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5/16/2015 Investment House Report
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Targets hit: None issued
Buy alerts: None issued
Trailing stops: DGLY; MA
Stop alerts: None issued
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- A tame expiration Friday, but the indices again hold a solid upside surge.
- Economic data remains weak overall yet market tries to rally.
- Leadership is still there, still in good patterns, but still needing to really step up the effort.
- Bearish sentiment takes a more significant step higher.
- Many experts are worried about the market's future and economic future. Is this enough of a wall of worry?
Most of last week was spent watching to see if stocks could manage to hold the Friday upside surge. It wasn't pretty but they managed to hold enough so when the indexes surged on Thursday for no real reason the question then became can they hold the Thursday gain without immediately giving it back.
Friday wasn't pretty either, but the indexes did hold the move. Futures were higher early but steadily eroded toward the open. As trade began stocks immediately sold negative and held it into mid-afternoon. A bounce began with two hours left, however, and stocks dutifully recovered to the close and a mixed showing, though very much flat line, very much holding the Thursday move. Again, not pretty, but utilitarian.
SP500 1.63, 0.08%
NASDAQ -2.51, -0.05%
DJ30 20.32, 0.11%
VOLUME: Pretty paltry for an expiration Friday. NYSE +16%, moving barely above average, NASDAQ -4%, still well below average. Wow, when expiration cannot get anyone excited you know you have low volume.
A/D: NYSE 1.4:1, NASDAQ decliners slightly led.
The internals were less than impressive, but they matched the action. Volume was up on NYSE, moving above average for the first time in over a week as SP500 showed a tight doji. You could call that churn, but it was expiration and that did push up volume. Basically you would say the action was a pause ahead of the weekend, after a strong upside surge, at least in terms of price.
Of course, the afterhours financial shows were all asking the same question: can the market hold this move given all the problems confronting it: Fed rate hikes, weakening economic data, articles suggesting the 'smart money' is buying protection now. News flash, those holding massively large positions in many stocks ALWAYS buy protection at new highs. Why? Because it is cheaper to do so.
Another news flash: it appears stock investors are not as concerned as bond investors about rate hikes. Bonds sold the past month, sold rather aggressively. They posted a bit of a bounce on Friday thanks to more atrocious economic data in terms of the Michigan Sentiment and misses form the New York PMI, Industrial Production, and Capacity Utilization, but they are pricing in higher rates.
It would appear investors, however, either don't think the Fed is all that serious or just don't care about one rate hike. After the litany of weaker economic reports last week (outside the so-called 'good' jobless claims report), the debate shifted from a June hike to a September or December hike. More than that, a lot of stock investors believe that even if the Fed does hike it will be more of a 'one and done' kind of move that is more for show than substance.
If that is your view, you won't give much concern to promises of a rate hike in the second half of the year that may very well just be a one hike and done scenario.
That mindset will have the opportunity to prove itself. Again. SP500 was a snake pit in late April and early May as day to day and intraday volatility spiked as the index surged back and forth. Just when it looked as if the uptrend was done when it crashed lower the first Tuesday and Wednesday of May, it surged upside that Friday. That move was tested, then Thursday it broke to a new closing high.
Despite the negatives, it broke to a higher high. It somewhat proved up that Friday recovery surge with yet another surge. Yet there are still many who do not believe the move. I cannot say I fully view it as a confirmation of the a new leg upside, but you know what I say about my feelings: they are nothing more than feelings as far as the stock market is concerned. The moves are what tells the story.
Thursday saw a resumption of the upside with a solid price break pushing SP500 to a new closing high. DJ30 continued its superior pattern though it is still seeking that next new high. Friday it was another day to see if stocks could hold a gain. They did. Now the next big test is next week. Two good upside moves out of some pretty ugly volatility, not great volume, but some solid moves and leadership moving pretty well. Pretty well; the setups are better than the moves right now.
DJ30: Some pretty decent volume, but it was expiration so doesn't really count. What does count is DJ30 continues its solid upside pattern, still looking for a new all-time high, but just 16 points off it. No issues with this pattern of course, though the Dow leading, or at least sporting the best pattern, is not that inspiring for massive market upside. It's the Dow for goodness sake.
Now the DJ20 transports are not breaking to higher highs, and you are likely hearing from commentators about the DJ20 not confirming the Dow's move. For one, there is nothing to confirm yet because the DJ30 is not at a new high. Hopefully soon, but not yet. More importantly, DJ20 transports are prepped for a bounce off of a very important support level that has worked as the bottom of a trading range spanning back to late 2014.
