Thursday, October 25, 2018

The Daily, Part 1 of 2, 10-25-18

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10/25/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: None issued
Entry alerts: WMT
Trailing stops: None issued
Stop alerts: MUX

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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.


- A new day, a different direction as stocks surge back upside. Only to roll over afterhours on more revenues misses from AMZN, GOOG.
- Still so many issues facing the market on its way to finding a bottom, if it can.
- Algorithms continue to fight, causing massive daily swings. The positive: it is all part of the process and it gives stocks time to build new bases.

Back and forth, back and forth but still trending lower. Down through last week, up Monday, down Tuesday but a rebound from the lows, slaughter and carnage Wednesday, then a big surge upside Thursday, recovering about 2/3 of the Wednesday losses.

SP500 49.47, 1.86%
NASDAQ 209.94, 2.95%
DJ30 401.13, 1.63%
SP400 1.42%
RUTX 2.16%
SOX 2.34%
NASDAQ 100 3.35%

VOLUME: NYSE -1%, NASDAQ -6%. Lower but still solidly above average trade on the rebound.


But the score is not holding even before the Friday open. Afterhours AMZN (+118, 7.1% on the session) missed on the top line. GOOG (+44.85, +4.27%) also missed top line. AMZN is off 130 points afterhours and that is a bit off the low at that. GOOG is off 50 points. Both of course giving up all the session gains and more. INTC beat the top and bottom line, was sporting a gain, but that lost value as fast as an outdated PC chip. Even the good reports cannot withstand the overall negativity and the big misses by the big names.

Recall a couple of weeks before earnings season pundit after pundit after pundit said of the selling: earnings season will put the market back to the upside. Hmm.

The session itself was not bad. Good volume, solid percentage gains in the indices and in many stocks.

Okay, nothing wrong with the session, but there are things wrong.

VIX is at 24.22. As discussed, no cathartic event as measured by this sentiment gauge. The other sentiment and internals are lining up: downside volume, downside breadth, new lows, put/call ratio -- but there is no element of fear. Everyone is playing 'you make the call' on a daily basis in terms of a market bottom. They all have to be right for the market to have a chance at a meaningful bounce.

Day to day volatility, not the VIX measure but index bounce, is high. Huge upside, huge downside, big intraday swings. That can mean a change is coming and the bulls would hope that would mean upside change. Right now, however, the bulls are too eager to get back in from the look of it. If they get burned enough they will stop trying to say 'this must be the bottom' and moving in. Once that Pavlovian response is sold out of them by enough false starts then the market might find bottom. Why? Because for the crowd, no longer buying the dip means giving up. Once they all give up the market will find a bottom. Don't worry for them, however. They will be back -- just in time to move in as the next market top forms.

Also, there is still a dearth of good patterns in growth areas. Today I actually liked AMZN's look for a short term bounce with the nice surge off that second low, this one at the 200 day SMA. Fortunately we were not about to enter ahead of earnings. Also liked CRM as it was very similar to AMZN. At least it is not getting destroyed afterhours, just a bit of weakness that most all big techs are feeling after the AMZN, GOOG results.

A positive is that this further selling allows stocks to build patterns -- if they want to build them. What do I mean by the 'if?' Well, for a bounce to take place you have to proceed with the assumption that everything regarding the economy remains the same and that stocks are just selling because of near term issues that, once digested, will offer no resistance to stocks rebounding and continuing the moves to higher and higher highs once again.

Well, the status quo is not status quo.

Economically, the lagging indicators still look very strong. Today we saw those collecting jobless benefits the lowest since 10/1973. Nice, but it is a jobs statistic and those lag the economy. We also saw Medicaid enrollment fall for the first time in 11 years, this because of a stronger economy, better earnings, and thus fewer and fewer qualifying because their earnings were above the max levels.

Other indicators are not so hot. Thursday saw business durable goods investment at -0.1% when +0.5% was expected. Business investment, after a steady climb, has turned volatile, and as noted above, volatility suggests changes in trends. Moreover, companies invest when they feel confident about the future. That the capital expenditures are falling speaks for itself.

Pending home sales rose in September 0.5%, but year/year they were off 3.4%. That is the fifth month lower and the tenth out of the last eleven.

