Sunday, February 12, 2017

The Daily, Part 1 of 3, 2-11-17

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2/11/2017 Investment House Daily
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- The Art of the rally.
- Stock indices continue their rally to higher highs on another promise of
something good to come.
- Some leaders faded as the NYSE indices broke higher. Rotation or some
leaders falling out.
- Market still has macro negatives as it continues what has been a macro

The Art of the Phenomenal Market Rally.

Quite a ride. From -700 points on election night to new highs by December.
All on the hope that positive economic changes were coming, changes from the
tax, regulate, and strangulate policies of the prior 10 years. The new
version of hope and change that is actually what US hope and change has
always been: the chance for everyone to be their best and reach their
American dream.

But something happened in mid-December. The market took a breather of
course and waited for the new administration. It waited, waited, and
waited, looking for policies that would turn their hope into reality.
Meetings with companies brought promises of more full-time US jobs and more
investment. Still, those were just promises. What were the policies going
to be?

Inauguration came and the market jumped. Them dumped back into the range.
Tweets, executive orders some did not like, protests, obstruction claims.
The market was mired. The hope for something better was perhaps questioned
as republican senators who are the antithesis of what the founders wanted as
they server term after term after term (and thus have lost touch with the
reality of what it takes to start and grow a business in the US) vowed to
block any real change. After all, they had their power and they don't want
to empower anyone else, particularly those that cast the votes. The rally

Then last Thursday a new mood, a new breakout, a new high for the stock
market. Not just NASDAQ and SOX who led their groups to very narrow new
highs, but the NYSE indices as well. Friday another gain, not as grand as
Thursday, but the new break higher continued.

SP500 8.23, 0.36%
NASDAQ 18.95, 0.33%
DJ30 96.97, 0.48%
SP400 0.55%
RUTX 0.75%
SOX -0.08%

The cause?

Earnings? No. While earnings are helping (or hurting) individual stocks,
the overall outlook has not helped markets. Specifically, the top line
results have fallen back into a slump after a Q3 'breakout.' With all the
hope, flagging sales is not a good affirmation of good times ahead.

No, this was, whether people like to admit it or not, Trump doing what Trump
does best: the art of getting what he wants. He staked a claim to the stock
market rally and he was right about that first move. After that, however,
the market started to look at not just what was possible, but what could be
accomplished. It balked. It needed some prodding. It got it.

Thursday in a meeting with airline executives, Trump noted that over the
next 2 to 3 weeks he would announce something 'phenomenal in terms of tax.'
How Robert Rubin-like; Rubin was a master at timing when the markets needed
a jolt of confidence. You don't get to be where Rubin, Trump, and others
are if you don't understand timing.

The result was a stock market breakout. The NYSE indices were lagging
NASDAQ and SOX, unable to break from their 9 week ranges. Worse, they HAD
tried a breakout and that was rejected. Then the promise of something
'phenomenal.' As I noted Thursday night, it reminded me of the movie '2010'
when Dave Bowman told Dr. Floyd (Roy Scheider) something was going to
happen. When Dr. Floyd asks 'what? What's going to happen?,' the
metamorphosed Dave Bowman responds, 'something wonderful.'

Dave Bowman: 'It's all very clear to me now . . .'

In the movie, Dr. Floyd believed what he saw and acted on the promise that
something wonderful was going to happen. Okay, he also had the threat that
he HAD to leave before that wonderful event occurred. Many CEO's have the
'threat' of possible repercussions if they invest outside the US.

Thursday and Friday the stock market acted on the renewed promise of
economic growth via a reformed tax code. As I noted Thursday, it will have
to be real reform along the lines of a Steve Forbes flat tax of 11%ish and
low to no corporate tax to be put in the 'phenomenal' category. The market
may have a lot of hope for change, but I am highly skeptical the plans will
be 'phenomenal.'

That does not, however, mean I don't participate. Heck, all along I have
talked of stock patterns that keep showing up despite the macro issues for
the market. If the patterns show the moves, you make your play. We have
not caught all of them but have some excellent positions in progress.

