Sunday, February 03, 2019

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

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2/2/2019 Investment House Daily
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- A mix of data to end the week closes the market mixed but nicely higher for the week.
- AMZN guidance drags on NASDAQ.
- Jobs report stronger than expected, revisions placate worries of too much strength.
- Trade talks end with an agreement for Trump/Xi meeting.
- Well entrenched leaders enjoy a strong week while other areas are trying to form up and join leadership as did the chips.

Friday produced a ton of data about the economy, but it was all somewhat anticlimactic. Good jobs data pushed stocks higher from weaker futures, helping offset AMZN's earnings guidance and the lack of a trade deal after the US/China meeting. On balance the market handled all the news decently, closing mostly higher though NASDAQ was weighed down by AMZN.

SP500 2.43, 0.09%
NASDAQ -17.87, -0.25%
DJ30 64.22, 0.26%
SP400 0.33%
RUTX 0.18%
SOX 1.20%
NASDAQ 100 -0.45%



The week was so much more than Friday, however. Other earnings from big names kept the upside working. AAPL and BA led the move with their earnings and gap rallies Wednesday. FB led higher Thursday with a big upside gap. Lots of earnings on the week, lots of beats, lots of top line misses attesting to the economic slowing that resulted just as the FOMC's Powell issued his October proclamation against the economy and by extension the markets. What is new about that? Nothing at all. The Fed always acts too late, it always reacts to the prior cycle, not the current one. I think that is called fighting the last war.

Ah, the Fed. It was a huge contributor to the market as well. Already indicating it had flipped its view from the October announcement it was hiking a set number of times regardless, the FOMC meeting simply confirmed that. But confirmation is very important -- putting it in writing means more. Stocks were up Wednesday before the FOMC (AAPL, BA), but the FOMC statement and Powell's conference comments jumped stocks further upside.

Friday saw jobs, AMZN and other earnings, and ISM January. Jobs beat expectations and was solid though December was written 90K lower (222k vs 312k); that revision actually helped as investors decided that was not too strong to impact the Fed.

Let's face it: the Fed basically told everyone it was a non-factor for at least a quarter, some say 6 months. It is data dependent, but after recognizing it was wrong in its economic assessment, it is not going to jump back to hikes anytime soon as that would expose it for what it is -- clueless, no better at timing economic cycle turns than most investors are at telling when the market is topping or bottoming. Thus, good economic data is likely read by the market as good for the market.

Stocks jumped higher on the jobs report and managed to rally into the first half hour and indeed midday. Then they tailed off in the afternoon session. Just a weak effort for most stocks though the chips put in a decent performance.

That left DJ30 at the 200 day SMA, NASDAQ and SP500 moving toward that next resistance with the small and midcaps doing the same. SOX is similar to DJ30 as the chips are bumping up against the 200 day SMA as well.


Jobs Report

Jobs: 304K vs 160K exp vs 222K Dec (from 312K)

Unemployment: 4.0% vs 3.9%. That is to be expected.

Wages: 0.1% vs 0.3% exp. 3.2% year/year, not bad

Participation: 63.2%. Nice

Average week: 34.5 vs 34.4 exp vs 34.5 prior. Did not drop during shutdown.

Govt says limited shutdown impact as Federal workers will get back pay. Makes sense.

Leisure: +74K
Construction: +53K
Healthcare: +42K
Retail: +21k
Mining: +7K
Manufacturing: +13K
Professional/Business: +30K

The Fed and Jobs

It just so happened that FOMC voting member Bullard appeared on CNBC and was able to give the Fed's (at least from his perspective) take on the jobs report. For background, remember that Bullard is from Chicago with the Chicago economic theory of markets that is more akin to the Austrian model that actually reflect historical data. He was against the rate hikes as he saw the Fed hiking into the slowdown. He was correct, though he never wants rate hikes either, even when the Fed could have gotten away with it.

Bullard said he was pleased with the current interest rate level and that the Fed was now at a point where there were no rate hikes 'penciled in,' that the Fed had no presumption one way or the other regarding rates.

Bullard noted the rest of the world (EU, Japan) had negative rates and growth and economic issues while the US was 'normalized' at 2.25% to 2.5% with ongoing growth. According to Bullard, that acted as a buffer of sorts, allowing the Fed to back off and leave the economy to itself.

What Bullard DID NOT say, something that is SCREAMING at us while many in the US push for socialism, indeed in some cases communism, is that the REASON the US has growth and can leave rates alone with some acceptable inflation is because the US once again adopted pro-growth strategies and policies in 2017.

