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11/21/2015 Investment House Report
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Targets hit: NFLX
Entry alerts: CLDX; SBUX
Trailing stops: None issued
Stop alerts: None issued
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- Friday bounces from the Thursday pause as market puts in its best week since . . . the last drop.
- Friday move decent, not great.
- Same leaders lead the move as others try to get their act together.
- ECB still talking stimulus, bolstering the dollar.
- Fed calls a Monday expedited, closed meeting.
- Thanksgiving week usually upside.
- The big market picture as the yearend approaches.
From boring to soaring? Not quite, and not a grand close for the week. All things considered, however, including the geopolitical madhouse backdrop, Friday was damn solid enough. Indeed, the on/off, on/off, then on action for the week was the playbook of a market resurrecting a yearend move. After two weeks of downside where it looked as if the rally off the August/September SP500 double bottom was over, the surge and pause, surge and pause action found some older leadership, and it looks possible that market gains will be home for Christmas. Or, at least get us over the river and through the wood to grandmother's house next week.
Friday stocks shook off any sluggishness from Thursday, and just as on Wednesday following Tuesday. The indices rallied to higher highs for the week, a week that saw a good reversal from the two weeks of selling from early November.
SP500: 7.93, 0.38%
NASDAQ 31.28, 0.62%
DJ30 91.06, 0.51%
VOLUME: NYSE +22%, rallying back to average after two days below. NASDAQ -2% and below average as on Thursday, mighty low trade for an expiration session.
A/D: NYSE 1.5:1, NASDAQ 1.7:1. Mighty weak breadth for an upside session, but there were some quality breadth advances on the week.
Okay, Friday was a continuation of the rally after a pause, but not nearly the price caliber of Wednesday. RUTX rallied almost 3/4% and NASDAQ scored a 0.62% gain, but those were rather tepid compared to the Monday and Wednesday upside moves.
Volume? It was expiration so the increase in NYSE trade cannot really be traced to an increase in buying. Indeed, NASDAQ trade faded, so it is hard to tie volume to anything on the session.
The index action was not stellar with early surges, a fade to the last hour, then a recovery. NASDAQ and RUTX show the best action on the session, holding most of the move higher. SP500, DJ30, SP400 gave back a good part of the intraday move (8 points, 90 point on SP500, DJ30).
Leadership was okay. Great moves from AMZN and GOOG, but several big names closed status quo, and some of the moves higher Thursday were flipped in industrials and financial stocks.
In sum, not a great move to end the week, but it was a week that saw a resurrection of the yearend run in the midst of boiling geopolitics. In that light, Friday not only kept the rally alive with another gain following a day of rest, but it was quite respectable.
The market awoke to another terror event, this one in Mali North Africa. Al Qaeda, now feeling as if it was relegated to yesterday news status, tried to recapture past glory with a raid on a luxury hotel. Many killed, but many more hostages made it out alive. Benghazi, now Mali. How can this be? Didn't the President 'get' Bin Laden, thus saving us all from his kind of cowardly attacks? Guess that worked about as well as the 'strategy' for containing ISIS. Of course when you forgo 75% of the ISIS targets we have in our sights as was reported today, it is kind of hard to make a dent in an enemy's strength. Oh well. Before the market closed, the event was mostly over.
Mostly over for that event in Mali, but the world remains in a state of conflict I cannot remember seeing in my lifetime. The Cold War was omnipresent during my childhood. It was a constant reminder of trouble that could flare up, but it was not a hot war. Today, hot wars everywhere.
It is the nature of the enemy today. It is not a country, it is idealism, and the enemy springs from many countries though not necessarily affiliated with the countries. Far easier for conflict to erupt anywhere, and it appears to be doing just that.
ECB: Draghi was talking more stimulus Friday, stating the "ECB will do what it must to raise inflation." Of course the euro fell against the dollar.
This is my 'tough, determined, and intelligent' look. Mirror practiced it for years.
The dollar's move was bolstered by comments from Vice Chairman Fischer Thursday night that December looked right for a rate hike, with of course, the usual fine print caveat regarding a hike being 'data dependent.' Translated: if the market is not a crashing, the Fed is a hiking.
