Monday, December 17, 2018

The Daily, Part 1, 12-17-18

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12/17/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: AEP; DATA; WSM
Entry alerts: CRM; NVDA; ULTA; Z
Trailing stops: SOHU; PG
Stop alerts: CENT

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- Stocks continue selling with SP500, DJ30, NASDAQ now down to the early 2018 selloff lows.
- New York PMI misses badly. Impact on the Fed? Does it matter if it does?
- Heavy volume, huge new lows, breaking support/trends -- the list is long. Enough for a bounce now?
- Even with a bounce, a yearlong topping process still trumps.
- Looking for a lower start and a further selloff to reverse to perhaps begin the yearend bounce most have forsaken.

Friday spills into Monday, perhaps setting up a classic selloff bottom.

Friday DJ30 and SP500 made the foray into new closing lows for the selloff with NASDAQ and SOX holding out. Monday the selling continued and NASDAQ and NASDAQ 100 broke to lower selloff lows as well. SP400 and RUTX continued to lead the dive, hitting another selloff low again and diving farther below the early 2018 lows from that sharp selloff.

SP500 -54.01, -2.08%
NASDAQ -156.93, -2.27%
DJ30 -507.53, -2.11%
SP400 -2.22%
RUTX -2.32%
SOX -1.28%
NASDAQ 100 -2.22%

VOLUME: NYSE +17%, NASDAQ +22%. Sharp breaks lower, sharp volume jumps to the upside, back above average, as the sellers really took over.


NEW LOWS: NYSE 883, NASDAQ 739. That is there. Very extreme, another piece of the bounce puzzle in place.

Ah, the early 2018 selloff was a steep one and started the issues for 2018. As noted in the weekend report, the entirety of 2018 has formed a large rounded top. After almost 10 years of rallying off the March 2009 low, the indices have put in the most impressive topping pattern thus far, even bigger than the 2015 to 2016 period -- the led into the big 2016 through 2017 run, not a selloff. Of course, that was an election year, then Trump won and promised stimulus. With all that, the market showed a big move higher into early 2018.

There is a big topping pattern formed on the indices in 2018. That does not bode well for 2019. It fits the move to this point: I wrote earlier in 2018 that a top for such a massive run would occur over time, i.e. it is a process. 12 months of topping for this kind of run looks right.

In addition to the indices undercutting the prior selloff lows, the market tore down some more leadership areas, moving into some defensive zones. Personal products were hammered (e.g. PG, CLX), healthcare continued struggling (LLY sold off hard, PFE broke the 50 day MA). Healthcare may be related to the Texas federal court declaring the ACA unconstitutional, but it is what it is: they sold harder. MRK looks interesting at the 50 day MA, but it has to prove it can hold it and bounce.

Okay, the big picture is not great. What about nearer term?

Nearer term, however, the indices are setting up a pretty classic short-term bottoming pattern that augments what was discussed the past weekend. A Friday selloff followed by a Monday selloff and then a Tuesday that opens lower and finishes the job of clearing out the hope near term.

Recall the elements that are stacking up for a bounce: poor AAIA sentiment, record outflows from stock mutual funds, some sectors still holding up in the selling. We said also to watch for the indices breaking to new lows and the possibility of algo-driven rebounds: a pattern exists where stocks and/or indices break support, selloff in a quick move, then reverse the break.

Cleary there was support break Monday as the big indices broke to lower selloff lows as DJ30 and NASDAQ crashed through the up trendline from early 2016, the end of that correction referenced earlier.

Add to that the indices now reaching the early 2018 lows, doing a round trip for the year. Further, it appears the majority has given up on any type of late year rally. And don't forget the surging new lows.

That is a pretty solid lineup of reasons to bounce, but as with a nice stock pattern, it is a pretty picture or story, but it has to actually make the move.

If stocks do make the move and the indices rally back up well into the range or the top of the range, will that alter anything longer term? Likely not given the topping pattern in place. If the Fed does not cut rates Wednesday? Not out of the question given the New York Empire PMI tanked in December to 10.9 from 23.3, halving expectations. Still, even with no hike, it is likely the market still won't react enough to overcome the top. The market is saying it is too late and forgoing one hike won't change that. Okay, LIKELY won't change that. Something much deeper would be needed, and with the change in the House, there won't be any further stimulus from the elected part of the government. Not a pleasant outlook.

I never like saying things are dyed in the wool, and the market still has to do what the market will do. That said, you prepare for the probabilities, and longer term they look downside. Nearer term we can get a bounce as outlined earlier. Can. We are not so married to that prospect that we are shunning downside plays. No, we added some more downside positions Monday in CRM, NVDA, ULTA and Z -- software, chips, retail, and housing despite the potential for a bounce. Thus far in this downside leg no bounces have materialized regardless of the setup.

