Friday, April 19, 2019

The Daily, Part 1 of 3, 4-18-19

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4/18/2019 Investment House Daily
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Targets hit: AVGO; HON; NBR
Entry alerts: DRI
Trailing stops: None issued
Stop alerts: None issued

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- The taste of Wednesday selling abates, indices hold position.
- Economic data better in some cases but still mixed.
- Earnings are helping the indices, but with most at resistance and sitting on a 4 week rally, they will have to be strong to break to those prior highs on this move.

Stocks moved into Easter weekend and the Good Friday market closure with mostly modest gains though RUTX small caps continued to struggle. The big news: SOX did not again blast higher, instead taking a break from back to back strong upside sessions.

SP500 4.58, 0.16%
NASDAQ 1.98, 0.02%
DJ30 110.00, 0.42%
SP400 0.25%
RTX -0.12%
SOX 0.07%
NASDAQ 100 0.12%



Why not rally, albeit modestly? Retail sales scored a beat (1.6%) in March after a -0.2% in February. Ex-autos they were still solid at 1.2% and 'up' to -0.2% in February from -0.4%. The control group was a solid enough 1%. All must be well.

Or not. Philly Fed PMI for April dropped to 8.5 from 13.7 when 11.0 was expected.

Business inventories in February fell to 0.3% from 0.9% -- glass half full (just sold more than was made) or half empty (just stopped making anything)? With sales rising a whopping 0.1% it certainly wasn't sales drawing down inventories as they fell from a 0.3% level. February was indeed slow.

The not-so-Leading Economic Indicators for March (how can you have 'leading' indicators when the data is already a month old?) rose 0.4% from a downwardly revised 0.1%. This group is not that accurate in forecasting, and thus the 'not-so' prefix I insert.

The Good Friday release of Housing starts was not so good: starts fell to the lowest since 2017. Starts -0.3% on top of a downwardly revised February. Permits fell 1.7%. Hard to take much from this data due to the snow in the Northeast and the flooding from the Mississippi and Missouri rivers.


In any event, the indices mostly advanced Thursday. It was, however, a rally day without any change in position.

The indices are still below either the all-time highs or some other resistance below those levels. Except SOX; it is in its own trading world and fortunately for the rest of the market, SOX sets the direction. New highs for SOX are not bad for the rest of the market.

Thursday did not change any of the positioning. Thus, you have the indices drawing up to those old highs in the case of the large caps, while the small and midcaps draw up to the next level of resistance, both still well off the prior highs. That means any resolution of the resistance remains . . . unresolved.

Given the indices have put in 3 to 4 weeks upside off the test of the prior leg higher, and given they are bumping at next resistance, the probabilities are they test a bit and then try the old highs.

The tie-breaker: earnings. I already talked about this the past week, how solid initial results could jump stocks up more to or past resistance. If they are strong enough, belying expectations of weakening, then they could drive the action through resistance. You saw the reaction to CSX, HON, PEP -- your basic rails, manufacturing and snack food jumped nicely on earnings surprises. Thursday AMX and TRV missed on the top line but they still posted upside sessions as the bottom lines beat. Yes, Virginia, there still are positive responses from earnings surprises.

Accordingly, we head into next week with a ton of earnings coming and the indices sitting on top of a 4 week move higher to resistance. That rise typically has you anticipating a test just as has been the case, setting up a new move. Earnings could accelerate the new move if they top expectations significantly. Then the indices show a break higher. Given the 4 weeks upside prior to that, however, they likely test that move rather quickly.

Either scenario works for the upside.

The one issue, the monkey in the wrench as John McClain in 'Die Hard' would say: sellers actually showed up briefly last week. Wednesday stocks gapped higher and nicely so only to get sold on higher volume, reversing the upside moves. Even some chips were sold but none really damaged their positions. That action did prompt us to bank a lot of gain: indices at resistance, 4 week move, expiration, a gap reversal on some volume. Yes, made a lot of sense to take some gain.

That issue remains heading into the coming week. How are investors going to react to the prior highs? There was some initial selling, just a taste, indicating there are some sellers at the old highs. Again, earnings will be the wildcard and could alter the peaks and the timeclock. Even so, after 4 weeks upside, anticipating some retrenchment, some backfilling, is prudent.


