Wednesday, January 02, 2019

The Daily, Part 1, 1-2-19

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1/2/2019 Investment House Daily
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Targets hit: None issued
Entry alerts: PG
Trailing stops: NVDA
Stop alerts: None issued

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- 2019 starts with an average session as the Dow swings 500 points
- A new year, the same issues: trade, Fed, economy
- Sellers take a big swing, market manages to recover just fine, indicating the relief move can continue after this pause.
- AAPL afterhours sales warning has futures right back down to the session lows.
- Despite a 20% selloff the market is still in transition.

A back and forth session to start the new year with the stock indices coming off a very weak open that saw the Dow almost 400 points lower. After gapping lower, stocks rallied into 2:00ET, flipping the indices from very low to modestly positive. An afternoon fade took away most of the gains, but given the open, the action was not horrible: stocks were sold but hung on to close in the test of the initial relief move off the December dive lower.

SP500 3.18, 0.13%
NASDAQ 30.66, 0.46%
DJ30 18.78, 0.08%
SP400 -0.31%
RUTX 0.54%
SOX 0.88%
NASDAQ 100 0.49%



Stocks overcame worries regarding trade (Lighthizer saying more tariffs needed to bring China to meaningful concessions), AMZN downgrade, NFLX missing on subscriber growth, China threatening Taiwan even as its economics roll over -- something South Korea's export numbers appear to confirm -- and bonds rallying, moving the curve back toward inverted. Plenty to worry about, but the stock indices came back in a failed attempt by the sellers to take the market back down.

What those issues were unable to do, however, AAPL may accomplish. As soon as the closing bell, AAPL guided lower on its Q1 revenues. It now expects $84B versus the $91.5B previous guidance, singling out the iPhone as the culprit, caused by China's economy. Not any reprisals by China, but a notably slowing economy really slowing down in the second half as the US tariffs take their toll. Oh, okay; just the iPhone. No wait, that is the primary source, by far, of AAPL's sales. Nothing to see here. AAPL, of course, remains 'optimistic' as Tim Cook put it.

As you would expect, futures are a bit lower afterhours with AAPL and its satellite companies (e.g. SWKS, AVGO, QRVO) down with it.

Okay, it is an overseas economic slowdown issue, and the stocks that are impacted the most are . . . the multinationals with lots of revenue from outside the US. Could it be another period of the big name Dow and SP500 stocks feeling the sting of other economies slowing? Perhaps, but the small and midcaps are not necessarily showing the US is the bastion of strength. RUTX rose 0.54% on the session -- leading the market -- but it is WAY off its highs. It does show some life on the week-old bounce, however . . . as the Markit US PMI reading fell to 53.8, the lowest since 9/2017.

The US is in a much better position than the rest of the world, but the US is not bulletproof. We know that because the Fed has hiked in a normal slowdown in the expansion and threatens to turn that normal ebb into a full recession. As Hans Gruber said to Theo in 'Die Hard,' you ask for a miracle, I give you the FBI. You want a recession out of prosperity? I give you the FOMC.

'You ask for a miracle Theo? I give you the FBI -- or the FOMC -- they are both government."

It would appear the Fed wants to slow the US into a recession along with the rest of the world instead of allowing the US to win the trade war and cement its position as the economic power. Who does the Fed work for you might ask. That is a good question. I am not totally opposed to what Powell is doing, but as is ALWAYS the case, the timing is simply wrong. Perhaps if Powell was Fed chair in 2010 or 2011 or 2012 we would be past this. Perhaps not. As the agents said in 'The Matrix Reloaded' about Neo, his is, after all, only a Fed chairman.

He is, after all, only a Fed chairman.



Not bad action, but the question is how they will react after AAPL's warning. Futures off 140ish NASDAQ, 300ish Dow, 30ish SP500.

SP500, DJ30, NASDAQ: All share a same pattern, i.e. bouncing off the new selloff low from late December starting 5 sessions prior, moving up to the 10 day EMA, and more or less stalling there the last 3 sessions. Wednesday a gap lower followed by a recovery to modestly positive, closing just over the 10 day EMA. Perhaps just a shakeout on this pause after the initial bounce, a shakeout that could clear the pipes for another leg higher on this bounce. Of course, you have to factor in AAPL's revenue warning and the other stocks that will feel the burden of that warning. Once again there will be downside pressure to start a session. How many lives does the bounce attempt have? Will it be like the cat in 'Christmas Vacation' (if that thing had 9 lives she just spent 'em all -- Cousin Eddie).

SOX: Gapped lower, reversed to close over the 20 day EMA for the first time since early December. Quite the achievement, but then again, AAPL's warning afterhours has AVGO, SWKS, LITE and other AAPL-suppliers down, even those not directly tied to AAPL such as AMD.

SP400: Similar to the large cap NYSE indices, but SP400 closed just below the 10 day EMA for the third session. Not a bad pause after the initial bounce, but as with the other indices, at the lick log for the life of the bounce.

RUTX: Same pattern as the large cap indices, closing just over the 10 day EMA as it tested the bounce early, rebounded to a gain, the best outside of SOX.


Some areas are good still (software), most are not, and some improving areas (e.g. gold) are not great market indicators.

Software: TEAM, WDAY remain in great patterns, moving higher. Others are setting up, e.g. SPLK, PANW. MITK breaking to a higher high today. TTWO may be putting in a bottom here. Software is still solid.

Machinery: Watching CAT, CMI, TEX, EMR. Thus far just bounces.

Food/Eateries: YUM is in an interesting position. CMG has bounced but it is pretty much a bounce. KO, PEP, KR, MKC not looking promising.

