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5/18/2019 Investment House Daily
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- Indices try a fourth session upside, get there, but cannot hold it.
- Overall index patterns just do not look upside positive.
- Leadership remains but it is narrower and of course the chips are down.
- SOX is at the top of its pre-breakout gains where it has to make a stand.
- If need be, get comfortable with the downside.
Friday the stock indices tried to make it four straight sessions upside, starting weaker but then powering higher into midmorning. This action occurred more than once on the week, and low to high action is typically good action.
Of course, it IS necessary to hold the moves. Thursday the indices rallied nicely, but they also gave up a good amount of the gains into the closing bell. Friday they took it a step - or two or three - farther. Decent enough low to high gains as the Administration postponed auto tariffs for six months, but they could not hold up in the withering fire of late session when trade news hit again, this time not so friendly. Reports from CNBC and others indicated that no talks were ongoing between the US and China, at least regarding trade. Not all that surprising given China's 'outrage' at the US blacklisting Huawei and several related entities as security risks. There are so many episodes of companies finding security backdoors in products sold by Huawei that it is no secret. China just doesn't like the fact that a major China company was caught stealing. It is very hard to do business with that mindset.
It might be hard on China as well. Looking at the Shanghai chart pattern and there is a very definite head and shoulders that Friday looked as if it was rolling over from the right shoulder. Better get the PBOC and everyone else working on more stimulus right now.
That said, the US stock indices were not exactly looking rosy Friday. Of course, the US stock indices are trading just off all-time highs versus almost 50% off the 2018 highs. Nonetheless, there are some serious pattern issues for US stocks after the indices stalled at the prior highs three weeks ago.
SP500 -16.79, -0.58%
NASDAQ -81.77, -1.04%
DJ30 -98.68, -0.38%
NASDAQ 100 -1.01%
VOLUME: NYSE +14%, NASDAQ +4%. NYSE volume moved up to average as NYSE stocks rallied off lower opens but then rolled back down. Similar action for NASDAQ. That is more distribution action, i.e. higher volume dumping of stocks - clearing out on the rebound.
ADVANCE/DECLINE: NYSE -2.9:1, NASDAQ -2.5:1. Once again the downside breadth is mostly stronger than the upside.
Looking at the charts, there are some very clear, quite ominous double tops on SP500, NASDAQ, NASDAQ 100 when you look at a weekly chart. DJ30 showing a triple top.
SOX is a bit different: its weekly chart shows it sitting on top of the range from late 2017 to early 2019 before the run to a new high. At least it has a breakout and a test it can rally off.
On the daily charts there is that same head and shoulders look from the past three months for pretty much all the indices: SP500, NASDAQ, NASDAQ 100, DJ30, SP400.
The upshot of this is that the patterns don't look all that great. After the 2018 range/topping event, the breaks to new highs or near new highs failed. Most of the indices are now at the point of having to shake off a near term bearish pattern to have the opportunity to try and break up the bigger bearish pattern.
The market's eyes have to be on the semiconductors. A new high failed and the chips are now testing the tops of the 2018 to early 2019 range. The near term pattern here is a head and shoulders as well. If SOX can shake this off, then the rest of the market has a shot at following - for the past few years, as the chips go, so the market goes.
Even some of the stronger sectors, e.g. software, struggled Friday. They did not roll over, but they sold back some after a series of good moves on the week. Other areas that rebounded faded some as well. Some chips are in full frontal dives while some names are hanging on - but it could be there are too few hanging on to offset those dropping.
FAANG: AMZN and GOOG were solid performers starting midweek, and Friday both faded, reversing early upside. Very good moves in recovery, but the overall patterns are not great for the upside. AAPL tapped the 200 day on the week then gapped lower, failing a rebound attempt. FB failed to hold a move over the 10 da for the third session. NFLX looks as if it is failing at the 50 day MA.
Food: Not bad still. PEP a modest Friday gain on top of good moves. KO off some. WING still looking solid.
