* * * *
12/19/2015 Investment House Report
* * * *
Targets hit: AAPL; JWN
Entry alerts: GOOG; SDS
Trailing stops: None issued
Stop alerts: None issued
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdaily.html
********************************************************************
The Market Video is DIVIDED into component parts: Market Overview, Economy, Technical Summary, and the Next Session. Choose the segments you are interested in without having to search a longer video. Click on the link to the portion you wish to view.
TO VIEW THE MARKET OVERVIEW CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/mo/mo.mp4
TO VIEW THE Economic SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.mp4
TO VIEW THE TECHNICAL SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/ts/ts.mp4
TO VIEW THE NEXT SESSION VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/nxt/nxt.mp4
********************************************************************
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
- Yellen providing the coal for Christmas?
- Stocks dive hard post-FOMC, post-yuan devaluation, a setup very similar to August.
- Holiday week, but with the downside the action could be very fast and unusually interesting.
Feeling a bit Grinchy . . . A little coal for the holiday?
It's just a 25BP rate hike . . .
The stock indices sold for a second straight session Friday, posting more significant losses. Indeed, the two-day move wiped out the Monday to Wednesday rebound. More than that, SP500 and DJ30 undercut the 38% Fibonacci retracement double bottom that bounced the indices higher through Wednesday. That has morphed NASDAQ, SP500, and DJ30 into something of a head and shoulders rollover. They did roll over Friday, with the Dow leading lower with its 2.1% decline.
SP500 -36.34, -1.78%
NASDAQ -7947, -1.59%
DJ30 -367.29, -2.10%
SP400 -1.34%
RUTX -1.26%
SOX -1.21%
VOLUME: NYSE +165%, NASDAQ +67%. Big expiration volume with NYSE showing 1.3B shares trading right at the close. LOTS of positions rolled over.
A/D: NYSE -1.8:1, NASDAQ -1.7:1. Very modest A/D for such an ugly session. Very modest as the large caps led the downside.
We knew expiration would be a big one given the massive number of open interests at various lower SPX mini strikes. Friday indeed was a big expiration in many ways, and it is no coincidence that SP500 closed almost dead on 2000 where a significant number of open put interests resided (along with 2050, 1950, and 1900).
The prior action saw stocks rally into and immediately after the FOMC decision. Subsequent to that initial response, however, it would appear there is considerable disquiet about the Fed hiking in what is by every measure other than the jobs report the Fed is using as its barometer, as well as an overtly negative reaction to the New York Fed's reverse repo action Thursday.
Importantly, do not forget China spent the past nine sessions devaluing the yuan. This is exactly what China did in August right up to the brink of the massive selloff, the Thursday and Friday dive lower followed by the Monday flash-crash dive.
So, there is the same China devaluation as well as Fed hike and start of liquidity withdrawal. On top of that, the indices already crashed once, tried to recover back to those highs but has failed.
If you look at the chart patterns, the setup is strikingly similar to August. A move higher off selling, a drop, then a recovery but to a lower peak. Two hard days down, then in August came the crash the following Monday.
Thus, while often a down expiration is met with a rebound Monday, the setup this time might not be conducive to that bounce, at least not until a big dive gets the market again in an oversold condition. I am not saying any weakness Monday will be the same as in August; even the this week's Thursday and Friday were not as weak as in August. Nonetheless, the setup is very familiar, and with the breakdown of the bounce attempt off the 38% Fibonacci retracement double bottom, the support at 1990 and 1980 will likely receive a severe test.
So, a week away from Christmas it may very well be the pre-triple sized heart Grinch and pre-reformed Ebenezer Scrooge come to visit next week.
Of course that sets up the coming of the heartier Grinch and repentant Scrooge with a Christmas/Santa Clause rally to year end. We hope to make good money on our SDS, GOOG, SBUX downside plays as well as more gain on the AAPL and JWN that turned in nice gains to the accounts on Friday when the Grinch and Scrooge started showing up. Perhaps we can get an AMZN and DIS play worked in there as well.
Then, after a sharp drop, we can start looking at more upside on the big names that did not crash or that perhaps did and held at those August or September lows, playing the Grinch's 3X heart and Scrooge's dramatically improved outlook on life.
Redemption perhaps, but will it last?
Not a rosy near term outlook, and indeed, even if the market sells and rebounds, the old highs are still in place, including a failed lower high. The Fed built the new all-time market highs in 2015 with a series of QE programs. It ended those in October 2014 and is now in the tightening mode.
It is our position that the vast majority of the economic recovery was built on the massive liquidity evidenced by the Fed's $4.5T balance sheet built with the QE programs. With that gone what holds up the economy and thus the market? The Fed points to the jobs market as evidence of economic strength, leaving out key points such as 94.5M working aged people out of the workforce, the jobs created were low pay hourly jobs that those who are working need two or three of just to make ends meet, that the 26 to 54 age demographic is STILL negative on jobs, that the huge majority of hires went to the 55+ demographic that has gone back to work in droves so they can do more than eat Ol' Roy from Wal-Mart that they get at a 10% discount because they now work there.
It is bad enough that the Fed's primary indicator is as sound as a submarine with screen portals. The rest of the economic data is downright crappy. Manufacturing, with its 77% correlation to the GDP, is in full contraction, hitting lows not seen since 2009. Capital investment is so bad that companies are not even trying to increase dividends or announce buybacks. As the Fed hikes, capital becomes more expensive and thus buybacks as well. Industrial production was negative 2/3 of 2015 and Capacity fell a full 2 points from 2014. Robert Schiller says the housing market never made it back and is now threatened by the Fed rate hikes. The Atlanta Fed just downgraded its Q4 GDP.
The list goes on but the Fed has decided it has to raise regardless of the economic condition. The proof: it passed in September when the economic data was at least a bit better, but it held to its December rate hike promise (threat?) even as the data crumbled.
Historically speaking, the Fed just screwed us all. Again.
The kicker, however, is history. It is said if you don't know history you make the same mistakes. More importantly, however, you have to know what happened in the past AND RECOGNIZE when you are in the same situation. If not, even know history does not help.
Wednesday the Fed hiked rates, not because of the data, but in spite of it. Industrial Production, the last report it had pre-hike, careened lower yet again at -0.4% on top of October's -0.4% (revised lower from -0.2%). Only two times since 1950 has Industrial production been this low and no recession resulted. Factory orders are already at recession levels. Manufacturing has been in recession. Consumer spending is hanging on but the reason is not because of consumption of discretionary goods but forced spending on more costly insurance policies through the 'tax' of the Affordable Care Act.
Jobs are a lagging indicator. Everything else is leading. Thus we are very concerned the Fed has just 'pulled a Japan,' i.e. hiking rates to try and spur growth in 2000 after more than a decade of zero rates and bailouts led to depression. Of course, its QE has not brought Japan back either, something of which many are keenly aware.
There is another instance this happened, back in 1936 after the US tried to recover from the initial bomb lower in the Great Depression. Not only did the central bank hike so much it crashed the US markets and helped trigger the Depression, but when the economy showed signs of improvement it hiked again and we know the history.
The stock index charts and their rounded tops formed starting October 2014 strongly suggest that end of QE started the market top as the economy no longer had that monthly stimulus. They hung on in 2015 until it was clear the Fed was determined to hike and withdraw liquidity on top of ending QE. Then the late Summer/early Fall crash. Now the actual hike is in and it looks as if a rebound attempt post-the late summer crash has failed.
THE MARKET
CHARTS
Not much to say other than the large cap indices failed their rebound attempts as they undercut the November and December lows. SP400 as well. It appears the rebound attempt failed again at a lower high. Now it is a matter of the indices getting oversold enough to attempt another relief move.
NASDAQ: Not as massive as breakdown in the chart, but not good action. The rollover at a lower level has set up a head and shoulders top spanning the early November high to Wednesday. Friday NASDAQ gapped below the 200 day SMA and sold to a lower closing low since October. It is at the lower gap point from a mid-October upside gap. There is support at this level but it likely does not hold NASDAQ from further downside even if there is a near term stand.
SP500: Imploded lower, closing at a new closing low since October. Something of a head and shoulders here as well, but whatever you call it, the ABCD pattern tried to bounce, managed to do so for three sessions, then it died. 1990 to 1980 is an important support level and just 15 to 25 points away, much less than the Friday point loss. What we could see is a dive lower to start the week that ends up closing near that range.
DJ30: Bombed to a lower low Friday, undercutting the November and December lows. 16,500ish is the next serious support.
RUTX: Two day bounce into Wednesday and the FOMC then a rollover into Friday. Unlike the other indices, RUTX avoided a lower low on this selling, but the first two weeks of December were very weak and the large cap indices are just now starting to catch down to the small caps.
SP400: The midcaps sold to its lowest closing low since early October. It looks as if SP400 is in the process of forming a large head and shoulders spanning August to present, currently heading lower to the neckline to complete the head. That would mean another 25 points to the downside on this move.
SOX: SOX continues to hang on, but it did break through the 50 day EMA and put in a lower low for the month. Lower MACD on the early December peak. Similar to SP400, SOX may be heading down to 644 (closed at 653+) to finish off the head in a head and shoulders. Either way it looks as if SOX heads down to that level.
LEADERSHIP
Big Names: Some problems continue to grow. AAPL failed at the 10 day EMA this week and rolled over to a lower low on big volume. GOOG is rolling lower after failing to take out the early December peak. AMZN tried the 2015 high and rolled over. SBUX broke lower below the bottom of its two month range. NFLX fell Friday but is still in nice position. MSFT broke sharply lower Friday but did not break trend.
Chips: AMD lower but holding the 10 day EMA. LSCC is in excellent position in a tight lateral move. SIMO is holding the 50 day EMA test. QRVO, NXPI struggle. AVGO tested a bit lower but shows a nice doji at the 20 day EMA.
China: WUBA is taking a breather after a good run. YNDX is weaker, showing a head and shoulders. NTES continues its trend higher up the 10 day EMA. JD is holding up. SOHU is fling higher.
Financial: Stinking. JPM diving lower through the 200 day SMA. BAC rolled hard as did MA. Financials hating a rate hike. That isn't right.
Energy: CVX, XOM lost modest ground. HAL was gut punched lower again. HP lower. Not much good outside of refiners, e.g. VLO.
Drugs: Not bad at all. ACHN is setting up during the selling. EYES faded some after the strong Wednesday and Thursday move; maybe a further test gives us an entry. MYL held up well enough. BIIB used Thursday and Friday to put in a very nice, orderly test of its breakout. Defensive and looking pretty good.
Industrial: Struggling. UTX turns back down. MMM gapped lower Tuesday and Friday sold hard. CAT, CMI stink. DE broke downside.
MARKET STATISTICS
NASDAQ
Stats: -79.47 points (-1.59%) to close at 4923.08
Volume: 3.086B (+67.23%)
Up Volume: 1.07B (+603.02M)
Down Volume: 2.68B (+1.29B)
A/D and Hi/Lo: Decliners led 1.68 to 1
Previous Session: Decliners led 1.97 to 1
New Highs: 38 (-14)
New Lows: 161 (+22)
S&P
Stats: -36.34 points (-1.78%) to close at 2005.55
NYSE Volume: 2.45B (+164.86%)
A/D and Hi/Lo: Decliners led 1.86 to 1
Previous Session: Decliners led 1.88 to 1
New Highs: 19 (-16)
New Lows: 224 (+45)
DJ30
Stats: -367.29 points (-2.1%) to close at 17128.55
SENTIMENT INDICATORS
VIX: 20.7; +1.76
VXN: 21.5; +1.22
VXO: 21.21; +1.87
Put/Call Ratio (CBOE): 1.03; +0.05
Recent history: Back above 1.0 after four days below. 13 of 19 sessions above 1.0. Now we see it start over again.
Bulls and Bears: The spread shows a familiar pattern in this market: bulls higher while bears rise as well. Of course after this past week bulls will tumble and bears will growl higher.
Bulls: 37.8 versus 44.9. A serious drop taking it close to that 35% level, below which is considered bullish.
