Monday, November 24, 2014

Seasonal Pattern is Still There

MARKET SUMMARY

- China rate cuts! ECB asset buys! Market jumps then says 'so what?'
- It's the US versus everyone else.
- Stocks surge then don't. Seasonal pattern is still there and should hold.
- Why you don't over think the patterns. Listen to them for sure, but don't over think them.
- Thanksgiving week often not great, but often doesn't change the trend.

The best of times and the worst of times?

Global: It's the US versus everyone else: The US data last week was not all strong, but some of it was blowout, e.g. the Philly Fed posting its strongest reading since 1993. Of course the New York PMI missed expectations, but it did rise. Industrial production and capacity slid, housing starts fell 2.8% versus an expected rise, and food prices surged even as inflation is purportedly tame (+3.3% in 12 months). Hey, you shouldn't eat all of that pork anyway; Michelle Obama would not like that. Of course shelter, airfares, household furnishings, medical care, recreation, personal care, tobacco, and new vehicles all jumped as well, but be calm, because the Fed says there is no inflation. All of those gains are offset by falling TV and computer prices, so simply go buy some more computers and TV's and save yourself some money.

Still, compared to 'over there,' the US is considered bulletproof. Japan triple dips into recession in its ongoing depression, forcing Abe to dissolve his cabinet and put off sales tax hikes until 2017. Not to worry, because Brazil, France, Italy, Russia are also in recession.

Chinese and European PMI and consumption data was terrible, all sliding lower when expected to gain. The inflation mongers were so disappointed.

On Wednesday the FOMC minutes did more than suggest the US central bank isn't going to worry about what it styled weakness in the rest of the world but was focusing on the US economy and labor market, both of which the Fed deigns in solid recovery mode.

The rest of the world apparently bought in. Friday China cut interest rates 25BP. Not the tax cuts we heard rumor of last week. Nope, sticking with monetary policy versus fiscal policy, apparently thinking it 'worked' for the US so why change fiscal issues?

Friday also saw the ECB finally allow Draghi to make good on his 'QE is coming' wolf cries as the ECB actually bought some assets as Draghi implored the ECB to get that inflation rate up to its targets. How can you be economically sound without inflation at 2%? Oh yes, look at the US in the 1980's; one of the most massive recoveries in our history and . . no inflation.

So, the US' ability to outrun massive debt by printing more debt (thanks to its now tenuous reserve currency status) has finally convinced, or should I say forced, others to do the same. Now we are all in the money printing business and currency war business (outside Iceland and a few other sane places), and it will be a money printing race, at least until markets finally balk, realizing the emperors have no clothes.


I love the smell of monetary stimulus in the morning . . .

Markets: Stocks showed the best of times/worst of times action as well. Of course the talk of more monetary stimulus in China and QE in Europe jumped US stock futures. Big pre-market gains, but we warned in the pre-market alert that these kind of moves, particularly on top of expiration Friday AND a market that is a bit weary, could prove deceptive.

Stocks of course opened sharply higher but immediately started to sell. We used the upside open to bank some gain on November options, racking up 400+% on BWLD, 139% on TGTX, etc. After that higher open, 'the slide' took place with stocks falling to noon central time. There was recovery, but it was just a modest move, a handful of upside ticks, into the close. DJ30 lost 85 points (gained 91 on the session) high to close. NASDAQ lost 38 points (up 11 on the day), SP500 coughed up 8 points, faring better as it managed an 11 point closing gain.

SP500 10.75, 0.52%
NASDAQ 11.10, 0.24%
DJ30 91.06, 0.51%
SP400 0.45%
RUTX 0.14%
SOX 1.02%

VOLUME: NYSE +51%; NASDAQ +11%. Expiration, so don't go reading too much into these volume increases.

A/D: NYSE 2:1, NASDAQ 1.1:1. Pretty paltry for such grand news.

Not dog food, but some major reversals from high to low in the indices. Basically it was potential unrealized as some good moves that could have really done the indices good were given back. Maybe the indices were not ready to continue higher, though RUTX put in a great Thursday move and was in position to really cement a recovery.

Nonetheless, I suppose we shouldn't complain. The indices did hold onto some gains, and that vaulted SOX to a new post-bear market high, SP500 and DJ30 as well. SP500 tapped the upper trendline on the high and faded, however . . . but, all in all you cannot complain. It's Christmas and the time of good cheer (at least according to Wal-Mart, and if you can't trust the nation's largest employer, who can you trust, the NSA?), so I suppose we will just take the move at face value: not great with the givebacks, but by golly some new highs and a continued year end run.


MONDAY

Thanksgiving week and that has a mixed history. It is often a week where stocks that are in a run have some troubles on the week. They often correct themselves once the week is over, but it is something to watch for and not to get too rattled by if you see it occurring. As always, looking at the stocks holding good patterns, i.e. many that we have on the report, will guide you through. If they start breaking down and no others are improving, that could be trouble.

Again, this week can show weakness but it can also show good moves. We are going to look at some more upside plays because that is clearly the trend and the year end upside move is well-entrenched this year. Doesn't mean it can't or won't change, just that we need to see some more trouble before we bite on that.

What we want to do is let good plays run. If there are some in trouble and cannot improve and worsen, then of course we want to close them out. If they are holding, however, given the seasonal move that is working well this year, we really want to let them run if we can as they should return even more by the year end.

As for the reports, we always give everyone, including me, a break. Monday and Tuesday reports as usual, Wednesday a summary and play tables, market stats and play tables after Friday. The idea is to have good positions as we have and may add to on the week, and let them work with the seasonal trend in place. Of course if anything changes, we will be there to try and help determine what has changed, what it means, and what we need to do about it.

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, November 17, 2014

Seasonal Pattern is Holding Pat

MARKET SUMMARY

- More of the same with large cap NYSE testing while NASDAQ gains and SOX bounces.
- Excellent leadership action continues.
- Seasonal pattern is holding pat, but there Russia is a real potential market problem.

More of the same, for the most part. Stocks were sluggish pre-market, sluggish during the session, and indeed sluggish most of the week. There were of course exceptions, there always are. Those exceptions are typically with the trend and that was the case Friday as it was during the week.

SP500 0.49, 0.02%
NASDAQ 8.40, 0.18%
DJ30 -18.05, -0.10%
SP400 -0.04%
RUTX -0.14%
SOX 0.90%

VOLUME: NYSE -0.5%; NASDAQ -6%. No churn, no heavy selling, just lighter trade to end the week.

A/D: NYSE advancers led by a few issues. NASDAQ saw decliners lead by a few issues.


