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7/27/2018 Investment House Daily
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- AMZN beats big on EPS, gaps higher with NASDAQ, but flip the gains.
- Not breakdowns, but a volatile week for growth puts those indices at risk.
- SP500, DJ30 pause, still look solid.
- FAANG stocks may have started to saturate their markets.
- GDP solid, but not as solid as expectations. Combined with the action in
growth indices there could be some trouble.
- GDP at 4.1% dragged a whole 1% lower thanks to a surprise drop in
I cannot say Friday was a reversal session in terms of the market, certainly
not for SP500 and DJ30, but I can say it was not good action, particularly
for NASDAQ and growth.
Think about it. AMZN exploded EPS expectations and GDP grew at 4.1%. It
would appear the market had what it needed, i.e. arguably the major stock
more than doubling EPS expectations and GDP surging the most since 2014.
Yet, after a higher open, all indices closed lower, with NASDAQ -1.46% as
AMZN gave up 63 points open to close, giving up a breakout to a new high.
Again, it was not a definitive reversal, but a gift to the market was
SP500 -18.62, -0.66%
NASDAQ -114.77, -1.46%
DJ30 76.01, -0.30%
SP400 -22.22, -1.11%
SOX -6.18, -0.45%
VOLUME: NYSE -7.4%, NASDAQ -4%. NYSE trade well below average as there was
no selling just a lack of bids. NASDAQ trade was lower but still well above
average as it sold, a sign that NASDAQ stocks are being unloaded.
ADVANCE/DECLINE: NYSE -2.1:1, NASDAQ -3.4:1. Definitely escalating negative
breadth on the downside.
Not a definitive reversal, but there are issues. Macro and more micro.
First, the micro (the macro will just be a repeat of this past week's
discussion anyway). AMZN earnings. Yes, EPS was amazing at $5.07 versus
2.50 expected. With 49% of all online sales, AMZN has now clearly become
profitable after all those years of plowing everything back into the
company. Fantastic. Just as revenues slow. Yes, AMZN missed on its top
line ($52.89B vs $53.4B). Sure, it is only a tiny 0.51B less, but then AMZN
had to go and warn that Q3 revenue would be light of expectations.
Time to back up. What is going on there? NFLX top line lower and warned
with subscriber growth lower than expected. FB missed the top line and
guided revenues lower with daily and monthly usage lower. GOOG posted just
a slight top line beat; GOOG was the best of the bunch and at least it was
rewarded. AAPL is still to come, but last quarter AAPL already reported
that iPhone sales were lower than expected. With the issues with China I am
not expecting that to change this past quarter.
AAPL has now become the old MSFT: no new tech of its own, just living off
past glory. Tim Cook has had what seems to be many, many years at the helm
and while AAPL is super profitable, it is living off the prior successes.
No new products since Steve Jobs' death. Just iPhone sales growth until
AAPL's i8 and i10 fiasco and the absurd $1000+ phone. Like the 1990's that
owed their success to the tax cuts and regulation reduction in the 1980's.
Clinton was smart: he didn't get in the way of the expansion -- until the
end. I call it the Pittsburg Steelers syndrome from the 1970's. People
said anyone could have quarterbacked that team and won. Not saying I agree
with the premise, but it illuminates the idea: riding on what other's built.
I touched on this earlier in the week: market penetration by FAANG companies
is reaching plateau level. It happens in all retailers and let's face it,
these companies are retailers. FB sells its data. Three times it denied
its existence, but in the end it turns out it sold data to dozens and dozens
and dozens of companies and countries -- even the Russians heaven forbid.
AAPL sells iPhones. NFLX sells movies and shows. GOOG is the outlier.
What happens with retailers is they are growth stocks as long as they are
entering new markets and opening new stores. Once they move toward market
saturation, growth over and the stock price reflects it. SBUX, CHS, CMG,
ZUMZ -- the list is miles long because it happens to every retailer. Now
FAANG stocks are hitting this wall. AAPL through a lack of creativity, NFLX
and FB through numbers. At 49% you have to wonder just how much more AMZN
can do. That is why it is branching out into other areas a la GOOG.
