Sunday, September 23, 2018

The Daily, Part 1 of 3, 9-22-18

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9/22/2018 Investment House Daily
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- DJ30 pads its new high. What next now that the last dog caught the
- NASDAQ and growth continue their tests of support, looking for the
bids to return.
- More of the same rotation pattern or does it change this time?
- Set up for the same moves but there are some issues to face.
- New leaders trying to emerge and give upside support as NASDAQ and
big names face the lick log.

The theme for the week remained through Friday, that is the NYSE large caps
moving higher as money moved their way, the NASDAQ, small caps and midcaps
consolidating the past three weeks the August move to a new high. SOX
remains in its triangle, showing promise of a breakout to come, but not
still not making the move.

SP500 -1.08, -0.04%
NASDAQ -41.27, -0.51%
DJ30 86.52, 0.32%
SP400 -0.19%
RUTX -0.46%
SOX -0.33%

VOLUME: +235%, NASDAQ +57%. Explosion in volume on the SP500 and NASDAQ on
the S&P rebalance.


Indeed, DJ30 finally purchased a new high, moving past the January peak, the
last to join the indices (excluding the specialty SOX) at new highs since
the early year peak. That of course raises the question that now the last
dog has caught the car, what do they do next? Rotate back to the techs?
Certainly they are set up after 3 weeks of testing, the small caps are
pretty much in the same position.

In recent history this same rotation two-step has played out with moves
higher. The 'industrial side' rallies then money shifts back to the more
tech-ish/growth side and the roles are swapped, the rallies in both sides
maintained. Virtuous rotation as opposed to vicious rotation.

Thus the indices all stay in their uptrends, testing then rallying in a
sinusoid wave.

Ah but there are issues or potential threats.

First, though the sinusoidal rotation has been the pattern, NASDAQ relative
strength is weakening against the large cap NYSE indices over the past three
months. SP500 relative strength rose in late July as NASDAQ sold, faded to
midmonth August before rallying again. The past 3 weeks it has again
rallied back, this time near the late July peak as of Friday. It is at the
lick log, i.e. if it continues it will break trend of falling against
NASDAQ. If so, NASDAQ could continue to weaken against it, and the virtuous
rotation cycle may end, leaving NASDAQ in the cold.

Second, the rampant pessimism for this rally. Each day you hear a new
billionaire, brokerage, or major financial group speak of their concerns
regarding the move's longevity. This past week Mr. Schiller of the
Case/Schiller housing index said the market would make one more move higher
then roll over. Now I am not certain of Mr. Schiller's market acumen, but
he follows a list of brokerages (e.g. MS, GS) and billionaires (e.g.
Gundlach) calling a market top.

As noted before, sentiment is an inverse indicator, suggesting opposite
moves in the market than sentiment. Thus, if there was ebullience at new
highs -- and there was some on Friday on the financial stations who view the
Dow as THE market -- but at the same time the caveats abounded. 'A new high
yes, but . . .'

On the other hand, if all the big money feels the same way then it can lead
to a self-fulfilling prophecy. Certainly how this current test by the
growth sectors will tell a good part of that tale.

Third, this weekend it is learned the President is drafting an executive
order instructing law enforcement and antitrust agencies to begin investing
the business practices of 'social media companies.' This on top of the EU
threatening FB and others with regulation. One would assume that the EO
targets include FB, Twitter, perhaps GOOG. TWTR this weekend suspended
conservative actor James Wood's account for posting a satirical video that
TWTR claims could 'impact an election.' Wow, ANY comment about politics
could sway an election. Is that now the new-Nazi standard: political speech
outlawed? How Stalinist. Old Joe is smiling from his grave -- he finally
won. And now an executive order to make it 'fair?' During this episode I
keep wondering why not a conservative Twitter or FB? Patent issues I am
sure, but would it not be good for the companies to see this and do it
themselves? It is not a perfect solution, but it beats having the
government down your back. Or, here is a novel solution, just let people
speak freely with just pornography, graphic violence, and profanity being
the automatic filters? In my book, more speech is always better than less
speech because if we truly believe in the power of ideas, just ideas will
win out over unjust.

