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4/18/2015 Investment House Report
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Targets hit: None issued
Buy alerts: None issued
Trailing stops: QIWI; WWWW
Stop alerts: AMZN; BSFT
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- A confluence or 'witch's concoction' of external negatives trigger expiration selling.
- China starts to implement rules on its exchanges, a move seen as potentially disrupting the insane China stock run.
- EU countries preparing for a Greece EU exit by 'quarantining' Greece.
- Government regulation enters the market as the DOJ to sue against the Comcast/Time Warner deal.
- Indexes fall hard, RUTX gives up new high, but they hold the 50 day MA and the trendlines just as in December/January.
- Leadership showing very little damage.
- Damage done, even 'psychological damage' as one emotional trader puts it, but technically still solid, still working on same patterns.
- Indices showing the same action as in prior consolidation. Of course that doesn't mean they have to hold and breakout again. It does, however, show they have not died because of Friday.
Stocks take it on the chin Friday from the get go.
Just when the US stock market looked as if it was finally breaking out, the old stories from the rest of the world dragged it back. Yes a reference to 'The Godfather Part III,' the worst of the trilogy, but point taken.
'Just when I thought I was out, they pull me back in.' Now time for a diabetic seizure -- 'The Godfather Part III'
World stories/events took decent early (very early) US futures and trashed them along with Asia and Europe. To wit:
China: The China Securities Regulatory Commission plans a ban on margin financing on over-the-counter trades. BUT it increased the number of stocks available for shorting by 1000. Not bad actions to take for stock markets.
The thought of the government tightening trading, however, spooked investors that China might go too far and cause a Chinese market reversal. Well, it did, at least for a day. Government meddling in markets ALWAYS spooks investors, and when it is China, and when its markets are up massively a la US NASDAQ IN 1999, you can understand the trepidation.
Greece: Amorphous default worries at first, but then the real issue was the news that EU countries are taking steps to 'quarantine' Greece vis-a-vis their countries in order to minimize the impacts of a Greece EU exit. It looks to be a fait accompli that Greece exits though many continue to deny the possibility.
Bloomberg: On top of ALL of that, Bloomberg terminals worldwide went dark. So many brokerages, pension fund managers, etc. rely on those terminals that an outage, particularly on expiration, has a major market impact. Add to that the China and Greece issues and you had a serious market problem.
Stocks sold off into midmorning but then traded laterally in a tight range for two hours, setting up an afternoon rebound attempt. At 1:00ET, however, the DOJ announced it would sue to block the Comcast/Time Warner deal. That sparked another 110 points downside on DJ30 and commensurate declines in the other indices.
Stocks tumbled sharply to new session lows, taking NASDAQ, SP500, SP400 to the 50 day EMA. DJ30 fell through its 50 day.
It took an hour, but stocks rebounded to recover all of the DOJ selloff. They
managed to hold that recovery of the DOJ deal block afternoon selloff, managing a decent bounce the last two hours. Sure it was some short covering by the day traders after a big selloff that saw DJ30 off 356 points before rebounding to a 280 point loss, but as we will discuss, its looks as if there was more to it than just some short covering.
SP500 -23.81, -1.13%
NASDAQ -75.98, -1.52%
DJ30 -278.47, -1.54%
VOLUME: +18% on both NYSE and NASDAQ. Clearly distribution as most of the session was lower. But the indexes held the 50 day MA and TL's and rebounded some. The 50 day MA is a key level and what do we say about high volume tests of that level? They are not necessarily that bad because it shows buyers supporting at that key level. It was expiration, another reason we should not put TOO much into that volume.
A/D: -4:1 NYSE, -3.7:1 NASDAQ. Serious but not extreme such as -8:1 or -10:1.
The losses were significant in size and in volume. Breadth was no after school special softball either. Looks bad, felt bad. But aside from the RUTX giving up its new high, DJ30 losing 356 points on the low and giving up the 2015 gains, some really negative emotions, and a view on the financial stations that the action showed true carnage, it was not all bad. Really, you say? It wasn't good, but there are some very important details to note.
The US stock market was in the process of breaking out, at least RUTX broke out and was trying to lead the others with it.
Then came the gut punch of overseas issues noted above. Are these as deadly to the US stock market as Friday suggested or was it just a confluence of negatives hitting at the right time to trigger a visceral reaction?
