- Another tit in the tit for tat trade blustering and some weak jobs end a weak 3-day bounce. - A lack of strong buyers along with a lack of strong sellers leave the indices in the same place for a second week. - There are some great leadership stocks, just not enough. - Earnings are next on tap and expectations are for a great season that will repair the market. That is the problem, the expectations. - Stocks are lower heading into earnings season and that provides opportunity even if an earnings bounce ultimately cannot hold.
The past week did little but establish there are not many buyers in the market. Not many sellers either, somewhat surprising given all the negatives you hear from the financial stations each day.
The lack of buyers shows up with the sessions the market did rally. When the market managed to cobble together gains as it did on the Tuesday to Thursday, the move showed low volume and narrow breadth. As soon as a negative story hit, the bids were pulled and stocks slid back, e.g. Friday. More proposed Trump tariffs scuttled the advance and stocks started lower and closed lower.
VOLUME: NYSE +17%, NASDAQ +10%. Ah, once again stronger volume on the downside than upside, but -- it is also with the indices holding support again. When a stock or index holds support on volume and coming off the lows some, that is not terrible action. Okay, a bit of a positive spin there, but one silver lining is not bad.
ADVANCE/DECLINE: NYSE -3.7:1; NASDAQ -3.6:1. Of course breadth is much stronger on the downside than up. That is the MO of this market.
When the market sold, however, there was no groundswell of volume indicating the sellers were pouring in to ravage the market. Monday stocks sold but volume remained light. Friday they sold again but volume, while higher, was still below average. The selling was just not that heavy; more as if the modest bids that led to the low volume rise on the week were pulled and stocks slid back. The sellers are there, the buyers are there, but both are in rather small numbers right now.
The result is the indices basically maintained their positions after a week of volatility. The week should have shown which side would win out as SP500 and DJ30 had tested the February lows while NASDAQ tested is 2016 trendline. When the bounce came, however, there was no internal strength as noted, and on the first seriously adverse story, it fell back.
The inability to bounce suggests the upside does not have the chops to sustain a move. Given the thinner leadership that makes sense, but it does not mean the move has to fail. The inability to hold a move when bouncing off a key low is not good action, but the up and down movement over the February lows the past two weeks actually allows a thin group of leaders to expand by improving their patterns and thus developing the kind of leadership and stamina needed to hold a move may eventually emerge.
It is rather clear where the battle lines are drawn. For DJ30 and SP500 it is the February lows and the 200 day SMA. For NASDAQ it is the 2016 trendline and the 200 day SMA. SOX is working the channel line and the 200 day SMA. SP400, the trendline and the 200 day SMA. Ditto RUTX.
Those are the battle lines, but for now neither side has the army big enough to overrun the other. A positive for the upside is that after a dramatic thinning of leaders, they are on the return with some well-known names coming back to the fore along with some new or perhaps semi-new sectors. Another positive is that despite all of the negatives impacting the stock market (tariff threats, slowing economic data (e.g. consumer spending, jobs report), Fed in a semi-tightening mode) and every opportunity to break stocks down, the sellers could only hold the indices at support.
Positives for the downside include the failed bounce attempts off key support, the lack of broad market leadership, and no quick resolution to the news stories negative to stocks, a main one being the tariff story and its loose cannon status.
That leaves stocks heading into next week in the same position as this week: at support, still looking to see if they can bounce. Earnings season gets underway and after a series of negative stories failed to take stocks lower, could this finally bring the bids back? The time at support has allowed some more patterns to develop, and the longer it holds and more patterns set up, the better the upside potential.
Sure not many feel positive about the market's situation with all the selling, the headwinds, and the inability to hold a bounce. But if the sellers cannot take it lower despite all of this, out of the negativity a good earnings season can cause a very tradable bounce. Certainly stocks are lower heading into the season, leaving upside room versus being targets sitting on big moves.
We will see. If upside patterns continue to develop in good stocks, then they have the opportunity to show us they can make the moves. If earnings disappoint it could get ugly -- blaming tariff talk could be a line we hear a lot regarding guidance. That is okay, however. If stocks make the breaks higher from good patterns on volume, then that is the signal. If they don't and then break down, we play the break lower at that point because . . . the pattern will be resolved.
THE MARKET
CHARTS
DJ30: A second week bouncing around the February lows, indeed undercutting the February low intraday Monday. All the while DJ30 danced at the 61% Fibonacci retracement of the September to January rally, as well as the 200 day SMA. Two weeks at these levels, perhaps getting a bit too long. Did try to bounce starting Tuesday and through Thursday, but had no volume or breadth. Now with the Friday drop DJ30 starts over to try again, but no doubt it like gives it a shot. Note how it came off the low after tapping the 61% dead on. Double bottoms at this level have a good history, if all remains equal, of rallying nicely.
