Sunday, April 28, 2019

The Daily, Part 1 of 3, 4-27-19

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4/27/2019 Investment House Daily
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Targets hit: AMZN
Entry alerts: LSCC; TWTR
Trailing stops: ARQL; AVGO; FB; QRVO; TSM
Stop alerts: CRZO; STX; WDC

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- SP500, NASDAQ start breaking to new highs, but despite the excitement on the Friday close, the breaks higher are still nominal and on no volume.
- Lots of earnings, lots of movement, little upside advancement by the major indices.
- SOX remains the market key, and it shows some cracks.
- GDP Q1 surprises big upside. Sure it can be explained away, but with lower prices and inflation, Powell's comments about cutting rates could be put to the test.
- Huge week of data, FOMC decisions, and more and more big name earnings.
- Struggle at the old highs after 5 weeks upside and lots of better than expected earnings suggests the market may be a bit winded near term.

You could hear the excitement in the final few seconds of Friday trade. The British CNBC anchor gave the play by play as to whether NASDAQ and SP500 would post new highs. NASDAQ looked to be a done deal but SP500 was going down to the wire. Then, yes, a new NASDAQ AND SP500 high exclaimed the usually reserved Brit.

SP500 13.71, 0.47%
NASDAQ 27.72, 0.34%
DJ30 81.25 0.31%
SP400 0.96%
RUTX 1.03%
SOX -0.83%
NASDAQ 100 0.12%

VOLUME: NYSE -4%, NASDAQ -4%. Volume remained well below average as SP500 and NASDAQ pushed at new highs. Just not a lot of volume as NASDAQ and SP500 attempt new highs, and that is typically an indication the move will at least have a harder time making it happen.

ADVANCE/DECLINE: NYSE 2.1:1, NASDAQ 2.1:1. Not bad breadth, but that was thanks to the small and midcaps coming back around after a weak Thursday. Perhaps with the GDP they will try to exert some leadership in the coming week as well.

Yes, new highs for certain. By a fraction. Actually, SP500 failed to take out the all-time high just a point or so higher though it was a new closing high. NASDAQ put in a new closing high and topped the prior intraday highs from 2018, though it closed below Thursday's high hit on that day's opening gap higher.

NASDAQ 100 showed the same action as NASDAQ, a new closing high but below the Thursday intraday high. SOX gapped lower gratis INTC's guidance, and though it put in an admirable recovery, it still closed below the prior week's upside gap point. Even so, SOX and NASDAQ 100 cleared the path for the other indices to hit new highs.

DJ30 dutifully followed though it is still well off the old highs thanks to a series of setbacks starting with BA and most recently INTC on Friday. In between it dealt with MMM, IBM, CAT, WBA, XOM, CVX, DOW -- all of these have recently caused DJ30 to stumble despite solid results from other components. Thank goodness for CSCO, MSFT, AXP, JPM (hard to believe), UTX, DIS, V.

SP400 midcaps and RUTX small caps put in solid Friday performances, leading the indices, no doubt in response to the 3.2% Q1 GDP growth rate. Still, they are back and forth on a daily basis, hanging in but not doing much more. That said, this kind of action is base-building, and both continue working on their large inverted head and shoulders patterns, very bullish bases. Lagging yes, but lagging with a purpose? Could be.

SOX remains the key to the rally, lagging Friday but making a very game showing of coming back. Prior to Friday, SOX posted the first new high and then a lot more after that breakout. But now, some stumbles, perhaps a victim of its own success and needing a pullback, perhaps also a victim of expectations out in front of reality as INTC's guidance indicated. SOX is so important to the market: the market could not hold together a sustained move until SOX took the lead in January. Even then it was problematic overall until SOX broke out.

But even then, even now with SOX testing after a breakout and rally lasting four weeks, the other indices are struggling to get through resistance, and those that are cannot really drive through it a la SOX. As noted, so much excitement on the Friday close (okay, in a British way), but it was for MARGINALLY higher closes. With SP500 +0.47% and NASDAQ +0.34%, these were not explosive moves. With marginal new highs they were not clear new moves.

Indeed, with SOX in a test and SP500 and NASDAQ sitting on the top of 5 week moves and still at key resistance, the new high euphoria Friday may need a bit of a pause. The market makers purposefully rallied the indices to those highs at the close. Buy on Monday, sell on Friday, right?

More than just a Friday surge, those 5 upside weeks have two key indices at resistance. Lots of positive earnings reports have helped get them there. Yes, there are other big names to announce this next week, starting with GOOG Monday after the close and AAPL Tuesday after the close. Perhaps they will drive NASDAQ and SP500 sharply higher through resistance. Perhaps, but as noted before, at some point earnings news and moves reach a saturation point in each season. With all the surprisingly strong results thus far (e.g. AMZN's impressive beat, F, MAT, SBUX, etc.), the indices for the most part have not made breakouts.

I am not saying a rollover is imminent. Nope. Just that near term -- near term -- things are perhaps a bit overdone in terms of the move (5 weeks on this leg), sentiment (new high watches every session), economics (GDP just hit 3.2%), and the Fed (with stronger GDP will Powell REALLY still say he would cut rates if inflation remained low? Would he leave them as is or perhaps start wondering about resuming hikes?). It seems realistic to consider the indices may need to test relatively near term in order to better set up the next leg higher.

That is not a bearish position, it is just acknowledging the run to this point and that the indices, after all the good news and good moves, are still struggling at resistance. Some retracing and resetting would not be signs the market is in trouble. SOX needs to be watched as it will forecast the rest of the market down the road, but as of Friday, there was nothing overtly negative or worrisome in the larger picture.


