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10/11/2018 Investment House Daily
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Investment House Daily Subscribers:
MARKET ALERTS:
Targets hit: None issued
Entry alerts: None issued
Trailing stops: PFE
Stop alerts: None issued
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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.
MARKET SUMMARY
- Morning downside not enough as stocks were recovering pre-market.
- Stocks move from low to high to low as sellers focus on the NYSE.
- Other leaders taken out and bumped off as more leaders fail.
- CPI would give the Fed some cover but for Trump sealing off Powell's retreat.
- More on why the markets distrust the Fed: it again throws out its carefully prepared game plan as soon as markets get a bit roiled.
- SOX looks as if could be the first index to have set up for a decent rebound.
- Futures up as pundits call for an oversold bounce and to start buying Friday.
- Many of our potential plays are setting up and some more as well.
All indices put in new lows on the session, impressively so on SP500, SP400, RUTX. SP500 and DJ30 both broke the 200 day SMA, but SP500 had the head start and it closed well below that level. NASDAQ and NASDAQ 100 held near the 200 day, though on the south side, bouncing to test it intraday but unable to hang onto the session highs. It appears they suffered the brunt of the downside Wednesday and Thursday ceded the thrashing to other indices. Not that they were not significantly lower themselves . . .
SP500 -57.31, -2.06%
NASDAQ 92.99, -1.25%
DJ30 -545.91, -2.13%
SP400 -2.03%
RUTX -1.91%
SOX -1.03%
NASDAQ 100 -1.14%
VOLUME: NYSE +9%, downside volume 82%. NASDAQ +2%, downside volume 63%. Volume rallied as NYSE stocks sold more and downside trade was still high though off the 90+% Wednesday. NASDAQ trade was more balanced as sellers focused on NYSE names.
ADVANCE/DECLINE: NYSE -3.7:1, NASDAQ -2.7:1. Well off the -7.9:1 and -7:1, respectively, Wednesday.
NEW LOWS: NYSE 526 (+24), NASDAQ 401 (+72). NASDAQ catching up, NYSE holding steady, not getting to 600+ yet. Two 500+ sessions, however, is impressive.
Unlike Wednesday, bonds rallied, dropping yields overall. Further, gold rallied 34.30 (+2.87%) and gold stocks shot higher. Okay, that makes more sense when stocks sell off: bonds as a safe haven, gold as well, though gold is also an inflation hedge, purchased when fears of inflation rise. How can that be when the Fed is on top of inflation, hiking to prevent it? Perhaps, just perhaps, markets are smarter than the Fed (perish the thought!): if the Fed causes a market crash and by logical extension an economic recession, interest rates WILL rise as explained in the Wednesday report. The easy case is that fear drove investors to gold, but treasuries are the real 'flight to safety' fear trade, not gold. Gold is, all things considered, an inflation hedge. As stocks sold again, unable to rebound after the Wednesday bloodletting, investors became even more concerned about a Fed-induced slowdown and turned to gold.
As the session progressed, stocks traded higher early -- just modestly -- then gave it up. Sold to the Europe close, bounced early afternoon, but then sold to session lows as of mid-afternoon. The last hour saw a bounce then a fade.
It was not a bottom type session. DJ30 futures were 400+ downside pre-market but by the open had recovered to -150ish. The bids came in too early, before everyone had to experience them. Thus, no cleanout session. Stocks did sell off, but it was after a failed early attempt higher. Again, no flush out.
Moreover they put in new lows, and in most market bottoms they need to put in a day or two above the low to then set a bounce. Rarely is there a knife-point turn, i.e. down one session, up the next and then never looks back or tests back. Typically the market tests, shows a bottoming indication (doji), bounces, holds for 2, 3, 4 or more sessions, then rebounds. Not there as of the Thursday close.
There were stocks that looked to be trying to set something up, ranging from big names to not so big. Also, as noted, gold stocks surged, silver as well. NFLX not bad, ULTA, UIS, AVGO, VMW, HUBS, DE, INTC, LSCC, AMD, VCEL, IMMU, AMZN.
