InvestmentHouse - Will the Money Stay in the Market (Weekend Newsletter)
investmenthouse.com
- Stocks rally all week as the large caps, including NASDAQ, lead.
- Jobs Report misses on storm effects, but some very interesting internal
numbers.
- Small caps still looking for the January effect.
- Will the money stay in the market, and if so, will it stay with the large
caps or now move to smaller caps?
Quite the start to 2018, obviously upside and obviously has many stoked
about the stock market's prospects for 2018. Tax reform, a perception the
economy is picking even more speed, and a sense that the Fed cannot be that
aggressive given events such as the fairly large miss in December jobs.
Of course that is a lot of poppycock. The tax reform is definitely a help,
and indeed the economy is already improving on the reduction of regulations;
adding tax incentives will only help. As for the Fed, well, if the economy
really does take off, the Phillips Curve hugging FOMC will hike rates more
than the 3 times anticipated. They will panic as Volcker did in the early
1980's when Reagan's supply side economics were ready to pass. They cannot
help it; it is in their nature. The supposedly most learned economists in
the world cling to their Phillips Curve doctrine despite now decades of
history demonstrating it does not work, the most recent being the past 10
years. Married to ideology versus facts. A lot of that going around these
days.
Even so, one cannot discount the market gains. Impressively strong start to
the year. DJ30 crossed 25,000 while NASDAQ crossed 7,000. DJ30 +576.65
points (2.3%), NASDAQ +233.17 (3.3%). Of course, new highs all around once
again on Friday (less SOX). As with most of the week, however, it was the
large caps, both NYSE or NASDAQ, that led while the small caps brought up
the rear.
SP500 19.16, 0.70%
NASDAQ 58.65, 0.83%
DJ30 220.74, 0.88%
SP400 0.41%
RUTX 0.28%
SOX 0.64%
NASDAQ 100 1.04%
VOLUME: NYSE -14%, NASDAQ -3.5%. NYSE trade slipped back below average
Friday, able to mount above average volume only Thursday. NASDAQ trade fell
as well, but it remained above average as on Wednesday and Thursday. Better
accumulation strength on NASDAQ for the new year: they lagged at the very
end of 2017 and the past week saw some catchup in that regard.
ADVANCE/DECLINE: NYSE 1.5:1, NASDAQ 1.5:1. For a third session breadth
remained at 3:2, just a middle of the road advance. Again, with the small
caps lagging in favor of the fewer large caps, breadth obviously lagged.
With this kind of start, 2018 must be set for a barnburner year. Perhaps.
Mr. Tepper Thursday said that stocks heading into 2018 were 'as cheap' as
they were heading into 2017. Giddy up. You may recall, a few years ago Mr.
Tepper appeared on CNBC one morning and said he was 'concerned' about the
market as it had faded for several weeks and the Fed was being coy. We were
tracking a lot of stocks that set up very good patterns to that point, and
on that day, the day Tepper made that statement, the market bottomed and
those stocks broke higher. The pessimism of many big names turned the
market and we made a lot of money in the ensuing rally.
With all of this positive sentiment, surely the market will rally just as
steadily as it did in 2017, right? Who knows? But I will say that more and
more and more professionals, commentators, and everyday citizens are getting
converted to the idea the market is going to head higher. As discussed
Thursday (and if you didn't read it, do so!), that is always a dangerous
situation that leads to a correction, but the WHEN is the key. Big surges
inevitably revert. As long as leadership looks strong and the policy moves
are correct (as they are thus far), the upside, regardless of how extended,
can continue.
Thus, Friday, again, we were buying very good stocks moving higher, e.g.
AAPL, MMM, SQ, FENG, GRUB. We also took gains on some more positions that
hit targets: CNIT, MSFT, SIFY, YY. Some rally nice gain taken Friday. As
on Tuesday. And Wednesday. Some great gains and more in progress.
