Monday, October 29, 2018

The Daily, Part 1, 10-29-18

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10/29/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: None issued
Entry alerts: VZ
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Stop alerts: FEYE; VIAV; VMW

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The REPORT SCHEDULE is as follows:

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

Monday a Market Summary video, new plays, play table annotations.

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

Access to all current videos will remain assessable each day using the play links in the reports.

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.


- M&A heats up the excitement, same stories -- and same market mindset -- splash cold water on the move
- IBM overpaying for RHT no match for potential tariffs on all Chinese products
- Indices surge, reverse to probe lower, recover some lost ground. Well, the volatility is still there.
- The current second leg lower in the selling is just about matching the first leg. Rallies and selloffs typically move in relatively symmetric moves, meaning a second relief bounce is getting near.
- If relief bounce mirrors the first, it won't be much and difficult to play
- Watch for the bounce, play a few decent setups, then prep for a third then fourth leg downside with downside plays.

Monday was a classic example of hope shot down. A week of sharp selling pushed the indices to lower lows on the current selloff. Late Sunday IBM announced the acquisition of RHT to push Big Blue's demise further along the calendar. Futures surged and they carried over to Monday. Further, reports were that China was considering cutting auto import taxes 50%. Some cracks in the Great Wall of Tariffs perhaps? Surely Christmas was coming early.

Stocks gapped higher and rallied smartly to 10:00ET. They tested into midday, moved laterally for a couple of hours, setting up the last two hours to move up. Didn't happen. The sellers came in and used the upside to sell. The last two hours were a downside clinic with prices selling sharply, slacking off and holding steady, then selling of sharply again. And again. New lows on every index. Then with 20 minutes left a short covering bounce carried the indices well off the intraday lows.

Well off the lows. The Dow recovered 320 points to close (off 245 points on the day; a 920 point swing from high to low, 595 points high to close). NASDAQ 127 points low to close (372 points high to low, 127 points low to close). Impressive volatility yet again with the bulk being the same high to low action as sellers used upside to make downside. The old 'when life gives you lemonade, make lemons.' Or, 'snatching defeat from the jaws of victory.'

SP500 -17.44, -0.66%
NASDAQ -116.92, -1.63%
DJ30 -245.39, -0.99%
SP400 -0.36%
RUTX -0.44%
SOX -1.11%
NASDAQ 100 -2.02%

Heck, when you look at the final results only, it actually looks good compared to the recent action. Gee honey, the Dow only lost 245 points today and NASDAQ kept its losses under 2%! Buy, buy, buy!



The catalyst was said to be a report that the Trump administration would implement tariffs on ALL Chinese goods if the two countries could not achieve a deal at their next meeting, presumably the November G-20 gathering.

Sure, whatever. If it is not clear by now that the US/China trade war is no longer about China importing more goods, dropping the tariffs, and no more stealing of our IP, then it is time to wake up. China and its 2025 program has turned China from a competitor we only needed even trade footing with to the equivalent of Reagan's USSR. Trump sees China building its military forces with our stolen technology and has had an epiphany: China is communist, communists want to spread, communists will do anything to get their way. The globalists have only enabled China's theft and treachery. It will be difficult at best for freedom in the East if China continues virtually unchecked. Trump sees this, sees China's economic weakness, and is using our economic strength to play his hand. Thus, just as with Reagan, he is upset with a Fed that wants to stymie the US economy just when we need to pour it on and bury China. History repeats again and again. With luck, perhaps the outcome will be the same here as well.

I digress, but not really. It is all tied in, the pundits don't really get it just as they did not get it in the 1980's. The CIA, tasked with knowing the status of our enemies was embarrassingly, yeah verily grossly negligent, with its USSR economic assessment. Is it any surprise that the conventional wisdom class does not get what is going on? They are so smart they are stupid because they fall into the trap of believing they are the smartest people in the room, indeed anywhere, and thus they miss the subtleties. That is why history repeats, and repeats, and repeats despite their considered efforts.

So, what does this have to do with the markets? Well, they have figured out this China trade issue. Moreover, this could very well be the Reykjavic situation where Gorbachev, knowing the USSR was in decay and could not keep up with the US, gave Reagan everything he wanted, but Reagan knew what Gorbachev knew and that he could get more -- and did. That set the stage for the USSR's collapse.