Bears: 29.6 versus 27.6. Solid advance but nothing like the bulls' drop. Still well off the 35%, above which this reading is considered bullish for stocks.
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: 37.8%
44.9% versus 41.2% versus 45.4% versus 43.3% versus 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 in 2015 since the 2008 and 2009 market plummet.
Bears: 29.6
27.6% versus 26.8% versus 26.8% versus 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. Both occurred in fall 2015.
OTHER MARKETS
Bonds (10 year): 2.19% versus 2.24%. Gapped back over the 200 day SMA as bonds cannot make up their minds. The yield curve is flattening still, something not supposed to happen in a strong economy with the Fed hiking. Instead it looks as if bonds are signaling concern about the economy's future.
Historical: 2.24% versus 2.29% versus 2.27% versus 2.23% versus 2.13% versus 2.23% versus 2.21% versus 2.23% versus 2.23% versus 2.27% versus 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 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%
EUR/USD: 1.0868 versus 1.0818
Historical: 1.0818 versus 1.08334 versus 1.0934 versus 1.0992 versus 1.0987 versus 1.0944 versus 1.1029 versus 1.0892 versus 1.0844 versus 1.0872 versus 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 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
DXY0: Faded modestly after a three day rally off the 50 day SMA.
USD/JPY: 122.30 versus 122.68
Historical: 122.68 versus 122.35 versus 121.64 versus 120.85 versus 121.64 versus 121.40 versus 122.97 versus 123.28 versus 123.15 versus 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 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
Oil: 34.73, -0.22. Falling toward support at 32-33. Some are saying the 20's are possible. We will see how it holds at that next support.
Gold: 1065.00, +15.40. Diving back to the early December low as it should when the Fed hikes.
MONDAY
Christmas is Friday so of course a shorter week. Doesn't mean there won't be fireworks as discussed in the market summary. Normally a quiet week but this time around you have the Fed making waves along with China, and the two are hitting markets that view world economies as weaker.
The week finished hard downside, but there is no guarantee the market sells to start the week, but the setup is there. It could be fast and furious similar to August. It could be a rebound attempt that fails. Either way, we make the plays downside fast, taking gain if there is a big dive that starts to hold the line. We will try to pick up some other downside for quick plays if we get the chance, e.g. DIS, YNDX. A failed bounce would fit perfectly into that scenario.
Then, after a sharp drop we look for indications of a rebound similar to August. We will watch for good names that do not break their patterns. We will also look at those stocks that people and funds buy when they feel there is value. We will just have to see how they hold up.
All of this in normally a quiet week, but this could be the gift that Yellen did not really intend to give. We can make some really good late returns with this kind of action, finishing off the year with a nice addition to the brokerage accounts.
Pretty sharp sell side pressure is on the market but it was also expiration. That can lead to an opposite move the following Monday, or at least a bounce attempt. Monday could provide several scenarios: sharply lower, tries to rebound and fails, or perhaps a solid bounce.
With all of the negativity, we will be ready to let the downside run, look at some more quality downside, and see what the market is willing to give us in that direction. We will gladly take it and make some more fast gains (that is how the downside works) ahead of Christmas and perhaps the New Year. Then it may be time to buy long fairly aggressively. Yes it is a holiday week and typically slower. But there is a saying: when the fish are biting, you fish because most of the time they don't. So, if the money is there to be picked up thanks to Yellen, China, or whatever, pick it up!
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4923.08
Resistance:
The June low at 4974
The 200 day SMA at 4977
4999 is the October upper gap point
5008.57 is the early March 2015 post-bear market high
The 50 day EMA at 5009
5042 is the March 2015 high
5100 from the April peak and early May peak
5162 is the early November peak, 5176 is the December intraday peak
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
Support:
4920 is the lower gap point from mid-October
4916 is the mid-November 2015 low
4912 the mid-April China dip
4902 is the July 2015 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 2005.55
Resistance:
2011 is the September prior all-time high
2040 is the March 2015 closing low
2046 is the July 2015 closing low
The 50 day EMA at 2051
2062 is the January 2015 lower high
The 200 day SMA at 2062
2079 is the intraday all-time high from November 2014
2094 is the December 2014 high, the prior all-time high
2104 is the December 2015 high
2116 is the November 2015 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:
1995 is the September 2015 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 17,128.55
Resistance:
17,152 is the mid-July post bear market high
17,200 is the 38% Fibonacci retracement
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,474
The 200 day SMA at 17,547
June 2015 low at 17,715
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
The March low at 17,786
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
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
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
ECONOMIC CALENDAR
December 22 - Tuesday
GDP - Third Estimate, Q3 (8:30): 2.0% expected, 2.1% prior
GDP Deflator - Third, Q3 (8:30): 1.3% expected, 1.3% prior
FHFA Housing Price I, October (9:00): 0.8% prior
Existing Home Sales, November (10:00): 5.30M expected, 5.36M prior
December 23 - Wednesday
MBA Mortgage Index, 12/19 (7:00): -1.1% prior
MBA Mortgage Purchas, 12/19 (7:00)
Durable Goods -ex tr, November (8:30): 0.5% prior
Durable Orders, November (8:30): 3.0% prior
PCE Prices - Core, November (8:30): 0.0% prior
Personal Income, November (8:30): 0.3% expected, 0.4% prior
Personal Spending, November (8:30): 0.1% prior
Personal Spending, November (8:30): 0.3% expected, 0.1% prior
PCE Prices - Core, November (8:30): 0.2% expected, 0.0% prior
Durable Orders, November (8:30): -0.7% expected, 3.0% prior
Durable Goods -ex tr, November (8:30): 0.0% expected, 0.5% prior
Michigan Sentiment - Final, December (10:00): 92.0 expected, 91.8 prior
New Home Sales, November (10:00): 505K expected, 495K prior
Crude Inventories, 12/19 (10:30): 4.800M prior
December 24 - Thursday
Continuing Claims, 12/12 (8:30): 2228K expected, 2238K prior
Initial Claims, 12/19 (8:30): 271K expected, 271K prior
Natural Gas Inventor, 12/19 (10:30): -34 bcf prior
End part 1 of 3
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Saturday, December 19, 2015
Saturday, December 12, 2015
The Daily, Part 1 of 3, 12-12-15
* * * *
12/12/2015 Investment House Report
* * * *
Targets hit: SDS
Entry alerts: AAPL; CTRP
Trailing stops: NFLX; PCLN
Stop alerts: AKS; PCLN; SBUX; SIMO
The market alert service is a premium level service where we issue intraday alerts relating to the general market conditions, when stocks hit action points (buy, stop, target, etc.), and when we see other information impacting the market or our stocks. To subscribe to the alert service you can sign up at the following link:
http://www.investmenthouse.com/alertdaily.html
********************************************************************
The Market Video is DIVIDED into component parts: Market Overview, Economy, Technical Summary, and the Next Session. Choose the segments you are interested in without having to search a longer video. Click on the link to the portion you wish to view.
TO VIEW THE MARKET OVERVIEW CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/mo/mo.mp4
TO VIEW THE Economic SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/eco/eco.mp4
TO VIEW THE TECHNICAL SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/ts/ts.mp4
TO VIEW THE NEXT SESSION VIDEO CLICK THE FOLLOWING LINK:
Flash: http://investmenthouse1.com/ihmedia/f/nxt/nxt.mp4
********************************************************************
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
- SP500 breaks support, DJ30 breaks trend, following the small and midcaps lower. SOX remains decent.
- Watching support levels as more leaders start to fail.
- Retail sales decent enough though rising prices color the result.
- M&A to cut more US jobs
- Insiders selling at historically high levels.
- Is a rate hike really factored in?
- Largest option expiration in years looms with lots of long puts at lower SP500 strikes.
- The makings of another turbulent week. Time to protect positions, use moves to our advantage, be patient to let the next move set up.
It would appear RUTX and SP400 were simply early leaders -- to the downside. Those indices faltered at support early week, broke lower to midweek, giving up their trendlines. Friday SP500, DJ30 and NASDAQ joined them in the trendline break. They also added 2% losses on the session, but they are just trying to keep up with the small and midcaps that continue diving lower. They have a long way to go, however, given the smaller cap indices bombed another 1.5% to 2% Friday themselves.
Stock futures fell off of decent levels early morning, then flopped just ahead of the opening bell. Unlike other sessions, no attempt at bids on the session as the low open was sold and the indices trended lower all day, closing at the session lows.
SP500 -39.86, -1.94%
NASDAQ -111.70, -2.21%
Dj30 -309.54, -1.76%
SP400 -1.57%
RUTX -2.21%
SOX -1.99%
VOLUME: Of course it rose on the downside session, NYSE +14%, NASDAQ +18%, both easily back above average after Thursday's lower volume upside relief move. Stocks continue to fall on rising volume as investors don't want to own them right now.
A/D: Impressively weak. NYSE -7:1, NASDAQ -5:1. Weak, but not extreme. When it gets to around -10:1 NYSE, THAT is extreme.
Why the weakness? Likely because there is just nothing good to report economically that shows any real improvement with the FOMC rate hike on top of those numbers. After 10 years the market is a bit apprehensive as to what the result will be in terms of the economy and market, and the 'sell' button received a lot of use today.
SP500 crashed the 38% Fibonacci retracement as well as the trendline while DJ30 and NASDAQ held the 38% level. Ironically, NASDAQ broke below the 200 day SMA just days after the 50 day SMA moved up through the 200 day SMA, trying to reverse the 'death cross.' Decent that those two held the retracement, but that has not meant a thing thus far in terms of holding and bouncing back upside.
The market is in full sell mode ahead of the FOMC and as usual when in this circumstance, it is a matter of watching and seeing where the leading stocks and the indices actually decide to hold the line. Friday some of the big names broke lower through next support (e.g. AAPL, SBUX) while others hung in decently (e.g. GOOG, PCLN). Others are in between, e.g. NFLX, FB. We closed several just to avoid getting caught in a further selloff, noting if they suddenly hold we can always get back in.
We picked up some AAPL and CTRP puts, took some gain on the SDS position as it brushed the initial target, and closed others such as PCLN, NFLX to avoid any damage. Again, we can always move back into those stocks if they hold versus fold if, after all of the volatility and then downside on the week, the market gets comfortable with what the Fed will do next week.
A bit of a sense of certainty regarding the Fed could change the new market character, but when you look back at the pattern since October 2014, this looks as if it is a break lower that is hardly resolved at this point. Doesn't mean the market won't bounce on an interim basis to test the break, but once it does, the likelihood of holding and continuing to higher highs is slim.
NEWS/ECONOMY
Quite a bit of news out Friday, some of it planned, some not. Some perhaps impacted the market action, but it was hard to tell. Some was solid enough, some others were less great.
Retail Sales, Nov: 0.2% vs 0.3% exp vs 0.3% prior. Weakest year/year since 11/2009
Ex-autos: 0.4% vs 0.3% exp vs 0.1% prior as autos fell 0.4%.
Control group: 0.6%. That feeds into GDP so GDP will get a boost.
How reliable are these numbers? At this point who knows? Gasoline is lower so that is a drag. Food is higher and that is inflation versus eating more food. Remember, retail sales measures dollars spent, not quantities purchased. Better than expected in some areas, worse in others. Overall, taken at face value, the 'ex-' group is better. The overall number is kind of recessionary.
PPI: 0.3% versus 0.1% versus -0.3% prior
Core: 0.3% versus 0.1% expected versus -0.4% prior
Prices higher, retail sales higher, retail sales based upon dollars, not quantity. That suggests some influence from higher prices on retail sales.
Higher prices so I guess the Fed has to hike, right? But there's more.
Business Inventories, October: 0.0% versus 0.1% exp vs 0.1% prior (from 0.3%). Second weakest reading of the year.
Sales: -0.2% versus 0.0% versus -0.6% September.
As with Wholesale Inventories, sales fell as inventories fell. So, no jump in sales driving inventories lower, just a lack of production and stocking the shelves, not all that surprising seeing what the PMI and ISM manufacturing reports have shown.
