- Market overcomes the gap lower as NASDAQ, SOX push to new highs. - A few more negatives face stocks, but the upside bias is still winning out. - Not just typical stories are impacting stock movement, at least on a temporary basis. - Still plenty of good patterns. Plenty. - Jobs Report shows a jump in full-time in January, anticipating ACA repeal. - Earnings revert to a familiar pattern: lots of top line misses. Lots. - Every day is an adventure as to what is coming from the administration and how the market will take it. Even so, the market found support and moved back up.
The past two weeks saw the stock indices break higher out of 6 week ranges to new highs, give that move back 3 sessions later, then rally back to try for new highs again. A breakout, a breakout rejection, then new bids. Volume sluggish at best, unusual for a new year. Bullish advisor sentiment hit a cycle high at 61.8%, making it 3 of 5 weeks over 60%. Historically, that has marked a rally top and led to deeper corrections.
VOLUME: NYSE -3.5%, NASDAQ -9%. Okay it was Friday so if you are looking for excuses you can use that one. Otherwise, it was another upside session on lower volume.
A/D: NYSE 3.7:1, NASDAQ 2.8:1. Small and midcaps kicked back in and that really helped to post some decent breadth for the first time in quite a while.
Given the more negative issues arising, this weekend I expected to see several downside setups in our review of stocks and sectors. Instead, I see many upside setups for stocks that either made good moves and are ready to resume, or are ready for new breaks. Oil has come back around likely thanks to a weaker dollar. Semiconductors remain strong though many are not at new buy points. Biotechs continue to set up patterns, particularly smaller priced issues. Some areas of metals, and not just precious metals, show good patterns. China stocks, transports -- large numbers of sectors are working just fine.
So, was it just a momentary letdown with what the Trump administration was accomplishing? Was there a sudden concern after the immigration EO that Trump's growth agenda might be threatened, not so much by the democrats, but by the real life Dumb and Dumber Lindsey Graham and John McCain?
Graham is still miffed his ideas were relegated to the sub-ticket in the republican debates (and that should tell him where he stands with most of America) while McCain's rants reveal he is still bitter about his 2008 defeat as he plays out the twilight of his career as a tin-plated dictator with delusions of God-hood (that is a line from a Star Trek episode, 'The Trouble with Tribbles'). Seriously, when your only response to economic, social, foreign or any issues is 1) get the money out of politics (of which, by the way, McCain has HUGE amounts in his war chest), and 2) massively build up the military as some form of economic growth strategy (demonstrating his economic wisdom could fit on a quarter of a 3 x 5 index card), you are going to lose.
Okay, a bit of a digression, but it had to be said.
Whatever it was, the market went from breakout to rejected breakout, to 'well, maybe we should try again.' I don't like to see things in the shadows that are not there. If a chart doesn't say 'buy' or 'sell,' then you have to see what the stock is going to do. Don't try to divine meaning beyond that because if the chart isn't saying it, then the decision is not made. In that instance, if anything, look at the trend as the possible overriding factor that could influence the way the stock breaks.
Right now the market is trending higher. Right now the NYSE indices are again stuck in their range, having failed a breakout but also not collapsing through the bottom of their late 2016 ranges. SOX and NASDAQ broke to higher highs this past week, still clearly trending upside and thus leading the market in terms of the upside.
With that, and not looking for things in the shadows, you would play stocks in those indices upside and be ready to play the others as their components follow their lead. We have positions in both. Basically we have positions in the good sectors that are moving up, and we are looking at positions in other areas in the event they make the move as well. Following leadership tends to put you in that situation.
Thus the outlook is all roses given NASDAQ and SOX are trending higher and the NYSE indices have not broken their ranges, right? Well, maybe not roses, but they are trending higher for now. Not looking at shadows mind you, but looking at facts, there is the 60+% sentiment reading in 3 of the past 5 weeks, a reliable indicator of a market top forming. As for timing, not so reliable. It is there, however, it is a fact, and it has ramifications. As noted last week, it is a factor to put into the equation, a factor that worsens the risk/reward probabilities a bit. It does not trump good patterns making good moves, but it CAN and SHOULD factor into your plan for a position and what size of move you anticipate.