In any event, remember when the Clinton administration went after MSFT as a
monopoly and the EU followed suit? That threat of regulation helped peak
the stock and for a time the market.

Fourth, is trade and beyond trade. Thus far the market has managed to
rebound and indeed move to new highs in the face of the trade war/skirmish
with China. China has cancelled the planned resumption of trade talks with
the US, angered by sanctions against China for its buying Russian arms.
China warned of consequences and has summoned the US ambassador over the
sanctions. The trade 'skirmish' as Jamie Dimon called it this week is
branching out into other areas. You know the old saying, trade wars lead to
shooting wars . . . Looking to the north, at least they are saying the US
and Canada are very close to a trade deal.

Fifth, the FOMC is still out there tightening and the next round comes
Wednesday when it is expected to hike another 25BP, the purported
penultimate hike of the campaign. Think so? Think not. The Fed fears a
rising economy, and even if it shows signs of slowing at the next hike or
beyond, the Fed will overlook them and continue tightening after a slowdown
starts. It always does. It is a supertanker that cannot change its course
without a lot of planning and a lot of time. The problem is it sets itself
up to keep hiking because the way the economy works. It slows but shows
little sign of doing so, then all at once it hits the skids. Moreover, the
Fed is already jawboning, laying the groundwork for further hikes due to an
increasing 'divergence' between the US and the rest of the world. Hey,
divergences are good if they are in your favor. We struggled in the early
2000's and from through 2016 when we tried to not excel and lead the rest of
the world. In any event, the Fed is there, the Fed doesn't know when to
cease and desist.

All of these present issues to the market move and the market has to prove
it can overcome them. As noted, NASDAQ and particularly the NASDAQ large
cap names are at the point they need to bounce to keep the same pattern



DJ30 put in a pair of new highs to end the week, the last of the big indices
to take out the January all-time high. Now the dog has caught the car while
NASDAQ big names are at important support. Will the pattern of rotation
continue or will a break occur where the NYSE large caps dominate while
NASDAQ large caps and growth base?

DJ30: Solid 4-session move to 2 new highs to end the week. Friday DJ30
gapped to a doji. Good 4-session move, about the most it has put in on its
prior runs. It could come back to test after the new high, but overall in a
trend upside, sitting on a good breakout move to a new high.

NASDAQ: Fell back to the 50 day MA Monday. Started up off that level into
the Thursday close, showing very good price/volume action on that move, i.e.
strong volume on the up sessions, lower volume on the downside day. Friday
a gap higher looked promising, but it was sold as big names sold back.
Volume spiked, but it was S&P rebalance Friday so you have to toss volume
out the window for the day.

SP500: Gapped to a higher new high then reversed for a modest loss to end a
week that saw a hold of the 20 day EMA and rebound. SP500 gapped to a new
high Thursday, looking to put some mileage on the prior peak. It did that,
but still problematic as SP500 is over the upper trendline and trying to
extend the move. Important that it does.

SOX: Very important group for the market's overall success. SOX fought off
selling in mid-August and again for a day in mid-September as it gapped to
the 200 day SMA and lower pattern trendline then gapped right back up to the
50 day MA's. Started higher Thursday with a gap, paused Friday, but looking
better in its triangle as some more stocks, e.g. AVGO, are joining the
upside. Still in the middle of the triangle pattern though cheating into
the top half. It is at the point to make a break.

RUTX: On the week, not a bad test of a key area, a bounce, now it has to
show it can do more. Dropped to the 50% Fibonacci retracement and 50 day MA
Monday. Then a nice bounce Thursday. Friday a try higher that fizzled into
a loss giving back half or so of the Thursday move.

