- Stocks sell farther early Friday, reverse in a pre-weekend short covering move. All but Dow turn positive. - Too many stories hit the market: tariffs, Japan QE end, Fed rate hikes, Putin's bomb. - Perhaps more upside to the new week, but the probabilities still suggest another drop. - Still very good leadership groups and stocks, but that does not guarantee a climb to a new high from here. - Market is not in a new trend so we stay with less money in the market as we wait for the next big move and then the next trend.
After breaking higher the prior Friday and Monday, clearing the weeklong consolidation, stocks sold Tuesday into Friday. Japan's Kuroda rather unexpectedly musing it might be time to end QEJ (QE Japan). The US announcing metals tariffs, others vowing retaliation and the US vowing retaliation to retaliations. Interest rates, the Federal Reserve gone wild (supposedly), Russia's Putin bragging my missile is bigger than yours. That makes for a nice, steady market.
As for the tariffs, after the initial round of outrage, Trump said trade wars were good and boasted they are easy to win. Oh, that is a relief. I thought this history thing was a problem. Okay, I see it. For decades the US has let China and others get away with agreements and 'understandings' that advantaged them and seriously disadvantaged US producers. When they have a cushy deal for a long time, and you then come in and say 'it is time to adjust the terms now that you are on your feet and doing well,' they squeal like stuck pigs. Or more politically, it 'outrages the global community.' The nerve. You help them out, they prosper, now you want to move back to an even playing field. 'Foul' they cry. Okay, I guess we should have just crushed your businesses into pulp when we had the advantage. Instead we helped you out and now you cannot admit your good fortune and continue to work hard.
Instead the WTO threatens sanctions, purportedly to even things back out. The irony, of course, is that the US is simply attempting to move back to a deal that is for equals now that the other countries have their industries working well. The WTO and impacted countries, however, react in a manner that would make the arrangement even further skewed in their favor. You truly get no good will for acting with good will toward other countries. You give, they prosper, you then say there is no longer any need to give, and then you are a villain to be condemned. Again, why then bother to be nice in the first place? You get nothing for it. Other than, of course, 'death to America.'
Market action.
Three days hard down, Friday the same with futures opening sharply lower and stocks selling off through the first hour. In that first hour, however, they found support and started to recovery. A midmorning test lower put in a higher low and stocks managed to rally to the close.
Short covering? Sure it was. As noted in the pre-market alert, after the 3+ days downside and ahead of the weekend a short covering bounce could ensue. It did and stocks made that recovery, though not all made it back to positive.
VOLUME: NYSE -10%, NASDAQ -8%. Lower trade on the rebound from the selling sessions, though still above average. At least there were a significant number buying and covering shorts.
ADVANCE/DECLINE: NYSE 1.7:1, NASDAQ 3:1. Decent breadth. Not as strong as the downside when the selling started, but stronger than the Thursday downside breadth.
Thursday I discussed NASDAQ and SOX as being in position to bounce. Okay, they did, just took them a bit longer. And it was a good bounce as SOX tested farther to the 50 day MA and then reversed smartly. NASDAQ gapped below the 50 day MA and then reversed. Those were the two we though had a shot and they made pretty good runs at it, particularly SOX.
If the market is going to rally again from here it is because of those two, perhaps you can throw in RUTX as well. The small caps out in another downside session but held the Thursday low and reversed, holding some key support levels.
SP500 was so-so, gapping lower then recovering to positive, but lower trade and not taking back any significant levels. DJ30 similar and it did not even make it back to positive. SP400 put in a decent move, but it closed still below important levels.
Can SOX and NASDAQ, and perhaps RUTX, drag the others back up? Their components certainly showed the kind of firepower Friday that could do it, but they are not the entire market. NFLX moved to a new high on a strong breakout with volume. INTC bounced sharply off support. CSCO held beautifully and bounced. MU strong. They can lead, but they have to show they can drag the others back with them.
We did close some positions and picked up some. Wish we had not closed AMZN but we did keep one open so we still have some upside exposure there. If NFLX continues upside on this breakout, you have to look at adding positions. Even if the market doesn't follow, NFLX doesn't seem to care.
THE MARKET
CHARTS
SOX: Sold into Thursday but bounced off a tap at the 50 day MA. Friday a gap to the 50 day SMA set up a rebound, taking back all the Thursday loss. By the way, Thursday's close held the November peak, an important level. SOX does not look bad, indeed, it looks the best of the group.
NASDAQ: After selling to the 50 day SMA on the Thursday close, NASDAQ gapped below both 50 day MA. It held 7100, reversed upside. Decent action, held where it had to, but not the same strength as SOX.
RUTX: Sold again Friday morning, matched the Thursday low, but as on Thursday, rebounded. This time it did not just hold the October high but blew past it as well. Nice recovery from a support level, but frankly its chart is far from providing any upside warm feelings. It sold hard for 2+ sessions and then bounced hard for a session. 1550 is key for it (closed at 1533).
