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InvestmentHouse Weekend Market Summary

http://www.investmenthouse.com/weekendmarketsummary.htm

- More gains for the weekend as momentum carries small caps to new highs, large cap indices to trendlines.
- Lots of negative news but it does not slow the market that is high on 'in Bernanke we trust.'
- Plosser says Fed should start taper in September, doesn't want to create another housing boom.
- PPI jumps past Fed purported speed limit.
- Michigan Sentiment misses as inflation expectations rise along with gasoline and mortgage prices.
- UPS lowers earnings guidance on a weak US outlook.
- JPM latest to cut its GDP outlook.
- Stocks sitting on a great run, some indices at resistance, as earnings kick off.

All news is good news for stocks, though Boeing burns the Dow.

United Technologies air unit allegedly catches fire on Boeing plane. The fire was extinguished with no casualties other than the 787 Dream.

The news was not good. You can slice it anyway you want and the Friday news still comes out bad. An impressively lengthy and depressing string of stories. Not bad enough to head to the shelter, safe room, don sackcloth and ashes, or whatever your escape plan/ritual may be, but more worrisome issues for the US economy.

Boeing has a dream of a dreamliner, but that dream appears in the process of being deferred as two issues for the jet hit Friday: a fire in the cooling unit in one and an undisclosed problem with another caused a return to the airport of origin. Is a dream deferred a dream denied? Friday it was and Boeing weighed down the Dow. That was Friday, and I seriously doubt that BA's dream will be denied. Indeed, if the stock sells off significantly on this news it will be a buy. I won't be flying on any 787 until the kinks are out but again, if the stock sells off BA has always been a buy.

Oh if it were just Boeing. But, alas, it was not.

PPI overall rose 0.8% month over month on a 2.9% increase in fuel costs. Gasoline rose 7.9% and that is only going to get worse after this recent spike in prices hitting this weekend. They were already up 0.7% in June before this last spike hits.

PPI, June (8:30): 0.8% actual versus 0.3% expected, 0.5% prior
Core PPI, June (8:30): 0.2% actual versus 0.1% expected, 0.1% prior

Indeed the lion's share, near all, of the jump was fuel. Food rose just 0.2%, and while not a huge jump the cumulative gain hurts.

The overall PPI rose 2.5%, the highest since March 2012. So, when you take out food and energy there the core rose 1.7%. That is within the Fed's 'speed limit' of 2%, but food and energy are so critical right now given so few have more income to spend on fuel and food, necessities.

Look at where prices are now with such a slow economy.

Of course Ben Bernanke then has the nerve to say inflation is not high enough. Lessons from the '70's forgotten. Unfortunately, not just this lesson but most all others as we pursue massive regulation growth, punishing small business, inflating energy prices, expanding social programs, and further squandering our reputation in the world. We never learn from history. I also never stay on point.

Michigan sentiment missed expectations, the biggest drop since December 2012.

Michigan Sentiment, July (9:55): 83.9 actual versus 85.0 expected, 84.1 prior

Still elevated over the levels 6 months ago, but expectations faded. Higher gasoline prices? Spiking mortgage prices? Could be; inflation expectations hit their highest in 2013. Certainly stock prices were higher but they could not offset the other factors consumers see down the road with more money coming out of their pocket each week to pay for gas. That is money right out of the economy.

Shipping warnings again

Ah, and that brings up UPS. Federal Express warned prior to its last earnings and its results lived up to its warning. Slowing overseas demand and less desire to pay for expedited services (the 'absolutely, positively has to be there' delivery) made sense given slowing foreign economies. UPS, however, cut its quarter guidance as well as its full year, and it was specific, saying the "slowing US industrial economy" was the cause of its guidance dropped to 1.13 versus 1.20 this quarter.

JPM jumped on this story and indeed seconded Barclay's cut of expected Q2 GDP. Barclays slashed its outlook to less than 1%. JPM didn't go as far but it did cut its outlook in half from 2% to 1%. Great expectations indeed.

Plosser at the Fed sticks to his guns.

Finally, while the market 'cheered' the weaker economic news, apparently taking it as some indication the Fed would further delay any initiation of taper, Mr. Plosser voiced contrary thoughts. He wants QE over by year end. He wants the taper to start in September. Indeed, as I stated before, in order to get anywhere near removing QE by year end and do so in an orderly manner, the Fed has to start in September.

