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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Targets hit: JNJ
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Trailing stops: SQ
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- 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

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.

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

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

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

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,

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

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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