These stocks were decent, but as noted, after the Wednesday selloff the selling attention turned elsewhere and these stocks just tread water. OTHERS were whacked as these were the prior session, e.g. big pharma including BMY, MRK, PFE, JNJ. Big biotechs were not left out: AMGN (-3.6%), CELG (-4.2%). Thus, the decent looks some stocks gave may simply be a false indication as sellers 'rotated' to different groups to take out and shoot.
True bids showed up in the precious metals as noted. Oh, that is great; another real bull market growth area. That said, they can fly when the precious metal bug bites.
NEWS/ECONOMY
President Trump continued his Fed barrage, calling the Fed crazy for raising rates as fast as it was. But he won't fire Powell. Just publicly ridicule him. That always works with Fed chairs.
CPI: cooled month/month and year/year. Cover for the Fed, cover for the Fed to go easy! Yes, but then you have the President out there cutting off Powell's avenue of retreat. As Mr. Gundlach said, the President is trying to inoculate himself from a market crash brought about by the Fed doing what it always does. Okay, perhaps that somewhat accomplishes some damage control if the market crashes, but would his reputation be better preserved and served by avoiding a crash? Giving Powell an out where he can save face and his professional dignity is part of that, and the barbs thrown his way are, as noted, cutting off his retreat route.
CPI, Sept: 0.1 vs 0.2 vs 0.2 prior; Year/year 2.3% vs 2.7% prior
Core: 0.1 vs 0.2 vs 0.2 prior; year/year 2.2 vs 2.2 prior
Down: housing rents, energy (-0.5%), used cars (-3%).
Flat: Food
Up: Everything else
The lower housing rents are a first in a long time, a flashing light to the Fed that indeed the housing market is fading and time to lighten up. At least that is the standard line today. As I discussed a month ago, however, housing cools as a recovery matures. That is normal so it is not an indication necessarily of the economy faltering.
How should the Fed react and how will it react?
It does show, however, that the economy is not just surging and surging and that SHOULD have the same effect on the Fed: did not this Fed say it would go slow as it was cognizant of the Fed crashing markets and economies in the past with dogmatic, lockstep approaches? It did.
Is the Fed, however, doing what all Feds do, i.e. in the heat of battle disregard the battleplan designed when markets were calm and emotions were not running high and interfering with rational thought? Yes. Thus, the market is confused -- where is that rational Fed pre-last week before Powell threw out the playbook it sold all of us and reverted to the old Fed playbook?
Thus you have a Fed that is now hell bent on fighting inflation and hiking rates time and time again just in case inflation might someday show up. Historical data shows the opposite: when an economy cools a bit, the LAST thing you want to do is ignore any signals of weakness and ramp up your campaign. What happens is that a normal ebb in economic activity then turns into impinging investment and thus supply -- THAT is what CERTAINLY spikes inflation. That is how it always starts, not from demand but from lower supply as producers face more difficulty making those incremental products thanks to tighter money.
The Fed flipped from Dr. Jekyll to Mr. Hyde last week. Markets have seen this transformation -- and the outcome -- many, many times. Thus, the selling. This simply makes the point I have made time and time again: the Fed should not have this kind of authority, this kind of absolute control over rates to hold them absurdly low for over a decade, then decide things are too hot and jack them up. Too much control over our finances, our earnings, our retirements. NO ONE OR GROUP, particularly unelected, should have that kind of power. Men are not smarter than markets. Markets are efficient and auto correct. Sometimes it is sharp and hurts, but is that not EXACTLY what we are having now? Where is the benefit? Near term ALL markets can overheat or sell off at an accelerated rate. How has the Fed changed that? It has not.
In any event, the Fed did not start the economic expansion. Tax cuts and regulatory rollbacks did that. The Fed, however, is likely going to kill it. The question is when. I still do not feel the Fed has gone too far in its actions to stall the markets and economy, but it is on the path to do that, and when the markets pitch and heave as they have done, that makes continuing a more hawkish policy more likely to bring that about and to do so faster.
