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3/18/2015 Investment House Report
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Targets hit: ALK; QRVO
Buy alerts: AAPL; CELG; FEYE; GOOG
Trailing stops: MTSN
Stop alerts: None issued
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- Stocks fear the Fed then celebrate as Yellen pulls her patience but more than makes up for it.
- Fed downgrades economic outlooks, inflation projections.
- Small caps, midcaps are not the leaders on the session, but they are the first to hit new highs.
- With the Fed's soft stance, the dollar's weakening , and the market's reaction, we will see if the other indices can follow the small caps to new highs.
Stocks stumbled into the FOMC decision apprehensive the Fed was set to drop its 'patient' stance and further toughen its pre-rate hike stance. Just how far would the Fed go kept investors and traders guessing.
The Fed dropped references to patient, and it went further than the market anticipated -- in reverse. The Fed downgraded its economic outlook across the board, and in addition, softened its language regarding the economic outlook. Perhaps the Fed IS looking at the recent 90+% miss rate on economic data and isn't ready to start pulling triggers on rate hikes.
Economic growth: The Fed moved from noting 'solid growth' in the last statement to 'economic growth has moderated somewhat.'
Inflation: The Fed noted it needs to 'have confidence' inflation is moving toward the 2% level.
The Fed is concerned and it cut its PCE forecasts
PCE: 0.6% to 0.8% versus 1% to 1.6% just three months back.
Core PCE: 1.3% to 1.4% from 1.5% to 1.8%
GDP forecast: This is where the real impact of the Fed's statement hit home.
2015: 2.3% to 2.7% from 2.6% to 3%.
2016: 2.3% to 2.7% versus 2.5% to 3.0%
2017: 2.0% to 2.4% versus 2.3% to 2.5%
Summary: Two key points to take away.
1. The Fed removed 'patient' but slashed its forecast levels and reiterated its data dependency. In effect, the Fed softened its position from where it was last meeting.
2. The Fed launched an attack on the dollar, backtracking from its last statement in terms of hawkishness: the economy is not that strong to warrant foreign money seeking dollar-based assets AND decreasing dollar value by postponing the point of rate hikes.
The result was upside. Stocks, oil, bonds, but, of course, not the dollar. The euro and yen scored big gains, the best in months and months.
SP500 25.22, 1.22%
NASDAQ 45.40, 0.92%
DJ30 227.11, 1.27%
VOLUME: NYSE +23%, NASDAQ +1.6:1
A/D: NYSE 4.5:1, NASDAQ 15%
Large cap led the move higher but we note RUTX and SP400 hit new all-time highs while NASDAQ bumped at its recent high and stumbled. DJ30 and SP500 moved well but still have distance to cover for new highs past the February peaks.
There were big moves in many areas and we picked up AAPL and GOOG positions in the really big caps, some CELG, and some FEYE also.
So, the Fed under Yellen opted not to do anything to upset what is happening right now . . . OTHER than undermining the dollar, one of the BEST things for the US consumer in 6 years of 'recovery.' Yellen once told Greenspan not to hike rates to avoid killing off an economic move before it was strong enough. Seems she is sticking to her beliefs.
The market loved it. Now we see if it is sustainable. Should be. Yellen gave stock investors and traders something of a green light, a ringing bell, etc.
SP400: Not the biggest percentage mover on the session, but at 1.07%, not chopped liver. SP400 was one two indices moving to new all-time highs. Good NYSE volume pushed the midcaps to that high. The large caps played catch up while the midcaps and small caps moved to new highs.
RUTX: New high for the small caps as well, even punching through the upper trendline formed through the March and July 2014 peaks. As with the midcaps, not the best performing index on the session but a new high as the small caps led the prior move and held on the best during the test.
NASDAQ: Aided by AAPL and GOOG, NASDAQ posted a solid advance though it too lagged SP500 and DJ30. Indeed, NASDAQ broke 5,000 on the high but simply could not hold it. Not a bad session with a solid price move and strong volume, but it was predominantly a large cap move as NASDAQ 100 outpaced NASDAQ overall.
DJ30: Dicey pre-Fed, trading well below the 50 day MA. After Yellen and her henchmen, however, issued their proclamation, the Dow reversed and rallied through 18K. Not much volume and still below the late December peak. It is tough when you dig deeper holes; harder to get out.
SOX: Down early, undercutting the 20 day EMA then reversing to a nice rally. Tapped the December peak on the low, reversed nicely. Excellent positioning.
