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InvestmentHouse - No Time for the US to Back Off (Weekend Newsletter)

https://news.investmenthouse.com/2019/01/the-daily-part-1-of-3-1-19-19.html


- Indices move through next resistance as the third leg expands.
- Trade, Fed trump signs of slowing, some so-so earnings and some warnings.
- China injects massive liquidity, offers US $1T in purchases of goods. No time for the US to back off.
- Fed on the US' side or not?
- More leaders setting up to support the move higher.
- Many are claiming bear market is over, but don't forget that big top is still in place.

After an upside but somewhat disappointing Thursday, at least in terms of NASDAQ and the other indices still bumping the bottom of the October/December trading range, Friday was nothing but net. Renewed trade hope, Fed softening afterglow, and lingering positive bank earnings offset expiration, company layoffs, and weak consumer sentiment.

Stocks started higher and really never looked back. All indices cut well into the trading range, moving through the near resistance, putting distance on the resistance. That is key in turning resistance into support on a subsequent test -- and indices and stocks almost always test.

SP500 34.75, 1.32%
NASDAQ 72.77, 1.03%
DJ30 336.25, 1.38%
SP400 1.40%
RUTX 1.04%
SOX 2.30%
NASDAQ 100 0.98%

VOLUME: NYSE +10%, NASDAQ +15%. NYSE volume moved over average for the first time in a while, just squeezing past. NASDAQ trade was up but still below average. Not exactly explosive volume on expiration.

ADVANCE/DECLINE: NYSE 2.9:1, NASDAQ 2.3:1.

Trade: China is offering purchases of $1T in US goods as a trade deal enhancer. China is at a point it has to deal. 1T yuan in liquidity injected into its financial markets last week in a desperate effort to get its economy going again. Rates for shipping commodities into China plunging, indicating China is not importing nearly the same quantities. Tariffs crushing its economy.

Now the key is what Trump does. This is very reminiscent of the Reagan/Gorbachev nuclear negotiations. Gorbachev knew his economy was imploding as the USSR could not keep up with the economic engine Reagan restarted and used to fund the US military. So, Gorbachev offered everything the US had said it wanted to that point. At that juncture, Reagan's belief was confirmed -- the US was winning the economically and thus militarily. He turned down Gorbachev's offer. Why give up the benefits of a winning hand? We all know the outcome.

Back to Trump's next step. The market rallied late Thursday on a story Mnuchin had or was wanting to offer lifting tariffs as a good faith offering to aid in completing negotiations. Applying Reagan's, and I believe what is Trump's, way of thinking, however, that is the LAST thing the US should do. It would be viewed as weakness on our part by the Chinese. Likely it was Mnuchin, a former GS banker and globalist, acting on his own, applying his globalist views to the negotiation. No, we need to hold resolute, demand that China meet all our conditions, and let time work in our favor. China will only feel more pressure as its economy continues falling. 1T yuan injected in one week. An offer to buy $1T in US goods. That is, as the President would say, huge. Recognize it, understand it, use it. And yes, win.

The Fed, of course, has to be part of the game, and on the US' side at that. The US needs a strong economy to win the trade war and cement the US' position in the future. It is good the Fed is now more 'data dependent'; that helps.

But Powell has to wake up and realize he is not playing for the globe, he is playing for the US. Despite the popular meme many globalists like to parrot, the US is not dependent upon the rest of the world for prosperity. The rest of the world is dependent upon the US' prosperity. If we take care of what we need to do, i.e. play our game, the US and thus the rest of the world, is better off. The Fed appears to be better, but I am not sure it really understands its role in this negotiation.

I thus posit the question I have often put out: why do we have a Fed? If it can stymie the policy of our elected government, how is that constitutional? It is a construct of control that the Constitution does not allow for. It was created to benefit those in positions of power and it has worked to maintain their power ever since. Remember, the very wealthy are not as concerned about their total amount of wealth as they are in maintaining their relative amount of wealth and thus power. With that power comes their wealth. Contemplate that premise and its ramifications and then ask yourself my question again.


