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InvestmentHouse - Economic Data Slips After Showing Improvement (Weekend Newsletter)

https://news.investmenthouse.com/2019/03/the-daily-part-1-of-3-3-16-19.html

MARKET SUMMARY

- More advances on expiration push SP500, NASDAQ over the top of the range -- barely.
- SOX posts a strong week, DJ30 lags but would be over resistance but for BA.
- Small and midcaps lag due to rotation to the big names.
- Economic data slips after showing improvement. Soft patch starting to firm overall, however.
- No Fed, no headache. Market preparing to do the improbable and try for new highs.
- After a very good week, before any more breakouts there is likely some kind of profit taking test.

Much was made by Bob Pisani of SP500 cracking over the top of the October/December range, though he did not call it that, just citing resistance at 2815ish. He failed to note NASDAQ did the same Friday. He said that break of resistance pretty much assures the indices keep rising. I am paraphrasing of course, but I have listened to Mr. Pisani for over a decade so this is nothing new. When you are around as long as he has been at the NYSE it means something -- usually that you are a useful patsy for those pushing their book. And as you know, EVERYONE on financial stations pushes their book. Yours truly is the exception, of course. Take what the market gives, right?

But I digress.

It was a good session and a solid upside week rising off a support test.

SP500 14.00, 0.50%
NASDAQ 57.62, 0.76%
DJ30 138.93, 0.54%
SP400 0.18%
RUTX 0.25%
SOX 2.90%
NASDAQ 100 0.88%

VOLUME: NYSE +199%, NASDAQ +58%. Ah, quad witching expiration. Throw the volume figures into the garbage for the day, but note that volume on the week was not bad.

ADVANCE/DECLINE: NYSE 1.4:1, NASDAQ 1.5:1. Very large cap oriented.

Breaking through resistance is always a good indication. In this market of algo-driven trades, however, breakouts and breakdowns through resistance and support have a way of nastily reversing as milestones are used as triggers for profit taking in the form of either selling or buying.

Just look at SP400. It was the first to break the October/December barrier (sounds like something from 'The Right Stuff' or 'Star Trek'-- breaking the sound barrier or the energy barrier), yet it fizzled after an excellent rally, fading back to the 50 day EMA. It held there and bounced a bit, but it has yet to recapture its prior market-leading panache.

Of course SP400 did not break down; it was likely just rotated out of leadership and is resting while NASDAQ, FAANG, and the chips returned to more prominence. The point, however, is: a break of resistance is good, but it does not assure immediate further benefits.

Consider NASDAQ and SP500 both put in one of their top weeks of 2019 just to get to the Friday close. Indices typically do not make completely linear moves, and after good runs to and through resistance they tend to test sooner than later. Perhaps the two continue upside near term then test from strength, coming back to the old resistance to test. That is always an upside plus as the index can get the profit taking out of its system after a good run and use the old resistance as support to bounce the next move upside. Didn't happen for SP400, but again, that was likely due to rotation.

SOX also put in a great week. It is not near taking out the spring to summer 2018 highs, but it did surge past the February high. From the 200 day SMA to a higher recovery high bumping at the lower 2018 resistance in a week. That is a serious move and likely needs some kind of rest in the coming week or so before it can try for a new high.

That said, even with the FAANG resurgence and continued strength from the 'old tech' names (e.g. MSFT, CSCO, INTC), NASDAQ 100 failed to take out the Oct/Dec range on the close. Perhaps a minor detail, but in a large cap dominated move on the week, that is notable.

Also, don't forget to look at things from the other side of the fence. Take a look at QID, SDS and some other index inverse ETF's. SDS perhaps is setting up something of a short double bottom that would suggest some kind of short bounce, meaning SP500 would fade after such a good run. QID broke to a lower low but is at the August/October lows -- trending lower for sure, but at a point where it would bounce to test the downtrend.

Again, this is not saying the indices collapse. There is no indication of sellers at all at this juncture. When the Fed exited the back door and left a card to call it when inflation surged, Brexit was completed, the US and China signed a trade deal, the US economic data was not so equivocal, mass hysteria ensued, dogs and cats started sleeping together . . . stocks started up and have not looked back. As the old commercial showing the family getting everything it could ever want for Christmas after leaving Santa a plate of cheese, don't underestimate the power of a compliant Fed. Powell, for all the talk and pragmatism, has put on his Janet Yellen Halloween mask and slipped out the side door. BUT, damn it, he is NOT bowing to Trump. He says.

What it does say is there is upside bias. There is rotation back into groups such as FAANG that lay dormant for many weeks. Chips renewed their leadership. Growth, outside of perhaps RUTX small caps, is back in vogue.

