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11/17/2018 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: AEP; NVDA
Entry alerts: MCD; SOHU
Trailing stops: None issued
Stop alerts: None issued
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- Friday overcomes NVDA, AMAT results with indices mixed.
- DJ30 continues higher as some testing leaders start to bounce.
- Chips show many interesting upside setups despite NVDA/AMAT earnings wet blanket.
- Fed Vice Chair tries to thaw the Fed chill on markets.
- Trade hope from last week appears dashed after Pence address.
- The back and forth market action has yielded more decent patterns, but will they manage a break higher for that elusive yearend rally?
Earnings misses from AMAT and NVDA did their damage, but they came up short in terms of tanking stocks. Indeed, most of the indices managed a low to high move off an opening gap lower with the NYSE indices actually closing positive.
SP500 6.07, 0.22%
NASDAQ -11.16, -0.15%
DJ30 123.95, 0.49%
NASDAQ 100 -0.34%
VOLUME: NYSE +18%, NASDAQ -2%. Expiration, so the higher volume on NYSE did not mean much. Interestingly, NASDAQ trade remained lower and just below average.
ADVANCE/DECLINE: NYSE +1.1:1, NASDAQ flat.
After a decent look on DJ30 and SOX Thursday as the indices actually held a lead, they struggled on Friday. Yes there were reasons for the struggle (earnings, Fed angst, trade ups and downs) but the point is the same: the market struggles when it is out in front.
Not a selloff, not a rollover, but the slow action continues to show a market that has a very hard time gaining traction when it tries to move higher.
Of course, it was Friday, an expiration at that, and the market rarely (rarely) makes bottoms on Friday. Thus, while there are some very interesting patterns setting up and some bumping at entries, they are still in Missouri, still have to 'show me' the moves. Friday was interesting in that respect, but this coming week is more to the point of serious moves.
That does not mean there are not stocks in good position. This back and forth, frustratingly feckless upside has started to yield some decent patterns. Not many are breaking higher from them, but Friday showed some tantalizing possibilities as some of these good patterns bumped entry points.
While those growth-ish patterns try to set up or play footsie with entry points on low volume, some of the true market leaders started upside again. MCD, VZ, JNJ, KO to name a few.
Still, there is promise in growth. Software remains in good patterns. Despite the chip carnage thanks to NVDA and AMAT earnings, INTC and XLNX jumped upside. Glad we had positions on three: NVDA downside (and a nice 135% gain), INTC and XLNX upside. Some good, some bad, some ugly. There are some that are trying to be good: LSI, MLNX, ON, MCHP, PLAB. SIMO and KLAC are trying to bounce off selling. There was some buying in chips to end expiration despite NVDA and AMAT, and you recall, some have opined that the chips would need to help out if a year end rally is to emerge. We will see if the chip bid is present this coming week and if this very important market direction group can step up and provide some much-needed leadership.
Fed Vice Chair speaks: the economy DOES matter.
More lip service or a true concern? Friday Vice Chair Clarida made the rounds on the financial stations and had some very important comments -- if true. That is the question: the Powell Fed has nodded toward deference to the yield curve and other important indicators before only to STILL have the Powell edict from the last rate hike. But, hope springs eternal . . . usually for fools.
Nonetheless, Clarida offered a tantalizing olive branch: interest rates were close to neutral AND at this point the Fed should be data dependent. Did the ice just crack after Powell's deep freeze comments?
Others chimed in.
The WSJ published an op ed agreeing with Trump: the Fed should reconsider a December rate hike.
Cramer on CNBC continues his campaign for a kinder, gentler Fed. Cramer notes that he is now the senior to most of those on the Fed, has seen 11 bear markets or something like that, and thus he knows more than those on the Fed.
I have to agree. This is exactly what I have discussed in my rants about the ivory tower Fed members who cling to theories they are told in school are the very basis of economics. But in the real world they mean nothing. The don't work in real life situations. Why? Because their theories are wrong! I guess that is another way of saying Cramer's 2007 rant 'they know nothing!'