THE MARKET

CHARTS

The indices spent the week moving through more resistance, taking out the 50 day MA's, the Fibonacci retracements, and Friday moved through the barrier at the bottom of the trading ranges (though NASDAQ was already there). A very important move obviously. It speaks for itself.

Of course, when the indices are in such a big hole after December's selloff, moving back up results in taking on resistance after resistance. More is to come, and don't forget, this could just be a third upside leg in a relief move after the breakdown from the massive yearlong 2018 topping pattern.

Thus, we are enjoying the upside for sure with good positions already letting us bank gain and more to come. But, there is a long, long way to new highs and the top is disrupted at this point. Many are now convinced that the bear market of December is over and that a new or continuing bull market is in place.

Certainly there are good patterns that developed over the time of the rally, just as I said could be the case several weeks back. Those have set up the upside move and more are set up and breaking higher as well. Very encouraging as rallies MUST have leadership to succeed. They are getting it as well as others coming up from downtrends and reversing their action. To survive a rally needs that.

Again, however, this rally does not mean the top is obviated. We play the moves the market presents. You also keep in mind the top and watch for actions that start to cut against the upside move continuing, e.g. TEAM announcing great earnings doubling expectations, gapping higher but then reversing. That is just one case, but if it happens again and again, that is a warning sign. Thus far, it has been limited and the market is into its third leg.

NASDAQ: NASDAQ gapped upside to a doji, tapping the 100% retracement of the selloff from the first recovery peak of the December selloff. A bit of resistance there, but after moving through 7000, 7400 to 7450 is more likely a recovery level.

SP500: Gapped and rallied, putting more distance on the 50 day MA and breaking up through the bottom of the October/December trading range. Rising volume, moving back above average, but quite light for an expiration session. 2700 is next resistance on up to 2750ish.

DJ30: Finally broke up into the October/December range, clearing the 50 day MA and 61% Fibonacci retracement as well. Next resistance is 25,000 where the 200 day SMA resides as well as a series of price points from October including a series of gaps. Important level.

SOX: SOX broke through the 50 day MA a week back, spent last week testing that move, then Friday a big gap and run higher. Cleared the prior January peak, solid move. As goes SOX . . . typically so goes the rest of the market.

SP400: The midcaps are in recovery mode, clearing all resistance Thursday then gapping and rallying farther Friday. Closed at 1817, next resistance at the 78% Fibonacci retracement and the upper gap point from early December at 1825-1830.

RUTX: Early week RUTX moved through the 50 day MA and 61% Fibonacci retracement. Friday it moved through the bottom of the October/December trading range. Already close to the 78% Fibonacci retracement at 1490 (closed at 1482).


LEADERSHIP

FAANG: Lackluster Friday after an overall solid week that saw these stocks break higher early on. GOOG gapped to a doji below the 200 day SMA, AMZN gapped to the 200 day SMA and faded to basically flat. NFLX gapped higher early week, sold to near the 200 day SMA Friday after earnings; a good place to test and hold. FB gapped upside, faded to a doji on threats of a big fine. AAPL was up on the week though flat Friday.

Software: TEAM gapped higher on earnings, reversed to close with a loss at the 20 day EMA. CRM enjoyed a good week and was up 1.8% Friday. SPLK similar. COUP had a big week for us. FFIV struggling, ADBE trying to get back in the game, NOW still looks interesting.

Financial: Excellent week despite MS struggling on the day of earnings. GS, BAC, JPM, WFC -- good results.

Semiconductors: Some good moves as chips try to come back to life. LRCX gapped and rallied from an inverted head and shoulders at the end of a pullback. SIMO gapped and rallied nicely. UCTT moved but no volume. AMD, AMAT, MU, RMBS, SMTC look very interesting.

Pot: CRON surged Friday off a 10 day EMA test. CGC enjoyed a solid week. TLRY lagged.

Metals: Still improving in some areas. FCX up nicely late week, breaking up off the 50 day MA. CENX ditto.

Machinery: Really got going. CMI posted 2 big sessions to end the week. TEX moved up through resistance after a long downtrend. CAT approaching the 200 day SMA in its recovery.

