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5/28/2019 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: None issued
Entry alerts: AMD; DXD; ETN; IBM
Trailing stops: None issued
Stop alerts: None issued
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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.
Access to all current videos will remain assessable each day using the play links in the reports.
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 try to alter the start of the week action, but an upside morning rolls over.
- High to low move keeps the market character the same, i.e. downside bias.
- Bond yield curve inversion of the past 3 weeks is suddenly the reason for today's selling.
- Social sin stocks holding up well, AMD jumps, but 'safe' areas such as personal products, utilities break lower.
- Indices hanging on in the same support range but until they can bounce out of here the probabilities are to the downside.
It was not Monday but it was the start of the trading week, and after the prior two Mondays showed ugly gaps lower, it looked as if perhaps the start of the week jinx was off. Surprisingly (not really), a steady build in futures in the premarket session did not hold through the close. Indeed, it only held through the first 15 minutes of trade. The initial move higher was the session peak. When an intraday double bottom test in the morning session broke the double bottom at 2:00ET the selling was on. Stocks pretty much straight-lined lower into the close.
SP500 -23.67, -0.84%
NASDAQ -29.66, -0.39%
DJ30 -237.92, -0.93%
NASDAQ 100 -0.31%
VOLUME: NYSE +125%, NASDAQ +45%. Volume exploded upside as stocks started higher but rolled over. Lots of selling. Yet . . . the indices did not break support today.
ADVANCE/DECLINE: NYSE -2.1:1, NASDAQ -1.7:1. Not that horrid, but it was a high to low reversal session and breadth tends to lag on those days.
DJ30 blew 370 points high to close, NASDAQ 87 points from the high. Good moves completely reversed. Again, it looked as if the market might shake off that first of the week curse, but the downside effect was the same with the intraday rollover.
Once again the downside won out as the early bids were used as selling targets for many - though not all - stocks. Interestingly, some big names performed quite well: FB, ADBE, AMD. Others may not have closed higher but put in good work on patterns: MSFT, SNAP, MTCH.
Very interesting was the poor performance of the more classic recession worry stocks, e.g. personal products, utilities, food. PG, CL, PEP, DJ15 (Dow Jones Utilitiy average) really struggled on the session after closing just fine Friday.
Of course the financial stations felt obligated to play 'pin the tail on the selloff' in an effort to rationalize the high to low reversal.
After a couple of weeks of the 3 month treasury flipping back and forth with the 10 year yield from inversion to not to inversion as of last week and Tuesday, that 3 month/10 year inversion was cited today as THE reason for the selling. Okay. You know, the 3 mo/10 year yields were inverted BEFORE the market opened, and even so stocks were rallying. Perhaps buyers awoke to the inversion and decided to sell, but they are not that myopic. Everyone knew the curve was inverted; it is just an easy possible reason for the TV anchors to grab hold of after their favorite market soothsayers sent them an email or text saying the 'reason' for the selling was the inversion. Today it made a difference they tell you. Okay, whatever.
Yield-curve-caused or not, the day was another weak start to a new week pushing the indices again to the lows of the recent ranges with some new closing lows on this selling.
To view, click on the following links:
Once again the indices started a week down though this time they tried to rally first. That almost makes it worse though at least volume was light. Some lower closing lows on a few indices, but no real change of character: holding this lower support, but unable to hold any upside. That does not lend much confidence to the idea they can hold here and bounce.
SP500 closed right on the 2800 level, a lower close over the past 2+ week range, but holding the same support. Not really comforting other than the point that with all the selling and negativity, SP500 is still holding this level. There is something to be said for tenacity, but until the market proves it can bounce well with breadth and volume - and of course actually hold the move - holding support does not change the character or the downside bias.
DJ30 showed similar action, closing below the 200 day SMA for the first time since 3 Mondays back with that nasty gap lower. Holding over the support at 25,200ish, but as with SP500, that is not really anything major as it does not change the overall downside pattern. Has not broken, but the presumption has to be that it does until it proves otherwise.
NASDAQ put in a lower closing low as well, actually closing below the hard gap lower three Mondays prior. After gapping lower last Thursday, unlike the early May gap lower, this one has been unable to mount any kind of bounce, or at least a bounce that held beyond the first hour of trade.
