Tuesday, December 18, 2018

The Daily, Part 1 of 3, 12-18-18

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12/18/2018 Investment House Daily
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Targets hit: None issued
Entry alerts: None issued
Trailing stops: None issued
Stop alerts: CME; ENPH

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- No further selloff, market bounces to start, fails to make any headway. How surprising.
- No recovery from personal products, drugs as the leaders struggle continues.
- Trump asks the Fed to 'feel the market.'
- Xi says he won't be bullied to change policy. Okay, he will just have to do it for survival reasons.
- Is the Fed undermining the Administration's trade war when victory is within reach?
- As leadership contracts, the markets odds for a new high all but disappear. Will the Fed provide the catalyst for at least a relief rally?

If that was a rally . . .

Worst case scenario -- in the world of bottoming -- as Tuesday stock futures started higher early and held gains into the open. The indices gapped higher, faded, then rebounded into midday to match the early morning high. Again, however, the move did not hold and stocks slid lower into the last hour. They held near the Monday low, bounced in the last hour but then rolled back over into the close -- talk about indecision.

SP500 0.22, 0.01%
NASDAQ 30.18, 0.45%
DJ30 82.66, 0.35%
SP400 0.03%
RUTX -0.07%
SOX 1.28%
NASDAQ 100 0.67%

VOLUME: NYSE -7%, NASDAQ -3%. Lower trade, still above average.

ADVANCE/DECLINE: NYSE -1.2:1, NASDAQ -1.5:1. Not much of anything after the -6.5:1 and -4.3:1, respectively.

NEW LOWS: NYSE 737, NASDAQ 678. Down from Monday but still very impressive numbers.

One CNBC anchor termed the market in rally mode. Dubious. Stocks started higher and that was as good as it got. From there it was a backpedal to get out of the session with some gains. SP500 0.01%, DJ30 0.35%, SP500 0.03% -- but for NASDAQ 100 rallying 0.67% and SOX up 1.28% it would be a bust. It likely was anyway.

Why? Look at the patterns: gaps higher, further upside, then giving up significant chunks if not all of the upside. The fade continued afterhours as FDX lowered its 2019 guidance even though it beat on earnings.

Not a convincing move at all. That is what you get when a selloff just does not reach its logical conclusion. The bounce Tuesday morning shows that investors, traders, hangers on, etc. are still willing to buy what they think are bottoms. They do not feel as if the market has those signs over the doors referenced earlier in the week: 'despair all who enter.'

So, no bottom. Perhaps the Fed can spark a rally if it does not hike and Powell is deft (not daft) in how he styles a non-hike. Still, what are the odds Powell does NOT hike? The FFF contract is just about 80% he does, and that, frankly, is low. I would say it is a 98% probability he hikes and the market does not like it. Why won't it like the certainty? Unless Powell says the Fed is done, finished, going on sabbatical in terms of rate hikes, the fact that the market could not bounce and continue to move higher into the FOMC announcement shows it is not ready to handle a rate hike. It is my hunch that it sells off post-FOMC given the Tuesday action.

Bonds broke out over the 200 day SMA. Oil is breaking down below 50. Big time. Gold is acting as if it wants to break over the 200 day SMA a la TLT (bonds). Personal products stocks are suddenly weak. Drugs remain weaker. Defensive areas are defensive themselves.

This weakness, this inability to bounce and to hold a half-bounce is in the face of some impressively negative sentiment and indicators. I went through the litany the past two reports from money outflows from stock funds to new lows spiking, etc.

Now VIX, while not at a high since this more recent selloff started in October, is at a closing high. It is finally girding up to make a serious jump that would place another piece of the bounce puzzle in place. It was up on a day when the indices were positive. Yes, weakly positive, but positive nonetheless. It is or was ready to rumble but the bounce and fade in stocks clipped its wings today. Post-FOMC it may fly and bring the sentiment all together to set a bottom. Maybe. As noted before, the all attempts at bottoms have died an ignoble death. Again, the failure to sell early Tuesday let the bottoming process slip away or at least deferred it.

There will be a bounce -- at some point. The market technical indications and sentiment indications are matching up, are getting on the same page, and that leads to bounces. Again, it won't change the massive tops in place, build in 2018. It will be an opportunity to close out the remaining upside, play some great upside setups, then load up the downside.

At this juncture, however, still waiting for the bounce. Feel kind of like those old Chicago Cubs posters that showed the old lady waiting for a pennant.


Fed Day is Coming. The President tweeted Tuesday morning, imploring the Fed to 'feel the market' in its rate decision. Perhaps Powell will feel the market's pain as Clinton said he felt the average American's pain.

WSJ: The Journal opines there are no signs of breakout inflation, and if the Fed gets its policy wrong, the President will be the least of its worries. WSJ is making the case for the Fed to hold off.

Indeed, the FFF contract has a rate hike at just 77%. While that may seem high, on the cups of a Fed event that is low. There is some question here as to what the Fed will do, but as noted, in our view very little question.

The economic data is not helping the 'feel the market' argument.

Housing Starts, Nov: +3.2% vs 0.7% expected. Most in multi-family (apartment) construction

Permits: +5.0%

China: Xi delivers a speech and states 'no one can dictate reforms to China.' Sure, that line is good for the homeland consumption, good for national pride. Sticking to that means China continues to suffer and see its economy slide farther.

Fed threatening the US fight in the trade war?