Those macro issues: Bullish sentiment hitting a level that foretells
corrections, low breadth, low volume, low MACD on the breaks higher. Even
so, the force is strong in this rally (another name for momentum) and it
continues higher.

More importantly, there are no sellers yet. They showed up two weeks ago
when SP500 gapped to a new high, breaking from its range, then gapped lower
right back into the range. That is pretty much the alpha and omega of the
sellers on this move. They will most surely show up, but they have not
shown up yet. The promise of change, phenomenal change, is hard to compete
with, particularly with an investor class that really wants some real
economic growth.

When the sellers do show up, however, they will likely be like a thief in
the night, that time when the sentiment is so bullish everyone is in and
there is no big money that still wants to put more into the rally. The Dow
showed a lot of churn as it worked through its lateral range; that suggests
stocks were being sold. A new break higher could bring that money right
back in, however. Thursday and Friday money was coming into stocks, but
volume was still tepid and breadth just decent. Perhaps that is enough, but
still keep an eye on the leaders.

That brings up a point. Chips have nicely led the market to new highs but
are now some are struggling. Perhaps it is just another round of rotation
to other groups; some certainly jumped last week such as metals and
restaurants, the latter rather despised until perhaps now. If the chips and
others such as FAANG, China, materials start to break, that would be a



SP500: New high Thursday, again Friday, moving off the 10 day EMA and 2016
trendline. Volume, less than impressive. No days above average on the
break higher. Indeed, only 2 above average volume days in over a month. At
least it should show some good volume on the breaks higher. Not the case
Thursday and Friday.

DJ30: Thursday and Friday new highs same as SP500. At least Dow volume
moved above average Thursday, showing more buyers in the mix.

NASDAQ: Added two more record sessions to end the week. 10% above its 200
day SMA, and for NASDAQ that is no major extension.

SOX: As the other indices hit new highs, SOX tested the move, back to the
20 day EMA on the Friday low before rebounding to hold that near support.
Some chips started to struggle and SOX with them. Nothing major at this
point but a key group to watch.

SP400: Finally punched to a new high Friday. I suppose they are lagging,
though just a bit behind the large cap NYSE indices.

RUTX: No new high yet for the small caps, one of the most telling
indications as to just how economically beneficial any new policies may be.
Perhaps investors are not totally sure and are waiting to see the policies,
in the interim buying more 'brand name' stocks. Perhaps, and the small caps
are not that far behind the rest of the indices.

LEADERSHIP: Day's Winners (some were actually leaders).

Materials: enjoyed another upside session as money is put into
infrastructure related stocks even though infrastructure is NOT 'phenomenal'
tax policy. Indeed, it is not tax policy at all. It is spending. Big
difference. But I digress.

Metals: Closely related to materials and a solid late week break higher
from bases by the industrial metals. RS, X, SID. Not across the board but
some solid patterns break higher.

Chips: Faded at the end of the week as new sectors received money. Some
sold more than others, some did not sell. The main thing to watch is how
the group performs after this test. SLAB fell to the 10 day EMA in its
first down day in awhile. Same from MU. AMAT, AMD, AVGO are all fine.
TXN, LSCC broke lower on the week.

Restaurants: CAKE is rallying into earnings. BWLD had a wild week on
earnings but closed higher. PNRA surged on its earnings as well. JACK
gapped upside. Unfortunately for many of these, earnings are just around
the corner.

China: As with chips, some were off their feed late week, e.g. NTES, BABA,
but they held the 10 day EMA in a test. BIDU, ATHM, JD all worked well into
the weekend. Still a very solid leadership group.

FAANG: Not all perfect patterns, but up on the week and of course a big
contributor to NASDAQ's new highs.

Financial: Still no breakouts here. Down early week, recovered late week,
still in their ranges (BAC, JPM) or patterns (GS). Not yet contributing.

Industrial Equipment/Machinery: Not the best patterns in all cases but some
very nice late week moves, e.g. TEX, CAT, DE, EMR.