See, the Fed has nothing left up its sleeve.

The reason for Plosser's concern: he stated 'we' don't want to create another housing bubble. Some jumped on the 'we' and opined and indeed concluded Plosser confirmed the Fed caused the last housing bubble. With insanely low rates of course the Fed at least assisted in creating the bubble, but I am not sure Plosser was admitting anything. It was more a 'we' in the sense of all the factors and powers that be worked to create the last bubble and 'we,' being all of us, don't want to let that happen again. Semantics of course, but I don't think you will get anyone outside of Dallas Fed President Fisher or former Dallas Fed President McTeer saying that is the case.

To us, Plosser's comments underscore the Fed DOES start the taper in September. Maybe the market, by its reaction, is telling us it gets that and still wants to rally. Maybe, however, the market is just running until harsh reality slaps it.

Despite all of this news, and as noted perhaps because of it, stocks rallied. If Bernanke is saying don't fear the taper, well then it makes sense, in one view, for stocks to move higher still.

We can be like they are. Come on baby. Don't fear the taper.

The Action

Didn't start out like a ball of fire, indeed futures stumbled around all morning but were holding flat to upside. As anticipated in the morning alert they caught a bid and rallied. Nothing spectacular but some decent moves on the indices and some even better moves by individual leaders.

SP500 5.17, 0.31%
NASDAQ 12.78, 0.61%
DJ30 3.38, 0.02%
SP400 0.35%
RUTX 0.32%
SOX 0.63%

AMZN, NFLX, PCLN, GOOG, EBAY. Very good moves by some big names. Very good moves by others: BMRN, KLAC, ALTR.

The Charts

In the end, another good move as the market piled on more gains. Now, however, they have to deal with next resistance in the form of the November 2012 trendlines previously broken to the downside.

SP500 is at the November trendline marking the bottom of the old channel. DJ30 remains just below its November lower trendline. NASDAQ is already at the upper channel line and of course at a new post-bear market high. It failed at this channel line in May when it last touched, but it is showing power. Volume is not great, always a worry, but it did expand on the rally.

RUTX, Russell 2000, hit new all-time highs each session last week. An incredible sprint and as indicators go, the small caps are typically an economic indicator.

SP400 had matched the small cap surge, but not to new highs. It put in a closing high Friday but is still off the May intraday peak.

SOX: Wednesday SOX broke back through the 2011 peak. Thursday it gapped and ran, sprinting past the June high and putting distance on those contenders, similar to Chris Froom blowing past contenders on Mont Ventoux.

THIS WEEK

Indeed, all of the indices enjoy strong moves the past three weeks. With the move to resistance by the large cap indices the market could be due a rest. Just so happens that earnings swing into full gear this week.

A three week run to new highs in some cases, to resistance in others is a logical point to take a breather, and if earnings don't match expectations or hopes, the market is definitely primed for a pullback. Moves higher cannot continue forever, and often runs into earnings are indeed tested after some results are reported.

So, it is logical for the market overall to give some back after three weeks of gains, new highs, and bumping resistance. It is indeed inevitable that the market will give some of the gains back. The question is when. There is likely not much more upside from here before it does test.

That doesn't mean you run out and sell everything. As you know, our method is to take partial gains on the way up as logical targets are hit. What you don't know, though you may have suspicions, is how far the market can run before it tops and puts in a more serious test other than a three to four day fade. SP500 has hit its A point in the ABCD pattern, and that is the initial target you shoot for. Case in point are the plays on the QLD and SSO; we had initial targets playing a modest move. Hit those, took some gain. Moved higher to other resistance; took some gains. Still moving higher, letting the rest of the position run until the market takes us out.

The point: while my years of trading the market tells me a three week run to highs and resistance at the start of earnings begs for a pullback, with the Fed involved and the relief the market is feeling right now, the run can continue further before it turns. You want to capture that move and thus the partial profits. Take some, bank some gain, let other positions work for you until they don't.

With that in mind, we took some gain Friday again, but also let positions such as those on PCLN to continue because the stock was surging higher yet again . It may turn this week; if so we can bank some of the gain. For stocks that are on the cusp of earnings we take some gain or close the position if we are uncomfortable with riding any through the result. If we have already banked a significant portion of the position with good profits we often decide to let that last piece rise through the results and perhaps get the big swirl of icing on the top of the cake.

