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10/22/2018 Investment House Daily
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Targets hit: None issued
Entry alerts: HRS
Trailing stops: None issued
Stop alerts: None issued
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- Stocks start higher with NASDAQ in the lead, and close lower except NASDAQ (and SOX) that remained in the lead.
- DJ30 gives up 150 points, NASDAQ 30+ in a high to low move. Again.
- Indices still holding some support, big names as well.
- Test of the October lows in progress, attempting to set up the October double bottom pattern.
- Issues facing stocks: China (somewhat), the Fed (most certainly), and the mid-term election forecasts.
- Typical October bottom and year end rally probability not as great as typical given the FOMC current mindset and the midterm elections.
Down-ish expiration, futures jumping upside, led by the downtrodden tech related issues. Sure the other indices were higher, but not sporting the same vigor. Sure enough, that held on the session. By the close the NYSE indices, large and small, were lower. The upside, and it was not bad upside for the large caps, focused on NASDAQ 100, NASDAQ, and SOX.
SP500 -11.90, -0.43%
NASDAQ 19.60, 0.26%
DJ30 -126.93, -0.50%
NASDAQ 100 0.48%
VOLUME: NYSE -20%, NASDAQ -10%. Post-expiration so you would expect volume to drop. NYSE showed very low trade, indicating no heavy selling. NASDAQ trade was still above average but matched last Wednesday, the lowest trade, by far, of that week. Not that much upside buying on NASDAQ based upon that indicator.
ADVANCE/DECLINE: NYSE -1.4:1, NASDAQ -1.3:1. Nothing heavy downside, and of course, nothing heavy upside as breadth was negative as NASDAQ and SOX were positive. Just a few stocks posting the gains.
The action saw SP500 fall below the 200 day SMA while DJ30 still held that level. Okay, SP500 broke the 200 day, but volume was relatively light and the index is holding over the prior October low.
NASDAQ moved up but was still below the 200 day MA, sporting a doji. NASDAQ 100 held its position over the 200 day SMA with a tight doji. Possible double bottom for NASDAQ 100 as many of the big names show potential short term double bottoms as well.
SOX was one of the few upside indices, and it showed a tight doji at the early October low, really looking as if it is trying to put in a short double bottom to bounce again.
SP400 shows similar action, closing near the earlier October closing lows. Not the intraday low another 20 points lower, but hold the prior closes works just as SOX holding the prior lows. Ditto RUTX, holding with a doji at the earlier October closing lows.
Thus, several potential short term double bottoms are set up or close to being there. That keeps the rebound/reversal attempt alive in terms of a follow through session. It has given many stocks the opportunity to set up a bit better for at least another relief move. Many have not used this time wisely, but many of the big names are setting up that short term double bottom-like pattern as discussed over the weekend. With some still very negative beliefs about what the market's future holds thanks to the Fed, the US/Chinese trade war it is possible for the market to make a new break upside. Whether it sticks or not is an open question.
Accordingly, you still have to treat any move as a relief move, particularly in the big names that were throttled, bounced a bit, and then got shoved back. Heck, even the stocks in the solid bases that we ventured into a week ago were sold, leaving just a few still holding up (e.g. FEYE, VIAV, BILI). The others did not crash completely, but they certainly had rough sessions that hurt their patterns. When good bases cannot hold up, that is a clear warning.
Still, hope springs eternal and today there were calls to buy this dip, look for value, etc. Not sure what value is right now outside of those defensive areas from the weekend (e.g. personal non-durables, utilities, drugs, telecom, precious metals). There is a definite shift from growth to value, and thus, while the prior leader big names can produce yet another upside, unless the recent trend toward defensive stocks ends, any bounce should still be classified as a relief move. The last move did not get far and we did not play those moves. Perhaps the next, after that initial bounce and test, will have more staying power. FFIV, NOW, FEYE, AAPL could pull that off.
If you look at stocks such as FB, you can see it has the possibility of setting up an inverted head and shoulders as part of its base forming after that late July gap lower. It is showing higher MACD lows as the stock put in lower lows. It still has plenty of work, but this shows how, given time, these stocks can set back up.
