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3/30/2019 Investment House Daily
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- End of quarter brings some upside moves and some potential for more this week.
- Even with a better Friday, the indices are still at and inflection point.
- Trade commentary positive, provides good background. Don't count on trade to save the market, however.
- Economic data weakens again, Kudlow calls for 50BP rate cut, Fed is still in an impossible situation -- of its own making.
- Was that short inversion different this time?
- SP500, NASDAQ still trying to lead. Perhaps new money for a new quarter helps.
Stocks decided to move upside at quarter end with SP500 and NASDAQ gapping higher from a 4-session lateral move after dropping back into the top of the range the prior Friday. Down the prior Friday, up this one, but the two moves are not really apples to apples in terms of size and strength. Even so, the indices held support after that drop and did manage to garner some bids Friday. Whether just end of quarter shopping will be seen next week. Regardless, it was a strong quarter, the strongest first quarter since 1998 and overall quarter since 2009 -- or something like that.
Friday showed a decent move up off support. Needed it. But, alas, not definitive. Still below the highs before the prior Friday selling, still plenty to prove if bids are returning. Consider that the sellers are nowhere to be found. Stocks SHOULD be moving higher with relative ease, but bids were hard to find outside of perhaps Friday. Pretty anemic action nonetheless when you consider the sharp Friday selloff a week back. Again, still a lot to prove and surprisingly so given the lack of sellers stepping out in front of the market.
The internals were not bad, at least volume-wise; breadth was quite puny. Exchange volume spiked upside, but given it was 1) end of month, 2) end of Q1, and 3) LYFT posted 71.5M shares in its opening day, volume doesn't mean a whole lot. Good to see it up on an upside market session -- at least it was not selling volume, but there were other factors at work.
I don't want to sound as if I am looking the gift horse in the mouth. The indices needed to move higher and they did. Volumes were up, and not just on a few darlings. CSCO, MSFT saw good increases in trade Friday, and although they are tech, they are not exactly as sexy as they were back in the 1990's. Okay, they are no where NEAR as sexy as they were back then. Indeed, 'sexy' does not even come to mind when thinking of them. That said, using 'sexy' to describe any stock is something only a stock nerd would do.
Okay, a bit of a digression there. The point: the move was more of what the indices have to do and thus I am not going to overthink it. That said, I am not confident the moves hold Monday. Okay, perhaps I will overthink it some. It just seemed to be an end of the month 'excuse me we have some business to do here at quarter end' kind of move. It would appear my inability to avoid digressing knows no bounds.
The session got off on the correct foot with some more trade optimism, as unfounded as it may be. Mnuchin on his visit with the Chinese Vice Premiere said the talks were 'constructive.' As with the term 'superstar' in the 2000's used to describe every football player, the overuse of 'constructive' in describing these trade talks is monumental. Mnuchin is a cheerleader and of course he wants to succeed so puts forth a good front. But there is the Trump factor, and that is the wildcard. China knows it. The word is Trump told Xi to stop flooding fentanyl into US but it keeps coming. That will not sit well at all as Trump was dead serious. So, the talk that China was making proposals on technology transfer, etc. sounds good but you have the nationalist versus the communist nationalist. Good luck.
China's stock market enjoyed solid gains Friday as well, rising rose 3+%. It would thus at least appear Chinese investors are as gullible as the average US investor.
The other data . . .
The week saw basically weaker data come back after some better looks in the last couple of weeks.
GDP Q4 dropped back to 2.2% from an earlier 2.6% read, but that still kept year/year at 3.0%, the first time in over a decade that occurred. Just a bit of regulation lifting and tax reduction and you get a pop. If the job was finished and we could get away from the ACA that, even with the changes is still killing small business (policies are still up an average $4K versus the promised drop of $2.5K) -- you buy insurance with huge monthly premiums and huge deductibles, then have no money to go to the doctor -- nice insurance.
Personal Income, Feb: 0.2% vs 0.3% expected vs -0.1% January. Decent.
Spending, January: 0.1 vs 0.3 expected vs -0.6 December (from -0.5). Well, it was an improvement.
Core PCE: 0.1% vs 0.2% exp vs 0.2% prior. +1.4% year/year.
Inflation is lower, and as discussed this past week there is NOTHING wrong with lower interest rates as long as the curve is healthy -- something that is concerning right now. If, however, you have growth you get lower rates and the yield curve will show longer term money with higher rates than shorter because of the growth ahead.
Ah, but what about those rates?
Friday Larry Kudlow joined economist Stephen Moore in calling for a 50BP rate cut. Always tricky when the administration economists start calling for this -- the Fed does not want to appear as an administration lapdog, but if the cut is needed then what is the Fed to do? Decelerate
I get Kudlow's point and have said it myself: the Fed overtightened into an economic slowdown that, as is the Fed's custom, it did not recognize. Thus, it hiked at precisely the wrong time, turning a normal slow patch in an expansion into a potential stall and recession.