Now the markets may not be there, but they know we need to stay economically strong to finish what we started -- and are winning. That leads to the Fed and its notion it has to hike until it breaks something. The market HATES that not only for its impact on the market -- the Fed doesn't even know what the 'neutral interest rate' that it seeks to surpass actually is. It works on a 'know it when it sees it' standard, but of course it will only 'see it' when the market has broken and the economy hits the skids.

On top of that, the midterms. The republicans have to keep the both houses of Congress to have any hope of more economic reform. Until that is decided, that is a weight on stocks similar to the Fed issues.


Okay, that is the background. Here is what the market is doing right now and a bit of prognostication. I know, I know, looking for bottoms like everyone else, right? Well, you need to look. More accurately, however, I am looking for patterns. There is one that is more relevant than the people guessing or giving up on guessing out there.

The market moves in rhythms or phases or sequences or waves -- whatever you want to call them -- just as everything else in the world. That is why Fibonacci movements are noteworthy. Rallies tend to move in certain symmetrical steps as do selloffs.

We are watching the Fibonacci's as well as the length and timing of the downside legs. After the Monday low, the indices are within striking distance of the same point losses as the first leg lower. They are already there in terms of the number of sessions.

Okay, here are the numbers.

NASDAQ: First leg 833 points, 9 sessions. Second leg 748 points, 9 sessions. Roughly 85 points to match the first leg lower. It is worth noting that another 100 points lower from the Monday low is the January/June 2016 trendline. That would bring the two selloff legs very similar in points lower and time as well. In market symmetry terms, that suggests a bounce is just ahead. Not a bottom, just a new bounce. Note that if NASDAQ does hit that trendline it will have given up 100% of the April through August rally. That removes a lot of fluff.

Tradeable? The last one was not outside very short term trades. After gapping to the selloff low, that first leg gapped upside rather big. The move capped out the fourth session off the low. Not much opportunity as each session started with a gap, but of course we will look for and see if we can get into some good plays. Still, it is not the kind of move, untested, no follow through, that you can back up the truck to.

SP500: Gapped up, sold off to a lower low, getting closer to the February/March lows of the year--16 points away from the Monday low. That would match the leg one selloff: 230 points, 7 sessions. Leg two 214 points, 8 sessions. 214 + 16 to the FEB/MAR lows = 230 points.

DJ30: Was up big despite IBM's decline on the RHT acquisition. Then BA started an epic selloff and it all went to hell in a handbasket with those massive point swings noted earlier. First leg: 1884 points, 7 sessions. Second session: 1695 points, 8 sessions. Another 190 points from the Monday low matches the first leg's losses and pretty much puts DJ30 at the June low where the last part of the rally higher started.

SP400: Held its ground relatively well, gapping upside, rallying higher, selling it all off, matching the Friday low, recovering some. It is sitting at the February low, the prior low for the year from which the rally into September launched. Okay, it is oversold enough. First leg 150 points lost, second leg 120 points lost.

RUTX: Did not start higher, but rallied upside. Then gave it up and sold but held just over the Friday intraday low. Rebounded to cut the losses, showing a doji. Sold to just 23 points from the February low, the Monday carnage in the large cap indices did not really impact it. Could be a bit sold out.

SOX: Found a lower low, rebounded to a rather modest 1.11% loss; for SOX, not bad. Tested the next level of prices at 1120 from the July 2017 peaks, and September interim low. First leg: 169 points, 7 sessions. Second leg 176 points, 9 sessions. Looks about done -- in symmetry terms.


Software: All revved up at the start thanks to the RHT acquisition. Then the gaps were sold. CRM sold below the 200 day SMA to close, its first time below that level in 2 years. FFIV gapped higher, sold back to close just about flat at the 200 day. ADBE ditto. DATA the same. And yes, VRSN. Gave up the gain but also all held or held close to the 200 day SMA in still decent setups for a bounce. Now if the 'symmetry' analysis holds water, that they held their position suggests that if there is a final test that starts a second oversold bounce, software would be right up at the front.

Retail: WMT surged then gave just about all up; WMT still works. ULTA gapped up, rallied, gave back a lot but still upside for the day. TSCO gapped and rallied to a higher high. FOSL tried the 50 day MA's, faded to a still solid 3% gain. DG tried to rally, kept 2% but gave up as much.

