- Too much turmoil and geopolitics for many to buy into the weekend. - Stocks start higher but fade off the higher highs. - Indices cannot take out the 50 day MA's yet, but volume and breadth are light. - Syria strikes raise risk level, but Trump declares 'mission accomplished.' - Earnings start with NFLX leading off Monday as indices are in position to continue the rebound rally. - Still plenty of leadership in position to move higher.
The week did not end great, but while the stock indices traded lower Friday, the overall week was positive. Even Friday. No, not a rip higher, but a second bounce from the February lows, one that produced better internals and much better moves by some solid leader stocks. The bounce took RUTX past the 50 day MA's, but the rest of the indices still had to deal with that level, something we noted as this bounces' first test. Wanted them to move through and then come back and test from above a la RUTX, but that was not in the cards. With the move higher on the week and a weekend with still many potential flashpoint issues, after a higher open the bids dried up and stocks solid back, really struggling in the afternoon session.
VOLUME: NYSE -4%, NASDAQ -13%. Volume, already low, tumbled Friday. NYSE posted another below average session, NASDAQ faded as well. Volume was quite light all week with one good upside session Tuesday when the market kicked in its first good upside move in awhile with some good internals and leadership.
ADVANCE/DECLINE: NYSE -1.3:1, NASDAQ -1.7:1.
These internals show no selling, just a drying up of the bids ahead of the weekend. People were not dumping stocks ahead of the weekend, they just stopped buying given all of the geopolitical issues in the world. Oh, and it was Friday the 13th as well.
Again, it was not a great week of power. It was, however, the second bounce off the test of the February lows by SP500 and DJ30. It showed the internal strength and particularly leadership that the first bounce did not have. As you are aware, we concluded based upon the internals and the improved action in leaders that a tradable rally was beginning and thus we started buying the good moves. It is interesting that Friday Byron Weems said he believed that the market would test the February low and then move higher from there. It would appear to us that the February lows have been tested and the market is already moving upside despite the Friday sluggishness.
Accordingly, we picked up quite a few positions on the week, greatly expanding our exposure to the market. Some really good names moving really well. The key now, as noted late week is whether the indices can overcome the first test, the 50 day MA's, and continue the rally into earnings. Friday was a 'no,' but that was not the seminal test. This week more earnings come out and the market is set up quite well to move higher and continue the rebound.
What about the geopolitics, e.g. the late Friday strike on Syria by the US, France and UK (Germany sat this one out)? If things spiral out of control of course all bets are off. Thus far, however, the market is shaking them off and moving higher, even if on low volume.
Remember, this does not mean we think new highs are going to result. They can but the market will need a real boost and get a lot more volume to make that happen. Earnings can provide that as they did in October 2017. Thing is, the move higher has been steady and straight for a long time. Starting in January and that four week surge to higher highs, the market moves are much more volatile. That is something moves tend to show near their end before a deeper correction is needed.
Also, the patterns developed in the indices suggest a rebound but more has to be shown to make new highs. Specifically, SP500 and DJ30 set up double bottoms at the 78% and 61% Fibonacci retracement, respectively, of the September through January rally. Those are reliable upside bounce plays with a maximum target at the prior highs. Beyond that, again, needs to have something more to drive it.
Therefore, on this move we play the pattern move. Then if something more shows up to drive stocks higher, we enjoy the ride as we are already in, and we take the opportunities presented in other stocks that will show up. We know that to be the case because if the move continues beyond a bounce there will be new leaders and new opportunities to play the upside.
THE MARKET
Friday the lackluster economic data continued as the slow spot I discussed over a month ago -- and that the Fed just acknowledged this past week -- continues. Michigan Sentiment was not bad but it posted the biggest loss in 18 months.
Then there are the geopolitical issues dominated by trade, and after Friday evening, perhaps Syria/Russia. One bright spot Friday was Secretary Ross stating at a conference in Lima, Peru that he anticipates a new deal on NAFTA by the third week in May.
Thus far, the market, while buffeted day to day by the news, has overcome the negatives and is rising off the February lows. It is not a massive surge but it is showing the right credentials in internals (when it counts) and leadership. Even IBD says the market is now in what it calls a confirmed uptrend again. As noted, we are playing that move, using rational expectations.
CHARTS
RUTX: The small caps get the pole position today because they led the move starting with a Tuesday surge off a higher low. That higher low was a test of the initial move from the 200 day SMA and selloff that started mid-March. RUTX broke higher through the 50 day MA's and extended that move into Thursday. Friday of course it was off, but it is testing from a position of strength, i.e. from above. That bodes well for RUTX successfully testing and resuming the move upside.
SP400: Moved through the 50 day MA's Thursday on the high but could not hold it. Again Friday but could not hold it. Still an improved pattern, showing a pennant the past 3 months. Looks ready to follow RUTX through that first resistance.
NASDAQ: Moved up to the 50 day MA's on the week, but was rebuffed Friday. Holding over the rising 10 day EMA and we anticipate NASDAQ to continue the move next week given the good leadership. NASDAQ appears to have formed a new, wider uptrending channel using the 200 day SMA on the lows. Rallied off that level just over a week back, a quick test, then the move higher last week.
