- Thursday reversal but no Friday follow through as stocks struggle to hold the line. - Fed feckless and confused, Administration does not care. We are on our own. - AAPL banned in Beijing - Fed officials go full dove, rate hiking 'cycle' all but over. - Indices split in their strength. Same leadership groups still look good.
Thursday sold off but reversed upside, looking as if the pullback to test the last higher highs was ending and stocks would advance. Leadership groups performed decent enough. Friday, futures were lower. No big deal, just a lower open leading to bids. It did, after further selling. Then, unlike Thursday, the stock indices had to fight to recover gains and by the close on SP500 closed positive.
Volume: Exploded on both exchanges given quad-expiration. No point even mentioning the levels.
Bigger Picture.
We are on our own. We being US citizens and the economy. The Federal Reserve is so feckless, so consumed with indecision and self-doubt, it could star in a Woody Allen movie. The Administration is devoid of interest in the economy, dogmatically answering all questions economic by reciting 4.7% unemployment rate, as if almost one-third of the US population not working, one-third that is all made up of working aged people mind you, is a sign of robust growth.
How many jobs??!!
A Fed that cannot act when confronted even with the slightest deviation from its script and a lame duck Administration believing in tax, tax, tax and spend, spend, spend in order to fulfill its interests in legacy building and ideological end games. Not great in and of themselves, but layered on top of a world economy that continues to slide toward another global decline (Rio de Janeiro, 49 days from the Olympics, announces a "public calamity" due to the Brazilian financial crisis), the US included, the US citizen and business owner is left in, at best, limbo, at worst heading for a lower standard of living and closing in on bankruptcy.
If there was EVER a classic, textbook example of why there is no need for a Federal Reserve, this is it. The only reason for a Fed was supposedly to provide liquidity in times of stress. That has morphed, however, into an economic micromanagement team, tinkering with rates, printing money, purchasing assets, and more we don't even know about because, heaven forbid, the Congress, the elected body, should be able to monitor what the Fed is doing. We might find out just whose interest the Fed has as its primary focus. All of this, of course, with other people's money.
This Fed, however, proves the utter futility of a small group of elites to understand and manage markets. Greenspan embarked upon a campaign to prevent the 'wealth effect' from causing a 'runaway consumer' and lead to inflation. After he aided in wrecking the US economy and permanently sending hundreds of thousands of US breadwinner jobs overseas he asked, anyone, for data that there really was such a thing as a wealth effect.
Bernanke based his entire QE theories on a wealth effect, buying assets specifically to inflate financial asset prices and make people feel rich so they would buy, companies would invest to generate supply to meet the demand, and the economy would pull out of the massive collapse. It just didn't happen. The Fed didn't realize that if it gave money away to the financial institutions and made it possible to make guaranteed returns, why would they lend the money? If huge company executives could use zero interest money to buy back stock, thus raising their EPS without making one more item or investing one more cent, then get performance bonuses for raising the stock price. Who in their right mind would take a risk in that situation and blow making money on a sure thing? We have seen the result: no one! US capital investment is horrid and has been horrid since these programs started. Buybacks only inflate prices, more keeping the cycle alive.
So smart, yet so stupid. Markets are the collection of every available scrap of information, synthesized into prices based upon the probabilities that information suggests. It is the pure price that factors in all human, natural, and I guess even unnatural events. It is utter folly that a handful of ivory tower elites could fathom how markets work in the first place and then direct accurately direct outcomes. Humans might as well try to accurately predict the weather and take steps to try and direct outcomes even when they have no control on externalities such as, say, the sun. Oh, but we are trying to do THAT as well and failing equally atrociously. It is even to the point Greenspan now says the Fed doesn't really know what it is doing, just experimenting.
Then, even when it has set out definite rules to follow, when confronted with any possible upset to its plans, it pulls a Sherman from 'American Pie' and pisses itself.
Thus, when every criterion the Fed set out to hike rates was met, when China sneezed the Fed didn't hike. The jobs report flopped, but Yellen said it was still likely transient. Then the Brexit polls showed the people of the UK actually want their independence back from a rule-crazy, immigration pushing elite. Oh, can't hike in that climate; what would the world think?