In sum, longer term the prognosis is bias negative given the yearlong topping pattern. Once there is a clear break lower and the trend establishes itself we play pretty much downside except for great bounce plays that set up. Until then we play some downside patterns that are very nice setups, e.g. WSM where we banked some gain today.

Nearer term we still watch to see if a rebound shapes up after all of these negatives, looking for a shakeout that triggers a relief move. Again, most everyone has thrown up the hands with respect to a yearend move. Coupled with the other attributes discussed, we could get a nice tradable bounce. Stocks such as TEAM, VRSN, WDAY, FB, TWTR, AVGO, MCD, MRK, CVS can help lead such a move. Again, can. We will need to see the move take good shape with a nice reversal session, typically intraday as the best signal.

Worst case? Tuesday starts with upside? You want to see the selling continue to finally get everyone who is heading out, out. A higher open releases pressure and kindles hope. You want the headlines on the financial websites to read something to the effect of 'all who enter here despair.' That is about right for the kind of bounce we are talking about.

What about the Fed meeting Wednesday you ask? Won't stocks wait? They usually do not. They get their idea of the direction and go with it. If the Fed hikes, they knew it. If there is a surprise and the Fed justifies not hiking decently, it only adds some fuel to the upside bounce.



Stats: -507.53 points (-2.11%) to close at 23592.98

Stats: -156.93 points (-2.27%) to close at 6753.73
Volume: 2.69B (+22.27%)

Up Volume: 430.96M (-59.58M)
Down Volume: 2.24B (+550M)

A/D and Hi/Lo: Decliners led 4.32 to 1
Previous Session: Decliners led 3.18 to 1

New Highs: 11 (-1)
New Lows: 739 (+222)

Stats: -54.01 points (-2.08%) to close at 2545.94
NYSE Volume: 1.148B (+17.20%)

Up Volume: 148.37M (-32.894M)
Down Volume: 987.636M (+195.317M)

A/D and Hi/Lo: Decliners led 6.52 to 1
Previous Session: Decliners led 3.47 to 1

New Highs: 5 (-11)
New Lows: 883 (+267)


VIX: 24.52; +2.89
VXN: 30.07; +2.45
VXO: 25.98; +2.03

Put/Call Ratio (CBOE): 1.37; +0.23

Bulls and Bears:

Minor fade on bulls after that surge the prior week from 38.3. Bears fell after finally breaking over 20; at least they held 20. They have converged more than anytime since 2016, but nothing that would suggest extreme. If anything, bears are still extremely low.

Bulls: 45.5 versus 46.7

Bears: 20.4 versus 21.5

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: 45.4 versus 46.7
46.7 versus 38.3 versus 39.6 versus 42.9 versus 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: 20.4 versus 21.50
21.50 versus 20.6 versus 19.8 versus 19.0 versus 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: 2.855% versus 2.895%. Bonds breaking higher again through the 200 day SMA.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.895% versus 2.913% versus 2.908% versus 2.884% versus 2.863% versus 2.854% versus 2.892% versus 2.915% versus 2.979% versus 2.993% versus 3.032% versus 3.061% versus 3.058% versus 3.059% versus 3.048% versus 3.065% versus 3.074% versus 3.056% versus 3.065% versus 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%

EUR/USD: 1.13533 versus 1.13049. Still working over 1.130 and just below the 50 day MA.

Historical: 1.13049 versus 1.13604 versus 1.1376 versus 1.13244 versus 1.13657 versus 1.1404 versus 1.1376 versus 1.13970 versus 1.13360 versus 1.13199 versus 1.13934 versus 1.13682 versus 1.12973 versus 1.13325 versus 1.13380 versus 1.13829 versus 1.13818 versus 1.14484 versus 1.14172 versus 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

USD/JPY: 112.653 versus 113.382. Dropped hard through the 50 day MA.

Historical: Last below 109 in June 2018: 113.382 versus 113.634 versus 113.634 versus 113.385 versus 113.022 versus 112.66 versus 112.71 versus 112.813 versus 113.581 versus 113.474 versus 113.402 versus 113.559 versus 113.781 versus 113.510 versus 112.972 versus 113.007 versus 113.077 versus 112.617 versus 112.831 versus 113.585 versus 113.576.

Oil: 50.20, -1.00. Oil dropped to the 50 level where it has held for just over 3 weeks in a lateral move. Just about make or break time.

Gold: 1251.80, +10.40. Bounced up off a nice week test, moving back toward the 200 day SMA to take it on again.

End part 1
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