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6/27/2015 Investment House Report
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Targets hit: None issued
Buy alerts: BRLI
Trailing stops: FEYE; SIMO; VDSI
Stop alerts: DANG; FEYE; FSL; MOBI; QRVO; VMW. Closed those not holding support.
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- SOX breaks, chips fail in leadership, RUTX and NASDAQ try to hold the line.
- China down hard again, Greece still no deal, Fed still on the horizon.
- What a week with the Court: all laws and contracts are now ambiguous
- Sharp selloffs have led to buying. Okay, then let's see what chips and software do this week.
- Biotechs, internet, consumer discretionary stepping in to fill the leadership roles.
It was a big week in many ways though not many of them market related, at least until Friday. More Greece (or less if you are talking a done deal), Chinese stock markets start feeling the result of excess, the Fed starting to talk number of rate hikes, at least for 2015.
It was also Supreme Court week, and some rulings had immediate impact on stocks. The following is a discussion of the Court's ACA holding. It is not meant to be political, but is my legal interpretation of what the ruling accomplishes beyond the ACA. I use the ACA as an example only to illustrate my larger point. Please do not take this as a political statement; you know how I feel already about any government move into traditionally private areas; that is no secret. So, please take this as it is meant, as an analysis of what the ruling means beyond the ACA itself. If you want to skip this and miss the best analysis of this case out there (laughing with you), skip on down to the market coverage.
To hear this on video:
The ACA ruling came down, and while it had an immediate impact on healthcare stocks as they shot higher, obviously anticipating the Court would rule as per the plain meaning of the words of the statute (but it did not), the bigger implications are to come. We will continue to fund/subsidize health insurance so some people can have insurance while others who were covered no longer do, and suffer or benefit (depending upon your point of view) from what will ultimately be government run healthcare (remember, the ACA was labeled just a 'stepping stone').
Moreover, the Court overturned centuries of contract and legislative law by ruling that four words with obviously clear meaning ('established by the state') was ambiguous, thus allowing it to pontificate as to what Congress' meaning was and reflect upon the circumstances at the time of passage. Realize that neither side argued the language was ambiguous. The Court made this issue up on its own. Now instead of courts applying a strict and logical rule that a contract's or law's clear words were meant to say what they say, any court on any contract or law can rule clear language ambiguous and look at whatever 'evidence' it wants (called parole evidence) to decide what it thinks was meant. In so doing, Justice Roberts opined that Congress' intent was to improve the health insurance market, not destroy it, and given his earlier ruling (that unprecedentedly allows the government to tax a person just for being in the US and thus upheld the personal mandate) that let the ACA stand and create a large infrastructure around it, to overturn it now would 'destroy' the market. So, he ruled the law had to stand.
Think about this. The Court now considers itself to be the law or contract drafter. Regardless of what the parties agreed to or thought they agreed to, the Court can take the words and render what IT believes the law or contract should have said. Maybe the court just wants to cut down on the number of contract lawyers and just have trial lawyers: doesn't matter what you put in a contract, it is all subject to litigation now regardless of what the contract or law says. That is one way to cut down on the number of lawyers.
It makes you wonder just what the ruling would have been if this court regarding the state mandate had come first, before the infrastructure was built up around the ACA. His opinion implies he would have then gone by the ordinary meaning of the words that he admitted in his opinion 'appeared clear on their face.' My word, does Constitutionality now hinge upon timing? Is an unconstitutional law suddenly constitutional after a certain period of time and reliance on it? Is promissory estoppel now a constitutional law precept?
In any event, now any court that desires can cite this case as a reason to not honor the clear words of a contract, putting a trial court judge or appellate court judge in the position of determining what he or she thinks the parties should have contracted for versus what they actually agreed to. That god-like position is not what was intended for our judicial system and makes it extremely subject to political influence, EXACTLY what our 3-branch, separate powers government was supposed to avoid.
