- Another surge higher generates even more calls re a market top. - January is impressive as money pours into the market, ramping up the angle of rise. Will the money continue? - So, you think you know a top when you see one? - It can all end Monday, but the leadership has yet to show that kind of movement. - A truly impressive run makes you wonder about more upside, but we see more stocks ready to move upside.
Another week upside, another solid finish to a week, this one more than solid in the melt higher. After indecision Thursday, futures started higher, stocks started higher, and stocks continued higher through the close with a classic last 2 hour melt higher. New highs on all the large cap indices, while RUTX, SP400, and SOX put in respectable showings after tests, particularly SOX after its sharp Thursday drop.
VOLUME: NYSE -8%, NASDAQ flat. NYSE trade dropped below average after moving back above average Wednesday and Thursday. NASDAQ trade was flat, holding at above average levels. Some distribution on the week on both indices, but they avoided adding another one Friday. Two distribution sessions in the past 9 is watch-worthy but not enough in themselves to stall the rally.
ADVANCE/DECLINE: NYSE 1.2:1, NASDAQ 1.5:1. Ah, another large cap session. NASDAQ 100 +1.54% led by AMZN, NVDA with emphasis from INTC (+10.55%).
Looking at the brokerage accounts, this is getting rather insane. From our actively traded: +32%, +68%, +73% -- and this is year to date, not quarter over quarter (from Q4). From Q4 those numbers are 208%, 405%, 215%. Year over year is where it gets shocking, with gains over 1000% showing up. That begs the question, why do I still prepare these newsletters, videos, trades, alerts, etc.?
Because I love it. I love helping people make their dreams reality, to gain what I call the true measure of success: doing what you want to do when you want to do it. If you can do that, you have it all. Yes, sometimes I get pulled away for the kids' track meets, a basketball game, football playoffs, or have to attend a church meeting, or am in another time zone and could not lay off visiting just one more winery. I still have my computer with me, still logging alerts, still making the trades because I live by this and I owe it to those who want to get to that point of doing what they want when they want.
As an aside, I receive many requests to manage other people's money. I cannot do it. Not because I could not, but because I could not do it and generate the returns I do now. I take smaller amounts of money from my overall hoard and start new accounts. I then work those accounts aggressively, racking up the gains discussed above. At a certain point, I 'retire' that money to different investment vehicles, start another smaller account and do it again. That way I can buy 10, 20, 30, 50 contracts of options without much trouble.
If I am trying to do that with $100M, there would be no way to move in and out quickly without moving the market. That is the problem with funds: they don't use my tactic because they cannot because they are not a complete management service for client money. They are not set up that way. In the 1980's and 1990's, many a great fund quickly grew into a bloated behemoth and ceased performing.
Therefore, I feel the highest and best use in helping people reach that 'do what you want' goal is to educate you and let you know the trades we are moving into here. I have help of course, but most all decisions are mine. The praise and the blame fall on me. I sometimes stay in a trade too long up and down, thinking I know what is going to happen. That is a constant fight any trader has. You can mostly get away with it if the trend is in your favor, but the key of course is recognizing when the trend is starting to turn.
And that leads to the next area. The question, however, is not brokerage accounts. They are up insanely for years now, particularly 2016 through present. SP500 +44% since the election, and as you can see, that is just 'sitting doing nothing' money, i.e. just plunking it in an index fund. The real question is what is next.
Why? Because recognizing and positioning for major market turns is one of the foundations to making, holding what you made, and then making more. In other words, recognizing major market shifts is an integral key to wealth building. It does no good to amass big returns upside or downside and then have a sizeable portion given back -- that defeats getting to your goal of doing what you want when you want.
That is why buy and hold is of course dead, but that is EXACTLY what you hear advocated on the financial stations, for the most part, daily. You cannot time the market, etc. Sure you will mistime moves; every trader does so. I used to be way too early on trades. I would see it setting up, for instance a trend reversal. I would jump in on the first move and then get chopped up in the subsequent battle of the buyers and sellers as they fought it out until one side cried uncle. Of course the preferred way is to let the big break happen, then counterpunch after the test. Then the trend gets more or less set, or at least you have a really high probability of making good money on the trade even if it is not a new trend.
