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10/13/2018 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: None issued
Entry alerts: NFLX; ROKU; UIS; ULTA; VMW Trailing stops: None issued Stop
alerts: CAT; CPRX; WOW. Did not participate in the bounce.
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of the day of the week.
- Relief bounce -- or more -- starts
- Even with the upside the move shows its fragility when Kudlow
questions a Trump/Xi meeting
- Thus far showing indications of a relief bounce -- but they all
- Three possibilities off this bounce
- Some good moves, some not very good moves, small caps lag
- Playing this move, planning now for the next move.
Friday finally brought a bounce and some impressive percentage advances --
at least on some indices -- but it was not a sure bet.
Stocks gapped upside in relief. Each financial station or website gave
credit to its pundit for calling the bounce. Massively oversold, down/up
volume ratios, percentage down volume -- all were pretty extreme and it was
just a matter of when the bounce triggered.
Even so, it was no done deal. Stocks gapped nicely with NASDAQ gapping to
the 200 day MA, SP500 gapping just over, while DJ30 and NASDAQ 100 gapped
nicely above that key level. RUTX, SP400, and SOX? Ha ha ha. They gapped
upside for sure but they are so far over the hill from the 200 day they can
barely see the hump.
Further, the bounce showed fragility. The prior day or two the talk was the
Trump and Xi would meet at an upcoming gathering of many world leaders.
Friday right around 11:00ET, Larry Kudlow said it was not '100% decided'
that Trump and Xi will meet. The market did a Peter Pan over the next 1.5
hours, the Dow wiping away a 400 point gain and even turning negative, RUTX
and SP400 turning red as well. The other indices did not hit red, but they
gave up huge chunks of their gap gains, indeed the majority of the gains.
Stocks caught a bid on that selloff, however. Apparently still as oversold
as of the Thursday close (and indeed most were), stocks bounced, tested into
2:30ET, then rallied straight up into the close. Sighs of relief, back
slapping on the financial stations as their pundits were not to be
humiliated -- at least not that day. All's well that ends well in the
prepackaged media world I guess.
SP500 38.76, 1.42%
NASDAQ 167.83, 2.29%
DJ30 287.16, 1.15%
NASDAQ 100 2.77%. Definitely buy the 'names.'
VOLUME: NYSE -18%, NASDAQ -15%. Still strong, above average trade but also
significantly lower than the selling. Selling still stronger than the
buying, but that is not unusual in an initial bounce or a short covering
ADVANCE/DECLINE: NYSE 1.4:1, NASDAQ 1.5:1. Quite blah, also indicative of
a short covering bounce. You would expect this in the first phase of a
bounce, looking for strong upside breadth AFTER a test that holds and starts
back up. THAT is the time you tell if there is real longer term buying
versus the covering rally, where the baton is passed from the shorts
covering to longer term buyers. It is disconcerting, however, that the
small caps were so weak. I know, it is likely just the time in the
expansion where they fade, but I was hoping for a lengthier expansion. Not
that it cannot happen still.
So the financial stations and media were breathing sighs of relief Friday
that the market bounced, fought off a selloff, then managed to recover much
of the gains.
If only all was well. Nice bounce, one we are participating in with new
positions, but it was not a rocket launch upside, and it will have to show
if it can sustain the moves. Enough to certainly play the bounce, but then
it has to show its mettle: a continued rally that never looks back, a test
of the prior low and a new rebound, or a relief move that runs out of gas
and then delves to lower lows.
No way any scenario was answered Friday. It was a strong day, then not,
then was. Up, down, then up. If a dog found its way onto the NYSE trading
floor and barked, half the traders would have passed out in fear.
I don't want to be mistaken. There were some very good moves on the day,
moves that will make us money. That is wholly different from the market
having put in a bottom and building off that. The market's life over the
next 2 months is still a huge question mark.