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SOX managed a modest Thursday gain after the strong Tuesday/Wednesday moves made possible in part by moves from QCOM on its AAPL settlement. INTC et al played a role as well, but most took Thursday off. New high and a higher new high.

NASDAQ 100 gapped and rallied over the old high on Wednesday but reversed. Thursday it advanced to challenge the highs again, but closed just below that resistance, showing a doji. This week some seriously important large cap NASDAQ stocks report of course that will bear upon NDX' action at the resistance.

DJ30 is bumping the last resistance level from January 2018 the last resistance before the September/October peaks, the latter the all-time high. Same story here: can it punch through given the strength of the so-called old economy stocks?

SP500 bumped the late August 2018 peak and backed off, but is holding well at the 10 day EMA. Four weeks upside, hit penultimate resistance, paused. Logic says it tests, but earnings are coming in better than expected and helping lift stocks initially -- as we anticipated.

NASDAQ Broke into no-man's land the past week, surpassing penultimate resistance and now looking at the late August all-time high. Four week run, reversed a solid upside Wednesday gap. It will need solid earnings this week to push it at that old high.

SP400 broke out the prior Friday (not to a high), rested, but then sold back Wednesday, filling the gap and threatening the breakout move. Thursday it managed to recover some, but the sellers were there and it has to prove it can move up.

RUTX was the lone downside index Thursday. After bumping the February highs for a week, Wednesday it flopped back to the 20 day EMA. Not a breakdown but definitely not getting the bids to break it higher from its double bottom setup. Thursday was a further 20 day EMA test. The small caps are struggling.


The week saw software stocks struggle. Some flashes of strength from this formerly high-flying group, some flashes of real selling, a lot of struggling in the range of the past two months.

At the same time, semiconductors demonstrated their strength. One leadership group struggles and likely corrects/consolidates more while another one stepped up.

Several industrial-related groups were stronger: transports, machinery, manufacturing, food.

Many other areas remain promising: social, some retail, energy, China stocks.

Leadership remains abundant enough to power new upside moves. It is then up to the market dynamics (sitting on a 4 week upside move and at resistance) and earnings to decide their next move, either a break higher on surprising results or a test back from here as the Wednesday return of some sellers suggested.


Stats: +110.00 points (+0.42%) to close at 26559.54

Stats: +1.98 points (+0.02%) to close at 7998.06
Volume: 2.12B (-7.42%)

Up Volume: 1.11B (+50M)
Down Volume: 978.67M (-241.33M)

A/D and Hi/Lo: Decliners led 1.06 to 1
Previous Session: Decliners led 1.74 to 1

New Highs: 65 (-18)
New Lows: 81 (+40)

Stats: +4.58 points (+0.16%) to close at 2905.03
NYSE Volume: 833.78M (-0.07%)

Up Volume: 411.579M (+91.041M)
Down Volume: 398.703M (-100.27M)

A/D and Hi/Lo: Decliners led 1.04 to 1
Previous Session: Decliners led 1.45 to 1

New Highs: 71 (-11)
New Lows: 27 (-3)


VIX: 12.09; -0.51
VXN: 15.15; -0.71
VXO: 12.04; -0.54

Put/Call Ratio (CBOE): 0.88; +0.07. The ratio is telling you nothing right now.

Bulls and Bears:

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: 54.8 versus 53.9

Bears: 19.2 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 the 7BP, now at 7BP

The 2 year versus the 10 year: Spread holds at 18BP

10 year: 2.56% versus 2.579%

3 month: 2.49% versus 2.441
2 year: 2.38% versus 2.395

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: 1.12459 versus 1.12958. Euro/dollar pair remains in the very methodical 6 month trading range, approaching the bottom of the range as the dollar strengthens the past week.

Historical: 1.12 to 1.13 for the past 6 months as the pair trades in a range after the euro sold off from the early 2018 peaks.

USD/JPY: 111.92 versus 111.941. Continued the tight lateral range for the week after breaking up through the 200 day SMA. Trying to make a breakout, struggling to continue the upside.

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: 64.02, +0.20. Two week lateral consolidation over the 10 day EMA after the breakout over the 200 day SMA. Oil still looks as if it wants to move higher but is at the start of some serious resistance from 64 to 74.

Gold: 1276.00, -0.80. Gold slid on the week, continuing the 2 week drop.

Have a wonderful Easter or whatever you are celebrating!

End part 1
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