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5/30/2015 Investment House Report
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MARKET ALERTS:
Targets hit: SIMO
Buy alerts: EYES, KE, CLX
Trailing stops: None issued
Stop alerts: None issued
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The REPORTS SCHEDULE is as follows:
Market Summary Video, Plays and Play Videos, and Play Tables with play annotations will issue Monday, Wednesday and the Weekend.
Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play tables.
Access to all current videos will remain assessable each day using the play links in the reports.
If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.
MARKET SUMMARY
- Stocks, sans semiconductors, sag a bit to end the month on a Russell rebalance.
- GDP slips negative as expected, but not as negative as expected.
- Chicago PMI turns to contraction, but Michigan sentiment all smiles again.
- Market continues trending higher but very choppy, very slow, very mistrusted.
- Chips and techs along with drugs/healthcare leading as they should in summer. Will that be enough?
Friday stocks sagged back a bit more from the Wednesday SOX/NASDAQ-led move, leaving SP500, DJ30 and SP400 basically where they were after the Tuesday selling. SOX, NASDAQ, and RUTX on the other hand held up quite well, leaving themselves in position for next week and the start of June. The question, of course, is whether the new month brings new money, and after that is put to work, whether the moves hold and more money follows. It is the true start of summer, and the market will need SOX and NASDAQ to continue to lead as summer is the time for techs.
SP500 -13.40, -0.63%
NASDAQ -27.95, -0.55%
DJ30 -115.44, -0.64%
SP400 -0.63%
RUTX -0.52%
SOX 0.29%
VOLUME: Surged but it was the Russell rebalance. NYSE +74%. NASDAQ +13%.
A/D: NYSE -2.2:1, NASDAQ -1.7:1. Nothing really bad.
Again SOX was the leader even though it was up just two points. The rest of the market was in pretty solid shape, recovering into midday and again coming back in the last hour from some afternoon weakness. Then the Russell rebalance took over and stocks faded while volume exploded.
The result left the NYSE indexes struggling at the early week lows and indeed DJ30 closed at a lower low below the 50 day EMA and SMA. It doesn't look great, and with DJ20 transports breaking lower on the week and closing with a lower low, DJ30 remains on thin ice. SP500 and SP400? Not bad, holding over the 50 day EMA and still looking good enough to put in higher lows and continue the trend higher. That appears to be a hated prospect by most market commentators.
NASDAQ was down but it looks good, holding the 10 day EMA on the close, coming off the January trendline touched on the low. Bumped that higher high, could not hold it, but not giving in, not yet. SOX showed a second doji. After the run off the early May low, the huge surge Wednesday, perhaps this signals SOX is ready to take a rest near term. As chips have driven the market, that takes a major upside force out of play for a bit and that would suggest the market tests.
That remains to be seen. Chips finished the week strong. SWKS, NXPI, AVGO, SIMO, FSL. Others are testing great moves, e.g. AAOI, XLNX. The new month and the last month of Q2 could see new money put to work in these winners and other techs in good position, e.g. software. We would like to use that to take some gain off the table in the chips, then see if they test. As of Friday, however, the moves looked still very strong and we preferred letting them work into early June. After all, we have banked some money on them already so we want to see if they can continue to lead into summer as techs, and chips are tech, are the boys of summer for the market, so to speak.
THE NEWS/ECONOMY
Q1 GDP Revised negative, but only to -0.7% (pre-second seasonal adjusting)
After 2.2% in Q4, negative in Q1 is no way to start a year. But, not to worry because the seasonally adjusted numbers are going to be seasonally readjusted to eliminate the purportedly built in negative bias. We had a saying when I practiced law: good facts, argue the facts. Bad facts, argue the law. Thing is, you could not change the facts. With the federal government, apparently you can.
Real final sales (sales ex-inventories): -1.1%. For comparison, in Q1 2014 final sales fell 1.0%. The decline is the largest since -3.3% in Q1 2009. That does not bode well for 2015: growth is the worst since the 2008 depression started.
Inventories: $95B versus 110.2B initially reported. That means inventories added only 0.33% versus 0.74% as initially reported. This was the largest impact on the revision. Now, without inventories GDP would be -3+%.
Personal Consumption: 1.8% versus 2% expected. In Q1 2014 it was -2.11%. Hey, improvement!
Corporate Profits: -$125.5B versus -$30.4B in Q4 2014.
This is the third large profits crash since the Depression began. Not so bad, right? Here is the issue: this crash is on the heels of a massive crash in Q1 2014. The prior was in 2011. In other words, it looks as if the profits uptrend is starting to falter.
As some put it, this was the worst quarter of economic 'growth' since the depression started.
