- DB to get a reduced DOJ fine. All must be well. - Stocks rebound as the volatility continues. - Fed, Central banks now appear to want to avoid any kind of market selloff as Yellen talks of direct equity buys. - Still leaders emerging, but prefer a resolution of the volatility to a trend to get really deeply involved.
Prolog
I almost did not send out a market summary this weekend. I sat down and wrote what transpired and why. I took it to its logical end. I realized it was just too gloomy to send out and got up and left it. I thought about it and decided to send it even if I am accused of being a gloom spreader. Not one where the market crashes, but one telling that the market no longer prices in real value of companies, but instead what value the monetary policy planners put on the financial assets (stocks) related to those companies and the logical results of that. So, be forewarned.
The Action, the Friday theme
Thursday's angst surrounding DB was all forgotten Friday. Things did not look so bad on the day and indeed got better. A rumor hit shortly after the open that DB was going to strike a deal with the US DOJ for less than the $14+B the DOJ needed for 'justice.' About a third of the full amount ($5.4B). Not long after a French news outlet claimed to confirm the report. Stock markets rejoiced. Surely the $8.5B drop in one fine is going to make all the difference for DB.
Okay, it doesn't hurt, but it is not the cure for it, for Commerze Bank, or for The Netherlands' ING bank that Friday was reported set to announce massive layoffs at its Monday shareholders' meeting. DB's near term CDS protection rates are still increasing. No one we have heard of is ready to return funds they just removed for safety. Friday was a reprieve, and we will see how much of one in the week(s) ahead. It may already be starting as Saturday Italy charged DB with market manipulation and, taking a lead from Wells Fargo perhaps, creating false accounts.
The reprieve helped the US markets. Stocks loved it and rallied nicely, spurting to the upside on the rumor and the 'confirmation.'
VOLUME: NYSE 21.33%; NASDAQ 5%. Volume increased sharply on the session, but that likely had more to do with the end of the quarter versus any new surge in buying.
A/D: NYSE 2.4:1, NASDAQ 2.6:1
Financial stocks recovered the Thursday flop. Many same leaders continued to lead. Many that fell Thursday did not recover. SOX powered to a new post-2000 high. NASDAQ recovered the 10 day EMA and is continuing its trend though it still has not recovered to post-FOMC high. SP500, DJ30, SP400 recovered to where they were Wednesday, for the most part, but that isn't saying much for those indices.
Indeed, they are still in bearish patterns. Back and forth volatility after breaking lower three Fridays back. DJ30 broke lower from those three tops and has recovered to a bear flag. SP400 broke its July/September trend but managed to hold a longer term trendline as it sold. It has recovered some lost ground but is still below the 50 day MA's. SP500 has recovered the gap lower three Fridays back, at least on the post-FOMC rally, but it gave it up and in this week's recovery it is still below its 50 day SMA.
The New Normal: Central Bank market management
These are not great patterns, but this is an insane market because . . . the Fed and central banks are steadily and unrepentantly overstepping their limits prescribed by law. Can you imagine the Federal Reserve going into the open stock market and buying equities as Janet Yellen said it could if there was another crisis? Do these people not realize they are not mandated to take any action on earth to forestall natural market declines?
Oh perhaps they do realize this, but they also realize that they have built new market highs on no capital investment, no growth in real business, and a plethora of low paying jobs that have dropped the US standard of living, driving the middle class to below 50% with only 48% of workers in the US holding full time jobs. And the really tough pill to swallow is that many of those full time employees are working for wages much less than they made at their full time jobs they lost in the last recession. Thus spending and investing power is way down. The Fed knows this; that is why it has hacked down its long-term growth forecasts for GDP and says 100K jobs per month is all that is needed to absorb new workers.
With that track record they know there is a bubble in asset valuations vis- -vis the actual output created. If the market starts to price in the real output then prices have to head much, much lower. It strains credulity that after Q3 results are in we will know that corporate profits have declined for 6 quarters and yet the stock market is hitting new all-time highs. That does not happen. That is the hands of the central banks.
The markets were rolling over in August and September 2015, but the Fed entered, setting up a perfect double bottom. We saw it and there was a lot of money made. Then the January and February 2016 selloff to lower lows after failing to reach the prior highs from the late 2015 selling. The market was in a death roll but Yellen called the BOE and the selling stopped for that day and rebounded. The next morning she called Draghi at the ECB and the market shot higher that day as well, a mere 30 minutes after the phone call ended. Magic.
