| | | InvestmentHouse - Is Market Drop Coming in October? (Weekend Newsletter)
investmenthouse.com
- Friday shows no relative change after the post-Powell changes.
- Tumultuous week outside the markets, some sharp move in financial
markets.
- Trade, economy, politics still issues, but the Fed significance
becomes more of a reality for most players.
- Market starts to show money shifts heading into Q4.
- No September drop so it is coming in October, right? Not
necessarily.
- Q4 potentially shaping up similar to 2017 with a big name focus to
start.
A tumultuous week outside of financial markets, some tumult in the financial
markets, and a possible change of focus in the stock market.
Trade remained an issue with more US companies complaining about the
potential for rising costs, no deal with Canada but deals with South Korea
and others, and of course, China whining like a toddler about how the US
just isn't playing fair. Hell, maybe China ISN'T ready to join the big
leagues of world finance -- but it certainly will have to trade fairly and
stop stealing the rest of the world's intellectual efforts. China likes to
brag about its intellectual power, but it has stolen most of its advances.
Kind of like the guy in college who would probably still make good grades if
he spent as much effort studying as he did figuring out ways to cheat.
Economics of course played their role. The US remans much stronger than the
rest of the world, but even the US data appears slowing in the forward
looking areas. For example, Chicago PMI put in its lowest reading since
April -- but at 60.4 it is HARDLY low. Trends, however, are always the real
story, and while the overall trend is up, the data is slowing a bit. Of
course any slowing is heralded as the end of the run -- instead of the more
obvious . . . a slow down after two 4+% GDP quarters. Even in the gains in
the 1980's there were slowdowns between quarters. Not major slowing, just
ebb and flow in a very strong run higher. History repeats, but so do
doomsayers.
The Fed was THE dominant factor for the week, specifically the chairman's
comments regarding 'excess asset valuations.' Always a slap for markets
because when the Fed starts talking overpriced assets it moves into areas
where its lack of understanding has manifested time and time and time again,
always with the same actions and same result: it overreacts, goes too tight
too long, the market rolls over, the economy after it.
With that, stocks hiccupped after the chairman's press comments. More than
that, there was a notable shift from small and midcap stocks. They broke
near support in a much more violent move than the large cap indices. They
recovered some ground the balance of the week but they did not retake
support.
Small and midcaps are economic harbingers, but it is also true that as a
recovery matures, money tends to shift away from them. They are early
growers -- something we saw with the RUTX the first to hit new highs on
several occasions -- but after their growth spurt they slow and money moves
to other areas. Hence the rise in the SP500 and DJ30 in terms of relative
strength in recent market history. The Fed chairman's comments may have
just acted as the trigger point for what funds were already contemplating.
With the Fed chair comments, why wait for the Christmas rush? So, they sold
now.
As of Friday, not much has changed. NASDAQ still trended higher in its
channel though no big moves at all. NASDAQ 100 is stronger than overall
NASDAQ, lending to the 'lose the small stuff' attitude that emerged late
Wednesday. SP500, DJ30 still trending higher. RUTX and SP400 are seriously
challenged. SOX is still, yes still, working on its base. That it is not
breaking down is a win. For now.
SP500 -0.02, -0.00%
NASDAQ 4.38, 0.05%
DJ30 18.38, 0.07%
SP400 0.34%
RUTX 0.36%
SOX 0.65%
NASDAQ 100 -0.03%
VOLUME: NYSE +27%, NASDAQ +14%. Volume spiked Friday, but it was month end
and quarter end. Highest NYSE trade since the S&P rebalance and before that
since late July. NASDAQ trade rallied back to recent elevated levels after
a Thursday dip to near average.
ADVANCE/DECLINE: NYSE +1.3:1, NASD +1.2:1. Still nondescript.
Quarter 4 starts now. Along with October.
Moving into Q4, October, earnings season, and the jobs report Friday.
September certainly was not a downside month; it just wasn't a surge upside.
Many are expecting a selloff in October. It could happen, It did not last
year after a solid move higher in September. No downside occurred until
mid-November and it was just a dip. Then a more than impressive run higher
into late January.
The point: just because September and October often result in downside does
not mean they have to result in downside.
What we think is happing right now and will become clearer as the market
moves through Q4 is similar to last year: an initial focus on large caps,
particularly known names. Last year in Q4 we said get used to the idea of
buying FAANG and playing them to the exclusion of most other areas. We made
huge gains doing that -- and playing other opportunities that emerged as
money again re-entered the market and bought just about everything. Recall:
many big names said the rally was done, done, and more done. Then it kept
moving higher and they were forced back into the market, driving stocks to
gains, amazing gains for us.
We think a similar play could very well present itself this year. Perhaps
not all of FAANG: thanks to FB, NFLX and GOOG, it has started lagging SP500.
NFLX is coming around very well, however, while AMZN and AAPL remained more
or less solid. Now throw in some other name brands such as NVDA, cloud and
gaming software, a few other tech and miscellaneous leaders along with the
industrials . . . and there are plenty of solid money makers in Q4.