THE MARKET

CHARTS

SP500: Continued its tight lateral move, now 4 days and 4 tight doji. The 10 day EMA is moving up below it, still a ways off. That means SP500 likely continues the consolidation, but that is very good action because it is refusing to give up ground. It likely will give up some versus this lateral, not giving any ground, but that is still excellent action.

DJ30: Its upside advance started to stall similar to SP500, but the Dow still worked higher versus SP500's tight lateral move. It like has to test back toward the 10 day EMA as well, at least, to get new life and a new leg. Now the 10 day is WAY ahead of the September prior peak at 17,350 that would be the logical point to test on a pullback. That can still happen and would likely scare out all of the late money coming to the rally. At this juncture it does not look as if that would happen, but what if the Ukraine/Russia tensions shoot higher in the next week? ALL tests would be deeper.

NASDAQ: Not spectacular at all, but very steady. Broke higher Monday from its weeklong lateral consolidation and then just kept rising through Friday. Didn't close at the week's high; that was on Thursday when it jumped then dumped. Still quite solid aided not by GOOG but by AAPL, MSFT, AMZN's revival to mention a few.

RUTX: The disappointment of the week, and it didn't occur until the end of the week. Nice break higher from the lateral consolidation, jumping Wednesday. Thursday brought about a reversal of that move and Friday a bit more of a test. Still easily holding over the 10 day EMA, so we will watch and see if the small caps reset (hate to use that word, right?). Important index for the rally.

SOX: Nice break higher Friday off a 6-session pennant to the 10 day EMA. Very nice action to end the week. SOX rallied up to near the July and September highs, put in this test that measured the prior highs, and now we see if it has what it takes to make the new breakout to higher highs. Also a key index for the market this coming week.


LEADERSHIP

Big Names: GOOG did not perform on the week but AAPL, AMZN, MSFT, STX, SNDK and several big names worked and that is what pushed NASDAQ higher on the week.

Biotech: Hope this is not a portent of how the indices act off of their lateral moves. CELG worked laterally for two weeks, looked solid, then cracked Friday. BIIB broke down from a lateral consolidation at the 200 day MA. GILD broke below the 50 day MA.

Retail: Good week again. RH broke higher. BWLD and FIVE posted a great week. DECK moved up from a nice pattern. WSM and others enjoyed good weeks ahead of the Friday retail sales that were positive.

Software: Solid leaders. SWI, CALD, CMGE and others posted excellent gains.

Internet: Coming to life nicely. BITA, TRLA, WUBA surged. QIHU looks very good to make a big move. GRPN enjoyed a nice upside break and a good test to end the week.

Chips: Still look as if they want to break higher, and Friday was positive. ANAD, OCLR look ready to move. SWKS overcame a terrible pattern. We are looking for more from this sector in the event it really makes the break toward the prior highs.


MARKET STATS

NASDAQ
Stats: +8.4 points (+0.18%) to close at 4688.54
Volume: 1.7B (-6.04%)

Up Volume: 976.27M (+123.34M)
Down Volume: 718.88M (-262.97M)

A/D and Hi/Lo: Decliners led 1.05 to 1
Previous Session: Decliners led 1.99 to 1

New Highs: 71 (-81)
New Lows: 59 (-10)

S&P
Stats: +0.49 points (+0.02%) to close at 2039.82
NYSE Volume: 704.9M (-0.45%)

A/D and Hi/Lo: Advancers led 1.04 to 1
Previous Session: Decliners led 1.8 to 1

New Highs: 85 (-75)
New Lows: 48 (-21)

DJ30
Stats: -18.05 points (-0.1%) to close at 17634.74


SENTIMENT INDICATORS

VIX: 13.31; -0.48
VXN: 15.16; +0.61
VXO: 12.06; -0.11

Put/Call Ratio (CBOE): 0.92; -0.03


Bulls and Bears:

Bulls: 55.5% versus 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5%. Bulls are still moving upside though slowing the advance. Still below the 60ish level marking a top but getting closer.

Bears: 14.8% versus 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1%. Still fading as bulls rise.

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: 55.5%
54.6% versus 47.0% versus 35.3% versus 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: 14.8%
15.1% versus 16.3% versus 18.2% versus 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 (10 year): 2.32% versus 2.35% versus 2.36% versus 2.36% versus 2.30% versus 2.38% versus 2.34% versus 2.33% versus 2.339% versus 2.33% versus 2.31% versus 2.32% versus 2.29% versus 2.26% versus 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%

Trying to bounce higher off a four week consolidation at the 50 day EMA.


Oil: 75.82, +1.92. So beaten up it bounced Friday. Here was the headline on Bloomberg: "Oil rises as price plunge puts pressure on OPEC to act." So in more concise terms, oil prices rose because oil prices fell. Good grief. Oil is still in a massive selloff, and the Friday gain did not even make up the Thursday $2.97 loss.

Now oil did recover the break of support on Thursday, and that is a good indication as it suggests a false break and a true rebound. Maybe lower prices do mean higher prices as the Bloomberg headline suggested.


Gold: 1185.60, +24.10. Huge surge after three weeks trading laterally above support. Big move, strong move.


$/JPY: 116.29 versus 115.74 versus 115.53 versus 115.32 versus 114.86 versus 114.60 versus 114.98 versus 114.64 versus 113.60 versus 113.73 versus 112.32 versus 109.23 versus 108.89 versus 108.16 versus 107.83 versus 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

Higher again though closed well off the intraday high. Huge move the past three weeks but still trending higher.

Euro/$: 1.2520 versus 1.2486 versus 1.2432 versus 1.2480 versus 1.2421 versus 1.2455 versus 1.2387 versus 1.2486 versus 1.2456 versus 1.2493 versus 1.2525 versus 1.2610 versus 1.2632 versus 1.2734 versus 1.2698 versus 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

Still working laterally at the 10 day EMA in a weeklong consolidation. Looks like a good rest.


Next Week

As noted in the DJ30 chart discussion, this coming week and indeed the weeks to come have an old nemesis to deal with, the Ukraine/Russia revival . . . of hostilities. Reports of Russian again invading Ukraine and bringing in nukes to East Ukraine did not receive many headlines, but they were there and the market was a bit pensive.

Now a lot of that was technical: SP500 and DJ30 rallied without a break and they are taking one. Very normal. If tensions flare up, something Putin appears to desire in order to draw more reactions from the West and thus gain more followers for his 'anti-West' currency swaps, monetary clearing houses, etc. He is going to do this to cement as much advantage as he can before the 2016 elections that are still oh so long away yet close enough when you are attempting to reestablish your position as a super power.

