Monday, April 29, 2019

The Daily, Part 1, 4-29-19

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4/29/2019 Investment House Daily
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Targets hit: None issued
Entry alerts: C; FB
Trailing stops: VMC
Stop alerts: PTEN

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- More new highs for SP500, NASDAQ though nominal and on low volume
- Economic data remains overall positive as price decline. Powell has a dilemma if he didn't mean what he said about cutting rates. Or, even if he did.
- SOX continues to test, perhaps more to come.
- GOOG bombs on earnings as revenues miss. AAPL on deck, not sure if its results can make a difference.
- Techs look ready to test, but financials and others could take the upside lead.

New highs again on SP500 and NASDAQ. Much rejoicing. Yea. New highs, but they were the 'barely new' variety with SP500 up 0.11% and NASDAQ +0.19%. A new high is a new high, but some new highs are better than others. None of these from NASDAQ and SP500 have impressed. SP500 gapped higher, rallied nicely, then gave most of it back, showing something of a tombstone doji. NASDAQ gapped, rallied, gave some back as well. Neither move was powerful. Indeed, they were more noteworthy due to their equivocation or lack of conviction.

SP500 3.15, 0.11%
NASDAQ 15.45, 0.19%
DJ30 11.06, 0.04%
SP400 flat
RUTX 0.41%
SOX -0.19%
NASDAQ 100 0.61%

VOLUME: NYSE -3%, NASDAQ -10%. No volume, indeed a significant decline in volume, as the indices pushed to marginal new highs. Not getting any real upside volume, but also not getting any selling volume.


Not to continue beating the dead horse, but SP500 and NASDAQ are at the prior highs and are not making clear, definitive moves higher. Earnings better than expected helped keep the indices in the game, but they did not explode them over resistance. With GOOG off 90 clicks afterhours on its results, it could be the earnings magic lantern that kept the market bumping the new highs is perhaps a bit low on magic -- near term. Again, thus far no sellers -- at all -- outside that one Wednesday where the indices gapped higher then reversed the move on volume.

Thus, this is more a 'need to take a breather' time versus any kind of reversal. IF, of course, the indices pause and test at all. It would appear they should, but thus far the sellers are not there. Again, GOOG off 85 to 90 clicks afterhours on earnings (almost 7%) may be the catalyst for some bids to be pulled and allow the indices to test and set up for a better run at the highs.


The news and data showed more of the same from the past few weeks: economic data decent to good with little accompanying price appreciation.

Personal spending, March: 0.9% vs 0.8% expected vs 0.1% February. Largest gain since August 2009. Impressive.

Income: 0.1% versus 0.4% expected vs 0.2% February. Wow, quite a miss

Core PCE (inflation indicator): 0.1% vs 0.1% prior. 1.6% year/year, a 12 month low.

Fed chair Powell, unless he is 100% committed to his statements (and it would be GREAT if he was a person who meant what he said; quite rare today), would be worried. I know 99% of the politicians would be worried as they might actually have to act in accordance with their comments.

Powell has stated he would cut rates if the economy were strong and prices were simply showing no increases. By the government's metrics of measurement, inflation is running well below the Fed's so-called target rate.

This is how it should be. Supply side tax cuts, when they are actually supply side tax cuts as the ones that were passed under Trump, result in increased supply and thus no demand bottlenecks or imbalances. Former Dallas Fed governor Bob McTeer bucked the Fed's Phillip's Curve conventional wisdom during his last year on the Fed when he said that prices should indeed fall as supply increased. That is why tax cuts that focus on investment incentives are superior to the demand-centered cuts so often promulgated by politicians who act to get votes versus those who act to do the right thing. Supply side tax incentives have empirical, historically proven data showing they improve the economy and lift all boats. It is a far easier argument, however, to play to the emotions of people wanting to be given something versus wanting to go out and earn it. I would rather start a business, make a bunch of money, be my own boss versus having someone give me a subsistence amount for just sitting on my butt.

Okay, a slight digression, but the reasons for Powell opining about cutting taxes is rooted in the belief that the government should not inhibit growth, particularly when the conditions are set up correctly for growth with low to no inflation. We work so darn hard to get that situation, please don't do anything to louse it up. Thus, I have to like Powell for not wanting to get in the way of prosperity versus Greenspan who was the beneficiary of the Reagan/Clinton years and then started chasing inflation in the shadows and ended up killing the stock rally and the economy.

