The Daily, Part 1 of 3, 10-10-15

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10/10/2015 Investment House Report
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Targets hit: None issued
Entry alerts: None issued
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

- Dull session brings out the calls of the rally's end. What is new?
- Indices show doji after a solid week. Pretty normal.
- Fed's illogic continues. Along with the rest of the government.
- Leaders holding in well. Early leaders test, newcomers still rallying, others ready to go again.
- Don't read too much into the Friday move, be patient and let the market work.

The important thing about Friday is not to read too much into it. The next important item is not to get in a hurry, i.e. let the moves work. That includes the rallies as well as any tests. Thus a slower session should not get you flustered or anticipating collapse. Believe me, after Friday there were many talking 'move over.'

Of course with the Fed and its merry men and women are not helping maintain calm, and thus that contributes to the unease as to the recovery ending. Ironic, isn't it, that a body that was envisioned as a stabilizing force and has moved toward transparency has actually promoted anxiety, skewed asset allocations in response, and left average citizens as well as the professionals in the dark as to its path. I mean, if you draw red lines in the sand in terms of when you will act on monetary policy but then time and again find excuses to ignore them or even flat out say one thing and do another, well, you are hardly transparent. Of course, that is the state of our government is it not? Most transparent administration ever. Red line in the sand on Syria. Spying. On everyone. Purported enforcement of immigration laws but at the same time quietly releasing most. Standard operating procedure to say one thing, do another.

Anyway, Mr. Evans Friday made a rather interesting comment, some would say absurd. Of course when the Fed states in once sentence foreign economic activity has no bearing on its decisions and then says it did have a bearing on its decision, I suppose his statement was not that abnormal. Anyway, Evans, stated that the economy was doing much better. Okay, that is an opinion, and surely as a Fed expert he has the empirical evidence to back up the statement, e.g. employment, hours worked, capital investment, new business startups, etc.


'What? The Dot Plot is not hard economic data? Really?' Charles Evans

Or not. Instead of hard data, Evans referenced the Fed's own 'dot plot' chart. The dot plot chart is nothing more than the Fed's view of Evans using the Fed's 'dot plot' chart, its own creation of what the Fed, by plotting the beliefs of its individual members, thinks the appropriate Fed policy should be and where they are in getting there. So, to be clear, Evans says the economy is just fine because the Fed governors think they have the right policy in place. Right policy, smart men and women set the policy, so everything must be fine. This logic is kind of like a doctor judging the level of an illness based upon how much medicine the doctor decides to give. There is a tangential relationship, but not a cause and effect relationship.

With that kind of 'logic' from some of the most respected people in our governance (and they do govern whether we admit it or not) is there any wonder so many people have lost a bit of faith in our institutions and that outsiders are leading or are rapidly catching up to what are considered 'establishment' candidates? The deliberation for a new Speaker of the House of Representatives is called a circus, something you would see in a banana republic. But who is saying that? The establishment desperately attempting to hold onto the power it has.


An always pleasant Representative Peter King calls the House a banana republic.

The proof? When the establishment heir apparent withdrew for some specified and some speculative issues, instead of proceeding with the election between those who were left in the running as would typically be the case, the current speaker took all of his marbles and went home, calling off the election.


The Pope made me do it.

An elected, deliberative body deliberating to select its leader, but not allowed to deliberate, indeed not allowed to vote. An amazing collapse of democracy brought about by the establishment yet blamed on those who would dare not submit to the establishment's will. Frightening how many times this has occurred in history and reported in textbooks, but even more frightening is that it is not called for what it is as it happens in our time.


The Session

What about the Friday session? Futures were lower, moved higher, dipped toward the open. That was regular session as well: lower then higher followed by a dip into midsession. A modest rally late pushed the indices back to positive.

SP500 1.46, 0.07%
NASDAQ 19.68, 0.41%
DJ30 33.74, 0.20%
SP400 0.16%
RUTX 0.18%
SOX -0.83%

VOLUME: NYSE flat; NASDAQ -11%. Slower Friday trade on smaller gains. The moves are slowing and volume is slowing. Just a bit.