Drugs: LLY surged Thursday but gapped lower Friday. Big biotech still decent, others are very mixed.

Energy: Service companies are not bad, e.g. SLB, HAL.


MARKET STATS

DJ30
Stats: +336.25 points (+1.38%) to close at 24706.35

Nasdaq
Stats: +72.76 points (+1.03%) to close at 7157.23
Volume: 2.45B (+15.02%)

Up Volume: 1.75B (+230M)
Down Volume: 669.77M (+175.78M)

A/D and Hi/Lo: Advancers led 2.26 to 1
Previous Session: Advancers led 1.68 to 1

New Highs: 33 (+3)
New Lows: 23 (-3)

S&P
Stats: +34.75 points (+1.32%) to close at 2670.71
NYSE Volume: 1.006B (+10.33%)

Up Volume: 845.091M (+185.834M)
Down Volume: 157.891M (-88.536M)

A/D and Hi/Lo: Advancers led 2.87 to 1
Previous Session: Advancers led 2.44 to 1

New Highs: 31 (+12)
New Lows: 12 (+1)


SENTIMENT

VIX: 17.80; -0.26
VXN: 21.89; -1.45
VXO: 17.76; +0.11

Put/Call Ratio (CBOE): 0.84; +0.04

Bulls and Bears:

After a quick crossover, a quick trist, bulls rebounded, bears fell a bit, and there is some separation. Still, the deed is done; they crossed over, typically a very good indication sentiment was extreme to the negative and sets up a move higher. We are seeing a move and now the indices are near the next key levels of resistance.

Bulls: 34.8 versus 29.9

Bears: 29.4 versus 34.6

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: 34.8 versus 29.9
29.9 versus 39.3 versus 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: 29.4 versus 34.6
34.6 versus 21.4 versus 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: 2.788% versus 2.752%. Bonds continue fading the past two weeks after surging to that recovery high over the late summer peak.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.752% versus 2.727% versus 2.718% versus 2.706% versus 2.699% versus 2.733% versus 2.712% versus 2.731% versus 2.694% versus 2.668% versus 2.552% versus 2.643% versus 2.686% versus 2.716% versus 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%


EUR/USD: 1.13636 versus 1.13919. Euro continues a 2 week fade after hitting the 200 day SMA. Still heading lower.

Historical: 1.13919 versus 1.13993 versus 1.14802 versus 1.14734 versus 1.14699 versus 1.15075 versus 1.15532 versus 1.14547 versus 1.14834 versus 1.13980 versus 1.13957 versus 1.13343 versus 1.14450 versus 1.14425 versus 1.1432 versus 1.13588 versus 1.14015 versus 1.13708 versus 1.13828 versus 1.13755 versus 1.13533 versus 1.13049


USD/JPY: 109.773 versus 109.133. Dollar continues its recovery, showing improbable strength.

Historical: Last below 109 in June 2018: 109.133 versus 108.912 versus 108.551 versus 108.340 versus 108.563 versus 108.332 versus 107.959 versus 108.802 versus 108.705 versus 108.517 versus 107.173 versus 107.515 versus 109.687 versus 110.273 versus 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


Oil: 54.04, +1.68. After a weeklong lateral move, oil breaks higher through the 52.50 and 50 day MA resistance. Nice inverted head and shoulders setup paying off upside.


Gold: 1282.60, -9.70. After consolidating just below the upper trendline in the triangle, gold broke lower Friday to the 20 day EMA.


TUESDAY

Market closed Monday for MLK day. Expiration was a big upside move. Perhaps some giveback early Tuesday, but not expecting the move to roll over without some kind of negative news on trade or the Fed this weekend.

If there is some weakness, we plan on using that to pick up some more upside positions. We purchased some Friday while some plays could not make up their mind. We will look at them this week along with some new plays that are set up quite well.

Right now it is that kind of market. The big top is still there, but the rally sparked a third leg this past week. As long as good plays continue setting up and break higher while providing good entries, we will use those to enter.

Have a great weekend!