This was not even a full-blown crisis, just a market making a natural correction from a long run. It is the same progression as always: a crisis leads to extraordinary means, but then the extraordinary means remain and are used when there is not even a crisis situation. The Fed and central banks start believing the markets need them to work properly. Once you go down that slippery slope of logic it is incredibly hard to change course. That is why the thought of a new Fed chairman is very appealing, and even more appealing is clipping the Fed's authority as discussed earlier in the week: specific actions it can take, specific time limits, audits/oversight to make sure old habits don't return.
For surely the 'magic' will end some day. Who knows when; it could take years still. By that point the middle class will be wholly gone. Those remaining, already suffering, will be driven into deeper suffering as those lower salary full-time jobs they got after they lost their good jobs will disappear as well. The more the Fed tinkers with inflating assets simply by printing money, the harder the ultimate fall will be. They are running on a treadmill at such a speed they cannot get off. If they fall, the result is ugly. In theory they could keep this going for years, particularly if they buy equities. That will ultimately complete the job of the complete asset shift from the middle class to the upper class and the lower class, the latter of which will be the new home for tens of millions of former middle class citizens.
Sorry for the gloomy images, but the madness grows every month with every new FOMC meeting. The United States no longer has real markets that accurately price earnings. They price in whether the Fed will or won't act on rates, and eventually when the Fed will start buying equities, how much will it buy, etc. The real price of assets will be based upon how many assets the Fed buys with phony money, not output.
Unless this madness ends, the US markets and likely economy will rupture and collapse at some event in the future when it is revealed that an economy built on nothing cannot continue producing weapons of war to even protect itself. It can be cataclysmic or gradual. Remember the USSR? One night everyone just left their posts and it was over. Fortunately for them, there was no enemy at the gates waiting for that moment or it would have been overrun. Now they have rebuilt and are a real threat given the failed 'reset' of relations, Syria negotiations breakdown, etc. Not a good scenario ahead as things are.
Where from here near term?
What this means for us and the markets, however, is that the Fed and other central banks will do what they can to prevent declines. The amazing thing is, after the near rollover in February it appears the Fed is unwilling to tolerate ANY selling as that could lead fragile markets to collapse.
The problem is, the indices are bucking right now with a lot of back and forth volatility that shows a fight between sellers and buyers. Don't kid yourself as some of the guest commentators on the financial stations do that all of this is just normal market pricing in value in an improving economy that they hope will continue to move higher when it gets through October and the election. There is serious strain right now to re-price assets lower, but the Fed is going to try and prevent any pre-election selling, post-election selling, ANY selling. Selling, after all, does not fit its plan for wealth effects and other such notions that have yet to spur the US economy to its former levels.
It is as if the Fed has admitted to itself the US simply cannot grow as fast as it used to. People, that was the talk in the 1970's, that the US had run its course, a nice try that failed. Then we saw the 1980's and the 1990's, the power of the US when its people were unleashed with tax cuts, investment incentives, and reduced regulation. A 20 year boom that saw the US far outpace all other nations.
With this environment some stocks are surging, some are falling, a lot are going nowhere. Moreover, day to day a lot of these are changing direction.
Given the action, we have pared back positions, have both upside and downside plays open, and frankly are uncomfortable with the action. The market appears that it should break but the Fed is standing at the door to try and block the exit. That is a market in conflict, i.e. with traditional market forces pushing on it but also policy makers trying to prevent a selloff. I would prefer to see the outcome and get the new trend in place before I do a lot more buying on either side. As it is, the market is led around by the nose each session by each news story or Fed speech. Until one side takes firm control, the action is treacherous.
THE MARKET
After the DB worries Thursday, Friday the indices bounced right back up. SOX posted another new high while the rest of the indices recovered much of what they lost Thursday. Another day of the back and forth volatility as bulls and bears are in a fight. Even so, the Fed is still present, as noted before, trying to block the exits.
CHARTS
SOX: Added another new post-2000 high, gapping and rallying. Oh, that high is up over 1350 (closed at 835.60). SOX is strong but is getting ahead of itself near term.
NASDAQ: Sold to the 20 day EMA Thursday, gapped higher Friday and closed where the indices opened the prior session. That keeps NASDAQ trending up the near term moving averages after the 50 day MA test, pretty much textbook action for continuing a move higher. With AMZN continuing to new highs all week, NASDAQ had a leader to follow.
RUTX: Similar action to NASDAQ, coming off the 50 day EMA test, testing back to the 10 and 20 day EMA, holding. Thursday was shaky but it rebounded upside Friday, keeping the trend in place.
