- The polls were wrong, the betting houses were wrong, the markets are lower. - 3.5% to 5.75% selloffs on US stock indices. - Sharp reversals off Thursday sharp upside. - Predictions of UK and EU doom are grossly exaggerated, but the economic data for the rest of the world remains weak, US included. - Durable Goods orders continue their trend lower. - Leadership groups have decent sessions. - Indices have some ground to give as the selling likely continues into next week. - Will see how leadership holds up through next week's likely selling.
I am reminded of the TD Ameritrade commercial discussing predictable patterns and then the marlin falls off the wall. 'There's no way of predicting that' is the catch line.
There's no way of predicting that . . .
Was there no way of predicting the UK vote? Polls had it wrong. The betting lines had it wrong. The politicians had it wrong. The experts had it wrong. I felt that the British would be too 'civilized' to vote to leave after a politician was killed over the matter. I was wrong as well. The only people who seemed to get it right were the reporters in the UK who were asking people how they were going to vote and they could not find anyone voting to stay.
Perhaps the powers that be pulled out all the stops to try and stop the anger rising to a majority desiring to leave. Reports Thursday of strange bets on Brexit in the UK betting lines. The polls, just days before the vote, showed the kind of margin the final vote showed. Yet they skewed away from what the true outcome showed in the last couple of days. Trying to influence the outcome?
As with the Clinton emails that have disappeared, we will never know will we? The outcome, if that was the case, is sweet justice indeed.
So, the world markets were caught with their pants around their ankles. Stock markets, currency markets, bond markets were bombed around the globe. The marlin fell.
Now all that is left is the blame game, the round and round on the financial stations arguing about what to do. Damn those Brits, right? You just cannot trust the man on the street to do the right thing to protect his elites and their elite asses -- assets.
Guest after guest after expert after expert squealed 'we have never been here before!' As I said in the Last Hour alert, sure we have. It is called panic, panic by those who should know better, who have been in these situations before, but refuse to see the facts. So, they make statements about 'never been here before' to cover their failure to adequately structure their portfolios. They are in stocks that got slaughtered instead of the leaders that held up well. They didn't have any downside plays on to at least hedge the downside and protect the upside. I glanced at several option accounts near the close and noted they were higher on the day or at least flat. That is a pretty well hedged/diversified account considering the indices lost 3.5% to 5.75%.
VOLUME: NYSE 193%, NASDAQ 115%. Big scare, Russell rebalance, lots of volume.
A/D: NYSE -5.2:1, NASDAQ -5.2:1. Pretty even burn across the board.
Long before the opening bell it was clear US stocks were gapping lower. They did. They then tried a quick snapback. As we warned in the pre-market alert, this likely would not be a one-session event. Sure enough that early rebound attempt failed. Stocks were not slamming back and forth, they were just crawling around with a piano on their backs. They sank from that first half hour bounce off the downside gap, moving back to session lows by the last hour. A bounce in that hour took back some lost ground but in the last 5 minutes faded again.
Stocks just were not, as a whole, going up for the session. And likely, this leads to more downside this coming week as the market tries to reconcile what has happened and perhaps realizes this is not the end of the world. The fifth largest economy in the world decided it was going to rule itself again. It has a trade deficit with every one of the other EU nations. Those nations will scramble as fast as they can to ink trade deals with the UK because the UK is such a good customer. And will the US turn a cold shoulder to the UK as our President suggested when he visited the UK a few weeks back? Of course not. That was all part of protecting the status quo, protecting those in charge. New day, baby.
So, you get some more downside, everyone realizes that, lo, the UK is still there, that it didn't just self immolate. Then stocks try and rebound.
IF . . . the US market is still moving up. Remember, THAT was the big question surrounding the market already without the Brexit issue. The indices were on a recovery move ever since the February low and were starting to bump into the last range from the summer 2015 that held the all-time highs. They were getting to the point where they either going to break higher or roll over.
Some of the big names in NASDAQ that had led the move fell onto harder times, e.g. SBUX, AAPL, FB, even GOOG. At the same time some stocks that had suffered long declines were moving up and providing leadership, e.g. oil stocks. Indeed, many of these held up fine even on Friday.
Big names struggling, others working well, rising off the lows. With money moving into new areas as it left others, the stock market found support to continue the climb into the range of those prior highs.
If that rotation continues into the stocks formerly sold off, the upside can remain, and thus once the turmoil from accepting the fact of Brexit that would present a buying opportunity.
If this blast lower represents the event that breaks the upside's will, then there is a whole lot of downside ahead.