Ten years of pathetic economic performance after big government growth, big government taxes, massive big government regulation that saw the first 10 year period without a year where growth averaged 3% or better. The first such decade since the Great Depression.

All of that was transformed into world-leading growth with just a FEW policy changes. That is the difference between the US and the rest of the world. This is another real-time, live textbook example of what capitalism accomplishes versus the socialism of the EU, Japan, and Venezuela, or the totalitarianism of Saudi Arabia, Russia and . . . China.

Everyone is obsessing over the slowdown in the world economies outside the US, yet fail to make the connection that the reason the US is doing well when others are not is that our system is different. It works. People are talking socialism when the policies in the last two years have reduced unemployment overall and in minority groups to historic and indeed all-time lows.

What about China? I know everyone thinks China is so strong. It is not. Its economy is dangerously weak. No doubt China could be an economic monster if it was free enterprise system. As it is, however, it chooses communism and a crappy economy that has to steal to 'advance.' That is why China will not make the structural changes the administration seeks: if it does so it loses its only method of technological gain: theft. If your economy provides no incentive to innovate, there is little innovation. The numbers of the past 10 years show China rolling back its move to open up its economy. That is the hardline communists trying to live the 'good old days' of strongarm governance. That is not compatible, however, with a burgeoning economy.

Gorbachev saw this as leader of the USSR. He tried to make economic changes and cut deals with the US. Reagan had surged the US economy with his growth policies and the US was crushing the USSR in military development. Gorbachev saw the USSR could not compete, tried to make deals, Reagan saw the USSR was dealing from a position of weakness and turned the deals down. The USSR ultimately collapsed without a shot fired.

We have that chance with China. The Fed is now on board. If we don't get bogged down in the absurd bifurcation in the US, we could live to see the last big communist government fail. We just have to be smart enough to realize what is happening and take advantage of it -- for the betterment of the entire world. I remember communism. Everyone should read about the hundreds of millions who have died under these regimes. Pushing the Chinese communist party to oblivion is a noble cause.

Yet, you have people here in the US pushing socialism, indeed labeling communist ideas as socialist (as if that makes them better!). It all sounds great: free stuff for everyone. But it is never free. When you have over 50% of people not paying any income tax as it is, you cannot given away free healthcare and college as well, at least not quality. It turns into what socialist and communist nations provide: low grade services.

Thus you see spectacles such as senator Warren chiding Howard Shultz. Shultz was born dirt poor. His father suffered a serious accident when Shultz was a boy and his family lost everything it had. Shultz just did what you do, that is keep working hard and smart. He recognized the opportunity with Starbucks when he saw it, and after years of trying was able to convince the original owners it could be big. Even then they sold out to him because they didn't see it, could not dream that big. Shultz had nothing but intelligence, a strong work ethic, the dream and the drive to do it. MOST IMPORTANTLY, he could use the system we have in the US, a system that would allow him the opportunity to be great. He did it. With his success he made many, many millionaires. His company provides some of the best healthcare there is for its workers, many of whom are simply hourly employees.

For those accomplishments, Warren calls him a freeloader. The liar about being of Native American heritage calls a great entrepreneur, creator, jobs maker, worker benefits provider, and classic American success story a freeloader. That is the state of our politics. I cannot say I agree with Shultz on all his social and political positions, but he has definitely earned the right to espouse them, dare I say more so than Warren.

But, I digress.



SOX led the Friday move, moving close to the 200 day MA, ready to join the Dow that made the move Wednesday. Chips are still leading nicely higher. Again, 1300 is next resistance, and just 13 points away.

DJ30: Gapped upside and rallied to the 200 day SMA Wednesday, held that position through Friday. Oh, that is 25,000, the next resistance, right in the middle of the October/December trading range. Dow 25,000 hats were out starting Wednesday, a questionable practice. Still, a good move higher with next resistance at 26K, though 25K is not a done deal.

SP500: Excellent break higher starting Wednesday, bouncing up off the 50 day MA second test. Doji Friday, 45 points off the 200 day SMA. 2750 to 2800 is next serious resistance.

NASDAQ: FAANG helped break NASDAQ higher from the second 50 day MA test. Rallied Wednesday and Friday, hitting some resistance at 7265, pausing Friday. Of course, the move higher was gratis AAPL, GOOG, AMZN and strong software stocks. Friday the modest loss was due to AMZN gapping lower after earnings results, but the rest of the stocks performed quite decently to keep the losses quite minimal. Next serious resistance at the top of the October/December range from 7485 to 7575 along with the 200 day SMA at 7453.

