Thursday, January 03, 2019

The Daily, Part 1 of 2, 1-3-19

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1/3/2019 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: None issued
Entry alerts: CRON; FFIV; QID
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- A bad AAPL spoils the market? Bad news is not good news for stocks.
- Indices sell away from the relief bounce to the 10 day EMA as the relief move looks to have ended.
- Fed's Kaplan calls for a 2-month hike moratorium. It won't happen, and even if it did, too late.
- ISM continues economic weakness while the lagging ADP surprises upside.
- Stocks try a recovery, fail and then roll back over.
- Jobs Report due out Friday. Good news similar to ADP could be bad for stocks.

Just one bad AAPL spoiled the market. AAPL's revenue warning, China-centric or not, sent most stocks lower Thursday with, of course, the brunt of the selling felt by techs -- though, other areas such as transports felt equivalent pain (AVGO -8.9%, DAL -8.94%).

SP500 -62.14, -2.48%
NASDAQ -202.44, -3.04%
DJ30 -660.02, -2.83%
SP400 -1.59%
RUTX -1.31% (after holding positive into the afternoon session)
SOX -5.94%
NASDAQ 100 -3.38%

It would be unfair to blame AAPL for all the selling. Unfair, though likely accurate: once a big name such as AAPL sees revenues top out the end of its growth status is usually nigh. AAPL blames China, but then again, AAPL made its bed back with the iPhone 8/iPhone X rollouts, putting out the 8 two months before the X, and the X coming in at a cool $1000. AAPL needs China, India and other densely populated countries to continue the company's growth, yet it has priced its phones out of the market. Someone making the average Chinese salary of $10K has to pay 1/10 of his gross salary to have an iPhone? In India the average salary is considerably less. Good luck with that.

Okay, okay. Jobless claims rose 10K to 231K.

ADP reported +271K jobs for December, causing some to squeal with fear that the Fed would use that as a reason to stay the course with hikes and balance sheet reductions. At the same time, however, the Fed's Kaplan was out this morning stating the Fed should wait "a couple of quarters" before hiking again. Oh, so sage, so wise. Yet this is how it always is: by the time the Fed 'waits' -- if it even does -- the damage continues and then the Fed has to reverse its actions. It is, alas, all too late. The Fed waited when it should have already acted to reverse the damage done. We are witnessing a rapid slowing that should not be, and the Fed is having to argue with itself as to whether it should stop hiking into a rapidly weakening economy. But the jobs? What about ADP? JOBS ARE LAGGING!

Mortgage applications -10% to end 2018 as housing markets from New York to Florida to the west coast suddenly flop.

ISM, January: 54.1 versus 57.8 versus 59.3 December. Still in expansion but the trend is lower and the misses beat the anticipated slowing. By a lot.

The internals were not great:
New orders: 51.1 vs 62.1
Deliveries: 57.5 vs 62.5
Employment: 56.2 vs 58.4
Customer inventories: 41.7 vs 41.5 (not a good rise as it shows product stacking up and not being sold)

Again, not a horror story, but it is the trend and the rapidity of the decline. It fits the current 'economic slowing' meme in the face of a Fed that feels it is its duty to hike rates and drain the balance sheet. Kind of like Judge Smails in 'Caddyshack' sending the kids to the gas chamber: didn't want to do it -- felt he owed it to them.

Bonds: Bonds are surging with the 10 year plummeting to 2.552% from 3% just weeks back. The 2, 3 and 5 year bonds are now trading below the Fed Funds Rate. Yield curve inversion coming soon to a market near you!

No wonder stocks struggled. They opened lower (DJ30 -230) but were on the upswing from the bell. Then they started to falter, and when the ISM hit they exploded lower. The down went from -300ish to -600+. They recovered, however, into midday -- only to roll back over and spend the afternoon session giving it all back to close at the morning lows. What bids there were on the lower open, what looked to be another Wednesday with buying on the dip, fizzled and stocks flopped.


To view, click on the following links:

The relief bounce started 6 sessions back that made it to the 10 day EMA then paused to reset, well, it reset to the downside. The Dow and SP500 rolled over and sold hard on rising trade. What looked as if it would be a bit of a pause leading to a continued run did not get the news needed to continue. Too much indication of slowing, regardless of ADP, given China's PMI, South Korea's exports, US ISM, bonds surging, etc.

SP500, DJ30, NASDAQ: As on Wednesday, these indices share the same pattern. All were just over the 10 day EMA after 3 days of rest, but then broke sharply lower Thursday. Has the look of classic bear flag action. Perhaps, as cousin Eddie from 'Christmas Vacation' would say, they have spent all their lives.