THE MARKET
CHARTS
To view, click on the following links:
http://investmenthouse1.com/ihmedia/f/charts/sp500.jpg
http://investmenthouse1.com/ihmedia/f/charts/NASDAQ.jpg
http://investmenthouse1.com/ihmedia/f/charts/DJ30.jpg
http://investmenthouse1.com/ihmedia/f/charts/RUTX.jpg
http://investmenthouse1.com/ihmedia/f/charts/SP400.jpg
http://investmenthouse1.com/ihmedia/f/charts/SOX.jpg
http://investmenthouse1.com/ihmedia/f/charts/nasdaq100.jpg
SP500: SP500 continued lower, smashing the 200 day SMA on the strongest selling trade yet. It held at the June low and rebounded just slightly. Two big sessions lower; once it gave up the 50 day MA it really gave up. Almost 100% of the June through September move is gone as SP500 is back in the middle of the February to June consolidation. Definitely double toppish and breaking down. Now it is all about what kind of rebound it can put together.
DJ30: Similar to SP500, diving lower a second session and just breaking the 200 day SMA. At some support at 25,000 where there are many highs and lows as far back as late 2017. This is, however, just another potential support level as the selling was targeting the industrial side more intensely Thursday.
NASDAQ 100: Negative, positive, then negative, NASDAQ 100 showed a doji just below the 200 day SMA. Indicating support or just a continuation doji that sees more downside after more or less a pause? Nothing yet indicates it is going to hold.
NASDAQ: Same as the 100, down, up, then down, closing below the 200 day SMA, tapping it on the high. Big volume yet again, perhaps suggesting bottoming effect, but otherwise it just has to show it can hold and set up a bit better.
SP400: You would have thought the midcaps were closer to finding some support after 4 weeks lower, but they had more to go, now at the early May low, the last low before the breakout run to June and beyond. Closed on the low; no respite yet.
RUTX: Impressively weak once more, diving farther below the 200 day SMA and to the early May low similar to SP400. This month it is straight down 150 points.
SOX: Held the late April low, the February and the December lows, showing a doji. SOX may be the first index that is ready to rebound.
LEADERSHIP
The industrial side was never immune from the selling; saw that as machine makers and other manufacturers tumbled along with big name Techs Wednesday. Others, however, were taken out and killed such as the big pharma and energy. Some retail stocks that showed intestinal fortitude Wednesday were slaughtered Thursday, e.g. DG, DLTR. On the other hand, precious metals scored big gains with treasuries up sharply -- definitely some fear trading ongoing.
Drugs: PFE, BMY, MRK slammed. CELG ripped. So much for that group.
Precious metals: Gold and silver not bad. HMY exploded higher. ABX surged through its 200 day SMA. Silver not bad either as PAAS, SA and others rallied.
Metals: Already sold off in many instances, but still selling among names such as STLD, NUE. CENX (aluminum) did not, but it is already hacked and bloodied. FCX trying to hold with a double bottom, actually moving higher on volume.
Chips: Perhaps something is here. Down first a long time back, formed a base, got caught in the selling. INTC a potential double bottom with rising MACD. AVGO a nice 50 day MA test. AMD still solid as is LSCC. Still significant amounts of carnage, but some look sold out. NVDA does not look to be one of those, not just yet.
Software: Some interesting patterns. TTWO a doji at some support. FFIV now at the 200 day SMA. CRM not ready for prime time from the look of it. VMW a doji at the 200 day SMA. NOW, DATA the same. MSFT throwing a doji in no-man's land. Still, as with chips, getting interesting.
SCAANN: AMZN is interesting with a tight doji. AAPL showing one as well just below the 50 day MA. NFLX a doji at the 200 day; not bad. NVDA, SQ, CRM -- need work.
Financial: Horrid as JPM starts earnings Friday morning with C. Both down hard Thursday. GS may try to bounce, showing a doji on huge trade.
Retail: ULTA and ROST showing doji at the 50 day EMA. That is about it.
MARKET STATS
DJ30
Stats: -545.91 points (-2.13%) to close at 25052.83
Nasdaq
Stats: -92.99 points (-1.25%) to close at 7329.06
Volume: 3.15B (+1.94%)
Up Volume: 1.15B (+779.5M)
Down Volume: 1.98B (-720M)
A/D and Hi/Lo: Decliners led 2.67 to 1
Previous Session: Decliners led 7.04 to 1
New Highs: 14 (-3)
New Lows: 401 (+72)
S&P
Stats: -57.31 points (-2.06%) to close at 2728.37
NYSE Volume: 1.163B (+9.33%)
Up Volume: 185.681M (-232.599M)
Down Volume: 973.822M (-3.096B)
A/D and Hi/Lo: Decliners led 3.73 to 1
Previous Session: Decliners led 7.85 to 1
New Highs: 9 (-25)
New Lows: 526 (+24)
SENTIMENT
VIX: 24.98; +2.02. Surged to 28.84 on the high, eclipsing the February and April peaks around 26. Starting to get interesting.