Stats: +96.97 points (+0.48%) to close at 20269.37

Stats: +18.95 points (+0.33%) to close at 5734.13
Volume: 1.8B (-5.26%)

Up Volume: 1.15B (-70M)
Down Volume: 687.6M (-17.78M)

A/D and Hi/Lo: Advancers led 2.04 to 1
Previous Session: Advancers led 2.61 to 1

New Highs: 225 (+32)
New Lows: 22 (-6)

Stats: +8.23 points (+0.36%) to close at 2316.1
NYSE Volume: 786.6M (-6.86%)

A/D and Hi/Lo: Advancers led 2.51 to 1
Previous Session: Advancers led 1.92 to 1

New Highs: 222 (+58)
New Lows: 5 (-4)


VIX: 10.85; -0.03
VXN: 12.31; -0.34
VXO: 10.41; +0.01

Put/Call Ratio (CBOE): 0.98; +0.05. Still very high put/call ratio as the
market breaks higher, perhaps closing downside positions versus buying
protection. A market breakout does that.

Bulls and Bears: Bulls hit another cycle high, making it 4 of 6 weeks above
60.0. Bears fell sharply.

Bulls: 62.7 versus 61.8

Bears: 16.7 versus 17.6

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: 62.7 versus 61.8
61.8 versus 58.2 versus 60.6 versus 58.6 versus 60.2 versus 59.8 versus 59.8
versus 59.6 versus 58.8 versus 56.3 versus 55.6 versus 51.0 versus 42.9
versus 41.7 versus 47.1 versus 42.9 versus 46.1 versus 46.7 versus 45.2
versus 44.6 versus 49.0 versus 52.5 versus 55.9 versus 56.7 versus 56.2
versus 54.3 versus 52.9% versus 53.9% versus 54.4% versus 52.5% versus 47.1%
versus 41.6% versus 47.5% versus 45.9% versus 47.3% versus 45.4% versus
35.4% versus 40.2 versus 39.2

Bears: 16.7 versus 17.6
17.6 versus 17.5 versus 17.3 versus 18.3 versus 18.4 versus 19.6 versus 19.6
versus 19.2 versus 19.6 versus 22.3 versus 21.6 versus 23.5 versus 25.7
versus 24.3 versus 23.1 versus 23.8 versus 23.1 versus 22.8 versus 23.1
versus 24.3 versus 22.6 versus 22.8 versus 20.6 Versus 20.2 versus 20.0
versus 20.9% versus 21.2% versus 21.6% versus 23.3% versus 24.7% versus
24.5% versus 23.8% versus 23.2% versus 23.5% versus 23.8% versus 23.7%
versus 24.0% versus 21.7% versus 21.6% versus 21.7 versus 20.6% versus 21.7%
versus 27.8% versus 27.8% versus 28.9% versus 27.8% versus 30.3% versus


Bonds (10 year): 2.398% versus 2.398%. Gapped upside Wednesday, faded
Thursday and Friday to test the last leg upside. Not a bad setup to continue
the nascent recovery off the December low.

Historical: the last sub-2% rate was in November 2015. 2.340% versus 2.393%
versus 2.41% versus 2.48% versus 2.474% versus 2.477% versus 2.44% versus
2.49% versus 2.48% versus 2.512% versus 2.52% versus 2.467% versus 2.40%
versus 2.47% versus 2.468% versus 2.422% versus 2.372% versus 2.393% versus
2.358% versus 2.365% versus 2.38% versus 2.962% versus 2.42% versus 2.357%
versus 2.45% versus 2.448% versus 2.42% versus 2.48% versus 2.51% versus
2.56% versus 2.54% versus 2.55% versus 2.54% versus 2.564% versus 2.544%
versus 2.59% versus 2.59% versus 2.52% versus 2.473% versus 2.475% versus
2.471% versus 2.40% versus 2.349% versus 2.39% versus 2.396% versus 2.394%
versus 2.454% versus 2.388% versus 2.30% versus 2.31%. versus 2.36% versus
2.355% versus 2.317% versus 2.30% versus 2.34% versus 2.297% versus 2.219%
versus 2.22% versus 2.23% versus 2.14% versus 2.077% versus 1.867% versus
1.83% versus 1.778%

EUR/USD: 1.06411 versus 1.06557. After the December through January euro
rally, the common currency faded back to the 50 day SMA on the week. Pretty
decent test of the move from the look of it.