The Russia issues have not gone away but we are going to turn our attention elsewhere, i.e. to the President unilaterally issuing amnesty and I am sure many other acts as he plays out his last 2 years and 1.5 months as self-styled monarch. So we are going to be embroiled in domestic disputes as Russia and China do their mischief, ISIS and Al Qaeda link up again and again to squash moderates in the Middle East. Suddenly we will look up and Israel will be at war with them, the rest of the Middle East, and likely Russia, at least through surrogates such as Iran (where Russia is building 9 nuclear plants for Iran). That would be the gut check for the US and the world and frankly I do not know how we would respond.

But I digress. The point is that while the market is in a bullish seasonal pattern, the old sell in September into October, bottom in October, and rally to Thanksgiving, sell a bit, then rally into year end, it is vulnerable to outside shocks. Good action thus far, good leadership, ready to run to year end with the usual pullbacks, tests, then rallies, yet there could be extraneous trouble.

For now we continue playing the seasonal pattern. It is working and Friday even more stocks broke higher. Big moves from many and we picked up some CALD and CMGE while BITA and others surged. We will continue to look for good patterns but watch the East.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4688.54

Resistance:

Support:
The 10 day EMA at 4641
4610 is the September 2014 post-bear market high.
The 50 day EMA at 4517
4486 is the July 2014 high
4372 is the March 2014 high
The 200 day SMA at 4343
The August low at 4321
4316 is the lower gap point from October 2014
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


S&P 500: Closed at 2039..82

Resistance:
2066 is the December 2012 up trendline

Support:
The 10 day EMA at 2026
2011 is the September prior all-time high
2006 is the lower trendline from 11/2012
1991 is the July 2014 high
The 50 day EMA at 1981
The 200 day SMA at 1923
1905 is the August 2014 low
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


Dow: Closed at 17,634.74

Resistance:

Support:
The 10 day EMA at 17,503
17,351 is the September 2014 all-time high.
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
The 50 day EMA at 17,072
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
The 200 day SMA at 16,682
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
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

November 12 - Wednesday
MBA Mortgage Index, 11/08 (7:00): -0.9% actual versus -2.6% prior
Wholesale Inventories, September (10:00): 0.3% actual versus 0.2% expected, 0.6% prior (revised from 0.7%)

November 13 - Thursday
Initial Claims, 10/11 (8:30): 264K actual versus 290K expected, 287K prior
Continuing Claims, 10/04 (8:30): 2389K actual versus 2388K expected, 2382K prior (revised from 2381K)
Industrial Production, September (9:15): 1.0% actual versus 0.4% expected, -0.2% prior (revised from -0.1%)
Capacity Utilization, September (9:15): 79.3% actual versus 79.0% expected, 78.7% prior (revised from 78.8%)
Philadelphia Fed, October (10:00): 20.7 actual versus 19.8 expected, 22.5 prior
NAHB Housing Market , October (10:00): 54 actual versus 59 expected, 59 prior
Natural Gas Inventories, 10/11 (10:30): 94 bcf actual versus 105 bcf prior
Crude Inventories, 10/11 (11:00): 8.923M actual versus 5.015M prior
Treasury Budget, September (14:00): $106B expected, $75.1B prior
Net Long-Term TIC Fl, August (16:00): $52.1B actual versus -18.6B prior

November 14 - Friday
Retail Sales, October (8:30): 0.3% actual versus 0.3% expected, -0.3% prior
Retail Sales ex-auto, October (8:30): 0.3% actual versus 0.2% expected, 0.0% prior (revised from -0.2%)
Export Prices ex-ag., October (8:30): -0.9% actual versus -0.2% prior
Import Prices ex-oil, October (8:30): -0.2% actual versus -0.1% prior
Mich Sentiment, November (9:55): 89.4 actual versus 87.5 expected, 86.9 prior
Business Inventories, September (10:00): 0.3% actual versus 0.2% expected, 0.1% prior (revised from 0.2%)
Natural Gas Inventor, 11/08 (10:30): 40 bcf actual versus 91 bcf prior

November 17 - Monday
Empire Manufacturing, November (8:30): 12.0 expected, 6.2 prior
Industrial Productio, October (9:15): 0.2% expected, 1.0% prior
Capacity Utilization, October (9:15): 79.3% expected, 79.3% prior

November 18 - Tuesday
PPI, October (8:30): -0.2% expected, -0.1% prior
Core PPI, October (8:30): 0.1% expected, 0.0% prior
NAHB Housing Market , November (10:00): 55 expected, 54 prior
Net Long-Term TIC Fl, September (16:00): $52.1B prior

November 19 - Wednesday
MBA Mortgage Index, 11/15 (7:00): -0.9% prior
Housing Starts, October (8:30): 1025K expected, 1017K prior
Building Permits, October (8:30): 1040K expected, 1031K prior (revised from 1018K)
Crude Inventories, 11/15 (10:30): -1.735M prior
FOMC Minutes, 10/29 (14:00)

November 20 - Thursday
Initial Claims, 11/15 (8:30): 285K expected, 290K prior
Continuing Claims, 11/08 (8:30): 2375K expected, 2392K prior
CPI, October (8:30): -0.1% expected, 0.1% prior
Core CPI, October (8:30): 0.1% expected, 0.1% prior
Existing Home Sales, October (10:00): 5.17M expected, 5.17M prior
Philadelphia Fed, November (10:00): 18.0 expected, 20.7 prior
Leading Indicators, October (10:00): 0.6% expected, 0.8% prior
Natural Gas Inventor, 11/15 (10:30)


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, November 10, 2014

Stocks Jump on Jobs Report, Then Don't

MARKET SUMMARY

- Cognitive dissonance continues with the October jobs report.
- Stocks jump on the jobs report, then don't.
- Younger age worker demographic throws in the towel, joins seniors in taking low-pay jobs.
- Just as likely to meet a waiter as a manufacturing worker.
- SP500, DJ30 appear a bit extended as NASDAQ, RUTX set up to move up as the large caps rest.

Jobs report misses, viewed as still solid. Stocks rally, then don't.

Jobs missed the number, but unemployment was lower and the August massive miss was revised upward, so, as long as numbers can be revised away, all is well. As if changing the August number made anyone feel better. The obviously felt better at the polls on Tuesday, right?

Stocks surged pre-market on the news then gave up that surge as the open approached. By the end of the first hour they were negative. Impressive jobs report indeed. No major selling, just trying to figure out what the jobs report means vis- -vis the economy and importantly, how it impacts the Fed's view.