VXN: 27.76; +0.23
VXO: 26.89; +4.36
Put/Call Ratio (CBOE): 1.18; -0.04
Bulls and Bears:
Second week above 60 for bulls. Got to 60, market started to falter. Bears finally broke over 18.3 after back and forth at that level for a month.
Bulls: 61.8 versus 60.6
Bears: 18.6 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: 61.8 versus 60.6 prior
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 versus 64.7 versus 66.7 versus 64.4 versus 61.9 versus 64.1 versus 64.2 versus 62.3 versus 61.5 versus 63.5 versus 64.4 versus 63.5 versus 62.3 versus 60.6 versus 60.4 versus 57.5 versus 54.3 versus 50.5 versus 47.1
Bears: 18.6 versus 18.3
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
OTHER MARKETS
Bonds: 3.146% versus 3.169%. This time all bonds caught a bid as there was a move toward safety out of stocks.
Historical: the last sub-2% rate was in November 2016 (1.867%). 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% versus 2.941% versus 2.879% versus 2.904% versus 2.897% versus 2.86% versus 2.857% versus 2.882% versus 2.882% versus 2.846% versus 2.813% versus 2.828% versus 2.821% versus 2.819% versus 2.819% versus 2.864% versus 2.871% versus 2.879% versus 2.882% versus 2.873% versus 2.928% versus 2.963% versus 2.977% versus 2.977% versus 2.945% versus 2.95% versus 2.986% versus 3.005% versus 2.962% versus 2.975% versus 2.958% versus 2.982% versus 2.965%
EUR/USD: 1.15901 versus 1.15324
Historical: 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: 112.076 versus 112.158
Historical: Last below 109 four months back. 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: 70.97, -2.20. Larger than anticipated build sent crude to the 50 day EMA.
Gold: 1227.60, +34.20. Surged through the 50 day MA's and cleared all of the August and September highs. As discussed above, this is a fear trade, and maybe way down something of an inflation trade if the Fed screws up and stalls the economy.
FRIDAY
Okay, another big selloff and tonight is the flip from Wednesday with futures sporting gains. Several are saying Friday is the time to dip in a bit since the markets are way oversold; no kidding. RUTX and SP400 were oversold BEFORE Wednesday and Thursday.
Oversold, however, does not make a bottom. Stocks can be far, far more overbought or oversold than we think rationally possible and STILL continue on. Futures suggest -- suggest -- a rally Friday. As seen Thursday, however, after a lower open stocks rallied then sold off.
It would appear a good short term bet to play the upside. Thing is, it is Friday. An upside session Friday does not in any way guarantee upside the coming week. Indeed, stocks often sell again to start a week just to test any upside resolve buyers have shown. Now if you are looking to buy for the 'long term' and want to commit part of your money, then Friday is worth it. For options trades, it is a riskier process, but you can use the same approach, i.e. not going in all the way, just starting to nibble on some positions and see if they can make you some money on a bounce that probably won't be the bottom, but could give some solid gain on its move.
At the same time, let the remaining positions bounce and see how far they go. If it is the bottom, great. If not, when the move stalls some more or all can be taken off depending upon the time to expiration, etc. for options. On stock there is time if all remains solid foundation wise.
With that in mind, I still like current plays we have on ADBE, AMD, BILI, FFIV, HUBS,
NFLX, QQQ, ROKU, UIS, ULTA. I also like TTWO's setup, NOW, SA -- Some old and some potential new plays. Not for a new huge surge but for a tradeable bounce. We will get the buy points right for existing plays and perhaps get some set up for some of those new plays as well. With the current plays, there will be more than enough to fill the bill.
Have a great evening!
End part 1
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