Calling tops and bottoms is hard and that is often why we take partial profits after great gains. Typically you get a pullback; you can see it in your brokerage accounts: they surge higher to a higher high and then they fade in a normal test. We look at capturing a rally or selling leg, taking some gains, and letting part of the position work if the trend is strong. Then we can augment or add to that position when it sets up again and we are back at it. That way you have locked in some gain in the event the move DOES NOT come back, and if it does, you are back in and taking advantage of the full move. Make sense? You are not calling a top or bottom, you are ready to move in when stocks show the 'buy me' or 'sell me' signal, and then you MANAGE your position and your MONEY around those signals. That way we have 3 plays on AMZN for instance, but we have also banked great money on AMZN already during the move and STILL make excellent to superb returns as it continues working.
This is incredibly relevant now because EVERYWHERE you look and hear there are warnings about a market that is set to crash, end of run melt ups, blow off tops, etc. This weekend Bank of America stated that one of its indicators, one it says has a 100% accuracy rating, has triggered and calls for a 12% stock decline with the following three months. BA says it is fully back tested as well. Bully. A 12% decline would certainly not be out of line with the kind of gains logged.
At the same time you have all-time record highs in bullishness (though bulls did back off to 64.7 from 66.7 and bears 'surged' to 12.8 from a 30 year low 12.7). You have the sky falling and the tap never runs dry at the same time. Sure sounds like the bulls and bears doing their usual dancing, climbing a wall of worry. As many are scared of a top as are excited about a continuing run.
In all of that misdirection, what is the right direction? Well, as I said, calling tops is above my paygrade, and I have a very high market paygrade. That said, there ARE a few more than the usual reasons to be wary. The bullishness is very high. The runs seem to defy gravity and usual technical indications, and that is a symptom of markets in some stage of a final push -- nothing is ever truly different 'this time.' The length and lack of interruption of the 2016 to present run is almost unprecedented. There are 'outside' factors, such as the dollar's decline, bond yields jumping (and you have heard all of those theories of doom), impeachment, etc.
I fully anticipate a 10+% correction at some point. In all my years in the market, however, despite having a pretty good sense of knowing a top was about to happen, knowing the exact when is a loser's guess. Either you miss out on a lot more upside or you fail to recognize when all leadership is reversing as the money runs dry.
In the final analysis it is how much money is being pushed into the market. Money has to continue believing the market will go higher and come into the market to push it higher. That shows up in the stock charts, in the continued ability to set up good patterns, to break higher, to hold the breaks, test, and resume the moves. For now, that is exactly what stocks are doing. There are few of the kind of reversals that red flag a major market issue. That does not mean they don't show up next week, even Monday, after such as finish to the week on Friday.
It is a matter, however, of having to accept the market that is presented not the market that experts see lurking in the shadows, whether that is a market set to crash or one set to surge another 10%. Bank of America, again, says investor cash allocation is at 10%, a record low (according to BofA) with equity exposure rising the fastest in 10 years, claiming everyone is going 'all in.' Well, the question is how much MORE money is out there being dragged in from all of those who pulled out of the market in the late summer? That would seem to be important, just as the sun's heating and cooling cycles are important to the earth's climate -- but are left out of the climate models.
Again, it is looking at the market presented. I have my concerns about when a correction that I feel is coming actually starts, but I cannot let those fears keep me out of a market that keeps rising. I am not making a moral or philosophical judgment about the market as it appears so many in the 'doom' circles have done for years. I am looking at the market to play the predominant trend to make as much as I can while that trend is in place and is strong. Oh, I can philosophize with the best of them, but that has virtually no -- no, it actually has zero -- bearing on making money in the market. Watching the market, its leaders, up and coming stocks, and whether there are breakdowns tells me more than any expert's bloviation.
THE MARKET
CHARTS
Some volatility crept into the indices the past 2.5 weeks with a couple of higher volume selling sessions, but thus far that has not stopped the advance. RUTX, SP400, and SOX did slow and failed to reach new highs to end the week, but overall the indices are still trending higher, just showing more of that volatility that is a key to watch this coming week.