SOX put in a lower closing low on the selling but it did manage to hold the early March low, a fairly important support level at 1300. Nice round number with many touches from above, below, and showing gaps through it. Has not broken it yet after losing over 300 points (19%) from the late April all-time high. That puts SOX just over the 61% Fibonacci retracement of the December to late April rally. No wonder it is attempting to make a stand here.
SP400 midcaps broke below the Thursday low, closing at the mid-March intraday low. Unable to rebound at all from the Thursday gap lower and looking ready to find the next support around 1800 (closed at 1844).
RUTX (Russell 2000) small caps actually held over last week's lows and the 1500ish level that is for now acting as some support. That is not bad in such a weak tape, but it likely cannot hold the move once the 10 day EMA catches down to the price. It appears the 10 day EMA is going to continue acting as the downside catalyst for the small caps in the foreseeable near term. That is a funny phrase but it is pretty accurate.
As noted earlier, some surprisingly solid action from some big names while the market overall struggled at best. At the same time, however, some groups that were solid enough sold, e.g. personal products, food.
Social: I still believe these are the new 'sin' stocks as discussed in the weekend report: pack all your troubles in your FB/SNAP posts and then smile, smile, smile after your MTCH hookup. Not surging, but there was some solid upside and the patterns held well. FB up on strong, quite solid volume. SNAP holding well in its pattern, showing excellent volume. MTCH still in an excellent flag pullback. TWTR similar to FB, working on a nice pattern.
Healthcare/Drugs/biotech: Healthcare plans, after a good week last week, started this one poorly, e.g. UNH, HUM. Biotech held up rather well, however, e.g. ARNA, CMRX, PTCT. DGX holding up well. As a group, still good patterns.
Building materials: After a good close to last week by TREX, MHK, they both sold back. VMC, USCR, already testing, held up well enough.
Personal products: After a decent close last week they were sold today, e.g. CL, PG - and sold on volume with drops to the 50 day MA. This is where they have held since January, so a very key test.
Software: Still hanging in well though closing off the highs, e.g. COUP, HUBS, WDAY. WDAY reported afterhours and surged to 220, but then sold back to flat with the close. ACN, a downside play, hung in very well as did NOW.
Machinery/Manufacturing: Selling again this week and we picked up some ETN puts. EMR down hard as well, MMM selling to a new selloff low. CAT, DE down but more of the same of late.
Transports: Rails outside of CSX were fine (KSU, NSC). Truckers hammered, e.g. WERN, JBHT, ODFL. LUV downgraded and sold but not crushed. DAL, AAL holding the recent ranges, but that does not make them beauties.
Semiconductors: AMD was solid all session. The rest were crappy. MU (-3%), MXIM, LRCX, TXN (broke 200 day MA). XLNX, down before most, is holding the 200 day SMA with a doji.
Stats: -237.92 points (-0.93%) to close at 25347.77
Stats: -29.66 points (-0.39%) to close at 7607.35
Volume: 2.56B (+44.63%)
Up Volume: 896.19M (-113.81M)
Down Volume: 1.63B (+904.32M)
A/D and Hi/Lo: Decliners led 1.72 to 1
Previous Session: Advancers led 1.91 to 1
New Highs: 79 (+25)
New Lows: 131 (+25)
Stats: -23.67 points (-0.84%) to close at 2802.39
NYSE Volume: 1.421B (+125.07%)
Up Volume: 331.005M (-48.207M)
Down Volume: 1.066B (+831.897M)
A/D and Hi/Lo: Decliners led 2.06 to 1
Previous Session: Advancers led 2.1 to 1
New Highs: 127 (-2)
New Lows: 108 (+22)
VIX: 17.50; +1.65
VXN: 21.83; +1.20
VXO: 19.25; +1.24
Put/Call Ratio (CBOE): 1.07; +0.11. Blasting back over 1.0 on the close. Only 3 sessions below 1.0 in the last 18.
Bulls and Bears:
Bulls faded farther, falling below 50 with a pretty solid 6 point drop over 3 weeks. Bears fell yet again. Bears lower on selling, VIX not spiking on selling. Appears there are more issues to resolve that this range trading action at the head and shoulders neckline has not been able to rectify.