Stocks rebounded midday, held the move into mid-afternoon, but rolled back prices a la Wal-Mart once again. The last hour saw a few bids but nothing major, and the indices finished the session resoundingly . . . mixed.

SP500 0.71, 0.03%
NASDAQ -5.94, -0.13%
DJ30 19.46, 0.11%
SP400 0.04%
RUTX 0.12%
SOX -0.90%

VOLUME: NYSE +3%, NASDAQ -4.5%

A/D: 1.5:1 NYSE, flat NASDAQ

In reality, from the market's technical standpoint, the day was more of the same. SP500, SP400, and DJ30 continued their moves higher while NASDAQ, RUTX, and SOX worked on their lateral moves. The jobs report, however, added a wrinkle in the form of trying to figure out what it meant and pricing it into stocks. As the session showed us, however, the jobs report was really no change from the status quo. Question is, is that good for the economy or bad for the economy?


US accepts mediocrity as the new normal?

Embrace the horror. Those were Rock Hound's words as the drilling crew from 'Armageddon' approached the zero barrier that when breached would be the point of no return for impact between the asteroid they were riding and earth. In the movie, the other characters did not give up and saved earth. Will US citizens embrace the horror or keep working for what they know is right and save the US economy?


Rockhound bound after trying to embrace the horror.

While the October jobs report may have not been a horror, what is almost horrifying is how the US is willing to accept at best a mediocre string of reports pitted with continuing chronic flaws that point to a permanent structural shift in the US labor force. Not knocking change. Change can be good. This change, however, is to the detriment of the majority of US citizens . . . those who do actually work . . . and the standard of living for us and our progeny.

Proof? Friday a study was released showing the US ranking among all major nations in terms of percentage of wealth held by the middle class is third from the bottom. The only poorer middle classes are in Russia and India.

While that is a shocking statistic, it is not so shocking when you consider that the mean US income is just $28K (meaning half the people make less than that), the largest US employer today pays an average $8/hour while 40 years ago the largest employer paid $28/hour, and with a population of 317M people, over 100M working age adults are NOT working at all, either unemployed or just part of the permanent non-working class that the rest of the country must support.

What the Fed's and Administration's policies have accomplished is one of the most massive transfers of wealth from the working middle class to the extremes of the socioeconomic spectrum. The Fed's policies have benefitted the wealthy asset owners by increasing the value of assets without, however, increasing the number of assets or productive capacity. The Administration's policies have benefitted the non-working class by increasing federal handouts (e.g. redefining what is seeking work under state unemployment laws to include parent-teacher conferences, bed rest, etc.) to the point a person who takes advantage of all federal programs has as much disposable income as a family of four making $69K per year.

You cannot accomplish such a complete perversion of the US economic and socioeconomic without taking massive amounts of money from somewhere, and we know that it is taken away in the form of income taxes from what used to be the vast majority that worked at a decent job to provide a decent home and education for their family.

The Obama administration has once again proved that collective intentions to help the middle class, if we take his statements at face value that helping them is his primary goal, fail horribly if they involve increasing regulations, increasing taxes, increasing handouts, forcing uneconomically sound policies upon us, e.g. energy 'solutions'. They do not pay for themselves and as a result wealth is stripped from the working middle class and transferred to the permanent non-working class and the extremely wealthy. Why? Neither of those groups typically pay income taxes because they don't earn enough or can structure their earnings in such a way they are not taxed and can avoid regulation.

The result is what we have now: an economy that by traditional measures (though not so traditional given how the calculations are constantly changed to downplay the true changes occurring) appears to be growing, but whose benefits only accrue to a small portion of the population.

Those unemployed and choosing to leave the workforce have a plethora of benefits that provide a surprisingly comfortable living. As Bruce Willis said in the old TV show 'Moonlighting,' poverty is the greatest motivator in a free enterprise system. We have removed poverty from the equation of those who choose not to work, but in so doing we are impoverishing those who pay for those who choose not to work.

Those of great wealth enjoy the increase of financial assets brought about by trillions of dollars pumped into an economy that, as we have seen, has still very little demand. Thus the dollars go into financial markets and inflate financial asset prices. The money is not from massively increased sales and growth; we still see many, many companies reporting earnings beats where sales miss or are outright falling. The money made is not put into purchasing equipment, hiring, and expanding the business (that slow consumption problem makes that a bad choice), but instead to buy back shares. That increases share prices even more, placates activist investors such as Carl Icahn that want more returns versus company growth, triggers performance bonuses, and basically makes those holding assets even wealthier without any real economic growth.

That is why the top 0.01% of the US has seen a 28% increase in wealth during the past 5 years when the average citizen has seen zero wage growth. This is not a sold, growing economy, but one where capital investment is no longer in equipment, people and the business of the business, but investment in paper for paper profits.


The Jobs Report




Never have so few worked when so many are supposedly working.


What a recovery! Look at those wages, 'soaring' well below the levels of prior recoveries.

Friday I heard a New York Times writer on CNBC talking the jobs report and stating how things are so much better and wondering why some were still so unimpressed by the October numbers. When he was reminded that wage growth has been stagnant for 10 years and was again weak in the October report, his response was 'just a few years ago people were happy to have a job!' Suggesting what, they should still just be happy to have a low-paying, go nowhere job? That is improvement? Apparently under the new normal, 'mediocrity is great for America,' simply being able to scratch out an existence is what America is now all about.

There are some telling stats in the report. There always are, right? These stats have many scratching their heads as to the meaning. To us it is pretty clear when pieced together. Not hard to do, just apply logic and economic history. Perfectly clear. Sadly clear.

First, there was a surge in jobs for the 16 to 24 age demographic. The household survey (unemployment number) saw +683K jobs. Of those, 528K (77%) were the 16 to 24 year olds. Biggest jump in more than a decade. Huge.

Second, of the 214K jobs created, 42K were in the food industry, i.e. bartenders, waiters, kitchen help. 20% of the jobs or 1 in 5 in, again, one of the lowest paying sectors. Over the past 12 months those have averaged 26K per month, so October saw a whopping 61% rise.

To us the conclusion is simple: those in the young age demographic that have suffered slow jobs growth in their chosen fields (even as Bill Gates laments the supposed lack of STEM degree talent in the US while 72% of those former students without jobs have degrees IN the STEM categories) finally gave up on finding jobs in their chosen fields. They are forced to take the low-paying jobs that are, sadly, the bread and butter of this economy. Those are far and away the predominant jobs created in this overregulated, overtaxed, 'friend of the feds gets you the favors' economy we now have.