SP400: Bumping the highs but nothing more than that as SP400 midcaps remain
in a 3 week flat consolidation over the 20 day EMA.


Machinery/Manufacturing: CAT surged on the week, flat Friday. CMI broke
resistance in a 2 month lateral move. DE broke the 200 day and is testing;
interesting setup. UTX a solid upside week. ETN, EMR continuing upside
trends. BA posted a nice second week of the rebound off the 200 day SMA

Financial: Solid week upside after 3 weeks lower. Good new breaks higher
by the banks Wednesday and Thursday, rested Friday (JPM, BAC, C). V and MA
moved higher again end of the week. GS surged through the 50 day MA,
testing Friday.

Energy: Coming to life with some drillers breaking out, e.g. RIG, DO.
Others as well, e.g. XOM, MRO, NE. Others are following, setting up

Drugs: PFE still trending up the 10 day EMA as is BMY, MRK. Smaller issues
moving, e.g. VCEL, INFI. JNJ moving very well, tripping the target.

FAANG: NFLX still looks quite good in its 3-month base. FB, GOOG bounced
Wednesday and Thursday but then faded rather hard Friday. Worries re
regulation? AAPL put in a decent week, moving laterally along the 20 day
EMA. AMZN tested the 50 day MA starting Monday with that drop, then slid
laterally all week. Friday it dumped back to near the 50 day, but perhaps
more to do with the rebalance.

Chips: NVDA looked promising early week then slid to the 50 day MA to end
the week on an MS comment about its new chips. At the lick log. AVGO broke
over the 200 da on the week. AMD still strong wth a weeklong lateral test
over the 10 day EMA. TXN rebounded on the week to the 50 day EMA, up four
straight sessions. INTC bounced on the week to the 20 day EMA. Okay, but
yawn. XLNX trying a break to a new rally high. Improved but still working
on it.

Software: Some ups and downs in the group. MSFT was an up, breaking higher
after a lateral consolidation. Not huge but an up. DATA setting up a nice
flag to continue higher. FFIV still strong though slowly moving up the 10
day EMA. ADBE tested on the week to the 50 day MA. Interesting. CRM
tested into Thursday, started to bounce.

Telecom: Some interesting setups. HLIT, SWIR.

Transports: Big week for AAL as it took off, rallied, gaining more altitude
Friday. DAL broke higher Friday. Airlines good. Rails okay, but NSC is
good, CSX, KSU had a bit of issues though not much.

MISC: TLRY pot stock struggled but after it gave us a huge gain. CGC, CRON
still pretty decent; got some gain on CRON as well. SQ trying to hold the
20 day EMA. WBA a solid week.


Stats: +86.52 points (+0.32%) to close at 26743.50

Stats: -41.27 points (-0.51%) to close at 7986.96
Volume: 3.598B (+57.1%)

Up Volume: 1.275B (-455.159M)
Down Volume: 2.235B (+1.722B)

A/D and Hi/Lo: Decliners led 1.22 to 1
Previous Session: Advancers led 2.69 to 1

New Highs: 103 (+13)
New Lows: 48 (-3)

Stats: -1.08 points (-0.04%) to close at 2929.67 NYSE Volume: 2.647B

Up Volume: 1.463B (-1.097B)
Down Volume: 1.149B (+426.671M)

A/D and Hi/Lo: Advancers led 1.02 to 1
Previous Session: Advancers led 2.06 to 1

New Highs: 103 (+13)
New Lows: 87 (-7)


VIX: 11.68; -0.12
VXN: 16.84; +0.64
VXO: 10.89; +0.22

Put/Call Ratio (CBOE): 0.98; +0.09

Bulls and Bears:

Bulls continue bumping at 60.0, a historically high level that leads to
declines. Bears remain elevated, but not moving higher right now.

