Saturday, November 10, 2018

The Daily, Part 1 of 3, 11-10-18

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11/10/2018 Investment House Daily
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Targets hit: MCD; WMT
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Trailing stops: None issued
Stop alerts: None issued

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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.

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- Friday finds no bids again as Wednesday follow through so far stands by itself.
- PPI at a 6 year high with prices +2.9% year/year
- Trade worries, declining oil, low capital investment, rising prices are not signals of an economy heading higher.
- SP500, DJ30 in excellent tests, NASDAQ needs work.
- This week we see if potential leaders can step up to support the past week's follow through session.

Friday saw stocks trade lower wire to wire. The session started lower and trended lower in a very orderly decline into the afternoon session. There was a lot of 'what the heck happened?' commentary given the Wednesday surge and the utter failure to produce any upside Thursday or Friday. Plenty of concern and worry the market was going to give up the entire break higher -- it did so on NASDAQ, filling the Wednesday gap and more at the session low.

A spurt of upside started 2 hours out from the close, bouncing the indices nicely off the session lows. Stocks lost some steam in the last 15 minutes or else the recovery would have looked pretty decent versus 1%+ losses.

SP500 -25.82, -0.92%
NASDAQ -123.98, -1.65%
DJ30 -201.92, -0.77%
SP400 -1.03%
RUTX -1.82%
SOX -1.85%
NASDAQ 100 -1.67%

VOLUME: NYSE +13%, NASDAQ -2%. NYSE trade moved up to average; some more selling but not heavy. NASDAQ trade faded as it sold off. Not a massive selloff.

ADVANCE/DECLINE: NYSE -3:1, NASDAQ -2.1:1. Fairly hefty downside breadth.

When all was done for the session the general notion is the rebound was rejected and the selloff continues. Perhaps, but the index patterns, particularly large cap NYSE -- even NASDAQ 100 -- despite falling, held together. The action was more a test of the Wednesday follow through.

DJ30 tapped the 50 day SMA on Friday's low, holding much of the move. SP500 tapped the 200 day SMA and rebounded nicely.

NASDAQ 100 filled much of the Wednesday gap, essentially giving up the move before rebounding. Very similar to the test of the last surge. NASDAQ did give up the Wednesday move but also rebounded to close. Volume remained lower as it did on Thursday, and the pattern is holding together.

SOX, SP400, and RUTX also tested for a second session, but also worked well on the right shoulder to their own inverted head and shoulders patterns, the same pattern all indices are showing.

Yes the post-Wednesday move was not a continuation, but instead a pullback. Was it a rollover? Not as of the Friday close. It was more of a test or consolidation of the follow through, very clearly so on DJ30 and SP500. True, NASDAQ gave up the Wednesday move, but it also bounced, preserving the pattern, still holding support, bouncing above it intraday.

I am not trying to justify an upside move. No, I am just analyzing what is happening in the market with all indices still showing upside patterns even after two days of downside post-follow through session.

No doubt: the indices will have to generate leadership to make a follow through worth something, and a lot of big NASDAQ names are toilet worthy. At the same time some look great, e.g. VRSN, INTC, MSFT, FEYE, XLNX, AVGO, FFIV -- if they come around further, NASDAQ can garner more upside.

The real leaders, however, remain in the NYSE large caps and a few other sectors, e.g. retail. WMT, MCD, JNJ, WBA et al continue higher. Even V, down on the day, still looks great. Rather clearly, these stocks are leading well. Can they do so without many of the NASDAQ big names and can the entire market move with them?

Those are the questions this coming week as the stock indices try to finish the quick test of the follow through and break higher once more. I am not saying it has to happen, but the follow through, some good patterns in the indices, some good leadership groups, and the seasonal influence are good reasons not to wholly discount a continued move higher after this follow through test to end the week. This happens all the time in follow throughs, and it behooves you to let it play out, AND . . . play the stocks that stand out with their strength.


No doubt the stock market and all financial markets are facing headwinds. I and others have discussed the Fed extensively. Some say one more hike and then the Fed should pause. I say the market is speaking about that and it wants the Fed to back off. Or, just be data dependent with no unnecessary and frankly arbitrary 'hike beyond neutral' moves. Get to equilibrium (and hopefully you will know it when you see it), and then let the economy work. As I noted before, 1.5 years of recovery in NO WAY makes up for the 10 years of terrible economic activity. People are just, just, just now starting to feel better and the recovery has not spread out to everyone yet. Why then, oh great Fed, do you want to overly slow the economy before everyone feels some benefit?

