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11/3/2018 Investment House Daily
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- Stocks try for four straight, cannot hold the move.
- Jobs report solid, shows best wage growth in 10 years. Finally some money is made again and the Fed wants to tamp it right back down.
- China trade, Fed blamed. The point: market still struggles on news.
- Four day bounce stalls for now as we wait for the various scenarios to play out.
Friday looked to be a surefire continuation of the upside move that began Tuesday, even with AAPL's iPhone unit miss. That would have been a follow through session as it would have occurred on the fourth session following a reversal -- if volume and the price gains held. It didn't and thus Friday was no follow through. It was disappointing in that it gave up a nice gain, but it was not a failure either. After three days of fairly solid upside the market could not hold an early move and lost some ground. Not the end of the line in and of itself. It can pause, even fade a session or two, refresh itself, and then provide the follow through. Or not. If the bounce was going to fail, this certainly was a point to do just that as the rebound thus far matched the first relief bounce that failed.
As for AAPL, of course, there will never be another such miss on units -- no, not because AAPL will never miss, it just won't give sales numbers anymore. For the past three quarters iPhone sales have varied 1% -- stagnation? -- so AAPL figured why release them any longer. Looking at the trend, it would appear $1000 AAPL phones have hit the saturation point. It seems that there is only so much appetite for hugely expensive phones that break just as easily as $200 phones. All the same, AAPL sold $62.9B of iPhones, gear, and services in Q3. Those are not garbage numbers.
AAPL was down 6.6%, but stocks overall gapped upside when futures opened. The jobs report hit and was nicely better than expected. Stocks backed off from morning highs but held upside into the open. Except for NASDAQ at -34. Stocks opened higher then tailed off, trending lower below the 15 minute moving average into early afternoon. Positives turned to negatives. The old high to low. An afternoon bounce pushed RUTX and SP400 slightly positive and took the large cap indices off their lows, but it was no great recovery.
SP500 -17.31, -0.63%
NASDAQ -77.07, -1.04%
DJ30 -109.91, -0.43%
NASDAQ 100 -1.47%
VOLUME: NYSE -4.5%, NASDAQ +7%. A bit of churn or distribution as NASDAQ bumped the 20 day EMA and sold back. Strongest volume of the week and it was on a reversal session. That suggests the sellers still have strength.
ADVANCE/DECLINE: NYSE -1.3:1, NASDAQ +1.1:1
Why the high to low? Blame Chinese trade, or lack thereof. Trump tweeted the other day about his great conversation with Xi, and today reports were that Trump asked his cabinet to draw up a trade deal with China. Surely that meant a deal was imminent and it would be great and the world would live happily ever after. No. Larry Kudlow later stated that there was no new movement with China; the administration was simply doing what you do -- prepare for what you want to accomplish.
Next was jobs. 250K topped the 190K expected and the 118K August (from 134K).
The numbers were all good.
Wages +0.2%, +3.1% year/year. This is a 10 year high. The jobs mix is very good versus the prior 8 years and the low pay menial jobs created during those years. Thus you get better wage growth. Manufacturing jobs that were gone forever, construction jobs, mining -- these are high wage jobs.
Participation: 62.9% versus 62.7%. More people getting back to work.
Where the jobs are:
Manufacturing 32K, +296K this year, roughly 1,000 jobs per day.
Professional and business services 35K
Transportation, warehousing 24K
Leisure and hospitality: 42K. Even with the hurricane, the rest of the country picked up the slack and more. When it was expected this category would decline, it surged. It would appear that people have no qualms spending their Pelosi labeled 'crumbs' they have received from the tax reform bill.
This is all good news, and the market saw it as such and thus feared it. It is also important to remember that jobs are a lagging indicator. It is similar to crowing about last year's Super Bowl win the following season when your team is now 4-5.
What does the data -- and the market's reaction to it -- mean?
This just shows how this market is still led around by the nose based upon the story du jour. Trade, Fed, earnings or earnings, Fed, trade. The Fed, however, appears dominant with a subtitle called 'midterm elections' that need to be resolved.
There can be no better indication the markets are still controlled by the Fed when good news causes stocks to sell. Futures were up early before the jobs report. The report itself was nothing huge. It was very solid, blowing past expectations. Futures faded, however, on the report. NASDAQ was +2 PJ (pre-jobs), but fell to -34 before the open. Stocks opened higher then trended lower all session. Good news equals continued Fed intervention equals no reason to fight a Fed that always gets it wrong.
Wage growth, something sought after and the lack thereof lamented for a decade, is finally moving higher. What should be fantastic news is feared. So desired but when we start achieving it so feared because . . . the Fed will do its best to ruin it. Perhaps that is not its intention -- perhaps it is -- but the history is painfully clear. From a long line of ivory tower, Phillips Curve worshipping self-styled intellects, e.g. Mr. Broaddus in the early 2000's to today's Fed members, when we finally enjoy just a taste of job and wage growth, they want less. Trust me: after 10 years of less, less is not more. People finally are starting to feel good so let's crush down that spirit.
Thus, when participation in the jobs market jumped, wages rose 3.1% annually, the jobs mix was very good -- high paying jobs versus the minimum wage pay scale jobs of the prior administration -- stocks fall.
The reason, restated: In America, a supposedly republic democracy based on a free enterprise system, we have turned control of and therefore the value of our money and our wealth to a group of unelected people who have no clue even what the real rate of interest is (as Powell admitted a month ago). Yet this group is trying to set rates above some unknown real rate. Why go to all the trouble? Just have some chimps from the zoo toss darts at a board with numbers on it to set the rate. I doubt there would be much drop in performance. The Fed has morphed into a micromanager of economics versus a backstop in times of severe market distress. And thus we are forced to hang on the statements of each member.