NASDAQ: Starting with a weekly NASDAQ chart to emphasize the 2016 to present run. 2013/2014 was similar, but this is different. Note the acceleration over the past four weeks as money is forced at high rate into stocks. That kind of move cannot last. Of course it cannot. It can, however, continue on into the big earnings this coming week or beyond. After a 2-day sidestep, NASDAQ broke higher again Friday. Big names that tested during the week broke higher. NVDA for example. GOOG is testing right now, FB as well. They can make a new break and add to the push. They can. We will see if they continue their recent paths.
SOX: A pretty good barometer of the market as it often leads the overall market. SOX gapped lower Wednesday, sold off Thursday but held the November high. Friday it gapped back upside thanks to INTC's 10+% earnings gain. A new high early week was coughed up on the midweek selling prompted by AAPL's woes (and impact on its chip suppliers) and then TXN's earnings drag. Still trending upside, however. The key is how it responds after Friday's INTC-impacted move is absorbed.
DJ30: New high after new high, climbing up and indeed now off the 10 day EMA. When it gets a bit out over its skis like this, it tends to edge back toward the 10 day to continue the run after a pause. That is if the current trend holds. Extended off the 50 day MA over the past 5 months, and now an impressive 17.9% above the 200 day SMA. That is extreme for any index, particularly the Dow.
RUTX: New high Monday, Tuesday and Wednesday, then reversed intraday Wednesday. Well, it stalled is more appropriate. Held over the 10 day EMA with a Thursday doji, bounced Friday, but the money was not flowing to enough small caps to push to another high. Still a very good trend up the 10 day EMA after a new breakout in December from a 2 month consolidation.
SP400: Similar to RUTX, ran to new highs but also ran into a near term top Wednesday at the open. Faded but held the 10 day EMA on each low to end the week, putting in a pretty darn good test. Nice trend up the 10 day EMA continues after that mid-November tap at the 50 day EMA.
SP500: Started strong Monday, flattened out somewhat then surged Friday. It too has quite the upward ramp since the start of 2018 as tons of money has poured in.
LEADERSHIP
Chips: After TXN, LRCX, SWKS, STM struggled mightily on the week, INTC rode in, crushed earnings even with those chip flaws, and gapped over the November and December highs in its 3 month trading range, breaking out with a breakaway gap. Others still show promise, e.g. MRVL, of course NVDA, then CCMP, AMD, AMAT, MXL.
FAANG: AAPL continues its struggle but is holding the bottom of its range. FB jumped back up Friday and looks promising this week. New position perhaps. AMZN continues its runaway train imitation. NFLX gapped higher on earnings and continued upside into Friday. GOOG stalled Wednesday and slipped laterally into the weekend. Perhaps enough time for a pre-earnings play on a new upside break.
Software: RHT screaming higher Friday after a steady rise on the week. VMW exploded higher, giving us a big gain, on word DELL may buy it all. BLKB looks interesting. FFIV surged and purged on earnings. CRM may be ready to break higher again after its breakout and second test of the 10 day EMA.
Financial: Solid to excellent week. C hitting a higher rally high all week. JPM ditto. BAC as well. GS strong move off the 50 day MA.
Manufacturing/Machinery: CAT tested after earnings while CMI broke higher Friday from a consolidation. HON jumping on earnings.
China: Some excellent recoveries. BABA started higher Tuesday, we moved in midweek, it rallied to a new high into the Friday close. BIDU struggled through the week but held the 10 day EMA and Friday was at a higher closing high in this rally on some solid trade. BZUN broke sharply higher. HTHT struggled early week but held the 20 day and is trying to recover. SINA tested on the week to the 10 day EMA, dojied, then gapped higher and rallied to a higher high Friday.
Oil: Tested back some on the week with the big names faring a bit better. HAL finally testing after that gap higher Monday. APC showed a bit Monday and then crept up the 10 day the rest of the week. Some smaller names struggled, e.g. CRZO. PTEN, DNR not spectacular but they did move higher on the week.
Transports: Airlines down hard on their earnings, e.g. DAL, AAL, LUV. Truckers solid either testing (JBHT) or still rallying (WERN).
