Sunday, October 21, 2018

The Daily, Part 1 of 3, 10-20-18

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10/20/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: JNJ
Entry alerts: None issued
Trailing stops: SQ
Stop alerts: AMD; HUBS; MTCH; NVDA; PLAY

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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.


- An early bounce attempt mostly fails as the big NASDAQ stocks turn down once more.
- Earnings thus far failing to ignite overall upside, but hope springs eternal for AMZN, GOOG this week.
- Market leaders fall, defensive stocks are leading.
- Market still worried about the Fed overreacting.
- China's decline is feared by the powers that be, but given its economic system, it should decline.
- Defensive stocks will have to lead while the prior leaders test the October lows.

SP500, DJ30 and NASDAQ 100 all managed to hold the 200 day SMA Friday on a less than energetic session, one that saw a positive to negative, high to low intraday move. Again. There were bombs lower in software, chips. NASDAQ 100 maintained the 200 day SMA thanks to a handful of large cap stocks that managed to hold near the flat line. Oh, and PYPL; it jumped 9+% on 34M shares, over 3x average volume. Outside of those it was less than pretty, at least on NASDAQ.

NYSE large caps kept SP500 and DJ30 flat as well, but some groups enjoyed continued success such as food, entertainment (DIS), drugs. Consumer goods jumped on PG's earnings, not the greatest group for a strong market rally. Utilities rose as well. Another group that does not shout out 'big market rally ahead.'

SP500 -1.00, -0.04%
NASDAQ -36.11, -0.48%
DJ30 64.89, 0.26%
SP400 -0.66%
RUTX -1.20%
SOX -1.55%
NASDAQ 100 -0.12%

VOLUME: NYSE +13%, NASDAQ -1%. NASDAQ trade matched the Thursday downside volume, indicating still a dump of NASDAQ stocks. NYSE trade jumped as it held the 200 day SMA, potentially a good indication.


The internals show more dumping of NASDAQ stocks though NASDAQ 100 held the 200 day SMA. More stocks were lower, obviously, as the breadth shows.

The market ended the week with the big indices at the 200 day SMA sans NASDAQ as it fell below the 200 day SMA on another day of strong volume. It is possible the remaining three can hold that support and launch a new rally.

The problem is, the small and midcaps continue diving back toward the prior lows, NASDAQ is starting, and SOX is already there. Huge chunks of the market are heading lower and others that were upside are joining them downside. And, as noted, at the same time the defensive areas show most of the strength. For now it all adds up to a market anticipating lessening economic conditions.

Sure there are other stories out there, but as discussed this past week, they all will get mixed into the Fed's cake mixing bowl of reasons why it has to continue tightening.

China: GDP misses and that forced the government officials out, vowing to support the markets. The word came out that Xi and Trump could possibly meet at the November G20. China a bit desperate, enough so that its stock market bounced off the 4 year low from Thursday. Yay, Chinese markets bounced, the Fed doesn't have to worry about the US running away economically. Yeah, right. This is one of those situations the Fed thinks is bad. It can never be good that the US, with a superior economic system, outruns the rest of the world. Well, I will tell you, it makes loads of sense that would be the case. You know, free enterprise versus a centrally controlled economy. Think USSR. In the 1970's and even through Reagan's 80's, the conventional wisdom believed the Soviet communist regime was perpetual. Even the CIA thought so. They were so close to being right. Not.

No, China's government is bad and its economy is the victim of the governmental system. Its economy SHOULD fail and it would be GOOD if it does. Then the people would revolt and perhaps that horrid, church crushing, worshipper killing government would finally fail. That should be how it works. Why would we interfere with the natural course of economics and once again slow our economy to support another one, one of our enemy? Let it fail then we can deal with a new government that likely is much more democratic. It truly cannot be worse.

Okay, a bit of a digression, but as I warned a couple of months back, this would be a problem for the US markets and it is. Not the Chinese economic flop, but our Fed's asinine reaction to it.

EU: Italy's issues spread to Spain as the latter's bond yields blow out to the upside. Italy remains volatile as Germany does to it what it did to Greece. Europe, one by one, is falling, and that is okay with Germany. You see, unlike the US, Germany does not care at all if Greece, Italy or Spain makes it. Indeed, it views these problems as opportunities. Recall Germany's offer to Greece of not a bailout but a buyout? Germany would buy basically all of Greece's government and other facilities and run them for the Greeks. Basically, Germany wanted to buy Greece on the cheap. That revealed Germany's true beliefs. 70+ years after WWII, Germany is trying to take by economic force what it could not take by military force.

Brazil: Teetering on collapse.

The rest of the world stinks. How does it help to take the world's strongest economy down? So the entire world can stink? Foolish. Historically ignorant, foresight bereft idiots are in charge of our wealth. And, per the history books, I suppose history ultimately repeats, much to our loss. Another squandered opportunity. Purposefully squandered.



Very defensive. Personal products, utilities, drugs, food. Leadership groups such as software that fell with the selling and were rebounding rolled back over. ADBE had good news but after an early week bounce was sold back down. Semiconductors had tried to build back some leaders but those broke Friday. Retail stocks starting to struggle after showing great strength. Of stocks that beat earnings late Thursday or Friday pre-market, the movement was split. HON, VFC (retail), ISRG (robotic surgical devices) were sold on good results. AXP, PYPL, and PG rallied. PG gapped and rallied 8.8%. PG. That shows you the defensive nature of the market.