So this coming week we have a lot of upside plays that have the potential to make good money without needing a two month move to do so. The market is not showing it is rolling over but it has shown signs the buyers are not as lockstep solid as they were. After all, a breakout was rejected, and that is one of the strongest market signals. Nonetheless, the stock indices did not roll over and they are back at it again. Coupled with seeing a lot of stocks in or setting up good potential entries, you look at the plays in line with that situation.
When entering, however, set your parameters with the overlay of the negative factors and don't assume that just because the trend is in place it must remain in place. They say what does not kill you (or a trend) makes you stronger. The thing is, you have to go through the rougher patches to find out if you are going to survive. The key to being in the market at these times is not assuming survival and thus entering at good entries and taking gain at logical points, then letting the rest of the position work as long as the play and the market behave.
NEWS/ECONOMY
Jobs and earnings dominated the news. Earnings, as noted earlier in the week, are reverting back to the top line/revenues misses after a one-quarter improvement in Q3. I heard one of the CNBC baristas parrot what her fund manager sources (talking their book of course) regarding how the earnings drought is over. Really? It looks more as if Q3 was an aberration, not a reversion to the mean. Once again the market has sadly put forth an impressive string of companies sporting top line misses:
Do you see the pattern? Right, there is NO pattern. Companies from all sectors are missing. A veritable who's who of corporate giants once again suffering revenues declines.
Jobs Report
Non-Farm Jobs: 227K versus 235k expected versus 154K prior (from 156K)
Unemployment: 4.8%
Average Hourly Wages: 0.1% vs 0.3% expected versus 0.2% December (from 0.4%). Yearly wages: +2.5%
Workweek: 34.4 hours vs 34.3 expected versus 34.4 prior (from 34.3)
Participation Rate: 62.9% versus 62.7%. Quite a jump.
Not in workforce: 94.3M versus 95.1M December. Down by 736,000.
Entering workforce: +580K
Part-time jobs: -490K
Full-time jobs: +457K
The January jobs report received some gushingly good reviews by some commentators while others were more sanguine. Both are wrong.
It's 227K jobs people; it is sooooo mediocre. But, as I wrote years ago, we were going to 'dumb down' our standards for what is good and not. Years of barely mediocre results resulting from the structural changes in our economy and jobs market, thanks to regulation and taxes, put governors on our economic output. Remember when 500K was truly a great number and 300K was decent? Do you? Many do not and it is a sad testament to how we have fallen. Is it any wonder that the campaign slogan 'Make America Great Again' caught on with millions of Americans who remember what it was like when American economic activity was great?
Wages: Many focused on the wage growth in December as a great signal of recovery. Well, that growth was cut in half with revisions. Even so, at the time I pointed out that the wage growth was skewed to the very top, the supervisory employees (and that does include the CEO's, CIO's, CFO's, etc.) and not toward the non-supervisory employees. Given the non-supervisory employees make up 85+% of the workforce, that makes a difference in the outlook on the economy and the ability to participate in it.
The January wages disappointed but it was more than the financial stations report.
Non-supervisory wage growth, January: 0.04%
Average weekly earnings: -1.9%, the worst reading in a year.
Minimum wage: These paltry wage gains, indeed wage losses on a weekly basis, occurred even as several more states implemented minimum wage standards for 2017. That tells you right there that the wage gains were not in the lower end of the spectrum: even as wages went up a mandated rate in some states, overall wages fell at the low end. Did anyone see the new San Francisco (first in Hong Kong) automated coffee drink barista? 2 cups a minute to customers with no employees. Maybe those 10,000 refugees Starbucks talked about are going to clean up after the automated coffee barista is done for the day? Heck, they probably even have automated cleaners; the machine barista is self-cleaning I hear.
I find it fascinating that full-time jobs surged and part-time purged in January. This is the market anticipating an ACA repeal retroactive to the first of the year. It is a case in point that tells you the markets, employment markets as well as financial, are hearing what the Trump administration is saying and ARE taking it at its word. With the ACA and its 29-hour death threshold gone, companies will like to hire full-time again. Fewer workers, less repeated training of employees due to higher turnover at lower wage jobs, higher wages.
I believe the sharp 400K drop in ACA enrollees to start 2017 demonstrates this mindset as well: people know the ACA will be repealed and thus they are not buying the insurance they do not want and cannot afford.
Again, it is fascinating how the economic micro-planners think they can dictate what must be done and think they have it all figured out just to see how when you squeeze one side of a balloon the other pops out. Fortunately, it does not look as if they squeezed so hard the balloon popped, but we are not out of the woods yet, not by a long shot.