Michigan Sentiment, December preliminary: 91.8 versus 91.6 expected versus 93.1 November final.
Virtually worthless statistic at this juncture.
M&A
BRK.B covets another railroad in NSC (Norfolk Southern). Doubling down? CSX hasn't exactly been a barn burner for Berkshire since that acquisition.
DD/DOW marriage is officially on. A bonus: Laying off 10% of combined workforce. The bald guy on CNBC says this deal was necessary to compete due to globalization.
Translated: US workers are again losing jobs in an effort to make the rest of the world richer.
Hey, at least there is something to keep stock prices higher now that companies are starting to cancel or lower dividends.
Insider Selling Surges.
TrimTabs reports November insider sales at $7.6B. The big deal? That is the fourth highest ever recorded. Hey, it's not the highest.
But, it dovetails with the indices making highs, posting massive selloffs, recovering but not capturing or surpassing the old highs, then selling off again.
THE MARKET
CHARTS
NASDAQ: Some of the big names broke lower and NASDAQ did as well, gapping through the 200 day SMA and selling toward the mid-November low. That low is at the 38% Fibonacci retracement so you could think double bottom, but NASDAQ also put in a double top at the November and early December peaks; competing doubles? The 4900 level that is the 38% Fibonacci retracement is support from other price points as well, so it is fairly significant. That said, for the upside about the best you can look for is a trading range. Premature to say that will happen, just noting the possibilities. There will likely be an attempt at a hold at 4900 before any further selling. The irony: the 50 day SMA crossed up through the 200 day MA just a few days ago.
SOX: Gapped through the 200 day SMA as well, landing on the 50 day MA's and still easily above the prior low from mid-November. There is some support here from the late March low and gap points in July and October. A very interesting level for SOX to try to bounce. Interesting to see how it reacts this week, particularly given the FOMC decision, a massive options expiration, and who knows what else.
SP500: No double bottom at the 38% Fibonacci retracement, breaking through the mid-November low. As noted Thursday, it is a matter of seeing where it holds. There is option expiration Friday, and it is the largest in years given the number of open interest, particularly the downside contracts on SP500. Some are positing a crash to the 1800's. SP500 is definitely under pressure. What for some support at 1990. After this kind of selling SP500 will try and hold an important level to at least post a relief move. 1990 is an important level. Hey, it could put in an D point to an ABCD pullback at that level; yes, you always have to watch for the potential support levels.
DJ30: Fell like a stone similar to SP500, but unlike that index it held the 38% Fibonacci retracement on the close. Oh wow, a double bottom? Don't hold your breath. Just have to watch for now.
RUTX: Blew right through the November low and the coincident bottom of the October consolidation. Small caps getting smaller, suggesting the economics for the US are not that great.
SP400: Bombing below the mid-November low. Not great for the economy as well.
LEADERSHIP
Still some quality leadership but of course much thinner. Further, the sectors have winners and losers as the selling takes down more and more stocks.
Big Names: Mixed with some breaks lower and some not so bad breaks lower. AAPL broke through its trendline from August. SBUX broke the 50 day EMA though it is in its lateral trading range. FB sold to the 50 day MA and some support. GOOG gapped to a doji, still fine. NFLX selling through the 20 day EMA as its test continues. AMZN continued its roll lower.
Semiconductors: LSCC gave up some of the Thursday move, still in good position but of course needs to hold. MXWL flat, basically sold out on this pullback. AMD lost all of the solid Thursday move. SWKS gapped lower though still in the pattern. QRVO held well at the 20 day EMA. Still hanging in, but the sector was not immune from the selling.
China: Somewhat divergent again. SINA selling harder. WUBA tested but holding near support at the 10 day EMA. NTES testing at the 10 day EMA as well. CTRP gapped and sold.
Energy: Down on the week, bounced into Thursday, but then kicked and gouged again Friday. XOM gapped lower from a bear flag. Ditto HAL. And the same action on CVX.
Biotech/Drugs: Under pressure, but performing pretty decently under that pressure. MYL lost just a bit of ground. TEVA off but a rather routine test. ACHN in a pretty nice pullback, working on its pattern. BIIB is holding its pattern, still working on a base.
Retail: Deep discounters holding up, testing during the selling. DG, DLTR are still testing. DDS, M, JWN still stink.
MARKET STATISTICS
NASDAQ
Stats: -111.71 points (-2.21%) to close at 4933.47
Volume: 2.01B (+18.64%)
Up Volume: 300.39M (-879.61M)
Down Volume: 1.78B (+1.235B)
A/D and Hi/Lo: Decliners led 5.1 to 1
Previous Session: Advancers led 1.15 to 1
New Highs: 21 (-9)
New Lows: 219 (+98)
S&P
Stats: -39.86 points (-1.94%) to close at 2012.37
NYSE Volume: 995M (+14.08%)
A/D and Hi/Lo: Decliners led 7.12 to 1. Getting there but not there. 10:1 is in the extreme range.
Previous Session: Decliners led 1.03 to 1
New Highs: 6 (-13)
New Lows: 359 (+210). Getting more interesting, but not at the 500-600 for an extreme reading.
DJ30
Stats: -309.54 points (-1.76%) to close at 17265.21
SENTIMENT INDICATORS
VIX: 24.39; +5.05
VXN: 24.38; +4.27
VXO: 25.28; +5.76
Put/Call Ratio (CBOE): 1.08; -0.17
Recent history: 12 of 14 sessions above 1.0.
Bulls and Bears: The spread shows a familiar pattern in this market: bulls higher while bears rise as well. Of course after this past week bulls will tumble and bears will growl higher.
Bulls: 44.9 versus 41.2.
Bears: 27.6 versus 26.8. Up but not near 35% level considered bullish.
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: 44.9%
41.2% versus 45.4% versus 43.3% versus 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 in 2015 since the 2008 and 2009 market plummet.
Bears: 27.6%
26.8% versus 26.8% versus 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. Both occurred in fall 2015.
OTHER MARKETS
Bonds (10 year): 2.13% versus 2.23%. After trading back and forth session to session, bonds blast higher, gapping over the 200 day SMA and the early December high. Not much fear of the Fed.
Historical: 2.23% versus 2.21% versus 2.23% versus 2.23% versus 2.27% versus 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 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%
EUR/USD: 1.0987 versus 1.0944. Holding the gains on the week as the euro continues to climb post-ECB and even ahead of a purported Fed rate hike.
Historical: 1.0944 versus 1.1029 versus 1.0892 versus 1.0844 versus 1.0872 versus 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 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
DXY0: Holding at the 50 day SMA as the dollar continues its struggle after the peak to start December.
USD/JPY: 120.85 versus 121.64. Dollar broke hard downside through the 200 day SMA. The dollar has given up the four week lateral range and is diving.
Historical: 121.64 versus 121.40 versus 122.97 versus 123.28 versus 123.15 versus 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 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
Oil: 35.62, -1.14. The EIA said that 2016 the glut would continue. The selloff in oil continued as well. On the week oil was down 10% and gapped below the August low. 32ish is next support.
Gold: 1075.70, +3.70. After bouncing the prior week, gold managed ot hold the gain, trying to set up the next move higher.
MONDAY
Huge week ahead. This past week saw the indices break. They didn't look that strong with the recovery attempt after the recovery attempt coming up short, all of this just below the summertime highs. Ever since QE3 ended the market has struggled even though the large cap indices punched out new highs. The recovery came up short, then the latest bounce, as noted, came up short as well. Then they broke the past two weeks, the large caps joining the small and midcaps this week.
The action was of course aided by the ECB failing to satisfy the market's desires even if Mario Draghi came to the microphone the following session to pick them back up.
This week the Chinese, while they were still sweeping up after the meeting to include the yuan in the reserve currency basket, went back to the massive currency manipulation it is so fond of. It laid off long enough to get approval for the inclusion, then it was back to manipulation as always. Everyone acts so surprised by the move. They are communists and they do what communists do. Reminds me of 'Casablanca' and Captain Renault stating he was 'shocked, shocked to find that gambling going on in here.'
Rick (Bogart): 'How can you close me up? On what grounds? '
Captain Renault: 'I am shocked, shocked, to find that there is gambling going on in here.'
'Your winnings sir.'
Renault: 'Thank you very much.'
Quite the lively setup for this week that sees the FOMC ready to hike rates and the largest expiration in years.
Is that factored in, Sir?
Is the Fed ready to hike? It's rhetoric is such, but the past day or two many have said that if the Fed was meeting right now it would not hike. Really? A rather modest drop in the market and a hike is off?
Well, there is the Chinese devaluation. The last time that happened in late August there was the massive market dive, the almost flash crash that one Monday that did finally set the bottom of a big drop off. Could a devaluation have such intense effects? It certainly did not help. This current round of devaluation is no less than the prior and it could be that the selling this week was in part the after effect yet again. That makes you wonder what early next week could be like.
The Fed is in that difficult position where if it hikes it is doing so into an economic slowdown no matter how some of the television pundits speak their prayer that it is not happening as they predict a rosy 2016. It has, as Archie Bunker would say on the 1970's show 'All in the Family,' painted itself in a corner and thrown away the key. By its own metrics it has to hike, but by the leading metrics it should not. Or maybe it should and throw the stimulus responsibility back to Congress and the Executive where it belongs. What a novel idea.
Don't forget, if the Fed is going to hike and make the hike a real one, it has to drain liquidity. Given the amount of liquidity and the General Capital level, it has to be huge withdrawal. I heard a surprising number of 'experts' talking this past week about how the rate hike is no big deal, means nothing in terms of the big picture, and is 'factored into' the financial markets.
Really? Bonds flying higher. The dollar falling as fast as Jeb Bush's ranking in the polls.
Stocks careening lower. The Chinese devaluing the yuan fast and furious to get ahead of the Fed's expected hike next week. Yes, it is SO factored in. And, of course, the Fed withdrawing $400B to $800B in liquidity from the economy 'means nothing' to financial markets.
On the other hand, perhaps the market is factoring too much negative in. Maybe it is scared of the possibilities similar to Y2K when people were hoarding food and had escape plans in place because of the coming end of the mechanized world. Perhaps the rate hike will be nothing. If the Fed is worried it might cause disruption (more disruption?) then it hikes and does not withdraw the liquidity. Of course then it has no credibility, but then again, it doesn't have much to lose anyway.
It is the first rate hike in 10 years. The market acts as if it does not know what to make of it and is doing what it does with uncertainty: selling. It could be it gets enough out of its system, gets comfortable with the pricing after the decline, and firms. It is, unfortunately, an unknown given how long it has been since the last hike. The market patterns are, however, quite clear in their weakness as they prepare for the event.
That's one big expiration.
This week is expiration, and with $1.1T in options open it is the largest in years. A lot of the open interests are long puts on SP500 in the 2000 to 1900 range. Sometimes such a large block is a draw, pulling the index toward it. Other times it repels, sending the market in the direction or at a level that inflicts the most pain on participants. If so, the market holds higher and those with the long puts lose.
Again, possibilities, but as with the reaction to the FOMC action (or inaction), there is no clear right or wrong. The market is selling after breaking support. That is paramount. Where it may find support is where you look.
In any event, with so much money on the line you get . . . volatility. The market is down big for over a week, perhaps a bit of cold feet selling. It can keep selling, but even a weak market gets oversold and bounces back.
Bigger picture, the market pattern formed a top at the end of QE. The Fed wants out of the stimulus game. It is set to hike. It could pull a lot of liquidity out if it is real in its desire to tighten. The economy has slowed and is still slowing. The indices have failed, for the most part, in their attempt to recover the upside momentum. The outlook frankly does not look good as there is no catalyst to own stocks.
Thus, despite the any ups and downs this week, look at them in the bigger context of whether they change the character back to the upside. No change and the market will continue its overall decline. There will be upside bouts that are tradable and can make money. There are still good upside plays right now. The market just has to be in position where there is more than a few days upside to make those plays.
