Monday, May 13, 2019

The Daily, Part 1, 5-13-19

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5/13/2019 Investment House Daily
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Investment House Daily Subscribers:


Targets hit: TGT
Entry alerts: AMT
Trailing stops: HON; RMBS; VIAV

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Market Summary Video, Plays and Play Videos, and Play Table with play annotations will issue Wednesday, Weekend.

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- Trade problems fanned, stocks gap and sell.
- US retaliates, China to retaliate.
- Administration will try to rescue, Fed will have to act given 2 year, 5 year, 10 year yields below the 3 month.
- NASDAQ suffering serious distribution.
- Still room downside to next support, then bounces that likely fail to fill more gaps from the December low.

After the Thursday and Friday rebounds from the session lows to hold key support levels, stocks looked capable of holding and making the break higher.

More US trade tariffs on China, however, appeared to be more than the market could bear. Futures were lower Sunday night and gapped lower at the start of the early Monday session.

At 8:00ET, China 'retaliated' against the US starting the process to increase existing tariffs to 25% and put tariffs on all Chinese goods imported to the US, all $300B worth.

China threatened tariffs starting June 1 on $60B of US goods, targeting mainly agricultural products in an attempt to attack political bases. Uh oh, looks as if China is tampering in elections; better get the FBI, congressional investigations, and a special prosecutor going pronto! There was also speculation by a Chinese state-owned news outlet that there could be selling of US treasuries, target specific companies, etc.

In the current market climate, any suggestion of action was enough for traders to scream 'sell, sell, sell!' as did Mortimer Duke in 'Trading Places' when they found out they had been duped by Dan Aykroyd and Eddie Murphy. Futures dumped even lower ahead of the open.

Stocks gapped lower, sold hard the first half hour, bounced, then rolled over, selling into early afternoon. That selling took the indices below the Friday lows and of course below those key support levels such as the 50 day and 200 day SMA. An afternoon bounce on some seemingly half-hearted attempts by the Administration to restore confidence failed just before 3:00ET and stocks faded to close just over session lows.

All indices of course scored their biggest declines of 2019. At the lows, DJ30 lost over 700 points. NASDAQ lost 270 points and on its low was just 20 points lower. Impressive declines as stocks were dumped early, often, and without concern for market cap.

SP500 -69.53, -2.41%
NASDAQ -269.92, -3.41%
DJ30 -617.38, -2.38%
SP400 -2.94%
RUTX -3.18%
SOX -4.73%
NASDAQ 100 -3.46%

VOLUME: NYSE +16%, NASDAQ +3%. NYSE trade jumped above average on big percentage losses as shares were dumped. 4 distribution sessions in 18 sessions. NASDAQ trade, already above average Thursday and Friday, moved up on the selling as NASDAQ shares were also dumped. 5 of 10 sessions of distribution for NASDAQ, indicating the liquidation is strong and will continue.

ADVANCE/DECLINE: NYSE -5.1:1, NASDAQ -5.1:1 as well.

The point losses are big and the internals are heavily skewed negative. The NASDAQ distribution days indicate clearing out of tech. After the initial drop to likely the 200 day SMA or thereabouts for NASDAQ (and SP500, perhaps 2700), there will be an oversold bounce. The distribution suggests that the rebound will be just a bounce that rolls back over as the indices complete head and shoulders patterns spanning March through May.

Of course, that scenario indicates more selling. This market rally has avoided those scenarios for years. Maybe it will do the same this time -- a tweet or two and some concessions for a trade deal and it could be that all is forgiven. The President is very focused on the stock market, knowing it is important in the creation of and a sense of wealth.

Thus, the President will 1) pressure the Fed again to cut interest rates because of the trade issues and the stock market's reaction. He does not want a selloff to become a catalyst for a bear market. Consider that the 2 year and 5 year are below the 3 month treasury, and the 10 year BELOW it as of today, the Federal reserve would be utterly foolish not to cut rates and do so NOW. Otherwise a selloff DOES turn into a bear market.

2) Make sure more comments come out about how a trade deal is still possible but that in the interim it won't hurt the US and indeed if one does not come up soon it won't hurt the US either. He is already talking about how some of the tariff money will be used for paying farmers, etc. Not sure how that will work, but those are what we are going to hear more of. Have to at this juncture.

