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InvestmentHouse - Berkshire Lets On It Bought Some AMZN (Weekend Newsletter)

https://news.investmenthouse.com/2019/05/the-daily-part-1-of-3-5-3-19.html

- Jobs strong on the headlines, Berkshire lets on it bought some AMZN, and Fed speakers walk back Powell's comments. Of course stocks jump.
- Stocks break higher but indices still in the same relative position and on light volume again, sans RUTX.
- RUTX finally breaks some resistance, still miles from a high, while SP500, NASDAQ still trying to put in a definitive high.
- Jobs created but still almost 1/3 of the US, over 100M working aged citizens, are not working.
- Plenty of good tech setups along with financials, rails, to name a few.
- After the excitement from Friday dies down, will the buyers remain or will sellers that showed up the past week show up again?

Futures were up pre-Jobs Friday, and when the jobs report headline numbers beat expectations the market hesitated briefly. A big top line beat, unemployment drops 2BP, wages decent at 3.2% year/year. Still, Powell's comments from Wednesday about 'transient' weak prices and no need to move either direction with rates were fresh.

With some other Fed commentary, however, commentary that walked back Powell's post-FOMC statements, stocks held the bid and indeed improved upon it. They rallied to midmorning, tested a bit, then rallied to mid-afternoon where they pretty much flat-lined to the close. Not a bad day upside after some shaky sessions, but in reality the action simply left the indices in the same old, same old -- except for RUTX.

SP500 28.12, 0.96%
NASDAQ 127.23, 1.58%
DJ30 197.16, 0.75%
SP400 1.43%
RUTX 1.98%
SOX 0.65%
NASDAQ 100 1.58%

VOLUME: NYSE -5%, NASDAQ -6%. Again below average volume on a move higher. That would not be such a downer if there was no selling on the week. There was some distribution, however, right at the prior highs as upside was turned back.

ADVANCE/DECLINE: NYSE +3.5:1, NASDAQ +3.9:1. Now THAT is impressive breadth, more of a bullish indicator.

Now I know, gains of 1% and better by the indices are not chicken feed. They just didn't change the game from where it is being played: in a range near the SP500 and NASDAQ prior highs or other key resistance for the indices.

Thus, while Friday was a solid upside session from start to finish, if it is going to show more it will have to . . . show more next week.

Quite frankly much of the move was due to AMZN. Berkshire has been buying AMZN for the first time, something Buffett told everyone this morning. AMZN gapped higher 49 points and closed over 60 points higher on the session. That is what pushed DJ30 higher and indeed played a very large role in SP500's and NASDAQ's gains. Indeed, NASDAQ scored a new closing high though it was off the intraday high all-time high. Interestingly, NASDAQ 100 did not put in a new high all-time high though it also put in an all-time closing high.

The point: great moves on Friday, and perhaps they presage great moves in the coming week. At the same time, the great moves upside only managed to take the large cap indices back up to the top of the same range of the past two weeks for SP500 and NASDAQ, and the past 4 weeks for DJ30 and SP400.

RUTX was a bit different. It broke over the recovery high hit in February. After 2.5 months the small caps finally cleared that recovery high resistance. Nice move for sure, but does it make a big difference? RUTX is still 128 points off its all-time high. Perhaps it is now going to play catchup to the other indices, but there is no question it is lagging big time.

The positives.

Of course the move was a positive for the upside. It did not accomplish a clear new break higher for the overall stock market, but it did show bids are ready, willing and able even after 5 weeks upside and a stall at formidable resistance. This could certainly set the indices in position for yet another break higher in the coming week as they did not back off from another failure at resistance.

Many stocks remain very solid, ready to break higher. FB, AMZN (started), NFLX, VRSN, software stocks (OKTA, COUP, WDAY, HUB, NOW, ZS). Chip stocks are also still in good patterns though perhaps a bit winded (LRCX, MCHP, AVGO, AMAT, AMD). Banks are set up well (C, JPM, TCBI, BAC). Leaders in position are always a good upside indication.

The lack of sellers. Yes, some sellers showed up twice over the last 12 sessions, both times on a Wednesday. The indices shook off those sellers and held the range. They held despite earnings gaps lower from INTC, GOOG and a few others. Sellers of individual stocks but not the market overall.

The Fed. Despite Powell's 'no, there is no rate cut planned' comments Wednesday, the Fed is still at worst neutral. Moreover, Friday Evans, Clarida and other Fed speakers were fast-talking to I suppose reassure the markets that Powell was not shifting hawkish.

