Thursday, October 18, 2018

The Daily, Part 1 of 2, 10-18-18

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10/18/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: WBA
Entry alerts: None issued
Trailing stops: AAPL; CLF
Stop alerts: Got rid of stocks that bounces, started to roll back. AAPL; AMZN; AVG; C; CNAT; CRC; DE; HAL; NFLX; NE; NTES; ROKU; SPN; TTWO

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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.

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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.


- Big names turn lower once again.
- NASDAQ breaks the 200 day but NASDAQ 100, SP500, DJ30 hold.
- Selling gets ugly and perhaps enough to rebound from here, but Fridays typically do not form bottoms.
- Fed talk more and more mimics the 2000 Fed and lo, Greenspan was on CNBC Thursday morning.
- Why do we try to destroy what we work so hard to create?
- Expiration Friday, market bottom a big question mark, but gold and some industrial metals/minerals are possibilities.

Sluggish all session as all indices sold back. The issue was NASDAQ and NASDAQ 100: they and their stocks, after rebounding, started to roll back over as volume moved back up. No major breaks of the 200 day MA by those indices, but the stocks were struggling on stronger trade. It thus looks as if the rebound could be ending and a test of the prior low. Maybe not, maybe just pre-expiration positioning, but we planned to sell when the bounce showed slowing, and Thursday that was the theme. Thus we sold quite a few positions. Then we see how the indices test, and if they set up a good test of the prior low and break higher, we look at more upside.

SP500 -40.43, -1.44%
NASDAQ -157.56, -2.06%
DJ30 -327.23, -1.27%
SP400 -1.51%
RUTX -1.82%
SOX -2.51%
NASDAQ 100 -2.23%

VOLUME: NYSE +4%, NASDAQ +8%. NYSE moved above average on the selling, again showing more downside volume. NASDAQ volume jumped well above average as it broke through the 200 day MA. Also stronger volume on a selloff.



To view, click on the following links:

Again, NASDAQ 100 held over the 200 day MA -- not a collapse but a break lower off that Wednesday doji. SP500 and DJ30 both held over the 200 day SMA as well with somewhat tamer losses; they could still hold that support but even some non-tech stocks were roughed up, e.g. CAT.

RUTX, SP400, and SOX all failed at the 10 day EMA and sold back down into the recent bounce.

All of the indices remain above the lows on the start of the rebound. Thus, a test that bottoms the move is still in the cards. Indeed, the indices could rebound off the highly negative sentiment Thursday and put in a solid follow through session. That is all still in the cards.

So why did we unload many positions? That was the plan, and it was the plan because you cannot be certain that a test will hold. We cleaned a lot of the decks in the event this pullback does more than test, e.g. blow out the prior selloff low. If it does test and hold, riding down positions again does not prepare you to be emotionally ready to move into quality positions if the indices hold a test and rebound with a follow through session. Get rid of potential laggards rolling over now and let them sell, then pick up good positions when they show a good pattern and rebound.

When does that happen? Well, many tech stocks rolled over after touching resistance. They are selling now and could fall much more. Many NYSE large caps on SP500 and DJ30 are actually somewhat decent. Okay, 'many' might be an overstatement, but those two indices are holding over the 200 day SMA and could put in a low near there, ideally after an intraday undercut really scares out more sellers.

A big intraday reach down near the recent August low would be a very nice touch. Moreover, a lot of the tech stocks that rallied back to the 10 day EMA in the bounce could make a similar dive past the recent lows and trigger a big oversold rebound.

Yes, you are ahead of me: if they undercut those lows, is not the follow through done, over, finished? Yes. You would have to restart the clock on a follow through, BUT with the double bottom that action would set up, some quality stocks will have set up very solid patterns, patterns very playable.

Okay, those are the possibilities. We had 3 going into this week. The continued selloff did not occur. A relief move showed up instead. That was the second possibility. Then the decision tree was whether 2) it would just continue higher and not look back, or 3) bounce, stall at resistance, then fall to test the recent low. From there it is assumed a bounce ensues, but it could also fail the test and, after the bounce and test setup, end up the same as the first possibility.