At the same time, stocks such as DIS, WMT, JNJ remain very solid, even during the market selling. Oh yes, and the gold stocks as well. It is hard to forego those, and of course, we have positions on these as well as some plays if they can move anew. They are longer term while many of these others have to be viewed as short term -- for now.
What does that mean? The time of year is still in the market's favor in terms of a rally, a year end rally. A double bottom in some big names the past two weeks could propel that move. Often, often the double bottom pattern is associated with October bottoms as that pattern is a more violent, volatile, scare them out of the market pattern that removes the final sellers. That gives this bounce a bit more intrigue.
Earnings are important for sure. They are struggling thus far in Q3 with the WSJ reporting a 30% top line miss rate. That confirms what I was reporting already, something that the late Q2 and early Q3 returns started showing and the new results are confirming. Earnings and thus profits are the foundation of a market rally and economic expansion: if profits fall, investment falls and economic activity wanes.
The Fed is also very important. If it adopts and stands by the 'hike until it breaks' mantra during an economic expansion as all its predecessors have done -- a real one such as now versus the stagnation of the 1970's and 2000's (and that thus excludes Bernanke and Yellen) -- then the market breaks and the economy follows. When? Who knows? Is this part of it? Could be. The Fed will remain a top or the top issue for the market. Period.
But there is another issue that will impact the market. The midterm elections. In 2016 the market surged and continued to surge to present day. It is selling right now, but the DJ30 is still in an uptrend from 2016. SP500 broke the early 2016 uptrend in that first drop from October.
It could be that the midterms have the market in a selling mood because the democrats are projected to take the House, and if so, then any plans of further tax incentives and other pro-growth polices are gone. More than that, there will be continued investigations even though Mueller is about to wrap up his investigation in early November with nothing much. There is talk of another indictment, but that is all we are hearing. There will certainly be a move to impeach Kavanaugh and we can relive that fun and joy again. There will be others. A litany of investigations just as the republicans have investigated things themselves. But, those were a sidebar to the administration's initiatives.
If the Fed is on a 'hike to break' path, then the inability for the administration to add additional economic incentives dims the economic prospects.
As noted, it could be the market is pricing this in right now. The distraction of continual vitriolic investigations drowning out any discussion of or work on the economy.
Thus, it could be the market is sluggish until the midterm election resolution.
That pushes against the possibility of a rally off this short term double bottom, the October bottom, that leads to a rally to year end. The October bottom/year end rally is a common theme for decades, but when an election with economic consequences looms, it sometimes has to take a back seat.
Of course there is news that is credited for the market moves, but the relationship between the day's headlines and the market's continuing action often has little in common.
China: The Shanghai rallied 4.1% after the Friday bounce from 4 year lows. It continued upside Monday with the solid gain. It turns out that the move was planned and affected by the Chinese plunge protection team, the PPT. The economy is tanking, debt is exploding, housing prices are falling, the proletariat is getting PO'd, and the stock market is tanking to 4 year lows as the US market hit new highs. Time to act, time to prop up the market. That can only last so long, however. We will see when it breaks, if it has not already.
But, China is remaining resolute. Today some Chinese officials at an economic forum told US businesses that China 'does not fear a trade war with the US.' Well, that sounds impressive. But then again, what is China going to say? That it does fear a China/US trade war? That the resourcing by US firms on a daily basis is no issue? That it can replace all the lost business with . . . Russia? Russia's economy, despite all the bluster, is puny. It ranks behind France, Indica, Italy, Brazil, Canada and is neck and neck with South Korea and Spain. US 20.4T (2018), Russia 1.7T. Oh yes, Russputin is going to take the US' place as a major Chinese trading partner.
