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8/3/2018 Investment House Daily
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If any market circumstances arise where we see additional plays we want to
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of the day of the week.
- The past week had all the key players present: Fed, Trade, Economy, and of
course, the market indices.
- FOMC remains hawkish, even more so, and that is THE market driver now
regardless of the trade issues.
- Techs enjoyed a recovery thanks to some salvaging earnings, but once that
driver is through, the money rotation likely continues.
The past week showed some of all the market sides. The week started
continuing the prior week selling, some sharp selling at that. Wednesday
saw the FOMC rate decision where the Fed was more hawkish (and with at best
two rate hikes before inversion, it is cutting it close) but not so much the
market dropped, instead just holding steady. Thursday the hammer fell with
Trump wanting to increase tariffs from 10% to 25% on the first $200B in
tariffs on Chinese goods. Stocks flopped -- then surged back up intraday.
142 points low to close on the Dow? No! On NASDAQ. The trade issues were
no match for AAPL's earnings as the company's line of cash cow products
produces tons of income even if the company can no longer come up with
Friday was jobs Friday and it was a clinker of sorts, though revisions to
the two prior months more than made up the difference. 157K jobs versus the
190K expected (248K June, from 213K). Disappointing, but then again,
Toys-R-Us finally closed its operations in its slow, Ivan Ilyich-like death.
That bled 32,000 jobs from the report. Added back in and, voila, 189K, just
1K off expectations. Tomato, tomato. Everything else status quo as well.
Wages +2.7% year/year. Participation 62.9%. 57K more of those
manufacturing jobs that would never come back came back. 3 month average is
224K per month.
What did stocks do? Not much. After AAPL's big day, NASDAQ was quiet
though TTWO came back to life -- for most of the session. SP500 and DJ30
added some decent 0.5%ish gains. The midcaps were up modestly, RUTX lost a
half percent. Kind of status quo in terms of the action of late outside of
that trade dispute ramp up.
SP500 13.13, 0.46%
NASDAQ 9.32, 0.12%
DJ30 135.42, 0.54%
NASDAQ 100 0.32%
VOLUME: NYSE -8%, NASDAQ -4%.
ADVANCE/DECLINE: NYSE 1.4:1, NASDAQ -1.4:1. That somewhat tells the tale of
Friday basically started a slow reversion back to the recent action that has
seen money move from growth toward the more stoic, and though I hate the
phrase, 'old economy,' stocks. Now those stocks were rattled by the midweek
renewed trade dustup, but they started their recovery Thursday and Friday.
Indeed, many are nicely poised to break higher, e.g. CMI, UTX, et al.
Financials are also rebounding. The rotation continues though it was not
violent last week.
Bigger picture, the stock indices are showing decent patterns, particularly
SP500 and DJ30 as they trek higher to find the prior all-time highs as have
the other indices. SOX remains interesting, quietly building a good pattern
with no one really watching. Very important development for the upside if
SOX can breakout higher.
That said, there is still that rotation that has taken some money from the
growth areas. Those indices are still holding near their highs, but clearly
volatility hit them as they tried to make clean breaks to new highs.
Indeed, NASDAQ broke to a new high with a nice move but was almost
immediately rebuffed, redirected, rejected. Thanks to AAPL's earnings it is
trying to bounce, but again, even that bounce shows the back and forth large
Moreover, there is the Fed. Wednesday it made clear it is still hiking, and
indeed was even more hawkish, repeatedly using the word 'strong' or a
variation thereof throughout its statement. Who can forget the eloquent and
elegant wording that household spending and business investment 'grew
strongly.' Ah, sheer poetry. The Fed is hiking, and while it clearly knows
what the yield curve is because it discussed it in prior minutes, the math
is getting to the end game. Meaning: At most, the Fed has two 25BP rate
hikes before the bond yield curve totally flattens or inverts. Thus, if the
Fed has designs to keep hiking, something has got to give or else the oldest
and most reliable of economic indicators will indicate a recession coming.
That is why a few very smart people are closely watching over the next six
or so months. That is why we (and I am not saying I am in that group of
very smart people) are so concerned with the RUTX, SP400 and indeed NASDAQ
action. RUTX is very economically sensitive, and as I have noted, has the
worst pattern of the group. Maybe it is just time for small caps to no
longer lead the move. Maybe they just hit a new high, it is summer, and
they need to come back in as do most stocks this time of year. This story
won't be told in a few weeks but in several months, and so, as with others,
we watch closely and try to see where the money is going and gravitate that
That is why we have picked up positions in the SP500 and DJ30 areas and are
looking at more. Doesn't mean there are no plays in growth areas; of course
there are. The economy is still growing and so are these stocks. Unlike 4
months ago, however, now it is clear there is money moving to other areas
and some of that money is leaving other areas. So, as always, we watch for
sectors and groups showing good accumulation patterns, patterns that tell
you money is moving in. Oh, and of course, watching for those showing
distribution patterns, i.e. money moving out.
