Wednesday, May 01, 2019

The Daily, Part 1, 5-1-19

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5/1/2019 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: None issued
Entry alerts: JD; QCOM; TGT; VMC
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.


- AAPL tries to lead stocks higher then Powell finds the wiggle room to squelch talk of rate cuts.
- Stocks rally -- somewhat -- into the FOMC decision, sell hard afterward.
- AAPL gaps into resistance, fades rather impressively. Other stocks gap and reverse as well.
- ISM and construction spending miss, ADP is strong: data remains mixed, giving Powell his 'transitory' wiggle room.
- Failure and reversal at the SP500, NASDAQ highs is not rally ending -- as anticipated, it is likely just setting up a test and reset.

Stocks were holding their own with AAPL sporting post-earnings gains and a strong ADP jobs report even if ISM missed (52.8 versus 55.0 expected versus 55.3 March) and Construction spending March missed big (-0.9 vs 0.0 expected vs 0.7 February, from 1.0). It all came out in the wash, and anyway, the FOMC rate decision was due and Powell was on record saying that if prices were low in an expanding economy he would still consider a rate cut.

The appointed hour came, the Fed spoke. No hike as expected, the discount rate cut again (third time in the past year), pretty much the same. Okay, that was just fine. Status quo.

But, Powell spoke. And Powell found the wiggle room he needed. Yes, he noted that inflation is low even as the economic growth is 'solid' as the Fed styled it. Oh boy, things setting up for a rate cut. Then Powell opined that the low inflation was, in one of the Fed's favorite words, 'transitory.' Inflation is low Powell noted, but not 'persistently' low. Powell went on to explain -- or add a corollary to his prior comments -- that inflation needs to be 'persistently low' for the Fed to consider any policy movement. As things exist, Powell said there was 'no strong case for a rate move in either direction.'

That is always the Fed's fall back: prices may be low now, but they likely rise just around the corner. That was the logic that kept Greenspan hiking even after he drained the money supply to less than nothing. Inflation just HAD to be hiding somewhere. It wasn't, but we paid a HUGE price unrelated to inflation.

Cue the cold water on the market's loins. As the statement hit, SP500 traded at 2951.49. Over the next 20 minutes it moved a bit higher on the statement. Then Powell's comments. SP500 dropped 30 points to the close, flipping a modest gain to a 22 point loss. NASDAQ dropped 95 points post-FOMC high to close. RUTX and the midcap SP400 were pounded the hardest as they like the idea of lower rates and a boosted domestic economy.

While no one anticipated a rate cut at this meeting, there was (and still is to a certain extent) a rate cut built into the Fed Funds Futures contract. Powell's comments appeared to kick the legs out from under that notion and thus the drop in stocks from modest gains to solid losses.

SP500 -22.10, -0.75%
NASDAQ -45.75, -0.57%
DJ30 -162.77, -0.61%
SP400 -1.11%
RUTX -0.93%
SOX -0.82%
NASDAQ 100 -0.38% (thanks to AAPL)

VOLUME: NYSE -17%, NASDAQ +7%. NYSE volume faded back to just below average as it reversed a move higher, as SP500 faded below the prior all-time highs. NASDAQ trade rose above average as AAPL rallied (63M shares vs 25M average). But it was not all AAPL as GOOG, MSFT sold on stronger volume. Indeed, downside volume was 2:1 over upside volume on NASDAQ. On NYSE the ratio was 3.5:1 downside over upside volume. The numbers show some actual selling.



Well, with SP500 and NASDAQ so near the prior highs with their breaks upside not putting any distance on the prior highs, it did not take much to send them right back down below those levels.

SP500 gapped higher then reversed that gain with the afternoon selloff. Closed just over the 10 day EMA, not a major selloff, but with a market move in part built upon a Fed that was considered (for some reason) leaning toward a rate hike, to find out no rate hike is being considered because of 'transient' low prices was more strain than the market could bear.

