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9/8/2018 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: TSLA
Entry alerts: None issued
Trailing stops: AAPL
Stop alerts: LSCC
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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.
- Strong wages rattle a market fearing a Fed overreach yet again.
- Pullback, but nothing major as stocks put in a better test Friday as
a for now modest pullback continues.
- Fed operates by theory versus facts and history, and thus the
- Even with reform, we are still paying a lot of people not to work.
- Just when the market was recovering Friday, Trump talks of another
$267B in China tariffs
- Still good trends in the indices, good stocks tested and in good
position, not quite a market top.
Futures were lower Friday even before the jobs report, and when a solid
enough report was released, futures . . . fell farther with DJ30 tickling
-100 and NASDAQ -60+ points.
Or perhaps it was Elon Musk slurping whiskey, smoking weed, and playing with
a samurai sword on a Joe Rogan podcast that kept investor moods lower
Friday. Thursday night Musk enjoyed himself and got visibly stoned, no
doubt to the delight of the true believers. Apparently, however, the true
believers don't own the stock because TSLA was bombed, down 28+ points at
the low. Earlier in the week and then pre-market I speculated that we might
actually make some money on the TSLA downside play even after the 'going
private' tweet appeared to put the kibosh on the play. The beauty of that
was it took so much value out of the put options we just left it on. A long
strange trip it has been, from 'funding secured' to 'funding not secured' to
whiskey swilling and pot smoking absurdity. We sold our options at a stock
price near 255 this morning, just a few points off the low and a 60% gain.
Stocks opened lower but immediately managed a rebound into midday. Not bad.
Then it all fell apart with a selloff into early afternoon. Not major
losses at all, and very much in keeping with the pullback by the techs off
the recent runs higher. Indeed, we were somewhat relieved the market did
not try to rally given it was Friday and we did not really want to open a
lot of new positions heading into the weekend.
SP500 -6.37, -0.22%
NASDAQ -20.19, -0.25%
DJ30 -79.33, -0.31%
NASDAQ 100 -0.31%
VOLUME: NYSE -8%, NASDAQ -8%. Volume faded on both NYSE and NASDAQ,
holding just above average on NYSE, well above average on NASDAQ. Some
distribution on NASDAQ Wednesday to Friday, but holding over the 50 day is
not bad after the selling.
ADVANCE/DECLINE: NYSE -2.1:1, NASD -1.2:1. It would appear the NASDAQ had
done most of its selling.
That didn't keep all stocks, and quality stocks, from moving higher. AAPL,
AMZN continued nice tests. Other leaders started upside off short tests on
the week, e.g. DATA, GRUB, NOW, ROKU -- some solid names that have moved
well and recently tested.
The index charts continued the test. Lots of press about the indices
finishing a week lower, I suppose part of the 'market selloff' story we
discussed Wednesday and Thursday. Yes, quite the selloff indeed (that is
DJ30 'sold off' to the 20 day EMA, testing it on the Friday intraday low
before closing with a doji. Looks to have 'sold off' into a good lateral
test that is setting up for a run at that January high.
SP500 is showing a doji at the 20 day EMA as well. Very orderly fade to
support. Not violently volatile as seen in the past.
NASDAQ tested lower toward the 50 day MA as expected, showing a hammer doji
and coming off the low. Maybe it wants to finish the 50 day MA test, but
even so, that is not much of a drop. Some big names that rallied it were
selling so NASDAQ sold. Now those names and NASDAQ are in good position to
continue higher here from the middle of the range.
SP400 also shows a doji at the 20 day EMA, also a nice test in progress, not
aggressive, but an orderly 6-day test despite all the selloff speculation.
RUTX also shows, surprise, a tight doji at the 20 day EMA after that sharp
Thursday drop to that level. Thursday was harsh, but Friday was nice: held
the June and July highs on the low, held the 20 day EMA on the low, held the
38% Fibonacci retracement on the low. A doji at the 38% retracement is a
good upside signal.
SOX dropped hard Thursday as well, but lo and behold, it shows a hammer doji
at the 50 day SMA Friday. Could it be that SOX holds here, makes the 50 day
MA test we were looking for, and then tries a breakout form its triangle?
Certainly did not look as if it could pull that off on the Thursday drop,
but it is holding at the 50 day MA and showing a doji.
In sum, a lot of talk about a selloff but not a lot of selloff. Sure AMZN
and AAPL finally sold back after some great upside moves, but that is to be
What was more concerning was the lack of serious upside by the 'industrial
side' stocks after the big techs started to sell. There is some movement in
them, but as noted Thursday, it was not a dollar for dollar move to that
group once the techs started to take profits.
With some important techs moving up Friday and others such as AMZN set up at
near support to rally again, however, that may not be too serious a concern.