SP500: Volume was up as SP500 traded modestly higher, showing a doji. That suggests some churn, but it was expiration and volume was up just modestly. Basically a day off after breaking to a new high. That works for now.
NASDAQ: Gapped upside Friday then closed flat on the day. Held the Thursday break over the mid-March high, the last resistance before the April all-time closing high. Got some help from AAPL finally, and there are many software and chip stocks in position to move higher.
SOX: A decent week, gapping through the 50 day SMA Thursday, clearing the upper trendline in its three month downward wedge/channel. A good start, there are chips in position to move.
SP400: Nice break higher Thursday, paused Friday. Cleared the February peak with the Thursday move. It is now in the middle 7 week lateral consolidation. That might not be great, but it is a vast improvement over SP400's position just two weeks back.
RUTX: Better off but still a lot of work as it is below the 50 day MA though just above the February high. Still in the teeth of resistance, still weak, but at least it is following the other indices though not making any great upside strides.
Software: Some good moves on the week though a breather Friday. SPLK surged Wednesday and added Friday, making a higher rally high. FFIV put in a higher rally high on the week. VDSI started its breakout move. RHT is breaking out of its trading range. VMW was down on the week but has a great setup to move higher.
Semiconductors: Not great moves on the week but as with software, they are set to move. NXPI gave up the prior week's gain but has a solid pattern. QRVO broke higher off its test Thursday. BRCM rallied well. SWKS broke higher but gave it back Friday. AVGO excited the sector for a few minutes Thursday when it said it was looking for an acquisition, but that had a short half-life. Set up, and looking for something good from this group to help the market continue its upside break.
Biotechs: Still a very mixed group. AGIO moved up nicely on the week. CLVS exploded higher Thursday, gave some back Friday. AMGN had a good week though it gave up a pretty decent Friday upside gap.
Energy: Another very mixed group. ESV sold hard Thursday, checked up at the 50 day EMA Friday with a doji. CVX is holding the 50 day MA. RIG enjoyed a strong week. APC sold hard but trying to set up a bounce.
Metals: Another good week. AKS rallied again though gave some back to end the week. FCX put in another week of testing but looks good. SCHN is doing the same. As with other groups, set up to move, just waiting for the move.
Big Names: Thursday AAPL shook off some of its sleep though Friday it was flattish. GOOG was up some but finished the week weaker. AMZN is testing but it is struggling more to hang onto the 10 day EMA. SBUX enjoyed a much better week.
Stats: -2.5 points (-0.05%) to close at 5048.29
Volume: 1.628B (-3.81%)
Up Volume: 881.51M (-308.49M)
Down Volume: 706.94M (+177.64M)
A/D and Hi/Lo: Decliners led 1 to 1
Previous Session: Advancers led 2.2 to 1
New Highs: 116 (+3)
New Lows: 35 (+2)
Stats: +1.63 points (+0.08%) to close at 2122.73
NYSE Volume: 828.9M (+16.16%)
A/D and Hi/Lo: Advancers led 1.36 to 1
Previous Session: Advancers led 3.1 to 1
New Highs: 87 (-8)
New Lows: 13 (-11)
Stats: +191.75 points (+1.06%) to close at 18252.24
VIX: 12.38; -0.36
VXN: 13.89; -0.42
VXO: 12.86; -0.37
Put/Call Ratio (CBOE): 0.83; +0.04
Bulls and Bears: Bulls surge, bears fall right back down.
Bulls: 47.5% versus 52.5% versus 57.4%
This backs up the commentary about the worry in the market, and reflects the late April, early March volatility.
Bears: 15.8% versus 13.9% versus 13.9% versus 15.2%
This is the highest bears reading since October 2014. Finally some significant movement in bears as the notion of a Fed always at the market's back fades. This is a good part of that 'wall of worry' discussed in the report conclusion.
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.
52.5% versus 57.4% versus 52.5% versus 50.5% versus 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% versus53.4% versus 56.5%
Background: Last undercut 35%, the threshold for bullishness, in early June 2012.
13.9% versus 13.9% versus 15.2% versus 13.9% versus 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): 2.15% versus 2.23%. A bit of a snapback rally after three weeks of hammering.
2.23% versus 2.28% versus 2.26% versus 2.283% versus 2.14% versus 2.18% versus 2.23% versus 2.17% versus 2.15% versus 2.11% versus 2.04% versus 2.05% versus 1.99% versus 1.92% versus 1.92% versus 1.94% versus 1.98% versus 1.91% versus 1.86% versus 1.86% versus 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%
Euro/$: 1.1449 versus 1.1408. A down week as the dollar bounced to the 10 day EMA Monday, then fell the rest of the week. A downtrend that finds resistance at the 10 day is a strong downtrend.
