- Market avoids Friday drop, puts together a 2-session move higher. - DJ30 leads upside as money rotates to its stocks, but SP400 does not look bad. Promising even. - Tech leaders topping but rotation allows the move to continue even if some leaders drop out of the picture. - Still many upside plays in the 'other' sectors.
Friday delivered upside as word is out the US and China have agreed to restart trade negotiations with Trump and Xi meeting sometime in late summer/early fall. For the market, holding talks is much better than trading insults, and thus Friday was an up session.
VOLUME: NYSE +8%, NASDAQ -7%. Volume on the week showed overall distribution on NASDAQ, a mix of distribution and accumulation on NYSE.
ADVANCE/DECLINE: NYSE 2.3:1, NASDAQ 1.4:1. Solid enough on NYSE, but NASDAQ is showing the bleed as upside breadth is weak on a market upside session.
Up, but nothing new, nothing game changing. The indices are still in the same patterns with all trending higher, all holding support other than SOX. DJ30 has done more than hold support, rallying nicely higher off the 50 day MA. The others? They have held support but are not really making any kind of serious move higher -- the same kind of slow one day up, one day back action.
That leaves the indices still in good enough position, but not showing the kind of chops that indicate they are ready to make that solid break higher. Perhaps they can win by attrition, holding out with steady slow moves a la the turtle versus the hare.
While the indices outside of DJ30 are slowly edging higher, many stocks are in very good patterns and are in position to move higher. Money is moving their way and thus the good setups and initial moves. We picked up several positions and are looking for more.
Tires and markets
I bought some new tires for my truck this morning. Kept the pressure right, rotated them when I should. They still wore out. In due time.
What the hell, right? Okay, here is the tie: the market is rotating out of most of the big leaders that carried the indices to new highs through January and then again in July. Drugs, industrials, personal products, retail, credit services, specialty services (e.g. Match) and other areas are receiving money while FAANG, semiconductors, large tech and to a lesser extent tech in general are losing money.
Again, how does that tie into my tire story? It suggests that while the loss of the big tech and FAANG stocks has some saying the market has topped and can only fall, that kind of 'if not rallying then it must be falling' theory is not only wrong but loses you money. It ignores the rotation clearly taking place. I talked about the possibility of rotation as the July volatility hit; it took some time but is clearly taking place.
The point: rotation does not equal a market top, and rotation can last for quite some time as money moves to certain sectors and pushes them higher. It can push them higher for a long time, and then move to another area and push those stocks higher. This can go on for a long time dependent upon the economy. At some point even rotation won't work -- the tires are worn out. For now, the stocks moving higher look quite good, i.e. they have good patterns, have room to run, are making good moves and . . . holding onto the moves. That is the upside promise in this market.
What about a resurrection of the leaders that fell and damaged their patterns? It can happen; we even have an upside play on GOOG again in case. The odds typically do not favor those kind of moves, at least not without some significant bases. Perhaps I am wrong, perhaps they can rejuvenate themselves as they have done several times in this long rally. Thing is, the Fed stimulus they received each time they faded is no longer being injected and indeed removed. Thus if they fall and no one is there as a backstop to bounce them back, they need a base to reset.
Of course, some are predicting the Fed will be forced into QE in 2019, that the economy is currently slowing and will force the Fed's hand. That remains to be seen, but it is also is next year -- the rotation into the new sectors is occurring now and has plenty of time to work.
So, we are still looking to play upside in those stocks turning upside. We already have a number of positions in them and look to add more. We also have downside positions on some big names that are bleeding money. This week there are a lot of solid upside plays on the report because there are a lot of solid upside plays in those areas receiving the money. There will come a time when we will play 90% downside, but with the rotation setting up good patterns that can make us money, upside will still be the dominant play with some downside included as we have now.
THE MARKET
For the most part the stock indices managed to avoid a downside Friday, but as noted, they did not do much to help their rise outside of DJ30.
CHARTS
DJ30: Not the powerful move as on Thursday when WMT BA and company blasted it higher, but DJ30 did continue a solid move off the 50 day MA test that saw a hammer doji Wednesday that bounced it higher. DJ30 is back near the top of the channel formed off the March and April lows that acted as the bottom of the current 8 month base. Working higher, looking better than most.