Historical: 1.06557 versus 1.06825 versus 1.06814 versus 1.07219 versus
1.07880 versus 1.07605 versus 1.07892 versus 1.0791 versus 1.07294 versus
1.06957 versus 1.06843 versus 1.0683 versus 1.0756 versus 1.07274 versus
1.0761 versus 1.07027 versus 1.06394 versus 1.06381 versus 1.07114 versus
1.06450 versus 1.0624 versus 1.05982 versus 1.0555 versus 1.0585 versus
1.05346 versus 105837 versus 1.0525 versus 1.03914 versus 1.05289 versus
1.05155 versus 1.04357 versus 1.04636 versus 1.0451 versus 1.04368 versus
1.04412 versus 1.0392 versus 1.0407 versus 1.0459 versus 1.0415 versus
1.05094 versus 1.0636 versus 1.06326 versus 1.05586 versus 1.06140 versus
1.07745 versus 1.07194 versus 1.07614 versus 1.06638 versus 1.06631 versus
1.0601 versus 1.0649 versus 1.05699 versus 1.066 versus 1.05910

USD/JPY: 113.265 versus 113.401. Nice move Thursday, off Friday, still in
the 8 week pullback from the election through December rally.

Historical: 113.401 versus 112.207 versus 112.332 versus 111.815 versus
112.567 versus 112.903 versus 112.68 versus 112.50 versus 114.493 versus
115.094 versus 114.469 versus 113.362 versus 113.850 versus 112.736 versus
114.39 versus 114.686 versus 114.538 versus 112.774 versus 114.473 versus
114.57 versus 114.70 versus 115.811 versus 116.023 versus 116.923 versus
115.93 versus 116.46 versus 117.983 versus 116.739 versus 116.456 versus
116.793 versus 117.41 versus 117.413 versus 117.32 versus 117.537 versus
117.544 versus 117.835 versus 117.453 versus 117.941 versus 118.257 versus
117.397 versus 115.038 versus 115.058 versus 115.20 versus 114.23 versus
113.325 versus 113.993 versus 113.601 versus 113.52 versus 113.945 versus
114.19 versus 112.685 versus 112.44 versus 111.835 versus 113.14 versus
112.445 versus 111.129 versus 110.809

Oil: 53.86, +0.86. Oil is back to the top of its range as reports are that
OPEC is holding to its production quoatas. As noted before, someone check
whether hell froze over. Up off the 50 day MA's to the top of the 9 week
range and resistance at 54.

Gold: 1235.90, -0.90. Solid week, faded some Friday. Still looks solid in
the second leg of the rally off the mid-December low.


The market broke higher to new highs once more. The breakout that was
rejected is now a new breakout. Will there be a second rejection? Depends
on how the leaders hold up.

Semiconductors are in a soft spot, but that is presenting upside opportunity
in some good names. We are looking at some of those this weekend and will
look at more as next week progresses. There are also some good downside
setups that we are looking at as well as they have set up even with a market

While there are macro challenges to the rally as discussed earlier, there is
also a dearth of sellers to capitalize on them. Thus the upside bias
continues holding in spite of the challenges.

Have a great weekend!