Even so, near term after such good runs there may be some more rotation with techs testing back from good moves while DJ30, SP400, RUTX play catch up. That is the healthy, virtuous rotation that sees money stay in the market and new money coming in to keep the upward bias overall.


ECONOMICS/NEWS

The economic data Friday flipped back to disappointing. After some improving data the first part of the week suggested the economic soft patch could be passing, the new data said not so fast.

New York Empire PMI, March: 2.7 vs 10.0 expected vs 8.8 February. A 22 month low.

Industrial Production, Feb: 0.1 vs 0.4 expected vs -0.4 January (from -0.6)

Capacity Utilization, Feb: 78.2 vs 78.5 expected vs 78.4 prior (from 78.2)

Back to backsliding. I guess that is 'good news' in a bad news is still good news Fed environment.


TSLA: Introduced the Model Y to yawns. The question heard most was 'why?' Get it? TSLA dropped stone-like from a pretty good week up to then.

FB: Lost its Chief Production Officer and the director of WhatsApp in one day. Also being probed by US AG's for its use of user data.

GOOG: It is also being looked at for possible suits by state AG's.

The question: how did your personal information morph into the property of companies whose advertisements say they are just there to provide a convenience to you to interact and a tool to help your life be better (search) and make a profit providing that service?

Yes, yes, if you put that information out there you are opening yourself to having everyone see it. But, as the fine print of the 'do you agree to our terms or else not use our service' says, the data then becomes the provider's to do with as it wants. That is an adhesion contract that the courts have historically time and again broken as against public policy. If you have no bargaining power and no alternative, that triggers the scrutiny. The old movie and recording contracts (Tom Petty broke the music industry's stranglehold over the artists), labor contracts, etc. all were broken due to the unequal bargaining power. As FB and GOOG are or are near virtual monopolies in their industry, they ARE going to get this scrutiny.


CHARTS

SP500, NASDAQ: As noted, both put in strong weeks and closed just over the Oct/Dec range tops. Solid action, a bit extended. After a strong-ish expiration session we are looking for some kind of test next week either after a bit more upside or starting Monday. Not a rollover from anything shown thus far, just a normal post-new high pause.

DJ30: A good Friday putting an upside emphasis on a week that saw the index miss out on a really good move due to the BA issues. It would be right there with SP500 and NASDAQ but for that drag.

SOX: Cleared the February recovery high, just below the first resistance from the March through summer trading range. Chips were resurgent.

SP400: Bounced off the 50 day EMA Monday then slid laterally the rest of the week, unable to break higher again, stalling at the 200 day SMA Friday on the high and fading.

RUTX: Same as SP400, bouncing off support Monday then a lateral move through Friday, well, well off the February high up at the 200 day SMA. For now money is not moving into the small and midcaps. Not leaving, just not moving in.

NASDAQ 100: A strong week after the prior Friday gap to the 50 day EMA and reversal. Rallied to the top of the Oct/Dec range and stopped just below that point Friday. Solid, solid move as the FAANG had some bite again, but as it is below resistance perhaps GOOG, AMZN, AAPL, MSFT, CSCO take a breather after excellent weeks to the upside -- AND provide us with new entries after they take that breather.


MARKET STATS

DJ30
Stats: +138.93 points (+0.54%) to close at 25848.87

Nasdaq
Stats: +57.62 points (+0.76%) to close at 7688.53
Volume: 3.45B (+58.26%)

Up Volume: 2.2B (+1.18B)
Down Volume: 1.2B (+70M)

A/D and Hi/Lo: Advancers led 1.54 to 1
Previous Session: Decliners led 1.33 to 1

New Highs: 116 (+33)
New Lows: 44 (+2)

S&P
Stats: +14.00 points (+0.50%) to close at 2822.48
NYSE Volume: 2.72B (+199.19%)

Up Volume: 1.574B (+1.194B)
Down Volume: 1.104B (+604.89M)

A/D and Hi/Lo: Advancers led 1.41 to 1
Previous Session: Decliners led 1.13 to 1

New Highs: 137 (+34)
New Lows: 24 (+3)

SENTIMENT

VIX: 12.88; -0.62
VXN: 15.12; -0.53
VXO: 12.14; -1.26

Put/Call Ratio (CBOE): 0.85; -0.06

Bulls and Bears:

The pullback from the prior week stalled the bulls' advance a bit while bears moved back over 21 after a 2 week hiatus below that level. Not major change in the trends: bulls are moving back up, bears sliding again, and this past week's action will further those trends.