In sum, the market is still in the process of figuring out what the Fed chairman's comments and what the Minutes mean to the stock market. The initial reaction thus far is that the Fed will break things. After all, Powell has evolved -- or devolved depending upon your view -- from being data dependent to a 'hike until it breaks' chairman. It is like a terminal disease going through its stages: it gets worse and worse in a predictable progression and you cannot stop it.

Thus far the market's reaction is to sell off, bounce in relief, and now rolling over to test that prior low. That will be the next big tell.

When you strip away the emotion and the hope that springs eternal and look at the market in the big picture, frankly you have to question the possibility of new highs any time soon. The market has rallied to high after high, just hitting new highs in September/early October. The market would have to truly believe earnings are in position to continue solid expansion at these highs. If they do, you have the Fed hiking and tightening money supply trying to prevent inflation in the face of 'runaway prosperity.'

The Fed marches on.

We try so hard to get what we have, and after a year or so of recovering from 10 years of terrible economics, we get a bit of a chance to build some wealth, and the Fed is talking about raising rates and lowering money supply to restrictive levels. Are you kidding me? Wish I was. It is like the scene from 'Diehard' when FBI agents Johnson and Johnson (no relation), smugly assuming they knew everything about hostage situations, opened the 'standard FBI playbook' and play right into the hands of Hans Gruber and his cohorts. That didn't work so well for the FBI agents and there is no John McClain out there to fix the Fed's screwup.

A bit upset? Yes, and there was a lot of Fed commentary today, none good.

Thursday morning we disturbingly heard the late 90's, early 2000's mantra that led to the US market crash, economy crash, and the permanent loss of millions upon millions of tech jobs. That talk: 'it is not sustainable for one economy to outgrow the rest of the world economies as much as the US is doing.' This is the same talk/theory that led Greenspan to hike and hike rates and tighten and tighten money supply to the point the market choked, topped, and crashed. The fall was so hard that investment dried up for 3 years in the US and tech jobs by the millions migrated to Asia and elsewhere. By intentionally slowing the US economy to narrow the gap, the Fed destroyed the lives of millions and millions of US citizens. Just WHO is the Fed working for? It is NOT US citizens. Frighteningly, we are hearing this absurdly stupid 'logic' again and we have a Fed chairman who apparently believes it. All the while he gets kudos from former Fed members, e.g. Fischer.

Greenspan appeared on CNBC and said this was the tightest labor market he had ever seen. Oh great, the architect of the disastrous Fed policies of the late 90's and early 2000's is now on the air giving advice. On Greenspan's Fed was a fellow named Broaddus who actually said he WANTED more unemployment as the Fed hiked and hiked, tightened and tightened. That jerk got what he wanted, and again, it destroyed the lives and works of millions and millions of US citizens. News flash: these same kind of people are in charge now, pushing the same ideas, engaged in cognitive dissonance regarding their role in the prior collapse.

Why do they fear what we work so hard to achieve, i.e. lots of jobs? We finally adopt policies that gin up the US economic machine and the Fed does what it can to stop it for fear that someday, somewhere there may be inflation. It fears what it does not understand because its models that 'explain' what is happening are not workable models in the real world. So, they see flowers blooming more than usual so they bring out the lawnmower to mow them down lest there be too many flowers and thus too much beauty and a bit more pollen.

At least Bullard said the Fed should not be raising rates when there is no inflation threat. But Bullard does not vote until next year, and he would not make a difference anyway.


SCAANN: All sold back after rallying upside on the bounce. AAPL still in the range but was weak. NVDA is already so beaten down it did not do much damage despite 1.45% drop. The others faded off the bounces with fairly solid rollovers. Sure they could all bounce from here, but the patterns are not great and we certainly did not want to ride them lower.

FB and GOOG also turned lower after bounces. Common affliction.

Software: CRM, VMW, MSFT, ADBE, NOW, DATA, TTWO all turned lower from resistance after bouncing. UIS actually looked good though down modestly.