TRADE: Mnuchin says the negotiations are in the 'final laps,' whatever the hell that means. One would assume that means they are almost complete, but if that was the situation, then why the hell not just say that? Because Mnuchin is engaging in government-speak because the deal could happen or not happen. Final laps. Good grief.



SOX: I said over the weekend SOX was still the market key. SOX traded slightly off Monday, the lone downside index. Nothing serious at all, just a doji at the 10 day EMA after the Friday selloff found support at the 20 day EMA and bounced. I would suggest SOX is going to test more here before it rallies. The 20 day EMA makes sense but it could slide back and test the prior high around 1480ish (closed at 1544).

NASDAQ: Gapped upside to a new high, rallied a bit more then backed off modestly. Held the move, held the new high, but not putting any real mileage on that high. GOOG won't help Tuesday morning though other names are mostly holding up just fine. AAPL is on tap for Tuesday after the close and just not too sure what AAPL will add to the equation as iPhone sales continue to concern me. In any event, NASDAQ is obviously at an important level, the all time high, and it is not putting a lot of mileage on that. At this point in earnings season it could be that it is time for the test.

SP500: Gapped slightly higher, rallied to 2950ish then faded most of the move. Doji on the candlestick right at the old highs. Plenty of good earnings pushed it higher and there are still solid moves being made in financials that are certainly helping. If tech comes under fire, SP500 may still show some strength . . . BUT I would not be surprised if SP500 tested back as well from the old highs and set up a better run at a breakout.

DJ30: A most modest gain as DJ30 tested the upper gap point from last Thursday, backing off to close. I don't think DJ30 is going to make the run at the prior highs on this particular move unless AAPL totally surprises everyone.

RUTX: Small caps improved for a second session, indeed leading the market higher for a second session. Wow, pushing up against the February intraday high, posting a new recovery high after the selloff into December. About 145 points off the all-time high. Okay, not going to threaten a break to a new high at any moment, but still working on that big 7 month inverted head and shoulders pattern, and that is not one to give up on. It is trying the breakout, and indeed, RUTX may just show the breakout even as the large cap indices test back from their foray at the all-time high level.

SP400: Flat on the session, unable to push the Friday gain. That keeps SP400 in the recent 3 week lateral range formed after breaking higher from the right shoulder to its 6 month inverted head and shoulders pattern. SP400 went ahead and broke higher ahead of RUTX, but it has not really expanded the break, a rather disappointing move post-breakout. Perhaps RUTX can do a better job.

NASDAQ 100: Not bad action, edging higher the past four sessions after breaking out the prior Tuesday. GOOG won't help, but it may not be the catalyst for NASDAQ 100 breaking back down below the breakout. Indeed, a perfect setup for a test of the breakout.


FAANG: Have to lead with GOOG, up 15+ on the session, trading below 1200 after earnings. Several are saying it is a buy here. It likely will be, but perhaps not tomorrow. AAPL is next, out Tuesday after the close. Holding the 10 day EMA in a short 4-session pullback. Set up well but not sure earnings will drive it upside either. FB posted a solid move higher off the Friday doji test of the gap; picked up a new position. AMZN backed off 12 after a good Friday that saw it sell to the 10 day EMA on earnings but rebound sharply. I would not be surprised if it sells back from here or after a nudge up toward 2000-2050. NFLX After the surge Monday and Tuesday last week, NFLX fell back to the range and was there again Monday. Looks promising, but has to show the move.

Software: ADBE's price target was jumped and the stock shot higher but gave back a big part of the move. VMW added a bit more but looks about done on this nice upside leg of the continuing run. CRM is up to the top of the range. If you own it, contemplate selling some calls for a trip back down near 155. HUBS still spurting higher as is NOW. COUP tried to add to the move but closed with a tombstone doji; looks as if it will test the break higher, and frankly, that is the better entry for us. MSFT slid laterally a second session after gapping upside on earnings.

Semiconductors: INTC continued lower, down another 2.5%. LRCX held last week's late week gains. MCHP holding up well. NVDA trying to hold the 50 day MA after the Friday gap to that level. QRVO moved up off its Friday gap lower, but not much. SWKS still setting up decently, SMTC not bad. Somewhat mixed as a group.

