Wednesday, March 20, 2019

The Daily, Part 1, 3-20-19

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3/20/2019 Investment House Daily
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Targets hit: MSFT
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Trailing stops: None issued
Stop alerts: BRKS

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- Fed flashes its dovish skirt. Stocks rally, then don't.
- Bad news was good news, for a few minutes.
- President may have had something to do with the afternoon give back with his comments on Chinese tariffs
- Small and midcaps sell as you would expect on FOMC downgrades of the economy.
- SP500, NASDAQ make just the tests you want to see after the breakouts.

The FOMC went full frontal dove today.

-No rate change (2.25% to 2.5% FFR)

-Downgraded the economy: GDP 2.1% vs 2.4%. Unemployment 2.3% vs 2.1%. Inflation 1.8% versus 1.9%

-Balance sheet reduction will be completed in September

-Rate hikes for 2019 moved to 0 from 2. 2020-21: just 1 hike forecast.

The market loved it. Until it didn't.

Stocks traded modestly lower all session then edged higher into the Decision. When the uber dove flew, stocks did as well. The indices shot to positive just ahead of the last hour. Then the mirth died out and stocks fell right back, closing just over where they were pre-FOMC.

SP500 -8.34, -0.29%
NASDAQ 5.02, 0.06%
DJ30 -141.71, -0.55%
SP400 -0.83%
RUTX -0.76%
SOX -1.02%
NASDAQ 100 0.43%

VOLUME: NYSE -4.4%, NASDAQ +2.5%


The Fed totally backing off was great, but then the worries hit. Man, the Fed must be really concerned about the economics. Not only did stocks flip their post-FOMC gains, but bonds exploded higher with the yield curve between the 2 and the 10 year suddenly becoming concerningly flat. Still normal in the sense the 10 year is still higher than the 2 year, but definitely flatter post-FOMC.

A flat curve can portent an inverted curve, and an inverted curve typically portents a recession and of course stock market selloff ahead of that recession. Not there yet, and until it happens, it does not happen.

With the indices clustered around penultimate resistance that itself is not that far below the old highs, it is worth keeping an eye on the bond curve to see how it responds after the post-FOMC decision surge.

That was the big news of the day, though Trump's comments on trade are credited/blamed at least in part for selling back. Trump said, as he has said before, that tariffs on China could remain in force after an agreement until China showed it was adhering to the agreement. Kind of a 'no trust until verified' twist on the old Reagan 'trust but verified.'

Other trade news involved dueling news services. Bloomberg reported China was backing away from the deal given worries over Trump's tariffs continuing. Hmm, sounds close to Trump's statement. The WSJ on the other hand reports that both sides continue working on the deal and that Mnuchin and Lighthizer are heading over to meet the Chinese vice premiere later this week. Take your pick. As Mel Gibson said in the movie 'Signs,' are you the kind that sees signs, sees miracles? Or do you believe people just get lucky?'


Okay, there was a lot of talk about the stock indices' inability to move higher post-FOMC, indeed blowing a nice upside move. Okay, for some indices that was an issue as they sold and could not bounce off the lows. Small and midcaps yes continued to struggle, but that makes sense given the Fed downgrading the economy. The leaders, NASDAQ and SP500, however, showed EXACTLY the action we desired, the test of the breakout, closing with doji.


SP500, NASDAQ: The large caps tested back to the top of the range and the 10 day EMA on the low, bounced decently to a doji. Ditto NASDAQ. Perhaps they want to test a bit more, but this is what we wanted to see. Market leaders not selling off, just testing breakouts.

SOX: After leading from last Friday, SOX could not keep it going, backsliding the lion's share of the Tuesday gain. Afterhours, MU reported quite palatable earnings and is 5% higher. That works as many thought MU would kill the chip rally/leadership.

DJ30: Faded to the 20 day EMA, weighed lower by FDX and the financials. Yes, the financials gave back over three days of gains.

SP400/RUTX: Struggled falling below the 20 day EMA with SP400 heading toward the 50 day MA. RUTX lower but still well off the 50 day. As noted, it makes sense: economically sensitive indices and the FOMC downgrading its GDP outlook directly speaks to these indices.


FAANG: Still impressive moves. AMZN 2% (waiting on that breakout test). GOOG surged another 2% after an excellent flag test. NFLX blasted out of its 5+ week range 4.5%. AAPL tested, recovered to again tap at the 200 day SMA. FB showed some life off the flop to the 50 day EMA, even closing just over the 200 day SMA.