Will Greece hurt the US? Not anytime soon. If it links with Russia that could be a pain down the road but Greece will find the Russians no friendlier than the Germans in terms of what Russia will require in order to bailout Greece. Russia with a port on the Mediterranean? Air base? 51% ownership of Greece? Problems, but not near term.
Will China banning margin financing on over-the-counter stocks hurt the US? Will it hurt China? Of course not.
Bloomberg terminal outage? That spooks the market for several reasons. One, was it a system issue or some outside influence (e.g. terrorism)? Market infrastructure issues are ALWAYS a problem for markets. If you cannot access markets that is about as serious as it gets. That was a major factor to the market struggles Friday though the other stories are the kind the market doesn't like and they piled on to the weakness.
None of these events, however, is a real issue for the US economy and US stock market. It is just that China's regulation, Greece's exit prep, Bloomberg's outage, revenues misses in US earnings, and now the heavy hand of government intervention (again) all piled up and piled onto stocks. Add in expiration and it is a 'witches concoction' as the Fed-speak this week said.
Now the TECHNICAL LOOK.
Technically there is something else to note, and we feel it is pretty important.
SP500, DJ30, NASDAQ, RUTX, and SP400 all held trendlines that began either in December 2014 or January this year. NASDAQ hit it and bounced quite nicely. SP500 did a decent job as well.
SP500, NASDAQ and SP400 all hit the 50 day MA (coincident with the trendlines) and held nicely.
RUTX' trendline is well above its 50 day and RUTX held the trendline and bounced.
Carnage? It was not a good day for sure, but bigger picture if you can get past the sackcloth and ashes on the financial stations you can see an important trendline holding. It held today and given all of the external crapola hitting stocks it is worth seeing if it will hold into next week and continue the rebound as the confluence of bad news that hit Friday subsides, recedes, is perhaps, forgotten.
A little bit of history repeating?
When did this technical action occur before? The December/January consolidation that shows the same patterns on SP500, DJ30, NASDAQ, SP400, RUTX. Now that does not guarantee the same result this time, but the trendlines were touched and the indexes bounced from there just as back then.
Of course the trick is if they can continue the recovery next week. Always a rub as nothing is certain in the market.
Recall we said just over a week back as the market was up for a week off the test of the lows in the patterns that SP500, DJ30 and NASDAQ had made another test of the low in the pattern before breaking out and that they could easily do that again. They are doing that right now.
Definitely another technical factor on the session. We play leaders and stocks turning the corner out of long declines that turned into bases that are turning to breaks higher. That is where new market leaders come from, the breeding ground of leaders so to speak. Our positions, the vast majority, all held up just fine in this selling, putting in rather normal tests.
Metals: AKS is in a 2-day 10 day EMA test on lower volume. FCX is barely giving up any ground from its big break higher. SID is in a 2-day test as well, still easily above the 10 day EMA.
Energy: Modest pullbacks as well. SN in a 2-day test, HAL tapping the 10 day EMA. SWN up on the day. SLB up on its earnings. GPOR, XEC ignoring the selling. CVX in a beautiful 10 day EMA test. APC showing a nice doji with tail testing its break through the 200 day MA.
Construction equipment: CAT and TEX making the same tests of metals and energy, i.e. easy 2-day tests of the 10 day EMA, showing doji.
Software: Techs were dinged a bit more but held up. SPLK dropped over 3% on the close but bounced back from a test below the 50 day MA. FEYE was lower but on very low volume, holding over the 50 day EMA. BSFT sold but could not bounce and we closed it. BLKB shows a nice tight doji at the 10 day EMA in a nice easy pullback. RHT was a pain, gapping lower, but it held the 20 day EMA and the gap with a doji.
Tech: DDD showed a very easy pullback. SUNE (chips) tapped the 10 day on the low and rebounded. AAPL faded again to the 50 day MA as it did twice in March.
China: JD a doji test of the 10 day EMA. Ditto NOAH. YNDX was flat on the session, rebounding off the low. VIPS shows a doji at the 20 day EMA. SOHU posts a modest test of its rally. All the issues in China and most of these stocks held well. We did take the rest of QIWI because after hitting the 200 day MA and taking more gain, it fell harder. CMGE was lower but it held the 10 day MA on the low, bounced some.