Food: Still hanging in, managing gains when most did not. KO, MKC, PEP were all up. MCD is still testing its earnings move.

Biotechs/Drugs/Pharma: Not a great session though JNJ managed a modest gain. ACAD tried higher, faded. PFE edged over the 50 day SMA. NVAX tried higher, reversed to a loss. WBA moved a bit higher, still looks interesting.

Telecom: VZ moved higher, gave up some ground, held a decent gain. AUDC is testing that surge higher. Going to watch it. CIEN is holding the 50 day MA. Some promise.

Precious metals: HMY, AU still testing, still not bad.


Stats: -245.39 points (-0.99%) to close at 24442.92

Stats: -116.92 points (-1.63%) to close at 7050.29
Volume: 2.68B (-9.76%)

Up Volume: 880.61M (+132.17M)
Down Volume: 1.76B (-450M)

A/D and Hi/Lo: Decliners led 1.45 to 1
Previous Session: Decliners led 2.12 to 1

New Highs: 23 (+4)
New Lows: 348 (-98)

Stats: -17.44 points (-0.66%) to close at 2641.25
NYSE Volume: 1.075B (-4.35%)

Up Volume: 433.447M (+152.75M)
Down Volume: 638.314M (-190.823M)

A/D and Hi/Lo: Decliners led 1.35 to 1
Previous Session: Decliners led 2.6 to 1

New Highs: 18 (+9)
New Lows: 401 (-127)


VIX: 24.70; +0.54. VIX 'surged' to 27.86, edging out the Friday high. Still below the earlier October peak. Still not showing any real increase in worry, fear, panic.
VXN: 31.75; +1.88
VXO: 27.28; +0.10

Put/Call Ratio (CBOE): 1.27; -0.05. Ten straight closes over 1.0 and 13 of the last 14 sessions. That is getting to the point of extreme as were the new lows last week, volume ratios.

Bulls and Bears:

Bulls continued to fall though at a slower pace. Bears almost 'jumped' for them. Stubbornly low are those bears. It is best to see the bulls and bears converge, the former down, the latter up. They are, but in very slight moves.

Bulls: 50.5 versus 51.9

Bears: 19.0 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: 50.5 versus 51.9
51.9 versus 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: 19.0 versus 18.3
18.3 versus 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: 3.089% versus 3.079%. Bonds are up modestly the past 3 weeks, but they are not showing the kind of upside that would suggest imminent trouble. There is a dearth of direct bidders on treasury auctions, and that is keeping rates higher, bonds lower.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.079% versus 3.126% versus 3.111% versus 3.1692% versus 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: 1.13760 versus 1.14042.

Historical: 1.14042 versus 1.13757 versus 1.3972 versus 1.14682 versus 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: 112.58 versus 111.89. Pretty sharp surge through the 50 day MA's.

Historical: Last below 109 in June 2018: 111.89 versus 112.391 versus 112.091 versus 112.427 versus 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: 67.04, -0.55. Tried to move though the 200 day SMA, faded to close just below it.

Gold: 1227.60, -8.20. Still moving more or less laterally along the 10 day EMA.


The indices are breaking through the 78% Fibonacci retracement and breaking up the potential ABCD bounces. They are a bit more oversold, getting close to the next support levels as noted. The legs lower are just about the same in size and duration. No, not calling a bottom, just nothing that moves come in waves, and at the first part of the moves they are typically symmetrical. This is the second leg lower so it would typically be very similar in size and duration to leg one.

With that, you watch for a rebound move that is likely similar to the prior one. That was no great shakes, just up four sessions and the last not much before it rolled over.

There are still good patterns that held up during the selloff and we are looking at positions on them with some current plays on the report. It could be some of the software stocks holding the 200 day SMA even in the Monday up and down make playable upside breaks. We will keep some of those in the hopper.

That said, if things remain the same, this selling could see a bounce in relief then another leg or two downside. Then perhaps something with a solid foundation takes shape for a more tradeable move higher.

That means on the bounce higher we may play some upside, but we will look for downside setups to take advantage of the third and then fourth legs lower. Now is not the time; Monday shook out some more sellers as it sold off then rebounded decently. That makes further downside from here problematic. Let them bounce and stall, then play the fall.

Have a great evening!

End part 1
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