This week will be more about just seeing how the market reacts to the forces upon it. We are lighter in our positions upside, have picked up more downside. We can look at more downside and are, but the market is down pretty hard already. If it opens lower to start the week, it likely is not long before it tests back upside. That may set up a better downside entry point once again.
We will defend positions we have and see how the market sets up after this selloff and ahead of the FOMC and expiration. A bounce has to be viewed as a relief move and thus a potential exit move for upside positions and as a setup for more downside for when the move stalls.
Not the best prognosis, but it is what it is. I plan on being patient this week in terms of new positions though some here in the office will be trading furiously intraday. We will have downside and upside plays at the ready in the event there is a strong, character building market move. Whether that occurs before or after the big events of the week remains to be seen, if indeed it occurs at all.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4933.47
Resistance:
The June low at 4974
The 200 day SMA at 4977
4999 is the October upper gap point
5008.57 is the early March 2015 post-bear market high
The 50 day EMA at 5017
5042 is the March 2015 high
5100 from the April peak and early May peak
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
Support:
4920 is the lower gap point from mid-October
4916 is the mid-November 2015 low
4912 the mid-April China dip
4902 is the July 2015 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 2012.37
Resistance:
2040 is the March 2015 closing low
2046 is the July 2015 closing low
The 50 day EMA at 2056
2062 is the January 2015 lower high
The 200 day SMA at 2063
2076 is the all-time high from November
2079 is the intraday all-time high from November 2014
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
1995 is the September 2015 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 17,265.21
Resistance:
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,480
The 200 day SMA at 17,564
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
June low at 17,715
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
The March low at 17,786
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
Support:
17,200 is the 38% Fibonacci retracement
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
ECONOMIC CALENDAR
December 11 - Friday
Core PPI, November (8:30): 0.3% actual versus 0.1% expected, -0.3% prior (no revisions)
PPI, November (8:30): 0.3% actual versus -0.1% expected, -0.4% prior (no revisions)
Retail Sales, November (8:30): 0.2% actual versus 0.3% expected, 0.1% prior (no revisions)
Retail Sales ex-auto, November (8:30): 0.4% actual versus 0.3% expected, 0.1% prior (revised from 0.2%)
Business Inventories, October (10:00): 0.0% actual versus 0.1% expected, 0.1% prior (revised from 0.3%)
Michigan Sentiment, December preliminary (10:00): 91.8 actual versus 91.6 expected, 91.3 prior final, November
December 15 - Tuesday
Core CPI, November (8:30): 0.2% expected, 0.2% prior
CPI, November (8:30): 0.0% expected, 0.2% prior
Empire Manufacturing, December (8:30): -5.9 expected, -10.7 prior
NAHB Housing Market , December (10:00): 63 expected, 62 prior
Net Long-Term TIC Fl, October (16:00): $33.6B prior
December 16 - Wednesday
MBA Mortgage Index, 12/12 (7:00): 1.2% prior
MBA Mortgage Purchas, 12/12 (7:00): 1.2% prior
Building Permits, November (8:30): 1150K expected, 1150K prior
Housing Starts, November (8:30): 1135K expected, 1060K prior
Capacity Utilization, November (9:15): 77.5% expected, 77.5% prior
Industrial Productio, November (9:15): -0.1% expected, -0.2% prior
Crude Inventories, 12/12 (10:30): -3.568M prior
FOMC Rate Decision, December (14:00): 0.50% expected, 0.25% prior
December 17 - Thursday
Continuing Claims, 12/12 (8:30): 2211K expected, 2243K prior
Current Account Bala, Q3 (8:30): -$109.7B prior
Initial Claims, 12/12 (8:30): 276K expected, 282K prior
Continuing Claims, 12/5 (8:30): 2211K expected, 2243K prior
Philadelphia Fed, December (8:30): 2.0 expected, 1.9 prior
Current Account Bala, Q3 (8:30): -$114.2B expected, -$109.7B prior
Leading Indicators, November (10:00): 0.6% prior
Natural Gas Inventor, 12/12 (10:30): -76 bcf prior
End part 1 of 3
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12/12/2015 Investment House Report
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MARKET SUMMARY
- SP500 breaks support, DJ30 breaks trend, following the small and midcaps lower. SOX remains decent.
- Watching support levels as more leaders start to fail.
- Retail sales decent enough though rising prices color the result.
- M&A to cut more US jobs
- Insiders selling at historically high levels.
- Is a rate hike really factored in?
- Largest option expiration in years looms with lots of long puts at lower SP500 strikes.
- The makings of another turbulent week. Time to protect positions, use moves to our advantage, be patient to let the next move set up.
It would appear RUTX and SP400 were simply early leaders -- to the downside. Those indices faltered at support early week, broke lower to midweek, giving up their trendlines. Friday SP500, DJ30 and NASDAQ joined them in the trendline break. They also added 2% losses on the session, but they are just trying to keep up with the small and midcaps that continue diving lower. They have a long way to go, however, given the smaller cap indices bombed another 1.5% to 2% Friday themselves.
Stock futures fell off of decent levels early morning, then flopped just ahead of the opening bell. Unlike other sessions, no attempt at bids on the session as the low open was sold and the indices trended lower all day, closing at the session lows.
SP500 -39.86, -1.94%
NASDAQ -111.70, -2.21%
Dj30 -309.54, -1.76%
SP400 -1.57%
RUTX -2.21%
SOX -1.99%
VOLUME: Of course it rose on the downside session, NYSE +14%, NASDAQ +18%, both easily back above average after Thursday's lower volume upside relief move. Stocks continue to fall on rising volume as investors don't want to own them right now.
A/D: Impressively weak. NYSE -7:1, NASDAQ -5:1. Weak, but not extreme. When it gets to around -10:1 NYSE, THAT is extreme.
Why the weakness? Likely because there is just nothing good to report economically that shows any real improvement with the FOMC rate hike on top of those numbers. After 10 years the market is a bit apprehensive as to what the result will be in terms of the economy and market, and the 'sell' button received a lot of use today.
SP500 crashed the 38% Fibonacci retracement as well as the trendline while DJ30 and NASDAQ held the 38% level. Ironically, NASDAQ broke below the 200 day SMA just days after the 50 day SMA moved up through the 200 day SMA, trying to reverse the 'death cross.' Decent that those two held the retracement, but that has not meant a thing thus far in terms of holding and bouncing back upside.
The market is in full sell mode ahead of the FOMC and as usual when in this circumstance, it is a matter of watching and seeing where the leading stocks and the indices actually decide to hold the line. Friday some of the big names broke lower through next support (e.g. AAPL, SBUX) while others hung in decently (e.g. GOOG, PCLN). Others are in between, e.g. NFLX, FB. We closed several just to avoid getting caught in a further selloff, noting if they suddenly hold we can always get back in.
We picked up some AAPL and CTRP puts, took some gain on the SDS position as it brushed the initial target, and closed others such as PCLN, NFLX to avoid any damage. Again, we can always move back into those stocks if they hold versus fold if, after all of the volatility and then downside on the week, the market gets comfortable with what the Fed will do next week.
A bit of a sense of certainty regarding the Fed could change the new market character, but when you look back at the pattern since October 2014, this looks as if it is a break lower that is hardly resolved at this point. Doesn't mean the market won't bounce on an interim basis to test the break, but once it does, the likelihood of holding and continuing to higher highs is slim.
NEWS/ECONOMY
Quite a bit of news out Friday, some of it planned, some not. Some perhaps impacted the market action, but it was hard to tell. Some was solid enough, some others were less great.
Retail Sales, Nov: 0.2% vs 0.3% exp vs 0.3% prior. Weakest year/year since 11/2009
Ex-autos: 0.4% vs 0.3% exp vs 0.1% prior as autos fell 0.4%.
Control group: 0.6%. That feeds into GDP so GDP will get a boost.
How reliable are these numbers? At this point who knows? Gasoline is lower so that is a drag. Food is higher and that is inflation versus eating more food. Remember, retail sales measures dollars spent, not quantities purchased. Better than expected in some areas, worse in others. Overall, taken at face value, the 'ex-' group is better. The overall number is kind of recessionary.
PPI: 0.3% versus 0.1% versus -0.3% prior
Core: 0.3% versus 0.1% expected versus -0.4% prior
Prices higher, retail sales higher, retail sales based upon dollars, not quantity. That suggests some influence from higher prices on retail sales.
Higher prices so I guess the Fed has to hike, right? But there's more.
Business Inventories, October: 0.0% versus 0.1% exp vs 0.1% prior (from 0.3%). Second weakest reading of the year.
Sales: -0.2% versus 0.0% versus -0.6% September.
As with Wholesale Inventories, sales fell as inventories fell. So, no jump in sales driving inventories lower, just a lack of production and stocking the shelves, not all that surprising seeing what the PMI and ISM manufacturing reports have shown.
Michigan Sentiment, December preliminary: 91.8 versus 91.6 expected versus 93.1 November final.
Virtually worthless statistic at this juncture.
M&A
BRK.B covets another railroad in NSC (Norfolk Southern). Doubling down? CSX hasn't exactly been a barn burner for Berkshire since that acquisition.
DD/DOW marriage is officially on. A bonus: Laying off 10% of combined workforce. The bald guy on CNBC says this deal was necessary to compete due to globalization.
Translated: US workers are again losing jobs in an effort to make the rest of the world richer.
Hey, at least there is something to keep stock prices higher now that companies are starting to cancel or lower dividends.
Insider Selling Surges.
TrimTabs reports November insider sales at $7.6B. The big deal? That is the fourth highest ever recorded. Hey, it's not the highest.
But, it dovetails with the indices making highs, posting massive selloffs, recovering but not capturing or surpassing the old highs, then selling off again.
THE MARKET
CHARTS
NASDAQ: Some of the big names broke lower and NASDAQ did as well, gapping through the 200 day SMA and selling toward the mid-November low. That low is at the 38% Fibonacci retracement so you could think double bottom, but NASDAQ also put in a double top at the November and early December peaks; competing doubles? The 4900 level that is the 38% Fibonacci retracement is support from other price points as well, so it is fairly significant. That said, for the upside about the best you can look for is a trading range. Premature to say that will happen, just noting the possibilities. There will likely be an attempt at a hold at 4900 before any further selling. The irony: the 50 day SMA crossed up through the 200 day MA just a few days ago.
SOX: Gapped through the 200 day SMA as well, landing on the 50 day MA's and still easily above the prior low from mid-November. There is some support here from the late March low and gap points in July and October. A very interesting level for SOX to try to bounce. Interesting to see how it reacts this week, particularly given the FOMC decision, a massive options expiration, and who knows what else.
SP500: No double bottom at the 38% Fibonacci retracement, breaking through the mid-November low. As noted Thursday, it is a matter of seeing where it holds. There is option expiration Friday, and it is the largest in years given the number of open interest, particularly the downside contracts on SP500. Some are positing a crash to the 1800's. SP500 is definitely under pressure. What for some support at 1990. After this kind of selling SP500 will try and hold an important level to at least post a relief move. 1990 is an important level. Hey, it could put in an D point to an ABCD pullback at that level; yes, you always have to watch for the potential support levels.
DJ30: Fell like a stone similar to SP500, but unlike that index it held the 38% Fibonacci retracement on the close. Oh wow, a double bottom? Don't hold your breath. Just have to watch for now.
RUTX: Blew right through the November low and the coincident bottom of the October consolidation. Small caps getting smaller, suggesting the economics for the US are not that great.
SP400: Bombing below the mid-November low. Not great for the economy as well.
LEADERSHIP
Still some quality leadership but of course much thinner. Further, the sectors have winners and losers as the selling takes down more and more stocks.
Big Names: Mixed with some breaks lower and some not so bad breaks lower. AAPL broke through its trendline from August. SBUX broke the 50 day EMA though it is in its lateral trading range. FB sold to the 50 day MA and some support. GOOG gapped to a doji, still fine. NFLX selling through the 20 day EMA as its test continues. AMZN continued its roll lower.