DJ30: Thursday DJ30 rolled over after testing the 2015 prior all-time high. Friday it recovered most of what it lost, but on the high it touched the Thursday intraday high and backed off, still unable to close escrow on the 2015 high. Still a negative overall pattern.
SP500: Recovered most of what was lost as well, closing just below the 50 day SMA. Below the post-FOMC rally high. Volume stronger than the Thursday selling, but again, this was more quarter end positioning versus a flood of buying.
SP400: Same action as the large cap NYSE indices, bouncing back Friday from the Thursday loss, closing below the Wednesday high, the 50 day SMA, and the 2015 prior all-time high. Overall a bearish pattern where SP400 broke lower, recovered some ground to a lower high at the lower gap point, and has wandered laterally.
LEADERSHIP
Big Names: AMZN the clear leader, others doing okay to nothing. FB still not surging, showing a doji at the 20 day EMA. AAPL looks good to move higher after a 2 week test. AMZN continued its 2.5 week rally to higher and higher highs. NFLX breaks through the 200 day SMA in perhaps a turn of fortune. GOOG spent the week testing, holding the 20 day EMA after it was unable to break to and hold a higher high. MSFT surged early week, held the 50 day SMA on the Friday close. EBAY is holding a break to a higher high.
Tech: STX enjoyed a solid week to a higher rally high. Software is mixed with not a lot of great patterns: BLKB, CRM, ORCL, MSFT. WDC still looks very good.
Chips: Of course moving well as a group, just not all in great position to enter. LSCC still solid at the 10 day EMA. MU trending up the 10 day as well but the move has slowed. AVGO is up on the week but problematic. SWKS jumped higher Friday off a Thursday 50 day EMA test on the low. XLNX surged Friday off a 50 day EMA test. SLAB surged to a higher high Friday.
Oil: Still surging even on higher inventories, more drills churning. APC, CWEI, HAL, AXAS, SPN -- lots of gains.
Industrial Equipment: Surging again on Friday, e.g. CMI, CAT.
Financial: Recovered from the Thursday rattle, moving back into the patterns built before the shakeup around DB. C, BAC. TCBI broke to a new rally high.
Retail: Some good moves in some groups. Box stores saw KSS break nicely higher along with DDS, RH. JWN was a laggard. LOW and HD have bounced from the ugly selling but are still struggling. NKE bounced just modestly, ditto, DECK.
Biotech: BIIB still is holding up. CELG who knows. IDRA looks good to enter. EXAS, CEMP recovered modestly but did not change the Thursday selling. AGEN recovered nicely enough. Still some very promising areas but some stocks were hit hard last week.
Metals: Some still good patterns, e.g. SID, FCX as others have broken higher, e.g. SCHN.
NEWS/ECONOMY
Personal Y, August: 0.2% vs 0.2% exp vs 0.4% July
Personal Spending, Aug: 0.0% vs 0.2% exp vs 0.4% July (from 0.3%)
Consumption: 0.0% vs 0.1% expected
Income breakdown: $13.3B from wages, $10B from transfer payments (welfare, Medicaid, etc.)
Spending down mostly on auto sales.
MARKET STATS
NASDAQ Stats: +42.85 points (+0.81%) to close at 5312 Volume: 2.003B (+5.04%)
Up Volume: 1.55B (+950.2M) Down Volume: 488.15M (-841.85M)
A/D and Hi/Lo: Advancers led 2.64 to 1 Previous Session: Decliners led 3.05 to 1
New Highs: 111 (+14) New Lows: 39 (-1)
S&P Stats: +17.14 points (+0.8%) to close at 2168.27 NYSE Volume: 1.2B (+21.33%)
A/D and Hi/Lo: Advancers led 2.41 to 1 Previous Session: Decliners led 3.75 to 1
New Highs: 124 (+9) New Lows: 25 (-5)
DJ30 Stats: +164.7 points (+0.91%) to close at 18308.15
Fourteen 1.0+ Readings in 5 weeks, 10 of the last 16 sessions over 1.0. Still plenty of pessimism to keep some upside pressure on.
Bulls and Bears: Bulls bounced and bears faded post-FOMC with all the 'do nothing, harm nothing' feelings. Perhaps not as the market is struggling to hold that post-FOMC happy time.