Stocks seem comfortable with that, at least for now that it is still theory. When the sharp slap of reality comes perhaps that changes. The Fed Minutes, however, basically said that while the Fed likely hikes in December it is not going to implement a series of staccato hikes. Couple that with China's ongoing stimulus jabs and Japan slipping into a 5-dipper recession, you have a stock market that sees enough money printing around the globe to keep money flowing into financial assets, inflating their prices.
The irony? If the ECB measured inflation by financial assets it would have all the inflation rise it could ever want. And you know what? The further irony: that is the ONLY inflation rise it will get if you print money.
The BIG news re the Fed: It is reported that it has called an expedited, closed meeting for Monday.
Well, there you go. Rate hike pre-Thanksgiving? A rate cut to undermine the dollar's advance, taking rates negative toward supposed equilibrium? Ah, transparency.
Solid moves higher on the week in an attempt to resume the yearend run. An excellent week no matter what comes next, but a continued yearend run, or at least through Turkey Day would be a good year.
SP500: Up but gave up off the high as much as it closed positive. A solid week upside with three upside days, two marginally down days, more or less back in the middle of the March to August range. The next big test for SP500 is whether it continues higher to test the early November recovery high or even the 2015 highs in May and July. Good resurrection of the October yearend run, but hopefully there is more holiday energy left.
NASDAQ: Gapped higher Friday to cap a solid week. Back to the late April high, May high, still below the early November peak that stalled at the June and August highs, the last before the 2015 high in July. Similar to SP500, NASDAQ is still below the November peak, the recovery high off the August/September selling. The old leaders came to NASDAQ's aid last week, the reason the index moved higher. The 50 day EMA is crossing up, barely, through the 200 day SMA. Not a bad development.
DJ30: Similar to SP500, the Dow surged then gave up 90 points of the gain, as much as it closed with. Unlike SP500, the Dow tested close to the November recovery peak before backing off. That puts it near midrange for the March to August lateral move and perhaps at a bit of resistance.
RUTX: Actually, not bad action. Recovered the 50 day SMA Monday, surged past the top of the October lateral range Wednesday, held the 50 day EMA on the Thursday test, rallied upside Friday off the 50 day EMA. Not bad recovery action underway, and it would be an unexpected bonus if the small caps rejoined the move . . . once again.
SP400: Impressive week after SP400 broke below the October consolidation range. Moved back to it Monday and through it and beyond on the week. Not an auspicious move Friday but held onto enough gain to hold the break through the top of the range.
SOX: Up on the week as well, coming off the 50 day EMA. Not a huge move, more drifting higher off support. Ironic as chips sport, as a group, some of the better patterns in the market. Indeed, SOX sports a good pattern, an ABCD at the 50 day EMA off of the October run. It has yet, however, to break beyond the 200 day SMA and the October recovery high.
Big Names: These stocks reignited the upside last week after two weeks of pullback, three in the case of SOX. NFLX continued its strong advance, touching off our initial target and we banked some of the gain per our plan. GOOG broke to a new high Friday. SBUX bounced off the Wednesday test on better volume. AMZN gapped to a doji to end a good week but not huge, still below the early November high. AAPL gapped to a doji after a very solid week. FB is up but stalling at the prior peaks. Yes these stocks helped push NASDAQ back upside, but the patterns are not all unequivocally positive. Indeed, CMG has e coli in more stores and the stock imploded yet again.
Financial: Banks enjoyed a solid week with nothing as nothing altered the notion the Fed hikes in December. Well, not entirely true; there is that Monday expedited and closed meeting to factor in. Perhaps that is why the financial stocks struggled just a bit on the Friday session, e.g. JPM, GS, BAC.
Chips: Friday was not a huge day, but still some excellent moves in progress from good patterns. AMAT is touching the October high. QRVO was off to end the week but had a good week. MXWL surged back upside Friday after a midweek melt back to support. SLAB, XLNX enjoyed a great week even if they were off a bit Friday.
China: Another good week, another mixed week. YNDX up nicely all week, including Friday. SOHU moved higher nicely but stalled at the 200 day SMA Thursday and Friday. CTRP gapped higher again Thursday. BIDU broke higher midweek, tested some Friday. Still a solid session.
Energy: Basically in a struggle. CVX, HAL. APC has flopped, but at least back to a support level.