Under the current Administration, economic growth has averaged 1.8% per quarter. 1.8%!
'1.8 G** D*** Percent is all the GDP growth we got?' -- Bob Uecker as Harry Doyle, the Cleveland Indian's radio announcer in 'Major League' (1989)
Michigan Sentiment falls but beats the first read. At the same time, Chicago PMI turns sharply into contraction.
Michigan Sentiment fell but it rose from the preliminary reading. Still over 90; not huge, not terrible.
Contrast that with the Chicago PMI, sliding into contraction at 46.2 from 52.3 in April.
The Chicago PMI covers the Midwest and the auto making Michigan area. This underscores just how sentiment has virtually zero use in economic review except at major extremes, i.e. in the 40's or 50's when times are bad.
SUMMARY: Now all of this is spun into positives by our leaders. As announced last week, GDP will be re-revised or re-readjusted in order to raise it in Q1. Talked about this earlier: bad facts/bad law.
So how do we know what is really the answer in terms of the economy? Well, the jobs market is HUGE in terms of a tell: One-half of Americans on food stamps, over 100M working aged Americans out of the workforce altogether.
Okay, that helps put it in perspective, but let's look at social issues, those that are a tell in bad times: the crime rate or the murder rate. In bad times tempers are short, people get desperate, very bad emotional decisions are made.
Murders are exploding. NYC just reported a 15% increase in 2015. Houston +60% in 2015. Cities where social strife has occurred such as Baltimore make the NYC and the Houston numbers look tame.
Some will say, 'yes, but these are nowhere near the levels of the 1980's and 1990's.' True, but they are spiking of late when half the US is on Food Stamps and over 100M are not only out of work but out of the workforce altogether. That makes those weekly jobless claims numbers at 40 year lows rather meaningless. You have to have SOMEBODY working; you cannot fire them all.
Of course with initiatives such as the $15/hour minimum wage, there will be more layoffs and also less jobs for the high school and college kids because automation will take over. A story today discussed how several WHITE COLLAR jobs can already be performed by robots. I recall clerking in a law firm many, many years ago and one of the partners telling the fellow who ran the copy rooms that if the huge copiers they had could talk the copy room manager would be out of a job. Harsh, but the ring of truth. That irony of raising wages for jobs that were never intended to be destination 'living wage' jobs only to see that higher wage hasten the elimination of those jobs.
THE MARKET
CHARTS
NASDAQ: It is said summer is the time for techs and over the past three weeks as Memorial Day approached and arrived NASDAQ has performed well, pushing to a new closing high Wednesday. While it faded into Friday, it held the January up trendline and closed the session at the 10 day EMA. Higher low after the Tuesday selling, pushing higher, now a modest test. It is still basically a double top even after this week. That means NASDAQ still has to prove it can rally further. It has the horses to do it with chips, software, healthcare, telecom, but they have to make the move and overcome the lower volume on the highs and he lower MACD.
SOX: Led the market with that Wednesday surge and added modest gains Thursday and Friday. New long-term high with these stocks energized by the AVGO/BRCM deal, but it was more than that. These stocks were up ahead of the Wednesday move and they continued higher through Friday.
SP500: Fell to the 50 day EMA Tuesday, rebounded, then faded Friday back near the 50 day. Not a big week, indeed a down week, but still trending higher up a key support level. Of course it has to prove it can hold it -- again -- but financial stocks continue sporting solid patterns along with drug stocks, and if they continue higher then SP500 can continue higher as well. Another important test, and it has the same issues, e.g. low volume on the new high two weeks back, MACD lagging. Yet it keeps overcoming these obstacles.
RUTX: Not the prettiest pattern and had to fight off a Tuesday break of the 50 day EMA. It did, however, do just that, bouncing Wednesday and then holding the move into the weekend. Yes it sold Friday but it also recovered off the intraday low, showing some tenacity. Higher low and we will see if it can build off of that.
SP400: The midcaps show the same action as SP500, bouncing off the 50 day EMA hit Tuesday then selling back to that level Friday. Not great, but still trending higher and the midcaps are holding where they need to. Kind of the same analysis as the SP500.
DJ30: The one index that did not hold the Tuesday low, cracking through both 50 day MA. Recovered some off the low but you have to note the breach of this support. It did this in early May but recovered. Same heavy look now but it will have to show it can make that move.
LEADERSHIP
Chips, drugs, software, healthcare, financial, telecom
Chips: Again the clear leader and market driver, the semiconductors. While many stocks that rallied on the week faded Friday, many chips continued higher, showing the sector's strength. NXPI added another 1.3%. SWKS added 1.6%. FSL added 1.2%. SIMO added 3.8%. AVGO 4%. QRVO was not up as it continued testing its big two week move. Strong sector.