That said, stocks such as AAPL, VMW, ULTA, NFLX, ADBE, AMZN, CRM, WBA posted
very solid moves. At the same time, stocks such as CAT, UTX, ETN, C, JPM,
SQ, NVDA did not. Many just did nothing as the lackluster breadth
Weak breadth, lower volume on the upside, up to down volume positive but not
strong, small caps still very weak, volatile intraday action (not just all
buyers). Defensive stocks did no harm to themselves (gold, utilities), just
testing prior strong upside breaks. Not an upside endorsement. Then again,
the market was sold and bounced back for nice gains. At least the relief
bounce held, and afterhours futures were moving up very late.
The takeaway: it is a bounce from some very oversold conditions following
very sharp, high volume selling. For now it is a bounce. We play it as a
bounce and if it shows more, so be it.
What Rate for Rates?
The most interesting and important market news for the week was not a
Trump/Xi meet and greet. Fed policy is THE issue. It is what drove much of
the selling. Friday cleared up nothing, but then again, nothing really
needs to be cleared up: the chairman has stated his stance and the
President, in securing his position he is not to be blamed for any economic
problems in the future, cut off the chairman's retreat from his stance.
Friday Mnuchin put a bit finer spin on the President's 'the Fed is crazy'
label (one many very sage people believe though are loath to publicly admit
OR don't want out because the status quo ensures their wealth), stating the
Fed should not hike rates when inflation is under control. Kind of a play
on the Larry Summers' 'don't hike until you see the whites of inflation's
The Fed's Evans appeared on CNBC Friday morning, talking with the Fed's boy,
CNBC's Steve Liesmann. Liesmann is one of those 'experts' who feigns to
listen to the other side and weighs its arguments, but is really so died in
the wool Keynesian and Phillips Curve that it is all an affront to anyone
who has read a book on economic history.
Liesmann (how is that pronounced 'leaseman' when it is spelled 'liesman?')
lobbed softballs to Evans, acting surprised when Evans said the Fed should
get restrictive though as a true Phillips Curve apostle, Liesmann could
barely contain the mirth he felt at Evans' words.
All of this begs the questions: Why does the Fed need to be restrictive at
all (versus letting the economy determine neutral) and why do we need the
parent Fed involved at all?
How does the Fed know what is right and not? Evans admitted the Fed did not
know what is neutral or not. Indeed, all of the pundits and experts on
Bloomberg, CNBC, Fox Business guffaw whenever the Fed prognosticates about
neutral rates and how much money should be in the system -- the history of
the Fed's actions so clearly shows how grotesquely wrong the Fed's theories
and actions are. Yet, it is all accepted as if this is just how things are
done -- in a supposedly free enterprise system. You CANNOT GET MORE
centrally controlled than the Fed. Hell, the Fed was the ENVY of the USSR
and China in its ability to dictate wealth levels and thus its ability to
control the masses.
So the question: why restrictive policy at all? Why not let the market,
when times are good, work? The Fed was created primarily to assist in times
of crisis using twin goals of a stable currency and stable inflation (both
are the same really) as its guide in resolving crises. Those goals have
been twisted into what is now called its 'mandate.' By that very label
alone the Fed's power was elevated to continual manipulation versus being
present to assist when crises developed. Now every minor move in the
markets and economy is in the Fed's purview. This even as the Fed says it
is not concerned with or worried about day to day market events.
Who is the Fed trying to hoodwink? The entire history of the Fed shows that
it is EXTREMELY worried about market events. Greenspan cut because of
market worries. Bernanke put together policies that were the essence of
central control -- in the name of crisis of course. Yellen showed she was
her own 'man' early in her career as chair, the markets revolted, and she
capitulated, becoming the best friend Goldman Sachs and company has ever
Reality has left the building.
Listening to all of this discussion -- apparently being held in Wonderland
-- makes pragmatic, rational entrepreneurs and investors contemplate
insanity. Who are they kidding? History proves the Fed has acted as the
antithesis of one of its primary goals set forth buy Congress: a stable
currency. The dollar has lost 97% of its value since the Fed's inception.
