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3/9/2019 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: SAVE; SPY
Entry alerts: XLNX
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.
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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If any market circumstances arise where we see additional plays we want to prepare for the next session, we will of course issue those plays regardless of the day of the week.
- Triple threat hits stocks Friday.
- Indices sell to the 50 day EMA as expected, show some support there as expected.
- China exports dive 20%, jobs produce just 20K, Xi/Trump trade summit put off by Chinese.
- Everyone focusing on the DJ20 and its decline as a negative, but perhaps DJ20 is just making the test and pattern before the other indices.
- Money leaves equities in 2019 as fast as the start of 2008.
- Despite the issues, the recent leaders still show excellent patterns.
A triumvirate, threesome, trio -- take your pick -- of negatives hit the market Friday. There may be more than my top 3, but my attention span is not what it used to be. Let's face it, there is not a lot of things that are just that trustworthy to really grab your attention. Friday, was a bit different; these items were noteworthy.
The market was already weak and looked primed to test the 50 day EMA. The news gave the indices the push. When the final bell rang Friday, yes the market was down for the fifth straight session, but the indices did a credible job of testing the 50 day EMA and rebounding modestly off that support. That is as expected -- the 50 day EMA was logical first support to test and try to hold. Thus far it is holding, and after 5 downside days stocks likely try to bounce, also as we expected. If they don't, the sellers are starting to really overwhelm the bids.
That will be the story line for the coming week. As outlined last week, we anticipate some support at the 50 day EMA, and that means some type of bounce or lateral move. In reality, I don't expect much more than an attempt at moving higher that ultimately leads to a deeper test to the bottom of the range/50 day SMA (as both are more or less coincident for the indices).
That, of course, leaves the quandary of whether to buy some really good looking names as the bounce up off this thus far 5-session pullback or just use it to let some downside plays set up on a bit of a recovery before they drop lower.
Our plan is to play some of those good-looking patterns such as those outlined in Thursday's report, initially for bounce play with smaller sized positions. In the event the simply continues back upside, okay, we will add positions when the opportunity arises, playing the return to the upside as it expands from there. If the plays put in some good sessions up to the recent highs from late February, early March, but then show some reversal or stalling signs (e.g. gapping above those highs and reversing, runs higher that reverse to tombstone doji), we take the gain. During the bounce we look at stocks and indices that have good potential downside setups forming and thus have some downside plays ready in the event the action stalls out and turns lower once more.
There are some really great upside patterns from recently strong stocks where the short pullback as tested good new breaks higher. Those certainly look promising to lead back upside, but looking at the index patterns, while the pullback to the 50 day EMA is a logical bounce point, it just appears the patterns beg for a bit more of a pullback to the bottom of the October/December range to be really positioned to try a more serious move higher, one that can contend again for new highs.
That scenario, of course, does not involve a test of the December low, something that still could happen as easily as not based upon similar historical market moves. That possibility is still out there of course, but the 50 day EMA test right now is the first part of any scenario, up or down, and we will counterpunch the moves, taking smaller positions and being satisfied with singles and doubles, taking what the market gives, while the market decides what levels it wants to test and use as support.
SP500 -5.86, -0.21%
NASDAQ -13.32, -0.18%
DJ30 -22.99, -0.09%
NASDAQ 100 -0.16%
VOLUME: NYSE -11%, NASDAQ -8%. Volume tailed off well below average on NYSE and put in the first below average session on NASDAQ in over a week. On a test of a rather key level and a rebound to cut the losses, that is not necessarily showing the buyers were jumping back in hard.
ADVANCE/DECLINE: NYSE -1.2:1, NASDAQ -1.2:1. The down then up session mitigated the downside breadth that has no doubt been stronger with the pullback. Stronger than what it was as the market rebound slowed the prior two weeks, but not overwhelmingly negative.
Back to the threesome.
First, Chinese exports imploded at -20.4% versus -6% expected. On top of that, a brokerage in China downgraded Chinese stocks to 'sell.' Of course, that means the Chinese government and thus the communists want to tamp down the rally.
