Sunday, October 07, 2018

The Daily, Part 1 of 3, 10-6-18

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10/6/2018 Investment House Daily
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- More selling, jobs report or not.
- DJ30, SP500 showing the expected move down, NASDAQ a bit more, while RUTX and SP400 hit the 200 day MA and show some life there.
- Jobs report weaker but stronger thanks to the hurricane while revisions to prior months add 77K.
- Small businesses hiking wages even if AMZN gets all the press.
- More manufacturing jobs that were never coming back while waiters and retail hires decline again.
- NASDAQ and NASDAQ 100 undercut the 50 day MA, but many 'name brand' stocks are in great setups at support.

The test/pullback/near term correction -- you make the call -- continued Friday after a not so good but really good jobs report. So full of contradictions to start the report, but the session was, in a way, so full of contradictions as well.

Down again with SP500 and DJ30 selling deeper, sharper selling on NASDAQ, NASDAQ 100, and of course SP400 and RUTX dove lower again.

Yet, in the midst of the selling and calls of a market meltdown, Goldilocks is dead, etc., the indices started hitting some support, individual stocks as well. Many were actually holding it.

DJ30 at the 20 day MA, SP500 at the 50 day MA. NDX broke the 50 Day MA but held support at the early September low. SP400, RUTX at the 200 day MA, tapping it at the low, bouncing. Way oversold indices, logical place to bounce.

SP500 -16.04, -0.55%
NASDAQ -91.06, -1.16%
DJ30 -180.43, -0.68%
SP400 -0.71%
RUTX -0.90%
SOX -2.32%
NASDAQ 100 -1.21%

VOLUME: NYSE +6%, NASDAQ -18%. NYSE trade moved back above average as the NYSE indices held support levels and moved up off those lows. Holding support and bouncing on stronger volume is a good indication. NASDAQ trade backed off from huge levels Wednesday and Thursday, though still well above average. There was definite dumping of NASDAQ shares Thursday while Friday showed some nibbling in early afternoon into the close after more morning downside.

ADVANCE/DECLINE: NYSE -2:1, NASDAQ -2.3:1. Still predominantly negative though the intensity faded some.

NEW LOWS: NYSE 396 after 426 Thursday. NASDAQ 204 from 181. NYSE came close to extreme levels (500 -600), but the levels did not hit that obviously extreme reach where these indicators are the most telling.

What was 'the' reason for more selling? Jobs of course. The jobs were too hot. The jobs were disappointing. Bonds were of course again on the long list of selling reasons with the 10 year closing at 3.233%. Just as with the 'reasons' for the Thursday selling, you can come up with whatever you want to blame (bonds, mid-term elections, Powell, China trade and military war), but the reasons are immaterial, at least for now. It is the market action that is key.


Jobs misses but beats. With a non-farms jobs miss but big revisions and a decent mix of jobs, the report was to us still solid. Of course you can shoot holes in it -- we are still paying people not to work and that will continually impact the report each month.

Non-farm payrolls: 134K versus 184K expected versus 270K prior (from 201K). July moved to 155K from 147K.

Unemployment: 3.7% versus 3.8% expected vs 3.9% prior. More people left the workforce thanks to the hurricane.

U6: 7.5% versus 7.4% as those unemployed by virtue of economic circumstances rose 263K, again thanks to the hurricane.

Participation Rate: 62.7% versus 62.7% August

Workweek: 34.5 versus 34.5 expected versus 34.5 prior. No change in the workweek forever. Who is saying there are not enough workers? Companies are not working their employees more. Is this still a holdover from the ACA with its 29 hours per week maximum and companies are still not working employees more. The ACA needs to go.

Wages: 0.3% versus 0.3% expected versus 0.4% prior. 2.8% year/year versus 2.9% prior.

Where the jobs are:

Manufacturing: +18K. Best year since 1995

Professional and business: 54K

Healthcare: 26K

Leisure & Hospitality: -17K. During the Obama administration this was the leading group for years as the US economy only produced restaurant jobs.

Retail: -20K

An Important Statistic not covered by the media:

Factoid: 37% of small businesses are increasing wages. AMZN gets all the press for increasing its minimum wage to take heat off Bezos, but the small businesses raising wages is HUGE. It shows that wages are truly finally rising.

