Saturday, December 08, 2018

The Daily, Part 1 of 3, 12-8-18

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12/8/2018 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: None issued
Entry alerts: None issued
Trailing stops: XLNX
Stop alerts: ADBE; AMAT; LRCX

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The Market Video is DIVIDED into component parts: Market Overview, Economy, Technical Summary, and the Next Session. Choose the segments you are interested in without having to search a longer video. Click on the link to the portion you wish to view.




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.


- Thursday intraday reversal flops with the indices back down to the bottom of the range.
- Trade and yield curve inversion issues likely showing no near-term resolution.
- OPEC cuts production more than expected.
- Some leaders remain solid, others continue eroding.
- Market heads into the week trying to hold the selloff trading range.

The Thursday rebound from the bottom of the late October to present trading range failed Friday. From the get go. Stocks had no upside follow through to the 1492 point round trip on DJ30. Sure futures bumped higher off the lows after the jobs report was a bit weaker than anticipated and OPEC struck a deal to cut production by 1.2M bbl/day, more than anticipated. Indeed, stocks even started to recover as the trading session started. Within 10 minutes, however, the bids died and a half hour into trading the selling started in earnest. Stocks sold all session, taking the indices back down to the October/November lows with RUTX even closing below those lows.

SP500 -62.87, -2.33%
NASDAQ -219.01, -3.05%
DJ30 -558.72, -2.24%
SP400 -3.74%
RUTX -1.98%
SOX -3.74%
NASDAQ 100 -3.30%

VOLUME: NYSE -19%, NASDAQ -12%. Volume faded from the spikes Tuesday and Thursday, but was still above average as NYSE sold off. NASDAQ trade remained at average levels, elevated since it started selling back from the 200 day SMA test.


So what was the problem? A bounce off the bottom of the range, the WSJ reporting the Fed will adopt a wait and see view to further hikes after the December hike -- if that even occurs as some on the Fed (Bullard) are now suggesting the Fed pass on a December hike, and the US and China calling a truce on the trade war for 90 days. Everything would appear conducive to the market rebounding.

Perhaps not. There is the yield curve that is stating to invert among the shorter maturities and the concern is the Fed will hike in December right into an inverted curve and bring about the usual result of a Fed hiking campaign: bear market, recession. The irony drips with bitterness: the Fed is always trying to prevent overheating leading to inflation that it causes a recession -- and inflation.

The yield curve is a huge, unresolved issue.

Then there is trade, truce or no. Thursday Canada arrested the CFO of Huawei for extradition to the US on charges of fraud. It is alleged she lied to US banks, inducing them to fund projects that were in violation of the US sanctions against Iran. Kudlow on Friday said he did not believe the arrest would impact the trade negotiations, but that may be just hope. He is an optimistic guy after all.

The real issue with trade is that a truce is just a truce. It is not resolution. So now, unless something happens faster than expected, at best we are in for 90 days of perhaps not a trade war but a truce war where we hear the daily back and forth sausage making process and have to deal with good and the bad that comes out. That is another way of saying uncertainty as to the future, and you know how the market disdains uncertainty.

Thus, as the 'truce war' proceeds the market has to deal with the possible outcomes, overlaid with the concerns of yield curve inversion and what that can mean for stocks.

Both of those are weighing on stocks and quite frankly the best outcome could very well be moves up and down inside the trading range while investors and traders and algorithm programs react to the daily news and events. Those algorithm trading programs, as we saw ahead of the Wednesday market closure, can be unpredictable as the word was that they were not programmed on how to react to an unexpected market closure. Not very comforting explanation.

That is not a great prognosis for the market, at least in terms of upside outside the current range. It may even prove difficult to hold the range given the uncertainties.



After starting the week at or near the early November high, the top of the two-month trading ranges, stocks sold off to the bottom of the range to end the week. RUTX undercut its range on the Friday close. Now they show if they can hold the range. Every upside has been undercut by the ongoing issues and the 200 day SMA MA's are broken with the 50 day MA's crossing down through them in the so-called 'death cross.' Thus the overall bias has to be to the downside with these bounces off the bottom of the range.

SP500: Closed just over the November low, at the bottom of the October to present trading range. MACD continues to rise, to put in higher lows suggesting still upside momentum. Yes, there is that: some big surges inside the range for certain. As with the other indices, SP500 will have to show it can hold the range bottom and mount another bounce.

DJ30: Same action as SP500, testing the prior lows, its third trip to these levels. As with SP500, MACD continues to trend higher and looks as if it will put in a higher low -- if DJ30 can hold here again. That would suggest a hold yields another bounce higher in the range. Unlike SP500, the 50 day MA has not moved down through the 200 day MA, that is, no 'death cross' that suggests further downside to come.

NASDAQ: Sold below the October closing low, still over the November low (6908; closed 6929). Approaching the 2016 trendline it held and bounced from mid-November. MACD continues to trend higher here as well despite the 'death cross' on November 26. NASDAQ has the prior lows in the range as well as the 2016 trendline to try and bounce it back upside in the range.

RUTX: First close below the October low. No rebound this time. Small caps are the most economically sensitive stock group and their break below the October and November selloff lows suggests the Fed has again overshot in its zeal to remove what we worked so hard to achieved after 10 years of economic decline.

SP400: The midcaps are not as damning as the small caps though they did close at a lower closing low. Still above the October intraday lows and thus hanging in the range.