There is also trade, but I see that as more of a large cap issue, and those companies have enjoyed ALL the breaks the past 15 years at the detriment of the smaller businesses. So we don't buy a bunch of crappy Chinese aluminum in favor of good US aluminum? Some industries are of national importance, and that is the way it is. We will survive with that -- there are other problems that are FAR more burdensome such as massive entitlement issues. Friday Mr. Navarro gave a somewhat fire and brimstone speech about trade and what the administration wants to accomplish with China. It led many to conclude no deal with China was coming anytime soon. Perhaps, but is not this Trump's way of operating, i.e. making it look as if no deal is possible?

Earnings are basically done though some big ones are out this coming week. Lots of top line misses even as bottom line earnings rose 29% versus the 23% expected. The top line miss surge, however, is a worrisome element that won't go away if the economy remains as is. It is in a slow patch despite what the lagging jobs report showed. The Fed is slowing the economy in a slow time period, and the risk is it turns things worse. The top line miss surge is a red flag, a canary, that something is amiss. Be data dependent, not stubborn.

Oil is tanking. Some say it is supply only. Not totally, no. Yes the US is producing a lot of oil, but this kind of dive in price is not supply alone, at least not supply because the US is producing more. It also involves the LACK OF USE by the rest of the world thanks to the fading economies not needing as much.

Prices jumped for producers (2.9% year/year for final demand), led mainly by gasoline (+7.6%). With the oil plunge that gasoline spike will cease, but you cannot ignore the prices. Of course, many who believe in the Phillips Curve (and that includes the Fed) will say they are the reason the Fed SHOULD rise.

But that is not the case. Prices rise in a slowing economy. That does not make sense to some, but it really makes perfect sense in economic reality: output is slowing on the supply side -- economic reports show capital investment slowing sharply. At the same time jobs are still ramping up as jobs lag the economy. Thus, you have less output from the supply side but steady demand. That is a recipe for rising prices, the very definition of inflation. The Fed hiking into a slowing economy only exacerbates the problem, further slowing the supply side, limiting output, and thus driving up prices as more money (wages +3.1% year/year in October) chases fewer goods and services. The irony: yet again, the Fed creates the very thing it fears, i.e. the 'wage-led' inflation.

All in all, these factors show an economy that is struggling enough to be in trouble if the Fed keeps pushing. Too much and you get a further market crash in 2019, followed by recession. Always, always happens. That makes 2019 that gets interesting, as they say. For now, we are concerned with the move to year end and how this 2-day pullback of the follow through session plays out.



True leadership remains limited in certain areas, e.g. certain retail, food, some drugs. Other areas, particularly growth, are trying to pitch in but keep shooting themselves in the foot. Some software looks great, but they have yet to show the recovery. Some chips even show promise. A few financials. More need to show up.

Retail: WMT, TGT, COST, ROST, DG, ULTA remain solid.

Drugs: JNJ remains solid while LLY and PFE look ready to move higher again. RGEN broke nicely higher and needs a test. ILMN is looking quite interesting as it tests a move higher.

Food: KR enjoyed a great week as did MCD, MKC, KO, PEP.

Software: MSFT looks solid, testing a Wednesday breakout. FEYE ditto. FFIV is testing a nice breakout, coming back to the 50 day SMA. DATA testing its earnings breakout surge. CRM is testing the 200 day SMA in a decent pattern. NOW is testing the 200 day SMA similar to CRM.

SCAANN: SQ broke higher Wednesday ahead of earnings, sold to a doji Friday at support. CRM testing. AAPL up then down. AMZN broke over the 200 day Wednesday, tested to the 200 day SMA Friday. NFLX lower again. NVDA announces results next week, fading this week.

FB fell out of its lateral consolidation. GOOG testing a break higher through Wednesday. Okay, will see if a decent pattern breaks upside.

Telecom: VZ continued upside on the week. VRSN is in a nice test of its earnings gap upside on volume.

Financial: V in a very nice test of its gap higher. JPM is at the 200 day SMA in a decent pattern. Important time for it. BAC so-so. C broke lower on volume Friday from a two week bear flag rise.