Even as we bought more positions as more quality stocks broke higher, we
could not help but thinking about the coming week and whether new money
would continue to push into the market. The first week of a year in an
uptrend of course has money pushed into it; indeed, this was a really strong
week as apparently a lot of the money that LEFT the market in November and
early December came right back in. Remember our discussion of the big names
that publicly announced they had pulled money from the market in August and
September would be forced to put it back in? They did. Same kind of thing
happening right now as that money taken out comes right back in.
After that first week, however, we will see if the money continues to come
in. FAANG took off to the upside again, chips found new buyers after their
selloffs. If the market continues producing new upside groups, the rally
continues. Right now it is doing that as energy has emerged a leader after
several false starts. Metals came around rather rapidly. More leaders
filling in behind those that surge higher keeps the rally going. That means
more money coming into the market, and of course, that takes you back to the
same question: will it continue coming in?
NEWS/ECONOMY
After a lot of buildup to the jobs report, goaded on by the Thursday ADP
report, jobs creation was 32K less than expected. It would appear the
storms had a bit more impact than anticipated. Okay, it was not that great,
but the market still liked it. Just right, I suppose.
Non-farm payrolls: 148K vs 180K exp vs 228K November. 204K/month in Q4
Unemployment rate: 4.1% vs 4.0 exp vs 4.1 Nov
Earnings: 0.3% as expected vs 0.2% prior. 2.5% year/year
Workweek: 34.5 as expected vs 34.5 prior
2017: 2.1M jobs created
Healthcare: 31K
Construction: 30K
Manufacturing: 25K (+196,000 in 2017, jobs that were supposedly never coming
back)
Food and Drink: 25K
Warehousing: 30K
Retail: -20K (-67K in 2017)
And this is said not to include any of the Amazon workers as they don't know
where to put them!
Participation: 62.7% flat for 3 months
U6: 8.1%
Black unemployment rate: 6.8%, -1% year/year, a record low.
Food Stamp recipients: -2 million
Trade balance, November: -$50.5B vs -47.9B expected vs -48.9B Oct.
A 6 month high on the deficit. Why? Imports surged. You will be told that
is horrible by everyone including Trump. But they are wrong. What this
tells you is that the US economy and consumer are going well. We always buy
more imports when the economy is working for us. When US consumers are
confident, they buy foreign goods, they buy domestic goods. Thus, a surge
in imports is a positive economic indication even if it detracts from
overall GDP.
Factory Orders, November: 1.3% versus 1.4% expected versus +0.4% Dec
(from -0.1)
Ex-Transports: +0.8%
Business investment: -0.2%. Disappointing, but consider: the tax reform
debate raged and looked to be on life support. No one was going to commit
big money until that was decided. It is. Expect more. With 100%
expensing, of course there will be more.
Tax reform effect: As of this week, 85 major companies now offering bonuses
or extra compensation to workers.
THE MARKET
CHARTS
The large cap indices launched almost straight up on the week as money
flowed into the big names. Something of an inverse January effect as the
small caps lagged.
NASDAQ: Went with NASDAQ to lead off though any of the big 3 large cap
indices would suffice. NASDAQ jumped off the 20 day EMA test Tuesday and
rallied on a solid expansion of volume back above average. Big names did
the leading as NASDAQ 100 shows even a stronger gain as FAANG jumped back in
on the upside.
SP500: Rocketing upside again after another 20 day EMA test. Volume was up
but less than impressive with only Thursday showing above average trade.
Extended off its 50 day EMA it left behind in early September, it should
correct, but the new money coming in was not about to let it. For now,
playing the move, watching for trouble such as good moves reversing sharply.
Not thus far.
DJ30: Nice surge, quite strong Friday after lagging NASDAQ on the week. As
extended as SP500 above its 50 and 200 day MA's, but its mix of large cap
industrial and tech is enjoying the new money.
SOX: Big moves early week then riding the wave, surpassing the early
November high and now looking at the late November recovery peak at 1342
(closed at 1325.71). A good surge with some good patterns moving higher
along with some not great patterns. New money was obviously pushing it and
that leaves me wondering if SOX can maintain the rebound.