Of course the Fed is always there and can rush the market's aid with more stimulus of some sort. Indeed, the Fed Funds Futures show a greater probability of rate CUTS than rate hikes in 2017, with traders buying positions indicating NIRP is coming. Fed intervention on the stimulus side could stem any selling tide, but there are some smart people out there who posit the Fed and other central banks really have no resources left to really help the stock markets. They did in February, however, with the help of the BOE and ECB directly intervening into stock markets. I dare say that we see similar telephone calls and resultant interventions if this Friday selloff continues with earnest.
What does that mean for us? We continue looking for those stocks that are holding up in their patterns despite the market weakness. Those that do are the ones we move into if the selling subsides next week and the buyers return. We have quite a bit of cash right now, indeed some accounts are close to 100% cash, that we want to allocate (school accounts, etc.). We will be watching to see if the washout reverses and leadership is there to lead. If so, we can go back in with those accounts as well as others. If not, we continue to pick up the downside positions as they set up and show their moves similar to what we are doing with AAPL, DIA, FB, and on Friday, AMZN.
NEWS/ECONOMY
All the talk was about Brexit. We have heard it, discussed it, and now the market has to deal with it. It will. The pundits are describing disaster for Britain's economy. They can only see in the rearview mirror. They fail to see what this does for the future, the potential for the UK versus being stymied in the EU with its regulations. As noted before, each EU country will rush to ink deals with the UK in order to keep the sale of their goods flowing to the Brits.
What about the future? Those who only see disaster just don't understand how a liberated, free economy can grow and produce. They are the same who groused about the American Revolution, the loyalists who didn't have the foresight to see what freedom could bring for all of them. Stuck in the past with blinders on. They deserve the EU and its suffocating restrictions.
US Data.
Durable Goods Orders, May: -2.2% versus -0.6% expected versus 3.3% prior (3.4%) Ex-Transports: -0.3% Ex-Defense: -0.9%. Lots of defense spending trying to prop things up. Non-defense capital goods ex-aircraft (business investment): -0.7%, well below expectations.
This is the longest run of downward trending durables orders in US history outside of an textbook recession. I say 'textbook' because much of the country has been in recession for years while the largest corporations enjoyed the benefits of free money, protected markets, and basic good old government cronyism. The socialists like to call it capitalistic cronyism, but there is nothing capitalist about it: it is the government that set up this playing field with the TARP, stimulus, bailouts, multitudes of new taxes, and hundreds of thousands of new regulations strangling small businesses. That is socialism, i.e. the government chooses who to allocate resources and preferences to. Nothing capitalistic about that at all.
In any event, Keynesian theories are not working. Again. They never work. They just neatly fit into the current mindset that government knows best and are thus trumpeted by those in power and their enablers. I heard Austan Goolsby on Fox Business today saying that the Brits threw a temper tantrum. He belittled their fight for their country by comparing it to a child's inability to control his feelings. That is the kind of outright denial and unwillingness to look at the facts that you have to deal with.
THE MARKET
No index chart looked great after Friday as they slammed lower when they were just on the cusp of moving to the prior rally highs or indeed after breaking to a new recovery high in terms of SOX. Those kind of reversals are the harshest and in many cases, the most damaging. We will see how the indices can hang on next week with the help of those leading groups that held up pretty well even with the Friday selloff. This is either just an upset in the move higher or it could be the start of a bigger selloff that the large 21 month top since October 2014.
CHARTS
SOX: Gapped and rallied to a higher recovery high Thursday but then gapped lower, indeed gapping below the recent pullback low. Sold down to the 50 day SMA on the close after trying to rebound, filling half the gap, but then reversing to close at the session low. These are the ugliest of reversals: a move to a higher high wholly rejected.
SP400: The midcaps closed in on the early June high on Thursday then Friday were ripped lower, closing below the 50 day EMA as well as last week's pullback low. It can recover, the pattern is not wholly broken, but it is going to need to hold in this general area to keep the pattern in an overall uptrend. It can test some more this coming week and find its footing and be just fine. Will have to show it.
RUTX: Gapped lower and sold through the 50 day MA's and last week's pullback test low. Still over the 200 day SMA by 10 points, and as with SP400, can test a bit lower, hold that support, and still continue an upside trend.
NASDAQ: Nasty gap to the May lows. An intraday rebound took NASDAQ back close to the 200 day SMA, but it failed and rolled back down to close at those May lows. NASDAQ was trying to recover its pattern and mount a move off the 200 day SMA, a move it started Thursday. Friday somewhat dumped on that attempt.
SP500: Gapped lower and bombed down to the May lows. Similar to RUTX, SP500 is holding over the 200 day SMA about 35 points lower. This two month range is looking a LOT like the November through December 2 month range that collapsed into the January/February selloff.
DJ30: Very similar to SP500, crashing lower to the May lows and holding 150 points over the 200 day SMA. This April to June range looks remarkably similar to the November/December range that led to the January bomb lower.