Just think what would happen if we stopped paying people not to work, i.e. eliminate 'benefits' that should not be received, and put them back in the workforce. Money we do not tax away from small businesses, the bulk of the US businesses, could be used to upgrade more, to invent more, to pay more.

That is how capitalism works and we are seeing just snippets of how well it works with the few changes that have been made. If we went back to free enterprise and capitalism the US economy would REALLY explode and the gap between the US and the rest of the world, including our economic enemy China, would explode as well, giving the US economic domination for decades to come.

So, is capitalism and free enterprise a bad thing? Rhetorical question.



SP500: SP500 fades to the 50 day MA, a slight undercut, a modest rebound to hold it. This is the test we were looking for, and it makes sense after a four bounce move up the 20 day EMA. Not much else to say about this for now.

DJ30: After the Wednesday doji, a 2-day test to the 20 day EMA, undercutting on the Friday low, rebounding to hold it. This is the fourth 20 day MA test since bouncing off the 50 day MA in mid-August. Thus, DJ30 is getting a bit extended, but it is fully capable of another bounce on this move, particularly with the money being pushed its way.

NASDAQ: A week of selling took NASDAQ through the 50 day MA Thursday and the mid-channel trendline Friday. A bounce of 27 points off the low to close was nice, but not that impressive. Held the June high, a point of mid-range support.

NASDAQ 100: We say the Q4 move will be a large cap move, so the NASDAQ 100 is important. Friday NDX broke the 50 day MA, holding the early September low and in the range of the July and early August highs. Bounced as well. This is a key test for the NASDAQ large caps with many 'names' at support.

SOX: Broke the 200 day MA and the lower triangle trendline Friday. ON the low it held the mid-August high. You can see this as a breakdown, so you look for a false break given it held that August low.

RUTX: Tapped the 200 day MA on the low, rebounding decently. A heck of a 2 week selloff and now oversold after a tap at the 200 day SMA.

SP400: Also tested the 200 day SMA on the low and rebounding to hold that support as well as the trendline from way back in August 2017. Good point to hold. As with RUTX, two weeks down hard, oversold, at some important trendlines.


With many pullbacks to support by some very good, large cap leadership stocks, if the market does bounce for that Q4 run, there will be a lot of stocks to play.

FAANG: FB lower into Friday but somewhat oversold, still holding near its prior lows. GOOG reached lower but rebounded to hold the lows of the past five weeks.

SCAANN: SQ a nice doji test at the 20 day EMA. CRM a doji just over the 50 day MA. AAPL holding the 20 day EMA, rebounding to do so. AMZN sold 4 sessions to the September intraday low, rebounded decently. NVDA sold 3 days to the 50 day MA. NFLX broke the 50 day SMA Friday, rebounded off the low; oversold and we will see how it can bounce.

Energy: Still a solid group with more setting up. SPN a good week, tested late. APC moved well, slowing a bit after a good rally. ESV in a good lateral test at the 10 day EMA. HOS in a great flag test after a strong move. Overall still very solid.

Software: Some beautiful setups from this group, and if the big techs are going to rally back, you would anticipate this group would help lead the way. CRM set up well as noted. TTWO with a good test of the 50 day MA. FFIV broke the 50 day MA but is holding the 61% Fibonacci retracement. NOW showing a double bottom at the 78% Fibonacci retracement of its last rally. VMW doggedly held the 50 day MA last week, leaving itself as a survivor. ADBE broke the 50 day MA on the low, held with a doji. Nice setup. MSFT nice 50 day MA doji test.

Chips: Tough week with few survivors. AVGO, LSCC survivors. NVDA at the 50 day MA trying to survive. INTC made the 200 day SMA and then faded Thursday and Friday. Still a really struggling group, with more in trouble than not.

Financial: Banks bounced modestly from continued early week weakness, but it was no strong move and Friday all were off, e.g. C, JPM. At least they are in position to improve more. BAC looks like dog food, and the house brand at that. V in a 50 day EMA test and we will see if it resets at that level for a new bounce.

Machinery/Manufacturing: DE solid, taking a day off Friday on low trade. CAT got a bit neurotic Friday, as cats are want to do, but it did bounce off the low. CMI took a breather, BA in a short tests after handing us a nice gain. UTX fell to the 20 day EMA on the week as did ETN. EMR still solid.