Social: Nice move higher after the doji test Friday. TWTR added 2.87% as it rebounded from a 1-2-3 test of the earnings gap and rally; off modestly afterhours on GOOG. SNAP bounced off the 50 day EMA but not a lot of strength.

Manufacturing/Machinery: MMM faded a bit Monday to the earnings selloff low. UTX added ore upside, almost 1%. CAT flat as it tries to hold the initial bounce off the 200 day SMA. DE added more upside in its recovery. Not a bad scenario.

Financial: Excellent action. MS rallied 1.2%. JPM broke higher 1.44%, moving out of a weeklong lateral consolidation. BAC and C showed solid action upside in breakouts. V put in another new high. TCBI broke nicely higher from a 3-day lateral consolidation.


Stats: +11.06 points (+0.04%) to close at 26554.39

Stats: +15.46 points (+0.19%) to close at 8161.85
Volume: 1.78B (-10.1%)

Up Volume: 1B (-210M)
Down Volume: 761.25M (+4.2M)

A/D and Hi/Lo: Advancers led 1.55 to 1
Previous Session: Advancers led 2.11 to 1

New Highs: 123 (+14)
New Lows: 29 (-19)

Stats: +3.15 points (+0.11%) to close at 2943.03
NYSE Volume: 738.651M (-2.91%)

Up Volume: 393.149M (-139.768M)
Down Volume: 333.17M (+118.595M)

A/D and Hi/Lo: Advancers led 1.52 to 1
Previous Session: Advancers led 2.07 to 1

New Highs: 138 (+18)
New Lows: 16 (-13)


VIX: 13.11; +0.38
VXN: 16.44; +0.65
VXO: 12.27; +0.06

Put/Call Ratio (CBOE): 0.86; 0.00

Bulls and Bears:

The surprise is that bulls fell instead of rising as the indices continued higher. The bigger surprise is that bears fell a significant amount. Of the two, I would suggest the drop in bears -- very stubborn to fall -- is the bigger news and more an indication of the market turning to the more ebullient side.

At this juncture there are no extremes in this indicator. It did its work in the late 2018 selling with a crossover of the bulls and bears, and when that occurs you expect a recovery. That has been the case. Now with the indices bumping resistance you look for extremes, but bulls are not hitting that 60ish level that has prompted selling/corrections in this long rally from 2009.

Indicator level: green (all is well), but rising toward the 60's that would start to represent a threat (a yellow indicator).

Bulls: 53.4 versus 54.8

Bears: 18.4 versus 19.2

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.



Threat level: Yellow. No current inversion. One prior inversion of 3 month/10 year but it was just 2 days. Curve is flat at the short end but still upward sloping.

The 3 month yield versus the 10 year: Spread drops 2BP to 8BP

The 2 year versus the 10 year: Spread rises 2BP to 22BP

10 year: 2.529% versus 2.50%

3 month: 2.423% versus 2.429%
2 year: 2.286% versus 2.33%

Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018. 2.6% for quite some time, then yields started higher, first run from November to January, then mid-March.

EUR/USD: 1.11843 versus 1.11419. Euro making a bounce toward the 10 day EMA after it moved to a lower selloff low last week.

Historical: Breaking below the 1.12 level and that 6-month range formed after the euro sold off from the early 2018 peaks.

USD/JPY: 111.68 versus 111.565. Dollar hugging the 200 day SMA in a tight lateral move.

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

Oil: 63.50, +0.20. Modest bounce after the rougher Friday took oil to the 20 day EMA.

Gold: 1281.50, -7.30. After rallying up to the 20 day EMA Friday, Monday saw gold slump back away from that nearest resistance.


Not many stocks are up afterhours on their earnings. AKS jumped on results but backed off most of the gain. GOOG down, WDC down, MGM down. It could be the earnings upside impetus has left the market for the moment. That would of course, allow for a test after a 5 week move higher to the highs.

As noted this weekend, not an upside run killer, just a test at a logical level.

Even so, while some test, perhaps money will move elsewhere, e.g. financial stocks. If so, that is great. We will play those areas getting the money upside as well as downside on some prime members of groups that are going to test the recent rally.

Nothing wrong with double dipping in a continuing move higher on the obvious plays, e.g. CMG last week.

Have a great evening!

End part 1
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