Semiconductors: LSCC gave up some of the Thursday move, still in good position but of course needs to hold. MXWL flat, basically sold out on this pullback. AMD lost all of the solid Thursday move. SWKS gapped lower though still in the pattern. QRVO held well at the 20 day EMA. Still hanging in, but the sector was not immune from the selling.
China: Somewhat divergent again. SINA selling harder. WUBA tested but holding near support at the 10 day EMA. NTES testing at the 10 day EMA as well. CTRP gapped and sold.
Energy: Down on the week, bounced into Thursday, but then kicked and gouged again Friday. XOM gapped lower from a bear flag. Ditto HAL. And the same action on CVX.
Biotech/Drugs: Under pressure, but performing pretty decently under that pressure. MYL lost just a bit of ground. TEVA off but a rather routine test. ACHN in a pretty nice pullback, working on its pattern. BIIB is holding its pattern, still working on a base.
Retail: Deep discounters holding up, testing during the selling. DG, DLTR are still testing. DDS, M, JWN still stink.
MARKET STATISTICS
NASDAQ
Stats: -111.71 points (-2.21%) to close at 4933.47
Volume: 2.01B (+18.64%)
Up Volume: 300.39M (-879.61M)
Down Volume: 1.78B (+1.235B)
A/D and Hi/Lo: Decliners led 5.1 to 1
Previous Session: Advancers led 1.15 to 1
New Highs: 21 (-9)
New Lows: 219 (+98)
S&P
Stats: -39.86 points (-1.94%) to close at 2012.37
NYSE Volume: 995M (+14.08%)
A/D and Hi/Lo: Decliners led 7.12 to 1. Getting there but not there. 10:1 is in the extreme range.
Previous Session: Decliners led 1.03 to 1
New Highs: 6 (-13)
New Lows: 359 (+210). Getting more interesting, but not at the 500-600 for an extreme reading.
DJ30
Stats: -309.54 points (-1.76%) to close at 17265.21
SENTIMENT INDICATORS
VIX: 24.39; +5.05
VXN: 24.38; +4.27
VXO: 25.28; +5.76
Put/Call Ratio (CBOE): 1.08; -0.17
Recent history: 12 of 14 sessions above 1.0.
Bulls and Bears: The spread shows a familiar pattern in this market: bulls higher while bears rise as well. Of course after this past week bulls will tumble and bears will growl higher.
Bulls: 44.9 versus 41.2.
Bears: 27.6 versus 26.8. Up but not near 35% level considered bullish.
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: 44.9%
41.2% versus 45.4% versus 43.3% versus 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 in 2015 since the 2008 and 2009 market plummet.
Bears: 27.6%
26.8% versus 26.8% versus 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. Both occurred in fall 2015.
OTHER MARKETS
Bonds (10 year): 2.13% versus 2.23%. After trading back and forth session to session, bonds blast higher, gapping over the 200 day SMA and the early December high. Not much fear of the Fed.
Historical: 2.23% versus 2.21% versus 2.23% versus 2.23% versus 2.27% versus 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 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%
EUR/USD: 1.0987 versus 1.0944. Holding the gains on the week as the euro continues to climb post-ECB and even ahead of a purported Fed rate hike.
Historical: 1.0944 versus 1.1029 versus 1.0892 versus 1.0844 versus 1.0872 versus 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 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
DXY0: Holding at the 50 day SMA as the dollar continues its struggle after the peak to start December.
USD/JPY: 120.85 versus 121.64. Dollar broke hard downside through the 200 day SMA. The dollar has given up the four week lateral range and is diving.
Historical: 121.64 versus 121.40 versus 122.97 versus 123.28 versus 123.15 versus 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 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
Oil: 35.62, -1.14. The EIA said that 2016 the glut would continue. The selloff in oil continued as well. On the week oil was down 10% and gapped below the August low. 32ish is next support.
Gold: 1075.70, +3.70. After bouncing the prior week, gold managed ot hold the gain, trying to set up the next move higher.
MONDAY
Huge week ahead. This past week saw the indices break. They didn't look that strong with the recovery attempt after the recovery attempt coming up short, all of this just below the summertime highs. Ever since QE3 ended the market has struggled even though the large cap indices punched out new highs. The recovery came up short, then the latest bounce, as noted, came up short as well. Then they broke the past two weeks, the large caps joining the small and midcaps this week.
The action was of course aided by the ECB failing to satisfy the market's desires even if Mario Draghi came to the microphone the following session to pick them back up.
This week the Chinese, while they were still sweeping up after the meeting to include the yuan in the reserve currency basket, went back to the massive currency manipulation it is so fond of. It laid off long enough to get approval for the inclusion, then it was back to manipulation as always. Everyone acts so surprised by the move. They are communists and they do what communists do. Reminds me of 'Casablanca' and Captain Renault stating he was 'shocked, shocked to find that gambling going on in here.'
Rick (Bogart): 'How can you close me up? On what grounds? '
Captain Renault: 'I am shocked, shocked, to find that there is gambling going on in here.'
'Your winnings sir.'
Renault: 'Thank you very much.'
Quite the lively setup for this week that sees the FOMC ready to hike rates and the largest expiration in years.
Is that factored in, Sir?
Is the Fed ready to hike? It's rhetoric is such, but the past day or two many have said that if the Fed was meeting right now it would not hike. Really? A rather modest drop in the market and a hike is off?
Well, there is the Chinese devaluation. The last time that happened in late August there was the massive market dive, the almost flash crash that one Monday that did finally set the bottom of a big drop off. Could a devaluation have such intense effects? It certainly did not help. This current round of devaluation is no less than the prior and it could be that the selling this week was in part the after effect yet again. That makes you wonder what early next week could be like.
The Fed is in that difficult position where if it hikes it is doing so into an economic slowdown no matter how some of the television pundits speak their prayer that it is not happening as they predict a rosy 2016. It has, as Archie Bunker would say on the 1970's show 'All in the Family,' painted itself in a corner and thrown away the key. By its own metrics it has to hike, but by the leading metrics it should not. Or maybe it should and throw the stimulus responsibility back to Congress and the Executive where it belongs. What a novel idea.
Don't forget, if the Fed is going to hike and make the hike a real one, it has to drain liquidity. Given the amount of liquidity and the General Capital level, it has to be huge withdrawal. I heard a surprising number of 'experts' talking this past week about how the rate hike is no big deal, means nothing in terms of the big picture, and is 'factored into' the financial markets.
Really? Bonds flying higher. The dollar falling as fast as Jeb Bush's ranking in the polls.
Stocks careening lower. The Chinese devaluing the yuan fast and furious to get ahead of the Fed's expected hike next week. Yes, it is SO factored in. And, of course, the Fed withdrawing $400B to $800B in liquidity from the economy 'means nothing' to financial markets.
On the other hand, perhaps the market is factoring too much negative in. Maybe it is scared of the possibilities similar to Y2K when people were hoarding food and had escape plans in place because of the coming end of the mechanized world. Perhaps the rate hike will be nothing. If the Fed is worried it might cause disruption (more disruption?) then it hikes and does not withdraw the liquidity. Of course then it has no credibility, but then again, it doesn't have much to lose anyway.
It is the first rate hike in 10 years. The market acts as if it does not know what to make of it and is doing what it does with uncertainty: selling. It could be it gets enough out of its system, gets comfortable with the pricing after the decline, and firms. It is, unfortunately, an unknown given how long it has been since the last hike. The market patterns are, however, quite clear in their weakness as they prepare for the event.
That's one big expiration.
This week is expiration, and with $1.1T in options open it is the largest in years. A lot of the open interests are long puts on SP500 in the 2000 to 1900 range. Sometimes such a large block is a draw, pulling the index toward it. Other times it repels, sending the market in the direction or at a level that inflicts the most pain on participants. If so, the market holds higher and those with the long puts lose.
Again, possibilities, but as with the reaction to the FOMC action (or inaction), there is no clear right or wrong. The market is selling after breaking support. That is paramount. Where it may find support is where you look.
In any event, with so much money on the line you get . . . volatility. The market is down big for over a week, perhaps a bit of cold feet selling. It can keep selling, but even a weak market gets oversold and bounces back.
Bigger picture, the market pattern formed a top at the end of QE. The Fed wants out of the stimulus game. It is set to hike. It could pull a lot of liquidity out if it is real in its desire to tighten. The economy has slowed and is still slowing. The indices have failed, for the most part, in their attempt to recover the upside momentum. The outlook frankly does not look good as there is no catalyst to own stocks.
Thus, despite the any ups and downs this week, look at them in the bigger context of whether they change the character back to the upside. No change and the market will continue its overall decline. There will be upside bouts that are tradable and can make money. There are still good upside plays right now. The market just has to be in position where there is more than a few days upside to make those plays.
This week will be more about just seeing how the market reacts to the forces upon it. We are lighter in our positions upside, have picked up more downside. We can look at more downside and are, but the market is down pretty hard already. If it opens lower to start the week, it likely is not long before it tests back upside. That may set up a better downside entry point once again.
We will defend positions we have and see how the market sets up after this selloff and ahead of the FOMC and expiration. A bounce has to be viewed as a relief move and thus a potential exit move for upside positions and as a setup for more downside for when the move stalls.
Not the best prognosis, but it is what it is. I plan on being patient this week in terms of new positions though some here in the office will be trading furiously intraday. We will have downside and upside plays at the ready in the event there is a strong, character building market move. Whether that occurs before or after the big events of the week remains to be seen, if indeed it occurs at all.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4933.47
Resistance:
The June low at 4974
The 200 day SMA at 4977
4999 is the October upper gap point
5008.57 is the early March 2015 post-bear market high
The 50 day EMA at 5017
5042 is the March 2015 high
5100 from the April peak and early May peak
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
Support:
4920 is the lower gap point from mid-October
4916 is the mid-November 2015 low
4912 the mid-April China dip
4902 is the July 2015 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 2012.37
Resistance:
2040 is the March 2015 closing low
2046 is the July 2015 closing low
The 50 day EMA at 2056
2062 is the January 2015 lower high
The 200 day SMA at 2063
2076 is the all-time high from November
2079 is the intraday all-time high from November 2014
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
1995 is the September 2015 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 17,265.21
Resistance:
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,480
The 200 day SMA at 17,564
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
June low at 17,715
17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range
The March low at 17,786
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
Support:
17,200 is the 38% Fibonacci retracement
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
ECONOMIC CALENDAR
December 11 - Friday
Core PPI, November (8:30): 0.3% actual versus 0.1% expected, -0.3% prior (no revisions)
PPI, November (8:30): 0.3% actual versus -0.1% expected, -0.4% prior (no revisions)
Retail Sales, November (8:30): 0.2% actual versus 0.3% expected, 0.1% prior (no revisions)
Retail Sales ex-auto, November (8:30): 0.4% actual versus 0.3% expected, 0.1% prior (revised from 0.2%)
Business Inventories, October (10:00): 0.0% actual versus 0.1% expected, 0.1% prior (revised from 0.3%)
Michigan Sentiment, December preliminary (10:00): 91.8 actual versus 91.6 expected, 91.3 prior final, November
December 15 - Tuesday
Core CPI, November (8:30): 0.2% expected, 0.2% prior
CPI, November (8:30): 0.0% expected, 0.2% prior
Empire Manufacturing, December (8:30): -5.9 expected, -10.7 prior
NAHB Housing Market , December (10:00): 63 expected, 62 prior
Net Long-Term TIC Fl, October (16:00): $33.6B prior
December 16 - Wednesday
MBA Mortgage Index, 12/12 (7:00): 1.2% prior
MBA Mortgage Purchas, 12/12 (7:00): 1.2% prior
Building Permits, November (8:30): 1150K expected, 1150K prior
Housing Starts, November (8:30): 1135K expected, 1060K prior
Capacity Utilization, November (9:15): 77.5% expected, 77.5% prior
Industrial Productio, November (9:15): -0.1% expected, -0.2% prior
Crude Inventories, 12/12 (10:30): -3.568M prior
FOMC Rate Decision, December (14:00): 0.50% expected, 0.25% prior
December 17 - Thursday
Continuing Claims, 12/12 (8:30): 2211K expected, 2243K prior
Current Account Bala, Q3 (8:30): -$109.7B prior
Initial Claims, 12/12 (8:30): 276K expected, 282K prior
Continuing Claims, 12/5 (8:30): 2211K expected, 2243K prior
Philadelphia Fed, December (8:30): 2.0 expected, 1.9 prior
Current Account Bala, Q3 (8:30): -$114.2B expected, -$109.7B prior
Leading Indicators, November (10:00): 0.6% prior
Natural Gas Inventor, 12/12 (10:30): -76 bcf prior
End part 1 of 3
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Saturday, December 05, 2015
The Daily, Part 1 of 3, 12-5-15
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12/5/2015 Investment House Report
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Trailing stops: None issued
Stop alerts: None issued
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MARKET SUMMARY
- Draghi do over drives renewed upside.