So, we have an FOMC decision this past week that virtually eliminated any more than one more rate hike for the year, and frankly I don't think the Fed will even get there because the world economic situation continues to worsen. The Fed went from statements that the market was misreading the Fed minutes, that hikes were indeed coming, and Yellen even saying the Fed had to get more ammunition back in the gun -- just two weeks ago -- to full capitulation.
Again, a classic textbook case of why we just need a Fed, if we need one at all, that can only act to inject some liquidity on a temporary, defined, finite timetable and then leave the market. If that doesn't fix the problem, the markets will have to fix themselves. Simple, takes the human element out of it.
Venezuelan riots at night.
Lots of textbook examples over the past 15 years to teach us once again what we knew worked and didn't work. Socialism: Venezuela. Keynes economic theories: Japan, China, US (lower standards of living, massive segments of the populations not working, wages declining for years). Government controlled housing markets. Stimulus/deficit spending. And the grand daddy of them all, the 97% decline in the value of the dollar since the US Federal Reserve was established. The dollar buys 97% less of what it could buy pre-Fed while gold still buys the relative same items at the same quality it has always bought.
THE MARKET
Friday the stock market pulled a mini-Thursday, i.e. selling off intraday but then recovering. Thursday many indices made it positive. Friday most did not. On a week where the stock indices and leading groups made nice tests of the last highs and were set up to rebound, the most notable feature was their inability to do so. Wednesday a break higher failed. Thursday stocks sold off hard but recovered, leaving them in position for a Friday expiration rebound.
Didn't pan out. Friday futures traded lower as Housing Starts fell 0.3% in what should be a strong May period. Bullard went full frontal dove from hawk, saying only one rate hike would be needed until 2018!
The market reacted to a wholly feckless, confused, and unnerved Federal Reserve as you would expect: it sold off. Sure rates were going nowhere, but when those anointed ones who micromanage our economy have no clue of what the economy is doing and change their views as each data point comes out, we are all in deep.
Stocks did recovery from the lows, but only SP400 made it back to positive. It was not a banner day. Sure it was blamed on the death of the UK parliamentarian shot and stabbed by a mentally deranged individual, but that is not the issue. It goes beyond that: a world economy that people feel is slipping into another major slowdown and those in power to prevent or buffer the move don't have a clue as to what to do.
The failure to take advantage of a bounce attempt so neatly set up is disconcerting for the upside. It leaves the market, in our view, now more vulnerable to the downside even though some leadership groups, e.g. oil, performed beautifully on Friday. Indeed they still may perform beautifully for awhile even if the rest of the market fades.
We found ourselves entering more downside positions last week as they presented themselves along with the good upside in oil and software. AAPL was ripe and we entered; Friday Beijing banned iPhone 6 sales in China's ongoing move to block Apple taking over the market or at least extorting large sums of profits if it allows AAPL in. FB presented a natural new entry. DIA, QID as well.
Again, the market could go down just as easily, indeed likely more easily, than up from this juncture. There are some great sectors, e.g. oil and gas, but the overall action is quite worrisome for the market continuing moving higher.
Thus we have a lot of downside plays to go along with many still very good upside plays.
CHARTS
NASDAQ: Thursday I was concerned NASDAQ could not rise off of that reversal. It certainly could not Friday as it gapped lower and closed at a lower closing low for this June move lower. Expiration so volume spiked. NASDAQ double topped from April to June and now it is in the process of selling, breaking an interim support level Friday. Many big names are struggling and of course that pushes NASDAQ down, NASDAQ 100 (-1.13%) even more. Not much to like right now.
SP500: No major issue Friday, just the same inability to move higher off this 50 day EMA test. Four days working laterally though volatile intraday. MACD and volume lagged on the June higher high, not a good combination. Has to hold these 50 day MA levels. Overall the pattern is toppy.
SOX: Acting much better than the other indices. Tapping the April highs Thursday and Friday on the lows, rebounding to close and holding that break higher. This is a classic test, breaking higher through resistance then fading to test, bouncing off it from the intraday lows. SOX looks quite good with this action.