Personal products: Strong moves through Thursday, backed off some Friday but still solid.
Software: Strong moves on the week, tested on Friday, however. NOW, COUP, HUBS, WDAY - great movers and leaders - all gave back some Friday, but darn little. TEAM exploded higher the past two weeks and it held up very well Friday as well. MSFT was a bit weak Friday after a good Wednesday/Thursday move. Still a solid group.
Big tech: Stocks such as CSCO continued to perform - CSCO's earnings reversed a four week slide off its very solid December to early April rally.
Retail: Some are still solid, e.g. COST, ROST. BBY looks rather weak and ready to fill a gap and even AMZN's overall pattern is not confidence building.
Financials: V posted a strong week, off just a bit Friday. MA showed similar action. Banks such as C, BAC do not look good. MS and GS are struggling as well.
Social: TWTR, SNAP still not bad. FB is not bad either after that big break higher Wednesday. MTCH took a day off after a big week upside.
Transports: While DJ20 shows a bear flag in a head and shoulders, rails are not bad, e.g. CSX, KSU, NSC. Truckers are okay though UPS and FDX are selling off.
Oil: Weak as large and small struggle. XOM, SWN.
Stats: -98.68 points (-0.38%) to close at 25764.00
Stats: -81.77 points (-1.04%) to close at 7816.28
Volume: 2.25B (+4.17%)
Up Volume: 734.01M (-585.99M)
Down Volume: 1.5B (+696.28M)
A/D and Hi/Lo: Decliners led 2.52 to 1
Previous Session: Advancers led 1.44 to 1
New Highs: 74 (-43)
New Lows: 104 (+30)
Stats: -16.79 points (-0.58%) to close at 2859.53
NYSE Volume: 845.375M (+13.73%)
Up Volume: 208.687M (-283.671M)
Down Volume: 628.806M (+394.428M)
A/D and Hi/Lo: Decliners led 2.88 to 1
Previous Session: Advancers led 2.25 to 1
New Highs: 112 (-64)
New Lows: 80 (+37)
VIX: 15.96; +0.67
VXN: 19.39; +0.99
VXO: 17.03; +0.84
Put/Call Ratio (CBOE): 1.09; +0.07. Eight of nine sessions over 1.0. Lots of negativity by this measure, but the other indicators are not there yet.
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: 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 is flat from 1BP.
The 2 year versus the 10 year: Spread holds at 20BP
10 year: 2.393 versus 2.394%
3 month: 2.393% versus 2.401
2 year: 2.198% versus 2.194%
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: 1.11573 versus 1.1174. After moving up to the 50 day MA, the euro has slid back down near the April low.
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: 110.068 versus 109.879. Dollar catching a bid Thursday and Friday after three weeks of decline 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: 62.92, +0.05. After a 2.5 week test at the 200 day SMA, bounced late week, but still off the recent highs just over 66.
Gold: 1275.70, -10.50. Diving lower Thursday and Friday, the same action as in late March and early April: as soon as gold rallies some, it gets sold hard.
While some solid upside leaders remain in solid shape, e.g. software, food, some retail, personal products, not all of them are bull market type stocks and there are just not a lot of them as well. With semiconductors in a serious fight and the indices patterns in serious longer term topping patterns, there may not be enough leadership to move the market higher once again.
We are still playing some upside that looks quality, watching carefully for cracks in the solid patterns. There are still upside possibilities such as VZ and software to name just a couple, and we will look at them in the event they win out. At the same time, however, there are definite downside setups that correspond to the issues the indices are showing. We have more than a few of those working and will look to add more if the downside setups make the downside break.
I know some people do not like the downside, but those who embrace it when it is here find that the gains come rapidly - they also can disappear rapidly as what falls hard tends to bounce hard in relief moves before rolling over once more. If you give it a shot, you will find that gains can come as easily and even more so than in a strong move higher.
Have a great weekend!
End part 1
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