Sunday, February 17, 2019

The Daily, Part 1 of 3, 2-16-19

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2/16/2019 Investment House Daily
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Targets hit: None issued
Entry alerts: NFLX
Trailing stops: None issued
Stop alerts: None issued

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- Can there BE any more upside catalysts?
- Friday DJ30 and the small caps break sharply upside.
- Money flows to new areas, perhaps spawning new leaders.
- Market leaders up to the fourth leg taking a breather, letting others do some work.
- SP400 moves to the top of the Oct/Dec range as other indices continue their climb to the same level.
- Still no signs of sellers, and with new leadership the indices can take on the resistance, perhaps break through.

Expiration Friday, weak-ish economic data, three-day weekend, trade talks to continue in DC next week, ECB talking new QE, the notion the Fed is done hiking rates and reducing the balance sheet. Pretty much market nirvana, particularly for those areas that lagged for fear of trade and a slowing global economy. Heck, even for stocks tied to the domestic economy.

Futures posted a slow steady burn upside all pre-market, and stocks started upside, rallying for the first hour. A 4+ hour lateral stagnation (but no selling) then a sprint to the close the last half hour. That action fueled some strong gains and some not so strong gains. The spotlight focused on industrial stocks, financials, small caps. Even energy is showing signs of stirring. It was not techs or semiconductors, but those were hardly chopped liver.

SP500 29.87, +1.09%
NASDAQ 45.46, 0.61%
DJ30 443.86, 1.74%
SP400 1.18%
RUTX 1.56%
SOX 0.53%
NASDAQ 100 0.47%

VOLUME: NYSE -1%, NASDAQ +7%. Both exchanges posted average trade -- not blowout but solid enough ahead of a 3-day weekend.



On expiration it appears there was some reallocation. Not that any sector was annihilated, but the large techs and chips took a back seat and FAANG was mostly lower. The money was pushed to more the 'old economy,' e.g. industrials, machinery, financial, both large caps and smaller caps.

I discuss frequently the need for generating new leadership to keep a rally moving. Chips, software and a few others provided the backbone of the upside in the first three legs higher. This attempt, as the indices clear the 200 day SMA, is showing new groups coming forward. MMM was an early leader in the group, of course BA as well with its takeoff on earnings. Friday others that were attempting moves put in some good work with stocks such as UTX breaking up through the 200 day MA. HON is over and tested. CMI is breaking out.

With these stocks moving higher it appears money is moving their way, trying to turn some of these groups into leaders. More leadership the merrier. These moves hold some promise and we will see how they fare this coming week.


Working higher, but the key is there are not new breakouts. The indices are moving upside in their fourth leg toward the tops of the OCT/DEC range. SP400 is indeed bumping that resistance as of Friday's close. New leadership provides some promise that perhaps the indices can do more than just bump that resistance.

SP400: And the children shall lead. Why not? The midcaps quietly rally, clearing the 200 day SMA on the Friday close (joining DJ30, SOX). They also cleared the early December peak, the lowest high in the range. They closed out the week at the November peak and October recovery peak marking the top of the range. A weeklong move to the top of the range so they may not be in the best position to go ahead and breakout from here, but definitely not rolling over.

RUTX: Small caps posted a strong gain, a market leading gain with DJ30. They have now more than fully retraced the selloff from early December. Still below the 200 day SMA, still below the other two highs in the OCT/DEC range, but as with the other indices, the recovery continues, and indeed for the small caps, increases.

DJ30: The Dow waffled some after clearing the 200 day SMA, spending about a week working laterally. Up early week, then put in a more definitive move Friday. What did Tin Cup say? When a defining moment comes, you define it or it defines you. Whatever the heck that means though I believe Cup used it as an excuse for his many failures. Anyway, the Dow received quite a bit of backing from its component stocks (outside AAPL), particularly industrials, financial.

NASDAQ: NASDAQ gapped higher, just clearing the 200 day SMA, but then fading to close just below. It was not the larger techs' session. They have led and are now, in some cases, taking a breather.

SOX: A solid week, and while SOX was not in the lead Friday it still put in a gap upside for a gain. Higher recovery high on the week, still in the middle of the summertime base range, steadily working higher.


Financials: After so much promise, a good move Friday. Another head fake or something real? BAC broke over the 200 day SMA while JPM and C posted good moves higher out of 5 week lateral moves. V has been slow, but Friday it cleared the February highs. GS showed decent action off the 50 day MA, though it did not convert us. STT looks interesting as a regional bank, but TCBI is still in its 3-week sleepwalk.

Machinery: CMI cleared the early December high. TEX moving up though not as good a pattern; still, not a bad inverted head and shoulders. Ditto CAT -- still below the 200 day SMA. DE complained of the tariffs with its earnings report, but it shows a nice hammer doji just over the 50 day MA.

Manufacturing: MMM started up again after a quick test of its break over the 200 day SMA. UTX cleared the 200 day SMA. BA moving up after a 1.5 week consolidation of its earnings gap and run. Interesting.

Healthcare: ABT clearing a 4+ month base. ISRG gapped higher, clearing key 4-month resistance. MRK broke higher early week, coasted upside to a higher high Friday. LLY breaking just past recent highs.