Still, you want to see those other stocks get money as well as they were
very good performers heading into the two week test following those moves.
Even so, if the techs that faded on the week start back up the coming week,
you go with that.
Back to Jobs
But surely 201K jobs versus 187K expected and 147K in July (from 157K) was a
good thing, particularly with wages higher (0.4% vs 0.2% exp and 0.3% July),
good enough to rally stocks on good news in an expansion. Sure, it is a
good thing unless you live in the upside down contrarian Phillips Curve cage
that the Princeton school economists dominating the Federal Reserve call
In that world they talk of a thing called 'wage-led inflation' whereby
supposedly when workers make more money they bid up prices because they have
more money to spend on them (more money chasing the same number of goods).
In a controlled, socialist/communist economy, yes that could be the case.
What the PCurve has always failed to account for is that in a free
enterprise system where government does not attempt to control where
investments are made, industry will invest more money to create more supply,
dampening any inclination for prices to rise. Sure there might be near term
rises while businesses gear up more production, but they WILL gear up to
produce more because they make more money selling an extra unit than the
marginal price increase they may get due to a temporary shortage. In other
words, if it costs you $15 to make a product you sell for $75, you would
rather sell another product and make the $60 profit versus sell the same
product for a marginally higher price at $85. Two sales with a profit of
$120 beats one sale at a profit of $70.
That is how economics really works, backed up by plenty of history -- pretty
much the entire history of economics. The tragedy is the Fed has its own
control agenda -- that is what is was created for, not the 'economic
stability' it says is the reason for its existence -- and thus it ignores
facts in favor of continuing the dogma that favors it remaining in control.
Thus, in its world, the Fed sees the wage component rise to 2.9% year/year,
the highest since June 2009, and the market panics. Why? Because the Fed
always panics and ends up going too far and too hard, wrecking the market
followed by the economy. It chased inflation that never showed up in 1929,
fearing the economy was too hot. It fixed the problem: it helped cause the
crashes that led to the Great Depression. Greenspan oft talked of the
'runaway consumer' in the late 1990's and hiked rates and drained the money
supply, ostensibly to prevent the consumer from spending us into inflation.
He avoided that fictitious problem for sure: the stock market lurched into a
rollover and the economy lurched into a recession from which we never really
recovered as we lost so many quality US jobs to overseas markets never to
The problem is the Fed gets it in its collective mind things are too hot.
It hikes and hikes rates to bring things under control (as if they needed
that) but nothing changes. It is like a puppy that doesn't follow the
owner's rules and the owner keeps telling it 'no' but the puppy doesn't
listen. So the owner starts saying 'no' louder and tapping the puppy with a
rolled up newspaper. The puppy is not bothered and it keeps on doing the
same thing. Then the owner gets hacked off, takes the newspaper, and knocks
the cr*p out of the puppy. The dog runs off and hides under the bed, crying
and whimpering, and not coming out. The Fed ratchets up its inflation
'fight' the same way and ultimately gets so aggressive it goes too far. The
market breaks, then the economy breaks.
THAT IS WHY stocks sold more after the release of the jobs data. Good news
is bad news because the Fed is on a hiking campaign and it is going to see
its hiking having no discernible effect (of course that is like beating the
dog when the cat poops on the rug -- no cause and effect). So it keeps on
doing the only thing it knows to do, expecting a result that its actions
won't bring about. It goes too far, market crashes.
Thus, stocks were selling Friday in a near term reaction to the data and how
the Fed would perceive it. Indeed, Rosengren reiterated that the Fed should
continue gradual rate increases and Kaplan latter pretty much echoed that
notion. They will continue as long as they don't see any reaction. The
tragedy is, of course, they WON'T see a reaction to their actions until it
is too late. Trying to prevent a fire when a flood is the problem at hand.
It was not the top, it was not 'the' moment the market checks out. It was a
near term reaction to what it feels the Fed will ultimately accomplish yet
again. Tops, however, are a process, and the market is trending with
leadership, not in a signature rollover yet. So, Friday was a near term
reaction, and frankly, it helped set up some good stocks in good positions,
e.g. AMZN, SQ, AMZN. Indeed, some stocks moved higher already, e.g. DATA,
GRUB, NOW, ROKU.
The other parts of the report.
Workweek: Still at 34.5. Not increasing despite all the claims of worker
shortages. Usually the workweek jumps when there is no one to work. This
is one of those 'how can that be?' if the anecdotal evidence we are given is
Participation: 62.7% versus 62.9%. Now hold on. With all of those jobs,
with the shortage of labor, why is participation among working aged citizens
falling? I will tell you why.