Real world cause and effect is the true test of any theory. The Phillips Curve has only worked for six months out of the entirety of economic history. In the 1970's the Fed and PC disciples could not understand why their policies appeared only to exacerbate the slow growth, high inflation, high unemployment situation -- a situation the Phillips Curve predicted could not exist. Never did they consider their theories were simply wrong. It was like chairman Mao in China in the 1960's: the policies did not work, hundreds of millions were dying from starvation, so . . . ramp them up even more because SURELY communism really worked. In reality, not.
Thus, being data dependent is a start. At least that does not lead to Mao-like results if you are willing to look at what is happening and adjust accordingly. The PROBLEM remains, however: the fundamental theories being followed are simply wrong. It is like trying to fix a car with an electrical problem by replacing the head gasket.
Sadly, that means the best the Fed can do is cause no harm by staying out of the way and letting interest rates do what they will. At worst it can stall an otherwise normal pause in an economic expansion. Even worse, and unfortunately the usual logical effect from its actions, it can then drive the economy into recession.
Thursday I talked about symmetry in some of the pullbacks, particularly DJ30 and SOX, as an indication of a possible attempt at a year end rally. Friday did not help much, but at least it did not do a lot of harm.
DJ30: After a nice test lower below the 200 day SMA and recovery Thursday, Friday was a bit more upside, but not a lot of power. Some of the market leaders that recently tested started higher, and that pushed up DJ30, e.g. MCD, JNJ, KO. It is still showing a hold at the 200 day SMA, filled the gap from the 10/30 reversal, and is in good position to move higher into yearend. New highs? Who knows? They don't look probable at this point, but you play a bounce if it continues and if it keeps going, well okay then.
SOX: No way NVDA and AMAT helped but even so, SOX kept the losses within reason. As noted, stocks such as XLNX and INTC did indeed make their own way Friday, closing nicely higher. They are joined by many others in decent patterns. That leaves SOX with a gap fill, a good move Thursday, and still in position for a move higher. It is the number of decent patterns we see that makes that an intriguing prospect. We are already in XLNX and INTC and could have some other chip positions early in the week.
NASDAQ: Same position as Thursday. The October 30 gap is filled, NASDAQ reversed from a lower pullback low Thursday. That leaves it in position to move higher, but it simply does not have the pattern and thus far not shown the leadership that DJ30 has. Now that cold change with some software and chip stocks moving higher, but those stocks are going to have to show that move.
SP500: Reached higher to the 20 day EMA Friday, continuing the Thursday upside reversal. Gap filled, reversal. Inverted head and shoulders and a CNBC contributor was noting Friday. Gee, where have you been? Now we if it has anything or at least can follow DJ30.
SP400, RUTX: Similar to NASDAQ, SP500, putting in a lower low on this leg Thursday, reversing, adding a bit of upside Friday. They have their own inverted head and shoulders patterns so we see if they can deliver upside.
Dow-type leaders: Remain leaders with some starting upside Friday, e.g. MCD, JNJ, VZ, KO, MRK. Still look very good with others in position: WBA, AXP
Chips: INTC, XLNX moving well for us. ENPH still looks ready, just has not pulled the trigger. MLNX, LSI, ON, MCHP, PLAB -- many good looking patterns starting to move higher. It took them a long time but there are some buyers.
China: Still showing much improved action, trying to break the 5+ month declines. SOHU started higher Friday as did HTHT as well. SINA, JD, QIWI and BABA look solid to move higher.
Food: MCD jumped upside Friday, bouncing off support. MKC starting back upside. CMG still looks good, looking for a new upside move this week. POST showed a strong upside break Friday. KO, PEP moving higher. Gotta eat, even in economic weakness.
Telecom: VZ remains a leader, jumping almost 2% Friday after a short lateral consolidation. HLIT started higher, struggled Friday, but staged a good recovery. CIEN still looks solid to bounce higher.
Software: TWLO took a breather Friday after a good Thursday upside break. VMC had a good week. DATA, VRSN still look good to move higher. SYMC paused after a good Thursday move. FFIV, ADBE, NOW are problematic. MSFT needs work.
Drugs: LLY, MRK posting good moves.
Transports: Airlines are not bad but nothing else here looks very good.
Machinery: Just not many good patterns.