LEADERSHIP
Big Names: A late bounce actually helped some of these patterns. FB gapped lower but managed to work off the low. AAPL gapped lower and managed a small move off that sharp gap. AMZN gapped lower, rebounded, then folded. It moved up late and we picked up some downside positions for a move to fill those gaps. SBUX dropped to a lower selloff low. GOOG gapped sharply lower, closing where it opened, just above the February lows. The big names don't look all that good.
Oil: Not a wondrous session, but they showed some holds in their patterns. ATW, gapped lower but showed low volume as it holds its pattern. ORIG sold to the 20 day EMA but is easily holding its trend. UNT faded to the 10 day EMA. SPN gapped lower to the 20 day EMA, showing a doji. Selling yes, but mostly holding their patterns and trends.
Construction: GRAM held easily at the 50 day SMA. MDR gapped to a doji at the 20 day EMA, still in the trend up the 50 day EMA.
Software: Some issues. CYBR gapped to a doji below the 10 day EMA; we closed it to preserve some gain and let it set up again. ROI sold below the 50 day MA's. RHT Fell through the 200 day SMA.
Retail: Retail leaders held up quite well, e.g. KORS, WWW, ULTA, DLTR.
Industrial: CAT fell through the 50 day MA's and the June pullback low. DE gapped through the 50 day MA's. HON, UTX gapped below the 50 day MA's. Struggling.
Metals: AKS sold to the 50 day MA's and held. SID slipped to the 20 day EMA on lighter trade. FCX gapped lower and closed below the 50 day EMA. CENX sold back to the lows in the double bottom. TX broke below the 50 day MA's.
Chips: Some leaders are holding fine, e.g. AMD, testing its recent move, holding the trend. MU is testing the 200 day SMA after surging through it. Others struggling. SLAB gapped below the 50 day MA. AVGO ditto. QRVO sold to the 20 day EMA, showing very tame action. We took part of the gain on off the table, leaving some on, preserving some upside while we see if a good pattern can hold the line. NVDA, a major chip leader, gapped below the 20 day EMA; after a long run NVDA may be ready to trade downside.
Biotech/Drug: Usually slaughtered in uncertainty, but some of the recent leaders are not doing bad. XLRN is still in a very nice 50 day MA/200 day MA test. GALE is a bit volatile but not doing poorly. EXAS looks super, moving higher. SUPN still looks good to move higher. KITE was steady, holding the line at the 50 day EMA in the range of the past two weeks. Some possible life here.
MARKET STATISTICS
NASDAQ Stats: -202.06 points (-4.12%) to close at 4707.98 Volume: 3.628B (+114.98%)
Up Volume: 454.14M (-1.016B) Down Volume: 3.79B (+3.534B)
A/D and Hi/Lo: Decliners led 5.15 to 1 Previous Session: Advancers led 3.52 to 1
New Highs: 44 (-52) New Lows: 125 (+92)
S&P Stats: -76.02 points (-3.6%) to close at 2037.3 NYSE Volume: 2.5B (+193.46%)
A/D and Hi/Lo: Decliners led 5.24 to 1 Previous Session: Advancers led 4.93 to 1
New Highs: 138 (-27) New Lows: 48 (+38)
DJ30 Stats: -611.21 points (-3.39%) to close at 17399.86
8 of 9 over 1.0. Another session of a lot of put activity.
11 of the last 21 below 1.0. 28 of 41 over 1.0. Still a LOT of skepticism.
Bulls and Bears: Bulls rebounded back to the 47 level of three weeks back. Bears faded, a bit, but still at 23 and change.
Bulls: 47.5 versus 45.9
Bears: 23.2 versus 23.5
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: 47.5% 45.9% versus 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: 23.2% 23.5% versus 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): 1.57% versus 1.74%. Able to leap week of selling in a single bound. TLT gapped off the 50 day EMA test found over five sessions, closing just below the recent higher highs.
Historical: 1.74% versus 1.68% versus 1.70% versus 1.67% versus 1.61% versus 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: 1.1101 versus 1.14070. After the overnight surge, the overnight purge. EUR did bounce off the gap below the 200 day SMA and held the 200 day.
Historical: 1.14070 versus 1.13324 versus 1.1251 versus 1.13131 versus 1.13749 versus 1.12778 versus 1.12554 versus 1.12731 versus 1.2104 versus 1.1297 versus 1.12526 versus 1.13149 versus 1.1412 versus 1.13570
USD/JPY: 102.32 versus 106.73. Similar to the euro, after plunging overnight the dollar bounced. Some. It hit that 100 level and indeed below it. Did the BOJ intervene at 100? We will look at the numbers and see if we can find the scent of a BOJ move.
Historical: 106.73 versus 104.87 versus 104.788 versus 103.98 versus 104.58 versus 104.12 versus 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: 47.57, -2.54. Oil flopped, but it held the 50 day MA's. That holds the trend and we will see if oil holds this trend. Important to do so for the market as oil stocks are one of the staunchest leadership groups.