An abject failure in meeting that goal. In so doing, the Fed has
unequivocally failed in its second goal/mandate: preventing inflation. By
devaluing the dollar to 3% of its pre-Fed value, the Fed has, by definition,
increased inflation by thousands and thousands of percent.
100 years of destroying the dollar equals a 'stable currency.'
The 'experts' are lulled into their false beliefs by the frog in the
saucepan analogy: over 100 years the Fed has let inflation run by devaluing
the dollar, hiding behind the creation of massive vaults of debt as large as
the Yellowstone volcano caldera and with the same eruptive capacity. They
thus believe inflation is a normal occurrence, that the slow destruction of
our currency is inevitable. If that is the case, why does an ounce of gold
hold the same purchasing power as the time the Fed was created? That is
value that the Fed cannot alter, and therein lies the proof the Fed has
failed in its mandate.
Yet they pundits claim the Fed has succeeded in its mandate as there are no
major disruptions in the markets and economy. Seriously? On top of the
utter destruction of the dollar's value we still have market crashes,
crises, massive economic upheaval. All with a dollar worth less and less,
and all the while building more vaults to store debt.
Life without a Fed.
What about the alternative? What about letting markets figure it out?
Markets always get back to equilibrium when there are imbalances, and they
do it quickly as opposed to say the 1930's, the 1970's, and the 2000's.
Moreover, there is no accumulated debt; the excesses are cleared and there
is a start a neutral.
Moreover, there is no inflation. Inflation is an element of controlled
economies. If you have free markets, money will move where it is needed.
No bottlenecks in supply, and if any do occur they are temporary because
money flows that way to quickly alleviate it. Makes sense: money cannot be
made efficiently if there are bottlenecks. If those in the business do not
do it, other entrants will.
I know, I know. I talked about Wonderland earlier, and the pundits and
experts would say that is where I am deriving my argument. But of course
they would: they are products of the very system that employs them.
Educated in schools that teach government manipulation of markets -- in a
free market system mind you -- is status quo and perfectly consistent with
the theory of free markets. History does show that markets do reach
extremes on their own but they also correct very quickly. The depression
before the 1930's depression was over in a year. When the 'experts' got
involved in the next one -- using a crisis to implement their government
control beliefs -- it turned a quick down and up into a quick down and a
decade-long depression. Who is in Wonderland?
You have to be willing to let markets work. Monarchies were horrid at it as
are any governments that try to dictate markets. That is why the US is
struggling so much of the time in the past 50 years, seeing flashes of
flourishing when we back away from control in the form of manipulated
taxation and regulation. The 1960's and 1980's are classic examples. The
recent economic surge as well with its reduction in regulations and the tax
cuts that are targeted to increase investment in the US. Let people keep
their money, let them make the decisions on what to do with it, and it will
be put to use in the most efficient ways. Instead, we allow our government
to implement the ultimate control over us: controlling how much we have to
invest via taxation, controlling what we can do in our lives via regulation,
and controlling our wealth (and thus power) using the Federal Reserve. When
we get too much wealth creation (and thus threaten the power establishment)
as in the 1920's, 1980's and 1990's in the PC and internet boom, the Fed
knocks back the economy and torpedoes much of the new wealth. Then, the
cycle starts again until the next innovation is made. Anyone watch 'The
Sadly, what I hear when I talk to high school students today is a lack of
understanding of our history, why we became a country and why we are
different. It makes it very difficult in 45 minutes of discussion with a
class to explain all of this in terms they will understand. How can you
teach in 45 minutes what 12 years of school should have taught but did not?
They are intrigued by keeping their money and having no one tell them what
they can or cannot do, but you have to overcome the mindset that those
things are provided by the government, not something they have a right to
have and the government is there to make sure they are not taken away. That
is an entirely divergent mindset and is why, as I said, people such as you
cannot believe we hear the Fed governors say what they say, our Congress say
what it says, schools say what they say, etc.