- Mediocre jobs report beats mediocre expectations, heralded as strong.
- It took 7 years but mission accomplished: mediocre is the new strong.
- Fed Rate hike will be far more than your standard 25BP move.
- Market volatility should not be ignored.
- Friday reversal will have a chance to show if it means anything.
- Overall picture still toppish, but a continued yearend move can make great money.
Sure investors like certainty that the Jobs Report apparently provided, but more than that, they like the easy money Draghi re-pledged.
It took a while but stocks finally warmed to the jobs report beating expectations and almost certainly locking in a December rate hike. Futures were up ahead of the results, then down after the results. For a half hour. Then the bids returned and stocks recovered into the open and indeed into midmorning. Then a test. Midmorning tests of the initial move are always a milestone in a session; if a reversal occurs, it often starts then. This test held and the market rebounded, but it got a boost.
Mario Draghi, the man who failed to deliver in the market's eyes Thursday, came to the mike in New York and did everything he could to undo the Thursday selloff post-ECB. We talk about central banks running out of ammunition to move markets, currencies, etc. Well, Draghi put it all out on the table, going all in with a verbal attempt to drive stocks back up.
To wit:
"QE is here to stay"
QE can be "calibrated" if needed (i.e. increased at any time)
There is "no limit" to the "size of the ECB's balance sheet" (read we can flood the place with liquidity)
And the kicker: When asked by the former BOE chairman "was today's speech deliberately designed to offset some of the reaction yesterday?," Draghi responded "Not really . . . well, of course."
Music to the market's ears. The Fed can hike and act as it thinks responsible because the ECB is ready to take over our role of printer of mass liquidity. I have said it before: markets don't care where the liquidity comes from, they just want massive liquidity. China? Too secretive and unreliable. The US? Great source but it did the job for 6 years, and despite Draghi's Friday comments, a balance sheet CAN get too big. But the EU. Ah, it can print for a few years and do a fine job of propping up financial markets.
Prop them up indeed. After Thursday where the US stock indices suffered another session of distribution on the week and saw many important stocks break support levels, stocks surged upside, continuing the move and in several cases taking back more than was lost, closing out the market near session highs.
SP500 42.07, 2.05%
NASDAQ 104.74, 2.08%
DJ30 369.96, 2.12%
SP400 1.21%
RUTX 1.10%
SOX 1.88%
VOLUME: NYSE -1%, NASDAQ -8%. Not washing away the distribution though not bad, still above average volume on NYSE, slipping to average on NASDAQ.
A/D: NYSE 2:1, NASDAQ 1.9:1. Decent but not in line with the overall market strength or nearly as strong upside as the breadth was on the Thursday selloff.
The move was greatly heralded and perhaps it does reverse the distribution, but the move was not bulletproof. Lower trade, narrow upside breadth, key leadership still a bit stretched. Good response and it does indeed keep the market in the uptrends discussed in the Thursday report, but it was just a start, the stick save necessary to try and take the action the other direction. It did, but now the upside has to score, i.e. drive to higher highs past the October and November peaks AND hold the moves.
NEWS/ECONOMY
Jobs Report beats expectations, locks rate hike.
Non-Farm Jobs: 211K versus 196K expected versus 298K prior (from 271K). September revised to 145K from 137K
Unemployment rate: 5.0% versus 5.0% expected versus 5.0% November
Hourly earnings: 0.16% versus 0.2% versus 0.4% November. 2.3% year/year
Average Workweek: 34.5 versus 34.5 versus 34.6 prior (from 34.5)
Participation: 62.5% versus 62.4%. 94.44M working aged adults not working.
What is not to like? As one trader noted, 'Welcome to America where mediocrity is now viewed as superb.' 211K jobs. You would have thought it was 450K.
Okay, so the perception of mediocre is great. Which one do the numbers support?
The mix of jobs showed the same trend as November: a bit better construction, plenty of low wage jobs, losses in the economy's breadwinner areas
Construction: +46K. Great. Now if housing would stop rolling over.
Education/Health: 40K
Professional/Business services: 39.3K
Leisure and Hospitality: 39K
Retail: 30.7K
Financial: 14K
Government: 14K
Manufacturing: -1K
Information: -12K
Temp Help Services: -12.3K
The Nitty Gritty Details
1) Persons employed part-time for economic reasons (involuntary part-time workers): +319K to a total of 6.1M workers
This rise accounts for ALL the employed workers increase in the Household Survey (+320K).
2) Manufacturing net jobs for 2015: Still 0. Waiters & Bartenders: +294K
3) Wages for non-supervisors (82% of the workforce) fall while those of supervisors rise, a trend that is now sadly quite old.
4) The majority of jobs created are in compliance areas, i.e. paperwork for regulations such as the ACA, Dodd/Frank, EPA rulings.
Summary: The report is basically more of the same. Jobs created, but mostly lower paying hourly jobs. Construction snapped back from low levels as some projects were finally constructed after delays. On the other hand, still no net manufacturing jobs and other 'breadwinner' jobs areas such as mines are still falling. In the end you have former full-time workers forced to work 1, 2, 3 part-time jobs to try and make what one job made them pre-recession. And still 30% of the entire population are working aged people unemployed. Many of those find it easier, less stressful, and indeed more lucrative in terms of disposable income to collect the multitudinous benefits offered and work some jobs for cash, flying under the radar, making the most of a reverse incentive system.
Who's Afraid of a Measly 25BP Rate Hike?
The Fed can raise the Fed Funds Target range to 0.50% from 0.25% as most expect in two weeks. That is easy. Having an impact to actually effectuate the move to where in reality there is a 25BP increase felt in the market is entirely something else. To actually bring that rate, in the market, up to 0.50% the Fed has to drain some of the $3T in liquidity it put into the system.
Okay, it does that through a reverse repo. With $3T in liquidity out there, how much does it have to take out of the system and force that overnight rate higher? According to the expert in the field, E.D. Skyrm, and without getting deep in the weeds on the calculations, based where the General Collateral level is, to move 25 BP higher it would take between $310B and $800B in liquidity. Not adding that amount, but REMOVING up to $800B from the monetary system.
For comparison, the entirety of QE2 over 8 months was $600B. In order to effectuate an immediate 25BP increase the Fed would have to, if we take the midpoint of the above range, effect an entire QE2 in reverse overnight.
Recall what happened to the stock market in March 2000 when the Greenspan Fed decided to recall the billions pumped into the system starting in early fall 1999 ahead of the Y2K nonevent that at the time was a big unknown. That was the market top. The top for 15 years. Not saying that happens just the same this time, but that amount is 1/6 of what the Fed put in the market removed in the snap of a finger. That is hard to absorb without impact and that makes the Fed decision in less than two weeks incredibly important to the market.
Many view a 25BP hike as a nonevent because they look at such a move in terms of prior 25BP moves. Never before, however, has the liquidity level been so high, thus requiring such large overnight repos to remove the requisite liquidity. If the Fed was going to keep things in relationship to prior hikes, it should perhaps move 5BP, maybe 10BP max. Try explaining THAT to the markets.
THE MARKET
Very volatile action Tuesday to Friday. Volatility commands respect as it can signal a change in trend. With the indices near the November and 2015 highs, suggestions of a trend change are critical.
That said, the indices bounced off of the trendlines noted Thursday night. SP500, DJ30 did a particularly good job of doing so, putting in a higher low. SOX looks solid. NASDAQ not bad. RUTX, SP400 lagged in the move as the big names were the most sought after group. Bounced where they needed to bounce, but still have to prove they can sustain and continue this recovery move.
CHARTS
SP500: From on the ropes at the 50 day SMA to a massive reversal back to the late November range. Still not over the late October peak, but a solid rebound to put in a higher low and maintain the trend. First step. Volume was lower but not bad. Good recovery, very important move ahead as SP500 again works toward the October and then the 2015 highs.
DJ30: Similar move as SP500 but on stronger volume as the Dow bounced off the 50 day EMA and back into the middle of the November range. Held the trend, higher low, good volume. Trying to be a leader again.
NASDAQ: Sold to the trend Thursday, held it and the 50 day EMA, rebounded. Volume faded to average; not the strongest bounce but maintaining the trend. On the other hand, same as SP500, DJ30, NASDAQ is still below the early November high and the 2015 highs. Held where it had to, bounced. It will require the big names in order to continue the move, and several are rather extended.
SOX: Well, it looks as if SOX did put its house in order as we mused Thursday after that downside engulfing pattern. Held the 10 day EMA and bounce, again clearing the October peak. Higher recovery high as chips still hold a leadership position.
RUTX: Held the trendline off the selloff lows and bounced, but at a mere 1.1%, really lagging the large cap indices.
SP400: As with RUTX, held the trendline off the selloff, held the 50 day SMA and bounced. The midcap index also lagged the large cap moves, but it certainly has a good pattern. Plenty of room to move upside out of a good pattern.
LEADERSHIP
Big Names: Some solid continued moves, some good reversals, some so-so moves. NFLX powered higher again on still above average volume. PCLN continued higher as well. GOOG bounced up off the 10 day EMA on even stronger volume. SBUX staged an impressive reversal. FB moved higher but it was one of the so-so moves. AAPL came to life with a strong bounce from the TL and the 50 day SMA on the strongest volume in four weeks. These stocks will need to lead further. AAPL, SBUX, FB, even GOOG still have room to run.
Chips: Still holding their leadership credentials. LSCC showing excellent action, using the pullback to set up its next move. AMD also in a good position after a pullback. SLAB continues its trend. AVGO holding its gap. MLNX looks to be in good position. SWKS is starting a potentially strong run.
Financial: Good recovery. JPM jumping off the Thursday selling with volume. BAC rallying. MA reversing the Thursday selling on volume. TCBI, regional bank, sports a good pattern.
China: Some good pullbacks, some struggling. WUBA in a good test of its surge. NTES still surging. SOHU, SINA attempting to bounce off support. YNDX may try to bottom.
Telecom: LVLT remains in a good pattern to bounce. GIMO still setting up for a move. ARRS continues its gap and run. Some leadership here.
Energy: Still struggling but good patterns are holding, e.g. DO, OIS.
Metals: After a month of fading some look ready to rebound in their range, e.g. AKS, FCX.
MARKET STATISTICS
NASDAQ
Stats: +104.74 points (+2.08%) to close at 5142.27
Volume: 1.846B (-8.35%)
Up Volume: 1.42B (+991.39M)
Down Volume: 450.33M (-1.19B)
A/D and Hi/Lo: Advancers led 1.89 to 1
Previous Session: Decliners led 3.09 to 1
New Highs: 60 (-2)
New Lows: 113 (+27)
S&P
Stats: +42.07 points (+2.05%) to close at 2091.69
NYSE Volume: 990M (-1%)
A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 4.28 to 1
New Highs: 39 (+7)
New Lows: 191 (+33)
DJ30
Stats: +369.96 points (+2.12%) to close at 17847.63
SENTIMENT INDICATORS
VIX: 14.81; -3.3
VXN: 16.66; -3.06
VXO: 15.31; -3.72
Put/Call Ratio (CBOE): 0.9; -0.22
Recent history: 1 lower after 8 straight sessions over 1.0, 11 of 16.