Stats: +123.95 points (+0.49%) to close at 25413.22
Stats: -11.16 points (-0.15%) to close at 7247.87
Volume: 2.46B (-1.99%)
Up Volume: 1.21B (-640M)
Down Volume: 1.18B (+547.54M)
A/D and Hi/Lo: Advancers led 1.03 to 1
Previous Session: Advancers led 2.07 to 1
New Highs: 33 (+13)
New Lows: 145 (-55)
Stats: +6.07 points (+0.22%) to close at 2736.27
NYSE Volume: 1.049B (+17.48%)
Up Volume: 582.823M (+14.239M)
Down Volume: 449.376M (+143.945M)
A/D and Hi/Lo: Advancers led 1.11 to 1
Previous Session: Advancers led 1.33 to 1
New Highs: 40 (+19)
New Lows: 182 (-59)
VIX: 18.14; -1.84
VXN: 24.38; -1.67
VXO: 19.94; -1.57
Put/Call Ratio (CBOE): 0.94; +0.09
Bulls and Bears:
Bulls held relatively steady after a serious dive from the low sixties to low forties. Bears actually shrank. Just not a lot of convergence between the two right now to show really bottoming action, BUT bulls have dropped off significantly, and that is some upside impetus.
Bulls: 42.9 versus 42.5
Bears: 19.0 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: 42.9 versus 42.5
42.5 versus 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: 19.0 versus 19.8
19.8 versus 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: 3.065% versus 3.116%. Bonds certainly rallied the past 10 sessions, moving close to the 50 day MA.
Historical: the last sub-2% rate was in November 2016 (1.867%). 3.116% versus 3.127% versus 3.147% versus 3.186% versus 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: 1.14172 versus 1.13308. Euro rallied on the week after making a lower low Monday.
Historical: 1.13308 versus 1.13264 versus 1.13124 versus 1.12348 versus 1.13475 versus 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
USD/JPY: 112.831 versus 113.585. After a strong three weeks, dollar peaked last week against yen and fell to close at the 50 day EMA.
Historical: Last below 109 in June 2018: 113.585 versus 113.576. Was at 110 three weeks back.
Oil: 56.68, 0.00. Rallied modestly Wednesday to Friday after a massive Tuesday drop that ended a 3 week move straight down. Not much of a bounce, just a weak relief move thus far.
Gold: 1223.00, +8.00. Moved up through the 50 day M Friday after finding a higher low early week.
Last week saw a bit of thaw in the Fed. There is also a lot of talk about the trade issues with the US and China sparring. Some said there were indications of a deal in the offing, but that is just wishful thinking. Indeed, this weekend VP Pence and Xi traded jabs in their speeches at a summit, Pence saying that the US could even double its tariffs if China does not accede to US positions on trade between the two nations. So much for trade being an upside catalyst this coming week.
It is Monday after expiration, and this one was a mixed expiration with gains not that solid and losses not that bad. That at least leaves Monday an open book as often an upside expiration is met with a weaker Monday.
The market continues to struggle to find consistent traction. Last week outside of Thursday any upside was met with selling. Indeed, after the prior Wednesday follow through, all the market did was sell. Thursday put a better spin in DJ30 and SOX, and Friday they survived the NVDA/AMAT earnings with DJ30 seeing some of its recent leaders resume upside moves after a test.
Leadership is still the missing link. A follow through is great in that it sets the stage for a rally. Then, of course, there has to be a rally, and that only happens if there are stocks in good patterns to take the baton after the initial bounce pushed everything upside in relief. The up and down (mostly down) action since then has helped build a few more patterns, and thus some decent prospects in chips, software, and even China stocks. If Thursday is to mean anything, if the follow through is to mean anything, then these other areas are going to have to contribute to a new move higher. Otherwise the move fizzles and rolls back over.
We have several new upside plays on the report to go along with several already on. We will see which groups if any can make the moves. Perhaps they all join in; that would make for a good end of year rally.
These are some good setups. That does not mean they become good moves. They still have to show them and hold them. If so, we will pick up more for a move higher to yearend. We are not predicting that, but we are ready to play if the setups become real breakouts.
Have a great weekend!
End part 1
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