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