Wednesday, October 17, 2018

The Daily, Part 1, 10-17-18

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10/17/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: NFLX
Entry alerts: None issued
Trailing stops: None issued
Stop alerts: CRON

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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.

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Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play table.

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If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.


- Lethargy ahead of, after FOMC minutes.
- Stocks sell on FOMC minutes but manage to recover.
- Indices cluster around the 10 day EMA on the rebounds.
- Housing starts struggle, permits down 5 of 6 months.
- FOMC confirms Powell's 'hike until it breaks' change of direction
- Indices close to the lick log on this rebound

A lethargic session that started lower, recovered to positive, but then when the FOMC Minutes were released the market lost its drive, lost what little mojo it had. Stocks bounced up and down in a range the final two hours, actually managing to close on an upswing to near the session highs. Even so, and with NFLX' help, only NASDAQ 100 closed positive -- 0.03% positive. Certainly not a follow through session as discussed Tuesday.

SP500 -0.71, -0.03%
NASDAQ -2.79, -0.04%
DJ30 -91.74, -0.36%
SP400 -0.26%
RUTX -0.45%
SOX -0.44%
NASDAQ 100 0.03%

VOLUME: NYSE +1%, NASDAQ -10%. NYSE trade rose marginally as SP500 bumped the 10 day EMA, a bit of churn but not much. NASDAQ trade faded on no gain. Not bad on a day of rest.

ADVANCE/DECLINE: NYSE -1.7:1, NASDAQ -1.4:1. What upside there was, as evidenced by NASDAQ 100, was in the big names. Even that was quite limited.

All of the indices are up the past four sessions and showed a doji on the session near the 10 day EMA. These were hangman doji that can indicate a move has capped out. SP500, DJ30, SP400, RUTX, SOX are all just below the 10 day EMA. NASDAQ and NASDAQ 100 managed to hold just over the 10 day EMA. They can also just represent a continuation doji. That is the thing about doji: they are an indication that typically has to be proved by the next move.

That leaves the indices sitting on a 4-day bounce, more or less. If this bounce is weak (as opposed to extra weak, i.e. a one-day move), it would fail here. That stocks managed to come back after the FOMC minutes is a decent indication that, despite the bland as hominy session, there is some more upside on this bounce. The 50 day MA's are looking pretty good, but as noted above, with the doji showing on the indices, that must still be proved.


Housing Starts, September: -5.3% on top of a downwardly revised August.

Permits: -0.6%, the second month of declines and five out of the last six. Hard to build new houses if not acquiring permits. A month or two is no big deal. A half year of a significant trend lower is noteworthy.

Earnings: NFLX beat and helped boost some of the FAANG/SCAANN, but even then NASDAQ 100 barely held positive.

FOMC Minutes, September meeting

The FOMC key points:
1) A few FOMC members expect it necessary to have policy restrictive for a time.

2) A 'number' said it would be necessary to raise the FFRate above their assessment of the longer run level.

3) A 'couple' of members said they were not in favor of a restrictive policy in the absence of 'clear signs' of an overheating economy and inflation.

4) There was no change in position as a result of removing the language regarding an accommodative policy -- it was just time to do so.

5) All agreed it was good to keep hiking at a gradual rate, particularly the 25BP at the September meeting.

There were comments about trade being a potential problem, about the yield curve and its predictive nature, but they were just dressing thrown around the edges of the elephant in the room.

No mention of being data driven. This is now a Fed that is going to hike above the neutral level. As some are saying, Powell has adopted the 'hike until something breaks' approach to monetary policy. Why should he not? ALL of his predecessors did that except Yellen who would have done so eventually if she was still there.

Basically, the stock market received affirmation of the Fed's intentions. The Fed has not broken anything yet, but the action of the market the past three weeks is that it is just a matter of time.


NASDAQ: Gapped higher thanks to NFLX earnings, sold off negative, but managed to recover to hold at the 10 day EMA. Up four sessions as noted, but the recovery in the face of less than great FOMC news was at least a decent indication of some more upside. 7765 to 7785 is next significant resistance, another 100+ points.

NASDAQ 100: Similar to NASDAQ, the 100 gapped higher, tested, held the 10 day EMA on the close with a doji. 100+ points to resistance at the 50 day EMA. Lots of important earnings next week (e.g. AMZN, GOOG, MSFT), and NASDAQ 100 likely continues to rise into those results. After that, all bets are off.

SP500: And yet another doji, this one just below the 10 day EMA. Perhaps there is more upside but more help has to show up. SP500 made no headway even with GS and the banks moving higher.

DJ30: Rallied to the 10 day EMA Tuesday, showed a doji below it Wednesday. Close to the 50 day MA at 26,000 (293 points), at some serious resistance from 25,750 to 26,000.

RUTX: A massive one-day move to the 10 day EMA then a hangman doji Wednesday. If this were not the RUTX and the impressive weakness shown the past month you would anticipate more upside.

SP400: Same as RUTX, i.e. a hangman doji below the 10 day EMA after a huge upside session. Very weak group and not expecting them to even try to lead the market, at least not upside.

SOX: Gapped through the 10 day EMA, and in a showing of its weakness, fell to close below that near resistance. There are a few big names moving decently, so it likely scratches out some more upside, at least filling the gap lower from early October.


SCAANN: SQ is at the 10 day EMA as well after rebounding from that nasty gap lower last Thursday. Starting to move into a range of resistance. CRM is very similar in its rebound. AAPL is holding well over the 50 day EMA in a short lateral move. AMZN has bounced to near resistance as well at 1850. NFLX gapped upside on earnings but gave back half the move. NVDA gapped over the 200 day SMA but had no stomach to hold the move and closed negative. Disturbingly weak.