Bulls: 45.2 versus 44.6
Bears: 23.1 versus 24.3
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: 45.2 versus 44.6 44.6 versus 49.0 versus 52.5 versus 55.9 versus 56.7 versus 56.2 versus 54.3 versus 52.9% versus 53.9% versus 54.4% versus 52.5% versus 47.1% versus 41.6% versus 47.5% versus 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%
Bears: 23.1 versus 24.3 24.3 versus 22.6 versus 22.8 versus 20.6 Versus 20.2 versus 20.0 versus 20.9% versus 21.2% versus 21.6% versus 23.3% versus 24.7% versus 24.5% versus 23.8% versus 23.2% versus 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%
OTHER MARKETS
Bonds (10 year): 1.60% versus 1.56%. Faded to the 50 day EMA Friday, testing a 2 week move off the selloff to the September low.
Historical: 1.56% versus 1.569% versus 1.56% versus 1.584% versus 1.62% versus 1.625% versus 1.656% versus 1.693% versus 1.705% versus 1.698% versus 1.70% versus 1.698% versus 1.718% versus 1.671% versus 1.67% versus 1.61% versus 1.53% versus 1.54% versus 1.601% versus 1.57% versus 1.58% versus 1.57% versus 1.57% versus 1.62% versus 1.58% versus 1.56% versus 1.54% versus 1.58% versus 1.53% versus 1.55% versus 1.57% versus 1.558% versus 1.51% versus 1.56% versus 1.51% versus 1.54% versus 1.59% versus 1.585% versus 1.503% versus 1.54% versus 1.558% versus 1.51% versus 1.46% versus 1.50%
EUR/USD: 1.1239 versus 1.1218. All week hugged the 200 day SMA in a lateral move.
Historical: 1.1218 versus 1.1228 versus 1.2148 versus 1.1254 versus 1.1248 versus 1.12259 versus 1.12061 versus 1.11898 versus 1.1151 versus 1.1177 versus 1.1155 versus 1.12444 versus 1.1245 versus 1.12196 versus 1.12335 versus 1.12318 versus 1.12661 versus 1.1239 versus 1.12554 versus 1.11545 versus 1.11943 versus 1.11572 versus 1.1146 versus 1.11708 versus 1.11949 versus 1.12894 versus 1.1300 versus 1.13045 versus 1.3254 versus 1.13251 versus 1.1342 versus 1.13036 versus 1.12773 versus 1.11824 versus 1.11636 versus 1.11372 versus 1.11803 versus 1.1115 versus 1.1080 versus 1.10882
USD/JPY: 101.326 versus 101.143. Bounced into late week but still not yet able to break through and hold the 50 day MA's. Trying to work into a lateral consolidation but ha to show it has some strength.
Historical: 101.143 versus 101.322 versus 100.55 versus 100.75 versus 101.034 versus 101.045 versus 100.386 versus 101.714 versus 101.956 versus 102.280 versus 102.086 versus 102.172 versus 102.155 versus 102.814 versus 101.57 versus 102.685 versus 102.439 versus 102.439 versus 101.698 versus 101.412 versus 103.92 versus 103.226 versus 103.269 versus 102.965 versus 102.160 versus 101.808 versus 100.485 versus 100.306 versus 100.27 versus 100.297 versus 100.21 versus 99.843 versus 100.529 versus 100.953 versus 101.308 versus 101.864
Oil: 48.24, +0.41. Solid 3-day bounce off its 50 day SMA has oil moving up toward the August peak. Nice double bottom with handle break.
Gold: 1317.10, -8.90. Sold back Tuesday to Friday, now near the 3 week lateral range.
MONDAY
Another week with plenty of data, starting with the ISM Monday, Factory Orders Wednesday, and the September jobs report Friday. Remember, at 176K expected, jobs far exceed what the Fed says is needed to sop up the additional workers. My how times have changed, how a less than 2% GDP economy does not need to create that many jobs, even the crappy, low wage hourly ones this one creates.
As discussed earlier, the day to day back and forth volatility continues with the NYSE indices mostly struggling in bearish patterns while SOX, NASDAQ and even RUTX hold decently. The buyers and sellers are still fighting, the Fed is still trying to prevent any serious selloff, the latest evidence being Yellen's jawboning on the week that the Fed can directly buy equities during a crisis. Of course we know the Fed doesn't have to wait for a crisis as seen in February. At least at that time it looks as if the Fed used other central banks, but the idea is the same.