Software: Some good moves on the week, some status quo. Set up very well, just needs to move. FEYE up nicely on the week though flat Friday. SPLK struggled after earnings but held support and rebounded to cut a good part of the loss and hold its range. VDSI tested the breakout at the 20 day EMA, starting to bounce. VMW tested the 50 day EMA midweek, bouncing. FFIV is still in the test at the 20 day EMA. Good, but they need to move.
Drugs/biotech: TTPH tried to break higher, faded and still in a good test. BCRX in a nice flag after breaking the 200 day SMA upside. AGIO a solid week, testing Friday. REGN testing a good move. HZNP also testing a break higher. CRIS moving well again. CLVS holding its pullback. Very up and down in biotech with drugs a better looking group.
Financial: GS testing the 10 day EMA as it holds a strong trend higher. MA holding the 20 day EMA on a test of its April to May move. BAC testing the 200 day SMA it broke through. NOAH still a nice 50 day EMA test.
Internet: GIMO testing a great move. LLNW a strong week. VIPS is getting interesting with a double bottom.
Big Names: EBAY breaking to a higher high on volume. AAPL testing the 10 day EMA after a decent two week advance. AMZN still working laterally along the 20 day EMA in its pattern. MSFT still working on a 5 week pennant, setting up nicely.
MARKET STATISTICS
NASDAQ
Stats: -27.95 points (-0.55%) to close at 5070.03
Volume: 1.893B (+13.06%)
Up Volume: 771.97M (-34.97M)
Down Volume: 1.24B (+336.15M)
A/D and Hi/Lo: Decliners led 1.65 to 1
Previous Session: Decliners led 1.14 to 1
New Highs: 85 (-6)
New Lows: 41 (-9)
S&P
Stats: -13.4 points (-0.63%) to close at 2107.39
NYSE Volume: 1.2B (+73.84%)
A/D and Hi/Lo: Decliners led 2.16 to 1
Previous Session: Decliners led 1.4 to 1
New Highs: 49 (-12)
New Lows: 59 (+2)
DJ30
Stats: -115.44 points (-0.64%) to close at 18010.68
SENTIMENT INDICATORS
VIX: 13.84; +0.53
VXN: 14.75; +0.53
VXO: 14.46; +0.86
Put/Call Ratio (CBOE): 1.16; +0.08. Now four sessions straight of 1.0+ closes. Getting a good string of negative sentiment that can help foster a new upside move.
Bulls and Bears: Bulls surge, bears fall right back down.
Bulls: 48.5% versus 50.6% versus 47.5% versus 52.5%
Bouncing up and down each week, the kind of volatility that shows indecision and that is not bad. The bulls are not so cock-sure of themselves anymore.
Bears: 14.9% versus 15.8% versus 15.8% versus 13.9%
Okay, the bears decline as the bulls decline. Bulls less bullish, bears less bearish. Still feeling the Fed is there with the Fed put? Whatever the reason, bears are still too low.
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: 40.5%
50.6% versus 47.5% versus 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.
Bears: 14.9%
15.8% versus 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%
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): 2.10% versus 2.137% versus 2.133%. Gapped upside on the weaker GDP and Chicago PMI data. Faded the move but holding the 1.5 week rebound off the mid-May low.
Historical: 2.137% versus 2.133% versus 2.13% versus 2.21% versus 2.19% versus 2.25% versus 2.294% versus 2.22% versus 2.15% versus 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%
Euro/$: 1.0985 versus 1.0945. Tight doji at the 50 day SMA, testing after breaking over that level Tuesday. That capped that part of the recovery and this looks very much like a 1-2-3 test of that move, setting up a run at the March/April highs.
Historical: 1.0945 versus 1.0904 versus 1.0878 versus 1.1012 versus 1.1111 versus 1.1093 versus 1.1149 versus 1.1314 versus 1.1449 versus 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
Oil: 60.26, +2.57. After a week testing down to the 50 day EMA on the Thursday intraday low (and showing a nice doji with tail), oil surged back upside to the top portion of the May range. Strong rebound as the rig count resumed its decline.
Gold: 1190.10, +1.90. After the Tuesday crash through the 50 day MA, a modest 1-2-3 bounce to test that move, tapping at the 50 day SMA on the Friday high, fading to a doji. Gold rallied but failed.
$/JPY: 124.10 versus 123.85 versus 124.12. After the Thursday stall, bounced back upside Friday, but the dollar looks a bit winded near term after its big breakout and run the past two weeks. A pause would be normal, but after any test it is still in a good trend higher.