SP500: Very similar to DJ30, also spending a second week near the February lows, undercutting the closing low Monday through Wednesday on the intraday lows. It held at the February closing low and the 200 day SMA, and tapped the 78% Fibonacci retracement on the Monday intraday low before rebounding, just as it did on that big intraday drop in early February. Thus, basically the same as DJ30, just at a lower Fibonacci retracement, also a good level to double bottom and rebound.
NASDAQ: NASDAQ tested down to the early February closing low starting Monday, and that put in the low for the week though it was tested Tuesday and Wednesday. On the closes, NASDAQ held very near the trendline from early 2016. It also held over the still rising 200 day SMA on the lows. Not a double bottom as explained last week given the higher March high, but it is in a channel outlined by the highs and lows this year. Perhaps it will adjust into a new, larger channel than the prior tight one that was of course aided by the FOMC's spoon feeding the market.
SOX: Very similar to NASDAQ, working in a wider channel but this channel has held together the past 6 months. Over the rising 200 day SMA, testing the same as early February. Can put a higher low and continue higher. If it is going to do it, time to do it.
SP400: Two weeks over the 200 day SMA, holding that level just as in early February. SP400 looks very sluggish here but it is still trending higher.
RUTX: Sold to the 200 day SMA with the Monday flop, rallied Tuesday to Thursday, then Friday rolled back over. Okay, RUTX is very similar to SP400, i.e. sluggish but can put in a higher low at the rising 200 day SMA. Small caps are economically sensitive and they are struggling, not near leading the market.
LEADERSHIP
There are stocks improving their looks and some actual breaks higher on the week, breaks on good volume. One notable aspect is that in many situations there are a small number of stocks in a sector that are showing good action. That shows just how undecided the market is when only stocks here and there are forming up more bullish patterns. The slight increase in leadership stocks is in part due to that two weeks of holding support and working up and down, buying time to form up. In order to sustain a move higher, the market will need more leadership to step up, however, and right now they are not lining up.
FAANG: Pretty much toothless at this juncture, at least for the upside. NFLX still has some starch in it, holding at the late January high/50 day MA, but it has to make the new move. AMZN bounced up to the 50 day MA after gapping below it late March. Recovered, now looks weak. AAPL is still slogging through the trading range. FB remains in purgatory. GOOG is trying to hold the 200 day SMA. Trying. It looks very much as if this group's leadership mojo is gone.
Chips: Hard to find anything that is really positive. INTC is still working at the 50 day MA, attempting to shake off a downgrade. MU was downgraded as well and extended its pullback. KLIC is not bad but far from 'buy me' position. ON fell off a higher high in early March but is now approaching its lower channel line and could bounce. LRCX is bunching up over the 200 day SMA and near the 78% Fibonacci retracement. NPTN is working on a pattern. None of these are in great position right now, and many chips that were decent are sinking, e.g. XLNX.
Energy: A few are trying to set up. DO, MRO, HAL -- a few.
Tech: NTNX still solid. STX not bad with a 2 week move over the 50 day MA. AKAM (internet) still good at the 50 day MA. PANW testing a good move. CREE remains in a nice pattern.
Retail: Off Friday in many cases, but still solid. M testing a 2-day move as is DDS. TJX tested a 3-day move. BKE, ZUMZ are working well.
Drugs/Healthcare: DVAX nice cup. HIIQ is looking good again.
Construction: FLR is interesting. DHI, PHM in residential construction have intriguing patterns.
Misc: Z, HLF, TRIP. These still look good but have to show a move that sticks.
MARKET STATS
DJ30 Stats: -572.46 points (-2.34%) to close at 23932.76
Nasdaq Stats: -161.44 points (-2.28%) to close at 6915.11 Volume: 2.36B (+10.28%)
Up Volume: 702.08M (-717.92M) Down Volume: 1.63B (+936.82M)
A/D and Hi/Lo: Decliners led 3.58 to 1 Previous Session: Advancers led 1.69 to 1
New Highs: 40 (-17) New Lows: 56 (+30)
S&P Stats: -58.37 points (-2.19%) to close at 2604.47 NYSE Volume: 879.4M (+16.69%)
A/D and Hi/Lo: Decliners led 3.69 to 1 Previous Session: Advancers led 2.72 to 1
Bulls and Bears: Bulls dove, bounced, then dove once more. Getting a bit out of the stratosphere, a good thing to happen, but not that low yet. Bears are up, but still relatively weak compared to bulls.
