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12/19/2015 Investment House Report
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Targets hit: AAPL; JWN
Entry alerts: GOOG; SDS
Trailing stops: None issued
Stop alerts: None issued
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The REPORTS SCHEDULE is as follows:
Market Summary Video, Plays and Play Videos, and Play Tables with play annotations will issue Monday, Wednesday and the Weekend.
Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play tables.
Access to all current videos will remain assessable each day using the play links in the reports.
If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.
MARKET SUMMARY
- 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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