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2/26/2019 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: None issued
Entry alerts: RACE
Trailing stops: None issued
Stop alerts: NBL
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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.
Monday a Market Summary video, new plays, play table annotations.
Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play table.
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- Powell affirms he remains dovish whether he wants to or not. With the monetary policy swamp, he has no choice.
- Low start gives way to positive but the return of last hour drops sends the indices negative.
- SOX, SP400, RUTX relative laggards all session.
- Another day of resistance bumping yields nothing.
- Still good patterns but what will be the next catalyst upside?
Powell spoke to Congress in day one of his testimony and maintained the overall dovish stance. Did not say there were no hikes to come this year, but the Fed is going to be 'patient, watch and wait and see' how the economy performs.
It would appear Powell has learned the lesson of the Monetary Policy Swamp. Greenspan started the 'save the markets whatever the cost' mindset in the Fed, and since it has dug itself a deep hole as the fiscal policy in the US mined deeper as well in terms of deficit spending. Bernanke fully lived up to his nickname Helicopter Ben with full frontal prostration to the markets. Yellen made one small attempt to alter the course and was beat down immediately. She gave up and became Bernanke II.
Powell, a non-economist with some common sense, came in to get rates back to a more normalized level and reduce a Fed balance chocked full of garbage. It was time to do so he figured, given the tax cuts and the resurgence in the economy after the first 10 year period without a year of 3% economic growth since the Great Depression. Made eminent sense, but the market pitched a fit. More than that, the timing was a bit off as the economy was already slowing naturally in a normal slow period. The rate hikes and balance sheet reduction had an amplified effect in that environment. After a market plunge in December, presidential berating, television financial evangelist scolding and scorning, Powell relented. The markets recovered. Everyone is happy -- with still historically low rates, a Fed holding a bunch of crap assets, and incredibly high debt levels. Everything back to normal I suppose.
It may be, and likely will be, that the Fed will never be able to seriously hike rates again. I hate saying never, but the word conveys the Kobayashi Maru predicament -- the no-win scenario -- that all Fed chairmen face today. After decades of massive rate manipulation the Fed's hands are tied. The only thing that would free up the Fed would be a gut-wrenching, economic bombing collapse: the Fed would lose control of rates regardless and the downturn would be so severe that it would work as a reset of rates to natural levels.
Of course, the Fed brought this on itself with its mandate and power creep. It expanded its dual mandate to control everything to the point of micromanagement. Think of the government: it wants to control healthcare so it can tacitly control everything you do right down to what and where you eat. Heck, it could even control WHAT places are allowed to serve what it deems healthy food lest we spend too much money. Now that is a laugh; a government now $22T in debt (but in reality more like $70T+) says it has to watch its spending. That is like a morbidly obese person eating bags of chips, sweets, etc. but drinking poco chico mineral water because it is 'healthy.'
Okay, I digress. Suffice it to say Powell has given up and is going to take a long vacation, keeping rates low, the balance sheet flat or even growing, for the balance of his tenure. I bet he will voluntarily exit when his first term is up. Then bring on the new fresh meat.
The market was not impressed, not really moved at all by Powell's acquiescence. It knows Powell is no longer a factor and is more interested in the trade talks outcome and indeed the economic situation which is not that good.
Thus, stocks started soft, toyed with the upside, but then faded to negative again at the close.
SP500 -2.21, -0.08%
NASDAQ -5.16, -0.07%
DJ30 -33.97, -0.13%
NASDAQ 100 +0.11%
VOLUME: NYSE -3%, NASDAQ -6%. No real selling or churn.
ADVANCE/DECLINE: NYSE -1.4:1; NASDAQ -1.6:1.
The small and midcaps, the recent leaders, took a breather early on. Chips as well. The large cap indices, however, hung in with gains, showing a bit of relative strength. Right at the close they flipped negative as well. Still relative strength leaders, but in a market of red that is not even a very good moral victory.
Nonetheless, mostly modest losses for the large cap indices. The small and midcaps, however, perhaps awoke a bit to the issues with the US economy after Housing starts fell 11.2% month/month and -10.9% year/year, the worst performance since March 2011.
All of the indices again bumped at resistance and again failed to take it out. The test at the top of the October/December range continues. While the indices did fade back from bumping that key level, it was not the case where stocks were turned on their heads in strong selling. For now it was more a cessation of bids after a good move to next resistance.
To view, click on the following links:
SP400 midcaps faded back to the 200 day SMA and the top of the Oct/Dec range. That test had to come sooner or later, and it is occurring now. Thus far, holding the break higher.
RUTX faded after touching the top of the range on the Monday high, then backing off. Looks as if it will test the 10 day EMA that is not far away at all and then make a decision about trying the resistance again. As noted Monday and over the weekend, that kind of test is pretty normal after the kind of run exhibited.
SOX touched close to the top of its summertime range as of the Monday high but reversed that session. It continued lower Tuesday, testing the last rally from early February. Big move, led the market with the smaller caps, now testing the last strong surge.