As for new positions, yes we are going to look at new upside. There are great stocks out there setting up to move again, some that we already own positions on. Right now the overriding issue is earnings (thought I was going to say the Fed, right?) in terms of new positions (and indeed existing positions). Earnings is news, and news trumps everything. There are cases where we will pick up positions ahead of earnings, upside or downside, e.g. possible splits, but it is not our favorite entry point. Playing off earnings is one of our favorite tactics.

That means not as many plays as earnings approach, but more will open up as results are released. Patience in new positions, taking care of current positions as earnings approach, taking gain when logical, letting them run if they are winning and don't have an earnings date the next session.

TECHNICAL SUMMARY

INTERNALS

NASDAQ
Stats: 0 points (0%) to close at 3600.08
Volume: 1.534B (-10.19%)

Up Volume: 950.58M (-479.42M)
Down Volume: 481.56M (+183.21M)

A/D and Hi/Lo: Advancers led 1.19 to 1
Previous Session: Advancers led 2.47 to 1

New Highs: 311 (-95)
New Lows: 10 (0)

S&P
Stats: +5.17 points (+0.31%) to close at 1680.19
NYSE Volume: 572M (-14.37%)

A/D and Hi/Lo: Decliners led 1.03 to 1
Previous Session: Advancers led 5.92 to 1

New Highs: 355 (-123)
New Lows: 110 (-6)

DJ30
Stats: +3.38 points (+0.02%) to close at 15464.3

SENTIMENT INDICATORS

VIX: 13.84; -0.17
VXN: 13.96; +0.09
VXO: 13.46; -0.38

Put/Call Ratio (CBOE): 0.9; -0.11

Bulls and Bears:

Bulls are running and bears retreating as bulls are back up to the highs from four weeks back as bears are back where they were four weeks back. They converged to their closest since November 2012 to start July but have diverged again. Not at extremes, but the fear faded rather quickly. Bulls have hit stall speed around 55%, prompting pullbacks in the market.

Bulls: 46.9% versus 43.8% versus 41.7% versus 46.8% versus 43.8% versus 45.8% versus 52.1% versus 54.2% versus 52.1% versus 47.9% versus 44.3% versus 47.4% versus 50.5%.

Background: Undercut 35%, the threshold for bullishness, in early June. As noted, hit 34% in early June. It did its job and the market is on the rally. Hard drop to 34 from 39.3% as economic reality and a choppy stock market hit. Off the 55+ level hit in late February. That was the highest level since April and May of 2011, the peak of the post-bear market high. 35% is the threshold level suggesting bullishness. To be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 22.9% versus 25.0% versus 21.9% versus 22.9% versus 20.8% versus 19.8% versus 19.8% versus 19.8% versus 18.8% versus 19.6% versus 20.6% versus 20.6% versus 19.4% versus 19.6% versus 18.6% versus 18.8% versus 21.1% versus 21.1% versus 22.1% versus 21.1% versus 21.1% versus 22.3% versus 22.3% versus 23.4% versus 24.5% versus 24.5% versus 23.4% versus 25.5% versus 27.7% versus 27.7% versus 28.7% versus 27.7%.

Summary: Over 35% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

Have a great evening!

Support and resistance

NASDAQ: Closed at 3600.08

Resistance:
3601 is the upper channel line for the November 2012 to present uptrend

Support:
3532 is the May intraday high
3521 is the August 2000 low.
3502 is the May 2013 closing high
3504 is the November 2012 up trendline
The 10 day EMA at 3504
The 50 day EMA at 3422
3295 is the June 2013 low selloff
The 2011 up trendline at 3286
3227 is the April 2000 intraday low
3197 is the September 2012 post-bear market high
The 200 day SMA at 3197
3171 is the October intraday high
3134 is the March 2012 post-bear market peak
3130 from some January 2013 lows
3104-3112 from August and mid-October peaks.
3101 is the August 2012 high
3090 is the mid-March interim high
3076 is the late April 2012 high and the 1/2013 low after gapping higher
3062 is the December 2012 prior peak
3042 from 5/2000 low and several other price points

S&P 500: Closed at 1680.19

Resistance:
The November up trendline at 1683
1687 is the May high and post-bear market high
1764 is the upper trendline in the channel