Bulls and Bears: Bulls continue recovering upside after a slight pullback. Bears hold steady but in a clear downtrend. They did their work during the late summer selling, spurring the rally. They have retraced a good part of those moves but bulls are still not near extreme levels.
Bulls: 41.2 versus 45.4
Bears: 26.8 versus 26.8
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Bulls: 41.2%
45.4% versus 43.3% versus 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 in 2015 since the 2008 and 2009 market plummet.
Bears: 26.8%
26.8% versus 26.8% versus 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. Both occurred in fall 2015.
OTHER MARKETS
Currencies rebounded a bit but not really showing much confidence in the Friday Draghi comments.
Bonds (10 year): 2.27% versus 2.33%. After bombing lower Thursday on Draghi's comments, bonds rallied back, on Draghi's comments.
Historical: 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 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%
EUR/USD: 1.0872 versus 1.0948. Dollar comes back after the euro exploded higher on the ECB decision.
Historical: 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 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
DXY0: Recovered a very small portion of the Thursday losses.
USD/JPY: 123.15 versus 122.49. Bounced off the bottom of the four week trading range/handle to the August to November cup base.
Historical: 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 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
Oil: 39.97, -1.11. Hmmm, oil was down but stocks were up. That is not supposed to happen according to the television pundits. Oil broke lower but held the three week support even as OPEC raised its quota limit basically in an admission there was rampant cheating. It tried to put its quota at the level it believes is being produced. Oil, already weak, sank.
Gold: 1084.10, +23.00. Blasting off from a seven week selloff to lower lows even with the Fed set to raise rates. ECB liquidity, i.e. massive liquidity somewhere in the world, keeps the markets happy.
MONDAY
Big move down, big move up. Lots of volatility below the prior highs. The large cap indices are bucking as they hit resistance. As of yet the bids keep returning. Perhaps enough to take them to those 2015 highs in the last dart of a yearend run. Perhaps. Even if they get there the new year will prove problematic.
Consider: QE ended in October, stocks dipped with the help of the Ebola scare but then surged back up. Even so they put in a rounded top and sold hard. They have recovered but have yet to take out those prior highs. On top of that the Fed is set to hike rates in a declining economy, jobs report notwithstanding, and, if the Fed wants to actually increase the rates in reality, it has to remove hundreds of billions in liquidity. Factor in the Fed typically hikes into recessions, the longer term picture is not that great.
So, we don't make prognostications that the market will be at X price on Y date, we just take what it gives. We have some upside plays and downside plays currently working. This week will give direction if there is a yearend rally continuation. We are going to look at some more upside plays to take advantage if the Friday move takes hold and continues into next week. Heck, we are still looking for PCLN to move up to the early August high and perhaps even fill that gap lower from early November.
I always say I am not smart enough to know when the market will top or bottom, but I have a pretty good idea of when the risk and reward are in the right place. Right now the market is lining up on either side, thus the volatility. It is an important inflection point from here up to the prior highs.
Thus you have to view the upside as a year end run versus some new breakout. If the latter happens, great; we make a ton of money. If the former happens (and with this recent action that is still an 'if'), we make some good money to close out the year. If the volatility breaks the market lower, we take profits on our remaining upside positions and pick up some more downside. That downside is likely to be rather large and the dominant play for the first part of 2016. That is about as far as anyone can see and say without getting properly called out for BS.
So we avoid the BS moniker and take what the market gives. The upside risk/reward is less, but if the move continues into yearend we make very good money nonetheless. Monday may show some giveback of the Friday move; that is normal after a good move higher Friday. Then we see how the bids return.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5142.27
Resistance:
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
Support:
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 50 day EMA at 5009
The 200 day SMA at 4975
The June low at 4974
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 2091.69
Resistance:
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:
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
The 50 day EMA at 2055
2046 is the July 2015 closing low
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 17,847.63
Resistance:
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
Support:
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 17,581
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
The 50 day EMA at 17,456
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
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
ECONOMIC CALENDAR
December 4 - Friday
Nonfarm Payrolls, November (8:30): 211K actual versus 196K expected, 298K prior (revised from 271K)
Nonfarm Private Payrolls, November (8:30): 197K actual versus 185K expected, 304K prior (revised from 268K)
Unemployment Rate, November (8:30): 5.0% actual versus 5.0% expected, 5.0% prior (no revisions)
Hourly Earnings, November (8:30): 0.2% actual versus 0.2% expected, 0.4% prior (no revisions)
Average Workweek, November (8:30): 34.5 actual versus 34.5 expected, 34.6 prior (revised from 34.5)
Trade Balance, October (8:30): -$43.9B actual versus -$43.0B expected, -$42.5B prior (revised from -$40.8B)
December 7 - Monday
Consumer Credit, October (15:00): $18.6B expected, $28.9B prior
December 8 - Tuesday
JOLTS - Job Openings, October (10:00): 5.53M prior
December 9 - Wednesday
MBA Mortgage Index, 12/05 (7:00): -0.2% prior
Wholesale Inventories, October (10:00): 0.1% expected, 0.5% prior
Crude Inventories, 12/05 (10:30): 1.177M prior
December 10 - Thursday
Initial Claims, 12/05 (8:30): 269K expected, 269K prior
Continuing Claims, 12/05 (8:30): 2167K expected, 2161K prior
Export Prices ex-ag., November (8:30): -0.3% prior
Import Prices ex-oil, November (8:30): -0.3% prior
Natural Gas Inventor, 12/05 (10:30): -53 bcf prior
Treasury Budget, November (14:00): -$56.8B prior
December 11 - Friday
Core PPI, November (8:30): 0.1% expected, -0.3% prior
PPI, November (8:30): -0.1% expected, -0.4% prior
Retail Sales, November (8:30): 0.3% expected, 0.1% prior
Retail Sales ex-auto, November (8:30): 0.3% expected, 0.2% prior
Business Inventories, October (10:00): 0.1% expected, 0.3% prior
Michigan Sentiment, December (10:00): 91.6 expected, 93.1 prior
End part 1 of 3
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12/5/2015 Investment House Report
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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
- Draghi do over drives renewed upside.
- Mediocre jobs report beats mediocre expectations, heralded as strong.
- It took 7 years but mission accomplished: mediocre is the new strong.
- Fed Rate hike will be far more than your standard 25BP move.
- Market volatility should not be ignored.
- Friday reversal will have a chance to show if it means anything.
- Overall picture still toppish, but a continued yearend move can make great money.
Sure investors like certainty that the Jobs Report apparently provided, but more than that, they like the easy money Draghi re-pledged.
It took a while but stocks finally warmed to the jobs report beating expectations and almost certainly locking in a December rate hike. Futures were up ahead of the results, then down after the results. For a half hour. Then the bids returned and stocks recovered into the open and indeed into midmorning. Then a test. Midmorning tests of the initial move are always a milestone in a session; if a reversal occurs, it often starts then. This test held and the market rebounded, but it got a boost.
Mario Draghi, the man who failed to deliver in the market's eyes Thursday, came to the mike in New York and did everything he could to undo the Thursday selloff post-ECB. We talk about central banks running out of ammunition to move markets, currencies, etc. Well, Draghi put it all out on the table, going all in with a verbal attempt to drive stocks back up.
To wit:
"QE is here to stay"
QE can be "calibrated" if needed (i.e. increased at any time)
There is "no limit" to the "size of the ECB's balance sheet" (read we can flood the place with liquidity)
And the kicker: When asked by the former BOE chairman "was today's speech deliberately designed to offset some of the reaction yesterday?," Draghi responded "Not really . . . well, of course."
Music to the market's ears. The Fed can hike and act as it thinks responsible because the ECB is ready to take over our role of printer of mass liquidity. I have said it before: markets don't care where the liquidity comes from, they just want massive liquidity. China? Too secretive and unreliable. The US? Great source but it did the job for 6 years, and despite Draghi's Friday comments, a balance sheet CAN get too big. But the EU. Ah, it can print for a few years and do a fine job of propping up financial markets.
Prop them up indeed. After Thursday where the US stock indices suffered another session of distribution on the week and saw many important stocks break support levels, stocks surged upside, continuing the move and in several cases taking back more than was lost, closing out the market near session highs.
SP500 42.07, 2.05%
NASDAQ 104.74, 2.08%
DJ30 369.96, 2.12%
SP400 1.21%
RUTX 1.10%
SOX 1.88%
VOLUME: NYSE -1%, NASDAQ -8%. Not washing away the distribution though not bad, still above average volume on NYSE, slipping to average on NASDAQ.
A/D: NYSE 2:1, NASDAQ 1.9:1. Decent but not in line with the overall market strength or nearly as strong upside as the breadth was on the Thursday selloff.
The move was greatly heralded and perhaps it does reverse the distribution, but the move was not bulletproof. Lower trade, narrow upside breadth, key leadership still a bit stretched. Good response and it does indeed keep the market in the uptrends discussed in the Thursday report, but it was just a start, the stick save necessary to try and take the action the other direction. It did, but now the upside has to score, i.e. drive to higher highs past the October and November peaks AND hold the moves.
NEWS/ECONOMY
Jobs Report beats expectations, locks rate hike.
Non-Farm Jobs: 211K versus 196K expected versus 298K prior (from 271K). September revised to 145K from 137K
Unemployment rate: 5.0% versus 5.0% expected versus 5.0% November
Hourly earnings: 0.16% versus 0.2% versus 0.4% November. 2.3% year/year
Average Workweek: 34.5 versus 34.5 versus 34.6 prior (from 34.5)
Participation: 62.5% versus 62.4%. 94.44M working aged adults not working.
What is not to like? As one trader noted, 'Welcome to America where mediocrity is now viewed as superb.' 211K jobs. You would have thought it was 450K.
Okay, so the perception of mediocre is great. Which one do the numbers support?
The mix of jobs showed the same trend as November: a bit better construction, plenty of low wage jobs, losses in the economy's breadwinner areas
Construction: +46K. Great. Now if housing would stop rolling over.
Education/Health: 40K
Professional/Business services: 39.3K
Leisure and Hospitality: 39K
Retail: 30.7K
Financial: 14K
Government: 14K
Manufacturing: -1K
Information: -12K
Temp Help Services: -12.3K
The Nitty Gritty Details
1) Persons employed part-time for economic reasons (involuntary part-time workers): +319K to a total of 6.1M workers
This rise accounts for ALL the employed workers increase in the Household Survey (+320K).
2) Manufacturing net jobs for 2015: Still 0. Waiters & Bartenders: +294K
3) Wages for non-supervisors (82% of the workforce) fall while those of supervisors rise, a trend that is now sadly quite old.
4) The majority of jobs created are in compliance areas, i.e. paperwork for regulations such as the ACA, Dodd/Frank, EPA rulings.
Summary: The report is basically more of the same. Jobs created, but mostly lower paying hourly jobs. Construction snapped back from low levels as some projects were finally constructed after delays. On the other hand, still no net manufacturing jobs and other 'breadwinner' jobs areas such as mines are still falling. In the end you have former full-time workers forced to work 1, 2, 3 part-time jobs to try and make what one job made them pre-recession. And still 30% of the entire population are working aged people unemployed. Many of those find it easier, less stressful, and indeed more lucrative in terms of disposable income to collect the multitudinous benefits offered and work some jobs for cash, flying under the radar, making the most of a reverse incentive system.
Who's Afraid of a Measly 25BP Rate Hike?
The Fed can raise the Fed Funds Target range to 0.50% from 0.25% as most expect in two weeks. That is easy. Having an impact to actually effectuate the move to where in reality there is a 25BP increase felt in the market is entirely something else. To actually bring that rate, in the market, up to 0.50% the Fed has to drain some of the $3T in liquidity it put into the system.