THE MARKET
MARKET STATS
DJ30 Stats: +223.92 points (+0.85%) to close at 26616.71
Nasdaq Stats: +94.61 points (+1.28%) to close at 7505.77 Volume: 2.07B (0%)
Up Volume: 1.44B (+504.59M) Down Volume: 600.8M (-509.2M)
A/D and Hi/Lo: Advancers led 1.54 to 1 Previous Session: Decliners led 1.06 to 1
New Highs: 305 (+93) New Lows: 30 (+1)
S&P Stats: +33.62 points (+1.18%) to close at 2872.87 NYSE Volume: 805.1M (-8.19%)
Up Volume: 2.32B (+790M) Down Volume: 1.05B (-1.15B)
Bulls and Bears: Bulls backed off the cycle high but still very strong. Bears ticked higher, but still at 30 year lows.
Bulls: 64.7 versus 66.7
Bears: 12.8 versus 12.7
Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.
Bulls: 64.7 versus 66.7 66.7 versus 64.4 versus 61.9 versus 64.1 versus 64.2 versus 62.3 versus 61.5 versus 63.5 versus 64.4 versus 63.5 versus 62.3 versus 60.6 versus 60.4 versus 57.5 versus 54.3 versus 50.5 versus 47.1 versus 49.5 versus 49.5 versus 48.1 versus 50.5 versus 57.5 versus 60.0 versus 60.2 versus 57.8 versus 50.0 versus 52.5 versus 54.9 versus 51.5 versus 50.00 versus 55.8 versus 50.00 versus 51.9 versus 58.1 versus 58.7 versus 58.5 versus 54.7 versus 51.9 versus 56.3 versus 55.8 versus 49.5 versus 56.7 versus 53.4 versus 57.7 versus 63.1 versus 61.2 versus 61.8 versus 62.7 versus 61.8 versus 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
Bears: 12.8 versus 12.7 13.5 versus 15.2 versus 15.1 versus 15.2 versus 15.1 versus 15.1 versus 15.4 versus 15.4 versus 14.4 versus 14.4 versus 15.1 versus 15.2 versus 15.1 versus 17.0 versus 17.1 versus 19.0 versus 20.2 versus 19.1 versus 19.1 versus 18.3 versus 18.1 versus 17.0 versus 16.2 versus 16.5 versus 16.7 versus 18.6 versus 18.8 versus 18.6 versus 18.3 versus 19.2 versus 18.3 versus 17.1 versus 17.3 versus 17.9 versus 17.9 versus 18.3 versus 17.5 versus 18.3 versus 18.1 versus 17.3 versus 13.75 versus 17.3 versus 16.5 versus 17.5 versus 17.6 versus 16.7 versus 17.6 versus 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
OTHER MARKETS
Bonds: 2.66% versus 2.627. Traded at the bottom of the 6 month range on the week, did manage to rebound some.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.66% versus 2.639% versus 2.617% versus 2.656% versus 2.661% versus 2.618% versus 2.587% versus 2.535% versus 2.55% versus 2.559% versus 2.551% versus 2.482% versus 2.456% versus 2.463% versus 2.464% versus 2.405% versus 2.434% versus 2.412% versus 2.474% versus 2.485% versus 2.484% versus 2.501% versus 2.459% versus 2.398% versus 2.351%
EUR/USD: 1.24308 versus 1.24159. Euro surged on the week but then threw a couple of tombstone doji to end it. A pause.
Historical: 1.24159 versus 1.24340 versus 1.23083 versus 1.22567 versus 1.22169 versus 1.2241 versus 1.2198 versus 1.22698 versus 1.22060 versus 1.20608 versus 1.19507 versus 1.19322 versus 1.19662 versus 1.20313 versus 1.20756 versus 1.20177 versus 1.20573 versus 1.2001 versus 1.1936 versus 1.1936 versus 1.18998 versus 1.18593 versus 1.18628 versus 1.18658 versus 1.18792 versus 1.18408 versus 1.17703 versus 1.1752 versus 1.17798 versus 1.18392 versus 1.17430 versus 1.17652 versus 1.1764 versus 1.17754 versus 1.17990 versus 1.18276 versus 1.18727 versus 1.18983 versus 1.18976 versus 1.18529 versus 1.18489 versus 1.1899 versus 1.19329 versus 1.18148 versus 1.17402 versus 1.1791 versus 1.1787 versus 1.1786 versus 1.1799 versus 1.16443 versus 1.16646 versus 1.16439 versus 1.15871
USD/JPY: 108.601 versus 109.411. Dollar melted on the week, failing at the 10 day EMA and tumbling. It is ripe to rebound to test the 10 day EMA, but it is in a downtrend now and will hit the early September low. Then it tries to rebound some.