Semiconductors: Slowed the 3 week move late week, not dropping, just working laterally after a good move, e.g. MLNX, LRCX, RMBS, UCTT. INTC just kept gapping higher on low volume, leading the group. AMD trying to break higher, not really doing it yet. MU posted a decent move last week, hitting our initial target. NVDA gapped up on earnings; we bought in the night before, took a decent 30+% gain on the initial gap higher.

Software: A bit tired overall after some very good moves higher: COUP, TEAM, NOW. VMW just kept moving higher as did SPLK. ADBE is making a nifty little test of a move higher; it could present a good entry finally this week.

POT: CRON tested the 10 day EMA for two weeks, trying to move up. CGC fell below the 20 day EMA early week but edged back up and finished Friday with a solid move.

RETAIL: WMT is clearing some resistance. TJX, ROST show some promise but in a 6 week lateral consolidation and not surging just yet. LULU was strong but disappointed on the Friday close.

FOOD: CMG continues to drift higher after the earnings gap higher. KO reported results that were flat (get it?) and suffered a wicked gap lower and Friday sold more. PEP on the other hand gapped higher out of its 2 week range.

Energy: Showing some signs of life but not wholly convincing. NBL is one that looks very interesting. SLB, HAL continue looking good. CHK, JAG and others show a similar long lateral consolidation.

Homebuilders/Home related: HD breaking higher over the 200 day SMA, LOW already moving well. DHI looks solid still. TOL is trying to set a base to move higher.


Stats: +443.86 points (+1.74%) to close at 25883.25

Stats: +45.46 points (+0.61%) to close at 7472.41
Volume: 2.26B (+7.11%)

Up Volume: 1.52B (+210M)
Down Volume: 728.67M (-18.18M)

A/D and Hi/Lo: Advancers led 2.58 to 1
Previous Session: Advancers led 1.02 to 1

New Highs: 96 (+22)
New Lows: 19 (-9)

Stats: +29.87 points (+1.09%) to close at 2775.60
NYSE Volume: 944.491M (-0.30%)

Up Volume: 781.164M (+284.248M)
Down Volume: 142.122M (-297.149M)

A/D and Hi/Lo: Advancers led 3.5 to 1
Previous Session: Advancers led 1.16 to 1

New Highs: 110 (+39)
New Lows: 2 (-6)


VIX: 14.91; -1.31
VXN: 17.70; -1.32
VXO: 15.18; -1.13

Put/Call Ratio (CBOE): 0.80; -0.12

Bulls and Bears:

Bulls up again, but bears moved up a bit as some discomfort with the long recovery rally.

Bulls: 49.5 versus 48.6

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: 49.5 versus 48.6
48.6 versus 45.8 versus 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: 21.5 versus 20.6
20.6 versus 20.6 versus 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: 2.664% versus 2.654%. A short, 7-week cup with handle has formed, still looking like a bullish setup for bonds to break higher and yields to fall.

Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018.

2.654% versus 2.706% versus 2.686% versus 2.672% versus 2.634% versus 2.657% versus 2.695% versus 2.702% versus 2.725% versus 2.684% versus 2.64% versus 2.679% versus 2.710.5 versus

EUR/USD: 1.12922 versus 1.12955. After 3 back to back sharp reversals the euro is really trying to hold 1.125 with a pair of doji.

Historical: 1.12955 versus 1.12616 versus 1.3323 versus 1.12816 versus 1.13218 versus 1.13396 versus 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: 110.469 versus 110.462.

Historical: Last below 109 in June 2018 then tumbled to 107 in early January 2019. 114.51 is the recent high from October 2018.

110.462 versus 110.945 versus 110.523 versus 110.488 versus 109.754 versus 109.793 versus 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

Oil: 55.98, +1.57. Gapped and rallied to the close, just starting to clear the 5.5 week lateral range.

Gold: 1322.10, +8.20. Gapping and rallying off the 2.5 week lateral move over the 20 day EMA. Looks as if gold could be making that new move higher.


The week ended with expiration Friday and some apparent reallocation of new money to the financial, industrial, home-centric, and perhaps energy stocks. Other areas did not sell off, just continued to rest or took a breather. If new money wants to come into new areas and drive them higher while staying in the others that are resting, that is perfect. That is the virtuous rotation that keeps the last round of leaders holding gains, resting for a new move once the money is deployed to the new areas.

Still, despite the impressive Dow and RUTX gains Friday, remember the resistance that is very near at hand. New leaders can make their own way as they are not overextended. And once they make the initial move you see if money flows into the earlier leaders that took a break while the new group moved up. Back and forth rotation, pushing higher.

If that action continues, even with the approaching resistance, if there is no selling then the indices can continue to move higher, resistance or not. Nothing yet indicates a rollover, just looming resistance presents the possibility.

With that scenario we will still look for the best upside money making potential heading toward that resistance. Remember, all along we said this fourth leg can still make us money, and with the new names breaking higher we still see the potential. As long as the money pushes into those areas we want to make the plays, following the money.

Have a great weekend!

End part 1
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