Monday, March 04, 2019

The Daily, Part 1, 3-4-19

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3/4/2019 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: SPLK
Entry alerts: CMG
Trailing stops: CRM; FTNT
Stop alerts: CLF; CRM; NEWR; NFLX; NOW; TEAM

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- Trade tries to continue the upside, but a gap higher is sold.
- Stocks find buyers midday and recover losses, hold support.
- A key leadership group is taken for target practice.
- Other groups recovery quite well from growth and the industrial sides.
- Why the economic data is still hit or miss even with the Fed on 'pause.'
- Indices reload just below resistance. Was software an outlier or are sellers out there ready to attack other areas that break higher?

An upside start was sold as some sellers appeared. Some more new money was put to work, some of that new money was cashed in by others. Growth took the harder hits as some leaders from cloud software, stocks that just broke higher again last week, were hit broadside. Stocks and the indices did manage to recover off some very sharp selling into midday, rebounding in the afternoon to chop most of the losses in half. NASDAQ 100 closed flat thanks to AMZN, FB and GOOG. That turned ugly selling into a session that was just so bad, though not all stocks would agree.

SP500 -10.88, -0.39%
NASDAQ 100 -17.78, -0.23%
DJ30 -206.67, -0.79%
SP400 -0.49%
RUTX -0.89%
SOX 0.01%
NASDAQ 100 -0.01%

VOLUME: NYSE +3%, NASDAQ +4%. Volume moved up solidly above average as the stronger volume continues. NASDAQ trade remained above average for the seventh session as it tested then recovered. Not necessarily bad, but there was some selling volume. On both NYSE and NASDAQ downside volume topped the upside recovery trade from the afternoon. Overall, some dumping of shares, but there was buying as the losses were shaved rather well.

ADVANCE/DECLINE: NYSE -1.3:1, NASDAQ -1.6:1. Nothing really bad, at least on the close. The recovery certainly helped.

This all occurred, of course, as the indices bump the top of the range. Friday some leaders jumped upside as the indices bounced off their short pullback (software, GOOG, AMZN), suggesting a new move to take on the resistance was coming. The Monday pre-market suggested that move could continue. Then it didn't. AMZN, FB, GOOG were still higher, but much of the market faded and rather sharply, e.g. software, chips -- the recent leaders struggled.

Perhaps this is just rotation from growth to value again -- it has occurred on and off in the move higher. There are some non-growth stocks that are set up well, e.g. MMM,WMT, CAT, DE; they were set up before, however, and didn't move on the session.

Some did. As noted, FB, AMZN and GOOG were a lively bunch. CMG was our lone buy and it was up with a solid move, extending its breakout.

Moreover, the session was not a dump of everything tech or growth. LRCX, BRKS, SIMO, AMKR, TXN -- name brand chip stocks that held up very well.

Energy names worked as well. XOM, CVX, COP from the big names, SWN, GPOR, SPN, CHK look promising from the smaller side.

At the same time, not all of the non-tech, less than growth groups were strong. Financial stocks still have nothing positive to show. Money was not free-flowing into all non-growth areas.

Thus, it was not a session where stocks were completely mugged as many groups held up well, and it was not a session where money flew to new areas, or at least not to a lot of new areas (FAANG less NFLX did receive money). When a serious leadership group comes under heavy fire as did software, that is not a good sign. You then have to watch for other leadership groups, e.g. semiconductors, to see if this is just a group that got too extended getting sold down or if other leadership groups are subsequently targeted.


Gaps higher on the continued trade hope turned to selling. Could have been uglier, but stocks did find a bid midsession, turning -1%+ selloffs to more palatable levels.

SP400: The midcaps performed as good as any, gapping modestly upside, selling off to near the 20 day EMA, the recovering most of the loss, holding the 10 day EMA with a decent doji with tail.

SOX: Similar action, gapping upside, selling off below the 10 day EMA, recovering to basically flat. Not bad holding your ground on this day.

NASDAQ: Gapped to a higher recovery high near the late October recovery high then sold down to near the 200 day SMA. Rebounded in the afternoon session to hold over the November peak and a modest loss. Thanks, of course, to AMZN and GOOG.

SP500: Same story as SP400, gapped higher, touched the October/November range highs, faded to the 20 day EMA, recovered to hold the 10 day with a doji. Shakeout or just a lot of churn on volume that moved back above average. Some selling on the gap higher, some buying off the low.

DJ30: The worst of the group, but not horrible. Upside gap, selloff to tap the 20 day EMA, recovered to close, but did not retake the 10 day EMA.

RUTX: Gap upside, selloff below the 10 day EMA, then recovering to hold that level. Still closed below the 200 day, however.