And that brings you back to the market's reaction. It is still uncertain of the path it should take because it has unknowns in the Fed, but at this juncture I would say the unknowns are NOT whether the Fed will continue hiking but whether the Fed will react to the slowing economic data. In other words, the Fed will keep hiking unless something breaks.
The market appears to be acting accordingly as Friday it was unable to hold what would have been a fourth consecutive session of gains. DJ30 tapped the 50 day EMA on the high and faded to a loss. SP500 and NASDAQ stopped at the 20 day EMA and faded gains to losses.
The first relief move from the selling lasted four sessions. This move is stronger in terms of volume and breadth, but on the fourth day it lost ground.
This is where this move makes its first decision of the four scenarios laid out Thursday. It can roll over here and put in a third leg of selling, something the pattern shows as a possibility as well as some big names such as AMZN and NFLX that have rebounded to resistance after sharp selling.
This could also be just a pause after three good upside sessions, a pause to refresh and continue higher to the 200 day SMA for SP500 and NASDAQ. SP500 was not too far off that level on the Friday high. That is the second scenario where it its that level, takes a breather while mostly holding the move, then delivers a follow through.
Third is it stalls and fades to fill the Wednesday upside gap, scares everyone it is heading down again, then reverses upside with a strong follow through session of 2+% on a major index with strong volume.
Or you go for number 4, the flat out rollover after a bit more upside. That certainly fits Friday: a start higher, a rally farther upside, then a rollover to give the upside back and turn negative.
That said, DJ30 still looks good with a tap at the 200 day SMA on the low and a rebound off that. It can still set up an inverted head and shoulders pattern from this setup. It can also still sell off.
NASDAQ is still below the 200 day SMA and less than inspiring with that large gap from Wednesday below.
SP500 moved closer to the 200 day SMA and turned. It is more like NASDAQ than DJ30 and has that large gap sitting out there as well. Lots of resistance.
SOX is not bad. It can idle for a couple of sessions, form a right shoulder, then be ready to move farther upside. Likely no breakout, but it is setting up to move and its stocks rallied well on the week. If they take 2 to 3 days to test that break higher, they will present good buying opportunities. A group to watch.
SP400 is showing a doji at the 20 day EMA. For this group they must prove they can make a break higher. They were positive Friday . . .
RUTX shows the same action as SP400, the old doji at the 20 day EMA. Massively weak, lots to prove, but it too was positive Friday.
SCAANN: A few good most need work. SQ moved up to the 50 day EMA and the peak of the first bounce; a pause would help the pattern. CRM faded from the 20 day EMA; still not a great pattern. AMZN doji at the 200 day SMA. Still bearish. AAPL gapped below the October range. NFLX touched the 20 day EMA and faded. Similar to AMZN. NVDA a lower volume move to the 20 day EMA.
Retail: WMT held the 10 day EMA and bounced. ULTA recovered nicely with a 3.3% gain. ROST attempting a bounce off the 10 day EMA test, still solid. DG was off but trending higher. HD, LOW still in the dumpster. FOSL up again Friday. Still a better group.
Drugs: The winners are narrowing sharply. JNJ still solid but AMGN tanked after earnings. MRK in a decent test, PFE trying to hang on at the 50 day MA. Some smaller issues, however, look better, e.g. IMMU.
Telecom: VZ testing after a good break higher. S gapped upside on the week but still needs work. QCOM looks very interesting still.
Precious metals: Still showing bids. HMY trying to bounce from the 200 day but AU, ABX look solid.
Semiconductors: A solid week, and with some testing these could be good entries. INTC faded Friday but is in very good position. If XLNX test this move it would be a good play. MLNX has a strong week and needs a test. BRKS is moving though needs some more development. QRVO soared through the 200 day SMA pre-AAPL but then gave that move up afterward. Will see if it can hold here and set up another upside attempt.
Stats: -109.91 points (-0.43%) to close at 25270.83
Stats: -77.06 points (-1.04%) to close at 7356.99
Volume: 2.9B (+7.01%)
Up Volume: 1.41B (-850M)
Down Volume: 1.42B (+983.73M)
A/D and Hi/Lo: Advancers led 1.06 to 1
Previous Session: Advancers led 3.48 to 1
New Highs: 44 (+5)
New Lows: 77 (-1)
Stats: -17.31 points (-0.63%) to close at 2723.06
NYSE Volume: 985.98M (-4.40%)
Up Volume: 422.321M (-314.105M)
Down Volume: 551.655M (+261.667M)
A/D and Hi/Lo: Decliners led 1.33 to 1
Previous Session: Advancers led 3.02 to 1
New Highs: 27 (-1)
New Lows: 85 (+11)
VIX: 19.51; +0.17
VXN: 26.65; +0.53
VXO: 22.56; +1.31
Put/Call Ratio (CBOE): 0.93; +0.08
Bulls and 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: 44.3 versus 50.5
Bears: 19.8 versus 19.0
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: 44.3 versus 50.5
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 19.0
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: 3.22% versus 3.146%. Bonds tanked Friday below the early October low on a stronger jobs report. Bonds are acting as if things are normal, more or less, with rates rising as economic data was strong.
Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.13881 versus 1.14019. Euro continues trend lower against the dollar.
Historical: 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: 113.204 versus 112.81. Breaking higher from a short 6 week double bottom with handle.
Historical: Last below 109 in June 2018: 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: 63.14, -0.55. Undercut the June lows as oil sold steadily all week after a rebound to test the 200 day SMA failed.
Gold: 1233.30, -5.30. Gold broke higher off the 50 day MA Thursday, faded modestly Friday. Not bad action, suggesting a rally coming.
End part 1
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