MARKET
After the breakout to new highs was rejected (at least for all but RUTX), the indices held in their ranges and rallied right back up. SOX and NASDAQ punched in at new highs while the other indices look as if they want to head that way. Talk about a continuing upside bias, that is it: a rejection of the rejection so to speak.
CHARTS
NASDAQ: After gapping lower Monday from the breakout gap, NASDAQ caught itself, gapped higher Wednesday and finished out the week with a new all-time closing high. It is just below the intraday high from late January, but MACD broke higher on that high and volume was not bad at all on the Wednesday upside break.
SOX: After an early week 10 day EMA test, SOX climbed back up and moved to a new recovery high Friday, gapping to a doji. The chips continue leading even if they move through a rotation inside the sector.
SP500, DJ30: The same action, gapping lower form the new high, holding in the prior 6 week range, recovering Friday back near the top of the range. SP500 gapped back over its 2016 trenldine Friday and both indices are not just below the prior week's all-time high. They came right back from having the breakout rejected, in kind of a rejection of the rejections.
SP400, RUTX: Both of these smaller cap indices tested at or near the lows of the 6-week range early week, then stumbled higher. Friday they posted nice upside gaps and are set to challenge the recent highs.
LEADERSHIP
Chips: New high on SOX and of course strong moves in the chips. NVDA, MU, TSEM strong all week along with QRVO, AVGO, SLAB. More look interesting such as AMBA, ENPH.
FAANG: FB trying to hold at the 10 day EMA as it rallied over the October high on its earnings but reversed sharply. As with AMZN, the possibility of a double top. AMZN gapped lower on earnings after testing the October high, possibly a double top. At a minimum these are worth watching. AAPL holding the Wednesday earnings gap. NFLX tested on the week, holding the 10 day EMA and still trending. GOOG gapped up Friday, but that after gapping down Monday and dropping to the 50 day MA's. These all deserve watching.
Biotech: Some interesting smaller patterns: INFI, CNAT, CRMD, OREX.
Oil: With the dollar falling they suddenly look better, again. AXAS, CRK, UNT, SPN, NE.
China: Still not bad. SOHU setting up. ATHM continues climbing up the 10 day EMA. Ditto NTES. BABA has a nice pennant.
Materials/Construction: Still looking good. CX working on a 2 week pennant over the 10 day EMA. MDR posted a good move on the week.
Financial: Came right back to life on the Trump EO dropping the Obama EO creating a fiduciary duty between investment advisors and clients. Frankly, I don't really have a problem with a financial advisor having a fiduciary relationship with a client. What this gets to is not allowing the advisor to take positions on the opposite side of a client. An advisor should not be a market maker or something of that sort; that creates conflicts of interest. If you want to advise people and get your certification, you want a level of trust. 'Trust me' carries more weight if you know your advisor is not taking a position the opposite of yours for whatever reason. But, I digress. GS jumped higher (of course after I killed the play), C looks to have bounced off a double bottom of sorts, BAC is approaching the top of the range. QIWI is in good shape to break higher.
Metals: Precious metals are still looking good, e.g. HMY. Other metals as well, e.g. MUX, X.
MARKET STATS
DJ30 Stats: +186.55 points (+0.94%) to close at 20071.46
Nasdaq Stats: +30.57 points (+0.54%) to close at 5666.77 Volume: 1.8B (-9.04%)
Up Volume: 1.24B (+246.02M) Down Volume: 517.44M (-522.56M)
A/D and Hi/Lo: Advancers led 2.77 to 1 Previous Session: Decliners led 1.09 to 1
New Highs: 181 (+81) New Lows: 33 (+9)
S&P Stats: +16.57 points (+0.73%) to close at 2297.42 NYSE Volume: 850.5M (-3.35%)
A/D and Hi/Lo: Advancers led 3.68 to 1 Previous Session: Advancers led 1.23 to 1
Bulls and Bears: Bulls made it 3 of 5 weeks over 60, this time hitting 61.8, a new high for this move. Starting to pile up the more extreme level.