RUTX: The small caps are trying to hang on. Broke to a higher recovery high into the second week of June, tested, and Tuesday to Friday held in a lateral move. Just below the April highs, trying to set up for a new bounce. Not bad, but this is definitely a 'show me' kind of situation for all indices.
SP400: Doji Friday, the fourth in a row as SP400 moves laterally along the rising 50 day MA's and just below the April peak. Good positioning similar to SOX. Looks as if it is up to the chips and midcaps.
DJ30: after the Thursday reversal DJ30 looked good for a higher low and bounce. After Friday it is not bad, just not as great. AAPL hurt it with the Beijing ban. Anyway, it is working in its range, trying to set up a move upside. Nothing determinative yet.
LEADERSHIP
Oil: Sporting excellent action as oil rebounded and oil stocks rebounded off doji tests as well. ORIG, SPN. We are looking at new plays on CWEI, ATW.
Software: ROVI, CYBR had great weeks. RHT not bad but has to make a move.
Chips: Overall still quite nice as the SOX indicates, but some recent leaders struggling, e.g. SLAB, AGVO.
Biotechs/Drugs: Some working well, others struggling. GALE continues blowing higher. CELG is still selling. More struggling starting up.
Industrials: Still fine, e.g. CAT, HON.
Construction: Still good after a test. MDR bouncing, GRAM holding support.
Big Names: FB, AAPL down hard again Friday. GOOG bombed lower. NFLX could do the same, and AMZN is heavy right now and we are looking at downside plays on both in the event NASDAQ breaks further downside.
THE MARKET
MARKET STATISTICS
NASDAQ Stats: -44.58 points (-0.92%) to close at 4800.34 Volume: 2.397B (+31.72%)
Up Volume: 1.16B (+100M) Down Volume: 1.44B (+671.36M)
A/D and Hi/Lo: Decliners led 1.29 to 1 Previous Session: Decliners led 1.18 to 1
New Highs: 43 (+2) New Lows: 51 (-30)
S&P Stats: -6.77 points (-0.33%) to close at 2071.22 NYSE Volume: 2.1B (+134.98%)
A/D and Hi/Lo: Advancers led 1.54 to 1 Previous Session: Decliners led 1.04 to 1
New Highs: 92 (-5) New Lows: 15 (-28)
DJ30 Stats: -57.94 points (-0.33%) to close at 17675.16
Four straight over 1.0 on the close as the negative sentiment in the options market prevails. Maybe it will be enough to rebound stocks along with the leaders holding up.
10 of the last 16 below 1.0. 24 of 36 over 1.0. They did their job, playing a part in bouncing the market. Now the extremes are backing off as you would expect. Even so, they are still fairly high readings after a solid move higher.
Bulls and Bears: Bulls faded back to the levels three weeks back and of course bears, as it seems usually the case, held more or less steady. Still more bullish.
Bulls: 45.9 versus 47.3
Bears: 23.5 versus 23.8
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: 45.9% 47.3% versus 45.4% versus 35.4% versus 40.2 versus 39.2 versus 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: 23.5% 23.8% versus 23.7% versus 24.0% versus 21.7% versus 21.6% versus 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%
OTHER MARKETS
Bonds (10 year): 1.61% versus 1.57%. After a big surge through Thursday, TLT gapped lower off a tombstone doji. After 3 weeks of surging, just a bit overdone.
Historical: 1.57% versus 1.58% versus 1.62% versus 1.61% versus 1.64% versus 1.68% versus 1.70% versus 1.72% versus 1.73% versus 1.70% versus 1.80% versus 1.84% versus 1.85% versus 1.85% versus 1.83% versus 1.87% versus 1.86% versus 1.83% versus 1.85% versus 1.85% versus 1.85% versus 1.76%
EUR/USD: 1.12778 versus 1.12554. Still holding a volatile lateral move below the 50 day SMA.
Historical: 1.12554 versus 1.12731 versus 1.2104 versus 1.1297 versus 1.12526 versus 1.13149 versus 1.1412 versus 1.13570 versus 1.13553 versus 1.13668 versus 1.1149 versus 1.1186 versus 1.1128 versus 1.1113 versus 1.1181 versus 1.1155 versus 1.1142 versus 1.1221 versus 1.1216 versus 1.1199 versus 1.1219 versus 13.1317 versus 1.13145 versus 1.1307 versus 1.13791 versus 1.4252
USD/JPY: 104.124 versus 104.68. Dollar keeps bombing lower versus the yen. At some point before too long Japan will break its vow of nonintervention.
