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10/24/2015 Investment House Report
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Targets hit: AMZN; ATHM; SIMO; SINA
Entry alerts: None issued
Trailing stops: KITE; YNDX
Stop alerts: ESV
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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
- Earnings, Chinese stimulus send already hot market soaring.
- Buybacks still help fuel stock rise, to wit GOOG's $5B repurchase.
- Very narrow rally pushes large cap indices back into old resistance.
- Small, midcap indices lag, but in position to throw in to the upside if money heads back their way.
- After the surge, waiting for the test to see how the large caps set up again. Can they run to the prior or new highs? Stimulus doesn't hurt.
Friday was a no-brainer, at least at the open. Thursday Mario Draghi helped ignite a new rally off the Wednesday selling with hints and winks about further ECB stimulus. Solid earnings from TXN, UA, CTXS, and even MCD didn't hurt.
Thursday evening AMZN, GOOG, and MSFT reported quite incredible earnings and gapped higher after hours. The morning was set to the upside based simply on those stocks' market caps in the various indices they are listed.
Then came China. There were hints and rumors all week, indeed those hints and rumors were credited for early week move higher. Friday morning they became reality as the PBOC announced a 25BP cut in the 1 year lending rate and a 50BP drop in reserve requirements. Very bold moves for an economy the Chinese say is in great shape. That news hit at 7:15ET and you can see the futures rocket higher on the news. Great news from earnings were goosed even more.
In 24 hours the market received a triumvirate of news stories that basically delivered all it could want. Europe talking more stimulus, US earnings showing solid beats (if you discount the plethora of top line misses), and the PBOC ratcheting up the stimulus meter. About the only thing left that would gin stocks even further is the Fed announcing second thoughts on its stimulus removal bias, opting for QE4.
But, the Fed doesn't need it. The market healed itself with a few big winners winning really big and other central banks having to do the dirty work.
SP500 22.64, 1.10%
NASDAQ 111.81, 2.27%
DJ30 157.54, 0.90%
SP400 0.49%
RUTX 1.00%
SOX 1.15%
VOLUME: NASDAQ +0.4%, NYSE -9%. Lower but still quite solid with NASDAQ above average and NYSE slipping back to average.
A/D: NYSE 1.4:1, NASDAQ 1.95:1. This is important. 1% gains on NYSE indices and less than 3:2 breadth. NASDAQ gaining 2+% and less than 2 stocks rising for every one declining. Indeed, NASDAQ new highs are at three year lows even as NASDAQ forges toward a new all-time high and NASDAQ 100 bumps at that level. The generals are leading, but no one is following right now.
Earnings outside the big three of the day were not bad. Well, perhaps outside of Friday that saw lots of top line misses again: PG, T, WHR, P. Some were really bad, missing the top and bottom line: VFC, SXK. STT missed the bottom line.
There are still some issues even with the earnings beats.
Jobs: MSFT lays off 1,000 more. That is one way to boost the bottom line.
Buybacks: GOOG goosed its move with a $5B buyback. UAL is buying $2B. Earlier UTX announced a $12B buyback; look how its stock has moved since the announcement.
There is no doubt: stimulus, buybacks work very well in driving stocks higher. They have done so for almost 6 years now even with dubious economic advances and as a few commentators on CNBC said this week, virtually no capital investment.
Indeed, buybacks have taken the place of capital investment. Recall my commentary in 2013, 2014 and early 2015 discussing the new forms of capital investment: dividends, and stock buy backs. Buybacks slowed some during mid-2015, but they are back big time here in Q4. And by gosh, so are stock prices. Beats having to actually produce sales.
'You don't know what it's like out there. I've worked in the private sector. They expect results.' Dan Aykroyd, 'Ghostbusters' (1984). Perhaps they should have worked on global warming research for the university? Unending supply of funds for keeping the belief alive.