Given the situation with trade and the yield curve, I predict the Fed cuts rates. Not in December (that now has more than a 100% chance according to the FFF contract), but in an emergency move that it won't style as an emergency, but out of an abundance of caution given prices remain low, transitory or not. Once again, when Powell turns more hawkish, he will have to eat his words, and once again, the President looks more prescient than the Fed chief. Goodness.


SP500: Gapped below the 50 day MA and then sold below the Friday intraday lows. Closed near the November 2018 peak, one of the triple peaks in the consolidation before the December meltdown. Likely heads to the 200 day SMA (2775), even to 2750-2730ish before a rebound. That rebound is problematic, i.e. it could be the bottom or it just sets up a further selloff.

NASDAQ: NASDAQ gapped below the 50 day EMA and the Friday low, selling off to close near the session low. Sold into the pre-December selloff range, likely still heading lower to the 200 day SMA (7531) similar to SP500. That sets up the symmetry for a bounce to form a right shoulder to a head and shoulders forming since March. With 5 sessions of 10 being distribution sessions, the likelihood a bounce forges back up to or near the prior highs -- without some external force -- is slim. Thus, on a bounce you prep for more downside without one of those extraneous forces, particularly the Fed making a move.

SOX: Gapped below the 50 day MA's as well, gapping below the Friday lows as well. Closed below the prior range of highs. There are several gaps to fill above the 200 day SMA and a bigger one down at 1200. Given SOX closed at 1409, that is still obviously a significant decline to get there. Never happens all at once, however. 1370 to 1350 looks like logical support for a bounce upside to form a right shoulder.

DJ30: Gapped to just over the 200 day SMA then broke it. DJ30 is near 25,200ish where there is a neckline possibility for a head and shoulders.

SP400: Crashed the 200 day SMA similar to DJ30, still has 25 to 30 points of decline to hit the potential neckline of a head and shoulders.

RUTX: Exploded lower. About 20 points to the March low and some possible -- possible -- support.

NASDAQ 100: About 75 points form the late March lows that suggest a neckline for a possible head and shoulders.


FAANG: Not a good session for these stocks, but not a good session for many groups. AAPL crushed with a gap below the 200 day SMA; did close at some support at 185. FB gapped down from the wedge, filling the earnings gap for certain. AMZN gapped and sold to the 50 day SMA; likely more downside. NFLX gapped and sold to the mid-April low. That is the bottom of the range and of course a key level. GOOG gapped to the 200 day SMA, bounced, but then rolled over. Hit some support at 1120 on the low, bounced a bit.

Software: Started cracking as one of the last and strongest leadership groups is being taken out. CRM did a decent job of holding the bottom of the range. NOW sold to the 20 day EMA. WDAY holding over the 50 day MA in its pennant. COUP holding similarly. TWLO broke the 50 day MA on volume. MSFT faded but not bad. VMW filled the last gap from late April, still a very decent pattern.

Semiconductors: Not a pretty sight. Anything AAPL was killed, e.g. SWKS, SMTC. AMD held the 50 day EMA in a decent showing. UCTT and BRKS tested some more and are really not bad. AVGO gapped below the trendline and to the upper gap point from March, bouncing; not convinced that is all, but it could bounce some off this. LRCX gapped and sold to the 50 day SMA. RMBS flopped to the 50 day MA. AMAT gapped to the 200 day SMA and a possible H&S neckline, so it could bounce off this for a bit of upside. INTC, XLNX sliding into oblivion.

Personal products: Of course performing better. CL touched the buy point a couple of times; if it continues we buy it. PG solid.

Food: PEP gapped lower but did not hurt itself. KO ditto. WING showed excellent action. MCD not bad at all, WEN decent. YUM a nice 50 day EMA the past three sessions. DRI still in a good pattern. You have to eat.

Financials: Ugly as interest rates flop. C, JPM, GS, TCBI. On the other hand, V just tested a bit more, showing a doji at the 50 day MA.

Retail: Some good patterns broke, e.g. TJX through the 50 day MA, ROST down to the 200 day, BBY broke the 200 day, DLTR bombed 4.5%, and DG gapped below the 50 day MA.

Machinery/Manufacturing: CMI broke below the 50 day MA, the last holdout. CAT, DE both were shot. UTX, well, not terrible, managing to hang on at the 50 day MA.