Drugs: PFE climbed off the 50 day MA on the week, rising 2.50 in six sessions. The definite turtle stock. MRK, LLY ditto PFE. JNJ recovered nicely off the 200 day SMA test from the prior week.

Utilities: Sadly, showing bids. EXC broke up through the 50 day MA. If you give it a month this 40ish stock can rise 3 points. AEP +2.2% and it can perform a bit better; I have seen it rise almost 10% in a month of serious rallying. DUK +1.8%.

Food: Received some idiotic bids the past week in stocks such as PLAG, SEED (both Chinese companies). HSY, KO, HRL look much improved. MKC (spices) keeps trending higher. Many are still sluggish, e.g. MDLZ, PPC, GIS, ADM. NBEV is one of the best looking along with HSY. Interesting dichotomy.

Consumer products: PG gapped and rallied 8.8% on earnings in a breakout. REV looks like a good pattern. They are up but they are not a lot of great patterns set up at this point.

Precious Metals: ABX, SA, AU, HMY still holding good patterns.

Retail: Starting to struggle though some names are fine, e.g. WMT. DG recovered from an early October flop. WBA holding its move higher. Will the bulk of this sector that was holding up follow the likes of software lower? AMZN failing a 10 day EMA bounce test. BBY looking really weak heading toward the holidays. EBAY gapped lower 8.9%. Friday. TJX started to crack the 50 day MA Friday. ROST is playing dangerously with the 50 day. ULTA is still holding over that level in a test. VFC dove through the 200 day SMA on earnings after a long, long rally above that level. LULU broke sharply lower Friday, falling away from a 50 day EMA breach test. PVH in a dive.

Software: Some really important tests in progress after the bounce off the initial selling. NOW, DATA, VMW, FFIV, ADBE, TTWO -- all testing that move. MSFT is at a critical point below the 50 day MA, starting to fall back from it after rebounding.

SCAANN: SQ bounced but found resistance at the 10 day EMA and could roll back over. CRM also rolled over at the 10 day EMA after a rebound. AAPL is holding the 50 day MA thus far after a break through it Thursday. AMZN failed at the 10 day EMA and starting lower again. NFLX gapped upside on earnings then rolled over to the 200 day SMA as of the Friday close. NVDA bumped at the 200 day SMA for a week then Friday broke to a lower selloff low and through the late June low.


Stats: +64.89 points (+0.26%) to close at 25444.34

Stats: -36.11 points (-0.48%) to close at 7449.03
Volume: 2.54B (-0.78%)

Up Volume: 801.66M (+92.69M)
Down Volume: 1.72B (-110M)

A/D and Hi/Lo: Decliners led 2.25 to 1
Previous Session: Decliners led 3.27 to 1

New Highs: 18 (-5)
New Lows: 228 (+72)

Stats: -1.00 points (-0.04%) to close at 2767.78
NYSE Volume: 935.379M (+13.35%)

Up Volume: 1.84B (+1.69B)
Down Volume: 1.69B (+1.018B)

A/D and Hi/Lo: Decliners led 1.05 to 1
Previous Session: Decliners led 3.23 to 1

New Highs: 21 (+12)
New Lows: 256 (+11)


VIX: 19.89; -0.17
VXN: 25.77; -0.31
VXO: 20.06; -0.02

Put/Call Ratio (CBOE): 1.14; -0.16

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: 3.196% versus 3.1779%. Yields moved up on the week, flirting crossing 3.2%.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.15138 versus 1.14556. Sold to the early October lows, bounced Friday.

Historical: 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 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: 112.527 versus 112.385. Holding the 50 day MA to end the week.

Historical: Last below 109 in June 2018: 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 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: 69.28, +0.57. Broke the 50 day MA on the week, tested it Friday, faded.

Gold: 1228.70, -1.40. After breaking higher through the 50 day MA's just over a week back, gold has spent a week consolidating the move, setting up for the next upside break.


Very important tests ahead. Some big name earnings are out, e.g. AMZN, GOOG. Through early last week many pundits anticipated the earnings rescuing the market's uptrend. I am sure many are still anticipating this, just did not hear them at the end of the week.

It is also showing important technical tests as well. DJ30, SP500 and NASDAQ 100 are at the 200 day SMA. NASDAQ, RUTX, SP400, SOX are below that level but are above the prior low (SOX at the prior low). DJ30, SP500, NASDAQ 100 can undercut the 200 day SMA intraday, test the prior low and still hold up well and provide a follow through session to the reversal and initial bounce. If they do not break the prior lows and provide that reversal on volume, you have a follow through. That would set up a new bounce. The others can show similar action at the prior lows and the market could still make the follow through move based upon the stronger indices.

The first question is whether they can do so. The second is whether there will be good leadership quality stocks in good patterns to lead the rebound.

As the discussion of the leadership stocks indicates, there are few stocks in leadership type groups that sport the patterns needed to carry a new rally. Lots of defensive stocks you can make some money on, but right now not the kind of bases and number of stocks needed to really carry a new rally.

That can change. As other stocks move higher, the leadership sectors can form up new bases and provide a second wave of breaks higher that gives the rally true substance.

That all can happen and we will see how this plays out the coming week. Not counting on it, not discounting it. The market will show it.

As of Friday, not many in the leadership groups look worth buying into. If they come back to the prior October low and reverse, then we can look at some plays off the reversal. Until then, there are some decent plays we can make money from, upside and perhaps some downside as the tests of the October low are made.

Have a great weekend!

End part 1 of 3
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