A/D: NYSE 1.3:1, NASDAQ 1.2:1


After a week of solid moves, Friday showed rather modest gains with doji on the index charts. Lower volume to boot. Definitely a slowing in momentum. Okay so it slows? That does not axiomatically result in a collapse. Certainly the market rebound could suddenly die. It just would have to change its character rapidly if Friday was an indication of impending demise.

Oh, but Jon, this move is a result of massive short covering. BAC concluded the rally was all short covering given big inflows to money market funds but cash levels remaining high even as the stock market rallied.

Okay, so it is short covering. No doubt that is a good part of it as stocks that were hammered lower rebound without any real bases. News flash: ALL rallies start with short covering, particularly after massive selloffs in a violent double bottom. I am not saying that this rally is a surefire run to new highs, but it is just a historical fact that rallies following big selloffs start with short covering. It is a non sequitur, however, in terms rally's life.

Sure there are oversold stocks bouncing from non-patterns, a sure sign of short covering. On the other hand, many others ARE bouncing from patterns, trendlines, key moving averages, etc. There were early leaders that started the move, a next wave that fell in behind them as they initially paused, and others are still setting up to rally and try to become leaders themselves. Maybe there won't be enough to keep the move going, but the action is helping more stocks setup the upside patterns, and if the market decides to test off of the Friday pause versus roll over, that action will help other stocks set up their upside patterns as well.

In sum, sure Friday was a slower day after a nine session recovery off the September lows. That alone, however, does not mean the rally is over. Indeed, with SP500, DJ30, SP400 over the September peaks, they are in a good position to test and important break to a higher high, testing from a position of strength as we like to say.

Thus, back to the point: let's not over think this or make it complicated. Everything set up as it should: big selloff in August accompanies by massive negative spikes in sentiment and internals. A rebound to test, then a second leg lower with SP500, SP400 matching the prior lows. Even as they made those dips, MACD was higher, some key leaders held trendlines and good patterns (e.g. PCLN, AMZN, NFLX) and led the charge. Everyone else followed. The move fanned out with more stocks showing good patterns and even as the market acts as if it wants to test (rollover as some suggest), several are working laterally in tight consolidations, ready to break higher again after their first moves.

That does not suggest imminent collapse. It can happen, it always can. But the probabilities suggest that the market tries to test and tries another move. Perhaps it wants to see some more earnings come out as a new catalyst, perhaps it does not care. The market rallied, broke some key resistance, is set to test. This test, a week later than anticipated (it looked as if it would start midweek this past week), will tell the tale.

Sure it doesn't make sense with a rather bad economy below the headlines (and the upper tier of wealth) as well as the rest of the world spiraling lower. Perhaps that will drag stocks lower. If nothing changes, I have no doubt that will happen. Indeed, perhaps the break lower was simply the start of a bear market after the indices put in rounded tops after QE's end in October.

Nothing as of Friday, however, suggested the current double bottom move is mover.

Let it test, let it show what it plans next. We have bought some good positions, several are delivering nice gains we banked the past week, and others look prepped to move higher. As long as they look solid and likewise the overall market, we let them work.


THE MARKET

CHARTS

SP500: Looked as if SP500 might start to test Tuesday as it posted a modest loss, but it turned and rallied Wednesday and Thursday, clearing the late August and September peaks. Friday a doji that touched the September intraday high. Eight of nine sessions upside, breaking key resistance. Perhaps this time it will test. As noted earlier, however, nothing suggests anything more than a test. Indeed, MACD broke to a higher high with the move (topping the levels at the August levels pre-selloff).

DJ30: Modest gain on below average trade. Also up eight of nine sessions, MACD breakout as DJ30 broke over the September recovery highs. If it tests, it tests from a position of strength.

NASDAQ: Up 7 of 8 sessions, adding to the gains Friday. Slow session, first below average volume in more than two weeks, bumping the 50 day SMA on the close. Just made it past the late August peak but still well below the September high that bumped the July low on that initial strong move off the August selling. Not leading, but it has some of the big name leaders that are helping drive it.

SP400: Added a bit more Friday to the break over the September closing peak. Similar to SP500, just not as much distance on that high. Same pattern, blistering move higher off the lows, not bad at all.

RUTX: Moved just past the 50 day EMA, SMA after testing them Thursday. Small step after a strong surge off the September low. Still below the September peak, but started at a lower low than the other indices. Heck of a move, now an important test.

