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2/9/2019 Investment House Daily
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Investment House Daily Subscribers:
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Entry alerts: None issued
Trailing stops: None issued
Stop alerts: None issued
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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.
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Tuesday and Thursday reports will contain the market summary, chart links to view the index charts, and updated play table.
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- Trading trade: Trade dominates the headlines for a second session, with more negatives early but then a White House release designed to calm the markets.
- Stocks start weaker with the negative trade news, rallies back with some bids in the afternoon on better trade news.
- Indices still at an inflection point at key levels. DJ30, SOX test from above, the rest are still below.
- Solid leaders remain solid, e.g. software, chips. Others trying to set up, old leaders trying to reestablish, a few in FAANG are not.
- Testing the third leg off the lows. Anyone for a fourth?
Trade news received the most attention to end the week, and this time the trade news was not upside conducive. At least through the Friday open. Thursday Larry Kudlow uttered his 'sizeable distance to go' warning regarding US/China trade negotiations, and Friday morning we learned that Trump and Xi did NOT have a scheduled meeting -- a real market issue given the President said he would personally have to meet with Xi to work through the stickier portions. Then on top of that, reports warned that Trump would issue an order banning Chinese telecom equipment in the US. From trade optimism back to gloom in a week.
Futures were again lower for another start to a session. Wednesday was lower and stocks suffered modest losses. Thursday was a fairly sharp day lower. Friday was the third. And perhaps the charm. Stocks rebounded off midmorning and midday lows and rallied back upside to the close. That actually turned some indices positive.
Trigger? Trade yet again. After realizing the trade comments from Kudlow, Trump and who knows who else rattled the market, the White House announced that Mnuchin and Lighthizer are heading to China on February 14-15. Alone. No Kudlow, no Ross, no Navarro. That is viewed as being deal positive as those wanting deep structural changes are staying home. I doubt the administration is going to capitulate and accept just the purchase of more US goods, but indeed a few pundits were concluding that Friday.
Bids return midday, push the indices up off the lows to close.
In any event, the market liked the better news and recovered in the afternoon. That showed very good low to high intraday action, a bullish indication as buyers moved in on the low and drove the indices back up.
That action had DJ30 tapping just below the 200 day SMA and rebounding to a doji with tail, holding the 200 day. A very nice 1-2-3 pullback to test the break over the 200 day SMA early last week. SOX is testing a break over the 200 day as well, though not as orderly; it gapped below the 200 day Friday, then recovered to hold it at the close.
Indeed, all the indices rose off a lower open Friday, though not all are in the same position as DJ30. SP500 and NASDAQ are below the 200 day SMA, and of course RUTX and SP400 finished off the lows though down from midweek.
For a pullback, this action is very mild. Heavy duty sellers have not appeared as the action is more akin to buyers pulling back in after a good third leg surge and the indices at, near, or through key resistance levels. Without sellers it is just a lack of bids, and stocks tend to settle back in an orderly fashion to test near support. Then you see if the bids return and drive them back upside.
What do money flows have to say about bids?
While some bids returned intraday Friday to snatch stocks off the lows, volume tailed off showing it was no big new buying binge. Just a recovery off a test of near support.
Money flows show investors not that interested in stocks. Since the January 2 lows of the selling, bond funds have received $36B in new money. Total equities lost $10B, while US equities dropped $26B; that means $16B went to stocks elsewhere.
Is this again a case of the average investor turning negative at the wrong time? What a rally off the low and money was being yanked out of the market even as it started back upside. Longer term, however, if money continues leaving the market it won't be able to climb. Obviously not the case in January into early February.
FOMC: The Fed also made the news Thursday and Friday, musing that perhaps QE could be used along with rate manipulation in a nonemergency sense. In other words, the Fed is considering using QE as a choice of a tool to use just as it uses interest rates. Why not? The Fed has so grown its role in our economy, yea verily dictating our wealth, that it makes perverse sense it should expand its 'tool's to do so. If it 'runs out of ammunition' with one, it can switch to another much like a spendthrift consumer maxes out one credit card, takes it out of the wallet, then proceeds to max out a new credit card.
Again, little damage to the index charts. Indeed, the action is more constructive than damaging as the stock indices post very orderly 1-2-3 pullbacks after a solid -- eventually -- third leg higher off that December selloff low. The action is the same, but the orientation differs: DJ30 and SOX test from a position of strength over resistance, while SP500, NASDAQ et al never made it past the 200 day SMA. I would note that NONE of the indices outside of SOX made it past the October/December trading range, and that still looms as the next big resistance. Even so, as you can see, many of the patterns are similar, setting up potentially bullish moves but also just below key resistance. As stated last weekend, that makes this, as others noted in the following sessions, an important inflection point.
DJ30: Broke over the 200 day SMA, put some distance on it, then slid back to test Wednesday to Friday. That keeps DJ30 over the 25K level, over the 200 day SMA and showing a doji there Friday. Still ahead: the top of the Oct/Dec range from roughly 26K to 26,250.
SOX: Retained its newfound upside leadership role with a gap over the 200 day SMA Wednesday. It gapped up then gapped back down Thursday, gapping lower again Friday but recovering to hold the 200 day. That small island reversal action is not great, but most stocks in the sector continue to sport more bullish patterns. Its next resistance is 1375 to 1415, but SOX has to show it can hold the break higher after gapping lower on the heels of the upside gap.
