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5/20/2019 Investment House Daily
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Targets hit: AVGO
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Trailing stops: None issued
Stop alerts: AMAT
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- Growth hit as tech companies have to cut off Huawei
- All indices gap lower, SOX gaps to the next level as NASDAQ approaches next potential support.
- Fed again thinking it is smarter than the markets.
- Fighting a trade war is the result of failed central bank policies, the same failed policies it used to cause other catastrophes.
- Chips are so ugly they may be ready to bounce already.
- With the distribution, any bounce is just a bounce. Still.
The Wednesday and Thursday bounce that stalled Friday turned back into selling Monday, the same as the prior week. I suppose you could say the market is showing a series of 'gray Mondays.' In any event gaps lower across the board for the stock indices, but growth clearly got the worst of it.
SP500 -19.30, -0.67%
NASDAQ -113.90, -1.46%
DJ30 -84.10, -0.33%
NASDAQ 100 -1.69%
VOLUME: NYSE -11%, NASDAQ -2%. NYSE trade fell well below average, further indication the selling was not that heavy or aggressive on SP500 and DJ30. NASDAQ trade remained above average, still showing overall aggressive selling.
ADVANCE/DECLINE: NYSE -2:1, NASDAQ -1.8:1. Large cap tech selling for the most part.
Tech was the focus once again as trade issues remain front burner. As a result of the black listing of Huawei, several US companies cut ties. GOOG cut licenses to Android while INTC pulled its products as well. NKE and other shoe makers are complaining they cannot move fast enough, that shoes are different from 'apparel,' and that the year for them was not enough to relocate production.
China hinted at retaliation with rare earths, something that could bite. We all knew China was buying up and locking down all the rare earths it could over the past 15 years. Saving for a rainy day I supposed. Thus, China said it was in 'no rush' to resume the trade talks. What did the US do in that 15 years? Not much. Printed several trillion dollars at the Fed.
Speaking of the Fed, the Atlanta Fed governor said he wasn't sure what the market was looking at because he certainly did not see a rate cut in 2019. Ah, a member of the Fed who knows more than the markets. Danger, danger, danger. But then again, that is why the Fed is ALWAYS wrong: it is a small group of people who think they know more than markets. Or not. They likely just are there to keep the status quo, i.e. the super rich super rich.
GS said a tariff on all Chinese goods would lop off 6% from corporate profits. I am assuming that was US corporate profits and GS was not worrying over Chinese profits.
You know, all this started in 2000. We are now paying the price for Greenspan's actions in starting the massive Fed put. Without going into too much detail yet again, Greenspan was convinced the 'runaway consumer' and high wages would trigger inflation in our strong economy that was still riding the 20 year boom. Well, he ended up draining all liquidity from the economy after flooding it with liquidity ahead of the Y2K non-event. On top of that he aggressively hiked rates. Indeed, after NASDAQ had rolled over violently he added another 50BP rate hike.
Wow, talk about history repeating. The 1929 central bank was on the same inflation snipe hunt, convinced that the roaring twenties brought about by new tech (radio) would cause huge inflation spikes. It hiked and hiked and finally hiked a full 100BP. The market collapsed, the US and world economies followed. Hmm. I guess it beat inflation because it never showed up; just a Great Depression.
The tragedy we are paying for now is the loss of millions of tech jobs the 3 years after Greenspan blew up the tech boom. No investment was made in the US - trillions were lost in the collapse, millions thrown out of work, no investment in tech was believed safe. Instead it all moved overseas. Those jobs were lost and are never coming back. We gave away our tech advantage because people who thought they were smarter than markets blew up those markets over worries of inflation that was not present.
Now we are fighting a trade war to win back our technological advantage and not have it stolen from us again. It is not fun, it is not easy, but if the US is to maintain economic power and the dollar as the reserve currency, it must be done. Decades of weak Presidents and head in the sand congresses have put us here. I have said it often: digging out of a hole is a lot harder than staying out of it in the first place.
Everything gapped lower, SP500 and DJ30 just a bit (relatively), while NASDAQ, SOX and company gapped down to next potential support. Potential because in selling events all support levels are potential until proven. At least NASDAQ and SOX are again at a potential support point.
SOX was hammered again, gapping through the support where it closed Friday and now near the 200 day SMA. On the weekly chart it is not a total disaster as it is holding over the 200 day and is in the upper reaches of the prior range, but it is making things more difficult. That said, what doesn't kill you . . . Okay, reload and reset as SOX has yet another support range to try and hold.
NASDAQ was hit with a strong gap lower as well, closing near 7700 with a doji and just over last week's lows. 7650 represents, more or less, the neckline of a potential head and shoulders pattern from early March.
SP400 gapped to last week's low - Monday - showing a doji and also just over the potential neckline to a head and shoulders pattern.
RUTX shows the same action, gapping to last week's low, holding there on the close.
SP500 gapped to a doji as well, but it was nowhere near last week's low. That doesn't get it off the hook for the downside, it just was not lit up as were the tech stocks.
DJ30 sold but quite modestly, holding over the 200 day SMA and the potential neckline in its own 3 month potential head and shoulders.
Tech was the clear loser - again - while more staid and stoic areas such as aerospace/defense, food, restaurants, some retail, personal products either gained or held their own.
Software struggled again, chips were slammed. The silver lining? Perhaps they are so beaten down they are ready to bounce. Yes, it is pretty soon, but after another blowdown through near support enough sellers could be flushed out.
