Tuesday, May 07, 2019

The Daily, Part 1, 5-7-19

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5/7/2019 Investment House Daily
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Targets hit: AXSM
Entry alerts: None issued
Trailing stops: NVDA
Stop alerts: C; JD; MS; NVDA; SYMC; TME

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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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- Stocks sell from the open and do not rebound until very late, and it was very little.
- SP500, NASDAQ ready to test the 50 day EMA, DJ30 the 200 day.
- Trade issues remain the focus, but EU economics remain a negative.
- NYSE, NASDAQ put in second distribution session in five. Another one or two and ultimately a deeper selloff is likely.
- Leadership still remains mostly unscathed in many sectors, but this is the test and it is not over yet.
- Still like the upside if the patterns hold, but if more distribution, ultimately we will play a lot more downside.

The buyers that appeared at the Monday open were not present Tuesday. After that Monday recovery, the afterhours news on trade was just piling on. The indices pretty much gave up on that Monday rebound. Selling started pre-market and worsened to the open. That was just the appetizer. Stocks sold at the open and trended lower all session, hitting lows on SPY at3:35ET before a rebound in the last 25 minutes as shorts covered after a big day and some buy programs did some bottom fishing.

The recovery took some of the sting off, but it did not change the session's character. The buyers from Monday backed off and sellers showed up, selling the indices on some jumping volume.

SP500 -48.42, -1.65%
NASDAQ -159.53, -1.96%
DJ30 -473.39, -1.79%
SP400 -1.93%
RUTX -2.02%
SOX -2.42%
NASDAQ 100 -1.98%

VOLUME: NYSE +15%, NASDAQ +21%. Back above average for both NYSE and NASDAQ, a second distribution session in 5 sessions, 3 in 15. Another session or two suggests more selling to come. Perhaps after a relief move, but not a good scenario.

Down to up volume: NASDAQ -4.6:1; NYSE -5.7:1.

ADVANCE/DECLINE: NYSE -4.5:1, NASDAQ -3.3:1. Stocks being sold across the board is what this shows.

It was not all just trade tweets and comments. There was other news, not great news at that.

EU: Growth forecast was cut to 1.2% from 1.3%. I think that is the third cut but I could be short on that count.

Germany: Forecast cut to 0.5% from 1.1%. German Factory Orders finally made it back to positive, but at 0.6% that was less than half the 1.4% expected. This follows two months of sharply lower orders of -2% and -4%.

JOLTS: 7.5M job openings in April, a 346K increase. At the same time hiring was little changed, and that is read ad a worker shortage that can lead to slow employment growth. Not from a lack of jobs but a lack of workers.

But is there a lack of workers? NO! Remember, there are over 100M working aged people out of the workforce or looking for a job (96.2M out of the workforce and add in those counted as unemployed). As I have said many times, we are paying people to opt not to work and still receive benefits, etc. in sufficient quantities to make them comfortable enough not to work.

Trump today infuriated his opponents today by redefining what is poverty in order to get people the incentive to go back to work. We have steadily increased the level of money you can earn and still be considered in poverty as well as what assets you can own. Autos, cell phones, televisions and other items that used to be accouterments of the middle class are considered items you can own in poverty. The President is attempting to get some of the almost 1/3 of the US population that CAN work BACK to work. We have the jobs, we have the workers' we just don't have enough people willing to do the work because they are paid not to work. The action today moving the definition back toward where it used to be before it was greatly liberalized is a step.


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Okay, back to the market. Stocks sold again on continued on the continued 'de-trade' trade. Trade deal assumed a done deal, China crawfished on key areas, Trump got upset, countered with the tariffs going up if China did not get back on track, market suffered selling as the 'trade deal a done deal' trade is outed.

SP500 sold to tap the 50 day MA's then rebounded 22 points to cut the losses though not that much. Not sure the 50 day MA test is over. BUT, in the bigger picture consider: SP500 tested the 50 day MA last in early March. It has made four tests of the 20 day EMA since, the fourth one started to bounce again but was undercut. In a continuing uptrend an index will come back to test the 50 day after 4 to 5 touches of the 10 or 20 day MA. It was time to revisit the 50 day MA and it is doing it.