Bulls: 52.4 versus 52.9

Bears: 21.4 versus 20.6

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: 52.4 versus 52.9
52.9 versus 52.4 versus 51.9 versus 49.5 versus 48.6 versus 45.8 versus 45.4 versus 34.8 versus 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

Bears: 21.4 versus 20.6
20.6 versus 20.4 versus 20.7 versus 21.5 versus 20.6 versus 20.6 versus 21.3 versus 29.4 versus 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


OTHER MARKETS

Bonds: 2.591% versus 2.628%. TLT held flat but the 10 year went wild with an upside rally.

Historical: the last sub-2% rate was in November 2016 (1.867%). Last trade over 3% was November 2018.

2.628% versus 2.625% versus 2.60% versus 2.641% versus 2.632% versus 2.641% versus 2.693% versus 2.715% versus 2.724% versus 2.759% versus 2.717% versus 2.673% versus 2.636% versus 2.672% versus 2.654% versus 2.695% versus 2.641% versus 2.641% versus 2.664% versus 2.654% versus 2.706% versus 2.686%


EUR/USD: 1.13248 versus 1.13070. Euro rallied to the 50 day MA and stopped there Thursday and Friday. Still in that long lateral trading range.

Historical: 1.13070 versus 1.13271 versus 1.12895 versus 1.12592 versus 1.12344 versus 1.1191 versus 1.13123 versus 1.13050 versus 1.13344 versus 1.13650 versus 1.13725 versus 1.13790 versus 1.1391 versus 1.13598 versus 1.13332 versus 1.13363 versus 1.14490 versus 1.13544 versus 1.12922 versus 1.12955 versus 1.12616 versus 1.3323 versus 1.12816 versus 1.13218 versus 1.13396 versus 1.13645 versus 1.1396 versus 1.14350


USD/JPY: 111.470 versus 111.715. Three weeks trading laterally around the 200 day SMA after rising to that resistance to end February. Still trending upside, but the next break higher or lower from this key level is, well, key.

Historical: Last below 109 in June 2018 then tumbled to 107 in early January 2019. 114.51 is the recent high from October 2018.

111.715 versus 111.314 versus 111.428 versus 111.165 versus 111.482 versus 111.624 versus 111.845 versus 111.856 versus 111.921 versus 111.433 versus 110.873 versus 110.53 versus 110.979 versus 110.670 versus 110.664 versus 110.786 versus 110.848 versus 110.469 versus 110.462 versus 110.945 versus 110.523 versus 110.488 versus 109.754


Oil: 58.52, -0.09. Broke higher from the range Wednesday, then stalled there into Friday. Still trending up toward the 200 day SMA at 62.50ish.


Gold: 1302.90, +7.80. Gold dumped to end February, bounced back over the 50 day MA midweek, but is struggling on the rebound. Actually, it is good gold struggles and fades some. It has a near term, 6 week head and shoulders, and some more downside would not hurt as it suggests tamer inflation, better economics.


MONDAY

Good move on the week, some key intersections with resistance. The market has not yet resolved the trading range inflection point, but it certainly is making the case for a more bullish outcome. No selling at the highs, just profit taking. More solid patterns. Dormant groups (e.g. FAANG) coming back into play. Semiconductors continuing their leadership role after a week or so hiatus. That certainly bodes well from an upside perspective.

That does not mean post-expiration week rally there is some profit taking. Indices up for a week, many stocks up for a week or more, some approaching resistance, some just feeling gravity after very good moves. After perhaps some more upside, perhaps not, if there is some likely profit taking, we plan using that to position for some new upside buys.

Indeed, there are still a LOT of stocks in good position to move higher after a week's market gains. Many did move upside on Friday, so they may very well have some post-expiration weakness. That works as well because we can use a bit of a pullback on the plays we have to set up some better entries. Chips still look good with many solid setups, some software as well.

We also have some lower priced stocks to choose from this weekend. With GOOG, AAPL, ISRG, NFLX, NVDA, MSFT, etc., most can only use options. Thus, with some good setups in some smaller names, e.g. IPI, GOGO, we have some names to look at. We likely won't marry them or even have deep feelings for them. It is okay to use a stock, get what you want, then dump it. This is the one area that is totally acceptable.

Also have some mid-range stocks such as AMAT, FIVN, HUYA that we could be coaxed into longer term relationships. We are very open: if they perform, we keep them. If they don't, we bag them fast. Keeps the relationships neat.

In any event, the upside bias remains, a bit of a giveback early week is okay for the new plays, and if the recent leaders want to give back a bit more and set up again for new buys a la V did, even better.

Have a great weekend!