SOX: After peaking at the early October lower gap point SOX sold off into Friday. It closed below the November closing low but is still well above the October lows. MACD continues trending higher here as well. Chips were hard hit Friday on trade worries even as AVGO beat earnings expectations.


Still some leaders, but the trend is less leaders versus more appearing. The week saw what was left of retail leaders collapse with drugs and software under pressure.

Retail/Apparel: Leading downside with so many breaking lower. LULU, ULTA, DG, WMT. Lots of heavy breaks by retail leaders as other leaders fall from leadership, at least upside.

Utilities: Not exciting, not leadership that breaks the market to new highs, but performance is performance, e.g. AEP moving higher Friday, keeping the uptrend in place.

Personal products: Makeup is now struggling as EL reversed a Monday breakout. PG, CLX continue their uptrends, now testing the 20 day EMA.

Food: Under pressure to end the week though holding up. YUM tested the 20 day EMA on the week, still a solid pattern. KO broke higher two Fridays back but then faded to the 20 day EMA to end last week. PEP broke higher the same Friday but fell to close below the 20 day EMA Friday. MCD tested the 20 day EMA but did slip below it Friday though very low volume. CMG holding the 50 day EMA as it tests. Still overall a solid sector.

Software: Showing some resilience and relative strength, but down for the week. TEAM still looks great VMW, VRSN, CRM, GLUU still holding their patterns but fighting to do so. ADBE broke lower below the 200 day SMA Friday in a sign of weakness.

Drugs: Biotechs tried to breakout but reversed hard, e.g. AMGN, the leader of the pack. Smaller biotech still has some winners e.g. BCRX, CRMD, ZGNX. Big pharma is under pressure, testing support to end the week having started to sell Tuesday. LLY, PFE, MRK.

FAANG: FB is still trying to rise up through the 20 day EMA as it tests that level for the sixth time since breaking below it in late July. AAPL sold to a lower low Friday as its woes regarding smart phone saturation and Chinese trade. AMZN broke over the 200 day SMA Tuesday then gave it back immediately. NFLX tried to rebound but failed at the 20 day EMA. GOOG gapped upside to the 200 day SMA Tuesday then reversed and sold off through Friday.

Chips: Under real pressure. NVDA tested the 20 day EMA and rolled over into Friday. AMAT and AMD reversed an early week move and broke support. SLAB showed the same action. ON as well. The pattern repeats all over the sector.

Financial: AXP broke out 7 sessions back. It hit a higher high Monday but reversed to give up the breakout. Banks still struggling, diving lower Tuesday and Friday, e.g. JPM, C. GS selling to lower lows as is MS.


Stats: -558.72 points (-2.24%) to close at 24388.95

Stats: -219.01 points (-3.05%) to close at 6969.25
Volume: 2.5B (-12.28%)

Up Volume: 426.6M (-1.203B)
Down Volume: 2.03B (+850M)

A/D and Hi/Lo: Decliners led 2.63 to 1
Previous Session: Decliners led 1.6 to 1

New Highs: 17 (+8)
New Lows: 270 (-195)

Stats: -62.87 points (-2.33%) to close at 2633.08
NYSE Volume: 1.031B (-19.36%)

Up Volume: 196.07M (-267.342M)
Down Volume: 821.558M (+16.826M)

A/D and Hi/Lo: Decliners led 2.19 to 1
Previous Session: Decliners led 1.58 to 1

New Highs: 39 (+4)
New Lows: 259 (-389)


VIX: 23.23; +2.04
VXN: 28.03; +2.06
VXO: 27.13; +3.60

Put/Call Ratio (CBOE): 1.17; +0.09

Bulls and Bears:

Seriously? Bulls surge over 8 points past the mid-forties. The trend, however, is lower. Bears continued higher, taking out the prior 2018 high. That is a positive longer term. Bears have been absent for over 2 years.

Bulls: 46.7 versus 38.3

Bears: 21.5 versus 20.6

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: 46.7 versus 38.3
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: 21.50 versus 20.6
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: 2.854% versus 2.892%. Surged to the 200 day SMA and managed to hold near that level into Friday. This suggests there is concern about the economics and it also flattens the yield curve.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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% 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%

EUR/USD: 1.1404 versus 1.1376. Breaking over the 50 day MA for the first time in two months.

Historical: 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 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

USD/JPY: 112.66 versus 112.71. Just below the 50 day MA after that Monday flop lower.

Historical: Last below 109 in June 2018: 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. Was at 110 three weeks back.

Oil: 52.61, +1.12. Up on OPEC reducing daily production 1.2M bbl, but gave up a move over 54 intraday. That leaves oil still below the 10 day MA.

Gold: 1252.60, +14.50. Continued to surge toward the 200 day SMA, a level it has not touched since June.


The indices start the week testing the bottom of the range formed with the October selling. The patterns and technical indicators suggest a trading range with moves from where the indices closed Friday back up to the November highs. After a reversal off the trading range lows Thursday, however, stocks fell right back to the bottom of the range. The range is there but the indices are not just surging off the lows given the trade, yield curve overlays that don't appear to have any near term resolution.

Heading into this week we watch how the indices hold the bottom of the range. We have upside plays that are still holding support; if the indices bounce, they will as well. We also have some more upside plays on leaders that have tested well while maintaining their trends as well as some downside plays ready -- if the bottom of the range does not hold, of course a possibility after the Thursday reversal bounce folded on Friday.

With the continuing uncertainty in key areas the market likely trades in the range as the best possible upside outcome, and if not, then we play downside.

Have a great weekend!

End part 1 of 3
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