For the NASDAQ you have to consider that its horsemen are peaking out in
terms of growth. Dell, CSCO, HPQ, INTC -- the hardware makers had their own
similar issues when their markets became saturated. Others over the next
several years will emerge to take their place as new areas of tech appear.
And these stocks won't disappear from the leaderboard for quite some time.
It is never linear at first, but when it starts it is inevitable unless they
reinvent the company. AAPL could actually come out with something useful
other than the next iteration of the iPhone. AMZN moves into new areas such
as space travel.
In any event, near term some of these leaders are no longer the same buy on
the dips that they were. NFLX, AAPL, FB in our book have lost that tag.
While we said get used to buying these in the second half of 2017 due to the
market conditions, now we are going to have to be very selective with these
stocks. That also means NASDAQ will likely struggle as it finds
replacements. Near term it is very likely NASDAQ has peaked for now.
Second is the macro discussed all last week: the market action on NASDAQ and
the small and midcap indices suggests distribution given the volatile day to
day swings at or near new highs. Sellers are at least as aggressive as the
buyers at these levels. Our concern is the growth indices are starting to
undergo distribution (selling out by big money) as an indication the Q2 4.1%
GDP is the high water mark for the near term. That remains to be seen, but
RUTX and SP400 have faltered at the prior highs, and if they sell
aggressively that suggests the domestic economics are deteriorating.
Also in the macro is the Fed, for now still in the background. It is hiking
and its last statement and minutes indicate it plans to keep hiking even if
the yield curve remains flat and threatens inversion. Despite its hiking,
the long end overall remains weak when it should rise. That also suggests
weakening economic activity. If the Fed does what it usually does, i.e.
hike into a slowdown, it is a real threat to tank the nice economic
I don't mean to sound like a downer, but just recognizing what the various
markets are showing. The industrial side, the NYSE large caps and the like,
can still get money from a peaking growth side and continue their relatively
new moves off the lows. Again we are looking at plays in those areas this
weekend in addition to a spread of downside plays on areas appearing to be
losing money. It could be we see the more vicious rotation where money is
taken from some sectors and placed in others, causing the drop of the sector
losing the money. That looks to be the situation the past couple of weeks.
GPD, Q2: Not bad, not as good as expected, but the headline understates the
The 4.1% was a miss of the 4.4% expected (and 5+% whisper). That was in
itself a disappointment, but look at why not 5%: inventories showed a
surprise large drop as sales outstripped production. Thus inventories fell,
and a big part of GDP fell. Indeed, the drop in inventories pulled a full
1% off of the overall GDP. Thus, if inventories were as expected, GDP would
As noted, inventories did not drop because manufacturers are sitting on
their hands. Sales ramped up more than expected and pulled inventories
lower. Further, imports rose as they tend to do when the US consumer is in
good spirits and consuming -- Personal Consumption jumped 4.0% versus 0.5%
in Q1. Looking good, Billy Ray. Feeling good Louis. That combined action
pulled a 5+% GDP down to a 'mere' 4.1%.
GDP Q2: 4.1 vs 4.4 exp vs 2.2 Q1 (from 2.0). Nice revision.
Personal Consumption: 4.0% vs 0.5% Q1
Price Index: 3.0 vs 2.2 exp vs 2.0 prior
PCE: 2.0 vs 2.2 vs 2.2 prior
Business Investment: 7.3% vs 11.5% Q1
Government Spending 2.1%.
NASDAQ: Back and forth all week over the 10 day EMA as it hit new highs
then immediately sold back. After a doji at the 10 day EMA Thursday, NASDAQ
gapped upside gratis AMZN, but then reversed to take out the 20 day EMA and
touch the bottom of the two week lateral range on the low. Not a breakdown
as noted earlier, but definitely rejected at the new high, not just Friday,
but Tuesday and Thursday as well.
SP400: Not a breakdown either, but definitely sellers in the mix as it sold
hard Tuesday and Friday, both days closing near the 50 day MA. Still near
the all time highs in its three week lateral range, still fending off a
breakdown, but clearly it was sold as it tried for new highs.