Okay, it does that through a reverse repo. With $3T in liquidity out there, how much does it have to take out of the system and force that overnight rate higher? According to the expert in the field, E.D. Skyrm, and without getting deep in the weeds on the calculations, based where the General Collateral level is, to move 25 BP higher it would take between $310B and $800B in liquidity. Not adding that amount, but REMOVING up to $800B from the monetary system.
For comparison, the entirety of QE2 over 8 months was $600B. In order to effectuate an immediate 25BP increase the Fed would have to, if we take the midpoint of the above range, effect an entire QE2 in reverse overnight.
Recall what happened to the stock market in March 2000 when the Greenspan Fed decided to recall the billions pumped into the system starting in early fall 1999 ahead of the Y2K nonevent that at the time was a big unknown. That was the market top. The top for 15 years. Not saying that happens just the same this time, but that amount is 1/6 of what the Fed put in the market removed in the snap of a finger. That is hard to absorb without impact and that makes the Fed decision in less than two weeks incredibly important to the market.
Many view a 25BP hike as a nonevent because they look at such a move in terms of prior 25BP moves. Never before, however, has the liquidity level been so high, thus requiring such large overnight repos to remove the requisite liquidity. If the Fed was going to keep things in relationship to prior hikes, it should perhaps move 5BP, maybe 10BP max. Try explaining THAT to the markets.
THE MARKET
Very volatile action Tuesday to Friday. Volatility commands respect as it can signal a change in trend. With the indices near the November and 2015 highs, suggestions of a trend change are critical.
That said, the indices bounced off of the trendlines noted Thursday night. SP500, DJ30 did a particularly good job of doing so, putting in a higher low. SOX looks solid. NASDAQ not bad. RUTX, SP400 lagged in the move as the big names were the most sought after group. Bounced where they needed to bounce, but still have to prove they can sustain and continue this recovery move.
CHARTS
SP500: From on the ropes at the 50 day SMA to a massive reversal back to the late November range. Still not over the late October peak, but a solid rebound to put in a higher low and maintain the trend. First step. Volume was lower but not bad. Good recovery, very important move ahead as SP500 again works toward the October and then the 2015 highs.
DJ30: Similar move as SP500 but on stronger volume as the Dow bounced off the 50 day EMA and back into the middle of the November range. Held the trend, higher low, good volume. Trying to be a leader again.
NASDAQ: Sold to the trend Thursday, held it and the 50 day EMA, rebounded. Volume faded to average; not the strongest bounce but maintaining the trend. On the other hand, same as SP500, DJ30, NASDAQ is still below the early November high and the 2015 highs. Held where it had to, bounced. It will require the big names in order to continue the move, and several are rather extended.
SOX: Well, it looks as if SOX did put its house in order as we mused Thursday after that downside engulfing pattern. Held the 10 day EMA and bounce, again clearing the October peak. Higher recovery high as chips still hold a leadership position.
RUTX: Held the trendline off the selloff lows and bounced, but at a mere 1.1%, really lagging the large cap indices.
SP400: As with RUTX, held the trendline off the selloff, held the 50 day SMA and bounced. The midcap index also lagged the large cap moves, but it certainly has a good pattern. Plenty of room to move upside out of a good pattern.
LEADERSHIP
Big Names: Some solid continued moves, some good reversals, some so-so moves. NFLX powered higher again on still above average volume. PCLN continued higher as well. GOOG bounced up off the 10 day EMA on even stronger volume. SBUX staged an impressive reversal. FB moved higher but it was one of the so-so moves. AAPL came to life with a strong bounce from the TL and the 50 day SMA on the strongest volume in four weeks. These stocks will need to lead further. AAPL, SBUX, FB, even GOOG still have room to run.
Chips: Still holding their leadership credentials. LSCC showing excellent action, using the pullback to set up its next move. AMD also in a good position after a pullback. SLAB continues its trend. AVGO holding its gap. MLNX looks to be in good position. SWKS is starting a potentially strong run.
Financial: Good recovery. JPM jumping off the Thursday selling with volume. BAC rallying. MA reversing the Thursday selling on volume. TCBI, regional bank, sports a good pattern.
China: Some good pullbacks, some struggling. WUBA in a good test of its surge. NTES still surging. SOHU, SINA attempting to bounce off support. YNDX may try to bottom.
Telecom: LVLT remains in a good pattern to bounce. GIMO still setting up for a move. ARRS continues its gap and run. Some leadership here.
Energy: Still struggling but good patterns are holding, e.g. DO, OIS.
Metals: After a month of fading some look ready to rebound in their range, e.g. AKS, FCX.
MARKET STATISTICS
NASDAQ
Stats: +104.74 points (+2.08%) to close at 5142.27
Volume: 1.846B (-8.35%)
Up Volume: 1.42B (+991.39M)
Down Volume: 450.33M (-1.19B)
A/D and Hi/Lo: Advancers led 1.89 to 1
Previous Session: Decliners led 3.09 to 1
New Highs: 60 (-2)
New Lows: 113 (+27)
S&P
Stats: +42.07 points (+2.05%) to close at 2091.69
NYSE Volume: 990M (-1%)
A/D and Hi/Lo: Advancers led 1.91 to 1
Previous Session: Decliners led 4.28 to 1
New Highs: 39 (+7)
New Lows: 191 (+33)
DJ30
Stats: +369.96 points (+2.12%) to close at 17847.63
SENTIMENT INDICATORS
VIX: 14.81; -3.3
VXN: 16.66; -3.06
VXO: 15.31; -3.72
Put/Call Ratio (CBOE): 0.9; -0.22
Recent history: 1 lower after 8 straight sessions over 1.0, 11 of 16.
Bulls and Bears: Bulls continue recovering upside after a slight pullback. Bears hold steady but in a clear downtrend. They did their work during the late summer selling, spurring the rally. They have retraced a good part of those moves but bulls are still not near extreme levels.
Bulls: 41.2 versus 45.4
Bears: 26.8 versus 26.8
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Bulls: 41.2%
45.4% versus 43.3% versus 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 in 2015 since the 2008 and 2009 market plummet.
Bears: 26.8%
26.8% versus 26.8% versus 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. Both occurred in fall 2015.
OTHER MARKETS
Currencies rebounded a bit but not really showing much confidence in the Friday Draghi comments.
Bonds (10 year): 2.27% versus 2.33%. After bombing lower Thursday on Draghi's comments, bonds rallied back, on Draghi's comments.
Historical: 2.33% versus 2.18% versus 2.15% versus 2.21% versus 2.22% versus 2.24% versus 2.25% versus 2.26% versus 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%
EUR/USD: 1.0872 versus 1.0948. Dollar comes back after the euro exploded higher on the ECB decision.
Historical: 1.0948 versus 1.0595 versus 1.0625 versus 1.0566 versus 1.0592 versus 1.0627 versus 1.0630 versus 1.06486 versus 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
DXY0: Recovered a very small portion of the Thursday losses.
USD/JPY: 123.15 versus 122.49. Bounced off the bottom of the four week trading range/handle to the August to November cup base.
Historical: 122.49 versus 123.30 versus 122.91 versus 123.107 versus 122.76 versus 122.79 versus 123.22 versus 122.79 versus 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
Oil: 39.97, -1.11. Hmmm, oil was down but stocks were up. That is not supposed to happen according to the television pundits. Oil broke lower but held the three week support even as OPEC raised its quota limit basically in an admission there was rampant cheating. It tried to put its quota at the level it believes is being produced. Oil, already weak, sank.
Gold: 1084.10, +23.00. Blasting off from a seven week selloff to lower lows even with the Fed set to raise rates. ECB liquidity, i.e. massive liquidity somewhere in the world, keeps the markets happy.
MONDAY
Big move down, big move up. Lots of volatility below the prior highs. The large cap indices are bucking as they hit resistance. As of yet the bids keep returning. Perhaps enough to take them to those 2015 highs in the last dart of a yearend run. Perhaps. Even if they get there the new year will prove problematic.
Consider: QE ended in October, stocks dipped with the help of the Ebola scare but then surged back up. Even so they put in a rounded top and sold hard. They have recovered but have yet to take out those prior highs. On top of that the Fed is set to hike rates in a declining economy, jobs report notwithstanding, and, if the Fed wants to actually increase the rates in reality, it has to remove hundreds of billions in liquidity. Factor in the Fed typically hikes into recessions, the longer term picture is not that great.
So, we don't make prognostications that the market will be at X price on Y date, we just take what it gives. We have some upside plays and downside plays currently working. This week will give direction if there is a yearend rally continuation. We are going to look at some more upside plays to take advantage if the Friday move takes hold and continues into next week. Heck, we are still looking for PCLN to move up to the early August high and perhaps even fill that gap lower from early November.
I always say I am not smart enough to know when the market will top or bottom, but I have a pretty good idea of when the risk and reward are in the right place. Right now the market is lining up on either side, thus the volatility. It is an important inflection point from here up to the prior highs.
Thus you have to view the upside as a year end run versus some new breakout. If the latter happens, great; we make a ton of money. If the former happens (and with this recent action that is still an 'if'), we make some good money to close out the year. If the volatility breaks the market lower, we take profits on our remaining upside positions and pick up some more downside. That downside is likely to be rather large and the dominant play for the first part of 2016. That is about as far as anyone can see and say without getting properly called out for BS.
So we avoid the BS moniker and take what the market gives. The upside risk/reward is less, but if the move continues into yearend we make very good money nonetheless. Monday may show some giveback of the Friday move; that is normal after a good move higher Friday. Then we see how the bids return.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5142.27
Resistance:
5164 is the June 2015 peak, 5175 is the August intraday peak
5232 is the July high
Support:
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 50 day EMA at 5009
The 200 day SMA at 4975
The June low at 4974
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 2091.69
Resistance:
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:
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
The 50 day EMA at 2055
2046 is the July 2015 closing low
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 17,847.63
Resistance:
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
Support:
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 17,581
17,585 to 17,579, the March intraday lows, helping mark the bottom of the Dow's The February to July trading range.
The 50 day EMA at 17,456
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
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
ECONOMIC CALENDAR
December 4 - Friday
Nonfarm Payrolls, November (8:30): 211K actual versus 196K expected, 298K prior (revised from 271K)
Nonfarm Private Payrolls, November (8:30): 197K actual versus 185K expected, 304K prior (revised from 268K)
Unemployment Rate, November (8:30): 5.0% actual versus 5.0% expected, 5.0% prior (no revisions)
Hourly Earnings, November (8:30): 0.2% actual versus 0.2% expected, 0.4% prior (no revisions)
Average Workweek, November (8:30): 34.5 actual versus 34.5 expected, 34.6 prior (revised from 34.5)
Trade Balance, October (8:30): -$43.9B actual versus -$43.0B expected, -$42.5B prior (revised from -$40.8B)
December 7 - Monday
Consumer Credit, October (15:00): $18.6B expected, $28.9B prior
December 8 - Tuesday
JOLTS - Job Openings, October (10:00): 5.53M prior
December 9 - Wednesday
MBA Mortgage Index, 12/05 (7:00): -0.2% prior
Wholesale Inventories, October (10:00): 0.1% expected, 0.5% prior
Crude Inventories, 12/05 (10:30): 1.177M prior
December 10 - Thursday
Initial Claims, 12/05 (8:30): 269K expected, 269K prior
Continuing Claims, 12/05 (8:30): 2167K expected, 2161K prior
Export Prices ex-ag., November (8:30): -0.3% prior
Import Prices ex-oil, November (8:30): -0.3% prior
Natural Gas Inventor, 12/05 (10:30): -53 bcf prior
Treasury Budget, November (14:00): -$56.8B prior
December 11 - Friday
Core PPI, November (8:30): 0.1% expected, -0.3% prior
PPI, November (8:30): -0.1% expected, -0.4% prior
Retail Sales, November (8:30): 0.3% expected, 0.1% prior
Retail Sales ex-auto, November (8:30): 0.3% expected, 0.2% prior
Business Inventories, October (10:00): 0.1% expected, 0.3% prior
Michigan Sentiment, December (10:00): 91.6 expected, 93.1 prior
End part 1 of 3
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