Gold: 1319.10, +56.00. Broke to a higher recovery high. Closed off the high but holding the break to that high.
MONDAY
A full week next week ahead of the Independence Day (US) shortened following week. This gives the market plenty of time to absorb, digest, come to grips with the Brexit result and the subsequent market moves.
The Friday move was likely not the bottom. Stocks tried to rally early, failed, closed very near session lows. On a Friday that is not a bottom There are some massive quant positions that will be unwound over the start of next week and those have to move through the system. Also, with the head fake upside then sharp reversal, there will be margin calls that have to be met. That will add to the downside pressure.
So, where is the bottom? Where does the bell ring? We will have to see. There is no 'x' marks the spot. There are points to look for, but until the indices show reversal action along with some quality stocks in quality patterns in position to move, the bottom remains, as the New Mexico state trooper said in the sequel 'Vacation,' an idea.
'This border represents an idea, that's all that I'm saying.'
So, we watch the action in the indices as well as the groups that have led: oil, chips, industrial, heavy construction, leading retail. How they hold tells a lot. Also watch for possible new leadership emerging out of the ashes of other sectors that crashed. That is how this market has rallied off the lows and made it close to the 2015 highs.
If the current leaders fail and no others emerge to take their place, that is bad for the upside. If that is the case we remain light on the upside and play more downside. If this is the case, this is more of the scenario that the market has tried for higher highs and failed, and this could be the final hurray of the 21 month market top, leading to a major market revaluation (aka major selloff/bear market).
For now we are closely watching the leadership groups and how they test, looking at them for possible entry points. SP500, RUTX are over their 200 day SMA, SP400 well over its 200 day. SOX is at the 50 day SMA. They have some room to test, some room to give into support as the week progresses. As they do, we can play some downside and watch how the leadership groups hold.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 4707.98
Resistance: 4751 is the January 2015 lower high 4774 is the January 2-15 high 4811 is the November 2014 peak (intraday) 4815 is the December 2014 peak The 200 day SMA at 4820 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. 4969 is the April 2016 recovery high 4980 is the June 2016 peak 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: 4684 is the May 2016 test low 4637 is the February intraday high 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 2037.41
Resistance: 2040 is the March 2015 closing low 2046 is the July 2015 closing low 2062 is the January 2015 lower high The 50 day EMA at 2073 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 2120 is the June 2016 peak 2126 was the April prior all-time high 2130 is the June 2015 peak 2135 is the May 2015 all-time high
Support: 2026 is the May 2016 low 2023 is the November 2015 low The 200 day SMA at 2021 2020 is the September 2015 intraday high 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 17,400.75 Resistance: The 50 day EMA at 17,703 17,978 is the November 2015 peak 18,016 is the June 2016 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 17,235 17,152 is the mid-July 2014 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 24 - Friday Durable Orders, May (8:30): -2.2% actual versus -0.6% expected, 3.3% prior (revised from 3.4%) Durable Orders, ex-t, May (8:30): -0.3% actual versus 0.1% expected, 0.5% prior (revised from 0.4%) Michigan Sentiment - Final, June (10:00): 93.5 actual versus 94.0 expected, 94.3 prior (no revisions)
June 27 - Monday International Trade , May (8:30): -$59.2B expected, -$57.5B prior
June 28 - Tuesday GDP - Third Estimate, Q1 (8:30): 1.0% expected, 0.8% prior GDP Deflator - Third, Q1 (8:30): 0.6% expected, 0.6% prior Case-Shiller 20-city, April (9:00): 5.5% expected, 5.4% prior Consumer Confidence, June (10:00): 93.1 expected, 92.6 prior
June 29 - Wednesday MBA Mortgage Index, 06/25 (7:00): 2.9% prior Personal Income, May (8:30): 0.3% expected, 0.4% prior Personal Spending, May (8:30): 0.3% expected, 1.0% prior Core PCE Price Index, May (8:30): 0.2% expected, 0.2% prior Pending Home Sales, May (10:00): -1.4% expected, 5.1% prior Crude Inventories, 06/25 (10:30): -0.917M prior
June 30 - Thursday Initial Claims, 06/25 (8:30): 265K expected, 259K prior Continuing Claims, 06/18 (8:30): 2142K prior Chicago PMI, June (9:45): 50.8 expected, 49.3 prior Natural Gas Inventor, 06/25 (10:30): 62 bcf prior
July 1 - Friday ISM Index, June (10:00): 51.4 expected, 51.3 prior Construction Spending, May (10:00): 0.5% expected, -1.8% prior Auto Sales, June (14:00): 5.16M prior Truck Sales, June (14:00): 8.55M prior
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