SOX: No clear break through the September recovery highs as SOX again tests the late July/early August consolidation as it did in September. Not bad action, and MACD has already broken out ahead of the stock move; that positive divergence suggests SOX' upside momentum remains. Thus, after a test of the last move, a test that looks as if it started Thursday, SOX could follow that MACD higher.


LEADERSHIP

Big Names: NFLX enjoyed a good week, rallying, testing, surging. Friday a bit off. GOOG broke higher, tested Wednesday to Friday, moving up Friday and looking solid. PCLN continued upside Friday, making it 5 for 5 on the week and 8 straight upside sessions. AMZN tested on the week after a Monday upside gap. Good test, moving up Friday. SBUX fought off any selling, rallied to a new high Friday. CMG is fighting off the sellers, forming a base. MSFT rallied to the July/August peaks.

Energy: Most took a breather Friday, showing doji similar to the indices. Nonetheless, some great continued moved on the week with may moving off bottoming patterns such as SN, XEC, APC, CVX.

Financials: Still struggling. JPM up but no volume. BAC up on the wee but hit the trendline and is stalling.

China: ATHM still ready for the next move. SINA enjoyed a solid week, testing Thursday and Friday. SOHU looks interesting. CTRP tested a bit further. VIPS tested, looks good.

Industrial: CAT, CMI look ready to test good moves higher. UTX continued upside, moving through the 50 day EMA.

Homebuilders: Rallied but are at a key resistance level, e.g. PHM, TOL.

Software: VDSI started strong, nice test. RHT surging late week. BLKB broke higher on the week. CALD was volatile, but after selling a Monday move, a solid upside break Friday.

Telecom: TSYS rallying nicely Friday off a test. ARRS breaking over a handle. MBT making a nice test.

Retail: Some renewed moves. COST, TJX. LB broke to a new high.

Chips: Some strong weeks here as well. XLNX, MCHP, FORM.


MARKET STATISTICS

NASDAQ
Stats: +19.68 points (+0.41%) to close at 4830.47
Volume: 1.728B (-10.59%)

Up Volume: 1.02B (-240M)
Down Volume: 746.24M (+50.04M)

A/D and Hi/Lo: Advancers led 1.21 to 1
Previous Session: Advancers led 1.83 to 1

New Highs: 72 (+5)
New Lows: 37 (-1)

S&P
Stats: +1.46 points (+0.07%) to close at 2014.89
NYSE Volume: 895M (0%)

A/D and Hi/Lo: Advancers led 1.29 to 1
Previous Session: Advancers led 3.53 to 1

New Highs: 54 (-1)
New Lows: 12 (0)

DJ30
Stats: +33.74 points (+0.2%) to close at 17084.49


SENTIMENT INDICATORS

VIX: 17.08; -0.34
VXN: 20.5; -0.41
VXO: 16.67; -0.93

Put/Call Ratio (CBOE): 0.87; -0.06

Recent history: 31 of 37 sessions at or over 1.0. Has done its work for a bounce.


Bulls and Bears: Three weeks back the bulls and bears crossed, and two weeks back bulls hit a new low on this selling, the lowest since 2008, while bears moved over 35%. The past week they backtracked the moves, but remain crossed. The work has been done here.

Bulls: 30.2 versus 24.7

Bears: 34.4% versus 35.1%

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: 30.2%
24.7% versus 26.0% versus 26.8% versus 25.7% versus 27.8% versus 31.6% versus 37.7% versus 40.2% versus 42.2% versus 43.3% versus 49.0% versus 43.7% versus 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%

Background: This is the lowest since the 2008 and 2009 market plummet.

Bears: 34.4%
35.1% versus 30.2% versus 26.8% versus 27.9 versus 26.8% versus 22.5% versus 18.4% versus 18.6% versus 17.5% versus 17.5% versus 15.6% versus 15.6% versus 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%

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. Done.


OTHER MARKETS

Bonds (10 year): 2.10% versus 2.11%. Bonds sold on the week, holding at the 50 day EMA on the Friday close. Fed is said to have taken a rate hike off the table with those Thursday FOMC minutes, but bonds don't seem to think so.