Bulls: 61.8 versus 58.2
Bears: 17.6 versus 17.5
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: 61.8 versus 58.2 58.2 versus 60.6 versus 58.6 versus 60.2 versus 59.8 versus 59.8 versus 59.6 versus 58.8 versus 56.3 versus 55.6 versus 51.0 versus 42.9 versus 41.7 versus 47.1 versus 42.9 versus 46.1 versus 46.7 versus 45.2 versus 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
Bears: 17.6 versus 17.5 17.5 versus 17.3 versus 18.3 versus 18.4 versus 19.6 versus 19.6 versus 19.2 versus 19.6 versus 22.3 versus 21.6 versus 23.5 versus 25.7 versus 24.3 versus 23.1 versus 23.8 versus 23.1 versus 22.8 versus 23.1 versus 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%
OTHER MARKETS
Bonds (10 year): 2.48% versus 2.474%
Historical: 2.474% versus 2.477% versus 2.44% versus 2.49% versus 2.48% versus 2.512% versus 2.52% versus 2.467% versus 2.40% versus 2.47% versus 2.468% versus 2.422% versus 2.372% versus 2.393% versus 2.358% versus 2.365% versus 2.38% versus 2.962% versus 2.42% versus 2.357% versus 2.45% versus 2.448% versus 2.42% versus 2.48% versus 2.51% versus 2.56% versus 2.54% versus 2.55% versus 2.54% versus 2.564% versus 2.544% versus 2.59% versus 2.59% versus 2.52% versus 2.473% versus 2.475% versus 2.471% versus 2.40% versus 2.349% versus 2.39% versus 2.396% versus 2.394% versus 2.454% versus 2.388% versus 2.30% versus 2.31%. versus 2.36% versus 2.355% versus 2.317% versus 2.30% versus 2.34% versus 2.297% versus 2.219% versus 2.22% versus 2.23% versus 2.14% versus 2.077% versus 1.867% versus 1.83% versus 1.778%
EUR/USD: 1.07880 versus 1.07605. Euro continues rising.
Historical: 1.07605 versus 1.07892 versus 1.0791 versus 1.07294 versus 1.06957 versus 1.06843 versus 1.0683 versus 1.0756 versus 1.07274 versus 1.0761 versus 1.07027 versus 1.06394 versus 1.06381 versus 1.07114 versus 1.06450 versus 1.0624 versus 1.05982 versus 1.0555 versus 1.0585 versus 1.05346 versus 105837 versus 1.0525 versus 1.03914 versus 1.05289 versus 1.05155 versus 1.04357 versus 1.04636 versus 1.0451 versus 1.04368 versus 1.04412 versus 1.0392 versus 1.0407 versus 1.0459 versus 1.0415 versus 1.05094 versus 1.0636 versus 1.06326 versus 1.05586 versus 1.06140 versus 1.07745 versus 1.07194 versus 1.07614 versus 1.06638 versus 1.06631 versus 1.0601 versus 1.0649 versus 1.05699 versus 1.066 versus 1.05910
USD/JPY: 112.567 versus 112.903. Dollar struggling to hang on at the recent lows.
Historical: 112.903 versus 112.68 versus 112.50 versus 114.493 versus 115.094 versus 114.469 versus 113.362 versus 113.850 versus 112.736 versus 114.39 versus 114.686 versus 114.538 versus 112.774 versus 114.473 versus 114.57 versus 114.70 versus 115.811 versus 116.023 versus 116.923 versus 115.93 versus 116.46 versus 117.983 versus 116.739 versus 116.456 versus 116.793 versus 117.41 versus 117.413 versus 117.32 versus 117.537 versus 117.544 versus 117.835 versus 117.453 versus 117.941 versus 118.257 versus 117.397 versus 115.038 versus 115.058 versus 115.20 versus 114.23 versus 113.325 versus 113.993 versus 113.601 versus 113.52 versus 113.945 versus 114.19 versus 112.685 versus 112.44 versus 111.835 versus 113.14 versus 112.445 versus 111.129 versus 110.809
Oil: 53.83, +0.29. Still bumping against 54.00 resistance.
Gold: 1220.80, +1.40. Good week, clearing the January recovery peaks and double top.
MONDAY
NYSE indices are still in their ranges, unable to hold a breakout but the sellers unable to break them down from their range. Thus they are at the top of the range and trying to follow NASDAQ and SOX to higher highs. The upside bias has not broken; faltered a bit, but it keeps recovering. Immigration was an issue for some reason, and the market healed itself, focusing on Trump getting rid of the fiduciary EO. Leaked, and I hear exaggerated, versions of telephone calls with the Australian PM and Mexican President worry some and cause curmudgeon McCain to make his own calls of assurance to world leaders.