Historical: 123.85 versus 124.12 versus 124.15 versus 123.11 versus 121.53 versus 121.09 versus 121.35 versus 120.71 versus 119.99 versus 119.33 versus 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
NEXT WEEK
Friday we picked up some EYES highlighted in the Thursday report along with KE and some CLX puts. That is the summer bifurcation: medical and techs move higher, consumer moves lower. Banked some gain on SIMO as it continued higher above our initial target; maybe should have waited, but we wanted to bank part of the gain on a strong 16+% move on the week.
Again, we now see what the new month, the last of the quarter and the start of summer, brings to the move. Ever since the rally off the October Ebola low stocks have moved higher, but slowly, slowly, unable to hold moves to higher highs, but also not giving up the moves. Threatened to, but found leadership, the last move from midcaps then chips and techs.
Now the next test. Overall the action seems heavy, unable to hold higher highs. Perhaps the market is eroding its support with the slow, somewhat volatile climb. That is what experience says, and thus we will look at taking some more gain off the table as new money is put to work for June. After that, we see how the market holds, and most importantly, how the current leaders hold their patterns and whether new leaders can enter. They set up to do so but then got some cold feet. Some great setups, but they are, as we know, just pretty pictures until they make their moves.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5070.03
Resistance:
5120 is the April 2015 post-bear market high
5132.52 is the 3/2000 all-time high
Support:
5044 is the January to April pattern trendline
5042 is the March 2015 high
5008.57 is the early March 2015 post-bear market high
The 50 day EMA at 4996
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 4743
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 2107.39
Resistance:
2115 is the late March lower high
2119.59 is the February intraday prior all-time high
2126 was the April prior all-time high
2135 is the May 2015 all-time high
Support:
The 50 day EMA at 2101
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
2062 is the January 2015 lower high
The 200 day SMA at 2042
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 18,010.68
Resistance:
The 50 day EMA at 18,044
18,104 is the December high
18,206 is the late March lower high
18,289 is the March 2015 high, the prior all-time high
18,351 is the May 2015 all-time high
Support:
17,991 is the early December interim
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 17,578
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
ECONOMIC CALENDAR
May 29 - Friday
GDP - Second Estimate, Q1 (8:30): -0.7% actual versus -0.7% expected, 0.2% prior
GDP Deflator - Second, Q1 (8:30): -0.1% actual versus -0.1% expected, -0.1% prior
Chicago PMI, May (9:45): 46.2 actual versus 53.0 expected, 52.3 prior
Michigan Sentiment - Final, May (10:00): 90.7 actual versus 89.0 expected, 88.6 preliminary
June 1 - Monday
Personal Income, April (8:30): 0.3% expected, 0.0% prior
Personal Spending, April (8:30): 0.2% expected, 0.4% prior
PCE Prices - Core, April (8:30): 0.2% expected, 0.1% prior
ISM Index, May (10:00): 51.9 expected, 51.5 prior
Construction Spendin, April (10:00): 0.8% expected, -0.6% prior
June 2 - Tuesday
Factory Orders, April (10:00): 0.0% expected, 2.1% prior
Auto Sales, May (17:00): 5.3M prior
Truck Sales, May (17:00): 7.9M prior
June 3 - Wednesday
MBA Mortgage Index, 05/30 (7:00): -1.6% prior
ADP Employment Chang, May (8:15): 200K expected, 169K prior
Trade Balance, April (8:30): -$44.0B expected, -$51.4B prior
ISM Services, May (10:00): 57.1 expected, 57.8 prior
Crude Inventories, 05/30 (10:30): -2.802M prior
June 4 - Thursday
Challenger Job Cuts, May (7:30): 52.8% prior
Initial Claims, 05/30 (8:30): 280K expected, 282K prior
Continuing Claims, 05/23 (8:30): 2215K expected, 2222K prior
Productivity-Rev., Q1 (8:30): -2.9% expected, -1.9% prior
Unit Labor Costs - R, Q1 (8:30): 5.9% expected, 5.0% prior
Natural Gas Inventor, 05/30 (10:30): 112 bcf prior
June 5 - Friday
Nonfarm Payrolls, May (8:30): 225K expected, 223K prior
Nonfarm Private Payr, May (8:30): 225K expected, 213K prior
Unemployment Rate, May (8:30): 5.4% expected, 5.4% prior
Hourly Earnings, May (8:30): 0.2% expected, 0.1% prior
Average Workweek, May (8:30): 34.5 expected, 34.5 prior
Consumer Credit, April (14:00): $17.0B expected, $20.5B prior
End part 1 of 3
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