's have a great week ahead!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4475.62

Resistance:
4486 is the July 2014 high
The 50 day EMA at 4490
4610 is the September 2014 post-bear market high.

Support:
4372 is the March 2014 high
The August low at 4321
The 200 day SMA at 4293
4289 is the July 2000 recovery high
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 1967.90

Resistance:
1969 is the lower trendline from 11/2012
The 50 day EMA at 1976
1991 is the July 2014 high
2011 is the all-time high
2021 is the December 2012 up trendline

Support:
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
The 200 day SMA at 1902
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 17,009.69

Resistance:
17,152 is the mid-July post bear market high
17,351 is the September 2014 all-time high.

Support:
17,068 is the early July 2014 peak
The 50 day EMA at 16,976
The 50 day SMA at 16,925
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
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 16,579
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


ECONOMIC CALENDAR

September 29 - Monday
Personal Income, August (8:30): 0.3% actual versus 0.3% expected, 0.2% prior
Personal Spending, August (8:30): 0.5% actual versus 0.4% expected, 0.0% prior (revised from -0.1%)
PCE Prices - Core, August (8:30): 0.1% actual versus 0.0% expected, 0.1% prior
Pending Home Sales, August (10:00): -1.0% actual versus -0.2% expected, 3.2% prior (revised from 3.3%)

September 30 - Tuesday
Case-Shiller 20-city, July (9:00): 6.7% actual versus 7.4% expected, 8.1% prior
Chicago PMI, September (9:45): 60.5 actual versus 61.5 expected, 64.3 prior
Consumer Confidence, September (10:00): 86.0 actual versus 92.0 expected, 93.4 prior (revised from 92.4)

October 1 - Wednesday
MBA Mortgage Index, 09/27 (7:00): -0.2% actual versus -4.1% prior
ADP Employment Chang, September (8:15): 213K actual versus 202K expected, 202K prior (revised from 204K)
ISM Index, September (10:00): 56.6 actual versus 58.5 expected, 59.0 prior
Construction Spendin, August (10:00): -0.8% actual versus 0.4% expected, 1.2% prior (revised from 1.8%)
Crude Inventories, 09/27 (10:30): -1.363M actual versus -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): -24.4% actual versus -20.7% prior
Initial Claims, 09/27 (8:30): 287K actual versus 297K expected, 295K prior (revised from 293K)
Continuing Claims, 09/20 (8:30): 2398K actual versus 2458K expected, 2443K prior (revised from 2439K)
Factory Orders, August (10:00): -10.1% actual versus -9.3% expected, 10.5% prior
Natural Gas Inventor, 09/27 (10:30): 112 bcf actual versus 97 bcf prior

October 3 - Friday
Nonfarm Payrolls, September (8:30): 248K actual versus 210K expected, 180K prior (revised from 142K)
Nonfarm Private Payrolls, September (8:30): 236K actual versus 205K expected, 175K prior (revised from 134K)
Unemployment Rate, September (8:30): 5.9% actual versus 6.1% expected, 6.1% prior
Hourly Earnings, September (8:30): 0.0% actual versus 0.2% expected, 0.3% prior (revised from 0.2%)
Average Workweek, September (8:30): 34.6 actual versus 34.5 expected, 34.5 prior
Trade Balance, August (8:30): -$40.1B actual versus -$40.9B expected, -$40.3B prior (revised from -$40.5B)
ISM Services, September (10:00): 58.6 actual versus 58.9 expected, 59.6 prior


October 7 - Tuesday
JOLTS - Job Openings, August (10:00): 4.673M prior
Consumer Credit, August (15:00): $20.0B expected, $26.0B prior

October 8 - Wednesday
MBA Mortgage Index, 10/04 (7:00): -0.2% prior
Crude Inventories, 10/04 (10:30): -1.363M prior
FOMC Minutes, 9/17 (14:00)

October 9 - Thursday
Initial Claims, 10/04 (8:30): 295K expected, 287K prior
Continuing Claims, 09/27 (8:30): 2425K expected, 2398K prior
Wholesale Inventories, August (10:00): 0.3% expected, 0.1% prior
Natural Gas Inventor, 10/04 (10:30): 112K prior

October 10 - Friday
Export Prices ex-ag., September (8:30): -0.3% prior
Import Prices ex-oil, September (8:30): 0.1% prior
Treasury Budget, September (14:00): $75.1B 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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