THE MARKET
CHARTS
NASDAQ: On the back of AMZN, GOOG, MSFT, SBUX, CSCO, JNPR, BRCM and other large caps, NASDAQ gapped through the 200 day SMA and the September high. It gapped, traded up and down, closing just about where it opened, i.e. showing a doji. It is at the March peak that is coincident with gaps in June and July as well as consolidations in the mid-range of the March to July channel. A big move with some of its biggest components making it possible. The next question is whether there is anything left in the tank after such a grand move? In July both AMZN and GOOG reported strong earnings and gapped sharply higher. Both spent all their currency on that one day, basing for the next quarter. With only large caps really providing any of the upside strength, how much more can the index move? NASDAQ 100 gapped as well, gapping to its own doji just below the July all-time closing high. All kinds of strength in the big names, but it is mostly just the big names that are rallying with any kind of consistency. Just how much more can it move on any kind of news, good or bad? We will have to see how it reacts to the gap, but we do know GOOG likes to fill its big gaps. AMZN too.
SP500: Continued the Thursday break higher, gapping and clearing the 200 day SMA by a wide margin. SP500 is in the teeth of the March to August rounded top. Volume was lower and below average, not befitting such a strong move. Will it hit new highs? MACD is breaking out ahead of the stock. Will it make new highs on this move? Likely not before a test of the move to give it a rest and a clean shot at the highs. Many S&P stocks that have languished are making upside moves; if they continue to recover then SP500 has a good shot at those prior highs. Lots of beaten down stocks in the S&P 500 that have a long way to run to reach former highs. If they make a credible run at those highs, SP500 has room to move.
DJ30: Gapped and rallied through the 200 day SMA and into the lower reaches of its February to July trading range formed just before the August collapse. This moves DJ30 to the 17,600 range we saw as resistance, a 1600 point move from the late September low. As overbought now as it was oversold in late August. It will need to test this move and we want to see that test before getting deep into a lot of new upside.
SOX: Gapped and rallied as well, moving further through the 200 day SMA. Moving into some heavy resistance at this level on up to 697-700 (closed at 684). Big move here the past four weeks. As sharp as this move has been, SOX is not as overbought as it was oversold in the June to August selloff.
RUTX: Perhaps RUTX is setting up an inverted head and shoulders and will follow SP500, DJ30, and NASDAQ higher. It is bumping the same resistance the past three weeks at one of the upper gap points in the August selloff. If it can move through here it can rally to the 1200 level (closed at 1166) where the bottom fell out.
SP400: Very similar pattern to RUTX, working laterally the past three weeks, bumping the same gap point from the August selling. Definitely has room to run to near 1480 (closed at 1440).
LEADERSHIP
Big Names: Of course there were big gains. AMZN, GOOG, MSFT. SBUX, FB rallied to higher highs. NFLX tried to get off the mat. It was another strong day for large cap stocks.
NYSE large caps: UTX gapped a bit higher, extended after four upside sessions. MMM couldn't move through the 200 day SMA hit Thursday. IP continued its move higher off its inverted head and shoulders.
Energy: Took the day off after a decent week. CVX, HAL. Others still look good to move or continue moves, e.g. OIS, XEC.
Financial: MA and V resumed breakouts after a quick midweek test. Banks better with WFC moving up to the 200 day SMA in a two week run. JPM gapped through the 200 day. GS and MS are problematic: bumping resistance for more than a week, but using the time to try and set up an upside move.
Chips: A solid week. INTC still running upside after earnings, surpassing its May peak, its most recent prior high. XLNX faded at the June high. MLNX moves through the 200 day SMA. NXPI is making a nice test of its break through the 200 day SMA. AVGO gapped higher off the 200 day SMA.
China: Overall quite solid, and Chinese stimulus plans are not hurting. SINA gapped upside, continuing its move up the 10 day EMA off the lows. ATHM gapped upside, also climbing the 10 day EMA off the lows. VIPS broke higher on the week. CTRP posted a solid week.
