Friday issues: market sells harder on a Friday but in this rally have often recovered the following week. - DJ30, RUTX start cracking the 50 day EMA while NASDAQ/SOX show relative strength. NYSE indices starting to 'catch down' to NASDAQ, SOX? - Retail sales encouraging . . . for AMZN. - Overall market top remains in place as indices struggle to hold onto the rally near term.
Tuesday was up, Wednesday down, Thursday a push. That set up Friday as the rubber match. With Friday down, it would appear the upside lost. The stock market struggled Friday with even the NYSE indices threatening to break lower with DJ30 and RUTX closing below the 50 day MA's. We called it the Friday dilemma, Friday the 13th or not. Fridays are always one we would prefer to take profits on than initiate new buys. Moreover, this market has often shown a weak Friday followed by a recovery the following week. That can suck you into downside positions that then come back at you as the market comes back from some end of the week exaggerated moves made to square up ahead of the weekend.
VOLUME: NYSE -5%, NASDAQ -12%. No dumping Friday, suggesting it was one of those Friday slumps where the market is nervous, sells ahead of the weekend, then recovers the next week. Seen that several times in this more recent market action. There WAS distribution Wednesday and Thursday on NASDAQ and to a lesser extent on the NYSE indices.
A/D: NYSE -2:1, NASDAQ -1.4:1. Hardly overpowering to the downside, but of course, it was not an overpowering downside session A weak session with some weakening index patterns.
Of course, with the current market in the upper reaches of a large 1.5 year rounded top, an overall weakening economy (though retail sales improved as seen Friday), and Fed governors talking smack about the possibility of rate hikes, each pullback that shows some more indices struggling raises the question 'is this the one?' that results in an overall market rollover. SOX and NASDAQ broke lower below the 200 day SMA MA, and SOX is in a quite bearish pattern. Both, however, are still hanging on though they are certainly not helping in a recovery.
In the big picture, Friday makes us more cautious about the market's prospects to avoid a bigger selloff. The setup is in progress; it just takes a long time to put in a top on a 7 year, monetary policy induced advance. People have to finally realize the Fed is not going to be there anymore to inflate asset prices. Indeed, that is the market's dilemma we have written about and discussed for weeks now.
So where do the Fed and other central banks stand?
This past week more Federal Reserve governors were in public, providing hawkish-leaning commentary about rate hikes being more imminent than the market thought, how it was time to stiffen policy, etc. Unfortunately, as noted at the time, these governors are WAY too late to the table. The Fed missed its opportunity to hike two, three, or more years ago. Now that the its money inflating has run its course and the markets and economy need more to avoid a rollover and recession respectively, the Fed is talking about 'weaning' markets and the economy off stimulus. Ah yes, once again the Fed is late to the game and will take the wrong actions at the wrong time and force even more economic issues. IF, that is, these Fed governors represent the Fed's real thoughts. Whether she believes these or not, however, Yellen is the one policy maker, Yellen is a dove, and she is loathe to be the chairman that reveals the Fed's 7 year gambit is nothing more than asset inflation.
So, still the market dilemma as to where the Fed and central banks stand, but regardless, money is moving. Money, as we also noted constantly over the past few weeks, is the physical manifestation of the markets' beliefs as to what central banks will do.
Money still moving around in the market, but also leaving the market.
One positive market characteristic is rotation. Money leaves one area, goes to others. Some sectors fade, others rise. Many sectors in long bear markets received money, built accumulation/bottoming patterns, then broke higher. Money moved, but money stayed in the market.
That was apparent again Friday even in the overall market weakness. Oil still received money. Some healthcare areas received new money, e.g. medical appliances/devices, health services, and yes, even biotech and drugs.
