Thursday, December 20, 2018

The Daily, Part 1, 12-20-18

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12/20/2018 Investment House Daily
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- Still on signs of upside as the indices head lower.
- NASDAQ breaks the 2018 low, RUTX and SP400 undercut the 2017 lows.
- Tepper says the Fed was clear and its put is gone.
- More countries join the US in calling for China to act like a real country -- but then again, it is communist.
- Massive new lows, sentiment dropping, PMI's sinking, yet the Fed says full speed ahead with hikes as it has to slow the economy down. Idiots.
- Some names setting up along with the extremes in the internals and sentiment.

How low can you go? Or, how oversold can you get? Very. Stock futures were lower, recovered a lot of lost ground, and held decently into the first hour, actually moving up with some decent bids.

Didn't last, didn't take. Stocks sold to midday, bounced, sold hard to mid-afternoon. A rebound to the last hour recovered some losses, but not much with all but one index finishing down well over 1%.

SP500 -39.54, -1.58%
NASDAQ -108.42, -1.63%
DJ30 -464.06, -1.99%
SP400 -1.28%
RUTX -1.72$
SOX -0.86%
NASDAQ 100 -1.57%

VOLUME: NYSE +9%, NASDAQ +13%. Volume continues to build well above average as sellers pile in on stocks.

ADVANCE/DECLINE: NYSE -4.2:1, NASDAQ -3.4:1. Very solid, not reversal level.

NEW LOWS: Holy cow! Massive numbers. NYSE 1270 (+451), NASDAQ 1153 (+331). Extremely extreme.

It would appear the market has a bad case of Fed indigestion. I guess you would call it a terminal case in terms of the bull market. The indices are cascading downward after breaking down from their yearlong tops.

David Tepper Thursday morning made it clear he believes the Fed put is dead and that this Fed is not concerned about the market and whether SP500 moves + or - 400 points. He posited that cash is not a bad place to be.

Cramer actually made a good point, one I have made for quite some time: 10 years of a terrible economy with wages going lower and crappy jobs created. Now, finally, we are getting good jobs returning in manufacturing, mining, etc. After years of nothing the little guy is getting some better jobs and wages. And what does the Fed do? It immediately wants to shut it down, create more unemployment, slow down the economy. It hikes rates, pulls money from the system, stocks go lower, business slows, people lose some jobs. Cramer says the rich got richer during the Bernanke/Yellen years and now they are putting that money into CD's because they can now play it safe. The poor bastards who just started making some money again and want to invest it so THEY too can grow some wealth? Too bad. Double whammy for them: they may lose their job and stocks tank.

Why does the Fed do this? Ostensibly because it fears inflation. Just as the 1929 central bank feared inflation that was not there and raised rates and drained liquidity to it broke the roaring 20's and helped put us in the Great Depression. The Fed simply has the wrong model: a free supply side creates the goods that meet demand, avoiding inflation. When supply is blocked through regulation, taxes, or availability of capital, then it declines and THAT is when inflation arises.

The other reason: as previously discussed here, it is a control mechanism. Twelve unelected people in charge of our wealth. If the commoner, the proletariat, acquires wealth it acquires independence and some power. Can't have that. No, have to keep them reliant on the government and the big, established corporations whose interests are very much aligned with a government trying to maintain and even extend its power.

So, we get what we have: a market diving, signaling a weaker economy to come, when we did not have to have this outcome. Didn't have to have it, but we always do. It reminds me of the 'Matrix' trilogy where the cycle of the 'One' has occurred many times over, all part of the control process that results in the establishment consolidating its power even more. Einstein's definition of insanity, but the populace does not understand what is happening and accepts it. As I told my kids last night, the way US citizens are treated today, the way they are spied upon, held in check by a militarized police force, have property stolen through forfeitures, etc. -- we went to war over grievances MUCH LESS than we experience today.

But, I digress. Somewhat.

The market is in full dive as a result, again, of policy taking place at the wrong time. Rates should have risen years ago during all of that 'great' Bush and Obama economy that we were told was great but knew was not. Now the Fed has moved late, turning what was just a slowdown in an ongoing investment-led economic uptrend into what will be a recession.

And you know what? The Fed doesn't even see it right now. Today Dudley (the Dud) said "we need to slow the economy down, and so somewhat tighter financial conditions aren't really a bad thing." Seriously? It IS slowing down, the market is forecasting a recession. Again, the Fed is tightening into a slowdown and will drive it to recession. It sees but does not see. It does the same thing again and again, but it never reviews economic history. They laugh at us for being ignorant alarmists because they have so much education. Yes they are highly educated in theories that do not work in real life. As my driver instructor taught me in high school: if you educate a fool, all you get is an educated fool.

Okay, I digress again.

I guess I just, foolishly, believe that rational, pragmatic, reasonably deductive people are in charge of our wealth. When it again turns out to be untrue I can become a bit unhinged.

China: The US received some backup from the rest of the world in condemning China's out and out theft of trade and government IP by hacking. You had to wonder when someone else would step up and say they were PO'ed as well and that China needed to act like a country and not a den of third world hackers. I laugh when I remember that commercial where the Chinese university instructor was mocking the US and how we worked for China because of our debt. They part they DID NOT show was how they actually got the tech they had: stealing it. Communists are like the guy in school who just does not want to study. He spends all his time figuring out ways to cheat. Perhaps if he studied as hard as he cheated he would make honest good grades. The Chinese communists are so busy stealing they don't discover anything on their own. Of course, communism is inherently flawed when it comes to creativity -- there is no incentive, no reward for being great.