Biotech: Showing some interesting recovery signs though the big names still have somewhat scary patterns. ANAC is bouncing off a gap fill and 200 day SMA test. CLVS has a tougher week but started to climb off the test. INFI enjoyed a strong week coming off the lows.
MARKET STATISTICS
NASDAQ
Stats: +111.81 points (+2.27%) to close at 5031.86
Volume: 2.108B (+0.4%)
Up Volume: 1.64B (+100M)
Down Volume: 523.72M (-79.05M)
A/D and Hi/Lo: Advancers led 1.95 to 1
Previous Session: Advancers led 1.75 to 1
New Highs: 140 (+52)
New Lows: 68 (-27)
S&P
Stats: +22.64 points (+1.1%) to close at 2075.15
NYSE Volume: 1B (-9.09%)
A/D and Hi/Lo: Advancers led 1.44 to 1
Previous Session: Advancers led 2.91 to 1
New Highs: 100 (+16)
New Lows: 57 (+4)
DJ30
Stats: +157.54 points (+0.9%) to close at 17646.7
SENTIMENT INDICATORS
VIX: 14.46; +0.01
VXN: 16.6; +0.97
VXO: 14.95; -0.13
Put/Call Ratio (CBOE): 0.77; -0.14
Recent history: 32 of 46 sessions at or over 1.0. Did its work for a bounce.
Bulls and Bears: Bulls move a point higher, bears move a tenth higher. They are now parting ways after crossing over and bulls falling below 35% (bullish) and bears above 35% (bullish). The work was done, the rally ensued.
Bulls: 37.5 versus 36.5
Bears: 31.3 versus 31.2
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: 37.5%
36.5% versus 30.2% versus 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: Bulls hit their lowest level since the 2008 and 2009 market plummet.
Bears: 31.3%
31.2% versus 34.4% versus 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): 2.02% versus 2.03%
Historical: 2.03% versus 2.07% versus 2.03% versus 2.03% versus 1.98% versus 2.04% versus 2.10% versus 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%
Euro/$: 1.1017 versus 1.1108. Plunging below the 200 day SMA versus the dollar as the selling post Mario Draghi comments continues.
Historical: 1.1108 versus 1.1339 versus 1.1347 versus 1.1320 versus 1.1351 versus 1.13793 versus 1.1387 versus 1.1387 versus 1.1352 versus 1.1358 versus 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
DXY0: Still surging upside, clearing the September peaks. More for companies to grip about.
USD/JPY: 121.46 versus 120.71. Rallying up to the 200 day SMA, recovering from the August selloff and its first important test on this move.
Historical: 120.71 versus 119.925 versus 119.897 versus 119.52 versus 118.87 versus 119.66 versus 119.75 versus 119.89 versus 120.23 versus 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
Oil: 44.60, -0.89. Sold down all week, breaking through the 50 day SMA Friday. Now near support from the bottom of the September trading range.
Gold: 1162.80, -3.10. In a two week test of the October surge upside. Hit the 200 da and is testing that move.
MONDAY
Quite a week, quite a month of gains off the last September low. The past week erased the last of the August losses for the large cap indices. Again, it is the large caps that led the move higher and that pushed them to those highs.
The move leaves the large cap indices near term overbought. DJ30 is at next resistance in the February to July range. NASDAQ 100 is at the July high. SP500 has moved into the March to August range.
The small and midcaps are stalled at resistance below the September highs, leaving them far from overbought. Perhaps they can break through and follow the large cap indices. Money would have to rotate back their way to do that, and typically the year end rally waits until yearend to move back that way for the January effect.
So, do the big caps lead higher? From here? The market has enjoyed the ECB hinting at more stimulus announced at its December meeting, the big US 'brand name' stocks posted huge earnings and equally huge moves, and China has made good on its rumors and launched more stimulating measures. Again, can the news get any better for stocks outside the Fed announcing QE4? Even if that were the case, can it put in a further move given the good news saturation and commensurate run? Doubtful.