What appears to be the new wrinkle, however, is the money moving out of sectors is not showing up dollar for dollar in other sectors. Money is going idle in a waiting game or it is leaving the market. The latest reports on Friday showed the fastest outflows from mutual funds since August 2011 when the US economy received the infamous (and for S&P almost disastrous) downgrade from S&P. It would appear that investors, big or small, are not as certain the Fed and central banks are ready to fully stand behind the market gains they have wrought with their efforts to inflate financial assets. Based on comments from some players in the Fed and other central banks, you know that they know the asset inflation has not brought about economic improvement, and they feel they have to do something different. The problem is, they don't know any new tricks. That is what has the markets worried and thus money is moving out.
If the markets lose confidence in the central banks to prop them up, they get out. Thus Carl Icahn and other big names are short. Big banks from DB, C, JPM are all negative as to the financial markets' prospects. This weekend GS turned negative with the other banks.
The world economies are in turmoil, but the news says all is fine.
This even as Hong Kong's GDP plunged to -0.4% month over month (from +0.2%) and was halved year/year expectations (0.8% versus 1.9%). There is of course a lot of trouble still in world economies. Things are NOT better as central banks try to cheerlead. The EU is up, it is down, but who doesn't think that absorbing millions and millions of immigrants is going to be an economic drag? Venezuela is the most recent textbook case of how socialism does not work, yet Bernie Sanders' followers and the media ignore its bloody, frightening, and very sad collapse. Brazil? Are you kidding? It is next.
Thus, there should be even more comfort that the central banks will not get tough, but the central banks can be very good at convincing themselves of a certain policy and then convince people eager to believe things will get better. That is when, and it always happens this way, that the 'unforeseen' crises arise, the ones no one saw but everyone knew were there, the ones used to try out some new Keynesian money spending plan that s used to take away more citizen freedom. Been there. Done that. From one crises never cured that crops up as a supposedly new one but is just a manifestation of the prior one. Kind of like WWII was really a continuation of WWI.
The US data was a bit more heartening on Friday though overall it is still poor with weak manufacturing, weak jobs, falling corporate profits.
Retail sales April: 1.3% versus 0.8% expected versus -0.3% March
Ex-Autos: 0.8% versus 0.5% expected, versus 0.4% prior (from 0.2%). Thanks to a 3.2% spike in motor vehicle sales the overall number was up.
Ex-Autos and gas: 0.6%. A 2.2% gain in gasoline station sales (higher prices are hitting again) also boosted the overall number. Burning gasoline in your tank is NOT a good way to increase sales numbers. You have to burn the gas regardless. It produces nothing. It is just a method of getting to work or where you need to go.
The breakdown of where sales occurred shows the changing landscape of US retailing. General Merchandise: 0.0% Department stores: 0.3% Non-Store Retail (internet): 2.1%
PPI: 0.2% Core: 0.1%
Overall was 0.1% light, core was in line. The BIG story: wholesale drugs +9.6%, the biggest increase since 1982. Yes, Obamacare is working well . . . in terms of driving us to a single payer, i.e. the government. Do you want this government (or any for that matter) making your healthcare decisions? With all it has loused up and with all of the nonsense that is transpiring right now?
The Current Situation
The stock indices are still in a 1.5 year topping pattern. They have rallied back from the February selling thanks to central bank intervention. DJ30 put in a higher recovery high, but the other indices failed to do so. NASDAQ and SOX have rolled lower in near term bearish patterns inside the larger topping pattern. Thus, the overall picture is still one of a market top.
Nearer term, DJ30 and RUTX started to crack their 50 day MA's just as SOX and NASDAQ before them. While near term patterns on SP500, DJ30, RUTX, and SP400 are weaker, they have not broken their trends. Sectors are still receiving money taken from other areas, but more money is going idle or leaving.
The biggest question in our view is when does the current upside attempt run out of gas. Friday may have signaled this, but breadth and volume were low and this is something seen in this market of late, i.e. Friday weakness then a recovery. We are playing upside the areas getting the money (e.g. oil, materials, builders, and we will see if financials remain), opening more downside as those continue developing, but anticipate shifting to even more downside as this upside move runs its course.