SP500: Tapped the 50 day SMA on the low then reversed upside, closing over the late December peak and on rising, above average volume. Not bad for the large caps: higher low at the 61% Fibonacci Retracement on the pullback from the February high. Broke the December peak on stronger volume. No complaints.
Big Names: With the Dow and SP500 posting the best percentage moves you know the big caps were in the lead. GOOG broke nicely higher. AAPL as well. HON. CAT.
Chips: Good and so-so. NXPI up 1.5% but low trade. SWKS flat but after a good move. AAOI surging 3.3%. AVGO up a decent 1% on good volume.
Software: CRM jumping 1.5%. FEYE up 1.8% and giving us the entry signal. FFIV looks very good with a double bottom.
Internet Social: FB surging 1.95%. GRUB flat, but it put in a super run into the FOMC. TWTR looks very interesting for a move higher.
Industrial equipment: TEX surged 4% off its higher low. CAT has a double bottom and jumped higher. CMI not so good but could bounce further from here.
Stats: +45.39 points (+0.92%) to close at 4982.83
Volume: 1.942B (+15.5%)
Up Volume: 1.35B (+472.46M)
Down Volume: 556.59M (-259.13M)
A/D and Hi/Lo: Advancers led 1.62 to 1
Previous Session: Advancers led 1.04 to 1
New Highs: 184 (+63)
New Lows: 62 (-10)
Stats: +25.22 points (+1.22%) to close at 2099.5
NYSE Volume: 883.3M (+23.35%)
A/D and Hi/Lo: Advancers led 4.51 to 1
Previous Session: Decliners led 1.11 to 1
New Highs: 201 (+100)
New Lows: 63 (-8)
Stats: +227.11 points (+1.27%) to close at 18076.19
VIX: 13.97; -1.69
VXN: 14.99; -1.61
VXO: 14.01; -2.13
Put/Call Ratio (CBOE): 0.98; +0.03. Second day below 1.0 as the 7 straight 1+ readings did their work.
Bulls and Bears: Broke lower as expected in the selling. Not low enough but heading in the right direction.
Bulls: 53.46% versus 58.7% versus 59.5% versus 56.6% versus 52.5% versus 49.0%
After that rapid spike from 49% to 59.5%, backing down. A bit.
Bears: 14.1% versus 14.1% versus 14.1% versus 14.1% versus 15.2% versus 16.3%
Are you kidding me? This goes beyond stuck in the mud. Chronically low bearishness is bearish.
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.
58.7% versus 59.5% versus 56.6% versus 52.5% versus 49.0% versus 53.1% versus 49.0% versus 48.0% versus 50.5% versus 56.4% versus 52.5% versus 49.5% versus 51.5% versus 53.4% versus 56.5% versus 56.4% versus 55.5% versus 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%
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
14.1% versus 14.1% versus 14.1% versus 15.2% versus 16.3% versus 16.3% versus 17.4% versus16.3% versus 15.2% versus 14.9% versus 15.8% versus 14.9% versus 14.8% versus 13.9% versus 13.8% versus 14.9% versus 14.8% versus 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%
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.
Bonds (10 year): 1.95%. Bombs away for rates as bonds gapped higher through the late February recovery high. ABCD pattern formed and it is fulfilling.
2.06% versus 2.09% versus 2.10% versus 2.12% versus 2.10% versus 2.12% versus 2.11% versus 2.13% versus 2.20% versus 2.245% versus 2.11% versus 2.12% versus 2.12% versus 2.08% versus 1.98% versus 2.04% versus 1.96% versus 1.98% versus 2.06% versus 2.09% versus 2.11% versus 2.08% versus 2.14% versus 2.03% versus 1.99% versus 1.98% versus 1.99% versus 1.95% versus 1.94% versus 1.81% versus 1.77% versus 1.78% versus 1.68% versus 1.67% versus 1.76%
Oil: 45.16, +1.70. After undercutting the January low, oil rebounded and now will test that resistance again with a double bottom behind it.
Gold: 1166.40, +18.20. Big upside break off the bottom that matched the November 2014 low. The Fed is not as hawkish as thought and gold took heart.
$/JPY: 120.04 versus 121.34 versus 121.39 versus 121.43 versus 121.28 versus 121.50 versus 121.80 versus 121.60 VERSUS 120.72 versus 120.14 versus 119.71 versus 119.74 versus 120.179 versus 119.63 versus 119.48 versus 118.86
Looked ready to pop with that handle then flopped because of the Fed taking a more dovish stance. That is why we say it is just a pretty pattern until it can prove it can make the move.