Alas that experiment has failed as the Congress has allowed the usurpation of its role as lawmaker to the executive and the courts. Congress was clear in what it wrote; the Court decided it was not clear and applied the ruling that the executive wanted. The clear majority of the US did not want the law at the time and still does not want this law today, but that does not matter in the current system. The clear example: there was clear evidence that the country did not want the law upheld when the Massachusetts senate seat was filled by the election of a person clearly against the bill whose vote would have blocked its passage, but the bill was rushed through before he could be sworn into office. And thus prevent his vote. That evidence was discounted by the Court, but it is clear evidence of what the citizens wanted their Congress to do. This god-like subjectivity in ruling, putting the court in the game as a player and not a constitutionality umpire, is what our system was supposed to avoid.
The ramifications of this ruling will go well, well beyond the ramifications of allowing the ACA to stand, a law of dubious result. Even today people believe that they have healthcare because they have health insurance. They do so until they go to the doctor and realize they have a $4,000 deductible they have no way of affording. Having insurance does not equal having access to healthcare. What is now occurring is that people choose, just as they did before the ACA and their insurance, not to go to the doctor, or they go to the emergency room as they had before they had insurance under the ACA. That of course drives down costs because people are not going to the doctor to get treated, but EVEN SO, costs are moving higher, not lower, as the ACA was supposed to accomplish.
On to the Market! (bet you are glad about that)
Friday market leadership flip-flopped with the recent laggard indexes (SP500, DJ30) leading, while the recent leading indexes (RUTX, NASDAQ) lagged. The flip, however, was not nearly as violent as the flop. SOX was hammered almost 2.5% lower after MU's woefully weak, pathetically paltry earnings. NASDAQ was dragged 0.62% lower as chips, software, and biotechs, basically the recent leaders (though under pressure) cracked.
SP500 -0.82, -0.04%
NASDAQ -31.68, -0.62%
DJ30 56.32, 0.31%
VOLUME: NYSE +145%, NASDAQ +75%. Russell indexes rebalanced and that led to an explosion of volume. So, never mind when it comes to volume.
A/D: NYSE -1.3:1, NASDAQ -1.4:1. Interestingly light downside breadth indicating that the selling was very narrow but focused on the recent leaders.
On the positive side, RUTX held its 20 day EMA and NASDAQ reached toward its 50 day EMA and rebounded, closing near the middle of its range. And NASDAQ was one of the downside whipping boys on the session. Not a good session of course, but not a complete collapse. Again, it was the recent leaders taking the beating, and that is not good news for the market unless others step up to take their place.
SOX was the real laggard and it gapped through the 50 day MA as well as the lower channel line. There is a range of support form that channel line to a lower channel line formed off the February and March lows; SOX tapped at that on the low. Thus not a great session but SOX is still in the realm of the uptrend though weakened.
SP500, DJ30, SP400 all looked good in comparison, but before we assign leadership status to them, their charts just are not that solid. Trading ranges for the most part, but at least they are holding the ranges.
So, a wild close to a rather wild weak in many ways. Greece bailout turmoil, China stock market turmoil (Shanghai down 7.4% Friday after -3.5% Thursday), Supreme Court decisions, and FOMC rate hike realities soaking in here in the US.
Volatile news and the market showed its vulnerability by reacting in a volatile manner. Whenever the market is in a strong rally mode, it doesn't care what the news is. When some uncertainty sets in, it starts second guessing, starts reading headlines, and volatility moves in. That describes the past week, but it also was a week where the indexes, despite the volatility, held up. Well, almost; there is SOX.
RUTX: Sold yes, but after tapping at the 20 day EMA on the low, the small caps rebounded to hold near the 10 day EMA. That puts RUTX in the middle of its uptrend channel spanning back to December 2014. Though lower Wednesday to Friday, RUTX is holding the breakout over the April prior all-time high. In short, quite good action as RUTX tests its break to a new high, very much an ordinary test. The question is, can the small caps lead the rest of the market back to the upside after this past week? The large caps have to at least follow along.
