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6/4/2019 Investment House Daily
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Investment House Daily Subscribers:
Targets hit: None issued
Entry alerts: ARNA; ARQL; DIS; SLAB
Trailing stops: None issued
Stop alerts: None issued
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- Stocks post the second strongest move of 2019 on an explosive short covering move.
- SP500, NASDAQ, DJ30 rally back up to next resistance. Now they must show they can move through and hold it.
- Prepare for a failure at resistance with some QID, DXD, SPY.
Stocks surged to their second best session of 2019 on an impressively sharp short squeeze. I know it is hard not to get excited with this kind of move, but a lot of damage has been done, stocks were oversold, negative emotions hit a crescendo with the Administration's anti-trust thrust, and stocks shot back upside to release some of the downside pressure. Perhaps they pull a 'December' and continue higher from here. Perhaps, but more than likely they end up testing nearer that December low before they put in a real bottom.
SP500 59.82, 2.14%
NASDAQ 194.10, 2.65%
DJ30 512.40, 2.06%
NASDAQ 100 2.70%
VOLUME: NYSE -10%, NASDAQ -7%. Volume faded on the upside. That is consistent with the recent market action and a relief bounce.
ADVANCE/DECLINE: NYSE 4.4:1, NASDAQ 3.2:1. Excellent breadth.
To view, click on the following links:
SP500 recovered around the last 3 days of selling, NASDAQ 1.5 days. That put SP500 back at 2800 and NASDAQ at the 200 day SMA. Those are of course key levels the tried to hold on the way down but failed. Now they have to prove they can take them out, prove that Tuesday was something more than just a snapback from an oversold condition with overwrought investor emotions. Nothing like anti-trust threats against the market's biggest players on top of trade wars, slowing economics, a Fed that hiked at the wrong time (again) as it hiked right into an inverting yield curve to jangle the market's nerves.
SOX managed to move back over its 200 day SMA as the most oversold index made a play upside with some 'names' posting good moves, e.g. AMD, SLAB, AMAT, TXN, MU. Not necessarily good patterns for all, but they were very oversold and the past week were acting as if they were forming a near term bottom to stage a bounce.
DJ30 jumped off the Monday doji, rallying to near the 200 day SMA though still 94 points off. As with NASDAQ and SP500, it has to show it can do more than must post a 1-day oversold surge.
SP400 surged back up just through the neckline of the head and shoulders and at resistance. As with the other indices, an excellent surge but has to show it can do more.
As noted, the market was oversold and negative emotion - though not the VIX - was running sharply higher. Monday I said that the seeds for a bounce were there looking at the NYSE indices and their action along with the negative sentiment. Some credit the Fed with the trigger. Stocks were higher with Evans' pre-market comments (though I don't think he was that dovish) and they really ignited with Powell's later comments.
The Fed must have felt bad as a few - including the Fed chair himself - hit the microphones to spread their personal wisdom and perhaps attempt to calm the markets.
Evans was out pre-market and those looking for something from the Fed interpreted his comments as leaning dovish because he said he wanted to keep the markets from stumbling. In the same breath, however, he said that the market must see something that he has not seen yet, referencing the stock selloff, bond surge, gold surge, oil decline.
Those comments summarize the Fed's mistakes over the past 8 decades. It NEVER sees what the market sees. By his words, Evans intimates that the Fed believes it knows more than the markets. If it did not, it would look at those same indicators itemized above and have an emergency meeting as to what the heck was going on. Markets LEAD economic activity; they always do. Why was Greenspan still hiking after the stock market crashed in 2000? Because he knew more than the markets - so he thought. Greenspan thought he knew why the yield curve inverted and that it was benign. Bernanke thought the same thing until everything came crashing down on him.
Evans unwittingly displayed the Fed's grotesque arrogance in his comments attempting to justify why the Fed was not cutting but that a pause in hikes was sufficient. As they pause the economic data continues to fall, following the various markets' moves.