Despite the rollback of the absurd expansion of definitions for what
constitutes looking for work (e.g. bed rest, reading the want ads, attending
a parent/teacher conference) and the reduction in people receiving food
stamps, we still make it too tempting not to work.
Numerous studies in the second term of the Obama administration tried to
answer why people were not working. Other than the obvious of reduced hours
thanks to the Affordable Care Act's hours worked cap, they found that a
person with a couple of kids who took advantage of all the government
programs (aka handouts) had as much disposable income as a person with the
same number of kids working a job paying roughly $75,000/year.
We continually hear this fiction about how everyone really wants a job
versus taking a handout. Apparently not. Over the past 50+ years (Great
Society boondoggles) we have created a mindset where it is okay not to work
but to instead take the benefits so you could pursue your bliss. Recall the
'Jane' commercials in the prior administration? She got free healthcare,
free this, free that so Jane could take the time to find out what she really
wanted to do in her life. Sadly, we are finding out, surprise, that what
Jane wants to do is not work, goof off, but collect those benefits. Thus
when anyone questions why we are spending hundreds of billions on these
programs that pay people not to work, an angry, screaming mob that has no
qualms going to your house to harass you or even commit physical violence
against you demands the status quo remain. It would appear 'Jane' can be
quite an ogre when she cannot pursue her bliss on someone else's dollar.
Thus, we have over 95M working aged people out of an entire population of
around 320M who are not working and are living off the those that are
working. At some point those working will ask 'why the heck am I doing this
to pay for them?' and the sham crashes down. That is what Tocqueville wrote
and it is happening now.
Where the jobs are: Still decent but manufacturing flipped negative.
More tariffs anyone?
Stocks were okay, however, recovering from the open to surge upside by the
time Europe close. Looked promising as the bids yet again returned. Alas,
but they did not hold. They bombed lower by midday and then struggled to
hold those levels to the close.
Cause? One could argue that AAPL's comments the $200B in tariffs would hurt
the economy if implemented were not well-received. Indeed, the market
dipped when they hit the wire.
Then the President decided to rattle everyone ahead of the weekend
announcing that another $267B were 'ready to go on short notice' with
respect to China. Open bomb bay doors.
Larry Kudlow gave a less than rosy update on the trade negotiations saying
they were working on them but it was quite simple. For China it is IP
theft. Obviously wrong but China won't admit to it. For Canada it was one
word: milk. Canada will not let the US sell its milk in the great white
north tariff free.
All in all no progress on the week, one where the US and Canada renewed
their efforts to get Canada into the deal US/Mexico deal.
In short, there was no reason for bids to return after the initial effort
Software: Leading off because it was stronger Friday. CRM, DATA, NOW
started higher. MSFT showing doji at the 50 day MA after a week of declines
off a higher high. COUP gapped upside Wednesday, tested modestly waiting
for the 10 day EMA to catch up. A still strong group.
Drugs: The big names stated back upside. PFE, LLY, BMY, MRK. Big biotechs
not bad, e.g. AMGN. CELG is interesting with a 50 day MA test. Some
smaller bios are not bad, e.g. IMMU.
FAANG: FB sold off farther and faster. NFLX sold hard Wednesday, still
below the 50 day EMA. GOOG sold as did FB. AAPL faded to just below the 20
day EMA, showing a hammer doji. Testing the move but could drop farther
toward the 20 day EMA. AMZN is already at the 20 day, tapping it Thursday,
opening there Friday. Good setup.
Financial: Not bad but not going anywhere. Working on patterns. Still.
BAC continuing to work laterally over the 50 day EMA. JPM holding at the 50
day EMA as well with several doji. C broke down Thursday and Friday,
closing below the 50 day MA. GS finished an 8-session fade to the 50 day
SMA. V hanging on at the 20 day EMA after an ugly flop to that level
Materials/Metals: Not surging upside, but could something arise here? LPX
is in a handle to a 3+ month double bottom with handle base. VMC is trying
to bottom at long term support. Overall, however, still not much strength.
Some industrial minerals moving (e.g. CLF), but metals look bad.
Manufacturing/Machinery: Manufacturing was good through Wednesday then
struggled a bit, e.g. EMR. Others not bad as ETN tested a good move.
Machinery trying to set up: CMI, CAT. DE starting higher on volume. BA all
over the place but forming a triangle. We will see.
Retail: Still overall strong with some testing, some still rallying. COST
added another 2% to a strong move. JWN still rising. ULTA surged 3+% on
top of a week of gains. FIVE gapped sharply higher on earnings just as it
did in June on those earnings. TJX paused after a good move, WSM in a two
week gap consolidation. Others not so good: M, DDS, GES.