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Thus, we have a surefire breakdown into a bear market. The internals and sentiment are lined up for a bounce, but that old adage I quoted all week holds true: an oversold market can become more and more oversold. It is doing that. SP400 is below the 2017 lows. RUTX as well.

When this thing bounces, it will bounce big and fast in a relief move, but for now the selling continues.

SP500 is nearing that 2400 level that is considered next support. It bounced off 2441 on the low, recovering 26 points to close so perhaps it is already found its oversold support.

DJ30 touched 22,645ish, really in no-man's land. It recovered 216 points off the session low to close, but that still leaves it in limbo between support and resistance.

NASDAQ broke the 2018 low, testing 6450 on the low before recovering 80 points to close.

SOX lost a bit more ground, sold to a lower 2018 low, but rebounded decently.

Simply continued selling as no one can find a reason to buy just yet. It is too early; the Fed wounds are still to fresh -- at least for today.


Still a bunch of dogs, but indications some areas are so oversold they want to bounce.

FAANG: AMZN is at the bottom of its trading range where it bounces in October and November. NFLX is trying to set up a floor, not selling off the past two weeks. GOOG looks very similar to AMZN with its third touch of the bottom of its 2-month range. AAPL? Straight dive lower. FB? Selling back to near the November low; we will see.

Software: TEAM looks very good. VMW could pull a rally out of its pattern. ADBE, FFIV, CRM look like crud, however.

Chips: AVGO continues to set up well. AMAT is so bad it might bounce off a double bottom. AMD is trying to set a third bounce off its 200 day SMA.

Utilities: AEP looks ready to bounce.

Personal Products: PG a nice 50 day EMA doji.


Stats: -464.06 points (-1.99%) to close at 22859.60

Stats: -108.42 points (-1.63%) to close at 6528.41
Volume: 3.28B (+12.71%)

Up Volume: 607.19M (+105.28M)
Down Volume: 2.63B (+250M)

A/D and Hi/Lo: Decliners led 3.41 to 1
Previous Session: Decliners led 2.93 to 1

New Highs: 7 (-6)
New Lows: 1153 (+331)

Stats: -39.54 points (-1.58%) to close at 2467.42
NYSE Volume: 1.389B (+9.23%)

Up Volume: 246.315M (-52.449M)
Down Volume: 1.128B (+163.239M)

A/D and Hi/Lo: Decliners led 4.22 to 1
Previous Session: Decliners led 2.62 to 1

New Highs: 4 (0)
New Lows: 1270 (+451)


VIX: 28.38; +2.80. VIX breaking out to a closing high over the October levels. Intraday topped October levels. Breaking out, getting to bounce-worthy levels.
VXN: 31.00; +1.57
VXO: 30.05; +3.63

Put/Call Ratio (CBOE): 1.82; +0.54. Two weeks over 1.0 on the close and this big number near 2.0. Looks to be in place to assist a bounce.

Bulls and Bears:

Falling and rebounding to where they were four weeks back. Starting to converge. This coming week's numbers should show a bull dive and bear jump, converging the two to levels not seen since 2016.

Bulls: 39.3 versus 45.5

Bears: 21.4 versus 20.4

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: 39.3 versus 45.4
45.4 versus 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: 21.4 versus 20.4
20.4 versus 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: 2.803% versus 2.762%. Bonds surged with a gap higher, matching the June 2018 highs, but then sold off to negative.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.762% versus 2.821% versus 2.855% versus 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: 1.1452 versus 1.13828. EUR breaking higher form its 8 week lateral range.

Historical: 1.13828 versus 1.13755 versus 1.13533 versus 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: 111.21 versus 112.521. Major bomb lower through the 200 day SMA and the October lows. Wow.

Historical: Last below 109 in June 2018: 112.521 versus 112.477 versus 112.653 versus 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: 45.88, -2.29. After bouncing Wednesday, a new low on this selloff.

Gold: 1267.90, +11.50. Gold breaks up through the 200 day SMA in a strong move.


The internals become more extreme, VIX finally breaking out over the October to present highs, sentiment continues to deteriorate, economic data fading fast as the Philly Fed showed today (9.4) and the Empire PMI before that.

Friday gives a view of more data: Personal income and spending; durable goods orders, third iteration of Q3 GDP. Lots to chew on. Perhaps the Fed knew the data already. Perhaps the Fed didn't care -- it is now a very formulistic, think inside the box Fed after feigning it would step outside of the usual parameters. Not quite.

As for the stock indices, they are in dive mode, but as noted, the internals and sentiment are extreme, the indices broke key levels from 2018 as they break down from their tops. Not too far from now there will be a fairly violent upside move to test that breakdown.

AMZN, NFLX, AEP, PG, AVGO, TEAM are examples of stocks that look very good to make breaks higher when the selling abates.

What about downside you ask? We have some already, and new entries will be made when the market makes that rebound. We took some downside gain today, anticipate taking more on some further downside, then we let it rebound and use that to really stock up on the downside plays.

Until then the market sells and we watch for the break back upside.

Have a great evening!

End part 1
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