Bulls: 59.0 versus 57.7

Bears: 18.1 versus 18.3

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: 59.0 versus 57.7
57.7 versus 60.1 versus 59.6 versus 57.7 versus 57.3 versus 54.9 versus 54.5
versus 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: 18.1 versus 18.3
18.3 versus 18.1 versus 18.3 versus 18.3 versus 18.6 versus 18.8 versus 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: 3.066% versus 3.068%. Bonds sold on the week, bouncing modestly late
but in a steady downtrend below the 10 day EMA.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.068%
versus 3.076% versus 3.057% versus 2.99% versus 3.00% versus 2.972% versus
2.963% versus 2.977% versus 2.937% versus 2.941% versus 2.879% versus 2.904%
versus 2.897% versus 2.86% versus 2.857% versus 2.882% versus 2.882% versus
2.846% versus 2.813% versus 2.828% versus 2.821% versus 2.819% versus 2.819%
versus 2.864% versus 2.871% versus 2.879% versus 2.882% versus 2.873% versus
2.928% versus 2.963% versus 2.977% versus 2.977% versus 2.945% versus 2.95%
versus 2.986% versus 3.005% versus 2.962% versus 2.975% versus 2.958% versus
2.982% versus 2.965%

EUR/USD: 1.17486 versus 1.17772. Broke higher Thursday, tested a bit

Historical: 1.17772 vs 1.16833 versus 1.16692 versus 1.16858 versus 1.16226
versus 1.16900 versus 1.15863 versus 1.16016 versus 1.15946 versus 1.15534
versus 1.16243 versus 1.16341 versus 1.15832 versus 1.16029 versus 1.1664
versus 1.17035 versus 1.1691 versus 1.16802 versus 1.16216 versus 1.15390
versus 1.15709 versus 1.158 versus 1.1487 versus 1.1437 versus 1.13765
versus 1.13731 versus 1.13479 versus 1.14052 versus 1.1413 versus 1.1526
versus 1.16186 versus 1.16001 versus 1.15572 versus 1.15683 versus 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

USD/JPY: 112.575 versus 112.448

Historical: Last below 109 four months back. 112.448 versus 112.247 versus
112.369 versus 111.849 versus 112.06 versus 111.81 versus 111.491 versus
111.608 versus 111.192 versus 111.064 versus 110.680 versus 111.448 versus
111.468 versus 111.082 versus 110.962 versus 111.734 versus 111.19 versus
111.081 versus 111.249 versus 111.351 versus 110.766 versus 109.92 versus
110.49 versus 110.935 versus 110.818 versus 111.229 versus 110.737 versus
110.840 versus 111.07 versus 111.361 versus 111.344 versus 111.254 versus
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

Oil: 70.78, +0.46. Trying to break past the recent 4 week highs.

Gold: 1201.30, -10.00. Rallied to the 50 day SMA to end the week then fell
sharply Friday.


FOMC week with a rate hike Wednesday and no doubt more trade issues. Some
possibly positive re Canada, but China is getting even more persnickety with
each US move to ratchet up the pressure. Then there is the administration's
animosity toward social media and talk of an executive order. Don't forget
AMZN has in the past drawn the President's ire.

That is all well and good, but all that information is distilled down into
the stock and index patterns. Again, new highs on DJ30 and SP500 as money
moved their way after 2.5 week consolidation, and now NASDAQ and the other
growth indices have put in consolidations to support. Does the same
rotation pattern continue? Perhaps they all move up together for a change?
Or does one side roll over to the benefit of others?

New leadership is trying to show up in support, e.g. energy, some telecom,
financials are trying their hand. Of course it would help the entire market
if the NASDAQ large caps started higher as they trade on several exchanges.
Definitely time for them to rebound and put in their next upside leg after 3
weeks testing.

Thus, we look at more good setups but there are more sectors to choose from
as the week progresses as some new patterns are setting up. We will see if
they continue to do so and make the breaks higher.

Have a great weekend!

End part 1
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