Stats: -617.38 points (-2.38%) to close at 25324.99

Stats: -269.92 points (-3.41%) to close at 7647.02
Volume: 2.48B (+2.9%)

Up Volume: 359.32M (-860.68M)
Down Volume: 2.1B (+960M)

A/D and Hi/Lo: Decliners led 5.1 to 1
Previous Session: Advancers led 1.22 to 1

New Highs: 39 (-31)
New Lows: 153 (+48)

Stats: -69.53 points (-2.41%) to close at 2811.87
NYSE Volume: 909.083M (+16.29%)

Up Volume: 347.5M (-110.057M)
Down Volume: 3.52B (+3.21B)

A/D and Hi/Lo: Decliners led 5.07 to 1
Previous Session: Advancers led 1.89 to 1

New Highs: 64 (-6)
New Lows: 123 (+63)


VIX: 20.55; +4.51. Gapped to the Friday opening level around 18.50 and rallied just over 21 on the high. +28%, but given the pretty massive selling, perhaps not as strong as you want to see. Should accelerate rapidly tomorrow as the indices move lower toward the next support levels.
VXN: 25.25; +6.15
VXO: 21.19; +3.19

Put/Call Ratio (CBOE): 1.09; -0.15. Five of six sessions over 1.0. This is getting to the point it can support a rebound when the other indicators get in line as well.

Bulls and Bears:

Bears stopped the decline but did not bounce, holding 17.8 for a second week. Bears finally broke their semi-negativity and dropped the past few weeks. As noted, that was a negative indication for the rally as they had remained more bearish in a relative sense than bulls. The decline suggested a selloff and that occurred, more or less.

Bulls backed off a point after rising steadily. Just as they got within 5 points of that 60% range where the upside moves have stalled, bulls lost their nerve a bit.

At this juncture there are still no extremes. Bulls are close to 60, but not there. Bears have overall been more complacent of late.

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: Shading to yellow for this week even as bulls backed off. Not in the 60's, but not much fear from the selling.

Bulls: 55.5 versus 56.4

Bears: 17.8 versus 17.8

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: RED. 10 year, 5 year, and 2 year are below the 3 month treasury. This is the second 10 year/3 month inversion this year. The positive: the 2 year/10 year is not inverted.

The 3 month yield versus the 10 year: Spread now inverted by 1BP. The 3 month fell, but the 10 year fell more.

The 2 year versus the 10 year: Spread rises 1BP to 21BP

10 year: 2.403% versus 2.473%. THAT is a decline, a serious decline.

3 month: 2.413% versus 2.431%
2 year: 2.19% versus 2.272%

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.

The Dollar: There are two schools of thought. First, those who believe a strong dollar is in the interest of the US. Reagan (though not all of his advisors) and Clinton were strong dollar Presidents. Second, there are those who believe a strong dollar prevents the US from selling US goods abroad. The Bushes (1 and 2) and Obama were in this category. The thing is, the US is always its economic strength peak when its consumers are consuming, and that is when there is a strong economy and a strong dollar: they consume both US and foreign goods. History shows this again and again, and thus it is worth watching the dollar as a gauge of how the US economy is performing.

EUR/USD: 1.12304 versus 1.1234. Euro tried to move over the 50 day MA but could not hold the move. Still looks ready to make the break through the 50 day and again try the 200 day as it did in January and March.

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: 109.178 versus 109.957. Diving lower form the 4-day lateral move last week. Sold below the March low.

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: 61.04, -0.62. Tried higher but faded to close at the 200 day SMA yet again.

Gold: 1301.80, +14.40. Blasted upside through the 50 day MA's, anticipating the Fed having to move.


With the support at the 50 day MA's and 200 day MA broken, the indices are open to a further drop to next support. That likely triggers a rebound. With the distribution, however, that rebound is likely just a relief move that fails, setting up another round of selling to deeper levels to fill more of those upside gaps earlier in the rally from the December lows.

Thus, we use the rebound to play some upside that held up well, and that includes some of the more stoic stocks from the weekend, e.g. CL, PEP and the like. We did pick up some AMT today as it appears immune to the market's gyrations.

As the market rebounds, we will scope out stocks bouncing to resistance for downside plays as well as index plays that form the peak of the right shoulder to a head and shoulders and start rolling back over. For now that is all we can do.

Have a great evening!

End part 1
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