Evans: Listen to me, not Powell. These lower prices are serious and you can't be "too dismissive" of them.

You know, the entire Fed is worried about falling prices in better economic times. They act as if they are attempting to fathom how the universe will end, as if there is simply no explanation for how this could be. For goodness sake, just crack a history book and look at the dates of economic prosperity -- and low prices -- and what economic policies were in place: policies that result in investment lead to prosperity with low prices as supply meets and indeed makes its own demand. It is not difficult, it is just that these people are so married to their theories that do not reflect reality that they cannot see the cause and effect. It is the biggest farce in the world. At least weathermen deal in facts; they may not understand the why but they don't try to convince us why the weather is happening, they just try, albeit poorly, to predict it. In that respect weathermen and economists are VERY much alike. At least the weathermen are not so pompous -- in most cases -- to try and pretend to us they actually know how the systems work.

But, I digress.

In sum, the market remains stuck at resistance, but it is also still mostly free from sellers. The lack of sellers is powerful; if no one is there trying to sell, when the bids pause the market holds the line and 'falls forward' or upward. After two weeks of lateral movement, the sellers are still one of the rarest breeds in the market.

It is thus possible that the indices simply wander laterally a bit more as an extension of these past two weeks and then make new upside breaks. That may be the 'test.' Stranger things have happened in this market.

NEWS/ECONOMY

Jobs beat expectations, prompting the usual impressed responses, but the internals continue to show some of the same problems that plagued the Obama administration. Certainly the mix of jobs has changed to more high-paying jobs, but the totals of who is working and who is not continue showing a worrisome shift in the US that goes beyond jobs.

Non-Farm jobs: 253K vs 200K expected vs 189K March (from 196K)

Unemployment rate: 3.6% versus 3.8% expected vs 3.8% prior. Lowest unemployment reading since the Neil Armstrong walked on the moon and the Mets won the World Series in 1969.

Wages: +0.2% vs 0.3% expected vs 0.2% prior (from 0.1%). 3.2% year/year.

Workweek: 34.4 vs 34.5 expected vs 34.5 March

Workforce Participation: 62.8% vs 63.0% March.
Overall labor force lost 490K: Unemployed -387K, Employed -103K
Those not in the labor force: 96.2M, +646K.

Where the jobs were:
Professional and business: +76K
Construction +33K
Healthcare: +27K
Financial activities: +12K
Manufacturing: +4K
Retail: -12K (the 3 month series: -14K, -15K, -12K)
Mining: -3K

Hispanic unemployment: 4.2%, the lowest on record.

Why so many working aged people not working?

The number of working aged people out of the workforce is an ongoing problem from the Obama administration to present: 96M working aged people are not even in the labor force looking for work.

Add to that those who are counted as unemployed and you have over 102M people. In a country with a population near 320M, you are looking at close to one-third of the people not working, and those are people who COULD work and does not count children, the aged, the infirmed, etc.

Some will say those are retirees and thus natural. True, there are many baby boomers retiring, but then again, those people are NOT working aged so they are NOT counted. No, we now have a social benefits program where those who do not want to work -- for whatever reason -- do not have to. They can rely upon those who DO work to subsidize their life of no work. Moreover, I have actually had discussions with some of these people in their twenties and thirties who feel it is their RIGHT not to work and their RIGHT to make us pay for their choice not to work. By choosing to work, we are agreeing to pay for their choice not to work.

What they do not understand is that if the majority (and they are continuing to grow in numbers as is always the case when a country turns socialist) then there won't be enough to pay for their choice. The social security 'safety net' is now down to 2.7 people paying for each person on SS. Wow.

The thing is, when you have someone busting their buns on an assembly line, having to get to work early, press hard all shift long, take guff from the supervisor, get home exhausted then repeat the next day -- for not much more disposable income than a person choosing not to work and collect benefits -- eventually those workers start wondering why they are doing it and decide to 'opt out' as well. They are not bad for doing it; they are simply making a rational decision. The person not working can still have a 4K TV, a gaming console, a high speed internet connection, a smartphone, transportation in addition to the usual necessities of food, a roof overhead, a bed, etc. If you do not get ahead, why put yourself through it?

Well, this is sadly all academic. We all see the issue but the structure in the US has changed and now it is engrained with each new graduating class out of university and high school.