Semiconductors: It was a week of haves and have nots, but by the end it was
mostly have nots. NVDA tested its new high, but actually looks quite good
at the 20 day EMA. AMD made a good short test, SMTC as well. LSCC rolled
over. CY rolled over. INTC continued a week of selling. LRCX, MU cracked
hard, TXN sold to the 200 day SMA.
Transports: A classic example of a group that has some good members but
also some dogs. ODFL strong. KSU strong. NSC started upside off the 20
day EMA after a week of consolidation. CSX is hanging on at the 20 day EMA.
Airlines had a hard week, AAL, DAL. LUV looks good.
Stats: -79.33 points (-0.31%) to close at 25916.54
Stats: -20.18 points (-0.25%) to close at 7902.54
Volume: 2.16B (-7.82%)
Up Volume: 961.31M (+911.62M)
Down Volume: 1.17B (+1.122B)
A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Decliners led 1.88 to 1
New Highs: 108 (+5)
New Lows: 84 (+2)
Stats: -6.37 points (-0.22%) to close at 2871.68 NYSE Volume: 705.407M
A/D and Hi/Lo: Decliners led 2.07 to 1
Previous Session: Decliners led 1.45 to 1
New Highs: 81 (-18)
New Lows: 134 (+25)
VIX: 14.88; +0.23. VIX rose the entire week, moving up to the 200 day SMA
where it stalled mid-August. As the market faded you would expect it to
rise and it did. Still in the longer term range, no significant indications
VXN: 19.76; +0.59
VXO: 13.66; +0.78
Put/Call Ratio (CBOE): 1.17; +0.12
Bulls and Bears:
Bulls now back at 60, a number that suggests excessive bullishness and thus
likely selling. The market is already pulling back but -- modestly thus
far. This indication has a bit of a delayed effect: everyone is bullish and
feeling good and it takes a bit for the market to peak. Once everyone who
wants to put money in upside is in, then you get the decline.
Bulls: 60.1 versus 59.6
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: 60.1 versus 59.6
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 18.3 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: 2.941% versus 2.879%. Gapped lower from the 200 day SMA Tuesday.
Tried to bounce through Thursday, then gapped to a lower low on this selling
Friday. Okay, this is as it should be: stronger data equals weaker bonds,
Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.15534 versus 1.16243. After a week holding the 50 day MA in a
test, Friday the euro broke that support.
Historical: 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
USD/JPY: 111.064 versus 110.680. Sold hard Thursday on Trump musing about
Japan tariffs, then rebounded Friday. Still, still in the 8 week lateral
range at the 50 day MA.
Historical: 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 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: 67.75, -0.02. Sold on the week, holding near 67 on the lows,
rebounding off the lows Thursday and Friday. Still very range bound.
Gold: 1200.47, -3.83. Two weeks working laterally at the 20 day EMA after a
bounce from the lows. Still trending lower below the 50 day MA's.
Another data dump the coming week. Consumer credit, Small business
sentiment, PPI, CPI, Fed Beige Book, retail sales, Production. Interesting
for certain, but nothing really definitive. CPI is watched because of the
FOMC and its rate hiking. Retail sales are watched as a barometer of the
consumer, though inflation as we know can disguise the results as they are
based on prices, not quantity. If inflation pushes up prices, retail sales
can 'rise' without any real increase in sales.
Oh well, another screwed up 'measure' of economic activity. Everything gets
perverted at some point. The law is so twisted that procedure trumps the
facts. We all know about 'legal-eze' and how simple contracts are so
convoluted not even the lawyers really know the true result. Now, with
economic indicators, they are taken to such an extreme they do not reflect
the real world and their utility is thus highly questionable. Look at the
football rules: they are now so subjective who knows what will happen. What
is a catch? What is 'making a football play?' What is the point of instant
replay when hyper-technical rules say it is okay to use it in some instances
but not others, when the ones not allowed are the very plays that are often
game-determinative. Again, oh well.
After that digression into the recesses of my mind, what about next week?
Lots of talk about market tops and perhaps this is the market topping. That
is a process as discussed before, with rallies, declines, rallies, declines.
Right now, however, the indices are trending higher, rotation continues as
one area rallies, another tests, and then they reverse more or less,
changing positions. Wednesday to Friday saw the drugs and some
manufacturing start back up after tests. At the same time the tech leaders
were testing, but now they are set up fairly well for a bounce and indeed
Friday some, particularly in software, already started back upside.
Thus, we are going to continue looking upside at those stocks holding trends
or in good patterns that are ready to move. That includes AMZN already
simply because it is testing the 20 day EMA and could hold and resume the
move as it is that strong. Software is very interesting, drugs -- a lot of
stocks that moved well on the last move that are showing good activity even
with just a short test.
Have a great weekend!
End part 1
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