'I'm afraid the strain was more than he could bear.' -- Doc Holiday, 'Tombstone'

At least SP500 is not lying dead after the session, unlike Johnny Ringo.

NASDAQ started the session below the prior highs from the GOOG earnings response Tuesday, but as with SP500 it gapped upside. That move took NASDAQ to the prior highs and there it stalled. AAPL faded back from its move and when everyone joined in post-FOMC NASDAQ found itself below the 10 day EMA and nearing the 20 day EMA at 8,000 (closed at 8050). Not a comforting place to fail, right at the prior highs.

DJ30 tried a move over the January 2018 high but it too reversed, closing at the 20 day EMA. DJ20 transports sold 1.71%, breaking below the 20 day EMA and toward the converging 50 day MA and 200 day MA. A failure of the transports is not good for DJ30's inability to break through to the prior highs.

SOX gapped upside then reversed to a loss, closing near the 10 day EMA. SOX is still comfortably over the prior highs for now.

NASDAQ 100 gapped higher, tried the recent highs from last week, then faded to the 10 day EMA. Holding just over the prior highs, it certainly looks as if a test of those highs is coming.

SP400 midcaps faded to the 20 day EMA, losing the most of any index on the session. That said, it is easily within its range of the past four weeks.

RUTX small caps dropped to the 20 day EMA, giving up the attempt at the break higher from Friday and Monday. Okay, the news form the Fed was not great for the small caps, but it is also still in the pattern, perhaps not just yet ready for an upside break.


Transports: While rails and airlines held up just fine, the truckers crashed. KNX, WERN, JBHT et al sported 3%ish losses.

FAANG: AAPL held its 10 point gain from the post-earnings trade Tuesday, but it also gave up 5 points off the high or a third of its gain on the high. Note: AAPL gapped upside, rallied to the bottom of the late August through October range, and sold back. Gapped to resistance, not over resistance. Thus, no breakaway gap, and that resistance may play a role in hemming in AAPL's move. AMZN gapped upside then faded to close at the 10 day EMA; very low volume is a positive. FB faded modestly on no volume. It is fine. NFLX rallied on solid volume. GOOG continued the decline and is now near support at 1160.

Software: A day that gave back some of the improved moves. ADBE fell hard (-2%) after gapping on that price target increase. CRM is falling into the middle of its range after testing the top. TEAM still looks as if it can fall. COUP looks decent enough as does OKTA, HUBS, and particularly WDAY. NOW remains very strong.

Semiconductors: Most were off on the day but still strong. AVGO, NXPI, MCHP, LRCX. INTC may be trying to bottom. AMD gapped sharply higher on its earnings but was sold off to a loss in a sharp reversal. SMTC looked decent but sold hard.

Social: Another day of not living up to the potential. TWTR gapped a bit higher, faded. FB held steady, consolidating its earnings gap higher. TWLO gapped upside on earnings then reversed very sharply, similar to AMD.

Manufacturing/Machinery: As with other areas, off but no damage. CMI, CAT, DE holding up. UTX fine, EMR testing the 50 day EMA. Not surging for certain.

Financial: Some give back here as well. The banks held up fine, e.g. C, JPM. Bank cards not so much as MA gave back almost all of its Tuesday gap and rally; never a good sign. Even V sold more aggressively, but volume was lower. MS, GS tested modestly.


Stats: -162.77 points (-0.61%) to close at 26430.14

Stats: -45.75 points (-0.57%) to close at 8049.64
Volume: 2.27B (+7.08%)

Up Volume: 713.65M (-157.65M)
Down Volume: 1.54B (+320M)

A/D and Hi/Lo: Decliners led 2.15 to 1
Previous Session: Decliners led 1.41 to 1

New Highs: 121 (+10)
New Lows: 58 (+9)

Stats: -22.10 points (-0.75%) to close at 2923.73
NYSE Volume: 862.649M (-16.83%)