SP500 bumped the top of the range on the Monday high, faded, and after trying higher Tuesday, faded a bit more. Gave up a decent low to high recovery from the open, but it was no major rollover, just fading to test after a good run to the top of the range.
DJ30 showed the same action, bumping at the top of the range on the Monday high, fading that move and then fading Tuesday after a low to high move earlier in the session. Still over 26,000, testing the prior move. Note that DJ20 transports are in a nice weeklong lateral move over the 200 day SMA. That looks pretty interesting to the upside.
NASDAQ held out to the upside very late but also gave up the green. Even with the chips down harder on the day, NASDAQ held the line fairly well. It bumped the November peak Monday, faded, faded a bit more Tuesday after an early low to high move.
Some interesting back and forth in leaders. HD announced earnings and missed on the top and bottom lines. It gapped lower but did a decent recovery job. CAT was double downgraded by UBS; it gapped lower but did recover the 200 day SMA, holding near the top of its 4 month range.
Semiconductors sold back as a group after a decent move higher. AMD, AVGO (nice test in progress), RMBS tested back. MU actually was positive, but overall it was a test session.
Energy mostly continued its lateral move though NBL struggled more than we wanted. COG, DVN, TELL, APA, CVX holding up well.
Software is still decently though it was not a great day. TEAM, NOW making very good tests, WDAY as well. Afterhours PANW is rocketing higher on results.
FAANG: Some life with GOOG, AMZN, NFLX, AAPL coming back from lower intraday trade. Dormant as a group, perhaps they are starting to perk up and of course that helps NASDAQ.
Manufacturing: UTX, MMM still holding up and setting up.
Financial: V gapped lower but reversed to positive. Banks gapped lower, recovered some, but still in the same range.
MISC: WMT looks interesting after the flop lower a week back. CMG still testing its earnings gap; could be getting close.
Stats: -33.97 points (-0.13%) to close at 26057.98
Stats: -5.16 points (-0.07%) to close at 7549.30
Volume: 2.26B (-5.44%)
Up Volume: 997.86M (-392.14M)
Down Volume: 1.2B (+246.55M)
A/D and Hi/Lo: Decliners led 1.56 to 1
Previous Session: Advancers led 1.05 to 1
New Highs: 62 (-84)
New Lows: 20 (+4)
Stats: -2.21 points (-0.08%) to close at 2793.90
NYSE Volume: 863.914M (-3.12%)
Up Volume: 356.139M (-106.135M)
Down Volume: 493.33M (+81.52M)
A/D and Hi/Lo: Decliners led 1.42 to 1
Previous Session: Decliners led 1.02 to 1
New Highs: 79 (-70)
New Lows: 10 (0)
VIX: 15.17; +0.32
VXN: 18.11; +0.30
VXO: 14.34; +0.16
Put/Call Ratio (CBOE): 0.85; +0.07
Bulls and Bears:
Getting a bit bullish with a move over 50 while bears dropped right back below 21 after the short break higher. Fear continues to subside.
Bulls up again, but bears moved up a bit as some discomfort with the long recovery rally.
Bulls: 51.9 versus 49.5
Bears: 20.7 versus 21.5
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: 51.9 versus 49.5
49.5 versus 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: 20.7 versus 21.5
21.5 versus 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: 2.636% versus 2.672%. Still in the 5 week lateral range.
Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018.
2.672% versus 2.654% versus 2.695% versus 2.641% versus 2.641% versus 2.664% versus 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
EUR/USD: 1.1391 versus 1.13598
Historical: 1.13598 versus 1.13332 versus 1.13363 versus 1.14490 versus 1.13544 versus 1.12922 versus 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: 110.53 versus 110.979
Historical: Last below 109 in June 2018 then tumbled to 107 in early January 2019. 114.51 is the recent high from October 2018.
110.979 versus 110.670 versus 110.664 versus 110.786 versus 110.848 versus 110.469 versus 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: 55.50, +0.02. Holding at the 50 day EMA but up afterhours on a surprise draw.
Gold: 1328.50, -1.00.
Second day of Powell's talk with Congress but not sure if it yields any further insight in terms of the market. Trump meets with Kim whoever; expect about as much progress as with Chinese trade talks.
What it boils down to is the indices at resistance, still taking measure, still sizing it up. After a run to that resistance they are retracing a bit. Not a reversal as noted, more of a pause. Whether it turns into a deeper test as discussed over the weekend and Monday is problematic. For now, resistance is holding and the indices are taking a break after a rally to that resistance. That is not the horror of a 'quadruple top' as some gloomer websites warned this morning.
Still some good setups; lots of good setups. At the same time the resistance. We bought RACE today -- good pattern, good move, rich getting richer . . . Thus far the market is not acting as if rollover is imminent, but with economic data so-so and catalysts becoming a bit thinner, even if there is no big story to sink stocks the question is what catalyst is there for further upside?
For now the patterns remain good and we are picking some up, but not a ton of sustained movement given the ongoing resistance bump. For now we are letting them work as the action is good.
Have a great evening!
End part 1
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