The news of the day started with more positive trade speculation. We heard the US and China were in the 'final stages' of negotiating the trade deal and that perhaps a deal would be ready this month. Futures were up as the word seemed promising, but even so, outlets such as the WSJ panned any potential agreement, claiming that it was more about numbers and dollars of goods to be bought and sold versus real progress on the structural issues of IP theft, technology 'sharing,' etc.

Hate to say it, but this could be a 'well I told you so' moment in the making. While Larry Kudlow's commentary late last week was encouraging and indeed surprising, the WSJ's take is more in line what I believed all along: China would never agree to changes -- leaving out whether the changes could be verified and enforced -- that would necessarily entail it changing its MO for obtaining technological advances (i.e. through theft from those countries and companies that made the advances).

It all remains to be seen as there are two competing stories now. I would love to see a deal along the Kudlow commentary but will not be surprised if it is something much less. I think the market reaction today is along the lines of the latter as well.

Construction, December: -0.6% versus -0.3% expected versus +0.8% November.

Hard to spin this. Construction was down sharply, similar to other economic reports of late. That said, it is not rolling over in every sense and the GDP report showed promise in very key areas such as private R&D.

Here is the reason for the back and forth data -- it is not something new from us here, but I repeat it for the newer members: the economy was slowing in a natural ebb in the summer of 2018. The Fed's tightening, while not immediately impacting the economy, WAS impacting the business and investment psyche. It is an all too common result the Fed tightens at the wrong time, exacerbates a slowdown into a recession. Thus, when Powell delivered his fire and brimstone statements in October, the apprehensions were considered well-founded. Plans for spending were put off, investors pulled out, etc.

That moved a slowdown into a more serious economic fade even before the Fed rate hikes really had any time to impact the economy. That said, however, the QT -- the balance sheet reduction -- DID impact the economy because it is an immediate withdrawal of money. Reducing the money liquidity always impacts business and thus stocks.

The Fed has not backtracked on its hikes. They are still out there, still heading to impact the economy. Thus, the caution when the Fed hiked into a slowdown, and now, even with the Fed at pause, the liquidity is lower thanks to QT and the rate hikes are going to impact the economy as well.

Thus, businesses were already leery of the Fed overreaching and started to turn cautious, liquidity is less, and rate hikes are still coming. Businesses are still working their business -- many say they don't see a recession this year for their business -- but that period of disquiet is still rippling through the economy and will continue to do so as the rate hikes already out there eventually and inevitably impact an economy that was already slowing.


Stats: -206.67 points (-0.79%) to close at 25819.65

Stats: -17.79 points (-0.23%) to close at 7577.57
Volume: 2.58B (+3.61%)

Up Volume: 1.09B (-520M)
Down Volume: 1.41B (+552.19M)

A/D and Hi/Lo: Decliners led 1.63 to 1
Previous Session: Advancers led 1.86 to 1

New Highs: 94 (-14)
New Lows: 36 (+6)

Stats: -10.88 points (-0.39%) to close at 2792.81
NYSE Volume: 979.272M (+3.25%)

Up Volume: 411.406M (-175.772M)
Down Volume: 557.044M (+215.845M)

A/D and Hi/Lo: Decliners led 1.26 to 1
Previous Session: Advancers led 1.82 to 1

New Highs: 120 (-14)
New Lows: 14 (+1)


VIX: 14.63; +1.06
VXN: 17.36; +1.24
VXO: 13.69; +0.81

Put/Call Ratio (CBOE): 1.00; +0.09

Bulls and Bears:

Bulls continue their recovery, bears continue their decline after they merged in late 2018.

Bulls: 52.4 versus 51.9

Bears: 20.4 versus 20.7

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 51.9
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 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: 20.4 versus 20.7
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 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: 2.724% versus 2.759%. Bonds bouncing modestly. TLT moved up off the flop to the 200 day SMA through Friday, but it was a 'had to hold' kind of move without a lot of backing.

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

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% 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: 1.13344 versus 1.13650. Euro bombed lower after failing to break through the 50 day MA last week.

Historical: 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 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

USD/JPY: 111.856 versus 111.921. Dollar is moving laterally over the 200 day SMA after punching through last week. Not bad action.

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

111.921 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 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: 56.69, +0.79. Pretty decent two week lateral move continues.

Gold: 1287.50, -11.70. Diving through the 50 day MA's.


The stage was set as noted, and the first move was from the sellers, selling into a higher open. It was not a washout, however, as the buyers returned midday. Thus, the saga continues with the indices still below resistance, some sellers coming in, but the buyers still mostly winning the day as the indices closed at near support.

Software showed real selling. It is a bona fide leadership group, indeed the best group in the market for the past year. That makes the action in semiconductors, manufacturing, machinery, FAANG, and miscellaneous leaders such as CMG very important in the coming sessions.

Still some good setups. FB, AMZN, MMM, LOW, MRO and others look pretty solid. They will of course need to step in the breach to keep the upside moving.

Have a great evening!

End part 1
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