Well, Powell came out later in the day and he also talked Fed action. No, he did not indicate the Fed was going to cut rates or raise rates. He did say, and I paraphrase as his comments were rather tortured English, 'unconventional' methods of Fed intervention should not be called unconventional because they will be needed again. Those words energized the rally even more. Stocks rallied sharply to midday, paused for a couple of hours, then sprinted to the close.
It was good to see most sectors move higher sans real estate and utilities, two sectors that led recently. Growth as well as staples, industrial and even oil rallied sharply.
I would not say they healed themselves, however.
Software rebounded but the leading names still show damaged patterns, e.g. HUBS, WDAY, VMW, MSFT. Maybe they recover, but it would not be the typical response to rally back from here.
Semiconductors: These actually are better. AMAT bouncing on a decent pattern, AMD as well, SLAB. XLNX looks good on volume if it continues. Way oversold so bouncing. Still some seriously bad patterns, but some good ones as well.
Drugs/Biotech/Healthcare: Some really good moves from some really good patterns, e.g. ARNA, ARQL, HIIQ, TNDM.
FAANG: Some big moves but some troubled patterns. AMZN surged 40 points and is still below the 200 day SMA. FB held the 200 day SMA as you would expect, but the bounce was so-so. AAPL showed a mediocre move as well. NFLX not bad, moving up into its range on volume. GOOG was massively disappointing with a 1.6% move off the massive gap lower. Yes these stocks were up, but they were crushed before this.
Stats: +512.40 points (+2.06%) to close at 25332.18
Stats: +194.10 points (+2.65%) to close at 7527.12
Volume: 2.48B (-7.12%)
Up Volume: 2.16B (+820M)
Down Volume: 297.17M (-1.013B)
A/D and Hi/Lo: Advancers led 3.24 to 1
Previous Session: Advancers led 1.11 to 1
New Highs: 56 (-2)
New Lows: 77 (-93)
Stats: +58.82 points (+2.14%) to close at 2803.27
NYSE Volume: 888.996M (-9.48%)
Up Volume: 783.245M (+62.379M)
Down Volume: 99.808M (-155.558M)
A/D and Hi/Lo: Advancers led 4.4 to 1
Previous Session: Advancers led 1.86 to 1
New Highs: 122 (+22)
New Lows: 20 (-93)
VIX: 16.97; -1.89
VXN: 21.49; -2.73
VXO: 18.61; -2.03
Put/Call Ratio (CBOE): 0.96; -0.17
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.
Bulls surprisingly resilient, falling but not much. Bears actually rose. Still no extremes though bulls were close to the 60's that has marked tops. Apparently this was close enough for stock market work.
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: 49.0 versus 49.5 versus
Bears: 17.3 versus 17.2
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.
The 3 month yield versus the 10 year: Spread fell 3BP to -23BP. -26BP was the high water mark on this particular move.
The 2 year versus the 10 year: Spread climbs 1BP to 24BP. Continues healing itself.
10 year: 2.126% versus 2.078%. Wow, yields rallied back. Still, the 10 year was below the Friday yield close.
3 month: 2.357% versus 2.341%
2 year: 1.883% versus 1.844%
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: 1.12523 versus 1.12446
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: 108.15 versus 108.00
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: 53.48, +0.23
Gold: 1340.30, +2.50
Huge short squeeze surge pushed stocks higher all the way to the close. We picked up some obvious positions upside that did not have issues in the recent selling, e.g. AMD, ARNA, ARQL, SLAB, DIS. That is okay: good patterns held up during the selling, now moving up.
As for the rebounds in the damaged patterns, they have to prove they can do more than just rebound.
Moreover, NASDAQ, SP500, DJ30 have to show they can move through the resistance, hold a test, and then rebound from there. Problem solved if that happens. Likelihood? It is Missouri time: has to show me.
Thus, at this time you look at some more QID, some DXD positions to play a downside if NASDAQ, SP500, DJ30 et al fail at resistance.
Have a great evening!
End part 1 of 2
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