1.1408 versus 1.1311 versus 1.1207 versus 1.1152 versus 1.1207 versus 1.1266 versus 1.1349 versus 1.1189 versus 1.1147 versus 1.1215 versus 1.1220 versus 1.119 versus 1.0982 versus 1.0885 versus 1.0862 versus 1.0824 versus 1.0722 versus 1.0733 versus 1.0738 versus 1.0801 versus 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
Oil: 59.69, -0.19. Bounced off the 10 day EMA early week, then faded to Friday, but showing a nice doji with tail at the 10 day EMA. In position to rebound and continue the break upside.
Gold: 1225.30, +0.10. Took a breather, holding the Wednesday to Thursday surge out of the range and through the 200 day SMA. Seems gold thinks the Fed won't raise rates either.
$/JPY: 119.33 versus 119.18
119.18 versus 119.11 versus 119.93 versus 120.13 versus 119.75 versus 119.75 versus 119.43 versus 119.85 versus 120.12 versus 120.16 versus 119.41 versus 119.02 versus 118.45 versus 119.10 versus 118.91 versus 119.53 versus 119.90 versus 119.66 versus 119.26 versus 119.12 versus 119.03 versus 119.18 versus 119.39 versus 120.12 versus 120.20 versus 120.64 versus 120.15 versus 120.32 versus
Similar to the start of last week, this week finds the stocks indices sitting on a solid late week upside move, looking to again hold the move and more than that, build upon it. The market rallied, paused three days, and then rallied again. A second Friday rally would have been nice, but now we have to wait to this week to see again if stocks can build upon the two upside moves.
It is the nature of the current market that each upside rally, now with two of them building higher to new highs, is met with skepticism. GS is telling clients to sell in May and go away for a year. One economist voiced a concern many have, that is the financial crisis was not cured, just the ultimate effects delayed and that the real problems are coming home at some point. In short, there are a lot of fears as to what may be over the course of the year.
We have our doubts as well. The series of data this year suggest recession. When you get the sequence of declining data over several months that the economy is showing, recession comes to mind. Ever since October and QE's end the market has struggled. Now that does not necessarily mean it is economic; QE didn't fix the economy, just inflated asset prices in an effort to float the economy over the rocks until time healed all economic wounds as it typically does in our economy.
But this is not the typical, historic US economy. We have allowed it to be changed into a European like economy in terms of growth due to massive, massive amounts of new regulations that have impacted most severely the one area that always makes us the best: the small entrepreneur coming up with the new and better ideas that lead to new growth companies and the next wave of new and better jobs.
The CFR, Code of Federal Regulations, has grown to over 175,000 pages. These are the regulations the administrators write pursuant to the purposefully vague and general laws Congress drafts and passes, often without reading. Then the regulators make 'reasonable and just,' or 'generally fair and equitable' as the Supreme Court has allowed in its opinions. What is worse, if you break these rules, the agencies that wrote them act as your court with their 'administrative courts' that act without constitutional bounds. Oh you can get to the actual courts eventual, but you have to 'exhaust your avenues of recourse' through the administrative courts first and then you MAY get a hearing in front of the constitutional courts. Of course as most find out or know, your ability to fight the issue, and that means your money, is often EXHAUSTED long before you get to that point.
Thus if someone in some one of the thousands of government agencies decides they don't like you or your business, they can work the system to drive you out of business before you can really get started. And it doesn't even have to be that specific or that nefarious intent. The massive number of regulations starve small businesses of funding as the result of their incredibly complex and unforeseen results (Dodd-Frank, Sarbanes-Oxley), or prevent them from obtaining the licensing they are required to have in order to give someone something as simple as a haircut or a shave (but you cannot give them both unless you have a barber's license and a hair cutting license). I know, some are going to day but you need to ensure that a hair cutter is good or that their shop is sanitary. Well, if they are NOT good no one will go there. You may get a bad haircut or get nicked with a razor, but it won't be a life altering event. And if sanitation is the worry, there are inspectors that can look at that; having a license to shave someone's face does not automatically guarantee that person is a hygiene freak.
Okay, that is a long way from where this started, but it gives the background for what I have been saying a long time: the economy is not the same economy it was in terms of its ability to create new and better jobs and thus increase our standard of living. Quite the opposite as we saw in the April jobs report where the net of all jobs created were part-time jobs as 200+K of full-time jobs were lost while 466K part-time jobs were created. That has the ripple effect of lower wages, lower disposable income, etc.