Of course, as we watch where money is migrating to and from, we look for
plays to take advantage of those. Right now the macro picture is as stated
above: FOMC is in the background but dominating. That is seen in the
weakness in small caps and to a lesser extent the midcaps. Trade plays a
role as you see in the industrial side hiccups when trade hits the
headlines, BUT the migration of money continues afterward. After NASDAQ
earnings from the big names have emptied their ammo, that migration likely
continues. Then it is up to the Fed whether it goes too far and throws
everything into recession with too many hikes, inverting the curve and
making the same mistakes as Greenspan and indeed all Feds before it.
NASDAQ: NASDAQ started the week testing the 50 day MA in the middle of its
7+ month uptrend channel. It fell from the new high in very volatile action
as big NASDAQ FAANG names missed earnings. GOOG tried to salvage things
with its good results, and NASDAQ gapped higher only to reverse and then
sell off into Monday. AAPL is now trying to do the repair work, and
Thursday it was working. Friday was a pause session. A test of good
support in a good uptrend channel. A good initial bounce from that support.
Now, will other stocks step in to fill the NFLX, cloud void, e.g. MSFT and
company? That is the question.
SP500: SP500 got the shakes as well late the prior week and into Monday,
but it held the 20 day EMA near the top of its channel, then Thursday pulled
that intraday low to high reversal. Friday it added some more but on low
volume. SP500 is still fighting to find a new high over the January peak,
another 33ish points away. When it gets there, when it catches the car (as
a dog, right?), what will it do? Volatility like NASDAQ and the growth
sectors, or just power on through? Don't forget, even if it is getting new
money or money from the small caps, it too is about to hit the same new
DJ30: The Dow struggled more on the trade issues than SP500, but it handled
them well enough. Gapped lower Thursday, sold to the 20 day EMA for the
first visit there in four weeks, but recovered intraday to hold the 10 day
EMA. Friday DJ30 bounced from there. No volume, but it too is in its
uptrend channel that is just part of the larger cup base formed off the
January all-time high. DJ30 has over 1100 points to gain to meet that high,
and that, given all the trouble the other indices have had when they hit new
highs, is quite comforting for more upside.
SP400: Continued the Thursday move off the 50 day MA after a week at that
level. Modest Friday gain as SP400 encroaches on the highs from the past
two months. Held the 50 day MA and bounced again, but can it breakout to a
real new high this time around after showing so much indecision at the new
highs for three weeks? Hmm.
RUTX: After a major selloff the prior Friday, RUTX was the black sheep this
Friday as it posted a sizable loss. Bounced Tuesday to Thursday, managing
to recapture the 50 day MA's, stalling Friday when trying to move past the
10 and 20 day EMA. Perhaps it will stretch the pattern laterally into a
pennant/triangle; you can see that trying to develop, and that would be a
positive. For now, still cautious to skeptical about RUTX' prospects.
SOX: The quiet index that is working on a 6 month triangle, holding at the
50 day MA's the past week and a bit more. I hear no one talking about the
group; that is how quiet they are. That is a good indication, i.e. when no
one is bad mouthing, when no one is singing their praises. Just forgotten
until they make a break. Triangles are basically neutral. They can produce
big upside, they can produce big downside. They are a pattern to watch,
however, because when they do break, the tend to break big. In addition,
this is SOX. SOX is often a harbinger for the rest of the market. Is it a
surprise the indices have been stuck for the past 6 weeks as SOX has slid
laterally in its base?
FAANG: AAPL up modestly Friday after its big 1-2 WED/THURS surge. FB was
up the last two days of the week, but it is still below the late July
post-gap highs and the 200 day SMA. Looks miserable and not really a
pattern to play yet. AMZN is solid enough, bouncing nicely Thursday on some
decent trade. The Friday test toward the 10 day EMA may morph into a good
entry for us this week. NFLX recovered Tuesday to Friday, but showing a
doji below the 10 day EMA. If it fails here, NFLX is entering a downtrend.
GOOG is not bad, similar to AMZN, working laterally over the 20 day MA after
filling the earnings gap. We have a play on it if it starts back up.