The Fed figured it out and went on pause. All good, but as I said two months ago, if the economy was slowing already and the Fed raised rates, just pausing is not going to cure the ailment. The Fed WOULD have to cut in order to take the boot off the economy's neck so to speak. As an analogy, it realized it had potentially mortally wounded the economy with a series of knife cuts to key arteries, so it stopped slicing further and is just standing there, knife in hand, watching it bleed out.
Thus, the Fed has caused its own dilemma. Bernanke and Yellen too lax, not hiking when they had the opportunity, Powell tried to hike but as the Fed does, failed to realize the timing was wrong. Now the economy has slowed, short term rates are rising vis- -vis longer term rates, indicating the economy is certainly slowing. If the Fed cuts rates will that be enough to start the positive economic vibes again and get the animal spirits up to invest, or will it be read as definite trouble? The Fed has again created a sad dilemma and of course the Fed is not the one injured. No, that is, as always, you and me.
After the prior Friday inversion curve fears dumped stocks and pushed NASDAQ and SP500 back into the top of the prior range, the stock indices limped through the week. They held the line with no further selling, meandering laterally through Thursday, then a decent Friday bounce to end the quarter.
The indices did what they had to do, i.e. refrain from further selling. The selling dried up, but so did bids. Yes, some of the same leaders continued rallying, e.g. CMG, but most moved in tight ranges. Consolidation is fine and Friday was hopeful for the upside, but it will have to show it can continue this coming week. As noted Wednesday and Thursday, it could be that DJ30, SP400, RUTX have two or more weeks of more pattern work to set up a break higher. SP500 and NASDAQ are in position to move higher, but the bids have to return more than just an end to the quarter.
SP500/NASDAQ: Still joined at the hip in terms of the pattern. Broke out the prior Friday, immediately sold off, never a good sign. Hung on through the week in lateral moves at the 20 day EMA, just below the top of the October/December range, Friday gapping upside. Better volume Friday, but it was also end of the quarter money moving. Not bad, did what was needed, many leading stocks in good patterns -- pretty pictures but they need to make pretty moves. Friday was a start, needs to follow through this week.
DJ30: Up toward the highs from the past four weeks with a good Friday upside break. That leaves DJ30 just below the upper resistance from the October/December range. As noted last week, DJ30 is trying to set up a right shoulder to a six month inverted head and shoulders. It looks as if it has a couple more weeks of work to do in terms of symmetry; we will see how this move up to the top of the recent range performs. Some long dormant stocks such as UTX trying to wake up.
SOX: Fell to the 20 day EMA Monday then held. Friday a gap upside, but it was a weak move. Held the 20 day, so thus far it did what it needed to do, but did not do anything more.
SP400: The midcaps climbed slowly but steadily into Friday as they moved up off the prior Friday selloff. Friday gapped up to the 200 day SMA then faded to a modest gain. Very similar to DJ30, working up near the top of the recent 5 week range, trying to form a right shoulder to an inverted head and shoulders pattern.
RUTX: Somewhat similar to SP400, a slow, steady recovery through the week, back to the 20 day EMA and showing a doji. Still looks bear flag-ish, very tied to the domestic economy, failed at the 20 day MA mid-month.
FAANG: AAPL continues a weeklong test of a break over the 200 day SMA. Not bad. FB continues it a 2 month trading range after gapping higher on earnings. Didn't get much mileage out of those results. AMZN still looks good in a weeklong lateral test after breaking the 200 day SMA. NFLX is testing the 50 day EMA after breaking to a higher high over a week back. GOOG tapped the January up trendline a third time on the low and bounced. AAPL, AMZN, GOOG looking good.
Semiconductor: Still some great setups, but it is not universal. AMD, NVDA, LRCX, TSM, AVGO, AMAT -- nice looking. INTC trying to make a comeback, TXN needs a comeback.
Software: Showing some upside movement, e.g. TEAM, and VMW and MSFT look very good, but overall many are struggling: DATA, HUBS. Others such as WDAY, OKTA are holding gains but look somewhat precarious.
Manufacturing/Machinery: New life. CAT jumped back to just below the 200 day SMA Friday. UTX started to break higher. CMI coming back off a 2 week flag. Some interesting looking moves. EMR, ETN trying to set up.
Personal products: Sadly, performing better, e.g. PG, CL (+1.74% Friday).
Transports: Improved for sure, particularly rails with a good upside on the week, NSC, CSX. Truckers decent, particularly ODFL. Airlines improving, e.g. DAL with a nice break higher Friday, LUV solid Wednesday to Friday. AAL ready to bounce up off the bottom of the range.