Internet: Some issues. WWWW broke the 20 day MA and we sold it for a modest gain. Social struggled a bit. TWTR sold but held the 20 day on the close. FB gapped lower to the 50 day EMA. It held and has a potential D point to an ABCD. GOOG still stinks, selling to a lower low on this pullback.
Biotech: CNDO put in a doji test tapping the 10 day EMA. CLDX did sell to the 50 day EMA but puts in a higher low if it holds. CRIS a doji at the 10 day EMA. CELG, of course, gapped lower.
Retail: Same story getting worse. BBY down another 2%. BWLD down 2%. TJX down 1.9%. COST -1.7%. All broke key levels the past week and are in straight selloffs.
MISC: MOBI held up just fine with a doji test of the 10 day MA. MBLY sold modestly, bouncing nicely off the intraday low.
That was a long explanation but it goes hand in hand with the discussion of stock indexes. You can see why the indexes hit the trendlines and held. This is as they did in January.
Stats: -75.98 points (-1.52%) to close at 4931.81
Volume: 1.939B (+18.57%)
Up Volume: 371.99M (-393.57M)
Down Volume: 1.59B (+724.79M)
A/D and Hi/Lo: Decliners led 3.55 to 1
Previous Session: Decliners led 1.11 to 1
New Highs: 46 (-76)
New Lows: 49 (+23)
Stats: -23.81 points (-1.13%) to close at 2081.18
NYSE Volume: 892.9M (+18.22%)
A/D and Hi/Lo: Decliners led 4.03 to 1
Previous Session: Decliners led 1.26 to 1
New Highs: 21 (-40)
New Lows: 15 (+8)
Stats: -279.47 points (-1.54%) to close at 17826.3
VIX: 13.89; +1.29
VXN: 16.03; +1.53
VXO: 14.47; +1.72
Put/Call Ratio (CBOE): 1.12; +0.26. Quick jump back over 1.0.
Bulls and Bears: Bulls tumble, bears still holding fast.
Bulls: 50.5% versus 50.4% versus 54.5% versus 56.6%
Held steady after the fairly sizable move lower the prior week. Decent to see them lower but they are not low.
Bears: 13.9% versus 14.2% versus 14.2% versus
Crazy. Bulls tail off some and bears drop as well. This is the result of the Fed having the market's back for so long. Bears are stagnant, even declining.
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.
50.4% versus 54.5% versus 55.6% versus 52.0% versus 53.6% versus 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.
14.2% versus 14.2% versus 14.1% versus 14.3% versus 14.1% versus 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): 1.86%
1.89% versus 1.88% versus 1.90% versus 1.93% versus 1.95% versus 1.95% versus 1.89% versus 1.89% versus 1.90% versus 1.86% versus 1.91% versus 1.86% versus 1.93% versus 1.96% versus 1.95% versus 2.01% versus 1.92% versus 1.87% versus 1.91% versus 1.927% versus 1.97% versus 1.95% versus 2.06% versus 2.09% versus 2.10% versus 2.12% versus 2.10%
Held the 50 day MA and surged. Has traded in this range for four weeks, holding the move off the early March low. Just not showing that much belief the Fed acts in June.
1.0768% versus 1.0681 versus 1.0655 versus 1.0570 versus 1.0654 versus 1.0782 versus 1.0819 versus 1.0939 versus 1.0950 versus 1.0872 versus 1.0759 versus 1.0752 versus 1.0833 versus 1.0898 versus 1.0890 versus 1.0973 versus 1.0925 versus 1.0946 versus 1.0811 versus 1.0648 versus 1.0874 versus 1.0590 versus 1.0568 versus 1.0494 versus 1.0635 versus 1.0546 versus 1.0700
Dollar down on the session and the week, but a doji at the 50 day MA and looks ready to bounce back up. Think about it. If the Greece issue was so bad would the euro have rallied? Perhaps the smart money views a Greece exit a euro positive.
Oil: 55.71, -1.00. Modest decline, holding the break higher on the week.
Gold: 1203.10, +4.90. Still working laterally in a four week range after rallying off support in March. Very similar to the TLT in the lateral move after the initial rally. Both feed on the same thing so the hesitation to figure out what the Fed will do makes sense.