THE MARKET
CHARTS
Of golden crosses: Recall how four weeks back DJ30 showed a 'golden cross,' i.e. the 50 day SMA rising up through the 200 day SMA? SP400 showed it three weeks ago along with SP500. As I noted at the time, often when such a cross happens, the index doing so has run well and is in need of a breather. That appears to be the case as the past two weeks have demonstrated. After Friday, that has set up an interesting test that is now at hand. Note how NASDAQ was a relative strength leader Friday. NASDAQ sold ahead of the NYSE indices. That in itself is instructive: does this mean the other indices are 'catching down' to NASDAQ and SOX?
DJ30: After a sharp Tuesday break higher off the 50 day MA test, DJ30 reversed Wednesday. Friday it gave up the 50 day MA's it just held, a pretty bearish indication. At least volume remains overall below average. Nonetheless, the pattern is transforming into near term toppish, in line with its longer term toppy pattern. Early this week we will see if this was another Friday swoon that turns into something of an upside boon, i.e. a resumption of the uptrend.
RUTX: The small caps also broke the 50 day MA's after holding them early May. Normal test up until Wednesday as RUTX reversed the three day bounce off support with a three day loss to a lower closing low on this recent 3-week test. Getting near term toppy and if it is going to hold up and continue the upside, now is the time to act.
SP500: A 3-day bounce off the 50 day EMA followed by a 3-day fade back to that level. Held the line, lower volume, still in position to continue, but also the same near term toppy pattern setting in as on DJ30, RUTX.
SP400: sold to close at the 50 day SMA, matching the low from the prior Friday. Holding nicely, one of the more solid indices, but it too has a bit of a toppy pattern, and if the other NYSE's break lower, that puts SP400 at risk as well.
NASDAQ: Rallied to the 50 day MA as of Tuesday, then as of Friday was three sessions downside and at the prior Thursday closing low. NASDAQ tried to put a move on resistance, failed. It was a relative strength leader Friday, however, having sold ahead of the other indices. As queried above, does this mean the other indices are 'catching down' to NASDAQ and SOX?
SOX: Recovered through the 200 day SMA into Wednesday, but threw a tombstone doji at the 10 day EMA. Thursday SOX showed a whiplash downside reversal back through the 200 day SMA and to a lower closing low on this fade. Friday it was the lone upside index, but gapped to a doji that failed at the 200 day. Overall it put in a 6 week rounded top, broke lower, and looks to be failing a test of that break lower.
LEADERSHIP/KEY SECTORS
Retail: Still getting pounded lower, e.g. KORS, COH, JWN, COST, TGT. Earnings really ripped the group. Some are attempting to bounce, e.g. M, DDS, but thus far bounce attempts were gutted (classic example: WMT).
Healthcare: Some drugs/biotechs (AGIO, SUPN), medical appliances (FONR), health services (HLS) are showing money moving their way with big upside volume spikes.
Energy: Still good movers though it is a big group and some are up, some are testing. CWEI up sharply. WMB, AXAS, NGL, XEC holding up just fine. SWN, NBL are examples of some struggling to hold the trend.
Materials/Construction: Still holding up for the most part, e.g. GRAM, EXP. Some are down some but holding the line, e.g. MDR MAS.
Financial: Once again some good setups are met with adversity as some strong bond auctions appeared to question the Fed's resolve or ability to raise rates. As such, financials struggled late week, e.g. JPM, BAC, GS.
Big Names: AMZN, FB still holding moves higher. GOOG posted a 3-day fade after hitting the 50 day EMA Tuesday. AAPL stinks, SBUX broke lower and is trying to hold the May lows. NFLX broke to a lower selloff low Thursday.
Industrials: Similar to the indices: trying to hold on but struggling some. UTX, CAT. HON remains solid enough.