China: These stocks continue to look good and Friday they were working. HUYA, HTHT. ATHM screamed higher Friday.
MISC: CMG still rising; amazing. V and MA continue looking very good. SQ working on a big base but not ready yet. LYFT traded in a 10 point range, opening at 88ish, closing at 78ish.
Stats: +211.22 points (+0.82%) to close at 25928.68
Stats: +60.16 points (+0.78%) to close at 7729.32
Volume: 2.31B (+20.94%)
Up Volume: 1.58B (+330M)
Down Volume: 700.78M (+58.33M)
A/D and Hi/Lo: Advancers led 1.4 to 1
Previous Session: Advancers led 1.81 to 1
New Highs: 78 (+13)
New Lows: 48 (-4)
Stats: +18.96 points (+0.67%) to close at 2834.40
NYSE Volume: 1.083B (+43.80%)
Up Volume: 703.779M (+211.12M)
Down Volume: 355.277M (+115.243M)
A/D and Hi/Lo: Advancers led 1.6 to 1
Previous Session: Advancers led 2.15 to 1
New Highs: 138 (+8)
New Lows: 25 (-6)
VIX: 13.71; -0.72
VXN: 16.62; -1.37
VXO: 14.02; -1.65
Put/Call Ratio (CBOE): 0.88; +0.01
Bulls and Bears:
Very status quo after the big recovery. Both bulls, bears holding position.
Bulls: 52.0 versus 53.9
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: 52.0 versus 53.9
53.9 versus 52.4 versus 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: 20.6 versus 20.6
20.6 versus 21.4 versus 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 rallied again as yields dropped again. Investor's Business Daily sports a good article this weekend about whether the 3 month/7 year inversion meant anything. It appears to acknowledge that pair can indicate recession, but also notes that other recessions had other inversions as well, not just that pair. Moreover, it discusses WHY we have this inversion and how its genesis differs from those in other recessions, e.g. this one is caused by the FOMC backing off rate hikes while the others were a result of the Fed continuing with rate hikes. Interesting reading and answers some of the questions we have had regarding how solid the leaders and their patterns look, how good copper and oil look, even as there was a short inversion of the 3 month/10 year instruments.
The 3 month yield fell below the 10 year: 2.403% versus 2.407% 10 year (10 year).
The 2 year is still below 10 year: 2.266% versus 2.407% 10 year, the spread at 14BP, down on the week.
10 year: 2.381% versus 2.381%.
3 month: 2.403% versus 2.437% versus 2.434%
2 year: 2.266% versus 2.226% versus 2.21 versus 2.268%
Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018.
2.381% versus 2.281% versus 2.421% versus 2.443% versus 2.437% versus 2.538% versus 2.524% versus 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: 1.12178 versus 1.12310. Euro fell further toward the early March low. Massive euro weakness.
Historical: 1.12310 versus 1.12452 versus 1.12754 versus 1.13145 versus 1.13009 versus 1.13713 versus 1.14314 versus 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: 110.867 versus 110.816
Historical: Last below 109 in June 2018 then tumbled to 107 in early January 2019. 114.51 is the recent high from October 2018.
110.816 versus 110.132 versus 110.537 versus 110.113 versus 109.92 versus 110.72 versus 110.673 versus 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: 60.14, +0.84. Still moving laterally over the 10 day EMA and below the 200 day SMA. Measuring that resistance.
Gold: 1298.50, +3.20. Crashed below the 50 day MA Thursday, tried to recover Friday, failed to hold a try over the 50 day EMA. Sudden weakness is not a bad indication.
Start of a new month and new quarter. The prior Friday was down hard, Monday held the line. This last Friday up some -- can it continue that new attempt at upside after a week of working off that prior sharp Friday selloff.
Many leaders are well-positioned -- just as they were all week. Some started upside Friday. If they can continue of course we like the buy.
That said, DJ30, SP400, RUTX still look to have work to do. Thus a large bit of the upside potential rests in SP500 and NASDAQ. NASDAQ 100 as well as it too moves laterally just over the October/December resistance range. They showed some life Friday, perhaps just end of quarter position shuffling, perhaps presaging the week to come.
Yes, yes, after all this time STILL at the crossroads. Looking good -- just as they did 1, 2, 4, 5 weeks ago. At least they continued to consolidate and set up versus selling off when they certainly had the opportunity.
Therefore, we look for more upside in addition to some good-looking plays that still are ready to buy if the moves are made. A few downside won't hurt; the sellers were solid the prior Friday, and though they disappeared as fast as they showed up, they could do it again. Best to be ready. Just in case. Trump and Xi could splash cold water on all the anecdotal 'good' trade news this past week. I still think the market is overly optimistic at what can be accomplished. That, however, is just my opinion, and the market does not care two beans for any one person's opinion. That is just my opinion as well.
Have a great weekend!
End part 1
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