And of course the solution offered by our leaders, increasing the minimum wage, ultimately only hastens the demise of even those jobs where that wage is hiked: companies will in the near term cut jobs, try to survive with fewer workers, and either limp along or fold. Or, as will be the case for McDonalds and other large service companies, they will end up going fully automated and eliminated virtually all part-time jobs in exchange for a full-time systems operator and a few to keep the place clean. Hey, that solves a lot of your affordable care act issues as well, i.e. 50 employee cutoff level, etc.
So, yes, there may be a recession coming or actually already started. That is what has many worried about the stock market's future, near term and through the rest of they year.
Thus that makes each break upside somewhat suspect. Everyone wonders if this will be the one the sellers attack. They have been on the hunt since October; the market is much choppier with two big consolidation periods and the February rally sandwiched in between. The market is trying to launch another February-like run with the recent action, overcoming that severe late April volatility. Many indexes hit new highs recently but could not make the move stick. To their credit they are trying again, perhaps doing what they often do when worry is high, i.e. climbing that wall of worry.
As we have noted the past couple of weeks, there are stocks moving higher (e.g. metals) and stocks that are trending higher and setting up nicely to make better moves (software, semiconductors), and some old groups coming back around again (biotech). It will be up to those in position to make the next moves to go ahead and make them if the market is going to defy the May jinx and put on another February-like move.
Thus again everyone is watching how the market reacts to a sharp move upside. That the market generated another upside break similar to the previous Friday, without giving that Friday move back, would appear to answer that worry. Perhaps that it did not is a good thing, the old wall of worry issue, as noted above. While we don't love the economic situation and don't love all of the violent volatility in late April and early May, the market is finding buyers to break it higher. That still doesn't mean the deal is done, but it does fly in the face of the worries recently voiced by many. Of course, as I also say, it is all just a pretty picture until it makes the moves.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5048.29
5120 is the April 2015 post-bear market high
5132.52 is the 3/2000 all-time high
5042 is the March 2015 high
5008.57 is the early March 2015 post-bear market high
5006 is the January to April pattern trendline
The 50 day EMA at 4959
4912 the mid-April China dip
The March lows at 4843 and 4825
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 4710
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
S&P 500: Closed at 2122.73
2126 is the April new all-time high
2119.59 is the February intraday prior all-time high
2115 is the late March lower high
2094 is the December 2014 high, the prior all-time high
The 50 day EMA at 2093
2079 is the intraday all-time high from November
2076 is the all-time high from November
2062 is the January 2015 lower high
The 200 day SMA at 2033
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 18,272.56
18,289 is the all-time high
18,206 is the late March lower high
18,104 is the December high
17,991 is the early December interim
The 50 day EMA at 17,983
The January trendline at 17,979
17,923 is the January 2015 lower high
17,748 is the mid-April China margin selloff
The March low at 17,620
The 200 day SMA at 17,502
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
May 15- Friday
Empire Manufacturing, May (8:30): 3.1 actual versus 4.5 expected, -1.2 prior
Industrial Productio, April (9:15): -0.3% actual versus 0.1% expected, -0.3% prior (revised from -0.6%)
Capacity Utilization, April (9:15): 78.2% actual versus 78.4% expected, 78.6% prior (revised from 78.4%)
Mich Sentiment, May (10:00): 88.6 actual versus 96.0 expected, 95.9 prior
Net Long-Term TIC Fl, March (16:00): $17.6B actual versus $20.9B prior (revised from $9.8B)
May 18 - Monday
NAHB Housing Market , May (10:00): 57 expected, 56 prior
May 19 - Tuesday
Housing Starts, April (8:30): 1019K expected, 926K prior
Building Permits, April (8:30): 1065K expected, 1039K prior
May 20 - Wednesday
MBA Mortgage Index, 05/16 (7:00): -3.5% prior
Crude Inventories, 05/16 (10:30): -2.191M prior
FOMC Minutes, 4/29 (14:00)
May 21 - Thursday
Initial Claims, 05/16 (8:30): 270K expected, 264K prior
Continuing Claims, 05/09 (8:30): 2250K expected, 2229K prior
Existing Home Sales, April (10:00): 5.24M expected, 5.19M prior
Philadelphia Fed, May (10:00): 8.0 expected, 7.5 prior
Leading Indicators, April (10:00): 0.3% expected, 0.2% prior
Natural Gas Inventor, 05/16 (10:30): 111 bcf prior
May 22 - Friday
CPI, April (8:30): 0.1% expected, 0.2% prior
Core CPI, April (8:30): 0.2% expected, 0.2% prior
End part 1 of 3
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