SOX: While RUTX held the line, SOX was at the other extreme, unable to hold key levels. Gapped through the 50 day MA and the lower channel line, closing at a lower channel line where it found support in February and again in late March. Not saying that SOX will find support here and bounce, but you watch these levels to see how it reacts. A bounce there has some credence given the prior holds. Chips are weakened and this Friday action certainly was not a good indication.
NASDAQ: Third downside session, undercutting the 10 and 20 day EMA. Tapped toward the 50 day EMA on the low and recovered some lost ground. Decent action, of course not great. NASDAQ broke to a higher high just over a week back, continued into Tuesday, and is now testing. It gave up the new high, but is still working in its uptrend channel from March more or less as it has done all along. May want to test a bit lower to the 50 day EMA as that would not be abnormal.
SP500: Doji just below the 50 day EMA as SP500 faded from the recovery bounce from the prior week into Tuesday. Not great action as no new high, not different action as it is still working in its 4 month, slightly ascending trading range.
SP400: The midcaps hit a higher high Tuesday then in a former RUTX move, immediately gave it back. Still they were up Friday, holding the 50 day MA and leaving themselves in good position to rebound from a higher low.
Summary: Basically the stock indexes are as they were to start the week. DJ30 hanging on, but broke into the bottom half of its 4 month range. SP500 trying to hold in its range near the 50 day MA. NASDAQ, RUTX, SP400 in position to hold and rebound once more, moving in actually pretty bullish patterns. The change is in SOX. It was not that strong coming into the week, up but needing to show more. It could not, and indeed broke sharply lower. One growth index, and an important one, breaking down. Still plenty of strength in the other three growth indexes, but if they start to falter, the market rally is in trouble, once again just after hitting new highs.
The week saw the start of a possible shift in some leadership groups, and Friday saw that shift go full throttle. Chips and software started to break sharply lower, making us wish we had closed more positions such as we did on FFIV and others prior to Friday. Those are key leaders, and while biotechs held up reasonably well and will likely give us some plays this week, the loss of those two groups is a blow and the market has to find other groups, groups that can actually move well, to step up. I suppose you can play the homebuilders, but the possibility of a $2 move in PHM doesn't gin up all that much excitement. Of course if the market weakens, that may end up being a great upside play, relatively speaking.
Semiconductors: Some serious damage, some in position to bounce after some selling. AVGO testing the 50 day EMA. SIMO showing a big reversal from a positive Thursday. QRVO bombing to the 50 day EMA on the close. FSL breaking support, not rebounding. MLNX breaking the 50 day MA. ARMH with a massive gap lower. Hard to find many silver linings, but there are stocks that are solid, e.g. MXWL, AAOI.
Software: Issues here as well with some sharp declines. FFIV breaks the 50 day EMA. VDSI bombs the 20 day EMA on big volume. CYBR is at the 50 day and its lower trendline; not that bad. VMW sold through the 50 day MA. Some good setups arise from selling, however, e.g. BLKB.
Biotechs/Drugs: After a rough Thursday, some improvement. CELG is putting in a nice tests for an entry opportunity. BIIB as well. XON remains in good position to rally again. KITE is set up to break upside.
Health services: Generally in good shape a la biotechs. BRLI broke hard upside.
Internet: Some very interesting patterns and moves. WWWW is working well for us. DATE, FENG, and TRIP all sport very interesting patterns. Even GOOG has some promise in its pattern. This group could emerge as a new leadership group.
Big consumer names: SBUX still moving higher in its trend. NKE and UA rallying well. AMZN holding up very nicely at the 10 day EMA. Others not so great: NFLX struggling, PCLN breaking below the 200 day SMA.
Energy: No step up here as many continued lower. HAL, XEC. Long list.