Then the earnings. The top line miss problem is now an epidemic. While there were beats Thursday, the list of top line misses continues to grow: BMY, SWK, MCK, MRK, V, WHR, AMD. After the close you add in AMZN and GOOG. These are not back row names.

Bonds. The series of treasury auctions produced pathetic bids and higher rates. The Thursday 7 year note auction posted the highest paid interest rate since April 2010 as there are just no direct purchasers for US bonds. As noted Wednesday, Art Cashin says that is the Chinese boycotting the bonds. Not selling them, just not buying any more.

All of these, as well as the midterm elections and the tariff impacts to boot, show that things are not the same as they were before this selling began. Thus, it is not just a matter of time, of letting the market sell off to remove some excess and then resume the trend of higher and higher new highs. There are issues that will need to be on the road to resolution, at least as the market sees them, before stocks will make a serious move that makes new highs.

Of course they can still bounce as they did Thursday, but they are also at risk. We still want to play a rebound when it sets up, but as noted above, thus far the groundwork for that kind of move is not complete, namely a good spike in VIX would be nice to see.


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The session looked promising in some instances as noted. The afterhours suggests a not so promising end to the week, but there is a lot of information and time to digest that before the Friday closing bell.

You can grow crazy in a hurry chasing the back and forth in the market -- not only is it back and forth day to day but then it can gig you with a move in the opposite direction afterhours as seen this evening.

Thus, as much as possible, we are sticking with good patterns. That is not working out anywhere near 100% of the time, but we are also not risking much money on the plays. One of the best positions we picked up of late was REV, and while it is moving up, it is not going to change the market. We picked up some WMT today as it showed a good move in a good pattern. Those patterns at least show accumulation over a period of time, and when that happens the big money is loathe to quickly sell them. Nonetheless, as seen with HRS, they will still sell the breakouts from good bases as well, and that is a significant negative for the market.

At a minimum it is logical to think that Friday may be another session in flux given the surge after the purge, then the afterhours re-purge. The market is in the process of a bulls and bears fight, and they are putting big bets on the moves. That smacks of algorithm trading, running stocks up several percent one day, then taking them back down the next as the formulas they follow cannot make heads or tails of the headlines they 'read' and thus chase their tails. Hard to see how that is an improvement, a positive development for orderly markets.

I think it is safe to say Friday will be another day with no more answers than Tuesday or Wednesday or Thursday. There are some stocks we like, some that might make us some money during the flux, but we also know that with this kind of back and forth, unless you are going to trade on an hour by hour basis, the fight between algorithms can lose you a lot more money than you likely make. So, we play a few solid plays here and there and let the market work through its issues and set up either trends upside or trends downside -- those we can make solid money from.

Have a great evening!


Stats: +401.13 points (+1.63%) to close at 24984.55

Stats: +209.94 points (+2.95%) to close at 7318.34
Volume: 2.77B (-5.78%)

Up Volume: 2.09B (+1.693B)
Down Volume: 651.68M (-1.878B)

A/D and Hi/Lo: Advancers led 2.43 to 1
Previous Session: Decliners led 5.45 to 1

New Highs: 22 (+2)
New Lows: 282 (-279)

Stats: +49.47 points (+1.86%) to close at 2705.57
NYSE Volume: 1.072B (-0.67%)

A/D and Hi/Lo: Advancers led 2.63 to 1
Previous Session: Decliners led 3.43 to 1

New Highs: 11 (-14)
New Lows: 305 (-178)


VIX: 24.22; -1.01. VIX still has work to do, opening at 24.78, the high of the session, then selling down.
VXN: 29.54; -0.71
VXO: 25.38; -1.43

Put/Call Ratio (CBOE): 1.03; -0.26

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: 3.126% versus 3.111%. Bonds flat but another subpar auction, this time of the 7 year with yields for that auction hitting levels not touched since 4/2010.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.13757 versus 1.3972. Euro sold to a lower low on this pullback.

Historical: 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: 112.391 versus 112.091

Historical: Last below 109 in June 2018: 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: 70.33, +0.51.

Gold: 1232.40, +1.30.

End part 1 of 2
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