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7/18/2015 Investment House Report
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Targets hit: FB; PANW; UBNT; ZIOP
Buy alerts: NMBL
Trailing stops: None issued
Stop alerts: None issued
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- GOOG cuts costs and explodes higher, taking NASDAQ with it.
- NASDAQ large caps far and away the leadership group as breath collapses.
- All must be well. Housing starts rebound, but it is all multifamily.
- Wealth shifts impacting consumption patterns, e.g. real estate.
- Will small caps finish the consolidation and join in the upside?
Another large cap day Friday as GOOG led the NASDAQ 100 and NASDAQ to new all-time highs. GOOG, NFLX, AMZN, FB, CELG, EBAY. GOOG alone saw its market cap increase, not total but just increased, by more than the market cap of over 400 of the S&P 500 stocks. The NASDAQ large caps provided lots of upside horsepower, but not a lot of horses. Meaning? The big names are powerful and they move the indexes, but breadth is lagging. Lots of generals right now, not a lot of soldiers; a more colorful way of saying leadership is still thin.
SP500 2.35, 0.11%
NASDAQ 46.96, 0.91%
NASDAQ 100 1.45%
DJ30 -33.80, -0.19%
VOLUME: NYSE +17.5%, NASDAQ +1%. Expiration so how much can you put on the volume? Both exchanges show volume moving farther above average. NASDAQ suggests accumulation though GOOGL traded at over 6x average volume, FB over 2x, and most other big NASDAQ names trading above average volume levels. Accumulation of a few, but I will say, volume has been very good on all the leaders this week.
A/D: -1.9:1 NYSE, -3:2 NASDAQ. Just not a lot of stocks moving higher on the session. After three powerful upside price moves that is not that surprising as the indexes have somewhat shot their near term ammunition on this week's surge.
The surge on the week is a story of serendipity. A selloff just ahead of earnings as earnings are anticipated to decline this past quarter. Greece issues are 'resolved,' at least for now. China stops its massive hemorrhage and Puerto Rico once again returns to 'ignore' status. Then some big earnings come in better than expected. Not just on the bottom line thanks to cost cutting, but on the top line as well as revenues expanded. Not for all, but for the right stocks, e.g. NFLX, EBAY, GOOG, even INTC.
Investors were so enamored they bought large cap NASDAQ stocks. Not growth stocks all around, mostly just the large caps ones. This even with the dollar finding a bottom and surging upside.
We have seen this before. It happened a lot in the 1990's as DELL, MSFT, SUNW, INTC, HPQ, AMAT, KLAC rallied, leaving everything else behind. It was not until the internet boom that the market really got back into smaller caps as everything .com was a 'strong buy.' I remember making many thousands an afternoon on plays such as CMGI options pre-split and thinking it was great but not unusual for the times. And no, I wasn't buying 100 contracts, just a 10 contract position. Or how about QCOM rallying over $100 in a day and returning tens of thousands on a 5 contract position taken ahead of the split announcement? That was insane.
Are we there yet? Who really knows. Does it mean the end is here? At some point it will be. Years before the 2000 market top actually set in, the experts were forecasting a top, warning to get out. Yellen warned a year ago biotechs were done. We made a lot of money off biotechs since that warning. Things are somewhat nutty with some of these narrow moves as money pours in to chase a few names, but history shows that action can last a lot longer than anyone expects or can afford to short.
That said, after this kind of surge on the week we banked some more gain. Did it Thursday, Wednesday, Tuesday. FB surged to the target, PANW made a good run at it. We banked some UBNT and ZIOP as they put in good moves on the week as well. Again, after this kind of surge the odds of a continued strong move holding over to next week diminishes, so it is prudent to bank some gain. Oh yes, and we bought some NMBL on the day, looking for something similar to XON that we bought and took some big gains on this week. That one can fly, and NMBL has some room to run as well.
Greece: A deal in name is struck and in theory solving the problems. CHECK.
China: Market 'stabilized' after crashing to the 200 day SMA and massive liquidity injections, selling bans, criminalizing short selling stemmed the tide. For now. CHECK.
Iran: A deal that will prevent Iran obtaining a nuke in the future thus guaranteeing Middle East peace. If you define the future as 10 years and if Iran doesn't already have everything it needs to assemble one in the next year. CHECK.