Drugs/Biotech: Some nice moves higher, but in many cases, not what you could call recoveries, e.g. CELG, AMGN. Others not bad, e.g. CLDX bursting higher Friday. BIIB setting up a nice pattern. MYL enjoyed a solid week. KITE continues to rally.
Retail: COST was up nicely. Some recovered late in the week, but after massive drops. DDS back up after earnings but a bear flag. RH is trying to hold support after a 15 point drop. WSM continued to sell but showed a very large doji Friday, also at a support level. FL beat earnings results and gapped upside but after a huge drop before that. ANF beat and gapped through the 200 day SMA and other resistance. LB bounced off the 200 day SMA, getting a rise in anticipation of the holiday fashion show? There is some life starting to come back in. Just not in M or in JWN as the latter has bounced to a bear flag similar to DDS.
Industrials: Some good, some not so good. ETN posted a nice bounce from the 50 day SMA and continued the move Friday. FLR bounced nicely off the 50 day EMA but Friday gapped higher then reversed the gains. MMM posted a decent week, finding traction at the 200 day MA and bouncing Wednesday to Friday.
Stats: +31.28 points (+0.62%) to close at 5104.92
Volume: 1.717B (-1.9%)
Up Volume: 1.18B (+195.46M)
Down Volume: 556.17M (-235.17M)
A/D and Hi/Lo: Advancers led 1.7 to 1
Previous Session: Decliners led 1.23 to 1
New Highs: 73 (+4)
New Lows: 86 (-25)
Stats: +7.93 points (+0.38%) to close at 2089.17
NYSE Volume: 1B (+21.85%)
A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Advancers led 1.12 to 1
New Highs: 74 (+26)
New Lows: 122 (+36)
Stats: +91.06 points (+0.51%) to close at 17823.81
VIX: 15.47; -1.52
VXN: 17.03; -0.91
VXO: 15.4; -1.29
Put/Call Ratio (CBOE): 0.94; -0.01
Recent history: The ratio put in a strong of 1.0+ closes over two weeks long during the selling. Backed off on the rally, but then put in almost 10 straight sessions above 1.0 as stocks sold the first half of November. Sure enough, the market has bounced from there.
Bulls and Bears: Bulls pulled back on the week, the second straight weekly decline, but frankly not much of a drop at all. Bears went the other way, fading from a bounce higher the prior week. At this level they don't really mean much. They crossed back in the selling and helped set the stage for a new move higher.
Bulls: 43.3 versus 45.3
Bears: 26.8 versus 28.9
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.
45.3% versus 46.9% versus 43.7% versus 37.5% versus 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
Background: Bulls hit their lowest level since the 2008 and 2009 market plummet.
28.9% versus 28.1% versus 29.2% versus 31.3% versus 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.
Bonds (10 year): 2.26% versus 2.23%. After rallying further off the low high two weeks back, bonds stalled Friday and faded to test the Thursday upside gap.
Historical: 2.23% versus 2.27% versus 2.26% versus 2.27% versus 2.28% versus 2.32% versus 2.32% versus 2.35% versus 2.33% versus 2.24% versus 2.23% versus 2.22% versus 2.19% versus 2.15% versus 2.17% versus 2.09% versus 2.03% versus 2.06% versus 2.09% versus 2.03% versus 2.07% versus 2.03% versus 2.03% versus 1.98%
Euro/$: 1.06486 versus 1.0723. Still trending lower, turning sharply lower Friday after bumping the 10 day EMA Thursday. Steady trend lower.
Historical: 1.0659 versus 1.0642 versus 1.0669 versus 1.0751 versus 1.0821 versus 1.0740 versus 1.0725 versus 1.0754 versus 1.0742 versus 1.0878 versus 1.0860 versus 1.0963 versus 1.1012 versus 1.1015 versus 1.10979 versus 1.1030 versus 1.1047 versus 1.1049 versus 1.1017 versus 1.1108 versus 1.1339 versus 1.1347 versus 1.1320 versus 1.1351
DXY0: Faded to the 10 day EMA after a solid move this week.
USD/JPY: 122.79 versus 122.98. Down to end the week but just testing the surge higher.