SP500: Gapped over the 200 day SMA, sold off all but 1 point of the gain,
then recovered to close right at the 200 day. Nice move, doji with tail,
over key support. Okay, now we see if this was a turn back up for a bounce
that started the bottoming process or just a continuation doji, i.e.
continuing the selling.
DJ30: Gapped back over the 200 day MA as well, sold off below it and to
negative by midday, then recovered to close with 2/3 of the gain at the high
of the session. Holding the 200 day SMA is good. DJ30 can still be the
market's rescue crew if it can hold the 200 day SMA and resume the upside.
Four tests of support after jumping off the 200 day SMA in early July, now
back to that level to test, and we will see if it is a reset of the uptrend
at this support.
NASDAQ 100: Gapped back over the 200 day SMA, sold off below it intraday --
filling much of the gap -- then recovering above where it opened. Similar
to DJ30, NASDAQ 100 moved up the 50 day MA after leaving the 200 day in
April. It tested the 50 day 4 times in its uptrend and hitting new highs,
then fell to the 200 day SMA to test. If the economics remain good, NDX
will hold this level, either with a rally straight up or more likely with a
test similar to April, rally to recover the 50 day MA, and continue the
uptrend from there.
NASDAQ: Gapped upside just over the 200 day SMA, but after the selloff
midday, NASDAQ could not close over the 200 day. Similar action as NASDAQ
100 in terms of the 50 day MA rally and now at the 200 day SMA again to test
as in April. Not bad, showing a doji, still can continue the bounce higher
but not getting much help from chips.
SP400: Same action intraday as the other indices, just less power as has
been the case. Gapped upside, faded to a big loss, recovered to a modest
gain, well off the opening gap point. Still way oversold but not showing
nearly the strength of the larger caps.
RUTX: If you looked at RUTX in isolation you would see a tight doji after
three weeks of sharp selling. The doji would suggest a rebound. It still
can happen, but the other indices fared much better than the small caps.
That shows the smaller stocks are still getting the Rodney Dangerfield no
SOX: Chips gapped upside, sold, recovered gains, but closed below the
opening gap point. Holding December, February, and April lows, in great
position to bounce higher in the 11 month range, but lagging the other
Some strong recoveries in name brand stocks that were blowtorched on the way
down. It was interesting to note that gold stocks and utility stocks, more
defensive groups, held their own, indicating their buyers remain firm and
that the rebound is just a bounce.
Gold/Precious metals: SA continued upside with another good move. HMY and
ABX tested good surges. PAAS tested a good upside break.
Drugs: Blitzed in the selling Wednesday and Thursday. PFE showed life
Friday. Others not really, e.g. LLY, BMY, MRK. JNJ showing a doji over the
200 day SMA after a Thursday rip lower.
Metals: FCX' one day in the limelight was rudely met Friday as it sold off
all the Thursday gain. AKS, SID not bad, and NUE looks ready to roll back
up in its trading range, perhaps STLD as well.
Chips: Still sloppy at best even if SOX looks ready to roll back upside in
its range. AVGO held the 50 day SMA with a modest bounce. AMD gapped over
the 50 day MA but on low trade. LSCC still testing the 50 day EMA, losing
ground Friday. NVDA gapped up to a doji at the 200 day SMA, not the best
pattern. INTC continues sitting at the September low. How exciting.
Software: NOW gapped huge to the 10 day EMA. TTWO gapped and rallied to
the 50 day MA. VMW gapped and rallied off the 200 day MA; nice. UIS moved
up modestly, having held well in the selling. MSFT gapped to a doji below
the 50 day EMA. FFIV still hanging out at the 200 day SMA and we still like
it, though not a lot of pop Friday. CRM put in a big gap up to the 50 day
MA. There is life here.