The irony is, we hear Bill Gates, Zuckerberg and company bemoan the lack of workers in the US. We have 96.2M working aged people NOT working! Is it better to import millions of foreign workers who were not socialized in the US versus training those 96.2M people to fill US jobs? And, quite frankly, MANY of the unemployed are holding STEM degrees, the very degrees and skills the captains of industry say they need. Or you can go the Disney route and fire all of your people who had been with the company for decades and replace them with young foreign workers who barely if at all speak English. And you threaten your terminated employees that they will lose their pensions if they refuse to train their replacements. Wonderful World of Disney, 21st century style.

THE MARKET

CHARTS

A 3.24% move higher in AMZN can energize otherwise wandering indices. It gapped NASDAQ and SP500 off the 20 day EMA. It rescued DJ30 from a trip to the 50 day MA. And of course, it brought NASDAQ 100 back to the top of the recent range. What happens without Berkshire letting people know it was buying AMZN? Not much. That is why we did not buy AMZN Friday but will see if it tests a bit early week. We want to buy it, just didn't want to buy options inflated by the Berkshire news.

RUTX: The logical starting point, AMZN or not. Finally the small caps broke to a higher recovery high from the December low. Still miles from the prior highs but a VERY important level to finally break. After Wednesday selling post-Powell and more indecision Thursday, a clear break higher. Jobs solid -- kind of -- along with the Fed-speak almost frenetically trying to walk back Powell's bluntness.

SP400: Why not? The midcaps too broke to a new recovery high, though just a closing one. Solid enough and much closer to the all-time high than RUTX, but if RUTX continues moving as it did Friday, that won't be for long.

DJ30: Gapped higher and cleared the 20 day EMA after it was well on the way to the 50 day MA. Without AMZN the Dow is at the 50 day. As it is, DJ30 managed to hold the five week lateral range below the January 2018 high. Oh yes, there is still another peak from early September before the all-time high from early October.

NASDAQ: A new closing high by 2 points. Smashing move. No, it was not bad. A test of the 20 day EMA in a very shallow 3-day pullback then a gap and rally upside. AMZN really helped and all the FAANG played a roll, even GOOG as it rallied 1.96%, back toward the 50 day MA it gapped below on Tuesday. Lots of stocks helped the move back to the top of the range. The question for next week is will they help it break through that range with a -- altogether now -- definitive move.

SP500: Gapped off the 20 day EMA the same as NASDAQ, missing an all-time closing high by 0.2. Still at the prior highs, still suffering from some distribution the past week at the highs. Even so, it is hanging in, and if the techs lead, SP500 will follow. Oh, and the financials are still solid.

SOX: Still a pretty solid lateral consolidation, sitting on the 10 day EMA all week as it shook off some selling from the prior week when INTC gapped lower on earnings.

NASDAQ 100: A very solid two week lateral move, riding out INTC, GOOG and putting in a solid session Friday to take it back to the top of the range and a new closing high though not a new all-time high.

THE LEADERSHIP

FAANG: All up, GOOG recovered some from the gap lower on earnings. FB in a nice 1.5 week earnings upside gap consolidation. AAPL similar action. NFLX to a higher high. AMZN gapped to a higher high on volume as everyone wanted to buy what Berkshire had bought at a lower price.

Transports: Truckers recovered some though orders for Class 8 trucks, the large ones, are off 57% year/year. Airlines are holding well. Rails are starting to break higher again. Very nice and very needed after DJ20's losses on the week.

Financial: Banks continued a nice consolidation of the breaks higher, indeed some started upside Friday such as JPM and C. TCBI broke nicely higher Friday. MA and V still testing after their last good runs; may need a longer break. MS holding its gains. GS looks as if it might try a break over the 200 day SMA.

Software: After never really forming new bases, just working laterally-ish for 3 months, they are moving up and we are moving in. WDAY, COUP, OKTA. HUBS, NOW, VMW. The bids are returning.

Semiconductors: Overall solid but a lot of testing, some breaks higher. UCTT gapped sharply higher on results. AVGO in a nice doji with tail test of the 20 day EMA. LRCX testing laterally in a flat move all week; the 10 day EMA has caught up to it now. MCHP Similar to LRCX. XLNX trying to recover but bear flaggish. NVDA made it to the 20 day EMA in a very weak move up off the 50 day MA. AMD, MU trying to break higher. AMAT spent the week testing the 20 day EMA, still decent.

Machinery: CMI breaking to a new recovery closing high. CAT bounced back from a very weak Thursday. DE decent. MMM still divining the lows. ETN, EMR trying to bounce off the 50 day MA after selling back to those levels this week.