Stats: -31.68 points (-0.62%) to close at 5080.51
Volume: 2.745B (+75.11%)
Up Volume: 1.14B (+520.63M)
Down Volume: 2.67B (+1.719B)
A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Decliners led 1.17 to 1
New Highs: 137 (+17)
New Lows: 78 (+28)
Stats: -0.82 points (-0.04%) to close at 2101.49
NYSE Volume: 1.9B (+145.48%)
A/D and Hi/Lo: Decliners led 1.28 to 1
Previous Session: Decliners led 1.8 to 1
New Highs: 84 (+1)
New Lows: 191 (+84)
Stats: +56.32 points (+0.31%) to close at 17946.68
VIX: 14.02; +0.01
VXN: 15.33; +0.48
VXO: 14.67; +0.19
Put/Call Ratio (CBOE): 1.06; -0.02. Second session over 1.0 on the close.
Bulls and Bears: Bulls jump back over 50%, up 6 points. Bears fall back into the 15% range. They are as flighty and volatile as the market right now. No conviction either way, but overall the bulls are too high and the bears remain too low for the upside market.
Bulls: 51.6% versus 45.5% versus 47.4% versus 51.5%
Bears: 15.4% versus 16.5% versus 16.5% versus 15.8%
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.
45.5% versus 47.4% versus 51.5% versus 47.5% versus 51.5% versus 48.5% versus 50.5% versus 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.
16.5% versus 16.5% versus 15.8% versus 14.9% versus 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.
Bonds (10 year): 2.48% versus 2.40%. Gapping lower and putting in a lower below the low set two weeks back. Now watch to see if there is a false break, a reversal back through that low. Looks as if that could be the case with rising MACD on this lower low.
Historical: 2.40% versus 2.37% versus 2.40% versus 2.36% versus 2.26% versus 2.35% versus 2.32% versus 2.32% versus 2.36% versus 2.39% versus 2.39% versus 2.48% versus 2.433% versus 2.388% versus 2.40% versus 2.31% versus 2.37% versus 2.26% versus 2.18% versus 2.10% versus 2.137% versus 2.133% versus 2.13% versus 2.21%
Euro/$: 1.1205 versus 1.1199. Slightly lower just below the 50 day MA.
Historical: 1.1199 versus 1.1170 versus 1.1341 versus 1.1344 versus 1.1372 versus 1.1339 versus 1.1243 versus 1.1284 versus 1.1254 versus 1.1268 versus 1.1325 versus 1.1277 versus 1.1288 versus 1.1119 versus 1.1241 versus 1.1272 versus 1.1144 versus 1.0922
Oil: 59.63, -0.06. Doji at the 50 day SMA, Right in the middle of the tight two month lateral move.
Gold: 1173.20, +1.40. Holding at some support in its three month lateral move below the 200 day SMA.
$/JPY: 123.82 versus 123.63. Bouncing off the 2 day test of the 20 day EMA, the dollar looks to be heading higher against the yen again.
Historical: 123.63 versus 123.88 versus 123.69 versus 123.37 versus 122.66 versus 122.91 versus 123.415 versus 123.39 versus 123.38 versus 123.41 versus 122.64 versus 124.31 versus 124.44 versus 125.50 versus 124.35 versus 124.26 versus 124.12 versus 124.81 versus 124.10 versus 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
Sharp selloffs such as SOX is showing (and the chips overall) as well as software have proved to be buying opportunities. We will see.
There are issues for sure. Shanghai market off 10+% in two sessions. Greece deal or no deal. Fed rate hikes sooner than later. Some leadership groups under pressure to end the week.
There are new leader groups as well. After a lot of a pullback biotech big names are setting up to move up. They can provide NASDAQ some powerful lift and give us some powerful plays. Internet stocks are setting up nicely. If they throw in with the upside that is a powerful upside group.
Even with internet stocks and biotechs, the market needs some new leaders right. If they show up again, of course the market rallies. If not, then perhaps the selloff so many are predicting or calling for comes on.
RUTX looks fine, SP400 is not bad at all, and NASDAQ has not hurt itself, testing over the 50 day EMA. Even SP500 has given itself a chance at the 50 day EMA. Perhaps a selloff is coming, but the indexes are not unanimous in that outcome, at least not at this point.