Retail: A recent leader but was off Thursday, some more than others. WMT, ROST, TJX held up well enough but ULTA surprised with a drop through the 20 day EMA. HD, LOW downgraded and sold even lower.

Machinery: From showing good action to terrible, and one reason the market looked so negative. CMI bombed through a 50 day MA consolidation. DE sold harder but did manage a bit of a recovery to the 50 day SMA. CAT dove lower as did TEX. Ugly.

Drugs: More of a pause as JNJ, PFE hung in well. WBA continued upside but then started to show a doji so we took a 200%ish option gain on the October options.

Chips: AMD and LSCC hung on but AVGO broke lower on volume. Many of these stocks are so beaten down they did not sell much. Well, MLNX sold 2.28%, SLAB 2+%, SWKS 2.43%.

Energy: Terrible session with stocks such as HAL, SPN gapping lower. XOM, CVX added modest gains but it was not a great session.

Food: Off a bit after a 3-day upside move for many. Kind of a normal pause for MKC, KO, HSY.

Misc: DIS tested modestly after a solid week. Pot stocks mixed with TLRY up, CGC lower. MTCH testing on the day to the 50 day MA as did PLAY.


Stats: -327.23 points (-1.27%) to close at 25379.45

Stats: -157.56 points (-2.06%) to close at 7485.14
Volume: 2.56B (+8.02%)

Up Volume: 708.97M (-531.03M)
Down Volume: 1.83B (+730M)

A/D and Hi/Lo: Decliners led 3.27 to 1
Previous Session: Decliners led 1.39 to 1

New Highs: 23 (+8)
New Lows: 156 (+62)

Stats: -40.43 points (-1.44%) to close at 2768.78
NYSE Volume: 825.249M (+4.29%)

Up Volume: 149.737M (-200.306M)
Down Volume: 671.525M (+236.908M)

A/D and Hi/Lo: Decliners led 3.23 to 1
Previous Session: Decliners led 1.68 to 1

New Highs: 9 (-6)
New Lows: 245 (+116)


VIX: 20.06; +2.66
VXN: 26.08; +3.15
VXO: 20.08; +2.87

Put/Call Ratio (CBOE): 1.30; +0.13

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: 3.1779% versus 3.209%. The 10 year rallied some with the China market issues.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.14556 versus 1.14961. Euro sold hard for the second straight session, back down to the early October lows, fading away from the 50 day MA test.

Historical: 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: 112.163 versus 112.553. Dollar dropped against yen.

Historical: Last below 109 in June 2018: 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: 68.71, -1.04. Oil breaking back from the rally as Saudi Arabia is savaged over its role in the reporter assassination.

Gold: 1230.10, +2.70. Ready to break higher off this weeklong lateral consolidation of the big break through the 50 day MA's just over a week back.


October expiration. A few more earnings (AXP up modestly afterhours) but the big results come next week with AMZN, GOOG et al.

China still struggles, down 2.94% Thursday. Stories about how when China is weak it is bad for the US are hitting the wires. To me that is another part of the ridiculous theory that the US cannot get 'too far ahead' of other countries. Sure it can. Has done it before and would have been fine but for those in power intervening to cripple the US.

But rational people with the best interests of the US citizens are not in control. Thus the same play book will occur and for our children we can only hope they don't screw things up as bad as in 2000 and we lose again what we have worked so hard to regain.

Okay, that is out there a bit. Friday is expiration and markets typically do not bottom on Friday. Thus we were selling on this market action and we will look to next week to see if the market can find a bottom, holding the prior lows and keeping the rebound alive, or undercutting, scaring out more people, and then rebounding in a double bottom move.

Keeping an eye on gold. We HMY already and are looking at AU if it breaks upside and holds the move. That and MUX, PLM are the kind of stocks we would consider buying if they show good moves. Outside of that, again, no bottoms typically on a Friday, so we would prefer to wait until next week to start looking for new positions in other sectors.

Have a great evening!

End part 1 of 2
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