Chips: Gave back some ground after some decent moves by AVGO, AMD. NVDA surged again but then faded to a loss. Good moves, a bit of testing.

Manufacturing/Machinery: After a nice Monday, a second session of testing back by CMI, ETN, HON, the leaders.

Financial: Back to the dregs. JPM drops 2.13% to the 50 day EMA. So much for the 2-day move higher. C gave up the 200 day SMA and fell to the 10 day EMA. BAC dove 3.4% to the 200 day SMA. Again, back to the dregs.

Energy: Not bad for some oil. XOM trying to bounce off support. SPN a decent pattern to break off the lows. CVX testing a bit. OII posted a nice move Monday, testing back and perhaps setting up an entry.

Software: This leadership group is holding the move higher, but is acting somewhat undecided right now.


Stats: -141.71 points (-0.55%) to close at 25745.67

Stats: +5.02 points (+0.07%) to close at 7728.97
Volume: 2.46B (+2.5%)

Up Volume: 896.36M (-583.64M)
Down Volume: 1.55B (+645.53M)

A/D and Hi/Lo: Decliners led 1.63 to 1
Previous Session: Decliners led 1.26 to 1

New Highs: 90 (-3)
New Lows: 43 (+5)

Stats: -8.34 points (-0.29%) to close at 2824.23
NYSE Volume: 922.181M (-4.36%)

Up Volume: 363.073M (-26.807M)
Down Volume: 541.438M (-7.983M)

A/D and Hi/Lo: Decliners led 1.24 to 1
Previous Session: Decliners led 1.5 to 1

New Highs: 86 (-18)
New Lows: 42 (+24)


VIX: 13.91; +0.35
VXN: 16.64; -0.09
VXO: 14.31; +0.31

Put/Call Ratio (CBOE): 0.89; -0.07

Bulls and Bears:

The pullback from the prior week stalled the bulls' advance a bit while bears moved back over 21 after a 2 week hiatus below that level. Not major change in the trends: bulls are moving back up, bears sliding again, and this past week's action will further those trends.

Bulls: 52.4 versus 52.9

Bears: 21.4 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: 52.4 versus 52.9
52.9 versus 52.4 versus 51.9 versus 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

Bears: 21.4 versus 20.6
20.6 versus 20.4 versus 20.7 versus 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


Bonds: 2.524% versus 2.616%. Surging before and post-FOMC, clearing all interim highs with just the early January high ahead.

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

2.616% versus 2.601% versus 2.591% versus 2.628% versus 2.625% versus 2.60% versus 2.641% versus 2.632% versus 2.641% versus 2.693% versus 2.715% versus 2.724% versus 2.759% versus 2.717% versus 2.673% versus 2.636% versus 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%

EUR/USD: 1.14314 versus 1.13526. Nothing like a Fed going easy -- pretty easy -- money again to dump the currency.

Historical: 1.13526 versus 1.13359 versus 1.13248 versus 1.13070 versus 1.13271 versus 1.12895 versus 1.12592 versus 1.12344 versus 1.1191 versus 1.13123 versus 1.13050 versus 1.13344 versus 1.13650 versus 1.13725 versus 1.13790 versus 1.1391 versus 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

USD/JPY: 110.673 versus 111.374. Flopped to the 50 day SMA, breaking lower from the 200 day SMA consolidation.

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

111.374 versus 111.432 versus 111.470 versus 111.715 versus 111.314 versus 111.428 versus 111.165 versus 111.482 versus 111.624 versus 111.845 versus 111.856 versus 111.921 versus 111.433 versus 110.873 versus 110.53 versus 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

Oil: 60.23, +0.94. Continuing the move toward the 200 day SMA.

Gold: 1301.70, -4.80. Gold somewhat surprisingly faded, though modestly, after the FOMC went full frontal dove.


Beware the day after an FOMC decision. Stocks can head fake you right after the announcement then head the other way. Or not.

Okay, that is rather flippant. What we like is how SP500 and NASDAQ are making the right kind of test of the break over resistance. RUTX and SP400 are struggling as some money leaves thanks to the Fed's dimmer view of the economy.

In any event, we play the moves that resume. Some are already surging, e.g. AMZN, GOOG. NFLX surged but it is breaking out from its range; possibilities for some new positions there. Some oil and gas is improving again -- maybe something comes from there. After a pullback, the chips may be ready to move upside again, particularly given MU's results.

We will watch and, of course, take what the market gives.

Have a great evening!

End part 1
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