Historical: 2.11% versus 2.07% versus 2.04% versus 1.98% versus 2.04% versus 2.05% versus 2.05% versus 2.09% versus 2.17% versus 2.11% versus 2.15% versus 2.14% versus 2.20% versus 2.13% versus 2.20% versus 2.30% versus 2.28% versus 2.17% versus 2.18% versus 2.23% versus 2.18% versus 2.19% versus 2.13%


Euro/$: 1.1358 versus 1.1289. Euro took off Friday, now challenging the mid-September high.

Historical: 1.1289 versus 1.1250 versus 1.1269 versus 1.12106 versus 1.1190 versus 1.1167 versus 1.1254 versus 1.1254 versus 1.1206 versus 1.1223 versus 1.11715 versus 1.11325 versus 1.12004 versus 1.13010 versus 1.14077 versus 1.13068 versus 1.1268 versus 1.1317 versus 1.1338 versus 1.1278 versus 1.1217 versus 1.12093 versus 1.1148


DXY0: Lots of talk about the stronger dollar impacting results and holding down US exports, but the dollar is not all that strong in terms of where it has been for 8 months.

USD/JPY: 120.23 versus 119.88. Dollar still in the same 7 week lateral range.

Historical: 119.88 versus 119.92 versus 120.22 versus 120.45 versus 119.91 versus 119.86 versus 120.07 versus 119.76 versus 119.64 versus 120.58 versus 120.30 versus 120.19 versus 120.00 versus 120.36 versus 119.996 versus 119.82 versus 120.46 versus 120.49 versus 120.34 versus 120.58 versus 120.73 versus 120.39 versus 119.98 versus


Oil: 49.49, +0.06. Up 9.1% for the week. Surged to the 200 day SMA Friday, backed off most of that gain. Leading energy stocks higher, now at an important level to pause a bit.

Gold: 1144.30, -4.40. Testing the break higher over the past week after hitting the last September high.


MONDAY

The shift to earnings begins this coming week. A smattering of announcements the past week were less than encouraging, but other seasons had slow starts then fast finishes. It all depends upon investor mood. I have talked of it before, how the market's mood colors how it reacts to news. Negative mood and it doesn't really matter what the story is. Positive mood and the market puts its head down and rallies through all news.

Mood is improved of late, and that can serve the upside well even through a test of the two week rally off the second low. Of course, nothing helps quite like some solid earnings from big names, and NFLX announces this coming Wednesday after the close.

Earnings will perhaps be a catalyst for the market to test. Two weeks upside off the September second lows, clearing resistance on SP500, SP400, DJ30, perfect setup for a test. As noted in the technical picture, the technical action is quite positive, not showing much wear and tear. Further, leadership remains decent enough. Thus at this juncture it would appear a test versus a rollover is more likely, short covering this past week or not.

Patience and let the test play out if it will. A test sets up new buys for leading stocks. There are already stocks ready to move, however, and it is possible the market does not stop, that they drive it higher. More likely: there is a test but these stocks, as they are taking some of the lead, can move higher even as a next wave of leadership while some market areas test.

Have a great weekend!


SUPPORT AND RESISTANCE

NASDAQ: Closed at 4830.47

Resistance:
The 50 day SMA at 4835
4828 is the late August peak
The March lows at 4843 and 4825
4837 is the late August 2015 rebound high
4910 is the July 2015 low
4912 the mid-April China dip
The 200 day SMA at 4918
The June low at 4974
5008.57 is the early March 2015 post-bear market high
5042 is the March 2015 high

Support:
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
4636 is the early September 2015 low testing the recovery from the August selling.
4631 is the October 2014 upside gap point
4614 is the September 1 intraday low
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 2014 low is giving way
4506 is the August 2015 selloff closing low
4370 to 4300 (March 2014 peak to June gap point)
4185 to 4130 (May 2014 gap point to October 3014 low)
4292 is the August 2015 intraday low


S&P 500: Closed at 2014.89

Resistance:
2046 is the July 2015 closing low
2062 is the January 2015 lower high
The 200 day SMA at 2062
2076 is the all-time high from November
2079 is the intraday all-time high from November
2094 is the December 2014 high, the prior all-time high
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
2130 is the June 2015 peak
2135 is the May 2015 all-time high

