- Once again, market cannot make much of a much anticipated, strong earnings report. - NASDAQ gaps higher, up over 115 points, gives it all back. - Decently bullish stock index patterns remain, but thus far any upside upside is used to sell, undermining the patterns. - Good patterns in many stocks and sectors are failing to provide breakouts, or if they do, many are quickly lost. - Money does appear still working into some areas and thus there are potential upside entries as money reallocates - Some sectors still look good but with some distribution, can the patterns hold?
Friday was not a washout, but it was more evidence that the market is having a hard time coming up with buyers willing to sustain a move higher.
Earnings season has given buyers every reason to buy stocks as results for the vast majority of stocks have handily topped expectations, and in many cases, crushing expectations. Yet, the stock indices, while not rolling over and in some cases still in very decent patterns, cannot sustain an upside move.
Friday was the most recent case in point. AMZN utterly crushed expectations. MSFT and INTC both also laughed at their expectations. Before that it was FB, GOOG, and NFLX. Bada bing, bada boom. Or for the more cerebral as the NFL announcers, with unintentional hilarity, use to describe football players, ipso facto. The indices should be surging. Yet, the indices, down heading into earnings and in prime position to move upside on great results, have not.
Stocks gapped higher Friday, particularly on NASDAQ as its futures showed a 115+ point opening gain. DJ30, SP500, not so much. Not nearly so. Yet, they posted some good early moves as well. The move was all on the open, however. Stocks gapped then sagged into midmorning. NASDAQ swung 115 points high to low, needing to come back to close with a 1.12 point gain. AMZN lost well over half its early gain by the time it closed. It may rule retail but it cannot control the markets. Not yet.
VOLUME: NYSE -12%, NASDAQ -4%. At least volume was lower on the reversal off opening highs. Not a turkey shoot at the stocks that moved higher. Volume still remains weak overall and mixed in terms of rising volume on up sessions versus rising volume on down sessions.
ADVANCE/DECLINE: NYSE 1.4:1, NASDAQ 1.1:1. Not the breadth of champions, but of course with the rollover in the index, a weak A/D line is not surprising.
No, it was no rollover in and of itself, but it was another in a series of failed attempts to move higher. There is a pattern of selling into strength, of breakouts getting pushed back without much upside other than the day of the breakout, taking down even good moves.
The indices still have relatively decent upside patterns with NASDAQ, SP500, DJ30 sporting what are arguably triangles forming over key support levels. Triangles can be positive, can be negative. The key is the index ranges are narrowing over the past 1.5 months and forming 'points' to the triangles, and that typically indicates a more serious directional move is coming. In other words, they are going to break upside or downside. The inability to utilize good news that one would think SHOULD have yielded upside has not done so. Indeed, when the news does result in a break higher, as noted above, the breaks have been turned back on the indices and of course in many individual stocks as well.
Some areas still look quite good, e.g. oil, but that is arguably for an entirely different reason than other stocks would rally on. In any event, money is moving toward oil and it looks as if it is also still interested in drugs and healthcare.
Other areas are deceptive. Some good patterns are still out there for sure, but this market has been taking down good areas. Sectors with good looking patterns just fail to move and then get taken lower. Others that rallied well and then slipped into pattern building also look good but then get taken out. Thus, things are a bit deceptive and you find yourself looking at retail, software and wondering if they are going to break higher from their consolidations or break lower as others have.
The pattern of giving up breaks higher is not an indication of market health. Patterns that set up but then cannot breakout and break apart show changing expectations by the big money: they were being accumulated but then the money turned off and indeed left.
That is an indication of a market that is distributing, i.e. is a net seller of stocks as the big money sells on rallies, bounces, good news moves. That could lead to potentially bullish triangle patterns in the indices to simply fail to make breaks higher, and indeed break lower.
Why would they do that if the economy still looks solid as Q1 GDP showed Friday (2.4% vs 1.8% expected vs 2.9% Q4)? Could be the Fed rate hikes and rising interest rates. Perhaps a yield curve inversion in bonds? The timing is not that great for the market: late April and often the overall market turns sluggish and choppy over summer and into the early fall. 'Sell in May . . .' right?
Sure there will be groups that perform just as always. Oil seems solid, healthcare/drugs are so far so good as they come back around, and software is still solid but somewhat worrisome as many tech related groups get sold off in favor of the very core items such as the commodities, e.g. oil.
Summary: That prognosis is not all that great for the market, but then again, it is what it is. Patterns are still quite solid enough and that could turn indecision or selling into buying at some point. Thus far, however, the solid earnings have failed to do that. Fed hikes, possible yield curve inversion. Couple those with the still threatened trade wars and there is reason backward looking earnings are not driving stocks higher.
It is just a gut feeling, but one based upon watching breakouts get thrown back and good news fail to elicit sustained new moves, at the least the market continues to work laterally in a trading range. At worst this action that has the look of accumulation but is also showing distribution ends up undermining the index and leadership patterns to where they drop over the summer. You cannot emphasize enough the inability to move higher and hold moves when Q1 earnings were so solid as an indication of the big money being indifferent or at worst for the bulls, being actively selling.
Thus, we will continue looking upside in those areas that are receiving money, that are under accumulation, e.g. oil, drugs/healthcare. In addition, we nose around for stocks we feel are setting up to fall. After a move higher with some hope on earnings, and some rebounds on results that bounced a stock but then dissipates, we can get some good downside. FB comes to mind as does AAPL, AMAT and others.
Perhaps at some point the bounce that holds will come, but not sure what the catalyst would be outside of new trade deals with China, Canada, Mexico. That likely does not happen anytime soon and is thus out there hanging on the horizon. There is also the worry, though not often voiced, of what happens if the democrats return to the majority in Congress and the political turmoil (on top of the current political turmoil of course) that would result.