Historical: 122.98 versus 123.55 versus 123.44 versus 123.20 versus 122.67 versus 122.56 versus 122.85 versus 122.90 versus 123.16 versus 123.16 versus 121.76 versus 121.58 versus 120.98 versus 120.77 versus 120.62 versus 121.10 versus 120.34 versus 120.36 versus 121.10 versus 121.46 versus 120.71 versus 119.925 versus 119.897 versus 119.52 versus 118.87 versus 119.66
Oil: 41.46, -0.26. Tried to bounce the past week after selling off from the early November high. Made a lower low, trying to bounce but stalling at the 10 day EMA Thursday and Friday.
Gold: 1076.70, -1.20. Sold off early week, trying to bounce late week, but stalling at the July low. Ironic. Still hearing those commercials on Talk Radio stations about how all the 'great' investors are buying tons of gold. That would of course require some real catastrophic event. Maybe that happens. Certainly gold is in a position to bounce after a 100+ point drop.
Thanksgiving week is up and the week is often a good one or at least decent for stocks. Last year was a good week, the end of the run off of that Ebola/end of QE low. Perhaps this move continues through the week up to the November high, perhaps more.
At this point everything upside is kind of a bonus.
Here is where I will, to a modest extent, look farther out. Usually don't do so because that doesn't mean anything in the stock market. Theories about where the market will be at this time or if a crash is coming or a 20% rally are all garbage even if correct. There is a commercial on the radio now about this fellow who 'predicted' the internet bubble/crash and who predicted the housing market crash. Hell, everyone I know predicted those crashes, it was just the timing they got wrong. Internet stocks rallied for two years after some very smart people said they had to crash. Lots of money was made in those two years.
Saying you 'predicted' a crash after the fact just because you said it would happen at some point before occurred means nothing; it is not anything you can act on until you see it start. Otherwise you fall in the trap of thinking your theories, even if right, are a market timing device. Utter nonsense.
So, consider the following in that context. You cannot trade off of it but you can consider it in determining the risk/reward of the market and the type of investments (short term, long term, upside, downside) you make. Remember, investing and trading, long term or short term, is ALL about the risk/reward, i.e. the probabilities of success of each investment or trade. Is the reward such that it justifies the risk? If not, then look elsewhere.
What about that farther look out?
QE ended in October 2014 and the market dove lower that month. But the end of QE wasn't the cause; the Ebola scare ignited the selling and combined with the idea of QE ending the market plunged. As fast as it fell, however, it recovered, moving to a higher high. Stocks continued upside into mid-2015 but flattened out February to August as measured by the SP500.
Then came the August selloff. Massive selling even more powerful than the October 2014 selling. A classic late summer/early fall double bottom formed with extreme negative internals, extreme negative sentiment, and key stocks such as AMZN and PCLN holding at their trendlines. Then the upside unleashed in the October run that came close but could not take out the mid-2015 highs. They are currently testing, now rebounding, trying to get past the recovery high and challenge the prior highs.
At least for the large cap indices. SP400 and RUTX, midcaps and small caps, are not in the same position, notably lagging the large cap indices. The drivers? Mostly a small group of large cap stocks that are getting most of the money. Without the smaller cap stocks, the market has a harder time moving higher because the smaller caps project economic activity. When they lag that indicates the economy will lag. Retail stocks show utterly horrible action the past month or so. Unless they stage a serious recovery that does not bode well for the 'healthy' consumer we heard the bald guy on CNBC exclaim on Friday morning as he reviewed the ANF, FL, WSM, ROSS earnings. They were not bad earnings; they will have to prove, however, they can recover.
That is the setup. With the large cap indices not far off the 2015 highs and the small and midcaps not following, the upside risk/reward is not the best. Don't be me wrong; there are very good setups to the upside that we are playing right now. NFLX is a classic example. There are other nice setups in industrials, chips, etc. They can make great money into the yearend as the run continues.
Even if the indices reach the old highs, then it is a matter if the move broadens out once more to include the small and midcaps as well.
You know our view on the economy: bifurcated, skewed to the advantage of the largest companies and food service companies. Those companies do not produce the jobs that the economy used to. Lots of hourly, low pay jobs in the service industry, few salaried breadwinner jobs that the economy used to produce. Unless the policies change dramatically, the economy won't change.