119.03 versus 119.18 versus 119.39 versus 120.12 versus 120.20 versus 120.64 versus 120.15 versus 120.32 versus 119.48 versus 119.73 versus 119.72 versus 119.94 versus 120.11 versus 119.086 versus 119.167 versus 119.405 versus 119.72 versus 119.705 versus 120.02 versus 120.855 versus 120.04 versus 121.34 versus 121.39 versus 121.43 versus 121.28 versus 121.50 versus 121.80 versus 121.60
Doji at the bottom of the four week range.
Technically the indices are at a point where they held before in the same kind of action they showed before when they did hold. Leadership is testing but is holding as well.
Again, while the indices held where they had to, the action does not guarantee they hold and breakout as they did in January into February. Some damage was done as RUTX coughed up its all-time high, and that is never good action.
Indeed, there are those who say the market suffered 'considerable psychological damage' Friday. Dennis Gartman said so, voicing he is 'disturbed' by the market action Friday. He 'cut back positions considerably', going short on some to get neutral. Now over the past year when DG appears on the financial stations and voices his emotions, this has typically meant the opposite of his feelings occurs next. He appears to trade according to feelings a lot, or at least when he talks about his actions he couches them in terms of his feelings. I dare say that Mr. Gartman's reference to 'psychological damage' applies more to his state of mind than anyone else's. Of course he has made a lot of money doing what he does and we could be way off base. Wouldn't be the first time.
Still, we work by technical action. Our positions are holding their patterns and trends. Those few that didn't or that did not recover on the day, we dumped. There were not many in that group. Sure none of us in the office were cheering the action Friday, but as our alerts showed, we were applying technical parameters to the market action. Again, while we didn't like the severity of the drop, there were reasons for it that all merged at once, and when we applied the technical overlays we saw most positions and leaders hold up quite well.
In any event, the action was emotionally demoralizing, but it was not near the technical issue for the market as it was emotional. Certainly the indexes need to hold these trendlines and 50 day MA, but they again did what they needed to do and now we see if the market can put the Friday worries behind it and have leaders continue the moves they started on the week and HELD through the Friday 'psychological damage.'
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4931.81
5008.57 is the early March 2015 post-bear market high
5042 is the March 2015 post-bear market high
5132.52 is the 3/2000 all-time high
The 50 day EMA at 4904
The March lows at 4843 and 4825
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
The 200 day SMA at 4653
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
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 2081.18
2094 is the December 2014 high, the prior all-time high
2115 is the late March lower high
2119.59 is the all-time high
2144 is the lower trendline from 11/2012
2079 is the intraday all-time high from November
2076 is the all-time high from November
The 50 day EMA at 2078
2062 is the January 2015 lower high
The 200 day SMA at 2020
2011 is the September prior all-time high
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 17,826.83
The 50 day EMA at 17,891
17,923 is the January 2015 lower high
17,991 is the early December interim
18,104 is the December high
18,206 is the late March lower high
18,289 is the all-time high
The March low at 17,620
The 200 day SMA at 17,398
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
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
April 17 - Friday
CPI, March (8:30): 0.2% versus 0.3% expected versus 0.2% prior. -0.1% year/year
Core CPI, March (8:30): 0.2% versus 0.1% expected versus 0.2% prior. +1.8% year/year
Michigan Sentiment, April Preliminary (10:00): 95.9 actual versus 93.0 expected versus 93.0 prior
Leading Indicators, March (10:00): 0.2% actual versus 0.3% expected versus 0.1% prior (from 0.2%).
April 22 - Wednesday
MBA Mortgage Index, 04/18 (7:00): -2.3% prior
FHFA Housing Price I, February (9:00): 0.3% prior
Existing Home Sales, March (10:00): 5.07M expected, 4.88M prior
Crude Inventories, 04/18 (10:30): 1.294M prior
April 23 - Thursday
Initial Claims, 04/18 (8:30): 288K expected, 294K prior
Continuing Claims, 04/11 (8:30): 2380K expected, 2268K prior
New Home Sales, March (10:00): 517K expected, 539K prior
Natural Gas Inventor, 04/18 (10:30): 63 bcf prior
April 24 - Friday
Durable Orders, March (8:30): 0.5% expected, -1.4% prior
Durable Goods -ex tr, March (8:30): 0.5% expected, -0.6% prior (revised from -0.4%)
End part 1 of 3
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