EU: Italy refuses to alter its proposed budget despite Germany's -- er, the EU's -- demands. Moody's downgrades Italy, Italy's bond yields surge. Remember Greece and how the Germans -- and other EU countries -- refused to bail it out . . . much? Greece in 2018 struggles with a $226B economy. Italy $2.18T. One hundred times Greece and the EU's third largest (with the UK leaving under Brexit). This is clearly not Greece telling the EU to go have fun with itself. You also have the northern EU members rejecting the forced migration quotas Germany is forcing upon them and France is for now going along with. Daimler and BMW sales are flopping. The EU is going to have some interesting times ahead.
Stats: -126.93 points (-0.50%) to close at 25317.41
Stats: +19.60 points (+0.26%) to close at 7468.63
Volume: 2.29B (-9.84%)
Up Volume: 1.2B (+398.34M)
Down Volume: 1.06B (-660M)
A/D and Hi/Lo: Decliners led 1.33 to 1
Previous Session: Decliners led 2.25 to 1
New Highs: 20 (+2)
New Lows: 312 (+84)
Stats: -11.90 points (-0.43%) to close at 2755.88
NYSE Volume: 747.597M (-20.08%)
Up Volume: 1.06B (-780M)
Down Volume: 2.18B (+490M)
A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Decliners led 1.05 to 1
New Highs: 20 (-1)
New Lows: 289 (+33)
VIX: 19.64; -0.25. The pattern is a cup with handle, the past two weeks forming the handle at the 10 and 20 day EMA. These act just as other predictive chart patterns, indicating that a jump in volatility is to come. Either after another rebound attempt or not.
VXN: 25.16; -0.61
VXO: 19.82; -0.24
Put/Call Ratio (CBOE): 1.07; -0.07
Bulls and Bears:
Bulls tumbled 10 points from 3 weeks back. Bears just are not moving at all, indeed falling as the market weakens. For a good signal the selling is ending you want to see the bears actually start a serious advance. As it is now, the drop in bulls is starting to suggest an end to near term selling, but if something serious downside is lurking, then it will ultimately take a spike in bears to stop that. But, don't want to be like the Fed and see things that have yet to manifest.
Bulls: 51.9 versus 56.3
Bears: 18.3 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: 51.9 versus 56.3
56.3 versus 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: 18.3 versus 18.5
18.5 versus 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: 3.20% versus 3.196%. Bonds held mostly steady again as TLT moves in a lateral 1.5 week consolidation of the break higher from early October.
Historical: the last sub-2% rate was in November 2016 (1.867%). 3.196% versus 3.1779% versus 3.209% versus 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: 1.14626 versus 1.15138. Euro fell away from the 20 day EMA.
Historical: 1.1538 versus 1.14556 versus 1.14961 versus 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: 112.680 versus 112.527. Started upside off the 50 day EMA.
Historical: Last below 109 in June 2018: 112.527 versus 112.385 versus 112.553 versus 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: 69.36, +0.08. Holding at support just over 68.00 and the 200 day SMA it used as support in August.
Gold: 1224.60, -4.10. Gold still moves in the tight lateral range over the 10 day EMA, ready to break higher again.
No real change in the indices, but holding support is a good development, particularly after a hold at or near the same area. Some big name stocks on NASDAQ are trying to put in a 200 day SMA and a bounce.
As noted earlier, there is a tension in the market between a tried and true October bottoming and bounce to a year end rally versus lethargy from the ever-present FOMC current mindset as well as the upcoming and quite important midterm elections.
Even with those overhangs, the market can still deliver a bounce off this test of the prior low. Without the election and FOMC, this setup would be a very good risk/reward setup as a move to year end is a lengthy one to build in a lot of gain just as in 2017. A dip in late October yielded an upside gap and surge through November, a test in early December and then a new rally, followed by a test and a huge January run.
This time, however, the probabilities are not as good with the early November elections close enough to allow a bounce, but could truncate the move when the results show up.
We plan on being selective playing a bounce. Some of those groups that are actually leading are of course in play. Some select 'names' of the former leaders are in good position and can provide good tradeable moves. We will pick some of those as well and see where this takes us, but factoring in this may be just another bounce.
Have a great evening!
End part 1
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