The result? Wages didn't budge and thus lost ground. Again. Over a decade of stagnant wage growth because the majority of the jobs we are creating are the low-end, low pay jobs versus the cutting edge, high skill, highly paid 'breadwinner' jobs the US economy typically creates. Thus wages continue their decline.

Further, look at the trend in the mix of US workers. With the rise of the bartender/waitress class and its share of the jobs gains, likely within one maybe two quarters there will be more bartenders and waiters in the US than manufacturing workers. Thus it is NO surprise that 6 years of recovery show no rise in wages. If you want to extrapolate that further, you can look at the Tuesday election results and conclude it was not an anti-incumbent vote as some are spinning it, but an anti-socialist, big government agenda vote from people tired of hearing about how great the economy is but never seeing it in their jobs or lives.

After the jobs report on Friday the President spoke, thanking the US citizens. For what? Accepting decreased wages? Accepting the lack of opportunity as the US still destroys more small businesses than it creates? Accepting a decline in our standard of living and that of our kids? The citizen that is making the payments on the national debt is tapped out and tired of other people spending his money for other people who don't work nearly as hard. The big question for the US is whether the latter win out or if the structural change is so pervasive that this last vote for the perceived lesser of two evils is their last stand, and thus the last stand for the US economy as it once was.


THE MARKET

Stocks were up on the jobs report and then they weren't. It was back and forth all day as investors digested just what the miss for the month meant versus the upside revisions, as well as continuing poor participation, poor wages, and poor jobs quality now 6 years out in a 'recovery.' They were flat and undecided on the day.

In reality, form the market's technical standpoint, the day was more of the same. SP500, SP400, and DJ30 continued their moves higher while NASDAQ, RUTX, and SOX worked on their lateral moves.

Perhaps SP500 and DJ30 are a bit extended. A straight up run for three weeks with just three downside sessions and two of those were barely downside. At the same time NASDAQ and Russell are working on nice lateral consolidations. The technical picture is setting up where it could be that the Dow and SP500 need to take a breather, and that NASDAQ and company will be ready to fill in with new upside breaks when the large cap NYSE indices need to take a breather. Could be a great setup to continue the 'pat' October bottom then run to year end.

CHARTS

SP500: Doji on the session after three weeks to the upside and a new high. Mid-channel in the 11/2012 uptrend channel. Still has momentum upside of course, but a bit near term extended. If it does pull back it likely tests the channel at 2005ish and that sets up the next run toward year end.

NASDAQ: After gapping upside to a new post-bear market high two Fridays back, NASDAQ continues working in a lateral range, waiting for the 10 day EMA to catch up. The 10 day EMA is getting closer, and NASDAQ is setting up to continue its run once SP500 and DJ30 decide it is their turn to take a breather.

RUTX: Same position as NASDAQ, working laterally in a tight range after gapping upside. Also waiting for the 10 day EMA to catch up and start it to the upside once more. It is at some resistance from the September peak, but with the other indices moving higher, RUTX likely follows them, particularly when NASDAQ breaks higher from the same pattern.

SOX: Tougher Friday, but after reaching into the gap zone from the prior Fridays move, SOX recovered some lost ground to close at the upper gap point. It too is working laterally at some resistance (July and September twin peaks), under a bit of pressure, but when RUTX and NASDAQ moves, SOX likely moves as well. Thought earlier in the week (Wednesday) it might try to lead higher, but it instead needed a test.


LEADERSHIP

Last week saw transport, utility, financial, retail, industrial machinery, personal products stocks all make solid moves. A rather varied mix, but they all had the attribute of being large cap sectors. Thus SP500 and DJ30 moved up, riding those sectors higher.

Growth saw struggles. Biotechs again suffered selling. Big name techs such as GOOG experienced selling pressure. Chips show some signs of trying to make turns, but as with energy stocks, they need to show some breaks that stick. A trying week for growth sectors but with NASDAQ, RUTX, and SOX in nice tight lateral consolidations, we could see some growth step up and produce good entries and good moves as those indices break back upside following their tests.


MARKET STATS

NASDAQ
Stats: -5.94 points (-0.13%) to close at 4632.53
Volume: 1.836B (-4.57%)

Up Volume: 996.19M (-173.81M)
Down Volume: 949.34M (+153.15M)

A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Advancers led 1.38 to 1

New Highs: 115 (-10)
New Lows: 66 (-4)

S&P
Stats: +0.71 points (+0.03%) to close at 2031.92
NYSE Volume: 773.6M (+2.89%)

A/D and Hi/Lo: Advancers led 1.56 to 1
Previous Session: Advancers led 1.33 to 1

New Highs: 147 (-20)
New Lows: 40 (-20)

DJ30
Stats: +19.46 points (+0.11%) to close at 17573.93


SENTIMENT INDICATORS

VIX: 13.12; -0.55
VXN: 14.71; -0.97
VXO: 12.43; -0.66

Put/Call Ratio (CBOE): 0.95; +0.04


Bulls and Bears:

Bulls: 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5%. Bulls continues their upside surge. This is suddenly closer to 60, an extreme level that has killed off all upside rallies the past year and more.

Bears: 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1%. And bears are fading away. Another indication suddenly too many are too confident.

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: 54.6%
47.0% versus 35.3% versus 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: 15.1%
16.3% versus 18.2% versus 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 (10 year): 2.30% versus 2.38% versus 2.34% versus 2.33% versus 2.339% versus 2.33% versus 2.31% versus 2.32% versus 2.29% versus 2.26% versus 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%

After the four week test back to the 50 day EMA, bonds jumped higher after the 'very solid' jobs report. So, just how solid of a report did bonds think it was? Not very.

Oil: 78.85, +0.74. Bounced modestly the back half of the week, but still in a nasty downtrend below the 10 day EMA. Just now coming up to test the 10 day so we will see if it has any juice.

Gold: 1169.80, +27.20. Exploded higher after the jobs report. Obviously gold did not have much faith in the October jobs numbers either.

$/JPY: 114.60 versus 114.98 versus 114.64 versus 113.60 versus 113.73 versus 112.32 versus 109.23 versus 108.89 versus 108.16 versus 107.83 versus 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


Euro/$: 1.2455 versus 1.2387 versus 1.2486 versus 1.2456 versus 1.2493 versus 1.2525 versus 1.2610 versus 1.2632 versus 1.2734 versus 1.2698 versus 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

Faded Friday after the surge Thursday. Not so strong a dollar suggests not so impressed with the jobs numbers.


