Tuesday, October 23, 2018

The Daily, Part 1, 10-23-18

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10/23/2018 Investment House Daily
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- Stocks start the day way down, get uglier, but stage a rather impressive recovery.
- Some indices make it to positive but suffer some late backsliding.
- Technical indicators show some extreme readings, but not in all cases.
- Large cap stock indices show double bottoms as the 61% Fibonacci retracement
- Some 'names' have good double bottom patterns while other stocks used all the turmoil to build good patterns -- defensive still have the best patterns but growth is showing short double bottoms.

Tuesday was a potentially constructive session. Stocks started with a gap lower and sold off from there with the indices undercutting the October lows then rebounding. NASDAQ, SOX, NASDAQ 100 even turned positive in the afternoon. Nice low to high action though none of the indices could hold that late move positive.

SP500 -15.19, -0.55%
NASDAQ -31.09, -0.42%
DJ30 -125.98, -0.50%
SP400 -0.99%
RUTX -0.84%
SOX -0.53%
NASDAQ 100 -0.32%

VOLUME: NYSE +30%, NASDAQ +19%. NYSE trade jumped back above average to the highest levels in a week and much higher than the recent trade. NASDAQ volume surged past the levels from the past week. Very solid trade levels, very good to see in a selloff and recovery. If the indices had closed positive, that would be huge. But, didn't happen.

DOWN/UP volume: -10:1 when DJ30 down 548 points at the low. That is 'there.'

ADVANCE/DECLINE: NYSE -2.2:1, NASDAQ -2.1:1. Still finished lower and significantly so in most cases, and thus the lagging breadth.

NEW LOWS: NYSE 496, NASDAQ 511. That is impressive on NASDAQ, blowing away the lows on the prior October low. That is basically 'there' for NASDAQ.

VIX: 24.66 on the high, closing at 20.71. VIX did not even make the 28.84 in early October. Bad right? Typically yes though there is a school of thought that if there is a secondary selloff and VIX does not spike, that shows the market washed out. Hmmm.

The issues: Even with the reversal, the market has not proved anything yet. Promising, but there are . . . issues. Though I caution: very rarely is everything perfect in any market.

Stocks could not rally through the closing bell, showing some cold feet in the last hour with a modest fade.

Further, the indices that did turn positive could not hold it. Some big names were positive, however, e.g. AAPL, NFLX, GOOG, and some that have held up well during the selling were solid again, e.g. FEYE, WMT, NOW, ADBE, JNJ, VZ (breakout from a cup with handle on earnings). Good action, working on their patterns, but very few in number. Most stocks still have plenty of work ahead to put together good patterns. That can, of course, be a work in progress as some stocks rally while others work on their bases.

Earnings are not good enough even when they are good enough. As noted Monday, the WSJ reports a 30% miss rate on the top line this season. That along with the worry as to what the Fed will wreck is causing the machines to sell not only those missing results, but those making results as well. NFLX surged on earnings only to give it all back over the next two sessions. HOG, LMT beat but were lower. The areas rallying on earnings? The ones in more defensive groups, e.g. MCD, VZ on Tuesday.

Everyone is watching for and calling a bottom on a daily basis. All eyes are watching for the pot to boil. VIX did not spike because everyone is looking for a bottom. Until real worry hits the market, it is hard for a true bottom.

That brings up another issue: the lack of a lot of great bases. Even if you get the bottom and a rebound, the market has to have leaders taking it higher. Again, there are some very good bases in DIS, JNJ, REV, ULTA, FEYE, MCD, VZ, but many stocks have to do more work. The double bottom can be the catalyst to hold the lows and allow the other stocks to form bases.

You also have anti-bases, i.e. stocks that were decent but broke down ugly. CAT, MMM, CMI just recently broke after forming good looking bases over the past 9 months. Lots of hard work thrown away the past week.

Nonetheless, you have to keep watch. A reversal session is always important. Then you see if there is follow through starting Friday. You also look for stocks in good bases or close to finishing bases that can lead a new rally. While there are some stocks we might want to play early in the move, if there is follow through, that buys time for more bases to form and set a foundation for a further move higher. That means there is no rush. Play some that are very solid and good risk/reward, be patient on most. If there is a bottom, there will be plenty of opportunities to buy in.


To view, click on the following links:


NASDAQ: Almost a perfect double bottom, testing the same level intraday (7260.13 vs 7274.04 early October), then rebounding. This occurred at the 61% Fibonacci retracement of the April to late August rally. That is a very good pattern

SP500: Undercut the early October low as well, snapped back to a more modest loss. Volume spiked on the selling and reversal; nice. The pattern is the same as NASDAQ, i.e. a 61% Fibonacci retracement double bottom off the April to October rally. That sets up a bounce.