There are still some great patterns, upside and downside, in the market. We will look at those as possible entries if per chance the volatility subsides. We would prefer moving in once a new trend emerges from the volatility. You could anticipate an upside trend if the Fed has its way, but even the Fed cannot control all moves. Again, we can enter some plays here and there, but would prefer seeing a trend established out of this volatility, or at least a really clear break upside or break downside.
Leaders will emerge ahead of the pack and maybe that is already the case with the chips and others, e.g. industrial machinery making its run. The market remains split, however, and very volatile even with their moves. Again, we can play some new entries but want to see the trend emerge or stabilize to pick up a lot of new positions.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5312.00
Resistance: 5340 is the recent all-time closing high.
Support: 5287.61 is the all-time high from September 2016 5271.36 is the August 2016 intraday prior all-time high 5231.94 is the 2015 all-time high The 50 day EMA at 5196 5162 is the early November peak, 5176 is the December intraday peak 5100 from the April peak and early May peak 5042 is the March 2015 high 5008.57 is the early March 2015 post-bear market high 5007 is the 12/31 upper gap point from that big gap lower 4999 is the October upper gap point 4980 is the June 2016 peak 4969 is the April 2016 recovery high 4960 is the September 2015 intraday high, an important reversal point for NASDAQ. 4920 is the lower gap point from mid-October 2015, the January 2016 lower gap point 4916 is the mid-November 2015 low 4899 - 4902 from the September 2015 peak, July 2015 low 4894 is the September 2015 closing high The 200 day SMA at 4888 4836 is the March 2016 peak 4815 is the December 2014 peak 4811 is the November 2014 peak (intraday) 4774 is the January 2-15 high 4751 is the January 2015 lower high 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. 4574 is the June 2015 low 4517-4506 from the September 2015 and August 2015 closing lows 4485 are the twin July 2014 peaks
S&P 500: Closed at 2168.27
Resistance: The 50 day SMA at 2168.33 2175 is the June 2016 high 2194 is the August 2016 all-time high
Support: 2135 is the May 2015 all-time high 2130 is the June 2015 peak 2126 was the April 2015 prior all-time high 2120 is the June 2016 peak 2119 is the February 2015 intraday high 2116 is the November 2015 high 2111 is the April 2016 recovery high 2104 is the December 2015 high 2094 is the December 2014 high 2079 is the intraday all-time high from November 2014 2062 is the January 2015 lower high The 200 day SMA at 2063 2046 is the July 2015 closing low 2040 is the March 2015 closing low 2026 is the May 2016 low 2023 is the November 2015 low 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
Dow: Closed at 18,308.15
Resistance: 18,351 is the prior all-time high from May 2015 The 50 day SMA at 18,398 18,595 is the July 2016 peak 18,669 is the August 2016 all-time high
Support: 18,288 from March 2015 18,262 is the upper gap point from the Monday gap lower. 18,247 is the August 2016 low 18,168 is the April 2016 recovery high 18,100 to 18,181: interim peaks in the December 2014 to July 2015 range 18,016 is the June 2016 peak 17,978 is the November 2015 peak The 200 day SMA at 17,608 17,600 is the rough bottom of the April to June range. 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 2014 post bear market high 17,068 is the early July 2014 peak 17067 is the December 2014 low 17,063 is the June 2016 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
ECONOMIC CALENDAR
September 30 - Friday Personal Income, August (8:30): 0.2% actual versus 0.2% expected, 0.4% prior (no revisions) Personal Spending, August (8:30): 0.0% actual versus 0.2% expected, 0.4% prior (revised from 0.3%) Core PCE Prices, August (8:30): 0.2% actual versus 0.2% expected, 0.1% prior (no revisions) Chicago PMI, September (9:45): 54.2 actual versus 52.0 expected, 51.5 prior (no revisions) Michigan Sentiment -, September (10:00): 91.2 actual versus 90.0 expected, 89.8 prior (no revisions)
October 3 - Monday ISM Index, September (10:00): 50.4 expected, 49.4 prior Construction Spendin, August (10:00): 0.2% expected, 0.0% prior Auto Sales, September (14:00): 4.91M prior Truck Sales, September (14:00): 8.52M prior
October 5 - Wednesday MBA Mortgage Index, 10/01 (7:00): -0.7% prior ADP Employment Chang, September (8:15): 171K expected, 177K prior Trade Balance, August (8:30): -$39.1B expected, -$39.5B prior Factory Orders, August (10:00): 0.1% expected, 1.9% prior ISM Services, September (10:00): 52.8 expected, 51.4 prior Crude Inventories, 10/01 (10:30): -1.882M prior