MARKET STATISTICS
NASDAQ Stats: -19.66 points (-0.41%) to close at 4717.68 Volume: 1.728B (-11.41%)
Up Volume: 763.55M (+291.65M) Down Volume: 908.57M (-531.43M)
A/D and Hi/Lo: Decliners led 1.42 to 1 Previous Session: Decliners led 2.09 to 1
New Highs: 33 (-5) New Lows: 81 (-31)
S&P Stats: -17.5 points (-0.85%) to close at 2046.61 NYSE Volume: 879.3M (-4.73%)
A/D and Hi/Lo: Decliners led 2.01 to 1 Previous Session: Decliners led 1.09 to 1
New Highs: 82 (-23) New Lows: 41 (0)
DJ30 Stats: -185.18 points (-1.05%) to close at 17535.32
One session below 1.0 last week. 12 of 13 over 1.0, 22 of the last 37 above 1.0. More than enough 1.0+ readings to support a move back upside.
Bulls and Bears: Bulls faded again after what was an impressive string of upside moves. Near really got that high to suggest overbought.
Bulls: 39.2 versus 40.2
Bears: 21.6 versus 21.7
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: 39.2 40.2% versus 44.3% versus 47.4% versus 41.2% versus 45.4% versus 43.3% versus 47.4% versus 44.4% versus 39.4% versus 36.4% versus 34.7% versus 26.5% versus 24.7% 34.0% versus 29.2% versus 26.8% versus 28.6% versus 34.7% versus 36.7% versus 37.8% versus 44.9% versus 41.2% versus 45.4%
Bears: 21.6% 21.7 versus 20.6% versus 21.7% versus 27.8% versus 27.8% versus 28.9% versus 27.8% versus 30.3% versus 35.4% versus 34.3% versus 35.7% versus 39.8% versus 39.2% versus 38.1% versus 35.4% versus 36.1% versus 35.7% versus 31.6% versus 29.6% versus 29.6% versus 27.6% versus 26.8% versus 26.8% versus 28.9% versus 28.1% versus 29.2% versus 31.3% versus 31.2% versus 34.4% versus 35.1% versus 30.2% versus 26.8% versus 27.9 versus 26.8% versus 22.5% versus 18.4% versus 18.6% versus 17.5%
OTHER MARKETS
Bonds (10 year): 1.70% versus 1.75%. Bonds gapping higher and rallying to a May peak. Just below the early April peak now. A series of strong Treasury auctions pushed yields lower.
Historical: 1.75% versus 1.735% versus 1.75% versus 1.75% versus 1.78% versus 1.74% versus 1.77% versus 1.80% versus 1.87% versus 1.83% versus 1.83% versus 1.86% versus 1.94% versus 1.90% versus 1.88% versus 1.86% versus 1.95% versus 1.79% versus 1.77% versus 1.75% versus 1.79% versus 1.76% versus 1.77% versus 1.72% versus 1.72% versus 1.691% versus 1.75% versus 1.72% versus 1.77% versus 1.79% versus 1.77% versus 1.82% versus 1.80% versus 1.88%
EUR/USD: 1.1307 versus 1.13791. Dollar showing some strength in May as the euro tested to near support, then broke to the 50 day MA Friday. Important test for the euro and dollar. Personally, I want to see a stronger dollar as it is better for the country overall an not just the Washington DC money printers and the multinational corporations. Remember, a government wants to pay back debts with a weaker currency, and we are a HUGELY debtor nation.
Historical: 1.13791 versus 1.4252 versus 1.13707 versus 1.13869 versus 1.1405 versus 1.1399 versus 1.14864 versus 1.14864 versus 1.1478 versus 1.15306 versus 1.1450 versus 1.1382 versus 1.1329 versus 1.1293 versus 1.1261 versus 1.2249 versus 1.1289 versus 1.1295 versus 1.1360 versus 1.1317 versus 1.1285 versus 1.1264 versus 1.1278 versus 1.1389 versus 1.1410 versus 1.1397 versus 1.1370 versus 1.1396 versus 1.13792 versus 1.l1392 versus
USD/JPY: 108.65 versus 108.95. Rallied into Monday, then spent all week working laterally with reaches up to the 50 day MA intraday. The 50 day is a key test as that has acted as resistance on the dollar.