The trick is whether the market decides to sell some in October to reset for
a run to year end. As noted, history, indeed recent history, shows that
does not have to be the case. With Fed chair Powell's comments this past
week, however, asset valuation scares rippled in the market. Several
players have said for awhile that a selloff is coming and that group of
believers may try to sell the market and cause an October dip.
Perhaps. Many leaders improved their positions and patterns despite a
sluggish market overall. Indeed, as you see, that even lends to the thesis
that the market move will again concentrate in fewer names toward year end.
It might not; maybe everything will rally. Okay, that works because as new
patterns set up and make moves, we will be there and ready to take advantage
of them.
CHARTS
NASDAQ: Up on the week, bouncing off a drop to the 50 day MA's. Was
rocking higher Wednesday then the foul Powell comments hit and it gave up
the move. Didn't stop the big techs; they moved higher Thursday and Friday,
though a most modest move. Still trending, getting help from the big techs
as NASDAQ 100 is outperforming NASDAQ overall.
RUTX: Major moves the past two weeks. After an initial drop from the late
August new high, RUTX consolidated at the 20 day EMA. After a week, it
dropped hard in once session to the 50 day MA and the June/July highs.
Tried a sharp bounce, failed. Then last Wednesday it broke the 50 day MA's
and the prior summer highs post-Powell. It attempted a Friday recovery but
is still below those two former support levels. A very, very key week for
RUTX to see if it can recover. It formed an ABCD consolidation on top of
the prior highs -- great pattern. It could not bounce, however, and now has
an ABCDEF pattern -- hmm. Never seen one of those work.
SP400: The midcaps bumped along the 20 day EMA and the August all-time high
heading into last week. As the week started, however, SP400 started sliding
lower, and then there was that Wednesday Powell plunk below the 50 day MA's.
Held, roughly, the summertime highs, bouncing Friday to the 50 day MA. As
with RUTX, there was a money shift. As with RUTX, this week is a very
important week for the midcaps.
SP500: Down on the week, gapping lower Monday and unable to recover by
Friday. Too much to deal with for any bids to feel really good and thus
buyers stayed home. Still trending up the 20 day EMA and still bumping
around the upper channel line. SP500 has found it difficult to break out
and hold a breakout over the upper channel line. Often that will wear out
an attempt to move over it and precipitate a test lower in the channel.
With the financials providing no help, this could be the potential 'dip'
ahead discussed in the market overview. There are some really good setups
in the industrial side, however, and if they move that will help SP500's
upside.
DJ30: Still holding the 10 day EMA in its test back from its new all-time
high posted the previous Friday. Low volume on the fade, even on the Powell
pause day. DJ30 remains well-poised to move higher with stocks such as CAT,
UTX, BA in excellent position. Indeed, BA started upside Friday off its
fade, perhaps signaling the others are to follow.
SOX: SOX continues toiling in its 6 month triangle, falling to the 200 day
SMA on the week. Landed there Wednesday, held, started upside Friday.
Another higher low inside the pattern at a key level. Perhaps, finally,
this one will yield a breakout after the chips have toiled for months
consolidating prior gains. With stocks such as AVGO turning the corner and
NVDA starting its next blast higher, it is possible. AND THAT would be huge
for the market in a Q4 yearend rally.
LEADERSHIP
FAANG: Thanks to FB and GOOG, and until recently NFLX, SP500 has
outperformed FAANG on a relative basis. AAPL and AMZN continue trending
higher over near support. NFLX has established a nice 3 month cup base and
is moving higher. GOOG could be setting up for a new move. FB cannot get
out of its own way with a new 50M user hack as well as selling the phone
numbers of users who provided FB with the number as part of a 2-step
authentication process. FB is quickly becoming hated. GOOG will face
antitrust actions from the Trump administration given its 98% market share
and its office in the White House during the prior administration. We are
now naming this SCAANN: SQ, CRM, AAPL, AMZN, NFLX, NVDA.
Energy: A much-improved sector. APC posted a gain on rising volume Friday
in a very nice pattern. XOM in an excellent rally test at the 10 day EMA.
CVX shows a similar pattern to APC. APA a cup with handle. CRZO still in a
nice pattern. HAL the same. ESV testing a solid rally, waiting on the 10
day EMA to catch up.
Software: CRM surged Monday and continued upside on the week to a new high.
ATVI moved to a new high while TTWO did the same. ADBE bounced well, MAST
is in a very nice 10 day EMA test. FEYE remains ready to break higher.
DATA, NOW somewhat blah. NEWR needs to show something right now. SZ
recovered and put in a nice test of the 50 day MA.
Chips: There is some promise here. NVDA gapped and surged Friday on
reports its AI platform is almost 'there.' AVGO in a solid 200 day SMA
test. AMD 20 day EMA testing. XLNX is solid, still looking to enter.
