Thursday, February 07, 2019

The Daily, Part 1 of 2, 2-7-19

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2/7/2019 Investment House Daily
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- The resistance is resisting and the indices fade.
- DJ30, SOX test resistance from above, the rest fade to try again, some day.
- Negative trade comments credited with the selling; they certainly acted as a catalyst for what was already set up.
- Banked some good gain, closed some problematic positions, now we see how the stocks set up.

It comes as no surprise the indices sold Thursday. We tracked them up to this resistance as they started the third leg, faltered, then caught the wind. As stocks rode higher we took a lot of gain along the way, anticipating a bit of resistance at the 200 day SMA and near the top of the October/December range. Again, no real surprise: third leg, a good solid move roughly equaling the other moves, resistance right there, and earnings running their course as the indices made that resistance.

It was a pretty easy fade pre-market and indeed stocks did climb off those lows at the open and into the first hour. While not out and out buying, there was certainly no out and out selling, and thus a weaker open that did not spiral out of control.

At least not until Larry Kudlow appeared on CNBC from the White House lawn, stating there was "a sizeable distance to go" in order to reach a trade deal with China. Clearly -- at least it seemed to us -- the Trump style of negotiation in view: talk a lot about how things don't look good, etc., keeping the other side guessing (recall both sides were optimistic just last week and the week before) and thus keeping the pressure on to get the deal to the finish line with a favorable result.

Of course the market only wants to hear good news, particularly when the market has posted a nice run, buyers are a bit thin, and resistance is pushing back. Thus, stocks dropped abruptly into midday. An hourlong double bottom and then in the afternoon session they moved slowly higher, closing out with a short spurt. Didn't turn any index positive, but brought some of the -1+% index losses back under 1% to close.

SP500 -25.56, -0.94%
NASDAQ -86.93, -1.18%
DJ30 -220.77, -0.87%
SP400 -0.45%
RUTX -0.82%
SOX -2.24%
NASDAQ 100 -1.32%

VOLUME: NYSE +19%, NASDAQ +6%. NYSE trade rallied to near average, more volume on the selling than the recent gains. NASDAQ trade edged just above average, also rising on the selling. Nothing major but definite selling pressure on day 1 of a test.



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The index charts show little damage -- it was no scalding rollover, and as noted, stocks came back from the midday lows. Some decent tests in fact by the leading indices. This was the first move after either clearing the 200 day SMA or rising to it during the third leg higher. Now it is a matter of how the leadership groups test and if they set up for new upside moves.

DJ30 dropped back and tapped the 200 day SMA on the low and right at 25,000. It rebounded 170 points to the close. A good test of the prior resistance, thus far holding. That is about all you could want to see for now.

SOX was similar, gapping lower and dropping to test the 200 day SMA, then recovering in the afternoon to hold that level. Now, the issue with the action is SOX gapped sharply higher Wednesday, shooting above the 200 day SMA on the move. It was pretty soundly sent back, and sent back fairly hard. Okay, so it is back at the 200 day; it will need to hold the line in this range around the 200 day.

SP500 gapped down away from two days just below the 200 day SMA. Undercut the 10 day EMA on the low, recovered to hold it on the close, showing a doji with tail. Not bad action, but unlike DJ30 and SOX, SP500 is making a test from the south side of resistance, unable to make the break over the 200 day or the top of the October/December trading range.

NASDAQ showed the same action, gapping down from below the 200 day SMA and showing a doji with tail sitting on top of the 10 day EMA at the close. Made it to resistance with a nice weeklong run, not bounced down and making a test. Will see if its leaders set back up for a new run at the resistance.

SP400 and RUTX never came close to the 200 day SMA, and NASDAQ never came close to the top of the October/December range. They rallied decently nonetheless, and the Thursday action was quite modes to the downside. SP400 shows a tight doji with tail tapping the 10 day EMA on the low and bouncing while RUTX tested the 10 day EMA as well and rebounded, though not as tight as the midcaps.


Fading back in most cases, and some had already started a bit of a test; the Thursday action was another good day in working a good pullback. Some did not even fade; obviously there was no memo released telling people to dump stocks. The leaders mostly performed in very orderly tests while some with well-known names, e.g. GOOG, really struggled.

Semiconductors: Big movers were hit with some selling that makes you notice. SWKS gapped upside to the 200 day SMA Wednesday, lost 3.7% Thursday. AMD sold farther, doji tapping the 10 day EMA. AMAT no real issues, INTC gapping to the 200 day SMA and showing a doji. MU dumped 5% -- at least it held the 10 day EMA. Mostly still decent though QRVO sold fairly aggressively after the gap and surge that didn't hold the surge so well Wednesday.

Software: Some testing, some not. COUP sold back but recovered much of the downside; it is in the process of testing. CRM testing the 10 day EMA on light trade in a 3-day fade. ADBE still looks very good in its test. NEWR gapped to a doji in a wide range and wild session. DATA for a second day was under serious pressure. NOW is testing, but hardly noticing the market.

Food: CMG surged 11+% on earnings. YUM dove lower to 88.50 on its earnings but managed to recover to flat at 94.61. DNN gapped lower on its earnings -- I guess you could say the earnings were feast or famine . . . PEP and KO kept setting up their patterns; very good.