RUTX: Big move Tuesday but after that the small caps followed versus led
the move. For January, that is a bit bass-ackward as the January effect is
where the funds buy smaller cap names as they present the greatest potential
for high percentage gains versus the mega cap stocks. Now, if the money
that chased the big names to start 2018 starts looking elsewhere, the small
caps are primed to move. Indeed, if there is a change next week that could
very well be the change.
SP400: Similar to RUTX, SP400's best gain was early week. New highs each
session but slowed as the week progressed. A bit stronger than RUTX, in the
middle of the large caps and smalls -- as midcaps I guess that is
appropriate.
LEADERSHIP
FAANG: In the lead again as AAPL joined in. FB new high. AMZN, GOOG, NFLX
all new highs. Big buying in these stocks and the latter 3 above are all
building very strong gains for us. Remember, these are not extended
vis- -vis the other large caps: they based all summer into fall and broke
out in late October. They are still relatively early in their moves.
Oil: This time showing staying power. Big names put in good moves and held
them, e.g. CVX, XOM, MRO, HAL, SLB. Kept waiting on HAL to test; it didn't.
Mid-size working as well, e.g. APC. Small also good, e.g. NOG, DNR, PTEN,
CRZO.
Semiconductors: A nice recovery with some good patterns really moving well,
while others rebounded but still have weak patterns. The good: XLNX, MRVL,
MCHP, NVDA. Questionable patterns: LRCX, AMAT, QRVI; SWKS. INTC is trying
to recover from its gap lower on the identified flaws in its chips; we will
see.
Software: CNIT surged but it is a small issue. FFIV was still solid. MSFT
hit our initial target. VMW up nicely on the week. CRM rallying well for
us. Working on it.
Retail: A week were most tested, some struggled after good moves. AAP
surged upside, ROST enjoyed a higher high. TGT testing, COST, TLRD and
others showing the same. Good moves some testing.
Financial: Up midweek, but as usual, it is a fight. C up but cannot seal
the deal on the new upside break. BAC did put in higher highs to end the
week. JPM did but faded back to the 10 day EMA Friday. Working higher but
back and forth day to day.
Machinery/Manufacturing: CAT, DE up again, TEX, CMI testing. Still strong
manufacturing. UTX, HON, EMR all breaking higher. Solid.
China: Some strength returning. YY surged to the initial target. BZUN up
all week for us. CNIT exploded higher through the target. BIDU broke
higher, tested well late. BABA broke upside, pushing for a new high. HTHT
making a nice test of its run; possibility for this week.
MARKET STATS
DJ30
Stats: +220.74 points (+0.88%) to close at 25295.87
Nasdaq
Stats: +58.64 points (+0.83%) to close at 7136.56
Volume: 2.02B (-3.35%)
Up Volume: 1.23B (-90M)
Down Volume: 747.68M (+9.11M)
A/D and Hi/Lo: Advancers led 1.47 to 1
Previous Session: Advancers led 1.5 to 1
New Highs: 269 (-7)
New Lows: 16 (-10)
S&P
Stats: +19.16 points (+0.70%) to close at 2743.15
NYSE Volume: 771.2M (-13.85%)
A/D and Hi/Lo: Advancers led 1.53 to 1
Previous Session: Advancers led 1.45 to 1
New Highs: 252 (-41)
New Lows: 22 (+2)
SENTIMENT INDICATORS
If you have not done so, please read the Thursday report discussion of
sentiment in the Market Summary.
VIX: 9.22; 0.00
VXN: 13.48; -0.49
VXO: 8.56; +0.24
Put/Call Ratio (CBOE): 0.92; +0.10
Bulls and Bears: Trading back and forth in a narrow range at the top what
is historically an extreme level for bulls.