Now here is a twist. The US' strength in the trade war is its economic strength. It is a strategy similar to Reagan's versus the USSR: create a hugely strong economy and then spend the soviets to oblivion. It worked. The thing to consider now: is the Fed killing the US chances at winning the trade war because it fears mostly phantom inflation? Can it not see the big picture of what is going on? Is this exposing the folly of a Fed that chases, again, inflation that is not that much a problem (other than the Fed devaluing our currency 97% -- another story) but the Fed is ready to again crash the economy over it and perhaps lose a very important trade war? Again, this makes one reconsider (for another reason still) the reason for the Fed.



To view, click on the following links:


DJ30, SP500, NASDAQ continue testing the January 2018 lows, touching at them on the session low, rebounding modestly. Down to the lows that started the selling. As noted the past two reports, with the other sentiment and technical indications (massive numbers of new lows, outflows of capital) it remains a good place to mount a bounce.

Not a massive dip lower and reversal, more like a bounce attempt that died with a whimper.

SOX remains in its lateral move sitting on top of the mid-2017 high. 1150 is important support for SOX since it broke 1200. As with the other indices, the chips are in an even longer top, started in late November 2017. Showing relative strength to the rest of the market. Perhaps that means the chips will try to lead a bounce. With MU's earnings afterhours and the miss on revenues, that is not working out thus far.

SP400, RUTX: SP400 posted a gain but at 0.03% it was basically holding steady. The midcaps are now at the lows of the March to August 2017 range. Pretty decent support given the bomb lower the past two weeks. Looks ripe to bounce. RUTX is similarly situated, showing a hammer doji Tuesday right in the middle of the December 2016 to July 2017 trading range.


Not much leading higher any longer.

Drugs: Monday JNJ was blamed for the weakness, but Tuesday it was up while PFE, LLY dug lower. MRK managed to hold the 50 day MA after undercutting it early session. Defensive sector not so strong.

Personal Products: PG, CLX eased up on the selling after the Monday plunge to the 50 day MA, but still lost ground.

Utilities: Same as personal products, trying to hold after flopping lower Monday.

Software: TEAM held near the 50 day MA with an attempted double bottom at the 50 day SMA. WDAY held at the 20 day EMA in a test of its breakout, holding the gap. COUP bounced off a 200 day SMA test, a modest bounce thus far. VRSN holding the 50 day SMA with a doji. VMW holding with a doji at the 50 day EMA.

Food: KO showing a doji with tail at the 50 day MA. PEP reached the 111 support and rebounded some. MKC testing the 50 day MA. KR still fading. MCD is in a decent 50 day MA test.

Chips: AVGO is testing the breakout from its triangle. INTC still working in the lateral range along the 50 day MA. ENPH began to struggle. MCHP still in its lateral range similar to INTC. Hanging on but getting taken down piecemeal.


Stats: +82.66 points (+0.35%) to close at 23675.64

Stats: +30.18 points (+0.45%) to close at 6783.91
Volume: 2.61B (-2.97%)

Up Volume: 1.32B (+889.04M)
Down Volume: 1.27B (-970M)

A/D and Hi/Lo: Decliners led 1.43 to 1
Previous Session: Decliners led 4.32 to 1

New Highs: 13 (+2)
New Lows: 678 (-61). Lower but still very high for NASDAQ.

Stats: +0.22 points (+0.01%) to close at 2546.16
NYSE Volume: 1.073B (-6.58%)

Up Volume: 484.12M (+335.75M)
Down Volume: 556.852M (-430.784M)

A/D and Hi/Lo: Decliners led 1.19 to 1
Previous Session: Decliners led 6.52 to 1

New Highs: 3 (-2)
New Lows: 737 (-146). As with NASDAQ, lower but high.


VIX: 25.58; +1.06
VXN: 29.31; -0.76
VXO: 26.26; +0.28

Put/Call Ratio (CBOE): 1.09; -0.28

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: 2.821% versus 2.855%. Bonds continued higher for a second session after testing the break over the 200 day SMA.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.13755 versus 1.13533. Rallied up to test the 50 day EMA on the high, fading back from there. Still trying to get over that resistance. If the Fed does not cut, it should do that.

Historical: 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: 112.477 versus 112.653. Dollar holding at the lows hit early December. This is part of its trading range of the past 5 weeks, a shorter and tighter part of the range that started off the October high.

Historical: Last below 109 in June 2018: 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: 46.60, -3.60. Slaughtered 7.17%, gapping below the 50 support. Wow. This is not a good indication for the economy.

Gold: 1253.60, +1.80. Edged higher Tuesday after a solid bump higher Monday. Looks as if gold will try the 200 day SMA.


FOMC day, a rate cut expected though the FFF contract at 80% is not as strong as typical right before an announcement. Probabilities are the Fed hikes. The market typically moves ahead of this number; tried Tuesday but the traction issue arose again.

Perhaps it will give it a go Wednesday though stocks are down and up afterhours, pretty much status quo for this market. Suffice it to say the market remains pensive.

The FOMC decision likely clears that up. It almost appears the FOMC needs to abstain from a hike and convince the market its doing so is abundantly sensible in order for the market to find any kind of bounce traction. Indeed, we here in the office are pretty much writing off an upside move despite the indications -- that means be sure to look for one because when no one, not even the analysts and strategists are looking for one, that means one probably comes.

Again, if it does, it is just a rebound, not a move that will take the indices to new highs. that is the way to approach it, and if it surprises with more strength, that is a pleasant surprise. If there is a serious selloff and then a rebound ahead of the FOMC, that is one we will look at for picking up some positions, just working in. Then we see what the FOMC has to say.

Have a great evening!

End part 1
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