FAANG: FB faded through the 200 day SMA; not death, still holding the upper gap point, but not what you want to see after the gap, hold, and start of a new move. AAPL gapped and lost a bit of ground. Likely comes back to test the 50 day EMA and we did not want to ride that down. AMZN gapped down to and managed to hold the 50 day SMA. NFLX testing the 200 day SMA on the low. GOOG gapped lower, giving up the prior breakout. A very mixed group right now.

POT: Both CRON and CGC bounced Thursday after 2 and 3 day pullbacks. We will see if the bid holds and they present new entries; a bit early right now.


Stats: -220.77 points (-0.87%) to close at 25169.53

Stats: -86.93 points (-1.18%) to close at 7288.35
Volume: 2.3B (+5.99%)

Up Volume: 692.03M (-327.97M)
Down Volume: 1.57B (+490M)

A/D and Hi/Lo: Decliners led 2.07 to 1
Previous Session: Decliners led 1.09 to 1

New Highs: 34 (-16)
New Lows: 35 (+17)

Stats: -25.56 points (-0.94%) to close at 2706.05
NYSE Volume: 943.377M (+19.19%)

Up Volume: 258.592M (-12.237M)
Down Volume: 676.743M (+169.877M)

A/D and Hi/Lo: Decliners led 2.2 to 1
Previous Session: Decliners led 1.5 to 1

New Highs: 60 (-1)
New Lows: 24 (+15)


VIX: 16.37; +0.99
VXN: 20.92; +1.18
VXO: 16.79; +1.51

Put/Call Ratio (CBOE): 0.99; +0.02

Bulls and Bears:

Bulls rebounded farther but the move has slowed after that crash into the thirties during the December selloff. Bears are fading but bulls and bears crossed and did their 'thing' in terms of a contrary signal.

Bulls: 45.8 versus 45.4

Bears: 20.6 versus 21.3

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: 45.8 versus 45.4
45.4 versus 34.8 versus 29.9 versus 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: 20.6 versus 21.3
21.3 versus 29.4 versus 34.6 versus 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: 2.657% versus 2.695%. Bonds trying to rally off the test of the 20 day EMA, now a 5 week test off the early January high.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.695% versus 2.702% versus 2.725% versus 2.684% versus 2.64% versus 2.679% versus 2.710.5 versus 2.738% versus 2.748% versus 2.734% versus 2.741% versus 2.75% versus 2.788% versus 2.752% versus 2.727% versus 2.718% versus 2.706% versus 2.699% versus 2.733% versus 2.712% versus 2.731% versus 2.694% versus 2.668% versus 2.552% versus 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%

EUR/USD: 1.13396 versus 1.13645. Euro continued lower for the seventh session. Back near the range low of the past four months.

Historical: 1.13645 versus 1.1396 versus 1.14350 versus 1.14554 versus 1.14478 versus 1.14924 versus 1.14351 versus 1.14285 versus 1.1407 versus 1.13134 versus 1.13830 versus 1.13652 versus 1.13636 versus 1.13919 versus 1.13993 versus 1.14802 versus 1.14734 versus 1.14699 versus 1.15075 versus 1.15532 versus 1.14547 versus 1.14834 versus 1.13980 versus 1.13957 versus 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

USD/JPY: 109.793 versus 109.803. Still moving laterally below the 50 day MA.

Historical: Last below 109 in June 2018: 109.803 versus 109.777 versus 109.987 versus 109.53 versus 108.85 versus 108.96 versus 109.364 versus 109.180 versus 109.545 versus 109.757 versus 109.58 versus 109.651 versus 109.773 versus 109.133 versus 108.912 versus 108.551 versus 108.340 versus 108.563 versus 108.332 versus 107.959 versus 108.802 versus 108.705 versus 108.517 versus 107.173 versus 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

Oil: 52.64, -1.37. Broke lower below the 50 day MA. Still in the range.

Gold: 1314.20, -0.20. Still testing the high from late January.


Earnings are still coming out fast and stocks are reacting, but on an individual basis -- just as they were at the start of the season. The market overall was rallying and earnings didn't change that -- there were as many or more misses than beats, yet the 'right' stocks were beating and they helped propel the market. Afterhours EXPE beat and rallied. SKX beat the bottom line but missed the top -- it was still up 4 to 5 clicks.

Earnings are still impacting stocks, but they are winding down. Today the big impact was trade and Kudlow's comments followed by the President saying, when asked about a meeting with Xi, 'not yet.'

Was it trade? Well, there was a DJ30 drop from -94 points to -220 on the headlines, on the way to down over 300 on the low.

Trade triggered the selling that was set to occur. We have taken gain, we took some more. We closed some positions that were problematic, preferring to get out here than after a few days of more downside. If they set up and look great we will be ready to get back in.

The session was mild overall and it could be quick and relatively painless, but past episodes were not necessarily quick and easy. So, we let the plays still moving higher continue, but if they struggle and have near term options we take the gain. Several are in nice tests of support and as long as they hold, great. You want to see the other stocks that are extended test back to near support and set up new moves as well. For now, however, it looks like the test is here and we will be patient and let it run its course.

Have a great evening!

End part 1 of 2
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