Historical: 108.95 versus 108.47 versus 109.28 versus 108.343 versus 107.10 versus 107.41 versus 107.126 versus 107.312 versus 106.16 versus 106.33 versus 107.36 versus 109.35 versus 111.36 versus 111.79 versus 109.46 versus 109.135 versus 109.06 versus 108.762 versus 109.65 versus 109.29 versus 108.505 versus 107.95 versus 108.175 versus 108.425 versus 109.84 versus 110.45
Oil: 47.03, -0.16. Big week, moving to a higher recovery high.
Gold: 1272.70, +1.50. In a two week test of the late April break to a higher high. Holding at the 20 day EMA and still looking quite solid.
MONDAY
As noted earlier, the near term picture is more indices starting to show wear and tear and threatening a break lower similar to NASDAQ and SOX. DJ30 and RUTX started to crack their 50 day MA's just as SOX and NASDAQ before them.
That said, while the near term patterns on SP500, DJ30, RUTX, and SP400 are weaker, they have not broken their trends. Sectors are still receiving money taken from other areas, but more money is going idle or leaving.
The biggest question in our view is when does the current upside attempt run out of gas. Friday may have signaled this, but breadth and volume were low and this is something seen in this market of late, i.e. Friday weakness then a recovery. We are playing upside the areas getting the money (e.g. oil, materials, builders, and we will see if financials remain), opening more downside as those continue developing, but anticipate shifting to even more downside as this upside move runs its course.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4717.68
Resistance: 4751 is the January 2015 lower high 4774 is the January 2-15 high The 50 day SMA at 4815 4811 is the November 2014 peak (intraday) 4815 is the December 2014 peak The March 2015 lows at 4843 and 4825 The 200 day SMA at 4826 4836 is the March 2016 peak 4894 is the September 2015 closing high 4899 - 4902 from the September 2015 peak, July 2015 low 4916 is the mid-November 2015 low 4920 is the lower gap point from mid-October 2015, the January 2016 lower gap point 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 4999 is the October upper gap point 5007 is the 12/31 upper gap point from that big gap lower 5008.57 is the early March 2015 post-bear market high 5042 is the March 2015 high 5100 from the April peak and early May peak 5162 is the early November peak, 5176 is the December intraday peak
Support: 4637 is the February intraday high 4736 is the early January lower gap point downside, the last downside gap in the selloff. 4620 is the February 1 closing high 4615 from September 2014 highs, October 2014 upper gap point, late August 2015 low. 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks 4471 is the January 2016 closing low 4425 is the late February intraday low 4363 is the February upper gap point 4352 is the March 2014 peak 4313 is the January 2016 intraday low 4292 is the August 2015 low 4212 is the February intraday low
S&P 500: Closed at 2046.61
Resistance: The 50 day EMA at 2048 2062 is the January 2015 lower high 2079 is the intraday all-time high from November 2014 2094 is the December 2014 high, the prior all-time high 2104 is the December 2015 high 2116 is the November 2015 high 2119.59 is the February intraday prior all-time high 2126 was the April prior all-time high 2130 is the June 2015 peak 2135 is the May 2015 all-time high