Support:
1654 is the June 2013 peak
The 10 day EMA at 1646
The 50 day EMA at 1621
1576 from October 2007, the prior all-time high
1569.48 is the 78% Fibonacci retracement of the April to May 2013 run
1560 is the June 2013 reversal low
1556 from July 2007
1541 is the April 2013 closing low in that pullback inside the uptrend
1539 from June 2007
1531 is the recent high
The 200 day SMA at 1519
1499 from January 2008
1475 is the September 2012 high
1471 is the October 2012 intraday high
1466 is the September 2012 closing peak and rally closing high
1440 from November 2007 closing lows

Dow: Closed at 15,464.30

Resistance:
15,542 is the May 2013 intraday high
The November up trendline at 15,618

Support:
The 50 day EMA at 15,035
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,551 is the June 2013 intraday low on the selloff
14,198 from the October 2007 high
14,149 is the February 2013 high
The 200 day SMA at 14,079
14,022 from 7-07 peak
14,010 from the early February 2013 consolidation
13,784 is the late February 2013 closing low
13,692 from 6-2007 peak
13,668 from 12-2007 peak
13662 is the October 2012 intraday high
13,653 is the September 2012 high

Economic Calendar

July 8 - Monday
- Consumer Credit, May (15:00): $19.6B actual versus $13.2B expected, $10.9B prior (revised from $11.1B)

July 10 - Wednesday
- MBA Mortgage Index, 07/06 (7:00): -4.0% actual versus -11.7% prior
- Wholesale Inventories, May (10:00): -0.5% actual versus 0.3% expected, -0.1% prior (revised from 0.2%)
- Crude Inventories, 07/06 (10:30): -9.874M actual versus -10.347M prior
- FOMC Minutes, 6/19 (14:00)

July 11 - Thursday
- Initial Claims, 07/06 (8:30): 360K actual versus 345K expected, 344K prior (revised from 343K)
- Continuing Claims, 06/29 (8:30): 2977K actual versus 2949K expected, 2953K prior (revised from 2933K)
- Export Prices ex-ag., June (8:30): -0.2% actual versus -0.7% prior
- Import Prices ex-oil, June (8:30): -0.3% actual versus -0.3% prior
- Natural Gas Inventor, 07/06 (10:30): 82 bcf actual versus 72 bcf prior
- Treasury Budget, June (14:00): $116.5B actual versus $115.0B expected, -$59.7B prior

July 12 - Friday
- PPI, June (8:30): 0.8% actual versus 0.3% expected, 0.5% prior
- Core PPI, June (8:30): 0.2% actual versus 0.1% expected, 0.1% prior
- Michigan Sentiment, July (9:55): 83.9 actual versus 85.0 expected, 84.1 prior

July 15 - Monday
- Retail Sales, June (8:30): 0.7% expected, 0.6% prior
- Retail Sales ex-auto, June (8:30): 0.4% expected, 0.3% prior
- Empire Manufacturing, July (8:30): 3.6 expected, 7.8 prior
- Business Inventories, May (10:00): -0.1% expected, 0.3% prior

July 16 - Tuesday
- CPI, June (8:30): 0.3% expected, 0.1% prior
- Core CPI, June (8:30): 0.2% expected, 0.2% prior
- Net Long-Term TIC Fl, May (9:00): -$37.3B prior
- Industrial Production, June (9:15): 0.3% expected, 0.0% prior
- Capacity Utilization, June (9:15): 77.7% expected, 77.6% prior
- NAHB Housing Market Index, July (10:00): 51 expected, 52 prior

July 17 - Wednesday
- MBA Mortgage Index, 07/13 (7:00): -4.0% prior
- Housing Starts, June (8:30): 958K expected, 914K prior
- Building Permits, June (8:30): 1000K expected, 974K prior
- Crude Inventories, 07/13 (10:30): -9.874M prior

July 18 - Thursday
- Initial Claims, 07/13 (8:30): 348K expected, 360K prior
- Continuing Claims, 07/06 (8:30): 2950K expected, 2977K prior
- Philadelphia Fed, July (10:00): 5.3 expected, 12.5 prior
- Leading Indicators, June (10:00): 0.3% expected, 0.1% prior
- Natural Gas Inventories, 07/13 (10:30): 82 bcf prior