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5/14/2019 Investment House Daily
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Investment House Daily Subscribers:
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Entry alerts: CL
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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.
- Stocks rebound with half-hopeful trade tweets.
- That didn't take long: President pushes Fed for lower rates.
- Import/Export prices show low prices that are not so transitory.
- This time the 3 month/10 year inversion is ignored.
- Despite the bounce, the indices still look ready to roll back over and finish the 200 day SMA test. Perhaps that is the prediction that sends them higher.
The weak Monday finish certainly made it look as if the indices would head lower toward next support, e.g. the 200 day SMA for NASDAQ and SP500. It seems whenever the market appears to be a sure bet to do something, it changes direction. Stocks rebounded in the pre-market, tried to give the move away, then rallied from the opening bell to midday. The afternoon session was a game of 'don't blow the lead' as the indices faded from the session highs but still managed decent enough closes. Not nearly as impressive at the 1% to 2% moves across the board, but positive nonetheless.
SP500 22.54, 0.80%
NASDAQ 87.47, 1.14%
DJ30 207.06, 0.82%
NASDAQ 100 1.06%
VOLUME: NYSE -17%, NASDAQ -16%. Major volume declines on an upside session. Thus, not as many buyers, more of an indication of a relief bounce.
ADVANCE/DECLINE: +3.2:1 NYSE, +2.7:1 NASDAQ. Decent but not the caliber of the selling.
Catalysts? After discussing why it had to happen in last night's report, the President wasted no time in pushing for Fed rate cuts. The President said certainly China would respond to the lack of a trade deal and its fading economy with economic stimulus, likely rate cuts. Trump opined if the Fed would simply 'match' Chinese cuts the US would win the trade war, 'game over.' That didn't take long!
The President further said that we would know in '3 to 4 weeks' if the trade talks are successful. That vague, very faint, not quite optimism was apparently enough to satisfy oversold markets and coax a bounce.
Import/Export Prices. These prices came in much weaker than expected, cutting against Chairman Powell's notion that overall price weakness is 'transitory.'
Imports, April: 0.2% vs 0.4% exp vs 0.6% March.
Ex-petroleum: -0.6%, -1.0% year/year, the lowest since July 2016, back in the time before the economic rebound.
Exports: 0.2% vs 1.0% expected vs 0.6% March (from 0.7%).
Year/year: just 0.3%
Capital goods: -0.4%, -1.2% year/year
Motor vehicles: -0.1%
It would appear prices are tame for another month, indeed, even tamer than the prior months. If these are transitory, they are heading lower before they head higher.
As noted, the news was good enough -- along with an oversold condition -- to truncate the selling ahead of a 200 day SMA test for SP500 and NASDAQ. The indices bounced off the selling, but frankly, SP500, NASDAQ -- indeed all the indices -- look very weak with the fade off the intraday highs. This could very well be a one-day bounce that rolls back over Wednesday.
Main irony of the day? The 3 month/10 year yield curve inversion that NO ONE is mentioning. It was a panic point in when it last occurred, a sure sign of recession, but now it is ignored.
To view, click on the following links:
SP500: Gave up a 1+% move, giving up 18 points high to close, almost as many points as it closed higher. On the high it tapped at the 50 day MA's and then faded to close below the Monday opening gap lower. This looks weak, and the 200 day SMA that was pushed back Tuesday could happen without much more upside.
NASDAQ: Gapped higher, rallied to the Friday low, then faded 42 points to the close. Perhaps it can edge up more from here but as with SP500, an overall weak session that did not change the downside character. A test of the 200 day SMA would be best, and the sooner it happens, the better.
SOX: Gapped upside, rallied close to the 50 day MA, held most of the move. Lots of resistance at 1450 from a gap in early April and the gap lower Monday. Oh, 50 day MA's as well. Held on better than NASDAQ and SP500. Perhaps it can shake it off and lead upside. Will have to show it.
DJ30: Rallied back over the 200 day SMA with an upside gap and rally, but it too faded form the intraday high, dropping 157 points from the high (gained 207 at the close). Big pullback off the session high, showing the same weakness. If DJ30 cannot muster an advance that would not even allow it to form a right shoulder to a head and shoulders, indicating it is quite weak despite the Tuesday bounce.
SP400: Rallied back through the 200 day SMA but then could not hold the move and closed just below the 200 day. Looks as if it fades from here toward 1850ish level where the next support resides.