SCAANN: SQ gapped but weak. CRM solid upside gap. AAPL solid all through
the selling, up Friday off the 50 day. NFLX bounced nicely off the 200 day
test. AMZN gapped on big volume. NVDA was up but a doji below the 200 day
SMA was not impressive.
Financial: JPM beat but after an upside gap was ripped lower. WFC still
holding the Spring lows. C gapped upside on earnings but off that Thursday
dive lower. Massively disappointing group.
Retail: ULTA posted an excellent gap and rally on strong volume. ROST still
looks interesting. RH showed a pair of gaps to end the week. Lots of high
volume buying. WMT gapped higher Tuesday, faded to test the 50 day MA as of
Friday, showing a doji. Still solid. LULU looks as if it is ready to fail
at the 50 day MA.
Stats: +287.16 points (+1.15%) to close at 25339.99
Stats: +167.83 points (+2.29%) to close at 7496.89
Volume: 2.67B (-15.24%)
Up Volume: 1.98B (+830M)
Down Volume: 651.31M (-1.329B)
A/D and Hi/Lo: Advancers led 1.51 to 1
Previous Session: Decliners led 2.67 to 1
New Highs: 18 (+4)
New Lows: 265 (-136)
Stats: +38.76 points (+1.42%) to close at 2767.13 NYSE Volume: 958.207M
Up Volume: 603.078M (+417.396M)
Down Volume: 340.879M (-632.943M)
A/D and Hi/Lo: Advancers led 1.35 to 1
Previous Session: Decliners led 3.73 to 1
New Highs: 10 (+1)
New Lows: 396 (-130)
VIX: 21.31; -3.67. Hit 28.84 on the Thursday high, just below 27 on the
Friday high. That topped the March high but nowhere near the 50 in
VXN: 24.69; -3.07
VXO: 21.16; -5.73
Put/Call Ratio (CBOE): 1.16; -0.02
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: 3.167% versus 3.146%. After a rally off the fresh low, TLT faded
Friday as yields moved up. Still in a big 7 week bond decline.
Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.15592 versus 1.15901
Historical: 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: 112.222 versus 112.076
Historical: Last below 109 in June 2018: 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: 71.34, +0.37. Oil sold to the 50 day EMA on the week, showing a doji
there Friday. Still looks strong overall but it did give up its higher high
hit two weeks back.
Gold: 1222.00, -5.60. Tested after finally posting a big breakout
Thursday. Fear trade or inflation trade? No, it's both. Fear of the
selloff, fear of the Fed, knowing if the Fed screws up yet again, inflation
Earnings get started in earnest. Many look for earnings to salvage the
market. Others say the warning from PPG and the TSE actual earnings show a
real slowdown in the economy and that other reports will show the same. If
that is the case the earnings won't save the market, won't foster a new
For now we are playing an oversold bounce. We picked up some really solid
positions Friday and perhaps more will show themselves this week. The
problem is that if this is just a relief move, the later you enter, the
worse risk/reward. Thus, we will be selective adding more bounce plays.
At the same time look at some areas receiving money before the rebound. If
they hold up in good tests, if the bounce fails they will get money their
way. Gold, other precious metals, select retail.
As the bounce matures we will see if these bouncing stocks set up better
patterns to play upside -- or downside. Then we play what is offered. It
is best to now play the next move versus the current move: the upside gap
and vigor of the rally either results in a burnout and roll over, or a test
that perhaps then rebounds again. If the latter, there will be good plays
on the big names. If not, there will be plays on the areas that were
getting money as the big names sold off. Not as exciting upside, but there
will also be some downside again.
There is not much more analysis than that. The market sells off, digs holes
it has to climb out, and how it does or fails to do will tell the probable
outcomes. All the prognosticating means nothing. The only one that is
worth anything is the Fed's history, the change in its game plan as
discussed last week, the President's comments hemming Powell in to a certain
extent. The Fed is a market and economy killer, and if that holds,
eventually this move stalls out, whether the one started Friday or the
End part 1
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