Yellen: Talked to Congress, no handicapping stock valuations, really wants to hike rates. Market seemed to think there was nothing new here (but Yellen will likely hike in September unless there is a major crash, somewhere). CHECK.
Puerto Rico: What's a Puerto Rico? CHECK.
All must be well. Party on Garth. CHECK.
Housing Starts, June: +9.8% from -10.8%. Big check. Or really?
June: 9.8% versus 7.1% expected versus -10.8% May.
The problem: After one month of single family homes actually posting solid advance, it is right back to the new normal, i.e. millennials shunning home ownership and instead preferring to pay rent instead of building equity.
Starts: Single Family -0.9%. Multifamily +29.4%
Permits: Single Family +0.9%. Multifamily +15.3% (highest since 1990)
Ted Cruz said this the other day: In the 1980's your kids came home to start a business in your garage. In the 2000's your kids get a degree and come home to live in the garage. With poor jobs quality in the '3 million jobs created,' weak real wage growth (at least there has been some growth), still very stringent post-crash lending requirements, there is simply not the same demand for the smaller homes that historically comes with moves out of recession/depression. The upper end of the market is smoking hot.
Makes sense as the benefits of the recovery, thanks to the policies of the Administration and the Federal Reserve, have strangled small business and thus the middle class and instead allowed massive accumulation of wealth at the upper end. Record numbers of billionaires are created while the average wealth of the middle class declines by 25% or more. They have to be content with their iPhones, internet connection, 7 year subprime auto loan, and college degree that landed a part-time job. But they likely get their school debts forgiven. Lucky, huh?
This massive shift in wealth of course leads to the wealthy looking for something to do with their money, and that always means buying real estate. Indeed, Bloomberg reported last week that the very wealthy are buying millions upon millions of acres of farmland. They apparently see the spike in food prices, see the drought issues, see the other issues coming, and are making strategic investments. In any event, they are the ones with the money to do so and thus a very hot upper end of the real estate markets but not for the rest.
NASDAQ: Gapped again this time to an all-time high. Six of seven sessions upside, from a lower low to a higher high. It not totally the large caps, but most of the upside is due to the large caps. Very mid-1990's like.
SP500: 6 of 7 upside sessions here as well with SP500 the next closest to an all-time high. SP500 is showing a doji above the late June closing high and the May all-time high. Does it go on to a new high? A lot of ammunition was shot up last week, the upside surprise in earnings did its job. How much is left at this juncture is questionable as SP500 bumps the prior highs. After a big run to get there often there is a test to measure it and then the breakout. Either way SP500 has rallied well off support but is not in that great of a risk/reward at the moment in terms of overall new entries.
DJ30: Started to slow toward the end of the week as it approached the March/April/June peaks that surround the May all-time high. It held its range after flashing a lower close and rallied back to the top. As with SP500 it could use a test to take on the highs, and as noted, the Dow slowed some the back half of the week and a bit of a test looks as if it could be in the cards this week and give DJ30 the boost to again take on the highs.
RUTX: Good move the first half of the week then stalled Wednesday to Friday. Stalled, but working laterally after gapping through the 50 day MA. The 10 day EMA is rising to catch up, and that could provide the next upside catalyst. RUTX sits below the April peaks, just below them, the last highs before the June all-time high. This lateral test allows it to set up for a run at that high.
SP400: Not looking all that solid. Gapped higher Monday and rallied to the 50 day SMA as of the Tuesday close. Then it struggled, falling rather hard Wednesday and then Friday breaking back into the gap zone. Not very strong at all.
SOX: Still in purgatory, moving higher Monday and Tuesday to the 10 day EMA, then stalling out there Wednesday to Friday. Perhaps it can make a new move higher as MACD is improving as SOX at least holds the Monday move.
You have to look large cap, and NASDAQ large cap specifically. GOOG, AMZN, EBAY, NFLX, CELG, FB, GILD are driving NASDAQ higher while midcaps languish, small caps consolidate, and the NYSE large caps follow but at a distance. Still quite thin, not having a lot of time to set up, but if you look at RUTX, it is testing some and that allows those stocks to set up while the large cap NASDAQ stocks lead for now. Leadership in waves is good, and this action actually does help that.
Biotech/Drugs: Another strong week. XON, TTPH, KITE, CELG, GILD. Might need to pause a bit but plenty of money coming their way.