SOX: Came off the channel lower trendline Monday and posted a great move into the Friday open. That move SOX through the 50 day MA's, but it could not hold the move. Still trending in its 5 month channel, coming off the low the past week as noted.
DJ30: Off the February lows touched just 7 sessions back. February lows, 200 day SMA, 61% Fibonacci retracement -- very good support. Bounced up to the 50 day EMA Friday, faded modestly, lower trade. Okay, a double bottom at the February lows, and now something of a downward pointing wedge forming. Wedges tend to resolve to opposite direction of the point, and in this case that would be upside.
SP500: Also held the February lows, 200 day SMA, and its 78% Fibonacci retracement. Bounced through the Friday open, testing the 50 day MA's from below. Faded that move, but is in very good position to hold and continue the move higher.
LEADERSHIP
FAANG: NFLX and the four dwarves. NFLX was up all week in a good move. AAPL up but still lodged in the range. AMZN looks weak below the 50 day MA. FB managed to bounce on ZBurg playing nice to Congress, but still has to appear before the EU. GOOG is holding at the 200 day SMA; perhaps some day it can put in a bounce. For now, money has left all of this group outside NFLX.
Chips: Still a struggle but working on it. LRCX not bad with a move up on the week. AVGO gapped upside on a big share buyback program, but still has to show its pattern can hold up. INTC is back near its high, coming off the 50 day MA. MU is moving up off the 50 day MA. MXWL, AMAT not bad while MLNX is putting in higher highs. There are leaders.
Drugs/Biotech: AMED, AMAG had good weeks though Friday was off. DVAX was strong but fell to the 10 day EMA Friday. UNH still trying to set up, ARWR looks great, INO setting up, MYL not bad. VRX looking good. Good group.
Software: Really improving. RHT a good move last week, FFIV awesome for us. CRM trying to make a break. GLUU breaking higher in the gaming software. NOW setting up, COUP looks nice.
Oil: DO working quite well. HAL continues higher. APC as well. A group of leaders that held up working well. Others are attempting to catch up. Like NBR.
MARKET STATS
DJ30 Stats: -122.91 points (-0.50%) to close at 24360.14
Nasdaq Stats: -33.60 points (-0.47%) to close at 7106.65 Volume: 1.76B (-12.87%)
Up Volume: 491.17M (-928.83M) Down Volume: 1.25B (+675.7M)
A/D and Hi/Lo: Decliners led 1.64 to 1 Previous Session: Advancers led 1.85 to 1
New Highs: 52 (-19) New Lows: 30 (+8)
S&P Stats: -7.69 points (-0.29%) to close at 2656.30 NYSE Volume: 717.253M (-3.71%)
A/D and Hi/Lo: Decliners led 1.3 to 1 Previous Session: Advancers led 1.19 to 1
Bulls are falling rapidly after the peak at 66.7. that was a significant high and bulls have dropped hard into the low 40's. As you would anticipate, the market sold off but as the bulls sell off the market is ready for a pre-earnings rally off the lows.
Bulls: 42.2 versus 47.6 versus
Bears: 18.6 versus 18.1
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: 42.2 versus 47.6 49.5 versus 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: 18.6 versus 18.1 17.5 versus 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: 2.825% versus 2.825%
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.825% versus 2.781% versus 2.801% versus 2.805% versus 2.775% versus 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: 1.23313 versus 1.23299. Holding steady in its lateral move, testing the 50 day EMA, still positive pattern overall.
Historical: 1.23299 versus 1.23720 versus 1.2359 versus 1.2311 versus 1.22812 versus 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: 107.362 versus 107.267. Trying to break higher out of a tight weeklong lateral move.
Historical: 107.267 versus 106.882 versus 106.873 versus 107.09 versus 107.16 versus 106.939 versus 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: 67.39, +0.32. Nice break higher off the 50 day MA to a higher high, moving past the last January peak.
Gold: 1347.90, +6.00. Broke higher Wednesday but then fell, only to start to rebound Friday. A 2.5 month base looks close to breaking out.
MONDAY
The big news Friday was the Syria 'coalition' strikes. Russia claims it shot down 70-something of around 100 missiles and little damage done. The Pentagon says it hit all targets. Both could be true the way they phrase things.
The worry is that causes some further brouhaha, but it helped when Trump's defense minister said the strikes were a 'one time thing.' Later Trump stated it was 'mission accomplished.' Now I know that phrase has dubious meaning what with the Bush II forays into nation building, but in this situation I am pretty sure it can be taken to mean as a message to Russia that we are not going to launch further strikes based upon the chemical poisoning claims.
With the selloff ahead of earnings, the start of the move higher, the lower volume on the downside sessions, and the ability to thus far shake off geopolitics, we are still looking for the move upside to continue.
That means a move through the 50 day MA's for the indices as they follow RUTX and its move into earnings. NFLX gets things going with its results Monday after the close. LRCX is Tuesday after the close. Some important names announcing early to try and get the market moving into the first couple of weeks of the season. These initial earnings will be important for the move, and we anticipate holding some of the positions on NFLX, LRCX and of course see if they can carry the rest of the market, and our other positions higher.
Therefore, though we have several new positions as of last week, there are plenty of very good-looking stocks still in very good position to make moves higher.
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