THIS WEEK

To us the moves in the coming week will be more technical than news driven. We have the jobs report, we have a lot of earnings in the bank. We know the lay of the land. SP500 and DJ30 appear extended or getting there. NASDAQ, RUTX, and SOX are all tested and rested. We could easily see SP500 put in a higher high, perhaps to the upper trendline and test, then after NASDAQ and company bounce as money rotates.

Money is not leaving the market, it just moves when an area gets overdone such as the small biotechs. So, given NASDAQ, RUTX and SOX have sectors that have rested, you want to look to see what stocks in those sectors are in position to move higher.

STX is testing the 10 day EMA. NOR in aluminum is not extended but showing a good pattern. Look for stocks that are not extended. RUTH sizzled upside midweek and is currently testing. There are stocks testing as the indices test. JD's pattern is shaping up. CCMP in semis is testing the 10 day EMA. Trying to set up, ready for money to rotate their way so they can start their moves again.

So, look for money rotating to stocks in solid position and solid patterns to catch the money and move to the upside. SPIL is another example. ANAD is trying to make its move. OCLR in chip equipment is set up as well. They just need money.

We will be tasked with finding those plays in position and being ready to move in as they get the money flowing their way.

Have a great weekend!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4632.53

Resistance:

Support:
4610 is the September 2014 post-bear market high.
The 10 day EMA at 4583
4486 is the July 2014 high
The 50 day EMA at 4483
4372 is the March 2014 high
The 200 day SMA at 4328
The August low at 4321
4316 is the lower gap point from October 2014
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 2031.92

Resistance:
2058 is the December 2012 up trendline

Support:
2011 is the September prior all-time high
1991 is the July 2014 high
2000 is the lower trendline from 11/2012
The 50 day EMA at 1968
The 200 day SMA at 1917
1905 is the August 2014 low
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 17,573.93

Resistance:

Support:
17,351 is the September 2014 all-time high.
The 10 day EMA at 17,286
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
16,970 is the June 2014 former all-time high
The 50 day EMA at 16,949
16,946 is the June 2014 peak
16,736 is the penultimate all-time high from May 2014
The 200 day SMA at 16,637
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
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

November 7 - Friday
Nonfarm Payrolls, October (8:30): 214K actual versus 235K expected, 256K prior (revised from 248K)
Nonfarm Private Payr, October (8:30): 209K actual versus 230K expected, 244K prior (revised from 236K)
Unemployment Rate, October (8:30): 5.8% actual versus 5.9% expected, 5.9% prior
Hourly Earnings, October (8:30): 0.1% actual versus 0.2% expected, 0.0% prior
Average Workweek, October (8:30): 34.6 actual versus 34.6 expected, 34.5 prior (revised from 34.6)
Consumer Credit, September (15:00): $15.9B actual versus $16.0B expected, $13.5B prior


November 12 - Wednesday
MBA Mortgage Index, 11/08 (7:00): -2.6% prior
Wholesale Inventorie, September (10:00): 0.2% expected, 0.7% prior

November 13 - Thursday
Initial Claims, 11/08 (8:30): 281K expected, 278K prior
Continuing Claims, 11/01 (8:30): 2355K expected, 2348K prior
JOLTS - Job Openings, September (10:00): 4.835M prior
Natural Gas Inventor, 11/08 (10:30): 91 bcf prior
Crude Inventories, 11/08 (11:00): 0.460M prior
Treasury Budget, October (14:00): -$90.6B prior

November 14 - Friday
Retail Sales, October (8:30): 0.3% expected, -0.3% prior
Retail Sales ex-auto, October (8:30): 0.3% expected, -0.2% prior
Export Prices ex-ag., October (8:30): -0.2% prior
Import Prices ex-oil, October (8:30): -0.1% prior
Mich Sentiment, November (9:55): 87.5 expected, 86.9 prior
Business Inventories, September (10:00): 0.2% expected, 0.2% 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, November 03, 2014

Market Plays the 'Pat' Scenario

MARKET SUMMARY

- A little QE, even from Japan, and you get new highs.
- Improbable, but market plays the 'pat' scenario, selling in September and October, then turning and rallying right back up.
- Spending lower to start Q4 after Q3 showed declining consumption already.
- New month and perhaps some new money to drive stocks a bit more before a test of the breaks higher.

Japan provides the treat, stocks surge.

Seems it doesn't matter where QE is in the world, as long as there is QE. Overnight the BOJ surprised markets with an expansion of its QE. We say surprised, but a couple of weeks back recall the rumor that Japan was about to start more QE, a rumor that started with a good source, one of the administrators in Japan. A senior BOJ official immediately denied any such intention. Two weeks later, voila. So, yes it was a surprise but it was not a total bolt out of the blue.


Japan's Kuroda: 'QE for all! Why didn't I think of this sooner? Banzai QE!'



Mario Draghi's response

Of course stock markets treated it as if it were. I suppose after Mario Draghi at the ECB crying wolf for over a year about the ECB starting QE, the comments from some sub-official in Japan were dismissed. Thus investors treated the news as a complete surprise and stocks surged worldwide. Any major economy announcing QE is apparently good news for all economies and investors bought, pricing in more financial asset inflation thanks to more money printed, money that has few places to go other than financial markets.

Money was certainly heading into the US financial markets as stocks surged on huge volume. I suppose the end of month didn't hurt at all either. In any event, stocks surged to close out the month and provided a nice backdrop to go trick or treating.

SP500 23.40, 1.17%
NASDAQ 64.60, 1.41%
DJ30 195.10, 1.13%
SP400 1.22%
RUTX 1.53%
SOX 3.87%

VOLUME: NASAQ +17% to 2.3B. NYSE +48% to 1B. A little end of month trade pushed up volume. Perhaps we see the same again to stat November. .

A/D: NASDAQ 2.3:1, NYSE 3.3:1

SP500 and DJ30 bolted to new all-time highs. NASDAQ gapped to a 14.5 year high. The other indices are in various stages of their rallies, working toward new highs but with significant ground to cover before getting there. Still solid moves all around despite not new highs all around.

We picked up some TRLA on a good move. Took some gain on IDCC and INSY, closed NFLX. It was a very good week and we banked a lot of nice gain, taking profits on positions acquired when the market selloff froze many investors into inaction. By watching the patterns and not listening to the breathless and yea verily panicked advisors on the financial stations, we acquired some great positions that have already yielded excellent gains.