At this juncture there are still no extremes. Bulls faded from 60 without ever hitting that level. 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: 49.5 versus 51.4 versus 55.5
Bears: 17.2 versus 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-ish. 3 month/10 year spread inverts a third time. 5 year, and 2 year are below the 3 month treasury. Third 10 year/3 month inversion this year. The positive: the 2 year/10 year is not inverted.
Today, suddenly, after 3 weeks of inversions back and forth, the 3 month/10 year inversion because 'the issue' for the market and was the explanation for the selling. Of course, stocks were up early even with another inverted curve. Dubious causation there, at least for it starting JUST today. Perhaps this has been percolating in the market since it started again.
The 3 month yield versus the 10 year: Spread inverts the most since August 2007, up 6BP to -9BP.
The 2 year versus the 10 year: Spread falls 1BP to 14BP
10 year: 2.268% versus 2.324%. Crushed yield as the 10 year surged
3 month: 2.356% versus 2.349%
2 year: 2.127% versus 2.168%
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: 1.11624 versus 1.12054. Falling into the 'new' range, the one of the past 6 weeks, that sees the pair in the 1.11 versus 1.12 range.
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: 109.377 versus 109.29. Holding the earlier May low for a fourth session, trying to put in a second bottom.
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: 59.14, +0.51. 2-day bear flag, likely rebounds a bit more to 60 and puts in a 1-2-3 bear flag that sends it lower again.
Gold: 1277.10, -6.50. Faded, but still in the 3-month base with 1270ish as support.
A short week - as if you did not know. Tuesday did nothing to change the market character, i.e. bias downside. The indices are still holding the same ranges, but as noted, they have to show they can bounce out of here or else the probabilities say a move lower.
Now, each weak start to a week of late has been bought in a rebound. That could happen here, but not counting on that same pattern to hold.
Why not? More defensive groups were hit Tuesday after holding nice uptrends (e.g. personal products, utilities). Recall our discussion of WHY the market has managed to hold this support despite the weakness in growth and in the overall chart patterns: the more stoic, staid, 'old economy' stocks were rallying. If they start breaking their uptrends and patterns, then there is nothing to hold the indices in the ranges in the right shoulder to the head and shoulders pattern that is the second top to the index double tops.
Thus, we bought some QID Friday, bought some DXD today along with other downside plays. Okay, we bought some upside on AMD as well, but it was very solid.
All you can say right now is that there are groups holding up well, e.g. social, software not bad, but most groups are struggling to downright selling. The indices have overall bearish patterns formed over the past 1.5 years after 9 years of rallying. Big rallies usually need big tops to stop the advance. That is happening right now.
The Fed will not see this, indeed its commentary says it does not. It is fighting the last battles of the last war, i.e. the war against possible inflation in an expanding market and economy. That is not happening now, and the Fed has been AT LEAST complicit and likely THE CAUSE of the slowdown. It hiked when it should not have hiked, and now it won't take them back when the yield curve is SCREAMING for the Fed to do so. While the 10 year/2 year has not inverted - the traditional bond market indication of a recession - by the time it does, that is too late. That is why these preliminary bond moves and obvious stock market index patterns and leadership rollovers are classic indications the Fed simply does not use. The cause and effect is there, but the Fed believes in the Phillips Curve and its incorrect hypotheses. Even if it worked, by the time it shows the trouble it is too late to fix things.
That is our analysis of where we are. It is not pleasant for the upside, particularly with the personal products and utilities suddenly selling. That is why the past two weekends we talked of getting comfortable playing the downside because that looks as if it is where the majority of the action will be - at least that is what the probabilities say. The market can do whatever it wants, so it has the final word.
We prepare, however, for the likely probable moves and thus are ready to make the plays. Those probabilities include upside - just because we think the bias is negative and the likely move is lower, that does not make it so. With good upside patterns in social and other stocks, that tells you there is still money going into some stocks. They could be the sparks that turn the tide. Perhaps also 20% downside in SOX is enough to turn it. If SOX and by extension chips turn upside, the market benefits upside as well.
Thus, we have upside and downside plays and will continue looking at both until it is clear one side has taken over. Not just threatening to do so, but does so, changing the character from bias downside to downside.
Have a great evening!
End part 1 of 3
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