Retail: A big group, but even with real wages declining they are performing.
Restaurants: JACK, BWLD, CMG all testing a good surge higher, all in good position to continue after this test.
Online retail: AMZN, EBAY moving to new highs.
Internet: GOOG of course. FB was enjoying a good week through Thursday then Friday exploded upside. Outside of those, so-so. AKAM is attempting to set up a next move.
Financial: Big recoveries on the week recovered some lost ground in a sharp selloff, sharp rebound type of move. JPM is back up to the prior high but with lower MACD; not great. BAC rode earning to a huge move and higher high. WFC is similar to JPM with a lower MACD peak at a second top. V (Visa) moved to a new high Thursday and Friday.
Energy: Still languishing. HAL, CVX, APC. They are approaching longer term support levels and that will be a key indication for them. There is talk of a bounce, but talk is talk.
Metals: Anti-leaders. STLD, AKS, SID all putting in lower lows.
Software: Some leadership still here. PANW enjoyed a great week, BLKB continues a low volume ascent. SPLK has moved back to the June high but has that low volume, low MACD issue.
Stats: +46.96 points (+0.91%) to close at 5210.14
Volume: 1.791B (+0.98%)
Up Volume: 808.45M (-511.55M)
Down Volume: 1.02B (+528.78M)
A/D and Hi/Lo: Decliners led 1.51 to 1
Previous Session: Advancers led 1.92 to 1
New Highs: 134 (-59)
New Lows: 98 (+19)
Stats: +2.35 points (+0.11%) to close at 2126.64
NYSE Volume: 874.8M (+17.53%)
A/D and Hi/Lo: Decliners led 1.85 to 1
Previous Session: Advancers led 2.28 to 1
New Highs: 71 (-72)
New Lows: 189 (+72)
Stats: -33.8 points (-0.19%) to close at 18086.45
VIX: 11.95; -0.16
VXN: 12.93; +0.34
VXO: 11.5; -0.22
Put/Call Ratio (CBOE): 0.85; -0.03. Five sessions below 1.0 after 11 straight above 1.0.
Bulls and Bears: Bulls fall again even on a week the market bounced. This past week's gains likely bounce bulls back a bit. So much earnings excitement.
Bulls: 43.7% versus 44.8% versus 49.5% versus 51.6% versus 45.5%
Bears: 15.6% versus 15.6% versus 15.4% versus 15.4% versus 16.5%
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.
44.8% versus 49.5% versus 51.6% versus 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.
15.6% versus 15.4% versus 15.4% versus 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): 2.34% versus 2.35%. Rallied off the bottom of the two month range, back to the 50 day MA where it failed in early July. MACD is stronger, suggesting TLT breaks higher, but the Fed does want to hike.
Historical: 2.35% versus 2.35% versus 2.40% versus 2.44% versus 2.42% versus 2.31% versus 2.206% versus 2.26% versus 2.29% versus 2.38% versus 2.42% versus 2.34% versus 2.364% versus 2.48% versus 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%
Euro/$: 1.0836 versus 1.0880. Took out the May and June peak on the week, now moving toward the April then March high. Interestingly, China, through Brussels, has sold a record $143B in US treasuries in the past three months. Russia and China continue to divest of US financial assets (not hard assets) as they put their efforts in their Asia bank.
Historical: 1.0880 versus 1.0946 versus 1.1005 versus 1.0999 versus 1.1157 versus 1.1032 versus 1.11069 versus 1.1099 versus 1.1055 versus 1.1082 versus 1.1054 versus 1.1131 versus 1.1243 versus 1.1205 versus 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: 50.89, -0.03. Faded Wednesday to Friday after a solid Tuesday move. Stalled at the 10 day EMA and faded to a lower closing low on this leg lower from the breakdown from the May to June range. It will be very interesting to see oil's reaction to the Iran deal and Iran's 're-entry' into the oil market. The word is, Iran has produced millions upon millions of barrels (51M according to Maritime Tracker) that are sitting on 280M long ships around the world. Once they get the okay, those ships will start sailing toward buyers, meaning suddenly millions and millions of more barrels on the market. Supply and demand Watson.
Gold: 1131.90, -11.90. Friday showed a major break of key long term support.