Retail: Trying to make rebounds. M, JWN, ROST put in decent moves though their patterns are not decent. Perhaps WMT, TGT, DG, TJX can bounce, but again it is an issue of not great patterns.

Personal products: In disarray, e.g. CLX, PG.

Drugs: Big biotechs are not bad, e.g. CELG, AMGN. MRK, PFE are so-so.

Gold: ABX, GOLD and other gold stocks are setting up patterns.

Financial: In bad patterns, but making a good move higher after the initial surge and pause. JPM, C, WFC, BAC, GS: all bounced, but again, not great patterns.


Stats: +18.78 points (+0.08%) to close at 23346.24

Stats: +30.66 points (+0.46%) to close at 6665.94
Volume: 2.27B (+8.1%)

Up Volume: 1.66B (+220M)
Down Volume: 579.71M (-51.9M)

A/D and Hi/Lo: Advancers led 2.42 to 1
Previous Session: Advancers led 1.82 to 1

New Highs: 12 (+3)
New Lows: 72 (-40)

Stats: +3.18 points (+0.13%) to close at 2510.03
NYSE Volume: 958.184M (-2.38%)

Up Volume: 642.112M (-27.761M)
Down Volume: 304.319M (+214.294K)

A/D and Hi/Lo: Advancers led 2.32 to 1
Previous Session: Advancers led 2.48 to 1

New Highs: 8 (+3)
New Lows: 63 (-6)


VIX: 23.22; -2.20
VXN: 30.09; -1.35
VXO: 25.14; -3.04

Put/Call Ratio (CBOE): 1.03; +0.05

Bulls and Bears:

Now THAT is a move. Both bulls and bears. Yes, a crossover in just about record time. Is this now indicating a bottom in stocks? Yes and no. It is an indicator that takes time for the rally to occur. That said, stocks have bounced -- modestly -- paused, and arguably in position to continue the bounce. This indicator, however, is more of a longer term indicator. As such, it suggests more than a bounce. Interesting, but need more good patterns to support a bounce; that can happen over time, and as indicated this is not an immediate, Pavlovian market response. Regardless, this was an impressive move.

Bulls: 29.9 versus 39.3

Bears: 34.6 versus 21.4

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: 29.9 versus 39.3
39.3 versus 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: 34.6 versus 21.4
21.4 versus 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: 2.643% versus 2.686%. TLT breaking out over the recent highs, taking on the July/August highs right now.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.686% versus 2.716% versus 2.774% versus 2.811% versus 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: 1.13343 versus 1.14450. Dollar surges, shoving the euro below the 50 day EMA in one big move.

Historical: 1.14450 versus 1.14425 versus 1.1432 versus 1.13588 versus 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: 107.515 versus 109.687. Huge plunge.

Historical: Last below 109 in June 2018: 109.687 versus 110.273 versus 110.845 versus 111.190 versus 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: 46.54, +1.13. Trying to form some kind of bottom the past two weeks after that big gap lower.

Gold: 1284.10, +2.80. Gold flattish on the session, but in the point of a very long triangle.


Short week, lots of news, lots of activity. All about AAPL afterhours and its warning (though outside of China iPhone revenue is +19% year/year) and its impact on the market. And the Fed. Will the Fed realize that China is slowing and the rest of the world is slow (see South Korea export dive) and they put the US at risk as well as threaten our superior position in the trade war? Seems plausible, but it is the Fed and rational thought leaves the building when those so-wise sages are involved.

Stocks are set to open weaker. SP futures off 39.25, NASDAQ 158.50, DJ30 350. Basically the same kind of start for Wednesday, and as seen in that session, big early moves don't mean all that much. Sometimes.

Now, is this a buying opportunity? One school of thought is this is as bad as it gets, i.e. the big name, the loved stock, warns. That happened with DELL once upon a time, and that marked the top for DELL. Yes, this is supposedly very specifically tied to China. That is a very tough call-- the market was already pricing in problems and this is the second issue in the past couple of months. How AAPL responds will be interesting not only for APPL but for the rest of the market. If a stock is not clobbered on bad news, that is good news. AAPL is down 8%ish afterhours; not good, but not a crushing blow and just about where it was on the December selloff low.

Longer term the stock market looks very vulnerable. Prior historical runs of this nature (1995 to 2000, 2003 to 2008) sold back 20% before really collapsing. The current market is down roughly 20% on its lows, right where the others were before they sold off.

At the same time, the internals hit extremes, sentiment not bad with VIX finally surging (though now giving up that entire move) and now bullish advisors tumbling while bearish advisors surge into a crossover, a powerful though not immediate signal. These suggested the bounce from the past week and should produce more upside.

Competing forces: Fed slowing the economy, a slowing economy, big and profitable companies warning are not good indications for the economy or market. At the same time the internals and sentiment are extreme (new lows, advance/decline, bearish advisors). Not a lot of good patterns right now, just bounces from lows, but that can change over time in the wake of the extreme sentiment readings.

That is the conflict right now in the market. It can produce a further rally in the current bounce given the internals and sentiment. Unless more quality leadership patterns emerge it likely does not lead to new highs.

That is where the overall picture comes in, the massive move higher, the Fed removing its balance sheet bloat (and thus draining money supply), the slowing economics -- historically there are big drops from this, and I am not sure the Fed could even turn the tanker ship at this juncture if it simply stopped hiking and shrinking the balance sheet.

Despite a 20% selloff, the market is still in transition. It has not made the final move for this transition. We will play good setups as usual, keeping in mind the overall setup and watching the moves in that context.

Have a great evening!

End part 1
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