Drugs: PFE slow and steady up the 10 day EMA. In 5 weeks it has moved $3.90, rising up the 10 day EMA the entire time. Seriously? LLY gapped upside Thursday on its drup news, adding upside Friday. These big drugs are fine, just don't move fast at all. Large cap biotechs hit hard to end the week, e.g. CELG, BIIB. AMGN in a pretty decent test. VCEL, INFI in decent tests.

Retail: COST dropped from leadership on results. TJX holding the 20 day EMA but we took the October option gain this week. ULTA dropped to tap the 50 day EMA. WMT slid to the 50 day MA in a still decent pattern, but it needs to show something.

MISC: MTCH still a good pennant at the 20 day EMA. GRUB broke below the 50 day MA's. PYPL all the way down to the 200 day MA. TSLA in full dive mode once more.


Stats: -180.43 points (-0.68%) to close at 26447.05

Stats: -91.06 points (-1.16%) to close at 7788.45
Volume: 2.7B (-17.68%)

Up Volume: 655.27M (-43.71M)
Down Volume: 2B (-570M)

A/D and Hi/Lo: Decliners led 2.27 to 1
Previous Session: Decliners led 3.55 to 1

New Highs: 30 (-2)
New Lows: 204 (+23)

Stats: -16.04 points (-0.55%) to close at 2885.57
NYSE Volume: 838.774M (+5.66%)

A/D and Hi/Lo: Decliners led 2.04 to 1
Previous Session: Decliners led 3.87 to 1

New Highs: 26 (-10)
New Lows: 396 (-30)


VIX: 14.82; +0.60
VXN: 21.50; +1.38
VXO: 15.26; +1.19

Put/Call Ratio (CBOE): 1.18; +0.11

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


Bonds: 3.233% versus 3.189%. Yield popped as bonds continued their drop. After trying to bounce late September, another dramatic bond plunge. Powell comments boosting yields.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.15198 versus 1.15164. Euro continued a 2 week drop against dollar, bouncing just modestly late week.

Historical: 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: 113.706 versus 113.894. Higher high versus yen Wednesday, faded to the 10 day EMA Thursday and Friday.

Historical: Last below 109 four months back. 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: 74.34, +0.01. Rallied to a higher breakout high over the June peak, testing Thursday and Friday at the 10 day EMA.

Gold: 1205.60, +4.00. Bounced early week to the 50 day MA, tested laterally Wednesday to Friday, in good position to break higher though that appears illogical.


Economic data includes PPI, CPI, Small Business Optimism, Import/Export prices, Michigan Sentiment. More Fed speak? Likely. China trade and spying, bond worries.

And earnings. Earnings have trended higher but are showing indications of stalling the trend. I have talked about a return of the top line miss the past couple of months as the last part of last earnings season and results released subsequent have showed a propensity to miss on the top line, something that occurred every quarter prior to 2016. In that economy, sales were not growing and companies beat earnings estimates by cutting costs by layoffs, product size/quantity cuts, efficiency upgrades by replacing workers with machines. After big gains post-2016, there is some cooling the past quarter.

Okay, fear earnings then? No. The thesis is still a Q4 rally, primarily in large cap names, as money that was pulled from the market by skeptical/scared big names comes back into the market. This test is the perfect opportunity for some of that money -- that really only wanted a better entry point -- to come in. Then as the market rebounds and continues, the rally pulls in that 'the crash is nigh' money and feeds the rally as it did in 2017.

Thus, with the pullback and the pessimism high (and indeed patting itself on the back after the late week market drop), stocks are in very good position to recover as earnings season starts. Just so happens that many names have faded and are at support in very good position to move upside.

Of course, they have to make the moves, and as of Friday that was not the case. There may be some more early downside on the week, and frankly, that would likely just set up the bounce better.

The setup is as we discussed prior to the pullback starting. We took a lot of gains and positions off the table, kept some (perhaps more than we should have), and now the setups are there. We will see if this plays out as we envisioned and starts the Q4 rally that puts a lot of green in the brokerage accounts.

Have a great weekend!

End part 1 of 3
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