SOX: Sharp break lower as well, falling from the 20 day EMA and already below the October low, heading toward the late December low.

SP400: Not as dramatic a rollover. Falling away from the 10 day EMA but showing relative strength again along with RUTX.

RUTX: Tried higher over the 10 day EMA but reversed to close lower. Still, it was again the relative strength leader as the large cap multinationals play 'catch down' to the small and midcaps that sold off hard early on.


Consumer Products: Tried to hold the line and did show relative strength, but even these sold back from session highs, e.g. CLX, CL, PG.

Software: Under pressure along with most techs, but stocks such as TEAM and WDAY held the pattern despite all the selling. FFIV rolled back over, however. Most software is still hanging in decent patterns, e.g. SPLK, PANW, but right now not many are stepping in to buy though they might not be selling.

Machinery: Lower, but not hammered, likely because they were already lower, e.g. CMI, TEX, EMR. CAT was down harder. Not exactly beautiful pictures.

Transports: Crushed. DAL -8.94%, AAL -7.45%. JBHT -2+%, ODFLY -3.7%.

Retail: Held on decently after good Wednesday moves. JWN, ROST, M, WMT, TGT, TJX -- not great patterns but they were not getting clobbered.

Drugs: Gee, I guess NO ONE knew about the BMY acquisition of CELG Wednesday as that stock jumped ahead of the announcement Thursday. PFE turned over at the 50 day EMA, MRK similar.

Financial: After solid upside Wednesday, some fading but not bad. JPM lost some ground as did C, BAC, WFC, GS -- modest pullbacks and could still bounce though somewhat strange given bonds surging and rates falling.


Stats: +98.67 points (+0.40%) to close at 24922.68

Stats: +58.63 points (+0.84%) to close at 7065.53
Volume: 2.16B (+12.5%)

Up Volume: 1.41B (-70M)
Down Volume: 683.19M (+273.71M)

A/D and Hi/Lo: Advancers led 1.45 to 1
Previous Session: Advancers led 2.25 to 1

New Highs: 246 (+72)
New Lows: 25 (+1)

Stats: +17.25 points (+0.64%) to close at 2713.06
NYSE Volume: 808.3M (-0.07%)

Up Volume: 2.13B (-410M)
Down Volume: 1.33B (+503.58M)

A/D and Hi/Lo: Advancers led 1.45 to 1
Previous Session: Advancers led 1.59 to 1

New Highs: 214 (+27)
New Lows: 28 (-7)


VIX: 9.15; -0.62
VXN: 14.16; -0.77
VXO: 7.99; -0.17

Put/Call Ratio (CBOE): 0.85; -0.03

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: 2.552% versus 2.643%. TLT surging upside, clearing the July and August highs. Always an important move to clear the initial recovery highs from selling. The 2, 3, and 5 year bonds are now less than the Fed Funds rate.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.643% versus 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: 1.13957 versus 1.13343.

Historical: 1.13343 versus 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: 107.713 versus 107.515

Historical: Last below 109 in June 2018: 107.515 versus 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: 47.09, +0.55. Trying to bounce some after the sharp drop.

Gold: 1294.80, +10.70. Gold resumes its strong run.


December jobless claims are out premarket, and after the ADP numbers beat expectations by 101K, it is possible for a beat that could spook the market for fear the Fed just keeps on keeping on despite jobs being a lagging economic indicator. The ISM was a miss and that worried the market -- not because the Fed, but because it is more a leading indicator, showing weakening. A strong jobs report does not mean the economy is strong, but the Fed will view it that way. Remember, the Fed wants people to lose jobs. It feels, after 10 years of abysmal economic performance, that a year of strong economic gain is too much. Are they nuts? Of course they are. It is not hard to hate the Fed. Not because they are hiking rates and lowering its balance sheet; it is the timing of the action. Always the wrong time, causing economic hardship, the kind it is supposed to avoid.

Thus, there won't be the 'Kaplan pause' he called for today, at least not as of Friday. The economy would have to continue to fall. It is ironic that now the March FFF contract is starting to build in a possible rate cut. Too late likely. The damage is being done now, not in March.

All of that is just food for thought. The market turned lower today after a pause. Plenty of negatives, too many for the market to bounce. We were watching to see if AAPL or some other part of the market could hold up and actually move higher in the face of bad news. Didn't do it. Looks as if the relief bounce has failed for now.

Have a great evening!

End part 1 of 2
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