FAANG: A solid week overall. AMZN earnings Thursday night pushed it to a higher recovery high after a sluggish start. FB gapped upside Thursday on earnings, off some Friday, testing the upside gap. NFLX surged early week, tested, started to bounce again Friday. GOOG up early week then Friday after a 2-day lateral move. Earnings Monday, up 5 weeks into the results and at the mid-2018 all-time highs. You make the call on the direction Tuesday post-earnings. AAPL faded modestly to end the week ahead of the Tuesday earnings.

Software: Came to life upside for some key members. NOW gapped upside Thursday. WDAY broke to a new high Friday. HUBS is on a 4-day rally after coming off the bottom of its range. VMW up nicely on the week. ZS looks really good. COUP broke to a higher high Friday. Game stocks TTWO, ATVI showing some life.

Semiconductors: INTC bombed lower on weak guidance. NVDA struggled in sympathy, but held the 50 day SMA and bounced to a doji with tail. AMD, MU struggled. MCHP opened lower, rebounded nicely. XLNX continued its struggles after the Wednesday gap lower through the 50 day MA's. SWKS sold but looks as if it could set up again. QRVO gapped lower Friday to test the 50 day MA. On the other hand, LRCX gapped upside Thursday and continued Friday. A good group still, but getting a bit volatile with regard to some of its big leaders.

Social: FB gapped upside on earnings. TWTR gapped and tested and we moved in on the test. SNAP dropped on results, but managed to hold the 50 day EMA as of Friday.

Manufacturing/Machinery: MMM bombed on earnings. UTX remains solid near the 2018 highs. ETN, EMR decent but slowly trending. CAT trying to come off the 200 day MA after dropping there on earnings. DE fell to the 50 day MA and is trying a bounce. CMI broke below the 20 day EMA Thursday and we closed it. Still decent, but experiencing very recent issues.

Financial: Still quite solid. MS moved up Friday and we picked up a position Thursday. BAC broke over the 2 week range Friday. C started higher off a weeklong test to the 10 day EMA. JPM not bad, trying higher after a test. TCBI a decent move on the week. V broke to a new high Friday. Man, it just keeps moving higher.


Stats: +81.25 points (+0.31%) to close at 26543.33

Stats: +27.72 points (+0.34%) to close at 8146.40
Volume: 1.98B (-4.35%)

Up Volume: 1.21B (+386.58M)
Down Volume: 757.05M (-462.95M)

A/D and Hi/Lo: Advancers led 2.11 to 1
Previous Session: Decliners led 1.47 to 1

New Highs: 109 (+31)
New Lows: 48 (-11)

Stats: +13.71 points (+0.47%) to close at 2939.88
NYSE Volume: 760.816M (-3.64%)

Up Volume: 532.917M (+265.653M)
Down Volume: 214.575M (-302.033M)

A/D and Hi/Lo: Advancers led 2.07 to 1
Previous Session: Decliners led 1.79 to 1

New Highs: 120 (+51)
New Lows: 29 (-13)


VIX: 12.73; -0.52
VXN: 15.79; -0.70
VXO: 12.21; -0.62

Put/Call Ratio (CBOE): 0.86; +0.01

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: 2.50% versus 2.536%

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: 1.11419 versus 1.11350. Euro rebounds ever so modestly after a dump lower early 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: 111.565 versus 111.547. Dollar weakened late week but managed to hold the 50 day MA in its 8 week lateral range. Perhaps just a shakeout before breaking higher. Perhaps.

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: 63.30, -1.91. Weak Friday and started weakening midweek after a higher recovery high. Gave up the Monday breakout move.

Gold: 1288.80, +9.10. Sold to the upper trendline of its large triangle, held for a week, then bounced nicely Friday. Not buying the economic data?


Huge week of data. Personal income, Spending, and PCE Monday. Tuesday Chicago PMI, Consumer Confidence. Wednesday ADP, FOMC rate decision, ISM. Thursday productivity, factory orders. Friday the Jobs Report.

Earnings. More earnings. GOOG Monday after the close AAPL Tuesday after the close along with MA, MCD, GM, TWLO, AMD and about a billion others. Heavy earnings week.

Lots of data, 5 weeks upside, lots of earnings on top of lots of earnings. Nominal at best breaks to new highs by SP500, NASDAQ while SOX is showing some signs of wear after a long rally and breakout to a new high.

Yes, I am focusing on the probabilities of significant more upside from here without a test being lower. GOOG and AAPL can drive a further move and can certainly drive themselves higher, but even GOOG is sitting on a substantial upside leg of over 100 points since its last test of note. That is pretty much the definition of building in the good news ahead of results.

Thus, we added some downside plays to the report last week in the event of some rotation rollovers or the market overall gets a bit winded and needs to drop a bit.

Even so, there are still many, many solid patterns in many sectors. To ignore those is to ignore the continued upside bias and falling forward posture of the market.

Therefore, we will still have new upside plays for this week; just too many good setups not to. Moreover, even if the leaders of the rally need to rest and test, this move has shown rotation to new areas that then rally as the leaders take deserved break. Not to acknowledge that ignores the ongoing theme in the market, i.e. money moving to new areas and driving them higher, maintaining the upside bias.

Accordingly, some more upside plays in some new and even recycled areas that have now had some rest. A few downside remain on the report as well because as we saw with CMG, the gains can be quite satisfying and come in very quickly.

Have a great weekend!

End part 1
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