Support:
2011 is the September prior all-time high
1994 is the late August recovery peak
The 50 day SMA at 1993
1991 is the July 2014 high
1989 is the last August closing high
1972 is the December 2014 low
1913 is the early September 2015 closing low testing the bounce from the August selling
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.
1872 is the September 2015 test low of the August low
1867 is the August 2015 low
1862 is the October 2014 closing low
The December and January highs at 1848
1829 us the October 2014 intraday low
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 17,084.49

Resistance:
17,152 is the mid-July post bear market high
17,351 is the September 2014 all-time high.
17,515 is the early July closing low
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
The 200 day SMA at 17,604
June low at 17,715
The March low at 17,786
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range

Support:
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
16,933 is the September 2015 recovery peak
The 50 day EMA at 16,772
16,736 is a prior all-time high from May 2014
16,670 is the December 2014 peak and the recent August 2015 relief bounce peak.
16,665 is the late August 2015 closing high. Key, key level.
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
16,117 is the October 2014 closing low
16,058 is the early September 2015 low
16,026 is the April 2014 low
15,942 is the September 2015 low testing the August low
15,855 is the October 2014 intraday low
15,372 is the February 2014 closing low
15,370 is the August 2015 intraday low
14,803 is the October 2013 low


ECONOMIC CALENDAR

October 5 - Monday
ISM Services, September (10:00): 56.9 actual versus 58.0 expected, 59.0 prior

October 6 - Tuesday
Trade Balance, August (8:30): -$48.3B actual versus -$44.5B expected, -$41.8B prior (revised from -$41.9B)

October 7 - Wednesday
MBA Mortgage Index, 10/03 (7:00): 25.5% actual versus -6.7% prior
Crude Inventories, 10/03 (10:30): 3.073M actual versus 3.995M prior
Consumer Credit, August (15:00): $16.0B actual versus $19.5B expected, $18.9B prior (revised from $19.1B)

October 8 - Thursday
Initial Claims, 10/03 (8:30): 263K actual versus 275K expected, 276K prior (revised from 277K)
Continuing Claims, 9/26 (8:30): 2204K actual versus 2202K expected, 2195K prior (revised from 2191K)
Natural Gas Inventor, 10/03 (10:30): 95 bcf actual versus 98 bcf prior
FOMC Minutes, 9/17 (14:00)

October 9 - Friday
Export Prices ex-ag., September (8:30): -0.6% actual versus -1.3% prior
Import Prices ex-oil, September (8:30): -0.3% actual versus -0.4% prior
Wholesale Inventories, August (10:00): 0.1% actual versus 0.0% expected, -0.3% prior (revised from -0.1%)

October 13 - Tuesday
Treasury Budget, September (14:00): $95.0B expected, $105.8B prior

October 14 - Wednesday
MBA Mortgage Index, 10/10 (7:00): 25.5% prior
PPI, September (8:30): -0.3% expected, 0.0% prior
Core PPI, September (8:30): 0.1% expected, 0.3% prior
Retail Sales, September (8:30): 0.2% expected, 0.2% prior
Retail Sales ex-auto, September (8:30): -0.1% expected, 0.1% prior
Business Inventories, August (10:00): 0.1% expected, 0.1% prior

October 15 - Thursday
Continuing Claims, 10/03 (8:30): 2204K prior
Initial Claims, 10/10 (8:30): 269K expected, 263K prior
Continuing Claims, 10/03 (8:30): 2200K expected, 2204K prior
CPI, September (8:30): -0.2% expected, -0.1% prior
Core CPI, September (8:30): 0.1% expected, 0.1% prior
Empire Manufacturing, October (8:30): -8.0 expected, -14.7 prior
Philadelphia Fed, October (10:00): -1.0 expected, -6.0 prior
Natural Gas Inventor, 10/10 (10:30): 95 bcf prior
Crude Inventories, 10/10 (11:00): 3.073M prior

October 16 - Friday
Industrial Production, September (9:15): -0.2% expected, -0.4% prior
Capacity Utilization, September (9:15): 77.4% expected, 77.6% prior
JOLTS - Job Openings, August (10:00): 5.753M prior
Michigan Sentiment Preliminary, October (10:00): 88.5 expected, 87.2 prior
Net Long-Term TIC Fl, August (16:00): $7.7B prior

End part 1 of 3
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