Stats: -201.92 points (-0.77%) to close at 25989.30

Stats: -123.98 points (-1.65%) to close at 7406.90
Volume: 2.42B (-1.63%)

Up Volume: 562.97M (-435.73M)
Down Volume: 1.83B (+400M)

A/D and Hi/Lo: Decliners led 2.95 to 1
Previous Session: Decliners led 1.17 to 1

New Highs: 43 (-32)
New Lows: 127 (+36)

Stats: -25.82 points (-0.92%) to close at 2781.01
NYSE Volume: 931.814M (+13.22%)

Up Volume: 276.613M (-14.423M)
Down Volume: 636.566M (+110.661M)

A/D and Hi/Lo: Decliners led 2.09 to 1
Previous Session: Decliners led 1.12 to 1

New Highs: 60 (-15)
New Lows: 109 (+41)


VIX: 17.36; +0.64
VXN: 24.27; +1.41
VXO: 18.09; +1.18

Put/Call Ratio (CBOE): 1.11; +0.14

Bulls and Bears:

Bulls are on an impressive dive from the low sixties to the low forties. Straight down. Bears are up but held steady on the week. Bulls are willing to converge, bears are not there yet. Stocks selling after bulls in the sixties is normal. They have bounced from here before, but in 2015 and again in 2016 they fell to the mid-twenties, crossing over with bears.

This now gets at least interesting. Bulls tumbled 6.2 points, now well below 50. Perhaps that is the dam breaking and negative sentiment will ramp. It is noteworthy that the market rebounded in the aftermath. Bears mad a significant move, at least for the bears.

Bulls: 42.5 versus 44.3

Bears: 19.8 versus 19.8

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: 42.5 versus 44.3
50.5 versus 51.9 versus 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: 19.8 versus 19.8
19.8 versus 19.0 versus 18.3 versus 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: 3.186% versus 3.239%. This is an interesting turn. Bonds sold to the early October low, then started to work laterally. Friday they broke higher toward the 20 day EMA. Trying to bottom and rally. Bonds rallying would be another indication of economic issues.

Historical: the last sub-2% rate was in November 2016 (1.867%). 3.239% versus 3.228% versus 3.222% versus 3.201% versus 3.22% versus 3.146% versus 3.149% versus 3.119% versus 3.089% versus 3.079% versus 3.126% versus 3.111% versus 3.1692% versus 3.20% versus 3.196% versus 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: 1.13475 versus 1.1364. Euro rallied to test the 50 day EMA on the Thursday high and reversed. Friday it bombed lower to the late October low.

Historical: 1.1364 versus 1.14329 versus 1.14228 versus 1.14090 versus 1.13881 versus 1.14019 versus 1.13394 versus 1.13455 versus 1.13760 versus 1.14042 versus 1.13757 versus 1.3972 versus 1.14682 versus 1.14626 versus 1.1538 versus 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

USD/JPY: 113.91 versus 113.72. The dollar broke higher Thursday and Friday, moving out of its 6 week double bottom with handle pattern.

Historical: Last below 109 in June 2018: 113.72 versus 113.641 versus 113.419 versus 113.244 versus 113.204 versus 112.81 versus 112.877 versus 112.876 versus 112.58 versus 111.89 versus 112.391 versus 112.091 versus 112.427 versus 112.680 versus 112.527 versus 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

Oil: 60.19, -0.48. Undercut 60.00 on the low. Impressive 6 week selloff.

Gold: 1208.60, -16.50. Sharp break lower, closing below the 50 day SMA and below the 4 week range.


There is plenty of news along with some earnings though the latter is tailing off now. CPI, Retail Sales, some regional PMI's, Industrial Production -- plenty for investors and the Fed to ponder.

A follow through then two sessions testing. SP500, DJ30 very nice orderly tests, NASDAQ a bit shakier on the test, with SOX, RUTX and SP400 working on patterns, trying to catch up to the large cap indices.

The question is whether they even try to catch up and if there is anything to catch. In other words, will the move, follow through be damned, fail and head back down or will the Thursday and Friday that caused so much worry and concern give way to a resumption of the upside.

Again, there are patterns to lead, some already leading, others in position to help out. We have some positions working in the former, with some of the latter on the report, ready to enter. There are some others we are looking to as possibilities to lead and will be ready in the event they do make the break upside.

Have a great weekend!

End part 1
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