$/JPY: 124.07 versus 124.13 . Strong week continued the bounce from the 200 day SMA. Took out the late June closing highs, still over 1.50 off the early June high.
Historical: 124.13 versus 123.78 versus 123.38 versus 123.42 versus 122.76 versus 121.29 versus 120.66 versus 122.46 versus 122.51 versus 123.04 versus 123.115 versus 122.43 versus 122.497 versus 123.82 versus 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
It was a bit frustrating when the rally started as a lot of stocks we were interested in gapped away, not with just one gap, but two and three consecutive gaps upside. Nonetheless we looked for stocks that were still setting up or gave us another bite at the apple. That allowed some nice gains on XON, AMBA, ZIOP, JACK, ALKS, etc. There are also other stocks we see setting up that could help the market continue its move next week, though over all the market could use a test.
Well, how about the large cap indexes putting in a test? The smaller growth indexes are putting in a nice lateral consolidation right now, holding the move higher that continued early week, then pausing to work laterally to close out the week. SP400 midcaps are struggling, but overall the smaller growth stocks are already setting up the tests for the next move higher if the buyers hang in this market.
This could play out nicely, i.e. the large cap indices coming back to test their upside surges while the small caps and midcaps get some bids off of their tests. With the dollar moving higher you would anticipate the smaller cap indexes would start to reap some upside as a result.
Earnings cannot be forgotten, however, and the initial reaction is much rejoicing at better than expected bottom lines as well as actual top line beats (though GOOG was not a top line beat; go figure). How long will that last? If the top line beats keep coming, it could carry through the season or at least a good portion of it.
The large caps will test the move, NASDAQ will test the move. At that point, however, the small caps will have had the opportunity to consolidate and set up and we will see what they produce given the rising dollar.
If the small caps cannot produce a large number of winners out of this consolidation then the market could be entering a period similar to the early 1990's when one group of stocks dominated the market moves. If the view is the US recovery is stalling or not creating enough small to midcap companies, that certainly can be the outcome.
Do we care? IN a sense of wanting the US to reach its potential, of course. In terms of making money, well, we go where the money goes and take what the market gives.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5210.14
The upper trendline at 5246
The June all-time high at 5164
5132.52 is the 3/2000 all-time high
5120 is the April 2015 post-bear market high
5042 is the March 2015 high
The lower trendline is at 5048
The 50 day EMA at 5044
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
The 200 day SMA at 4831
4815 is the December 2014 prior market peak
4811 is the November 2014 peak (intraday)
4774 is the January high
4751 is the January 2015 lower high
4631 is the October 2014 upside gap point
4610 is the September 2014 post-bear market high.
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 2126.64
2126 was the April prior all-time high
2130 is the June 2015 peak
2135 is the May 2015 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 2096
The lower channel line at 2089
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 2060
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 18,086.45
18,200 to 18,206 (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
18,104 is the December high
17,991 is the early December intraday high
The 50 day EMA at 17,928
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 200 day SMA at 17,724
The March low at 17,718
The June low at 17,715
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
July 17 - Friday
CPI, June (8:30): 0.3% actual versus 0.3% expected, 0.4% prior
Core CPI, June (8:30): 0.2% actual versus 0.2% expected, 0.1% prior
Building Permits, June (8:30): 1275K prior
Housing Starts, June (8:30): 1174K actual versus 1120K expected, 1069K prior (revised from 1036K)
Building Permits, June (8:30): 1343K actual versus 1150K expected, 1250K prior (revised from 1275K)
Mich Sentiment, July (10:00): 93.3 actual versus 96.5 expected, 96.1 prior
July 22 - Wednesday
MBA Mortgage Index, 07/18 (7:00): -1.9% prior
FHFA Housing Price I, May (9:00): 0.3% prior
Existing Home Sales, June (10:00): 5.40M expected, 5.35M prior
Crude Inventories, 07/18 (10:30): -4.346M prior
July 23 - Thursday
Initial Claims, 07/18 (8:30): 278K expected, 281K prior
Continuing Claims, 07/11 (8:30): 2218K expected, 2215K prior
Leading Indicators, June (10:00): 0.2% expected, 0.7% prior
Natural Gas Inventor, 07/18 (10:30): 99 bcf prior
July 24 - Friday
New Home Sales, June (10:00): 550K expected, 546K prior
End part 1 of 3
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