INTCE started upside on volume. AMAT, LRCX sport patterns similar to FB and
GOOG before they made their recent bounces from lows.
Financial: Pathetic. BAC continued lower, adding 5 downside sessions on
the week, picking up speed to the downside. JPM, C are both now testing to
the 200 day SMA in week-plus fades. V touched a nominal new high in modest
upside. GS gapped lower Friday after a prior week of selling.
Machinery/Manufacturing: CMI, CAT, DE still solid in tests. CMI , ETN look
great in tests and BA started upside big Friday. Great looking group.
Drugs: PFE in a lateral test at the 10 day EMA, still trending nicely
higher. MRK, BMY, LLY similarly situated. BIIB bounced upside on the week,
AMGN upside all week but Friday, CELG is interesting and Adami on Fast Money
likes it for what that is worth. INFI surging for us, up 10+% Friday. VCEL
is testing but looks really good at the 10 day EMA.
Retail: Same stocks are solid: TJX, ULTA, ROST. WSM testing the 50 day MA
nicely. HD in an ABCD at the 20 day EMA. LULU new high. Yoga pants.
Whatever.
MISC: SQ new highs. PYPL broke the 50 day MA Friday. MTCH, GRUB not much
changed, bouncing up off support. DDD also up off support, looking for a
stronger upside break.
MARKET STATS
DJ30
Stats: +18.38 points (+0.07%) to close at 26458.31
Nasdaq
Stats: +4.38 points (+0.05%) to close at 8046.35
Volume: 2.34B (+13.59%)
Up Volume: 1.13B (0)
Down Volume: 1.16B (+269.22M)
A/D and Hi/Lo: Advancers led 1.17 to 1
Previous Session: Advancers led 1.01 to 1
New Highs: 85 (+22)
New Lows: 87 (+16)
S&P
Stats: -0.02 points (0.00%) to close at 2913.98 NYSE Volume: 953.397M
(+27.31%)
A/D and Hi/Lo: Advancers led 1.27 to 1
Previous Session: Advancers led 1.25 to 1
New Highs: 63 (+18)
New Lows: 134 (+19)
SENTIMENT
VIX: 12.12; -0.29
VXN: 16.58; -0.17
VXO: 11.30; -0.38
Put/Call Ratio (CBOE): 1.06; +0.12
Bulls and Bears:
Bulls continue bumping at 60.0, a historically high level that leads to
declines. Bears remain elevated, but not moving higher right now.
Bulls: 59.0 versus 57.7
Bears: 18.1 versus 18.3
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: 59.0 versus 57.7
57.7 versus 60.1 versus 59.6 versus 57.7 versus 57.3 versus 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: 18.1 versus 18.3
18.3 versus 18.1 versus 18.3 versus 18.3 versus 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: 3.061% versus 3.052%. Bonds rebounded sharply Wednesday and
Thursday but Friday reversed for a loss after a gap above the 10 day EMA.
Bounced, but what is still there?
Historical: the last sub-2% rate was in November 2016 (1.867%). 3.052%
versus 3.048% versus 3.048% versus 3.085% versus 3.066% versus 3.068% versus
3.076% versus 3.057% versus 2.99% versus 3.00% versus 2.972% versus 2.963%
versus 2.977% versus 2.937% versus 2.941% versus 2.879% versus 2.904% versus
2.897% versus 2.86% versus 2.857% versus 2.882% versus 2.882% versus 2.846%
versus 2.813% versus 2.828% versus 2.821% versus 2.819% versus 2.819% versus
2.864% versus 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: 1.16038 versus 1.16357. The dollar posted a strong 2-session move
that sent the pair down to the 50 day SMA.
Historical: 1.16357 versus 1.17501 versus 1.17658 versus 1.17476 versus
1.17486 versus 1.17772 vs 1.16833 versus 1.16692 versus 1.16858 versus
1.16226 versus 1.16900 versus 1.15863 versus 1.16016 versus 1.15946 versus
1.15534 versus 1.16243 versus 1.16341 versus 1.15832 versus 1.16029 versus
1.1664 versus 1.17035 versus 1.1691 versus 1.16802 versus 1.16216 versus
1.15390 versus 1.15709 versus 1.158 versus 1.1487 versus 1.1437 versus
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
USD/JPY: 113.690 versus 113.410. Dollar continued a 3 week run from the
July to early September range.
Historical: Last below 109 four months back. 113.690 versus 112.734 versus
112.981 versus 112.811 versus 112.575 versus 112.448 versus 112.247 versus
112.369 versus 111.849 versus 112.06 versus 111.81 versus 111.491 versus
111.608 versus 111.192 versus 111.064 versus 110.680 versus 111.448 versus
111.468 versus 111.082 versus 110.962 versus 111.734 versus 111.19 versus
111.081 versus 111.249 versus 111.351 versus 110.766 versus 109.92 versus
110.49 versus 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
Oil: 73.25, +1.13. Breaking higher and now knocking at the June high.
Gold: 1196.20, +8.80. |
|