FB: Trying to work higher after a 3 month decline. Looks solid out, working on a base. GOOG has bounced to the 200 day SMA.

Machinery: Not bad. DE holding just over the 200 day SMA in its recovery. CMI holding in a lateral move along the 50 day EMA in a test of that level. TEX at the August and September lows in its range. XONE in a still decent pattern.

Retail: Backed off on the day but still solid. ULTA, TJX, ROST, WMT remain solid.

Drugs: Coming back. JNJ with a strong upside break through the 50 day MA. PFE, MRK solid. WBA, a pharmacy, is still working nicely higher.

Software: Some good moves, some not. FEYE remains strong. TTWO paused on the day but still moving nicely higher. NOW testing after moving through the 50 day SMA. MSFT trying to break through the 50 day MA. ATVI looks almost decent over the 50 day EMA. CRM, VMW, DATA struggling.

Chips: AMD, AVGO still solid enough. LSCC may bounce from the 50 day MA. Many, many have bounced but are still hideous: SLAB, MLNX, MXL.

Energy: Out of energy as the patterns slump. XOM has dropped to the 200 day. CVX down like a rock the past week. MRO in a bear flag below the 50 day. APC hanging on at the 50 day. SWN is not bad, but it is a minority.

Food: Not bad. KO up to the 50 day MA with good volume. HSY still solid. MKC is kind of bland but in a nice uptrend. Get it? KHZ, in a long, long, long decline has possibly set up a very big double bottom with lows in May and October.

Misc: DIS solidly upside. Pot stocks took a hit, so to speak, dropping to the 10/20 day EMA. MTCH still in a solid recovery. PLAY off but still a great pattern.


Stats: -91.74 points (-0.36%) to close at 25706.68

Stats: -2.79 points (-0.04%) to close at 7642.70
Volume: 2.37B (-9.54%)

Up Volume: 1.24B (-980M)
Down Volume: 1.1B (+707M)

A/D and Hi/Lo: Decliners led 1.39 to 1
Previous Session: Advancers led 4.02 to 1

New Highs: 15 (-6)
New Lows: 94 (+3)

Stats: -0.71 points (-0.03%) to close at 2809.21
NYSE Volume: 791.304M (+0.98%)

Up Volume: 350.044M (-330.144M)
Down Volume: 434.616M (+316.524M)

A/D and Hi/Lo: Decliners led 1.68 to 1
Previous Session: Advancers led 5.53 to 1

New Highs: 15 (+1)
New Lows: 129 (+34)


VIX: 17.40; -0.22
VXN: 22.93; +0.42
VXO: 17.21; -0.10

Put/Call Ratio (CBOE): 1.17; +0.14

Bulls and Bears:

A somewhat precipitous plunge after a 61.8 peak on this move. Right at the range of the prior drops starts, 50ish is the lows before a bounce. Bears actually fell 0.1.

Bulls: 56.3 versus 61.8

Bears: 18.5 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: 56.3 versus 61.8
61.8 versus 60.6 versus 59.0 versus 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

Bears: 18.5 versus 18.6
18.6 versus 18.3 versus 18.1 versus 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: 3.209% versus 3.165%. Bonds broke lower, yields broke higher as the FOMC minutes had a hooked beak and talons.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.165% versus 3.158% versus 3.167% versus 3.146% versus 3.169 versus 3.206% versus 3.233% versus 3.189% versus 3.183% versus 3.061% versus 3.087% versus 3.061% versus 3.052% versus 3.048% versus 3.048% versus 3.085% versus 3.066% versus 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%

EUR/USD: 1.14961 versus 1.1578. Dollar jumped on the Fed's beak. And talons.

Historical: 1.1578 versus 1.15906 versus 1.15592 versus 1.15901 versus 1.15324 versus 1.4966 versus 1.4916 versus 1.1598 versus 1.15164 versus 1.14762 versus 1.15517 versus 1.15774 versus 1.16038 versus 1.16357 versus 1.17501 versus 1.17658 versus 1.17476 versus 1.17486 versus 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

USD/JPY: 112.553 versus 112.343. Started higher after a weeklong lateral move at the 50 day MA.

Historical: Last below 109 in June 2018: 112.558 versus 111.848 versus 112.222 versus 112.076 versus 112.158 versus 113.01 versus 113.12 versus 113.706 versus 113.894 versus 114.383 versus 113.642 versus 113.690 versus 112.734 versus 112.981 versus 112.811 versus 112.575 versus 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

Oil: 69.75, -2.15. Broke lower from the 50 day EMA after a lateral consolidation.

Gold: 1231.00, +0.70. Testing the past two sessions, looking very good to make a new move higher.


The FOMC minutes are out and now a focus on earnings? Should be. The question is, will they drive the market higher as so many prognosticated ahead of the season? Even so, the major stocks and the indices are in rebounds from damaging selloffs, and in the majority of cases you can only milk so much from these kind of rebounds. Thus, another day or two upside may be all the majority of the stocks and the indices can deliver.

That means if there are a couple more upside sessions you have to start looking for a pullback to test the prior selloff low. That does not mean an automatic bail out, just to be watching for it. This applies to stocks that rebounded from harsh selling, hit resistance and start rolling back over. Others that are in good patterns that we picked up this week should be able to continue on. It will be an indication of market health as to whether they can or cannot.

As for new plays, well, if you are looking at the potential remaining upside on this bounce, you have to truncate your buys for the most part. That said, there are some areas and good patterns that have defied the selling, e.g. retailers, gold, manufacturing -- these can provide opportunity outside the big names that brought the market to the prior high. We can selectively pick up some of those if they present the opportunity.

Have a great evening!

End part 1
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