Metals: After three weeks of weakness, a good upside session Friday. AKS, STLD, RS -- mostly steel related.

MARKET STATS

DJ30
Stats: +197.16 points (+0.75%) to close at 26504.95

Nasdaq
Stats: +127.22 points (+1.58%) to close at 8164.00
Volume: 2.07B (-6.33%)

Up Volume: 1.54B (+290M)
Down Volume: 473.91M (-456.4M)

A/D and Hi/Lo: Advancers led 3.87 to 1
Previous Session: Advancers led 1.05 to 1

New Highs: 118 (+51)
New Lows: 34 (-32)

S&P
Stats: +28.12 points (+0.96%) to close at 2945.64
NYSE Volume: 788.963M (-5.03%)

Up Volume: 656.395M (+320.026M)
Down Volume: 125.345M (-353.846M)

A/D and Hi/Lo: Advancers led 3.49 to 1
Previous Session: Decliners led 1.19 to 1

New Highs: 154 (+54)
New Lows: 9 (-49)

SENTIMENT

VIX: 12.87; -1.55
VXN: 15.98; -1.64
VXO: 12.65; -1.51

Put/Call Ratio (CBOE): 0.77; -0.16

Bulls and Bears:

Bears continue to fall, and rather precipitously. After stubbornly holding for weeks on end, they are giving up, throwing in the towel. That is not a bullish indication after the initial money is thrown into the market.

Bulls are rising as well but are still below the 60 level that has presaged corrections.

There are still no extremes in this indicator, but with bears breaking lower, if bulls hit 60+ then near term there is an increased chance of a steeper pullback.

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: green toward yellow (all is well), but rising toward the 60's that would start to represent a threat (a yellow indicator).

Bulls: 56.4 versus 53.4

Bears: 17.8 versus 18.4

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.

OTHER MARKETS

INTEREST RATES

Threat level: Yellow. No current inversion. One prior inversion of 3 month/10 year but it was just 2 days. Curve is flat at the short end but still upward sloping.

The 3 month yield versus the 10 year: Spread fell 1BP to 10BP

The 2 year versus the 10 year: Spread falls 1BP to 19BP

10 year: 2.530% versus 2.547%

3 month: 2.434% versus 2.437%
2 year: 2.339% versus 2.345%

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: 1.12023 vs 1.11748. After falling away from the 50 day MA test Wednesday, euro sold hard Friday but then reversed to positive. Fighting to hold in the 6-month 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: 111.097 vs 111.421. This time dollar closed below the 50 day MA's. Looks as if it is going to sell toward 110, possibly 109.50.

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: 61.94, +0.13. Held just over the 200 day and 50 day MA. Lick log for the near term of oil.

Gold: 1281.30, +9.30. Sharp bounce off 1270. Goodness, from bearish to not a bad move.

MONDAY

Earnings continue. At least the data deluge abates somewhat. The big news will be the PPI and CPI. And any Fed-speak where governors will further try to mitigate Powell's comments.

Okay, okay. Friday was a good price move. The indices are again at the threshold of a breakout by NASDAQ and SP500. Still leadership in position to push the indices higher. Breadth very good. Volume, disappointing. Gee, pretty much the same story for the week, just not as much news.

We picked up some software stock positions Friday, edging into them as they looked good. We didn't buy anything else, e.g. AMZN, as we want to see how they fare to start the week, AMZN without the influence of Berkshire having bought before. This is typical Buffett. He never utters a word that will not benefit his holdings. He bought AMZN, says they are 'buying for the first time,' implying they are still buying. Yeah, right. They WILL buy again, but they bought ahead of the company meeting just to announce they were buying so they shares would rise 3+% as on Friday. Thus, we will let it come back some, let the implied volatility in the options die down, then enter.

Can it really be that easy? Yes, it can. Suckers.

Perhaps the lateral consolidation is all the indices need to break higher yet again. AMZN gave a push and we will see if others do the same this week. We tried some downside the past week -- all rebounded to certain degrees. The sellers entered but did not close the deal on the week. We will see if they show up again early week.

We will look at more upside as there are still good setups, and if NASDAQ leads SP500 on a breakout to higher highs there will be good entries off these setups. Again, since some sellers did enter this past week, early week will be important -- will they show again after a Friday that was all gushing upside because Berkshire bought some AMZN stock. If they do show up, well, the market is not ready for the new highs and needs to consolidate some more.

Have a great weekend!