DJ30: Blew out the early October low as well, reversed to close just over the 200 day SMA (after gapping below it). That is a similar pattern as the other two large cap indices, a double bottom at the 61% Fibonacci retracement with the intraday Tuesday down very near the 78% retracement before snapping back. Huge volume here as well.

SP400: gapped below the early October low, sold past the March low then reversed, but still closed down almost 1%. Not showing the same decent pattern of the large cap indices.

RUTX: Gapped below the prior October low, sold hard, reversed to cut a lot of losses, still closing lower -0.84%. Okay, same as SP400 but if the big caps rally, the small caps likely follow along a bit.

SOX: Gapped below the April low then reversed, moving positive but unable to hold that to the close. Strong reversal but a pattern still very much the same as the small and midcaps.

NASDAQ 100: Gapped below the 200 day SMA then reversed to hold over it -- NOT undercutting the early October low. No big deal; the others did. These stocks were just stronger thanks to a few big names holding up, closing positive.


Drugs (JNJ), telecom (VZ), food (MCD), discounters (WMT) still strong. Telecom, fast food, discounters are considered recession stocks. Thus, the market STILL has a defensive flavor to it even as it sold and reversed.

Big techs/Nasdaq: AAPL, NFLX, GOOG, ADBE, FEYE look good. FB looks as if it can rally off this low. GOOG as well. PYPL added to its earnings gains.

There are stocks that are in position to move. Still a defensive flavor, but other former leaders and continuing leaders still in position to move higher.


Stats: -125.98 points (-0.50%) to close at 25191.43

Stats: -31.09 points (-0.42%) to close at 7437.54
Volume: 2.73B (+19.21%)

Up Volume: 1.18B (-20M)
Down Volume: 1.54B (+480M)

A/D and Hi/Lo: Decliners led 2.13 to 1
Previous Session: Decliners led 1.33 to 1

New Highs: 14 (-6)
New Lows: 511 (+199)

Stats: -15.19 points (-0.55%) to close at 2740.69
NYSE Volume: 971.296M (+29.92%)

Up Volume: 1.33B (+270M)
Down Volume: 2.98B (+800M)

A/D and Hi/Lo: Decliners led 2.25 to 1
Previous Session: Decliners led 1.42 to 1

New Highs: 8 (-12)
New Lows: 496 (+207)


VIX: 20.71; +1.07
VXN: 25.26; +0.10
VXO: 21.57; +1.75

Put/Call Ratio (CBOE): 1.04; -0.03

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: 3.1692 versus 3.20%. Bonds gapped higher with the 10 year holding the move but other maturities giving a good part of the move back.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.20% versus 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: 1.14682 versus 1.14626.

Historical: 1.14626 versus 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

USD/JPY: 112.427 versus 112.680

Historical: Last below 109 in June 2018: 112.680 versus 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

Oil: 66.43, -2.93. Major break below the 200 day SMA to close. Big inventory builds have dropped oil $10 in 3 weeks.

Gold: 1236.80, +12.20. Starting to break higher after a week of tight lateral movement.


Once again a bottom is declared. Stocks sold lower, hit a lower low, rebounded. Must be a bottom.

Okay, a bit facetious, but every day it's a talk of bottoms, e.g. when, where, was today it -- too much preoccupation. Everyone is watching the same indicators, watching for the time to buy.

If you are looking for a relief move then this is not bad, and picking up some good patterns as they break higher as well as some of the beaten down names that look good is not a bad plan. Whether this is a year end rally is also a much improved probability. The large cap indices showing double bottoms at the 61% Fibonacci retracement of the April to October move is a good indication of a relief move and then onto a rally to year end.

Beyond that, I am not sure. No one is for certain. All speculation out that far.

I will say that even with this setup, a rally to year end is somewhat a question mark with the election still to come. Indeed, if the election was not there a move to yearend would look to be about as much a lock as you could give a rally. As noted over the weekend and Monday, the election is about more than certainty; it is about economic direction and the ability to maintain that direction. With the economy struggling a bit after surging and Powell in a position where he has to act tough against the President's chides, the market needs the policies to remain in place and for more tax reform and pro-growth policies to become law.

Therefore, while I like the setups and will play stocks in a bounce, whether this is a rally to yearend or beyond, I am going to reserve judgment and just play the stock moves. Hard to go wrong focusing on the good patterns and playing them right. Everything else will take care of itself.

Have a great evening!

End part 1
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