Support: 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2023 is the November 2015 low 2020 is the September 2015 intraday high The 200 day SMA at 2012 2011 is the September prior all-time high 1995 is the September 2015 recovery peak 1991 is the July 2014 high 1972 is the December 2014 low 1947 is the February 2016 intraday high, the late February peak 1940 is the January 2016 recovery bounce peak closing high 1913 is the early September 2015 closing low testing the bounce from the August selling 1905 is the August 2014 low 1902 from early May was the intraday all-time high. 1897 is the prior all-time high hit in April 2014 1891 is last week's intraday low prior to the miraculous reversal. 1872 is the September 2015 test low of the August low 1867 is the August 2015 low 1862 is the October 2014 closing low 1859 is the January 2016 closing low 1820 is the October 2014 intraday low 1815 is the April 2014 low 1812 is the January 2016 intraday low 1772 are the Q4 2013 highs and lows
Dow: Closed at 17,535.32
Resistance: The 50 day EMA at 17,580 17,748 is the mid-April China margin selloff and the bottom of the 5 month trading range June 2015 low at 17,715 The March low at 17,786 17,978 is the November 2015 peak 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,288 from March 2015 18,351 is the all-time high from May 2015
Support: 17,351 is the September 2014 all-time high. 17,265 is a December 2015 closing low 17,245 is the November 2015 closing low 17,152 is the mid-July post bear market high The 200 day SMA at 17,119 17,068 is the early July 2014 peak 17067 is the December 2014 low 16,970 is the June 2014 former all-time high 16,946 is the June 2014 peak 16,933 is the September 2015 recovery intraday peak 16,740 is the mid-September peak and potential apex for a right shoulder to a head and shoulders pattern 16,736 is a prior all-time high from May 2014 16,670 is the December 2014 peak and the recent August 2015 relief bounce peak. 16,665 is the late August 2015 closing high 16,632 is the April 2014 peak 16,621 is the late February 2016 peak 16,589 is the December 2013 former all-time high 16,526 is the early January resistance 16,511 is the January 2016 intraday high 16,506 is the March 2014 peak 16,466 is the January 2016 recovery closing peak. 16,368 is the August 2014 low 16,117 is the October 2014 closing low 16,058 is the early September 2015 low 16,026 is the April 2014 low 15,855 is the October 2014 intraday low 15,766 is the January closing low 15,666 is the August 2015 closing low 15,450 is the January 2016 intraday low 15,372 is the February 2014 low 15,370 is the August 2015 low
ECONOMIC CALENDAR
May 13 - Friday PPI, April (8:30): 0.2% actual versus 0.3% expected, -0.1% prior (no revisions) Core PPI, April (8:30): 0.1% actual versus 0.1% expected, -0.1% prior (no revisions) Retail Sales, April (8:30): 1.3% actual versus 0.8% expected, -0.3% prior (no revisions) Retail Sales ex-auto, April (8:30): 0.8% actual versus 0.5% expected, 0.4% prior (revised from 0.2%) Business Inventories, March (10:00): 0.4% actual versus 0.2% expected, -0.1% prior Mich Sentiment, May (10:00): 95.8 actual versus 90.0 expected, 89.0 prior
May 16 - Monday Empire Manufacturing, May (8:30): 6.2 expected, 9.6 prior NAHB Housing Market , May (10:00): 59 expected, 58 prior Net Long-Term TIC Fl, March (16:00): $72.0B prior
May 17 - Tuesday CPI, April (8:30): 0.3% expected, 0.1% prior Core CPI, April (8:30): 0.2% expected, 0.1% prior Housing Starts, April (8:30): 1135K expected, 1089K prior Building Permits, April (8:30): 1130K expected, 1086K prior Industrial Production, April (9:15): 0.2% expected, -0.6% prior Capacity Utilization, April (9:15): 75.0% expected, 74.8% prior
May 18 - Wednesday MBA Mortgage Index, 05/14 (7:00): 0.4% prior Crude Inventories, 05/14 (10:30): -3.410M prior FOMC Minutes, April 27 (14:00)
May 19 - Thursday Initial Claims, 05/14 (8:30): 278K expected, 294K prior Continuing Claims, 05/07 (8:30): 2161K prior Philadelphia Fed, May (8:30): 2.7 expected, -1.6 prior Leading Indicators, April (10:00): 0.3% expected, 0.2% prior Natural Gas Inventor, 05/14 (10:30): 56 bcf prior
May 20 - Friday Existing Home Sales, April (10:00): 5.40M expected, 5.33M prior
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