SP500: Similar to the Dow, moving up near the top of its uptrend channel that has built the right side of its 8 month base. The late week gains have SP500 filling the downside gap from a week back. Okay, rebounded from the island reversal, at the late July high, at the all-time high (more or less). Critical time once again here at the prior high.
NASDAQ: Trying to get off the 50 day MA, less than impressive in the attempts. The major volume on the week was in the Wednesday selling to the 50 day MA. Low trade on the rather weak bounce attempt. Still trending higher, but not a lot of life as upside volume wanes along with MACD.
SOX: Dropped to the trendline formed from the February and May lows. Tapped it, rebounded to cut the losses after a pretty nasty gap lower Wednesday and again Friday. Nice hammer doji Friday so SOX could bounce, but a number of key big cap chips continue to struggle, e.g. INTC, AMAT, MU -- big names weighing the index down.
SP400: Back near the highs again after a test of the 50 day MA starting Monday. Back and forth each session, then a back to back rise to end the week. That puts SP400 right in the range of the highs, and frankly, it was a good solid move from a higher low at solid support. Promising . . . as it was in early July, mid-July, early August.
RUTX: Similar to SP400, RUTX tested the 50 day MA on the week and moved back up. Thursday saw a gap higher, a selloff, then a rebound. Friday added a bit more. Not as great as the SP400 action, but, dare I say it . . . promising?
LEADERSHIP
Rotation is taking money out of fAang and tech. Happens. Other areas are the beneficiary.
fAang: Only one cap letter, and that is AAPL. AAPL moved up to new highs on the week post earnings. FB, NFLX are selling off, GOOG sold off, gapping to the 50 day EMA and a doji Friday. AMZN looks pretty darn good with its own doji at the 10 day EMA; looking at playing it downside, but this is a nice test setup for a rebound. No new upside play on it this weekend, but it would not take much to convince us to move in upside if AMZN holds and rises from here.
Software: Key names dropping out, e.g. ADBE, VRSN, DATA, NOW. Others are hanging in, indeed looking good; COUP, FFIV, MSFT, TTWO.
Drugs/Healthcare: More sweet action. PFE surged Friday on the third day off the 10 day EMA test. LLY, BMY, MRK enjoyed good weeks. Many smaller biotechs are setting up well along with medical instrumentation and other healthcare related areas.
Industrials: Some nice moves indeed. EMR up Friday on solid volume. HON, CMI coming off 50 day MA tests with solid action. Even CAT came to life.
Financial: Banks are hanging in around support but not making moves upside yet. C at the 50 day MA, BAC, JPM testing at the 20 day MA. GS recovered on the week after the dump lower the prior week; only about half the gain recouped. V showing good volume Friday on a modest move.
Retail: A solid week with some earnings shooting stocks higher, e.g. WMT, JWN. DLTR and DG still climbing. COST broke higher again Friday, ROST in a nice test, TJX in a test over the 10 day EMA after a new high. RH is forming a nice handle to a 10 week base.
Chips: Some key names really struggling but in their travails may be ready to bounce, e.g. INTC. MU down hard but bounced a bit Friday. AMAT did not rebound after its gap lower on earnings. NVDA gapped below the 50 day MA and sold off hard. AMD broke higher again Friday; nice. XLNX tested the 200 day SMA on the week, looks ready to bounce.
Transports: Rails continues upside. CSX trending higher up the 10 day EMA all week. KSU, after a flop on Monday, rebounded all the loss with a good move Friday.
Misc: SQ testing still. GRUB handing on at the 20 day EMA. DIS still looks good at the 20 day EMA. DOCU looks solid, forming a handle.
MARKET STATS
DJ30 Stats: +110.59 points (+0.43%) to close at 25669.32
Nasdaq Stats: +9.81 points (+0.13%) to close at 7816.33 Volume: 1.85B (-6.57%)
Up Volume: 994.39M (-115.61M) Down Volume: 828.69M (-18.21M)
A/D and Hi/Lo: Advancers led 1.41 to 1 Previous Session: Advancers led 2.39 to 1
New Highs: 101 (+9) New Lows: 74 (+2)
S&P Stats: +9.44 points (+0.33%) to close at 2850.13 NYSE Volume: 761.53M (+8.11%)
A/D and Hi/Lo: Advancers led 2.3 to 1 Previous Session: Advancers led 2.92 to 1
Recovery in bulls continues with a solid advance pushing bulls back up in the top of the range. Bears remain elevated from the lows, but flat-lining a bit the past several weeks.