SP400, RUTX: As with the other indices, the midcaps and small caps started higher again Wednesday from a weeklong lateral move. Nice new breaks higher, moving up near the center of their October/December trading range. Trying to play catch up to the large cap indices, doing a decent job.


FAANG: AAPL, FB gapped sharply higher on earnings, gapping into next resistance but holding the move. GOOG, AMZN gapped upside to the 200 day SMA just following along. Of course Friday AMZN gapped back down on its earnings guidance. NFLX moved over the 200 day SMA and is holding on to close out the week.

Software: Nice solid week. ZS exploded higher Thursday. NOW gapped upside on results. COUP continued flying higher after a strong Thursday move. CRM started a new break higher Wednesday into Friday. FIVN moved well for us the past week, breaking higher out of its triangle. SPLK moving to higher rally highs. A good group. Still.

Semiconductors: AVGO hit a higher recovery high midweek, tested back to the 10 day EMA. UCTT posted another strong week. MU lagged but Friday started higher again. AMD gapped upside Wednesday and continued. RMBS posted a strong week, CY gapped to the 200 day SMA Friday. The group remains very good.

China: These stocks have come back around. BABA at the 200 day SMA with a solid move. JD moving up off the 50 day EMA in its recovery. SINA set up well. HTHT interesting as is BZUN. Anticipating a recovery?

Financial: Mostly working laterally all week, e.g. C, JPM, GS. Regional banks are improving, e.g. TCBI, STTdec. V broke higher Friday after its earnings report.

Apparel: DECK gapped to a new high, clearing a 3 month range on earnings. LULU still looks nice in a test of the rally off the December low.


Stats: +64.22 points (+0.26%) to close at 25063.89

Stats: -17.87 points (-0.25%) to close at 7263.87
Volume: 2.4B (-18.09%)

Up Volume: 1.52B (-290M)
Down Volume: 850.49M (-249.51M)

A/D and Hi/Lo: Advancers led 1.37 to 1
Previous Session: Advancers led 1.79 to 1

New Highs: 57 (-18)
New Lows: 17 (-10)

Stats: +2.43 points (+0.09%) to close at 2706.53
NYSE Volume: 881.197M (-36.32%)

Up Volume: 468.586M (-414.319M)
Down Volume: 389.316M (-103.256M)

A/D and Hi/Lo: Advancers led 1.33 to 1
Previous Session: Advancers led 2.16 to 1

New Highs: 99 (-33)
New Lows: 10 (+3)


VIX: 16.14; -0.43
VXN: 19.80; -0.44
VXO: 16.67; -0.43

Put/Call Ratio (CBOE): 1.13; +0.29

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: 2.684% versus 2.64%. Bonds surged Thursday but Friday dropped back to the 10 day EMA, giving up the Thursday surge.

Historical: the last sub-2% rate was in November 2016 (1.867%). 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: 1.14554 versus 1.14478. Still bumping at the 200 day SMA.

Historical: 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: 109.530 versus 108.85. Dollar jumped Friday though it was a tough week, recovering what it lost Wednesday.

Historical: Last below 109 in June 2018: 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: 55.26, +1.47. Bounced off the 50 day MA and hit a higher recovery high Friday.

Gold: 1322.10, -3.10. Off a bit Friday, but a strong move on the week into Thursday. Quite the break higher.


This week more earnings while the economic data slows a bit. The market could use a bit slower news feed.

Good breaks higher that stuck for the indices and of course many stocks making up the indices. The key will be if new blood joins the upside. Semiconductors have come back into leadership after a long absence, a huge addition upside. China stocks are stirring with some breaking higher, others looking to do the same. Financials are still recovering, trying to make the next move.

We have positions on many of the current leaders in software, FAANG, etc. Indeed, we are looking at AAPL for a new position this week. Still, the other areas need to set up more and make moves, and we do like some of these groups. If they can make the moves that would provide the market a lot more support for the move higher.

Recall way, way back when we talked about the sentiment indicators being leading indicators, and the initial leaders moving, and while they did their thing, over time other stocks would build bases and set up? That is occurring, e.g. the semiconductors, and others are setting up. Thus far it is a slow process but it is working for the upside.

Have a great weekend!

End part 1 of 3
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1 comment:

m2s said...

Your discussion concerning " China's economy " was outstanding and to the point. The media will not provide the public with these facts and most Americans won't know why Trump is being tough with China. Thanks again.

Martin Schaffel