Software: Showed improvement on the week only to mostly louse it up after
Friday. TTWO helped out, gapping upside on earnings. It managed to fade 6
points off the high, however, gapping past the prior high but unable to hold
that gap intraday and make it a breakaway gap. UIS continued to perform on
through Friday with a solid week after earnings. VMW is back, looking good
in its pattern, just needs to deliver. DATA looked good until Friday when
it flopped back to the 50 day MA. NOW struggled to recover the 50 day MA's.
MSFT looks quite good, one of the bright spots in what was a really solid
Financial: Rebounding after the Tuesday/Wednesday issues. JPM, BAC
bouncing, C looking like a good entry. GS trying to hold the test together
at the 50 day MA. V recovering off the 50 day MA with some good volume then
Industrial: Still some great setups, e.g. CMI, UTX, IR. MMM starting to
recover, SWK and HON trying to bounce off the 10 day EMA Rocked by the
renewed trade issues, now they need to show they can resume back upside.
Drugs: Big names still moving. PFE is has a rocket strapped to it, and LLY
is similar. Still waiting for BMY to make its move. JNJ moved through the
200 day MA but flipped intraday. Still solid. AGN gapped upside Friday but
light trade. Providing SP500 plenty of support.
Chips: Some very interesting patterns setting up. AMD, XLNX we have plays
on, ready to enter. AMAT may be turning the corner. QCOM strong. LSCC in
a nice pennant. MU may try something as it too is forming a triangle off
that solid May rally.
Retail: Suddenly some key names turn choppy, e.g. M, KORS. TJX, COST, ROST
still holding up well enough, however.
Stats: +136.42 points (+0.54%) to close at 25462.58
Stats: +9.33 points (+0.12%) to close at 7812.01
Volume: 2.03B (-3.79%)
Up Volume: 913.67M (-446.33M)
Down Volume: 1.1B (+389.39M)
A/D and Hi/Lo: Decliners led 1.41 to 1
Previous Session: Advancers led 1.57 to 1
New Highs: 95 (-1)
New Lows: 73 (-27)
Stats: +13.13 points (+0.46%) to close at 2840.35
NYSE Volume: 702.683M (-8.30%)
A/D and Hi/Lo: Advancers led 1.43 to 1
Previous Session: Advancers led 1.46 to 1
New Highs: 113 (+23)
New Lows: 31 (-32)
VIX: 11.64; -0.55
VXN: 15.81; -0.50
VXO: 10.14; -0.72
Put/Call Ratio (CBOE): 0.90; -0.07
Bulls and Bears:
A bit of market volatility boosted bears to their highest in 8 weeks. Bulls
held on to their recent levels, unwilling to leave the 50 range the past 8
weeks. That leaves bulls well off the highs, but still near the top of the
historic range that leads to pullbacks.
Bulls: 54.5 versus 54.9
Bears: 18.8 versus 18.6
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: 54.5 versus 54.9
54.9 versus 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: 18.8 versus 18.6
18.6 versus 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 versus 20.2
Bonds: 2.95% versus 2.986%. Bonds sold Wednesday after testing the 10 day
EMA Tuesday. Looked as it should be with the Fed hiking rates as the 10
year moved over 3% on the Wednesday close. Then they recovered into Friday,
closing near the 10 day EMA. A failure here means a downtrend is
establishing and consummates a head and shoulders formed from late May.
Again, that is as it should be. Yields should rise, need to rise, to prevent
a Fed induced inversion.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.986%
versus 3.005% versus 2.962% versus 2.975% versus 2.958% versus 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 3.069%
EUR/USD: 1.15683 versus 1.15864. Faded all week to the bottom of the 5
week range. Still an overall basing process that looks as if it will break
higher, but wants more information about the trade issues with the EU,
Historical: 1.15864 versus 1.1662 versus 1.1689 versus 1.17074 versus
1.16558 versus 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: 111.254 versus 111.621. Bounced off the 50 day MA Tuesday, then
faded back almost to the 50 day MA as of Friday. Trying to breakaway, just
not able to do it yet.
Historical: 111.621 versus 111.628 versus 111.744 versus 110.990 versus
110.995 versus 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: 68.49, -0.47. Broke over the 50 day MA to start the week, immediately
gave it up and floundered around to close the week. Massive weakness after
hitting $75.00/bbl, and the pattern the past three months is now bearish
with a potential head and shoulders forming.
Gold: 1223.20, +3.10. Now working laterally the past three weeks, but
still below the 10 day EMA as that nearest of resistance is keeping it in
check. A break lower from here confirms the downtrend.
End Part 1
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