SP400: Sold again Friday, but reversed off support at 1840, posting a solid gain. Nice relief move, but the pattern is not great, has resistance overhead at 1900 (closed at 1878), and the pattern is overall bearish until it can make an important upside break.
SP500: Broke lower in the ABCD downside pattern and solid three sessions and then into Friday before it recovered to a modest gain. Still at resistance, so this lower volume bounce is suspect indeed. A move to the 50 day MA's on continued lighter trade than the selling sets up the return trip to the February low.
DJ30: The only index that did not recover to positive Friday. Gapped, sold, recovered, but came up short just below the December consolidation resistance. Not looking great as it sold off in its own ABCD downside pattern. After a short bounce that perhaps mimics DJ30, it likely rolls back over.
LEADERSHIP
Chips: Again one of the best upside groups, having come from trash to tolerable. MU, AMAT, QRVO, XLNX, NVDA have workable patterns. LRCX is still good and MLNX made a quick test and is looking good to move upside.
FAANG: NFLX is the cream of the crop with its new breakout. FB sold to near the 200 day SMA and is trying to bounce. AAPL held the 50 day SMA and rebounded, but is still locked in its range. AMZN fell to the 20 day EMA, bounced on very solid trade. GOOG gapped lower again, but did reversed to positive; could not recover the 50 day MA's.
Software: RHT, FFIV bounced nicely off test. BLKB, MSFT not bad bounces either. VMW gapped sharply lower; great. Overall, however, still a good group.
Metals: No major move Friday, but with their patterns, that is not bad news. STLD held the 20 day EMA and bounced some in a nice pattern. RS held its pattern well. SCHN shook us out unfortunately. FCX has now test up an interesting pattern.
Drugs/Biotech: Still some good patterns and action. IMGN bouncing off the 10 day EMA test. IMMU moving up off a 50 day MA test. PTCT shook us out of a position but recovered. VCEL moving back upside on volume. ARRY bouncing. AMGN reversed off its doji, showing big volume.
Financial: Some 50 day MA tests in progress. BAC, JPM tested and started to bounce. GS still below the 50 day. C bad.
Retail: Some impressive moves, solid holds, and interesting patterns. DDS explodes higher again. TGT holding decently in a nice developing pattern over the 50 day MA. TLRD not gad. ROST keeps hanging on for now. HD gapped to the 78% Fibonacci retracement for what could be a double bottom at that level. KSS sold to the 50 day MA then reversed sharply upside Friday. There is good promise here.
MARKET STATS
DJ30 Stats: -70.92 points (-0.29%) to close at 24538.06
Nasdaq Stats: +77.31 points (+1.08%) to close at 7257.87 Volume: 2.29B (-8.03%)
Up Volume: 1.66B (+817.87M) Down Volume: 603.84M (-1.016B)
A/D and Hi/Lo: Advancers led 2.99 to 1 Previous Session: Decliners led 1.42 to 1
New Highs: 64 (+31) New Lows: 72 (-30)
S&P Stats: +13.58 points (+0.51%) to close at 2691.25 NYSE Volume: 900M (-10.00%)
A/D and Hi/Lo: Advancers led 1.71 to 1 Previous Session: Decliners led 1.5 to 1
Bulls and Bears: The plunge slowed for the bulls, but there is already a massive drop in place the past three weeks.
Bulls: 48.1 versus 48.5
Bears: 14.4 versus 14.6
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: 48.1 versus 48.5 48.5 versus 41.9 versus 54.4 versus 66.00 versus 64.7 versus 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
Bears: 14.4 versus 14.6 14.6 versus 14.4 versus 15.5 versus 12.6 versus 12.8 versus 12.7 versus 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
OTHER MARKETS
Bonds: 2.868% versus 2.799%. After moving higher on the week and a solid break higher Thursday, bonds sold back from the 20 day EMA test.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.799% versus 2.875% versus 2.893% versus 2.864% versus 2.866% versus 2.934% versus 2.952% versus 2.893% versus 2.873% versus 2.904% versus 2.913% versus 2.833% versus 2.857% versus 2.8577% versus 2.844% versus 2.813% versus 2.805% versus 2.707% versus 2.841% versus 2.792% versus 2.713% versus 2.72% versus 2.72% versus 2.66% versus 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: 1.23187 versus 1.22822. Euro bounced after 2 weeks of selling, moving back over the 50 day MA Friday after a reversal Thursday.
Historical: 1.22822 versus 1.21894 versus 1.21893 versus 1.23257 versus 1.2296 versus 1.2324 versus 1.22820 versus 1.23431 versus 1.2411 versus 1.25083 versus 1.2450 versus 1.23528 versus 1.22887 versus 1.22524 versus 1.2273 versus 1.2377 versus 1.24573 versus 1.2502 versus 1.2404 versus 1.2402 versus 1.23832 versus 1.24308 versus 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
USD/JPY: 105.734 versus 106.03. Dollar sold off Wednesday to Friday, testing the mid-February low and showing a doji. Perhaps a double bottom?