Second, US jobs showed just +20K in a number obviously buffeted by seasonality and the government shutdown. What a perfect scenario for those starting to worry about the Fed stepping back in anytime soon.
Jobs: 20K vs 173K exp vs 311K Feb (from 304K); Jan: 227K vs 222K
LOTS of noise in this report: weather, government shutdown.
Unemployment: 3.8% vs 3.8% exp vs 4.0%
Wages: +0.4%, +3.4% year/year (highest since 4/2009).
Workweek: 34.4 vs 34.5 exp vs 34.5 prior
Participation: 63.2% vs 63.2% prior
300K less people were unemployed, going back to work after the shutdown.
390K were unemployed due to bad weather, a huge number.
U6: 7.3% VS 8.1% PRIOR
Demographics: 35 to 44 unemployment fell to lowest in 12 years. Meanwhile, for 25-54, that includes millennials, the participation rate remained at the post-recession highs. The millennials are not working. Small businesses all share the same complaint: the millennials have wholly unrealistic expectations and prefer not to work and collect benefits than work and get paid less than the value of their inflated self-worth. Have you seen the survey where 40%ish would not give up their iPhone for the home of their dreams -- they could have any other pone, just not an iPhone.
Leisure and Hospitality: 0K
Manufacturing: -4K (prior: 21K from 13K)
Wholesale trade: +11K
Third, the Trump/Xi summit at the end of March was put off by China. Word is China is afraid Trump will scuttle the whole deal as most of the concessions, we are told, are on the US side.
What is the effect? Frankly, companies are leaving China as soon as they find another place to make their goods. The delay simply buys more time for them to move. I personally am tired of buying poor quality goods made in China -- why not by poor quality goods from another country? Ha.
AMZN: Suddenly stopped buying from suppliers for the 'fulfilled by Amazon' products. The Amazon Market business is $250B, twice the size of the Amazon website fulfilled. There is true panic among the suppliers who have mountains of inventory acquired to meet the monthly Amazon purchases. Turning against those who built AMZN into a monopoly of sorts? Fascinating.
A bit of a twist on the normal review as we look at the transports.
DJ20: A lot of print about the worst days for the transports since 2007 -- or something like that -- but when you look at the pattern you have to ask: are the transports actually leading as they decline? I know, I know -- wow, how provocative, how insightful you are thinking.
But I jest not. Lo, what pattern is forming as DJ20 tests the 50 day SMA (versus the 50 day EMA for the other indices)? DJ20 is not diving lower. It has sold in a steady, orderly fashion the past two weeks, Friday tapping the 50 day SMA on the low and bouncing, closing with a nice doji with tail. It is just over the late October low. Indeed, it is in a very credible spot to form the bottom of the right shoulder to an inverted head and shoulders pattern spanning October to present.
That is EXACTLY the pattern I have discussed the past two weeks that the other stock indices could form with a very ordinary yet scary -- to most at least -- test of the rather insane rise from the December low.
Right now, the other indices are at the 50 day EMA, the first support in the pullback. They are showing relative strength to DJ20, but you could also say they are lagging the DJ20 in that it has already made the run, tapped the top of the Oct/Dec range, and made an orderly drop to support. We will see if they are really just ahead of the game by how they rebound off the 50 day EMA.
Indeed, all the indices look pretty solid at the 50 day EMA, particularly DJ30 as the 50 day EMA has merged with the 200 day SMA; pretty solid support.
Same situation with SOX: the 50 day EMA has risen to the 200 day SMA at 1300 -- a price point of support from October, August, June.
Both of these indices have a lot of support at that level. That suggests they bounce. If they break it, that suggests a drop that is significantly lower.
For now, given a weeklong decline after a week of lateral movement, landing on a key level, the indices can surely bounce for a couple of sessions. They can bounce more than that as well. It all depends upon whether the big buyers see this as the point to buy or they let the indices fall to the bottom of the October/December range or even -- perish the thought -- to the December low.