NASDAQ: Closed at 5734.13


5601 is the January lower gap point
The 2016 trendline at 5542
The 50 day EMA at 5530
The 50 day SMA at 5513
The November prior all-time high at 5404
5340 is the September and October 2016 twin peaks
5287.61 is the September 2016 high
5271.36 is the August 2016 intraday prior all-time high
5231.94 is the 2015 all-time high
The 200 day SMA at 5195
5170 is the October intraday low.
5162 is the early November peak, 5176 is the December intraday peak
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
5007 is the 12/31 upper gap point from that big gap lower
4999 is the October upper gap point
4980 is the June 2016 peak
4969 is the April 2016 recovery high
4960 is the September 2015 intraday high, an important reversal point for
4920 is the lower gap point from mid-October 2015, the January 2016 lower
gap point
4916 is the mid-November 2015 low
4899 - 4902 from the September 2015 peak, July 2015 low
4894 is the September 2015 closing high

S&P 500: Closed at 2316.10


2301 is the late January 2017 high
The 2016 trendline at 2291
2282 - 2280 from January 2017
2277.53 is the December 2016 high
The 50 day SMA at 2265
The 50 day EMA at 2261
The November 2016 all-time high at 2213.25
2194 is the August 2016 prior all-time high
2175 is the June 2016 high
The 200 day SMA at 2166
2135 is the May 2015 all-time high
2130 is the June 2015 peak
2126 was the April 2015 prior all-time high
2120 is the June 2016 peak
2119 is the September 2016 low; February 2015 intraday high
2116 is the November 2015 high
2111 is the April 2016 recovery high
2104 is the December 2015 high
2094 is the December 2014 high
2079 is the intraday all-time high from November 2014
2062 is the January 2015 lower high
2046 is the July 2015 closing low
2040 is the March 2015 closing low
2026 is the May 2016 low
2023 is the November 2015 low
2020 is the September 2015 intraday high
2011 is the September prior all-time high
1995 is the September 2015 recovery peak
1991 is the July 2014 high

Dow: Closed at 20,269.37


20,126 is the January 2017 high
19,994 - 19,999 (early January high, upper gap point from late January
The 50 day SMA at 19,835
19750 is the lows of the December/January range
The 50 day EMA at 19,735
18,669 is the August 2016 all-time high
18,595 is the July 2016 peak
The 200 day SMA at 18,604
18,351 is the prior all-time high from May 2015
18,288 from March 2015
18,262 is the upper gap point from the Monday gap lower.
18,247 is the August 2016 low
18,168 is the April 2016 recovery high
18,100 to 18,181: interim peaks in the December 2014 to July 2015 range
18,016 is the June 2016 peak
17,992 is the early September low
17,978 is the November 2015 peak
17,960 is the October intraday low
17,600 is the rough bottom of the April to June range.
17,351 is the September 2014 all-time high.


February 14 - Tuesday
PPI, January (8:30): 0.3% expected, 0.3% prior
Core PPI, January (8:30): 0.2% expected, 0.2% prior

February 15 - Wednesday
MBA Mortgage Applica, 02/11 (7:00): 2.3% prior
Core CPI, January (8:30): 0.2% expected, 0.2% prior
CPI, January (8:30): 0.3% expected, 0.3% prior
Empire Manufacturing, February (8:30): 7.0 expected, 6.5 prior
Retail Sales, January (8:30): 0.1% expected, 0.6% prior
Retail Sales ex-auto, January (8:30): 0.4% expected, 0.2% prior
Capacity Utilization, January (9:15): 75.5% expected, 75.5% prior
Industrial Productio, January (9:15): 0.0% expected, 0.8% prior
Business Inventories, December (10:00): 0.4% expected, 0.7% prior
NAHB Housing Market , February (10:00): 68 expected, 67 prior
Crude Inventories, 02/11 (10:30): +13.8M prior
Net Long-Term TIC Fl, December (16:00): $30.8B prior

February 16 - Thursday
Housing Starts, January (8:30): 1220K expected, 1226K prior
Building Permits, January (8:30): 1230K expected, 1210K prior
Initial Claims, 02/11 (8:30): 245K expected, 234K prior
Continuing Claims, 02/11 (8:30): 2078K prior
Philadelphia Fed, February (8:30): 17.5 expected, 23.6 prior
Natural Gas Inventor, 02/11 (10:30): -152 bcf prior

February 17 - Friday
Leading Indicators, January (10:00): 0.5% expected, 0.5% prior

End part 1 of 3
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