SP500: Tested the 200 day SMA from below, faded to close at the 10 day EMA. 2800 is also resistance, but this is key for SP500 as so many are watching from here to 2800 with many predicting the same failure right now.
NASDAQ: Similar to SP500, tested the 200 day SMA from below though never made it there. NASDAQ's OCT/DEC range is closer at hand than the other indices, so a double layer of ice to break through. Closed out the week just as SP500, holding the 10 day EMA after gapping below it Friday and recovering. Trying to set up an inverted head and shoulders pattern from November to present, and this action would be working on the right shoulder. Makes this resistance point very interesting. If NASDAQ can finish out the pattern and break it, that is a strong upside indication.
SP400: Nice 1-2-3 fade to the 10 day EMA after a week-plus rise. Similar to NASDAQ in possibly working on the right shoulder to an inverted head and shoulders pattern out of November.
RUTX: Also a nice test of the third let, showing a doji Friday at the 10 day EMA, tapping it on the low.
Semiconductors fading some, setting up decently, e.g. MCHP, XLNX, VSH, ON, TER, MPWR. Still a serious leadership group.
Software: Looked as if it would finish out the week with a four session test for the group but Friday saw many breaking back upside out of short consolidations. TEAM, HUBS, NOW, ADBE, COUP -- even after substantial 4+ week runs they are finding bids. FTNT is setting up well -- may need a few more days, but if it breaks higher before we have it on, be ready.
Food: Still rather solid overall. CMG held its big gap higher on earnings. PEP, KO solid setups with KO heading toward earnings. WING is set up pretty nicely in a 4+ cup with handle. Gotta' eat.
FAANG: FB, AAPL, NFLX remain solid enough. GOOG struggling after dropping below the 200 day SMA Thursday. AMZN gapped lower Friday as Bezos challenged the Enquirer's tactics in what he calls extortion. Likely when this subsides AMZN will be a buy.
POT: Definitely going through some consolidation as volatility is high for CRON, not as much CGC but it is not just snoozing.
Biotech: Some interesting movement and setups. IMGN is very interesting as is INSY. Bigger names not so hot, e.g. BIIB, AMGN. Pharma is recovering, e.g. LLY, MRK. MRK setting up a nice pattern.
For many others we are waiting to let them set up better after earnings, e.g. BA, LRCX, INTC.
Financial: Struggled to end the week as they dropped from tight lateral consolidations, e.g. C. JPM. BAC testing the upper gap point from mid-January on earnings. Perhaps this is just a shakeout move. Will be watching.
Stats: -63.20 points (-0.25%) to close at 25106.33
Stats: +9.85 points (+0.14%) to close at 7298.20
Volume: 2.1B (-8.7%)
Up Volume: 1.1B (+407.97M)
Down Volume: 978.91M (-591.09M)
A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Decliners led 2.07 to 1
New Highs: 47 (+13)
New Lows: 43 (+8)
Stats: +1.83 points (+0.07%) to close at 2707.88
NYSE Volume: 830.898M (-11.92%)
Up Volume: 370.567M (+111.975M)
Down Volume: 447.039M (-229.703M)
A/D and Hi/Lo: Decliners led 1.08 to 1
Previous Session: Decliners led 2.2 to 1
New Highs: 63 (+3)
New Lows: 19 (-5)
VIX: 15.72; -0.65
VXN: 20.04; -0.88
VXO: 16.30; -0.49
Put/Call Ratio (CBOE): 1.04; +0.05
Bulls and Bears:
Bulls continue to recover, bears hold steady, both after really large moves during the late 2018 selling.
Bulls: 48.6 versus 45.8
Bears: 20.6 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: 48.6 versus 45.8
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: 20.6 versus 20.6
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: 2.634% versus 2.657%. Bonds continue to rally, Friday TLT moved past the late January high. Still below the early January spike but working.
Historical: the last sub-2% rate was in November 2016 (1.867%). 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 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: 1.13218 versus 1.13396. The euro is back down to the low at 1.13000. There is a lot of support there so we will see if the euro rebounds.
Historical: 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: 109.754 versus 109.793. Still working laterally below the 50 day EMA MA in a tight range. Overall negative pattern but it refuses to give in thus far.
Historical: Last below 109 in June 2018: 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 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: 52.72, +0.08. Holding at support but not able thus far to hold a move above it.
Gold: 1318.50, +4.30. Nice test back to the 20 day EMA, breaking higher again Friday.
Earnings still to come but the market is at that point where earnings are not as big an overall impact; the gist of the season is well-quantified and of course investors are looking farther down the road.
Trade elevated its importance again late in the week, attributed with the weakness. Okay, sure. The markets were set to pullback, however, and trade was a good trigger for that pullback.
As noted, it was not heavy selling, just a normal pullback to near support by the indices and by most leadership stocks. Not all as some FAANG really struggled, e.g. AMZN, GOOG.
The action is certainly calm, but other selling in recent times started calm as well. With the indices at resistance after a third leg off the selling, it is not safe to assume anything.
Still many good-looking leaders and this fade is offering some good setups. More stocks and groups are trying to set up, always a good indication. We have several new plays ready to go, we are keeping current positions that are showing good action. We banked a lot of solid gain the past couple of weeks as the indices and stocks approached resistance. After this test, if they resume the move higher of course we will participate and watch for a fourth leg up off the December selling. May seem on borrowed time given the yearlong 2018 top, but we play what the market sets up when those setups move, taking what the market gives.
Have a great weekend!
End part 1
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