RUTX: RUTX tapped the prior highs on the Tuesday intraday high then
reversed. A modest bounce into Thursday was pounded lower Friday, dropping
RUTX all the way back to the 50 day MA. Not a breakdown here either, and
just as with the other indices RUTX could use this test of support to rally
back upside. Did this in early July after the last June beat down. Would
maintain that trend if it did. It never, however, reached a definitive new
high on the move, turning lower instead. That shows a weaker move and RUTX
has to prove it can continue back upside.
SP500: Broke to a higher recovery high Wednesday then faded into Friday and
a test of the 10 day EMA on the close. Down but lower volume and SP500
remains in good position to take on the all-time high from late January.
DJ30: Surpassed the June high on the week, leaving the late February peak
and the January all-time high still out there. That is good; plenty of room
to run with the new money coming DJ30's way. Near term DJ30 is almost at
the upper channel line from the uptrend that started in March. It may want
to test a bit more before resuming the move and that run at those prior
highs. Overall DJ30 continues to look good in its recovery.
SOX: A slow process but SOX continues its attempt to rise off the 5 week
crawl up the 200 day SMA. It is just hanging on, but it is hanging on.
Leaders in FAANG, software struggle as financial, drugs, some industrial
sectors, certain transports, certain large cap food are performing.
FAANG: continue to struggled despite AMZN beating the bottom line and
gapping upside. It gave up most of that gain. GOOG faded to the 10 day
EMA, still solid on its earnings gap. FB not recovering from the Thursday
bomb gap below the 200 day SMA. NFLX still struggling below the 50 day MA.
AAPL touched a higher high Thursday, reversed that day, then flopped to the
20 day EMA Friday. Not a good looking group.
Financial: Good week, still moving higher as of Friday, e.g. JPM, C, BAC,
GS. V announced results, held up reasonably well, then dropped some Friday.
Still very solid overall.
Drugs: Strong week for the old big names, e.g. PFE, LLY. BMY, MRK moved
well early week but then struggled Friday with moves lower. Others that
have moved well, e.g. ARWR sold harder Friday. JNJ jumped nicely into
Friday, testing the 200 day SMA.
Industrials: Great week for some though Friday was lower. UTX surged into
Friday but turned lower on the close. BA was decent off the 50 day MA. HON
surged all week, paused Friday. TEX poses an interesting pattern, and CMI
looks as if it is setting up to move higher through the 50 day MA.
Metals: Very improved. NUE may try the breakout from a big triangle. AKS,
SID working well. STLD looks decent in a test at the 50 day MA. We will
see if this group can lead.
Software: A good group but under fire. ADBE sold hard Friday to the 20 day
EMA. DATA sold to the same level on a volume jump. TTWO gapped lower below
the 20 day MA but held decently. VRSN surged on earnings then gave it all
back, managing to hold the 10 day EMA. ATVI broke down hard last week. NOW
very volatile to end the week.
Energy: As volatile as ever. CVX came off the 200 day SMA and was solid
Friday. Others struggled, e.g. APC, APA, MRO. GPOR broke lower. Still
Stats: -76.01 points (-0.30%) to close at 25451.06
Stats: -114.77 points (-1.46%) to close at 7737.42
Volume: 2.19B (-3.95%)
Up Volume: 652.38M (-467.62M)
Down Volume: 1.52B (+390M)
A/D and Hi/Lo: Decliners led 3.4 to 1
Previous Session: Advancers led 1.21 to 1
New Highs: 76 (-46)
New Lows: 106 (+39)
Stats: -18.62 points (-0.66%) to close at 2818.82
NYSE Volume: 753.915M (-7.36%)
A/D and Hi/Lo: Decliners led 2.1 to 1
Previous Session: Advancers led 1.43 to 1