RUTX: Bounced off the Monday rip lower. A test of 1505 would have been better, but it is attempting a relief move.
FAANG: Unimpressive. FB finished its 50 day MA test, tapping it on the low, bouncing some. AAPL Gapped and rallied decently, working into the Monday gap lower. AMZN showing a decent doji at the 50 day MA. NFLX unable to hold a modest gain higher. GOOG gapped up to the 200 day but rolled over to lose 1%. Ugly session.
Software: Good to see this leadership group show some strong moves. NOW gapped and rallied over 4.5%. Wow. WDAY gapped and rallied to the mid-range. COUP same solid action. MSFT bounced but gave up much of the upside on the day; still a nice pattern. VMW not bad, but a 50 day MA test would be better for a reset of the uptrend.
Semiconductors: Moving up in recovery, but a huge question mark. AVGO gapped and rallied up through the 50 day MA. Not bad, did what it had to. LRCX held the 50 day MA and not much more. UCTT looks very good. BRKS not bad but still needs a bit more work. AMD trying a bounce from the 50 day MA. AMAT gapped up off the 200 day, but no volume. Some AAPL chips bounced, SWKS, SMTC, but very weak moves.
Personal products: Up early, faded as some of the other areas recovered. No issues; these will continue receiving bids if the techs and other areas come back under pressure as is likely.
Food: PEP jumped, faded. WING dropped back to the 10 day EMA. MCD dropped modestly. Faded as the other areas rebounded from their selling. Once that bid dries up these will be moving upside again.
Financials: V looks pretty good though it did fade some off its session high. Banks bounced, then gave up most of the move, e.g. C, JPM. MS lost ground on the day, unable to bounce.
Stats: +207.06 points (+0.82%) to close at 25532.05
Stats: +87.47 points (+1.14%) to close at 7734.49
Volume: 2.08B (-16.13%)
Up Volume: 1.63B (+1.271B)
Down Volume: 431.18M (-1.669B)
A/D and Hi/Lo: Advancers led 2.66 to 1
Previous Session: Decliners led 5.1 to 1
New Highs: 59 (+20)
New Lows: 85 (-68)
Stats: +22.54 points (+0.80%) to close at 2834.41
NYSE Volume: 751.424M (-17.34%)
Up Volume: 582.836M (+235.336M)
Down Volume: 160.4M (-3.36B)
A/D and Hi/Lo: Advancers led 3.14 to 1
Previous Session: Decliners led 5.07 to 1
New Highs: 73 (+9)
New Lows: 55 (-68)
VIX: 18.06; -2.49. Dropped back to test the 10 day EMA. Looks ready to launch higher again, meaning more selling ahead.
VXN: 22.23; -3.02
VXO: 19.52; -1.67
Put/Call Ratio (CBOE): 1.02; -0.07
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 slightly inverted for a second session.
The 2 year versus the 10 year: Spread holds at 21BP
10 year: 2.414% versus 2.403%
3 month: 2.416% versus 2.413%
2 year: 2.199% versus 2.19%
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: 1.12060 versus 1.12304. After trying to take out the 50 day MA Monday, the euro falls away from that resistance, and rather hard at that.
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: 109.634, +0.03. Dollar holding the same range of the past week after the 2 week drop from the 200 day MA.
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: 61.78, +0.74. Holding at the 200 day and 50 day MA. Still.
Gold: 1296.30, -5.50. Dropped back to test the 50 day MA after breaking upside through it Monday.
With the indices forgoing a 200 day SMA test and bouncing, the bounce looks weak. I would not be surprised to see the indices fall from the Tuesday close. Perhaps they can snake out another half day upside or even a full day, but the failure to test the 200 day likely just makes that a sharper drop after a short rebound.
Of course, any tweet or positives on trade can ignite buyers. Thus, while the index patterns look weak on the bounce, the market is still extremely subject to news, particularly trade news. With a President so focused on the stock market, any further drop likely brings on more of a press from the Administration.
That said, we have to prepare as if this bounce lasts only a day (today) or a day and one-half or two. Thus, some downside on rebounding stocks that hurt their patterns in the selling is a good prep. SMH, CMI, AVGO, LRCX -- possibilities if the numbers work, i.e. the risk/reward is good enough. We will look over the patterns and see what stocks and indices provide the best patterns and risk/reward.
Have a great evening!
End part 1
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