Of course those mouth-breathing advisors finally jumped back on board -- last Friday -- giving them a week of upside. By watching the patterns just as we did in May when Mr. Tepper said he was worried, we saw that buys were there, making their moves even as the heralded TV pundits talked of an untrustworthy market, about how there was no reason to step into the selling.

Heck, I didn't like the action either and felt more selling had to come. Nonetheless, recall how we advised to take downside gain on further downside even as the pundits were more and more skeptical. Stocks were extended downside, and more importantly, we saw some very solid upside patterns developing. We mused at the time that everything was set for a 'pat' October bottom: weak September and October, fears crescendo over Ebola and some weaker economic data, new lows exploded to extremes, the put/call ratio finally cracked, and importantly, key warnings spooked investors, and most importantly, the pundits puckered as well (Cramer advising everyone to not buy just as it was time to buy).

Others were selling their stocks while we were selling positions on our put options, taking in very nice gain on the one hand, then buying upside positions as they bottomed and broke higher. Never felt the move would make it to new highs, but that is exactly why you play the patterns and what the market is showing you versus your gut. Thus we have banked some very nice gain on the upside for over a week now as the plays we picked up early hit initial targets for the first profit taking, and indeed continue to advance past those targets.

Now the large cap indices are at new highs. The US economic headlines continue to show improvement, QE may be ending but it lives elsewhere, the Fed holds out the promise of later rather than sooner rate hikes (likely a false promise), and buy backs continue with more announced last week. Nothing has kept stock prices higher more effectively than stock buybacks that, as seen in some cases such as AAPL, equaled the amount of revenues for the quarter. And people wonder why there is no hiring; if you use all of your revenues to buy stock there is not much money to spend on anything else such as additional wages. Given many of the earnings beats are still bottom line only (revenues still missing), what is the incentive to hire if your business is not expanding? Buy back stock, push up earnings per share, push up the stock price.


But look at those profits. Look at those new highs. Surely all is not only well but rapidly rising in the US. Surely?

The pundits are excited about the new highs and how strong the US supposedly is. Strong is relative. Very relative. The US economy has been so weak for so long that this activity is stronger in comparison. Other countries are so weak the US looks much stronger. France is just now experiencing riots because there are no jobs. But the US is still killing more companies than creating. Just over 50% of US households earn $28K per year. The largest employer in the US pays an average $8/hour when 50 years ago the largest employer paid $28/hour in constant dollars. The administration trumpets the 'surplus' of jobs created but the 25 to 54 demographic, the wheel house of earnings power, is still millions of jobs below 2007 levels.

Our economy has split into the large corporations that benefitted from day 1 of the stimulus, and have benefitted more and more as more and more regulations were passed. The ACA imposes costs that large companies can absorb or pass along. The burden on small companies, however, is so much larger a percentage more of their gross income that there is no way to pass the costs along without doubling or tripling prices. Either way the big companies win, further solidifying their dominance of the US economy.

That is why you see earnings for the large companies growing at rates that appear incongruous to most of the workers (or former workers) in the US who see their wages, hours, bottom line take home shrinking. That is because the small businesses that historically create 75% of the new jobs are still folding at a faster pace than they are being created as they are squeezed by regulation, additional costs, and a playing field now vastly skewed toward the largest players. Thus you see the earnings beats all over the place, figure that perhaps the rest of the economy outside of your sector is doing well, and hope that yours is the next to see the upturn. No, it is a situation where if you are not in the large cap arena you simply cannot compete and are ground into oblivion.

Thus the downfall of the US economy in terms of its ability to cultivate small, new companies that grow to big companies, creating millions upon millions of jobs along the way, the kind of jobs that raise the standard of living, not reduce it for the middle class as has occurred. Sure the headlines look good and the earnings reported for SP500 companies look grand, but this is at the cost of our former middle class prosperity, the true backbone of US economic strength (and thus overall strength) since the country's inception. When you have over 50% of the US earning less than 28K it is clear this recovery is not a true recovery. More profits yes, but more profits for fewer and fewer businesses. Is that a good thing? Is that a healthy economy for the people of the US?


THE MARKET

CHARTS

SP500: New highs as the 2.5 week run from the mid-October lows continues its improbable surge. Not improbable that it had the move but improbable that it hit new highs without a pause. After this kind of move you would anticipate some pullback to test the break higher. It will happen but when and how deep are the issues. Certainly does not look as if this was a last gasp surge.

NASDAQ: Gapped to a new 14.5 year high. Gapped, could not advance, faded some off the open to the close. Best volume in two weeks, since the turn off the bottom, so solid action but likely end of the month volume. Solid advance, new high, will test at some point, but when is the test; have not had one on this move yet, and after some more upside it would be a good time to try it.

RUTX: Gapped upside as well, rallied more into the close. Approaching the early September high, but that is just an interim peak. July and March are still higher. Okay, so it has more room to run, right? Next key resistance at 1185ish, closed at 1173.

SOX: Gapped upside, closed near the high, still has the July and September twin peaks at 651 to 659 (closed at 641) ahead, but as with the rest of the market, SOX is taking back and holding lost ground.

SP400: Gap and rally, closing at the session high. Working on clearing some interim resistance at 1430ish and then the highs at 1448 (closed at 1418). When it gets there it then has to deal with the twin peaks from July and September.

DJ30: Big boost by V and company Thursday and Friday, pushing DJ30 to a new all-time along with SP500. Straight down, straight up. As with the other new high indices, a bit more push on the broken resistance and a new month, then a fade to test, testing from a position of strength.


LEADERSHIP

Biotechs: Ran into some Friday after great upside runs. While the market partied, a lot of smaller biotechs that led the move faded, e.g. XLRN, XON, INSY. Some money leaving the group and we will have to watch closely this week to see if this was just an end of the month profit taking move (something we were doing as well) or a rotation out.

Energy: Still not beautiful, but still showing signs of trying to turn. XEC, RIG, HAL.

Financial: Big day Friday as JPM, BAC, C all moved higher. CME surged to a higher high.

Software: Nice week. CRM leading the pack.

Internet showing life: VIPS, TRLA. LLNW coming to life off of support.