What will be the next problem and will it be a real problem? Immigration caused the rending of garments on the east and west coast but the rest of the US asked 'isn't that what he said he was going to do? Have not other Presidents done the same thing? Is this not expressly a power Congress granted to the Executive?' Then they went back to work to pay for all of the benefits many of those protesting receive.
The point: The new administration is proceeding at a rapid clip, the democrats were caught off guard with the loss and are scrambling to oppose what they can. Having no plan in place they are getting help from some of the less savory areas and the result is property destruction, limitation of free speech, and in some cases some serious injuries to some people who just happened to try and speak up for themselves. Not a good situation for either side to be in.
Thus the market is still somewhat susceptible to the story of the day as we saw the past couple of weeks. Ironically, earnings are not having that much impact out of the individual stock involved. Outside influences are exerting more near term pressure on stocks and causing selling then buying, or at least a cessation of selling.
That does show the upside bias continues and thus we have quite a few upside plays this weekend. We tried to filter them to the best ones with regard to sector, pattern, earnings, but there are a LOT of stocks that have set up where we like the patterns. That suggests (just suggests) that the market is ready to make a new break higher, continuing the breakout that tried but failed two Wednesdays back.
Again, that could be the last hurrah for the rally given the sentiment readings, but sentiment is not a timing device, just a warning flag. If the market wants to put in another run it will do so. It is up to us to participate, and then watch to see if there is anything that truncates that move prematurely given the more extreme bullish sentiment.
Have a great weekend.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 5666.77
Resistance:
Support: 5601 is the January lower gap point The 2016 trendline at 5516 The 50 day EMA at 5493 The 50 day SMA at 5482 The November prior all-time high at 5404 5340 is the September and October 2016 twin peaks 5287.61 is the September 2016 high 5271.36 is the August 2016 intraday prior all-time high 5231.94 is the 2015 all-time high The 200 day SMA at 5175 5170 is the October intraday low. 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
S&P 500: Closed at 2297.42
Resistance: 2301 is the late January 2017 high
Support: The 2016 trendline at 2283 2282 - 2280 from January 2017 2277.53 is the December 2016 high The 50 day SMA at 2255 The 50 day EMA at 2252 The November 2016 all-time high at 2213.25 2194 is the August 2016 prior all-time high 2175 is the June 2016 high The 200 day SMA at 2161 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 September 2016 low; 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 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 20,071.46
Resistance: 20,126 is the January 2017 high
Support: 19,994 - 19,999 (early January high, upper gap point from late January 19750 is the lows of the December/January range The 50 day SMA at 19,731 The 50 day EMA at 19,647 18,669 is the August 2016 all-time high 18,595 is the July 2016 peak The 200 day SMA at 18,550 18,351 is the prior all-time high from May 2015 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 17,992 is the early September low 17,978 is the November 2015 peak 17,960 is the October intraday low 17,600 is the rough bottom of the April to June range. 17,351 is the September 2014 all-time high.
ECONOMIC CALENDAR
February 3 - Friday Nonfarm Payrolls, January (8:30): 227K actual versus 170K expected, 157K prior (revised from 156K) Nonfarm Private Payr, January (8:30): 237K actual versus 175K expected, 165K prior (revised from 144K) Unemployment Rate, January (8:30): 4.8% actual versus 4.7% expected, 4.7% prior (no revisions) Avg. Hourly Earnings, January (8:30): 0.1% actual versus 0.3% expected, 0.2% prior (revised from 0.4%) Average Workweek, January (8:30): 34.4 actual versus 34.3 expected, 34.4 prior (revised from 34.3) Factory Orders, December (10:00): 1.3% actual versus 1.4% expected, -2.3% prior (revised from -2.4%) ISM Services, January (10:00): 56.5 actual versus 57.0 expected, 56.6 prior (revised from 57.2)
February 7 - Tuesday Trade Balance, December (8:30): -$45.0B expected, -$45.2B prior JOLTS - Job Openings, - (10:00): 5.522M prior Consumer Credit, December (15:00): $19.4B expected, $24.5B prior
February 8 - Wednesday MBA Mortgage Applica, 02/04 (7:00): -3.2% prior Crude Inventories, 02/04 (10:30): +6.500M prior
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