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InvestmentHouse - The Pause That Refreshes or Start of Next Downside (Weekend Newsletter)


https://news.investmenthouse.com/2018/12/the-daily-part-1-of-3-12-29-18.html


- Market tries higher again with an afternoon spurt that then fails.
- Indices at the 10 day EMA with doji after two days of rallying. Pause that refreshes or start of next downside is the question.

The week saw two big upside sessions, Wednesday and Thursday, as the internals and sentiment finally hit levels where all were in place for a bounce. The final key was VIX, and it finally broke through the recent highs and challenged the early 2018 closing high. Both Wednesday and Thursday were marked by very strong across the board buying, making it look very much as if pensions were buying across the market to reach the proper mix of equities to bonds as mandated by their charters. Thursday started much weaker but the buying started early afternoon and surged the indices positive with the Dow moving almost 900 points low to close. Lots of buying.

Friday stocks started higher but squandered the move by midmorning. Stocks sloshed around into early afternoon, but at 1:45ET the afternoon rally started like clockwork -- as measured by Thursday -- as pensions looked to buy more stock to rebalance their portfolios.

It was just like Thursday -- until it wasn't. At the start of the last hour stocks tested, tried to hold and bounce, but failed. They tumbled back to the session lows by the close, the rally coming and going in two hours.

SP500 -3.09, -0.12%
NASDAQ 5.03, 0.08%
DJ30 -76.42, -0.33%
SP400 -0.05%
RUTX 0.46%
SOX 0.69%
NASDAQ 100 -0.05%

VOLUME: NYSE -17%, NASDAQ -10%

ADVANCE/DECLINE: NYSE +1.8:1, NASDAQ +2.2:1.

That left all indices but SOX testing the 10 day EMA with a doji on the third day of a rebound off the new lows minted Tuesday.

That raises the fundamental question: pause that then continues the move or a bounce that has shot up its fuel. Monday is 12/31 and a full day of trade. Likely some more buying that session, then some new money put to work to start the year. After all, the indices are still sold down 20% or so, still a 'great' buying opportunity, right? Perhaps short term; I am not that sanguine about the prospects of a rally to new highs from here as chronicled several times last week.

Thus, we still anticipate some more upside on this move, 2 to 3 days perhaps, but have to be ready in the event the Friday doji marked the highwater point for the relief move. Yes, still viewing this as a relief move despite commentary that all the selling was due to the trade war, miscues (Fed or otherwise), etc. Whether it was due to that or not, it is what it is, it happened, the damage is done, and the market is rarely wrong. Rarely. Perhaps never.

Accordingly, despite our belief the rally has some more time to run we have to prepare in the event it does not. We have some upside positions with gain in them, e.g. AMZN, WDAY, AVGO -- some more than others -- but 2 to 3 more days of upside helps a lot. If the move cannot push higher and sellers start to dominate, however, we need to close them out and flip to some downside. Therefore, we have some more downside plays ready in the event the move stalls.

Yes, while there is much commentary on the financial stations, etc. as to how this is not a bear market, how it was just the market mispricing or misinterpreting the Fed actions and data, the charts say otherwise and you don't want to get too enamored with the upside bounce as being some kind of market savior. We are not looking for this move to yield new highs or anything close to new highs, and thus we are not going to imbue it with attributes it does not have. If it cannot move higher, so be it.


THE MARKET


MARKET STATS

DJ30
Stats: -76.42 points (-0.33%) to close at 23062.40

Nasdaq
Stats: +5.03 points (+0.08%) to close at 6584.52
Volume: 2.21B (-9.43%)

Up Volume: 1.33B (-160M)
Down Volume: 852.05M (-50.79M)

A/D and Hi/Lo: Advancers led 2.23 to 1
Previous Session: Advancers led 1.03 to 1

New Highs: 7 (+6)
New Lows: 116 (-185)

S&P
Stats: -3.09 points (-0.12%) to close at 2485.74
NYSE Volume: 893.368M (-16.89%)

Up Volume: 447.587M (-218.977M)
Down Volume: 427.382M (+50.539M)

A/D and Hi/Lo: Advancers led 1.81 to 1
Previous Session: Advancers led 1.18 to 1

New Highs: 5 (-1)
New Lows: 99 (-120)


SENTIMENT

VIX: 28.34; -1.62
VXN: 34.20; -0.17
VXO: 31.64; -2.35

Put/Call Ratio (CBOE): 0.78; -0.18

Bulls and Bears:

Falling and rebounding to where they were four weeks back. Starting to converge. This coming week's numbers should show a bull dive and bear jump, converging the two to levels not seen since 2016.

Bulls: 39.3 versus 45.5

Bears: 21.4 versus 20.4

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.