MARKET STATS

NASDAQ
Stats: +64.6 points (+1.41%) to close at 4630.74
Volume: 2.328B (+17.03%)

Up Volume: 1.86B (+790M)
Down Volume: 557.88M (-385.44M)

A/D and Hi/Lo: Advancers led 2.33 to 1
Previous Session: Advancers led 1.73 to 1

New Highs: 243 (+112)
New Lows: 51 (-14)

S&P
Stats: +23.4 points (+1.17%) to close at 2018.05
NYSE Volume: 1B (+48.26%)

A/D and Hi/Lo: Advancers led 3.27 to 1
Previous Session: Advancers led 1.74 to 1

New Highs: 322 (+121)
New Lows: 58 (-11)

DJ30
Stats: +195.1 points (+1.13%) to close at 17390.52


SENTIMENT INDICATORS

VIX: 14.03; -0.49
VXN: 15.81; -0.8
VXO: 13.73; -0.3

Put/Call Ratio (CBOE): 0.77; -0.19


Bulls and Bears:

Bulls: 47.0% versus 35.3% versus 37.8% versus 45.5%. Bears explode upside after 2 weeks of rallying.

Bears: 16.3% versus 18.2% versus 17.3% versus 14.1%. On the fade again.

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: 47.0%
35.3% versus 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: 16.3%
18.2% versus 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: 2.33% versus 2.31% versus 2.32% versus 2.29% versus 2.26% versus 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: 80.54, -0.78. Still putting in the bottom along support at 79.50, working in its three week lateral range.

Gold: 1171.60, -27.40. Crashed the early October low to a new 4 year low.

$/JPY: 112.32 versus 109.23 versus 108.89 versus 108.16 versus 107.83 versus 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

Now THAT is an explosive move. At least a 5 year high versus the euro.

Euro/$: 1.2525 versus 1.2610 versus 1.2632 versus 1.2734 versus 1.2698 versus 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


MONDAY

First week of a new month and that means the jobs report to end the week. Will there be some new jobs in the 25 to 54 age demographic? Based upon the headlines re the economy, there should be surging jobs. Then again, as outlined earlier, the economy is different now. The economic yardsticks don't differentiate whether a large number of business of all sizes are contributing (as used to be the case) or a few large companies are dominating all of the activity as is the case now. The jobs reports, JOLTS, and other jobs related reports show this: despite 3+% GDP of late, there are no significant breadwinner jobs created. Plenty of low end jobs going to seniors trying to scratch out a life after the financial collapse and the lopsided, non-savers recovery fomented by the Fed's policies.

As for the technical picture, this coming week requires some analysis. Incredible surge higher, some new highs, over 2 weeks of straight up running. Hard to argue against the tape, and with the end of the month surge there could be a beginning of the new month push to put more money to work ahead of or during what appears to be the run to the year end.

Three weeks back we talked about how the market had sold as it often does in September and into October and that it was possible that the 'pat' play was in, that the market had sold as it does at this time and was set for the year end run. We saw good patterns and moved in when most people were fearing more selling. We didn't expect move to be THE move to higher highs and the year end run, but knew it was possible it could be just that. Turns out it was, and even though we were skeptical, we bought the move and now we are enjoying the nice run.

Stocks are quite extended on this run, but SP500, DJ30, and NASDAQ just cleared the prior highs. They will test at some point, and what we can see is a continued move as new money enters the market this week for the new month. After that you get a test of the break with the indices coming back down to test the old high, dealing from a position of strength. That allows stocks to test their breaks higher and provides new entry points . . . if the test holds. Nothing suggests right now that it would not.

So, we will look for the upside still but likely need more of a pullback to test the breaks higher to get the really good entries on stocks that are already running. Of course there could be new areas emerging, e.g. energy, and thus we could pick up some good upside even while the overall market seems stretched. When money rotates new plays set up. That is also why it is very important to watch biotechs this week as an indication that money may indeed be rotating, out of a winning area to others.



SUPPORT AND RESISTANCE

NASDAQ: Closed at 4630.74

Resistance:

Support:
4610 is the September 2014 post-bear market high.
The 10 day EMA at 4500
4486 is the July 2014 high
The 50 day EMA at 4450
4372 is the March 2014 high
The August low at 4321
The 200 day SMA at 4318
4316 is the lower gap point from October 2014
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 2018.05

Resistance:
2053 is the December 2012 up trendline

Support:
2011 is the September prior all-time high
1991 is the July 2014 high
1995 is the lower trendline from 11/2012
The 50 day EMA at 1956
The 200 day SMA at 1912
1905 is the August 2014 low
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 17,390.52

Resistance:

Support:
17,351 is the September 2014 all-time high.
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
The 50 day EMA at 16,832
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 16,606
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 31 - Friday
Personal Income, September (8:30): 0.2% actual versus 0.3% expected, 0.3% prior
Personal Spending, September (8:30): -0.2% actual versus 0.1% expected, 0.5% prior
PCE Prices - Core, September (8:30): 0.1% actual versus 0.1% expected, 0.1% prior
Employment Cost Index, Q3 (8:30): 0.7% actual versus 0.5% expected, 0.7% prior
Chicago PMI, October (9:45): 66.2 actual versus 60.0 expected, 60.5 prior
Michigan Sentiment - Final, October (9:55): 86.9 actual versus 86.4 expected, 86.4 prior

November 3 - Monday
ISM Index, October (10:00): 56.2 expected, 56.6 prior
Construction Spendin, September (10:00): 0.7% expected, -0.8% prior
Auto Sales, October (14:00): 5.6M prior
Truck Sales, October (14:00): 7.5M prior

November 4 - Tuesday
Trade Balance, September (8:30): -$40.1B expected, -$40.1B prior
Factory Orders, September (10:00): -0.5% expected, -10.1% prior

November 5 - Wednesday
MBA Mortgage Index, 11/01 (7:00): -6.6% prior
ADP Employment Chang, October (8:15): 220K expected, 213K prior
ISM Services, October (10:00): 58.0 expected, 58.6 prior
Crude Inventories, 11/01 (10:30): 2.061M prior

November 6 - Thursday
Challenger Job Cuts, October (7:30): -24.4% prior
Initial Claims, 11/01 (8:30): 285K expected, 287K prior
Continuing Claims, 10/25 (8:30): 2380K expected, 2384K prior
Productivity-Prel, Q3 (8:30): 1.4% expected, 2.3% prior
Unit Labor Costs, Q3 (8:30): 0.9% expected, -0.1% prior
Natural Gas Inventor, 11/01 (10:30): 87 bcf prior

November 7 - Friday
Nonfarm Payrolls, October (8:30): 235K expected, 248K prior
Nonfarm Private Payr, October (8:30): 228K expected, 236K prior
Unemployment Rate, October (8:30): 5.9% expected, 5.9% prior
Hourly Earnings, October (8:30): 0.2% expected, 0.0% prior
Average Workweek, October (8:30): 34.6 expected, 34.6 prior
Consumer Credit, September (15:00): $16.0B expected, $13.5B 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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