NASDAQ is on the way to the 50 day MA as well. It too last touched the 50 day in earl April and has three clear bounces off near support, also trying to make a move starting last Friday, but failing in the weekend resurfacing of the trade problems. Looks as if a 50 day MA test is in the cards as well.

DJ30 is breaking the 50 day MA. It did close off the low after finding some support at 25,750, an actual support level (though a more minor one). Does not look as if it is down either. A drop to the 200 day SMA near 25,300 would take it to a potential neckline for a head and shoulders. Hate to go there; those patterns set up or try to set up frequently but then never consummate. But, you have to make note of them in the event they do play out. Note how MACD remained well below the February level as the Dow put in that higher recovery high in April. Running out of steam and now it is testing.

SOX sold below the 20 day EMA on the close, holding some support at 1500. Does not look as if this is over here either, and a 50 day MA test would be rather normal and could set up a D point for an ABCD pattern starting at the late March test of the 20 day MA. That would take SOX to the 61% Fibonacci retracement of that rally, a logical point to try a D point for a bounce.

NASDAQ 100 is through the 20 day EMA and has given up the higher high. It could easily test the 50 day MA as well at 7500, another 140 points.

RUTX, SP400 did not escape even with their domestic economy bias. Indeed, RUTX lost more ground than all but SOX. A sharp reversal of the Friday break to a higher closing high. I would say that move was rejected, and that can have negative near term consequences, such as a 50 day MA test as a start. SP400 midcaps gapped lower and touched the 50 day MA on the low. Not a breakdown, but definitely not ready to breakout near term without a significant change in buyers.


Of course some leadership groups are under pressure. Not a lot of breakdowns at this juncture. If the trade issues abate, it will simply be a good test.

Software: A recent new move higher by these stocks is being challenged. COUP is off just modestly, holding the 10 day EMA on the close. WDAY is also holding up quite well at near support. OKTA is very solid -- solid as oak? FFIV is not powering higher, but it is holding support in its range; still looking to play a rebound. HUBS was fine through the session but afterhours earnings has it down about 7 clicks. VMW is struggling as of Tuesday as it cracks the 20 day MA. MSFT is showing a doji with tail at the 20 day so perhaps after almost 2 weeks of consolidation it is ready to try and help lead.

FAANG: Decent-ish. FB holding near the 10 day EMA as it still works laterally after gapping upside on earnings. AMZN holding well, testing but holding over the 10 and 20 day MA. AAPL struggling to hold the 20 day MA; at the lick log for the rally from early March. NFLX tapped at the 50 day MA on the low, rebounded decently to hold a still decent pattern. GOOG continues up and down below the 50 day MA's, working laterally over 1160 that is trying to act as support.

Semiconductors: Under pressure for many. AVGO trying to hold support at 305 in a rather modest downside day. INTC of course is kind of sold out for now, showing a doji over the 200 day SMA as it tries to firm up. AMAT showing a nice doji with tail that tapped the 50 day SMA on the low and bounced. AMD similar. MU broke hard below the 50 day MA, however. LRCX shows a big doji with tail that undercut the 20 day MA but held it on the close. MCHP gapped lower and tapped at the 50 day EMA before a decent bounce. UCTT is setting up really well after earnings gap upside; on a new break higher we want to enter. NVDA broke below the 50 day MA's on rising trade similar to MU.

Transports: A bit of a wobble in rails. CSX actually did not look great, but KSU, NSC held up very well with doji at near support.

Machinery/Manufacturing: CMI is fine. CAT is not. Manufacturing is not good, e.g. EMR, MMM, UTX. China.

Financials: Struggling a bit today although BAC, JPM performed better than C. TCBI and other regional banks did just fine.

Homebuilders: Domestic, not bad. KBH, TOL holding near support. HD and LOW really struggled, however.

Retail: Holding up nicely. FTCH still in a good pattern. AMZN holding up nicely. COST, ROST not bad, testing the 50 day MA.