Software: NOW gapped to the 20 day EMA, WDAY fell to near the 20 day EMA, ADBE gapped to near the 50 day MA. VMW cracked the 20 day EMA. COUP, WDAY, TWLO holding nicely at the 10 day EMA. MSFT not bad with a doji test of the 20 day MA. Feeling some pressure for sure, but most still holding up.
FAANG: FB gapped lower, holding over the 50 day MA where it tested last week and bounced. Okay, double bottom perhaps? Or is that just hope? AAPL gapped to a lower selloff low; did manage to come back from near 180 on the low. AMZN gapped and doji-tapped the 50 day MA on the low before rebounding decently. NFLX gapped down from the 50 day MA test, still just over the bottom of its range. GOOG gapped and sat on the 200 day SMA with a 2% loss.
Aerospace: LMT solid, LLL holding the move higher.
Food: PEP in a modest test. KO in a decent 10 day EMA test. DRI broke higher from a 7 week base with some strong volume. WING was dubbed overbought by one of the afterhours 'gurus.'
Personal products: Some pausing from PG, CL.
Retail: ULTA is trying to bounce from the 50 day MA, showing good volume. COST still solid, adding more upside. BBY hanging on at the 200 day - for now. ROST not bad. TSCO in in a really nice flag test of the 50 day MA. Some retail is working well.
Big tech: CSCO still holding up well, but ORCL is trying to break support while HPE looks ready to roll over in a bear flag.
Financials: V and MA still look great. Banks still look problematic at best, e.g. C, BAC.
Social: MTCH doji testing over the 10 day EMA. TWTR showing a doji at the upper gap point. SNAP holding the 50 day MA after a nice rebound last week. FB gapped to a doji over the 50 day MA - may be getting ready.
Semiconductors: LRCX gapped through the 50 day and sold hard. XLNX gapped lower, tapped the 200 day SMA on the low, showing a doji - perhaps ready to bounce. MU gapped down 4% to a doji. AMAT gapped lower and sold hard; earnings were good last week but could not hold it up. CY gapped and sold to near the 200 day SMA. QRVO, SWKS, AVGO all gapped lower. A circus of ugly that may be so ugly it yields a bounce.
Stats: -84.10 points (-0.33%) to close at 25679.90
Stats: -113.90 points (-1.46%) to close at 7702.38
Volume: 2.21B (-1.78%)
Up Volume: 609.93M (-124.08M)
Down Volume: 1.56B (+60M)
A/D and Hi/Lo: Decliners led 1.81 to 1
Previous Session: Decliners led 2.52 to 1
New Highs: 45 (-29)
New Lows: 152 (+48)
Stats: -19.30 points (-0.67%) to close at 2840.23
NYSE Volume: 754.908M (-10.70%)
Up Volume: 277.153M (+68.466M)
Down Volume: 455.618M (-173.187M)
A/D and Hi/Lo: Decliners led 1.97 to 1
Previous Session: Decliners led 2.88 to 1
New Highs: 72 (-40)
New Lows: 116 (+36)
VIX: 16.31; +0.35
VXN: 21.64; +2.25
VXO: 17.70; +0.67
Put/Call Ratio (CBOE): 0.85; -0.24. Even with the selling, put activity fell below 1.0 after 8 of 9 sessions over 1.0. After so many fear days this may show the downside is exhausted near term, meaning a rebound/relief bounce.
Bulls and Bears:
No surprise the bulls faded after trading over the 55 level. Bears faded, however, as the two sides continue to move opposite one another. Bears are falling again and that is not a good indication for the upside.
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: 51.4 versus 55.5
Bears: 17.5 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: Back to yellow. 5 year, and 2 year are below the 3 month treasury. Getting over 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 rises 2BP to 3BP.
The 2 year versus the 10 year: Spread falls 1BP to 19BP
10 year: 2.416% versus 2.393
3 month: 2.382% versus 2.393%
2 year: 2.221 versus 2.198%
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: 1.1170 versus 1.11573. Euro actually bounced after a bit higher low in the trend lower below the 50 day MA.
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: 110.085 versus 110.068. Bounced to the 20 day EMA, showing a doji.
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: 63.21, +0.29. Held last week's break higher off the 200 day SMA test. Doji test, likely a continuation doji, meaning after this pause oil continues to rise. That, however, belies how horrible things are supposed to get due to the weak world economies.
Gold: 1277.30, +1.60. Two hard sessions lower and a doji at some support. Trying to base out after that February high.
Another tech beating to the downside, but afterhours there is an upside bias in the futures with tech names trying to recoup lost ground. GOOG, CSCO, AMZN. Could just be a cruel hoax even if it holds to morning: a gap higher that is then sold, driving the indices to fully test that next support.
On the other hand, as noted earlier, they gapped to doji and may already be in position to try another rebound. Doubt it will last bigger picture, but for the near term many of the stocks that led the selling are way oversold or getting there, namely chips: XLNX, INTC, SMTC, MU are just a few.
Stepping into the upside after such selling takes resolve - and lowered expectations for how far the move will go. Stocks such as HUBS, TWLO, MTCH on these short pullbacks testing good moves are very alluring. No one is selling them, and thus they tend to bounce when the overall market selling pressure subsides. DRI looks super as it breaks higher, IR is one of the more staid stocks in great shape, MCK as well. There are bounce opportunities. But, the market has undergone distribution, has sold hard, and has not shown it can make and sustain a new move. Thus, any upside is just a bounce play. That can work.
Have a great evening!
End part 1
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