Thus the play is to let the large caps test this move and when they do, pick them up as the run toward yearend resumes. Play the run in the large caps while it is there.
At the same time we keep an eye on the midcaps and small caps. Sure the money rotated big to the large caps, but the midcaps and small caps have plenty of room to run to play catch up with the large caps.
Moreover . . . everything this year is moved up a month. The selloff started early, it finished with a second bottom in September. October was not the bottoming month as it usually is, finishing off the selling and putting in the bottom. Here it is still October and the indices have recaptured all of the August losses.
Thus, perhaps the January effect, now moving into December as seen the past few years, will come a month earlier as well. That doesn't really fit the calendar for funds and loading the portfolios with big names for year end, but we need to be ready because everything is moved forward this back half of the year.
Accordingly, we are going to look for large caps still in position to buy right now. We are going to watch for large caps to test the overbought condition next week. We are also watching for other areas that still look really good to move higher to be ready if money decides to move their way, to rotate once again, to spread out and broaden the rally.
And for some interesting counter plays, perhaps we play some gap fills on GOOG and AMZN as they filled their gaps after the July upside earnings moves. With the market so overdone on this move, that could make some good money on the downside just playing a test of a great move.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5031.86
Resistance:
5042 is the March 2015 high
5100 form the April peak and early May peak
5164 is the June 2015 peak
5232 is the July high
Support:
5008.57 is the early March 2015 post-bear market high
The June low at 4974
The 200 day SMA at 4925
4912 the mid-April China dip
4910 is the July 2015 closing low
The 50 day EMA at 4840
4837 is the late August 2015 rebound high
4828 is the late August peak
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
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 2075.15
Resistance:
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:
2062 is the January 2015 lower high
The 200 day SMA at 2060
2046 is the July 2015 closing low
2040 is the March 2015 closing low
2011 is the September prior all-time high
The 50 day EMA at 2003
1994 is the late August recovery peak
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
Dow: Closed at 17,646.70
Resistance:
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
18,110 - 18,120 from December 2014, July 2015 peaks
18,289 from February 2015
18,351 from May 2015 and the all-time high
Support:
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 17,574
17,515 is the early July closing low
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
16,933 is the September 2015 recovery peak
The 50 day EMA at 16,898
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 26 - Monday
New Home Sales, September (10:00): 550K expected, 552K prior
October 27 - Tuesday
Durable Orders, September (8:30): -1.3% expected, -2.3% prior (revised from -2.0%)
Durable Goods -ex transports, September (8:30): 0.2% expected, -0.2% prior (revised from 0.0%)
Case-Shiller 20-city, August (9:00): 5.0% expected, 5.0% prior
Consumer Confidence, October (10:00): 102.5 expected, 103.0 prior
October 28 - Wednesday
MBA Mortgage Index, 10/24 (7:00): 11.8% prior
Crude Inventories, 10/24 (10:30): 8.028M prior
FOMC Rate Decision, October (14:00): 0.25% expected, 0.25% prior
October 29 - Thursday
Initial Claims, 10/24 (8:30): 264K expected, 259K prior
Continuing Claims, 10/17 (8:30): 2185K expected, 2170K prior
GDP-Adv., Q3 (8:30): 1.6% expected, 3.9% prior
Chain Deflator-Adv., Q3 (8:30): 1.3% expected, 2.1% prior
Pending Home Sales, September (10:00): 0.6% expected, -1.4% prior
Natural Gas Inventories, 10/24 (10:30): 81 bcf prior
October 30 - Friday
Personal Income, September (8:30): 0.2% expected, 0.3% prior
Personal Spending, September (8:30): 0.2% expected, 0.4% prior
PCE Prices - Core, September (8:30): 0.1% expected, 0.1% prior
Employment Cost Index, Q3 (8:30): 0.5% expected, 0.2% prior
Chicago PMI, October (9:45): 49.0 expected, 48.7 prior
Michigan Sentiment - Final, October (10:00): 92.6 expected, 92.1 prior
End part 1 of 3
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