Again, that means leaders need to show up. As noted, biotech is setting up new buys. We see some others that look decent, e.g. internet (TRIP, DATE), KR with its stock split announcement and flag pattern and BLKB (software) with a flag as well. Telecom was pressured but there are still some good patterns. Ditto software. Retail started breaking higher, e.g. WSM, TJX. Even chips show good patterns, e.g. PSEM, MXWL.
There is ammunition there. The question is whether it will be used to keep the uptrends in place. There is enough also enough pessimism for the rally to fuel the upside despite the overall investment advisors.
That said, we don't want to assume the upside has to remain in place. Key breaks in chips and software are taking prime leadership away. As we always say, the market has to have leaders and they have to be in position to lead. We will see with many of the chips and software as they try to hold, or try to recover, the 50 day EMA. Also we have the biotechs; they look to be in position but will need help.
On the upside, given the time of year, you want to have reasonable expectations. Don't anticipate huge runs. Set logical goals, and take some gain. Our plays are ones that have specific targets that do not require plowing new ground to make us good money. That is a key part of the play selection: a pattern may look good, but if it has to breakout, hold the break, and then move to new highs, this is not the best time of the year. It puts some of the odds against you instead of putting the probabilities in your favor. So, we look at plays that don't have to hit the long ball to make us good, very good, money.
If they cannot make it, then some downside plays are warranted. We will see how they set up as well and if 'leaders' downside emerge. We don't care really which way the market goes as long as we are there and are ready to make the plays. Sure the upside is more comfortable, particularly after 6 years of Fed QE pushing stocks higher and higher. If the downside setups show up in number, however, we need to play them.
Short week with a Friday holiday for Independence Day.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5080.51
5120 is the April 2015 post-bear market high
5132.52 is the 3/2000 all-time high
5206 is the upper channel line
The 50 day EMA at 5046
5042 is the March 2015 high
The lower trendline is at 5008
5008.57 is the early March 2015 post-bear market high
The June low at 4974
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)
The 200 day SMA at 4796
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.
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 2101.49
The 50 day EMA at 2103
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
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 2053
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 17,946.68
17,991 is the early December interim
The 50 day EMA at 18,000
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
17,923 is the January 2015 lower high
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
The June low at 17,715
The 200 day SMA at 17,675
The March low at 17,604
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
June 26 - Friday
Michigan Sentiment - Final, June (10:00): 96.1 actual versus 94.6 expected, 94.6 prior
June 29 - Monday
Pending Home Sales, May (10:00): 1.4% expected, 3.4% prior
June 30 - Tuesday
Case-Shiller 20-city, April (9:00): 5.6% expected, 5.0% prior
Chicago PMI, June (9:45): 50.0 expected, 46.2 prior
Consumer Confidence, June (10:00): 97.5 expected, 95.4 prior
July 1 - Wednesday
MBA Mortgage Index, 06/27 (7:00): 1.6% prior
Challenger Job Cuts, June (7:30): -22.5% prior
ADP Employment Chang, June (8:15): 220K expected, 201K prior
ISM Index, June (10:00): 53.2 expected, 52.8 prior
Construction Spendin, May (10:00): 0.2% expected, 2.2% prior
Crude Inventories, 06/27 (10:30): -4.934M prior
Auto Sales, June (17:00): 5.9M prior
Truck Sales, June (17:00): 8.4M prior
July 2 - Thursday
Initial Claims, 06/27 (8:30): 270K expected, 271K prior
Continuing Claims, 06/20 (8:30): 2231K expected, 2247K prior
Nonfarm Payrolls, June (8:30): 230K expected, 280K prior
Nonfarm Private Payr, June (8:30): 225K expected, 262K prior
Unemployment Rate, June (8:30): 5.4% expected, 5.5% prior
Hourly Earnings, June (8:30): 0.2% expected, 0.3% prior
Average Workweek, June (8:30): 34.5 expected, 34.5 prior
Factory Orders, May (10:00): 0.2% expected, -0.4% prior
Natural Gas Inventor, 06/27 (10:30): 75 bcf prior
End part 1 of 3
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