A drop to the bottom of the Oct/Dec range would be perfect. It would se up a nice right shoulder to an inverted head and shoulders, a pattern that has launched super moves for years during this bull run. That is of course what we prefer. That does not mean the market does so and can resume the upside from here.
Where is the money?
That the market has multiple options from this point is a predicament. Of course, you always have to watch the market and move with it as it shows strong moves.
What is also important is the money flow. Where is the money moving?
Shockingly, 2019 has seen $60B move out of equities. Ten weeks or $6B/week. The only other time this happened was the first 10 weeks of 2008, a banner year for stocks -- to the downside.
You can view money leaving as the crowd exiting just in time to clear the landscape for a rally. But, money has to finish moving out and then it starts to flow back in. That sets the bottom. Money certainly does not appear to be fleeing GOOG, FB, INTC, ISRG, ROKU, BA, CMG, UTX, CMI -- there are many holding up very well, hardly showing any cash outflows.
Money flowing out in such large amounts is without a doubt a caution flag. All the same, the leaders will tell the tale, and how stocks such as those above will indeed tell the tale of the next market move.
Thus, while we remain skeptical of the ability to hold support here and yield a rally that pushes to higher highs, you have to look at the patterns and acknowledge they are downright solid in many cases. Accordingly, we will prepare for a meaningful rebound from those stocks while we also prepare for further downside.
We lightened up on many positions through the past two weeks as patterns struggled, preparing for a test of the 50 day EMA and then a break. We will see if that is upside or downside and react accordingly. Oh, and watch the transports and whether they bounce or turn this test into more selling.
Stats: -22.99 points (-0.09%) to close at 25450.24
Stats: -13.32 points (-0.18%) to close at 7408.14
Volume: 2.26B (-8.13%)
Up Volume: 1.02B (+230.74M)
Down Volume: 1.2B (-440M)
A/D and Hi/Lo: Decliners led 1.21 to 1
Previous Session: Decliners led 2.14 to 1
New Highs: 39 (+6)
New Lows: 57 (-11)
Stats: -5.86 points (-0.21%) to close at 2743.07
NYSE Volume: 814.395M (-11.30%)
Up Volume: 337.393M (+80.395M)
Down Volume: 461.287M (-186.783M)
A/D and Hi/Lo: Decliners led 1.22 to 1
Previous Session: Decliners led 2.29 to 1
New Highs: 45 (-26)
New Lows: 51 (-1)
VIX: 16.05; -0.54
VXN: 19.12; -0.47
VXO: 16.12; -0.98
Put/Call Ratio (CBOE): 0.97; -0.15
Bulls and Bears:
Bulls higher again, moving up into a selloff. Surely they will be lower the following week. The issue, however, is the surge after crossing the bears in late 2018. Confidence is pretty high despite the reported lack of confidence. Advisors remain bullish, talking their book, even as money is pulled from equities.
Bulls: 52.9 versus 52.4
Bears: 20.6 versus 20.4
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: 52.9 versus 52.4
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 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 20.4
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 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: 2.632% versus 2.641%. Bonds up five straight sessions as stocks sell five straight sessions. Bounced off the dive to the 200 day SMA, now nearing the February highs.
Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018.
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% 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: 1.12344 versus 1.11910. Euro dropped below the range on the Thursday ECB actions, rebounding modestly Friday.
Historical: 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 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: 111.165 versus 111.483. Dollar faded to test the 50 day EMA on the Friday low after a lateral move over the 200 day. Still a rather modest fade.
Historical: Last below 109 in June 2018 then tumbled to 107 in early January 2019. 114.51 is the recent high from October 2018.
111.482 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 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: 56.07, -0.59. Still in a tight lateral move the of the past three weeks.
Gold: 1299.30, +13.20. Bouncing back after the late February flop and lateral move this month. Still below the 50 day MA. Bearish pattern has formed after that higher high mid-February.
End part 1
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