Up Volume: 185.655M (-369.335M)
Down Volume: 671.371M (+203.351M)

A/D and Hi/Lo: Decliners led 1.71 to 1
Previous Session: Advancers led 1.21 to 1

New Highs: 206 (+9)
New Lows: 37 (+7)


VIX: 14.80; +1.68
VXN: 17.93; +1.33
VXO: 13.98; +1.54

Put/Call Ratio (CBOE): 0.93; -0.11

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 holds at 7BP

The 2 year versus the 10 year: Spread falls 3BP to 20BP

10 year: 2.504% versus 2.505%. The 10 year held mostly flat on the Fed's pronouncement.

3 month: 2.427% versus 2.432%
2 year: 2.306% versus 2.266%

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: 1.12002 versus 1.12146. Euro rallied to the 50 day EMA but then reversed and lost ground to the dollar. A week of rebounding to the 50 day, finding resistance there again.

Historical: Back into the 6-month range formed after the euro sold off from the early 2018 peaks after a week below it.

USD/JPY: 111.444 versus 111.435. Doji with tail at the 50 day MA's. If the dollar is to hold its gains, this is where it needs to find support.

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: 63.60, -0.31. Holding the 20 day EMA with a doji, trying to finish the test and rebound.

Gold: 1284.20, -1.50. Holding, still, over the upper trendline in the triangle. Snoozer.


Powell's view of low prices as transitory and thus not warranting a rate cut definitely stymied a semi-decent market move higher. That it occurred at the old highs for SP500 and NASDAQ is a bit ominous. It was not a massive rollover, but NASDAQ saw selling on rising trade as it was rebuffed from the highs.

Now before any predictions of a rollover in progress are made, recall that we were saying that after 5 weeks upside just to get to the old highs it might take a test and some rest before a definitive move over the highs was made. Powell's view that prices are not 'persistently low' and thus a rate hike not being warranted may be the catalyst to take that test and rest. Wednesday's gap higher and reversal certainly looks as if that could be the case.

Accordingly, as you have seen, we have put some more downside on the report and have been playing them. We will have to see if they turn out successful. Even AAPL, moving against our downside play entered ahead of earnings, is not out of the question as to making money: AAPL gapped into resistance and turned back from it. All metrics were lower but services. A fill of the gap perhaps, and that is at least a better exit point. The same can be said for LSCC: gapped upside on earnings but a big intraday reversal suggests it might collapse.

ACAD sold more for us. We entered TGT downside and QCOM just ahead of the close. QCOM is off 3 points, a bit up off the low; it is trying to hold up, but if the selling pressure remains, it likely heads lower to fill some of those gaps. We also picked up some VMC ahead of its earnings Thursday morning as it gapped higher and reversed sharply on the day. CSCO hit the entry point just before the market close so we did not issue an alert; hopefully we will get a shot at an entry Thursday without a gap lower.

Again, not predicting a massive collapse. It is simply that a pullback was building in the cards given the five weeks upside to resistance, the trouble getting through it, and the earnings starting to lose some luster. We take advantage of it with some downside then see what stocks set up good new upside plays.

We did bank some gain on our last V positions with May options: a big run already, a near term nice surge, then it started to fade after a stronger open. We banked some solid gain of 70%ish and 190%. That is what we have done on the way up, banking solid gain along the way as targets are hit. Thus we can ride the bit of remaining position we have on the likes of GOOG without suffering too much when it gapped lower. Just wish we had played that one downside as well. Oh well.

As noted, we banked a lot of gain on the way higher. Now we protect what has been gained and take more if necessary, e.g. VMW, UTX, LRCX, HON. Then we let it test and see where the leaders hold -- or not.

At this juncture there is no reason to believe the selling more than a test as anticipated. Thus, we look for solid leaders to test and set up new moves upside for a run at the SP500 and NASDAQ highs, this time taking them out. Until then, we play some downside, protect the upside, and watch for the next good moves to come.

Have a great evening!

End part 1
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