What I really think is dogging the market are interest rates. Not really higher 10 year yields but the possibility of an inverted yield curve. Historically that is an accurate indicator of economic health and of course the market reacts to that well ahead of the appearance of economic issues. Thus the struggles in the market at maintaining breaks higher suggests preparation for downside to come.
THE MARKET
CHARTS
The Thursday bounce move tried to add to the bounce Friday, but a strong NASDAQ move failed to ignite buying elsewhere, and in the end the indices faded. Still not bad overall patterns for the large cap indices as they narrow their ranges, but they are still not yet reacting well to what appears to be good news. The small and midcap indices are in patterns that look bullish enough, and they are showing good action in their stocks, they just have to make good on the patterns. That has been the problem for this market: making good on the patterns.
NASDAQ: Gapped upside to the 50 day SMA then closed basically flat. Thursday NASDAQ gapped up off a doji at its trendline from early 2016 and looked to extend that Friday, but the move was sold. Still banging around in the lower half of its channel so has room to move, but even with some good large cap NASDAQ earnings the past two weeks it is still hard-pressed to put together a sustained break higher. Two weeks upside from early April was sold off aggressively into last Tuesday. It did not break down, but even with some very good NASDAQ large cap earnings it has failed to climb back up in its channel. It is acting heavy, but there are many large cap NASDAQ stocks that have not broken down and many smaller NASDAQ stocks working quite well. Thus, the index for now continues the 2016 trend but is struggling.
SP500: The SP500 high to low move Friday was not nearly as epic as NASDAQ. SP500 was down pre-market for quite some time before flipping positive. Small move, low volume, no big deal. It continues narrowing its pattern the past month, trying to set up a triangle over the 200 day SMA to deliver some upside. It certainly can do that, but it has also experienced the same failure to hold moves as NASDAQ, though perhaps on a less grand scale.
DJ30: See SP500. Basically a bullish pattern though intraday of late unable to hold gains. Using the 200 day SMA as support, DJ30 is trying for a higher low and a anew break higher.
SOX: Gapped sharply higher Friday, continuing the Thursday upside gap off the 200 day SMA. Then it reversed and closed lower with a downside engulfing pattern that can be an issue for the upside. Head and shoulders pattern overall, very near the neckline in the right shoulder. Trying to break higher off the 200 day support to break that pattern up, but the Friday move was not encouraging.
RUTX: The small caps clearly helped lead the way higher from April's start. After the January peak it has traded in a range that has formed something of a large 3+ month pennant. Perhaps the small caps put in a higher low at the 50 day MA's a the midpoint of the pennant and rally for a breakout. Important group of course given the economic implications.
SP400: A pair of tight doji at the 50 day MA's as the midcap index also puts in a 3+ month pattern also using the 200 day SMA as support. Not bad at all, and it could be that the midcaps and small caps again lead the market, getting money that is pulled from the large cap areas.
MARKET STATS
DJ30 Stats: -11.15 points (-0.05%) to close at 24311.19
Nasdaq Stats: +1.12 points (+0.02%) to close at 7119.80 Volume: 2.04B (-3.77%)
Up Volume: 921.11M (-548.89M) Down Volume: 1.1B (+474.26M)
A/D and Hi/Lo: Advancers led 1.05 to 1 Previous Session: Advancers led 1.6 to 1
New Highs: 59 (-6) New Lows: 54 (-8)
S&P Stats: +2.97 points (+0.11%) to close at 2669.91 NYSE Volume: 724.2M (-12.30%)
A/D and Hi/Lo: Advancers led 1.35 to 1 Previous Session: Advancers led 2.04 to 1
New Highs: 64 (+4) New Lows: 48 (-28)
Bulls and Bears:
Bulls bounced back 4.5 points after a precipitous decline. They are falling hard, bouncing with quick sharp bounces, then falling again. Very similar to the stock market action. Bears were lower but they are holding the bounce higher into the 19's.
Bulls: 48.0 versus 43.6
Bears: 19.6 versus 19.8
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: 48.0 versus 43.6 43.6 versus 42.2 versus 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: 19.6 versus 19.8 19.8 versus 18.6 versus 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: 2.959% versus 2.975%. Bonds rallied back for a second session, making it to the 10 day EMA and near the 50 day SMA. Possible double bottom using the February and April lows. Thus far a decent move, more a relief move.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.975% versus 3.0245% versus 3.00% versus 2.962% versus 2.96% versus 2.914% versus 2.867% versus 2.83% versus 2.829 versus 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%
EUR/USD: 1.21291 versus 1.21788. Big drop down to the 200 day SMA on the low, followed by a reversal upside for a nice doji with tail. Euro may have hit a near term bottom after 7 sessions lower that broke it down from its 3+ month lateral range.
Historical: 1.21788 versus 1.2163 versus 1.22232 versus 1.22094 versus 1.22876 versus 1.23464 versus 1.23748 versus 1.23712 versus 1.238532 versus 1.23313 versus 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
USD/JPY: 109.051 versus 109.28. Dollar rallied through Wednesday, then spent Thursday and Friday moving laterally, waiting for the 10 day EMA to catch up to the nice break higher.
Historical: 109.28 versus 109.373 versus 108.894 versus 108.728 versus 107.645 versus 107.404 versus 107.409 versus 107.027 versus 107.010 versus 107.362 versus 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
Oil: 68.10, -0.09. Oil is working laterally at the 10 day EMA, consolidating the break higher and the new recovery high.
Gold: 1323.40, +5.50. Gold rebounded some of the losses on the week that saw it break lower through the 50 day MA to start. Closing in on the bottom of its 4 month range.