New Highs: 71 (-66)
New Lows: 40 (+9)
VIX: 13.03; +0.89
VXN: 18.72; +1.85
VXO: 11.54; +0.31
Put/Call Ratio (CBOE): 1.05; +0.31
Bulls and Bears:
Modest moves with bulls holding near 55, bears near 18.6. Not telling a lot
right now, but bigger picture, bulls remain off the highs over 6 hit early
Bulls: 54.9 versus 55.3
Bears: 18.6 versus 18.5
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: 54.9 versus 55.3
55.3 versus 52.4 versus 47.1 versus 47.6 versus 52.0 versus 55.5 versus 52.9
versus 50.0 versus 49.1 versus 46.6 versus 43.1 versus 43.6 versus 48.0
versus 43.6 versus 42.2 versus 49.5 versus 55.5 versus 54.9 versus 48.6
versus 48.1 versus 48.5 versus 41.9 versus 54.4 versus 66.00 versus 64.7
versus 66.7 versus 64.4 versus 61.9 versus 64.1 versus 64.2 versus 62.3
versus 61.5 versus 63.5 versus 64.4 versus 63.5 versus 62.3 versus 60.6
versus 60.4 versus 57.5 versus 54.3 versus 50.5 versus 47.1
Bears: 18.6 versus 18.5
18.5 versus 18.5 versus 18.6 versus 18.4 versus 17.6 versus 17.8 versus 17.7
versus 19.2 versus 19.2 versus 19.4 versus 19.4 versus 20.6 versus 20.8
versus 19.6 versus 19.8 versus 18.6 versus 17.5 versus 16.8 versus 15.7
versus 15.5 versus 14.4 versus 14.6 versus 14.4 versus 15.5 versus 12.6
versus 12.8 versus 12.7 versus 13.5 versus 15.2 versus 15.1 versus 15.2
versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4 versus 14.4
versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1 versus 19.0
Bonds: 2.958 versus 2.982%. Bonds rallied despite good economic data.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.982%
versus 2.965% versus 2.952% versus 2.962% versus 2.895% versus 2.838% versus
2.88% versus 2.86% versus 2.856% versus 2.829% versus 2.849% versus 2.853%
versus 2.867% versus 2.867% versus 2.824% versus 2.835% versus 2.833% versus
2.871% versus 2.86% versus 2.84% versus 2.833% versus 2.877% versus 2.882%
versus 2.895% versus 2.899% versus 2.937% versus 2.889% versus 2.915% versus
2.922% versus 2.933% versus 2.977% versus 2.963% versus 2.952% versus 2.948%
versus 2.928% versus 2.974% versus 2.935% versus 2.944% versus 2.902% versus
2.86% versus 2.857% versus 2.79% versus 2.931% versus 2.992% versus 2.982%
versus 3.063% versus 3.056% versus 3.06% versus 3.123% versus 3.096% versus
EUR/USD: 1.16558 versus 1.17324
Historical: 1.17324 versus 1.17385 versus 1.16846 versus 1.16989 versus
1.17214 versus 1.1651 versus 1.16514 versus 1.16603 versus 1.1709 versus
1.1685 versus 1.16608 versus 1.1672 versus 1.17288 versus 1.17578 versus
1.17439 versus 1.1689 versus 1.1665 versus 1.16388 versus 1.1638 versus
1.15634 versus 1.15602 versus 1.16517 versus 1.17031 versus 1.16572 versus
1.16072 versus 1.15762 versus 1.1586 versus 1.15746 versus 1.2624 versus
1.16245 versus 1.15678 versus 1.17973 versus 1.17454 versus 1.17761 versus
1.17737 versus 1.17987 versus 1.1774 versus 1.1762 versus 1.1697 versus
1.166 versus 1.16993
USD/JPY: 110.995 versus 110.791.
Historical: 110.791 versus 110.871 versus 111.235 versus 111.084 versus
111.451 versus 112.732 versus 112.783 versus 112.896 versus 112.337 versus
112.631 versus 112.093 versus 110.911 versus 110.973 versus 110.474 versus
110.666 versus 110.40 versus 110.854 versus 110.687 versus 110.523 versus
110.223 versus 110.097 versus 109.678 versus 109.980 versus 109.895 versus
110.376 versus 110.03 versus 109.783 versus 110.668 versus 110.578 versus
110.247 versus 110.381 versus 110.314 versus 109.466 versus 109.705 versus
110.164 versus 109.878 versus 109.90 versus 109.53 versus 108.767
Oil: 68.69, -0.92. Struggling after recovering to the 50 day MA.
Gold: 1223.00, -2.70. Moved up to the 10 day EMA on the week, then
stalled, gapping lower Friday.
End part 1
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