Historical: 109.411 versus 109.033 versus 110.159 versus 110.159 versus 110.70 versus 110.834 versus 111.036 versus 111.290 versus 110.357 versus 111.024 versus 111.204 versus 111.534 versus 112.706 versus 113.15 versus 113.58 versus 112.749 versus 112.677 versus 112.27 versus 112.690 versus 112.758 versus 113.216 versus 113.208 versus 113.304 versus 113.363 versus 113.334 versus 112.870 versus 112.625 versus 112.619 versus 112.298 versus 112.639 versus 113.555 versus 113.476 versus 113.48 versus 113.473 versus 112.473 versus 112.554 versus 112.442 versus 112.190 versus 112.55 versus 112.102 versus 111.583 versus 111.244
Oil: 66.14, +0.63. After testing back to the 10 day EMA for a week, oil broke higher once more, closing at a new rally closing high.
Gold: 1352.10, -10.80. Big surge on the week to a higher high past the September peak, but gave it up with a Friday gap lower to test the 10 day.
MONDAY
It is either a certainty the market will at least correct or it will keep going for some time without correcting. Ah, when is, as usual, the key.
Many are afraid of flying because they have seen the crashes before. You have to respect the downside to keep what you made on the upside. You also want to play the upside while it is making you great money as it has. You just want to avoid, to borrow a trite but descriptive expression, picking up nickels in front of the steam roller.
As noted earlier, the move could end Monday. The new money getting pushed into the market could have seen its end Friday. Perhaps. The charts are extended, but nothing Friday showed they were done. A couple of volatile sessions with higher selling volume is something to note and watch for more occurrences, but they don't end the rally themselves. There are still very good stocks in good position, and if they can make the moves, then they make the moves.
Therefore we will look at some more upside positions this coming week and see if the money still comes into the market. Important earnings reports from AMD, FB, MSFT, AAPL, AMZN, BABA, GOOG, stocks that initiated the October break higher into the current run, are all due. Given the runs, will there be enough good news to push them not just higher for that day, but into new runs? The more they rally into the numbers, often the less likelihood of a sustained move afterward. NFLX, of course, excepted.
So, we are concerned about when the top comes, but even so we are looking at upside plays because the leaders are still setting up and rallying. As long as they set up, rally, and don't reverse those rallies the upside remains in charge and we want to play there.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 7505.77
Resistance:
Support: 7300 from a modest mid-January consolidation The 20 day EMA at 7254 The 50 day EMA at 7049 7,000 from mid-December 6914 is the late November all-time high 6796 is the early November 2017 The 2016 trendline at 6720 6641 is the October high The 200 day SMA at 6494 6477 is the September intraday high 6461 is the July 2017 prior all-time high 6450 is the early September high 6341.70 is the all-time high from early June. 6300 is the mid-June interim high 6205 is the late May all-time high 5996 is the recent May 2017 low 5937 is the all-time high from April 5915 is the tops of the March to April 2017 range 5910 is the lower gap point from mid-April 5800 from the February consolidation lows
S&P 500: Closed at 2872.87
Resistance:
Support: 2808 from the mid-January consolidation. Some support, not that strong. The 20 day EMA at 2782 2751 from early January 2018 The 50 day EMA at 2710 2694 is the mid-December peak 2597 is the November 2017 high 2569 is the upper channel line from the March 2009 uptrend channel The 200 day SMA at 2523 2491 is the August all-time high 2480 the late August and early August highs 2453.46 is the June prior all-time closing high 2409 is the July 2017 closing low 2406 is the all-time high from May 2017 2401 is the March 2017 all-time high 2352 is the May 2017 low
Dow: Closed at 26,616.71
Resistance:
Support: 26,000 from mid-January consolidation The 20 day EMA at 25,740 24,835 is the mid-December consolidation range The 50 day EMA at 24,923 24,312 23,602 is the early November 2017 high 23,608 is the early November high The 200 day SMA at 22,564 22,420 is the September high 22,179 is the August 2017 all-time high 22,086 is the mid-August lower high 21,681is the July prior all-time high 21,638 is the July 2017 closing high 21,529 is the June 2017 high