Historical: 106.03 versus 106.695 versus 107.381 versus 106.96 versus 106.886 versus 106.85 versus 107.581 versus 107.435 versus 106.294 versus 106.153 versus 106.782 versus 107.77 versus 108.669 versus 108.669 versus 108.797 versus 108.88 versus 109.33 versus 109.58 versus 108.651 versus 110.001 versus 109.46 versus 109.50 versus 108.77 versus 108.84 versus 108.601 versus 109.411 versus 109.033 versus 110.159 versus 110.159 versus 110.70
Oil: 61.25, +0.26. Oil sold on the week from a lower high, holding at some support at 60.00, bouncing twice off the low there Thursday and Friday. Looks weaker, however, likely tries an ABCD setup. That means, however, more near term weakness.
Gold: 1323.40, +18.20. Gold could not make up its mind on the week, though it was lower. Sold hard Tuesday and again Thursday, falling through the 50 day MA. Friday a bounce, but it did not change the pattern. Very jumbled right now as it could not hold an easy 50 day MA test.
MONDAY
A flood of data on the week starting with ISM Services Monday followed by the jobs data Wednesday, Thursday, and Friday.
Important, may make a difference to the market in the end, but right now stocks are on a bumpy road that is likely not at its end just yet.
SOX looks better and better, NASDAQ is decent, RUTX is trying. There are still several leadership groups that still sport very nice patterns. Promising, but the market started to sell again last week and likely it sees out the historical pattern. The Friday bounce was no doubt short covering, and perhaps SOX and NASDAQ can help keep the move upside to start the week. It did sell from an ABCD downside pattern and it is possible the downdraft is over.
After a day or two, however, I would not be surprised if the move runs out of gas and the final test toward the February low is on. The leadership looks good and it could lead the market higher. What likely happens as the market sells again to test the prior low, and during that time these stocks can hold up and be ready for the bounce. Other stocks can use that to work on their bases. That is the usual scenario.
Friday was interesting, a solid short covering move. The next point of note is how stocks open Monday. A bounce and we see how it holds, for the day or more. A bounce can turn into something really solid given how many quality stocks there are in good patterns, but it has to prove it. For those stocks that bounce but are lagging, using the move higher to exit is not a bad strategy. Using the move higher to exit some March options is also not a bad idea.
New positions? There are patterns that look good still and are moving well. You cannot ignore NFLX. We can play some of them as they bounce, but as before, knowing any bounce now is still just likely a relief move.
The probabilities are that the market is not through the selling episode yet. A bounce could turn to a new high but likely stalls out and then makes that second drop that usually puts an end to a selloff . . . IF the economy is still solid, if the Fed is not on the path to wreck it, if war does not erupt, if the trade issues don't explode.
A few ifs, but for now we play the market that has the most probabilities, and that is a test to the prior lows. The more immediate question is whether the market can make more upside than just the Friday move before it stalls and falls. Again, we want to use the move higher to position better for the likelihood of a second drop.
The reason is this is a tumultuous time in the market. Trends are in flux and thus moves are for most stocks shorter term. That is why while we have positions, we don't have a lot of money in the market right now. Too easy to get whipsawed. When the break lower occurs, if it does, sure we want to play that downside short term. Then when a new move starts, if there are very good patterns to play, that is a time to put more money in. If the move lower does not come, we play leaders upside, and if more and more join in and the market breaks out, we put more money to work.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 7257.87
Resistance: 7300 from a modest mid-January consolidation 7400 is some price resistance from both sides of the mid-January all-time high 7438 is the February lower high 7506 is the January 2018 all-time high
Support: 7240, the upper gap point from early February 2018 The 50 day EMA at 7145 6918 - 6980 are price points from November/December 2017 6914 is the late November all-time high 6796 is the early November 2017 6641 is the October high The 200 day SMA at 6635 6630 is the February 2018 selloff intraday low 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 2691.25
Resistance: 2694 is the mid-December peak The 50 day EMA at 2713 2744 is the 61% Fibonacci retracement of the selloff 2751 from early January 2018 2762 is the upper gap point from early February 2789 is the February lower high 2808 from the mid-January consolidation. Some support, not that strong. 2850 from a January 2018 gap point 2873 is the January all-time high
Support: 2597 is the November 2017 high 2584 is the upper channel line from the March 2009 uptrend channel The 200 day SMA at 2561 2532 is the February 2018 intraday selloff low 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 24,538
Resistance: 24,835 is the mid-December consolidation range The 50 day EMA at 25,000 The 61% Fibonacci retracement at 25391 The lower gap point from February at 25,521 25,800 is the February lower high 26,000 from mid-January consolidation 26,439 is a gap point from the January high January 2018 all-time high 26,617
Support: 23,608 is the early November high 23,602 is the early November 2017 high 23,360 is the intraday low form the February selloff The 200 day SMA at 23,077 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