Historical: 104.68 versus 105.62 versus 106.085 versus 106.019 versus 106.933 versus 106.966 versus 106.66 versus 107.347 versus 107.72 versus 106.55 versus 106.66 versus 108.86 versus 109.99 versus 111.285 versus 110.233 versus 109.70 versus 109.72 versus 109.99 versus 109.25 versus 110.165 versus 109.985 versus 110.187
Oil: 48.56, +1.82. After fading to the 50 day MA through Thursday in a test of the higher high, oil blasted upside Friday, starting the recovery.
Gold: 1301.60, +3.20. Up all week, moving to a higher closing high. Not a lot of power on the moves, but moving upside.
MONDAY
The market has a split of sorts. SOX, SP400 looking solid. RUTX, SP500 in-between. DJ30 just watching. Big Names breaking lower, many of the same leaders holding and then bouncing Friday.
The market is going to have to make a decision. We still have upside plays in the solid sectors and if the market breaks higher or those sectors do, we have plays for more of them. We also have more downside plays because the market is showing those setting up and breaking lower. At some point they market has to make the direction they are all going. For now, while there are good upside sectors remaining, we feel the market is in trouble.
That is, however, just a feeling. It is not the market move. So, we play the individual moves that make up the market moves. Again, there are some very good looking upside plays remaining. Quite a few for that matter.
Fitting the Clash is a UK band.
There is also the Brexit vote Thursday. There could be some gyrations ahead of that. If they stay, much rejoicing. If they go, temporary panic. Both would be overreactions to actual events.
Unfortunately the moves in anticipation and in reality can be hard on the psyche. So, we stick with good patterns as long as they are good patterns. If we see good moves in good sectors, we go with that. The downside can be more fickle, but if this move breaks some of these big names will provide impressive returns, in size and in speed.
One step at a time. See how the leading indices hold, see how the leading stocks perform. We base our actions off of them, not the hyperbole being spread every day on the financial stations.
Have a great weekend and Father's Day!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4800.34
Resistance: 4811 is the November 2014 peak (intraday) 4815 is the December 2014 peak The 200 day SMA at 4817 4836 is the March 2016 peak The March 2015 lows at 4843 and 4825 The 50 day EMA at 4843 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. 4969 is the April 2016 recovery high 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: 4774 is the January 2-15 high 4751 is the January 2015 lower high 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 2071.22
Resistance: 2079 is the intraday all-time high from November 2014 2094 is the December 2014 high 2104 is the December 2015 high 2111 is the April 2016 recovery 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: The 50 day EMA at 2070 2062 is the January 2015 lower high 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 2017 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 17,675.16 Resistance: The 50 day EMA at 17,691 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 18,168 is the April 2016 recovery high 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 The 200 day SMA at 17,191 17,152 is the mid-July post bear market high 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
June 17 - Friday Housing Starts, May (8:30): 1164K actual versus 1150K expected, 1167K prior (revised from 1172K) Building Permits, May (8:30): 1138K actual versus 1150K expected, 1130K prior (revised from 1116K)
June 22 - Wednesday MBA Mortgage Index, 06/18 (7:00): -2.4% prior FHFA Housing Price I, April (9:00): 0.7% prior Existing Home Sales, May (10:00): 5.50M expected, 5.45M prior Crude Inventories, 06/18 (10:30): -0.933M prior
June 23 - Thursday Initial Claims, 06/18 (8:30): 273K expected, 277K prior Continuing Claims, 06/11 (8:30): 2157K prior New Home Sales, May (10:00): 560K expected, 619K prior Natural Gas Inventor, 06/18 (10:30): 69 bcf prior
June 24 - Friday Durable Orders, May (8:30): -0.6% expected, 3.4% prior Durable Orders, ex-transports, May (8:30): 0.1% expected, 0.4% prior Michigan Sentiment - Final, June (10:00): 94.0 expected, 94.3 prior
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