Stats: -473.39 points (-1.79%) to close at 25965.09

Stats: -159.53 points (-1.96%) to close at 7963.76
Volume: 2.37B (+20.92%)

Up Volume: 419.73M (-398.05M)
Down Volume: 1.94B (+810M)

A/D and Hi/Lo: Decliners led 3.32 to 1
Previous Session: Decliners led 1.28 to 1

New Highs: 69 (-8)
New Lows: 59 (+31)

Stats: -48.42 points (-1.65%) to close at 2884.05
NYSE Volume: 917.655M (+15.47%)

Up Volume: 136.402M (-135.471M)
Down Volume: 773.827M (+266.867M)

A/D and Hi/Lo: Decliners led 4.46 to 1
Previous Session: Decliners led 1.38 to 1

New Highs: 71 (-41)
New Lows: 41 (+15)


VIX: 19.32; +3.88. Jumped to 21.84 on the high before backing off. A 2-session surge. VIX was not edging higher with the new market highs, so it was not foretelling a severe market correction. A pretty substantial jump from no worries to selling, and that frankly is a decent upside indication.
VXN: 22.86; +4.16
VXO: 20.98; +6.19

Put/Call Ratio (CBOE): 0.87; -0.18. Interestingly, the ratio fell back below 1.0 on a sharp selling session.

Bulls and Bears:

Bears continue to fall, and rather precipitously. After stubbornly holding for weeks on end, they are giving up, throwing in the towel. That is not a bullish indication after the initial money is thrown into the market.

Bulls are rising as well but are still below the 60 level that has presaged corrections.

There are still no extremes in this indicator, but with bears breaking lower, if bulls hit 60+ then near term there is an increased chance of a steeper pullback.

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 toward yellow (all is well), but rising toward the 60's that would start to represent a threat (a yellow indicator).

Bulls: 56.4 versus 53.4

Bears: 17.8 versus 18.4

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: FLASHING Yellow. No current inversion but close. 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 fell 6BP to 2BP. Just about to invert again.

The 2 year versus the 10 year: Spread drops 2BP to 17BP

10 year: 2.457% versus 2.50%. Bonds continue to rally as a safe haven on the trade issues.

3 month: 2.432% versus 2.426%
2 year: 2.284% versus 2.309%

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: 1.11931 versus 1.11984. Still working laterally below the 20 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: 110.245 versus 110.755. Down hard for the third time in four sessions. The dollar has rolled over here and is going to test the mid-March lows at 109.70.

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: 61.40, -0.85.

Gold: 1285.60, +1.70


A day closer to the trade decision, and the Chinese delegation supposedly arrives. Expectations are being taken out of the market ahead of time and on volume: above average trade on both NYSE and NASDAQ. The third clear distribution session in 15 and second in the last 5. The latter grouping is more important. Another day or two and likely more selling is to come. Sure, there will already be some serious selling at that point, but after a relief move those increased numbers of high-volume selling sessions historically say more and deeper selling is to come.

Thus, the market is still in limbo. Still far enough away from Friday to be totally confused and uncertain, and of course stock indices hate uncertainty. SP500 is at the 50 day EMA. Enough if it tests it some more, perhaps undercuts it intraday and holds? NASDAQ is not there yet; a trip to that level would not hurt and would be normal. SOX and NDX can do the same.

DJ30? It has broken the 50 day and may find the 200 day just below 25,500 (closed at 25,965).

RUTX and SP400 are at the 50 day MA now. They can easily find the 200 day SMA and not sell that much more. They certainly are not leading so as long as they don't fall off a cliff they are good enough.

The short of it is the selling is likely not over. Even so, the AAPL and QCOM downside we exited Monday as the stocks held support and started back upside were not down huge. At least we still have some downside in TGT, CSCO, etc., but as with the others, they are not necessarily diving.

Then if you move toward CAT or other China-centric stocks, they may be done selling by Friday -- limbo, right?

DIA could represent an opportunity as the Dow looks like a 200 day SMA test is very possible. At the same time you look at LRCX, UCTT or QRVO in good patterns at support, or COUP, WDAY, OKTA in software you see opportunity. Sure they can break down and sell, but as noted, limbo.

We will still look at upside plays such as LRCX (new position) or UCTT. At the same time, if the DIA numbers work (or some Dow derivative ETF), then we have no issue playing it downside as well. All of this as we wait for the next shoe or two in the trade saga.

If there is more distribution then there will be more selling. That is not the selling event you really play; if you can play some, fine. The real event is after the relief move from the initial selloff where stocks and indices climb back up to what was support. If they fail there, that is where you enter the downside when it follows several earlier distribution sessions.

Have a great evening!

End part 1
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