Bulls: 39.3 versus 45.4
45.4 versus 46.7 versus 38.3 versus 39.6 versus 42.9 versus 42.5 versus 50.5 versus 51.9 versus 56.3 versus 61.8 versus 60.6 versus 59.0 versus 57.7 versus 60.1 versus 59.6 versus 57.7 versus 57.3 versus 54.9 versus 54.5 versus 54.9 versus 55.3 versus 52.4 versus 47.1 versus 47.6 versus 52.0 versus 55.5 versus 52.9 versus 50.0 versus 49.1 versus 46.6 versus 43.1 versus 43.6 versus 48.0 versus 43.6 versus 42.2 versus 49.5 versus 55.5 versus 54.9 versus 48.6 versus 48.1 versus 48.5 versus 41.9 versus 54.4 versus 66.00

Bears: 21.4 versus 20.4
20.4 versus 21.50 versus 20.6 versus 19.8 versus 19.0 versus 19.8 versus 19.8 versus 19.0 versus 18.3 versus 18.5 versus 18.6 versus 18.3 versus 18.1 versus 18.3 versus 18.1 versus 18.3 versus 18.3 versus 18.6 versus 18.8 versus 18.6 versus 18.5 versus 18.5 versus 18.6 versus 18.4 versus 17.6 versus 17.8 versus 17.7 versus 19.2 versus 19.2 versus 19.4 versus 19.4 versus 20.6 versus 20.8 versus 19.6 versus 19.8 versus 18.6 versus 17.5 versus 16.8 versus 15.7 versus 15.5 versus 14.4 versus 14.6 versus 14.4 versus 15.5 versus 12.6 versus 12.8 versus 12.7 versus 13.5 versus 15.2 versus 15.1 versus 15.2 versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4 versus 14.4 versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1 versus 19.0 versus 20.2


OTHER MARKETS

Bonds: 2.716% versus 2.774%. Bonds continue to rise, with TLT working in a flag pattern after breaking higher and reaching the July/August highs. TLT is setting up to break higher and that is not a good indication for the economy, the market.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.774% versus 2.811% versus 2.736% versus 2.788% versus 2.803%. versus 2.762% versus 2.821% versus 2.855% versus 2.895% versus 2.913% versus 2.908% versus 2.884% versus 2.863% versus 2.854% versus 2.892% versus 2.915% versus 2.979% versus 2.993% versus 3.032% versus 3.061% versus 3.058% versus 3.059% versus 3.048% versus 3.065% versus 3.074% versus 3.056% versus 3.065% versus 3.116% versus 3.127% versus 3.147% versus 3.186% versus 3.239% versus 3.228% versus 3.222% versus 3.201% versus 3.22% versus 3.146%


EUR/USD: 1.14425 versus 1.1432. Euro is trying to hold a move over the 50 day MA.

Historical: 1.1432 versus 1.13588 versus 1.14015 versus 1.13708 versus 1.13828 versus 1.13755 versus 1.13533 versus 1.13049 versus 1.13604 versus 1.1376 versus 1.13244 versus 1.13657 versus 1.1404 versus 1.1376 versus 1.13970 versus 1.13360 versus 1.13199 versus 1.13934 versus 1.13682 versus 1.12973 versus 1.13325 versus 1.13380 versus 1.13829 versus 1.13818 versus 1.14484 versus 1.14172 versus 1.13308 versus 1.13264 versus 1.13124 versus 1.12348 versus 1.13475 versus 1.1364 versus 1.14329 versus 1.14228 versus 1.14090 versus 1.13881 versus 1.14019 versus 1.13394 versus 1.13455 versus 1.13760 versus 1.14042 versus 1.13757 versus 1.3972 versus 1.14682 versus 1.14626 versus 1.1538


USD/JPY: 110.273 versus 110.845. Dollar does not look good as it bounces up and down below the 200 day SMA.

Historical: Last below 109 in June 2018: 110.845 versus 111.190 versus 110.337 versus 111.223 versus 111.21 versus 112.521 versus 112.477 versus 112.653 versus 113.382 versus 113.634 versus 113.634 versus 113.385 versus 113.022 versus 112.66 versus 112.71 versus 112.813 versus 113.581 versus 113.474 versus 113.402 versus 113.559 versus 113.781 versus 113.510 versus 112.972 versus 113.007 versus 113.077 versus 112.617 versus 112.831 versus 113.585 versus 113.576.


Oil: 45.33, +0.72. Oil bounced on the week but closed below the 10 day EMA as it continues trending lower below the 10 day EMA.


Gold: 1283.00, +1.90. Gold continued higher after its breakout over the 200 day SMA last week.