Bulls: 57.3 versus 54.9
Bears: 18.4 versus 18.6
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: 57.3 versus 54.9 54.9 versus 54.5 versus 54.9 versus 55.3 versus 52.4 versus 47.1 versus 47.6 versus 52.0 versus 55.5 versus 52.9 versus 50.0 versus 49.1 versus 46.6 versus 43.1 versus 43.6 versus 48.0 versus 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
Bears: 18.4 versus 18.6 18.6 versus 18.8 versus 18.6 versus 18.5 versus 18.5 versus 18.6 versus 18.4 versus 17.6 versus 17.8 versus 17.7 versus 19.2 versus 19.2 versus 19.4 versus 19.4 versus 20.6 versus 20.8 versus 19.6 versus 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: 2.864% versus 2.871%. Bonds have returned to just below the 200 day SMA as of Friday, rallying for 2+ weeks off the selloff from late July.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.871% versus 2.879% versus 2.882% versus 2.873% versus 2.928% versus 2.963% versus 2.977% versus 2.977% versus 2.945% versus 2.95% versus 2.986% versus 3.005% versus 2.962% versus 2.975% versus 2.958% versus 2.982% versus 2.965%
EUR/USD: 1.1437 versus 1.13765. Sold off through Tuesday then started a recovery to the 10 day EMA as of the Friday close. Oversold, needed to bounce.
Historical: 1.13765 versus 1.13731 versus 1.13479 versus 1.14052 versus 1.1413 versus 1.1526 versus 1.16186 versus 1.16001 versus 1.15572 versus 1.15683 versus 1.15864 versus 1.1662 versus 1.1689 versus 1.17074 versus 1.16558 versus 1.17324 versus 1.17385 versus 1.16846 versus 1.16989 versus 1.17214 versus 1.1651 versus 1.16514 versus 1.16603 versus 1.1709 versus 1.1685 versus 1.16608 versus 1.1672 versus 1.17288 versus 1.17578 versus 1.17439 versus 1.1689 versus 1.1665 versus 1.16388 versus 1.1638 versus 1.15634 versus 1.15602 versus 1.16517 versus 1.17031 versus 1.16572 versus 1.16072 versus 1.15762 versus 1.1586 versus 1.15746 versus 1.2624 versus 1.16245 versus 1.15678 versus 1.17973 versus 1.17454 versus 1.17761 versus 1.17737 versus 1.17987 versus 1.1774 versus 1.1762 versus 1.1697 versus 1.166 versus 1.16993
USD/JPY: 110.49 versus 110.935. Volatile. Sold off the prior Friday below the 50 day MA's. Recovered into Tuesday, but then turned right back over.
Historical: 110.935 versus 110.818 versus 111.229 versus 110.737 versus 110.840 versus 111.07 versus 111.361 versus 111.344 versus 111.254 versus 111.621 versus 111.628 versus 111.744 versus 110.990 versus 110.995 versus 110.791 versus 110.871 versus 111.235 versus 111.084 versus 111.451 versus 112.732 versus 112.783 versus 112.896 versus 112.337 versus 112.631 versus 112.093 versus 110.911 versus 110.973 versus 110.474 versus 110.666 versus 110.40 versus 110.854 versus 110.687 versus 110.523 versus 110.223 versus 110.097 versus 109.678 versus 109.980 versus 109.895 versus 110.376 versus 110.03 versus 109.783 versus 110.668 versus 110.578 versus 110.247 versus 110.381 versus 110.314 versus 109.466 versus 109.705 versus 110.164 versus 109.878 versus 109.90 versus 109.53 versus 108.767
Oil: 65.21, -0.25. Dropped to the 200 day SMA as of the Wednesday close, held that level through Friday but that is about all.
Gold: 1184.20, -0.20. Sold off on the week, dropping away from the 10 day EMA. Sharp drop, threw a doji, perhaps an oversold rebound.
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