Wednesday, December 26, 2018

The Daily, Part 1 of 3, 12-26-18

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12/26/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: FFIV; SLAB
Entry alerts: AMZN; SAVE; WDAY
Trailing stops: CRM; ULTA; Z
Stop alerts: None issued

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The REPORT SCHEDULE is as follows:

Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.

Monday a Market Summary video, new plays, play table annotations.

Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play table.

Access to all current videos will remain assessable each day using the play links in the reports.

If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.


- Trump says buying opportunity, Dow surges an all-time point gain.
- Internals and sentiment align, a need to rebalance pension portfolios triggers the surge.
- Most stocks have tattered patterns but there are some in software, chips that are solid.
- Bulls chortle at the 'return' of the upside, but unless it proves otherwise it is a bounce in a bear market.

Worst Christmas Eve session ever followed by the biggest Dow point gain ever and the largest percentage gain since March 2009 when QE started. It was the worst of times and the best of times? A belated Christmas present? Is Santa Claus providing the rally to yearend?

After the VIX finally joined the other internal and sentiment indicators in a more extreme position (though not nearly so much as the internals), the market was at least in position to start the first bear market bounce. It did.

SP500 116.60, 4.96%
NASDAQ 361.44, 5.84%
DJ30 +1086.25, +4.98%
SP400 4.62%
RUTX 4.96%
SOX 5.77%
NASDAQ 100 6.16%

VOLUME: NYSE +62%, NASDAQ +56%. NYSE trade above average though not exploding higher. NASDAQ trade was similar, moving just above average as well. Not blowout, not really commensurate with the percentage gains.


NEW LOWS: NYSE 888, NASDAQ 712. Well off the levels Monday (1256 and 1107, respectively) but still quite high.

Trigger? Triggers? To us, it was simply a matter of all the factors getting into place, and that happened Monday.

But what set it off? Many will take credit. The President stated after Monday that this was a great time to buy. Without a doubt he was cheerleading most will say. But was he? Despite his somewhat boorish blustering, he has been right many times on his calls, markets or otherwise.

Then there is the retail results. Amazon said it just logged its best holiday season ever. MC said the season saw a 5.1% increase. Good news in retail trying to offset the abysmal, for the most part, retail charts.

Then you get into the weeds, but very likely the drivers behind the recent sharp last leg of the selloff and the Wednesday rebound.

First, many funds were engaged in late tax loss selling. At least, that is what they are telling you. The week ended 12/19, mutual funds saw $56.2B in outflows. That was the biggest weekly outflow since 10/15/2008 at the height of the financial crisis. Now, consider November's outflow that shocked everyone at $57.4B -- for the month! The $56.2B was one week!!

Okay, so money was leaving funds, and that means the funds have to sell in order to meet the redemptions. Funds sold the most stock they have sold in the last decade to raise money for clients wanting their cash. Tax loss selling? I think they were putting the best picture over an ugly one.

Second, what brought them back? Did investors suddenly have a change of heart when the President said it was a good time to buy? Yea, right. No, pensions moved in to rebalance their portfolios, waiting through the selling to get the best buy prices. Bonds outperformed stocks +1.6% in the quarter versus stocks at -14%. Wells Fargo calculates pensions have to buy $64B in stock to get to the balance required in their funds.

They apparently waited as long as they could as prices fell, and then started to buy Wednesday. That certainly gave a LOT of lift to the upside. They bought hard across the market (note the rather even gains across all market caps), and that forced shorts to cover as the market felt a snowball effect, except it was rolling uphill.

In short, just about EVERY possible upside catalyst came into play, and they combined into a super storm of upside buying.

Now, what does it mean? Of course the bulls were so excited that a bottom is in 'or near.' Heard that from many bulls. They may be right. Likely they are not. Everyone is convinced there is no recession coming, at least that is what I hear about one dozen times a day. That would mean the market is wrong and a few people are right. Rarely happens. It can happen, but it is rare.

Most likely this is exactly what it usually is. A bear market appears to have started, the selling was so intense the internals and sentiment went to extremes, a trigger came along, stocks surged in a bear market rally.

Beyond that, there is not a lot of upside indicia. Selling was ugly. There is no leadership. All areas starting to get torn down, even the utilities and consumer personal products. Still a lot of bad patterns -- of course after such a downside gutting. Sure, there are some good ones, e.g. TEAM, WDAY, but most are just straight dives lower, ripped up by the selling. It is a rare market where stocks undergoing such selling suddenly turn and rally to new highs.

Thus, while we bought AMZN, WDAY, and SAVE to play a bounce higher and liked seeing plays on TEAM surge upside, we are not trying to convince ourselves this is a bottom and new highs are the inevitable outcome. We will play the upside rally as we said, make what we can, then when it fizzles we play the downside once again for likely another strong move, though it would be hard and unlikely to have a drop as massive as the most recent one.

Thursday that means letting the bounce continue and maybe, maybe, picking up a few other upside plays. Nimble is paramount on the upside in the current market.



All pretty much the same: big moves higher off two weeks of sharp selling.

SP500, DJ30, NASDAQ all similar: surged off the two weeks of sharp selling after breaking down from the bottom of its range. Big bounce, volume just above average. A sharp bounce from equally sharp selling. Looks bear market like.

SOX: Rebounded to the bottom of the range formed from October to last week. SOX sold hard but not that hard and is now rebounding.

SP400, RUTX: Same pattern as the large cap NYSE, i.e. rebounding from three weeks of hard selling.


Chips: almost back to the range already as many big names held on fairly well the prior week, e.g. AMAT, AMD, CY. Others such as AVGO and MLNX look quite good in their patterns.

Software: Some strong names remained strong, e.g. TEAM. WDAY held its pattern and posted a strong break higher off the 50 day SMA. VRSN looks interesting in a 200 day SMA hold and bounce. Others are coming back but need work: CRM, VMW, ADBE.

The rest of the groups are questionable at best, rebounding from dives lower. Even some in the above groups are not great or even close.


Stats: +1086.25 points (+4.98%) to close at 22878.45

Stats: +361.44 points (+5.84%) to close at 6554.36
Volume: 2.57B (+55.76%)

Up Volume: 2.27B (+1.962B)
Down Volume: 290M (-1.03B)

A/D and Hi/Lo: Advancers led 3.81 to 1
Previous Session: Decliners led 2.7 to 1

New Highs: 7 (-1)
New Lows: 712 (-395)

Stats: +116.60 points (+4.96%) to close at 2467.70
NYSE Volume: 1.062B (+62.09%)

Up Volume: 1.024B (+950.635M)
Down Volume: 36.387M (-535.71M)

A/D and Hi/Lo: Advancers led 6.91 to 1
Previous Session: Decliners led 3.74 to 1

New Highs: 4 (+2)
New Lows: 808 (-448)


VIX: 30.41; -5.66
VXN: 33.70; -4.98
VXO: 32.83; -4.51

Put/Call Ratio (CBOE): 1.06; -0.26

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: 2.811% versus 2.736%. Bonds dropped back to the 10 day EMA after trying to breakout last Wednesday but stumbling.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.736% versus 2.788% versus 2.803%. versus 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: 1.13588 versus 1.14015

Historical: 1.14015 versus 1.13708 versus 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: 111.190 versus 110.337. Dollar surging back upside after a really brutal 8 sessions lower.

Historical: Last below 109 in June 2018: 110.337 versus 111.223 versus 111.21 versus 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: 46.60, +4.07. Biggest upside day for oil all year -- after 3 months of trending lower following the last September peak.

Gold: 1271.80, +13.70. Bouncing off the test of the 200 day SMA breakout.

End part 1
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