Euro/$: 1.0874 versus 1.0590 versus 1.0568 versus 1.0494 versus 1.0635 versus 1.0546 versus 1.0700 versus 1.0829 versus 1.0849 versus 1.1030 versus 1.1079 versus 1.1175 versus 1.1182 versus 1.1197 versus 1.1195 versus 1.1362 versus 1.1337 versus 1.1385 versus 1.1379 versus 1.1366
The dollar, of course, sold hard as the Fed suddenly showed it was not so interested in hiking rates. Is it just the economy or is it the economy. Meaning? Does the Fed see the economy threatened by a stronger dollar and thus Ms. Yellen was DOUBLY worried about hiking rates?
Certainly a nice surge as the stock market received a rate hike reprieve, or at least that is they way investors and traders (or is that traders and investors?) saw things. New highs on the leading indices though it was interesting to see NASDAQ trade over 5,000 then stumble, unable to hold it.
With that action, even with NASDAQ's fear of 5K, you have to continue looking upside. Even with the move there are some good looking patterns out there that you can pick up on a continued move. Of course we will be looking at those.
You always have to worry about the day after the party. Nothing is for certain in the aftermath of a big policy decision. Second thoughts, new insight, additional news, buyer's remorse.
Not anticipating that kind of response but you have to be aware of the possibility. Given the Fed's action, the response, and the patterns showing up, we will continue looking for upside opportunity. Stocks tested, held, moved up modestly toward the Fed, then were green-lighted. It again behooves us to look at upside plays to take advantage of the new run that received a big boost Wednesday.
Have a great evening!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4982.83
5008.57 is the March 2015 post-bear market high
5132.52 is the 3/2000 all-time high
The March low at 4843
The 50 day EMA at 4841
4816 is the 38% Fibonacci retracement of the February run
4815 is the December 2014 prior market peak
4811 is the November 2014 peak (intraday)
4774 is the January high
4751 is the January 2015 lower high
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
The 200 day SMA at 4590
4566 is the lower gap point from late October
4563 and 4567 are the January lows
4547 is the December low
4486 is the July 2014 high
4372 is the March 2014 high
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
S&P 500: Closed at 2099.50
2117 is the lower trendline from 11/2012
2119.59 is the all-time high
2179 is the December 2012 up trendline
2094 is the December 2014 high, the prior all-time high
2079 is the intraday all-time high from November
2076 is the all-time high from November
The 50 day EMA at 2068
2062 is the January 2015 lower high
2011 is the September prior all-time high
The 200 day SMA at 2006
1991 is the July 2014 high
1972 is the December 2014 low
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 18,071.57
18,104 is the December high
18,289 is the all-time high
17,991 is the early December interim
17,923 is the January 2015 lower high
The 50 day EMA at 17,845
The March low at 17,620
17,351 is the September 2014 all-time high.
The 200 day SMA at 17,287
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
17067 is the December 2014 low
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
16,632 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.
15,855 is the October 2014 low
15,739 is the December 2013 low
March 16 - Monday
Empire Manufacturing, March (8:30): 6.9 actual versus 8.8 expected, 7.8 prior
Industrial Production, February (9:15): 0.1% actual versus 0.3% expected, -0.3% prior (revised from 0.2%)
Capacity Utilization, February (9:15): 78.9% actual versus 79.5% expected, 79.1% prior (revised from 79.4%)
NAHB Housing Market , March (10:00): 53 actual versus 56 expected, 55 prior
Net Long-Term TIC Fl, January (16:00): -$27.2B actual versus $39.2B prior (revised from $35.4B)
March 17 - Tuesday
Housing Starts, February (8:30): 897K actual versus 1041K expected, 1081K prior (revised from 1065K)
Building Permits, February (8:30): 1092K actual versus 1070K expected, 1060K prior (revised from 1053K)
March 18 - Wednesday
MBA Mortgage Index, 03/14 (7:00): -3.9% actual versus -1.3% prior
Crude Inventories, 03/14 (10:30): 9.622M actual versus 4.512M prior
FOMC Rate Decision, March (14:00): 0.25% expected, 0.25% prior
March 19 - Thursday
Continuing Claims, 03/07 (8:30)
Initial Claims, 03/14 (8:30): 294K expected, 289K prior
Continuing Claims, 03/07 (8:30): 2420K expected, 2418K prior
Current Account Bala, Q4 (8:30): -$105.0B expected, -$100.3B prior
Philadelphia Fed, March (10:00): 7.2 expected, 5.2 prior
Leading Indicators, February (10:00): 0.2% expected, 0.2% prior
Natural Gas Inventor, 03/14 (10:30): -198 bcf prior
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