Thus no backup from the economy. The Fed is going to hike rates. QE is over. The market has formed a top and pitched over after QE's end. It has recovered but now is at a crucial test of the prior highs.
As noted above, this suggests a poorer upside risk/reward overall. In the big picture, without some other Fed inducement, this end of QE likely results in what all QE ends thus far have resulted: the market struggling and moving lower. The Fed so wants to raise rates and cut stimulus, however, that it will take a market selloff of significant proportion to move it to strike up QE again.
That raises the question as to what will come out of the Monday expedited meeting. Does the Fed see the confluence of the retail sales, retail stock charts, overall market patterns, geopolitical strife and now fears a meltdown? Very peculiar event this expedited meeting.
For us, all things as is, without some new Fed initiative the upside may be limited as the large cap indices bunch up against the prior highs. This looks like pretty classic rollover action over the past 14 months. So, we play the upside on this yearend run just as we said we would do off of that September low when the market set up that classic bottom, noting that the end of that run may be approaching during the holiday season. That means we play good setups as we have, and there are still several out there though the big names that again started the upside are not all in position to buy. We take gains when they are there, let positions run as far as they will, taking profits along the way. Then as the good setups become less frequent we are automatically lighter as we take profits and buy less new positions. If the leaders stumble we start closing down the upside, get even lighter, see what sets up downside if anything, and play what the market gives.
Thanksgiving Week. As noted, often an upside week. Stocks are higher heading in so it may not be an upside barnburner. We picked up some good positions heading in and as long as they work higher we let them work. Thus far the market has not turned on its leaders in the recovery. As long as that holds there is upside potential.
Monday to Wednesday are full sessions. Market closed Thursday and closes at 1:00ET Friday. Normal report Monday, abbreviated Tuesday, Wednesday market stats and updated play tables. Reports resume the following Monday. Alerts will issue as usual during market hours.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5104.92
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
5100 from the April peak and early May peak
5042 is the March 2015 high
5008.57 is the early March 2015 post-bear market high
4999 is the October upper gap point
The June low at 4974
The 200 day SMA at 4964
The 50 day EMA at 4964
4920 is the lower gap point from mid-October
4912 the mid-April China dip
4910 is the July 2015 closing low
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
S&P 500: Closed at 2089.17
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
2079 is the intraday all-time high from November 2014
2076 is the all-time high from November
The 200 day SMA at 2065
2062 is the January 2015 lower high
2046 is the July 2015 closing low
The 50 day EMA at 2044
2040 is the March 2015 closing low
2011 is the September prior all-time high
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 17,823.81
17,978 is the November 2015 peak
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
The March low at 17,786
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
June low at 17,715
The 200 day SMA at 17,589
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,346
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
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
November 23 - Monday
Existing Home Sales, October (10:00): 5.50M expected, 5.55M prior
November 24 - Tuesday
GDP - Second Estimate, Q3 (8:30): 2.0% expected, 1.5% prior
GDP Deflator - Second, Q3 (8:30): 1.2% expected, 1.3% prior
Case-Shiller 20-city, September (9:00): 5.2% expected, 5.1% prior
Consumer Confidence, November (10:00): 99.6 expected, 97.6 prior
November 25 - Wednesday
MBA Mortgage Index, 11/21 (7:00): +6.2% prior
Initial Claims, 11/21 (8:30): 272K expected, 271K prior
Continuing Claims, 11/14 (8:30): 2164K expected, 2175K prior
Personal Income, October (8:30): 0.4% expected, -0.1% prior
Personal Spending, October (8:30): 0.3% expected, 0.1% prior
PCE Prices - Core, October (8:30): 0.2% expected, 0.1% prior
Durable Orders, October (8:30): 1.5% expected, -1.2% prior
Durable Goods -ex transports, October (8:30): 0.5% expected, -0.6% prior (revised from -0.4%)
FHFA Housing Price I, September (9:00): 0.3% prior
Michigan Sentiment - Final, November (10:00): 93.1 expected, 93.1 prior
New Home Sales, October (10:00): 504K expected, 468K prior
Crude Inventories, 11/21 (10:30): 0.252M prior
Natural Gas Inventories, 11/21 (24:00): 15 bcf prior
End part 1 of 3
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