Bulls: 49.5 versus 55.5
Bears: 17.5 versus 16.8
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: 49.5 versus 55.5 55.5 versus 54.9 versus 48.6 versus 48.1 versus 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: 17.5 versus 16.8 16.8 versus 15.7 versus 15.5 versus 14.4 versus 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: 2.775% versus 2.812%. Of course the trade worries and jobs report bounced bonds again. After a week pulling back to test the 50 day MA after breaking over it, a bounce upside Friday in an attempt to continue the new rally off the February low.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.812% versus 2.806% versus 2.781% versus 2.739% versus 2.714% versus 2.781% versus 2.775% versus 2.854% versus 2.813% versus 2.814% versus 2.881% versus 2.90% versus 2.852% versus 2.826% versus 2.819% versus 2.844% versus 2.866% versus 2.896% versus 2.872% versus 2.879% versus 2.863% versus 2.879% versus 2.868% versus 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%
EUR/USD: 1.22812 versus 1.2247. Euro continues in its 3 month lateral range around the 50 day MA.
Historical: 1.2247 versus 1.2285 versus 1.22698 versus 1.23073 versus 1.23234 versus 1.2406 versus 1.24494 versus 1.2351 versus 1.23301 versus 1.23467 versus 1.22478 versus 1.2342 versus 1.2287 versus 1.2304 versus 1.23782 versus 1.2392 versus 1.23412 versus 1.2305 versus 1.2305 versus 1.24017 versus 1.2411 versus 1.2344 versus 1.23187 versus 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
USD/JPY: 106.939 versus 107.11. Dollar bounced starting late March with the tariff talk, and last week it broke over the 50 day MA's, testing the move Friday.
Historical: 107.11 versus 106.816 versus 106.797 versus 105.901 versus 106.286 versus 106.81 versus 105.397 versus 105.473 versus 104.789 versus 104.829 versus 105.892 versus 106.478 versus 105.945 versus 105.946 versus 106.344 versus 105.846 versus 106.42 versus 106.335 versus 106.77 versus 106.41 versus 106.105 versus 105.752 versus 106.359 versus 105.734 versus 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
Oil: 62.06, -1.48. After bumping the January high two weeks back, oil has faded and now is fighting to hold the 50 day MA.
Gold: 1336.10, +7.60. Gold tested again on the week, now a 2 week test to the 50 day MA, attempting to put in a higher low and take on resistance at 1360-65.
MONDAY
Jobs are out of the way and were less than impressive. As I noted last week, two weeks back, a month back, the US economy has hit a slow spot. It is likely just a slow spot, but you have to keep watch on the small and midcaps as they are lagging the rest of the market, and if the tax cuts are going to kick in and help the economy you would anticipate they would bottom and start to move back up.
Nearer term there are a couple of competing forces.
Earnings are here and I have heard many, many commentators talk about how earnings are going to right the market's ship because there is expected 16% to 19% growth. Okay, great, but those are the expectations. Earnings tend to work best when expectations are not too grand then companies blow by them as did FAANG in October 2017. Expectations, the same as gravity as Mountain Rescue climber Hal noted in the movie 'Cliffhanger,' can be a b**ch. It sets the bar high and it is a lot easier to disappoint.
On the other hand, stocks deflated valued ahead of earnings and that gives a nice on ramp to higher prices if earnings are solid and the general conditions are upbeat. Ah, if general conditions are upbeat. If this market volatility after a long run upside is forecasting economic issues then earnings, though they might provide a very tradable rebound from the recent dip, would not rescue the market. The market looks ahead and earnings are the past.
The second competing force is leadership. The market can bounce on earnings given the pullback heading into the season. If the move is going to sustain then it must have leadership. There is still not enough leadership. The two weeks bouncing up and down at support has improved some patterns, but frankly we don't see enough good patterns in sectors that provide leadership for true moves higher. You need growth to help lead, whether that is growth in tech, small caps/midcaps, or even the large caps selling to the rest of the world (e.g. CAT). There are definitely growth stocks in leadership positions with good patterns. There are just not a ton of them and we are not seeing a lot developing in the wings. That is a major debilitating factor for any move higher on earnings.
Thus, this setup ahead of earnings is one that can easily lead to an earnings bounce. After that, however, unless more and more stocks set up a bit better and make good upside breaks, any rebound is likely limited in its height and duration. Certain things have to happen for a market to sustain a break higher, and leadership is a critical element. Perhaps there are some groups out there we have discounted too much that will suddenly pull it all together and lead. That would be awesome and of course we would spot them quickly. We will watch for those, but if they are forming up right now they are doing so with very good camouflage.
Therefore, we are going to look at upside for that earnings move higher, using in many cases stocks we already have on the report. Why? Because they are the better patterns and this market is short on upside patterns. Energy needs to show up, software would help, security software is trying to set up and some are moving, homebuilders are interesting -- but work needs to be done. Upside plays into earnings season? Yes. Downside plays on deck if the 2 weeks of bouncing at support fails? Yes as well.
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