Bulls: 61.9 versus 64.1
Bears: 15.2 versus 15.1
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: 61.9 (1/2/18) versus 64.1
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 versus 56.7 versus 53.4 versus 57.7 versus 63.1 versus 61.2
versus 61.8 versus 62.7 versus 61.8 versus 58.2 versus 60.6 versus 58.6
versus 60.2 versus 59.8 versus 59.8 versus 59.6 versus 58.8 versus 56.3
versus 55.6 versus 51.0 versus 42.9 versus 41.7 versus 47.1 versus 42.9
Bears: 15.2 versus 15.1
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 versus 19.1 versus 19.1 versus 18.3 versus 18.1
versus 17.0 versus 16.2 versus 16.5 versus 16.7 versus 18.6 versus 18.8
versus 18.6 versus 18.3 versus 19.2 versus 18.3 versus 17.1 versus 17.3
versus 17.9 versus 17.9 versus 18.3 versus 17.5 versus 18.3 versus 18.1
versus 17.3 versus 13.75 versus 17.3 versus 16.5 versus 17.5 versus 17.6
versus 16.7 versus 17.6 versus 17.5 versus 17.3 versus 18.3 versus 18.4
versus 19.6 versus 19.6 versus 19.2 versus 19.6 versus 22.3 versus 21.6
versus 23.5 versus 25.7 versus 24.3 versus 23.1 versus 23.8 versus 23.1
versus 22.8 versus 23.1 versus 24.3
OTHER MARKETS
Bonds: 2.476% versus 2.456%. Down early week. Lateral to end it, right in
the range of the past 3 months. The volatile range.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.456%
versus 2.463% versus 2.464% versus 2.405% versus 2.434% versus 2.412% versus
2.474% versus 2.485% versus 2.484% versus 2.501% versus 2.459% versus 2.398%
versus 2.351% versus 2.36% versus 2.403% versus 2.389% versus 2.378% versus
2.34% versus 2.353% versus 2.381% versus 2.363% versus 2.363 versus 2.412%
versus 2.385% versus 2.326% versus 2.329% versus 2.321% versus 2.34% versus
2.354% versus 2.367% versus 2.345% versus 2.37% versus 2.336% versus 2.375%
versus 2.407% versus 2.402% versus 2.34% versus 2.326% versus 2.316% versus
2.32% versus 2.332% versus 2.349% versus 2.358% versus 2.378% versus 2.37%
versus 2.419% versus 2.456% versus 2.435% versus 2.421% versus 2.366% versus
2.383% versus 2.318% versus 2.341% versus 2.30% versus 2.302% versus 2.275%
EUR/USD: 1.20313 versus 1.20756. Another upside week for the euro though
it finished lower on Friday.
Historical: 1.20756 versus 1.20177 versus 1.20573 versus 1.2001 versus
1.1936 versus 1.1936 versus 1.18998 versus 1.18593 versus 1.18628 versus
1.18658 versus 1.18792 versus 1.18408 versus 1.17703 versus 1.1752 versus
1.17798 versus 1.18392 versus 1.17430 versus 1.17652 versus 1.1764 versus
1.17754 versus 1.17990 versus 1.18276 versus 1.18727 versus 1.18983 versus
1.18976 versus 1.18529 versus 1.18489 versus 1.1899 versus 1.19329 versus
1.18148 versus 1.17402 versus 1.1791 versus 1.1787 versus 1.1786 versus
1.1799 versus 1.16443 versus 1.16646 versus 1.16439 versus 1.15871
USD/JPY: 113.058 versus 112.749. Up on the week after testing near the 200
day MA. Range-trading right now.
Historical: 112.749 versus 112.677 versus 112.27 versus 112.690 versus
112.758 versus 113.216 versus 113.208 versus 113.304 versus 113.363 versus
113.334 versus 112.870 versus 112.625 versus 112.619 versus 112.298 versus
112.639 versus 113.555 versus 113.476 versus 113.48 versus 113.473 versus
112.473 versus 112.554 versus 112.442 versus 112.190 versus 112.55 versus
112.102 versus 111.583 versus 111.244
Oil: 61.44, -0.57. Down Friday, but a solid continuation of the break to a
higher high. Bumping at the mid-2015 highs, a key resistance point that
likely hems in oil prices or awhile.
Gold: 1322.30, +0.70. Up all week, continuing 4 week run off the lower low
from early December. A pause after that kind of move is normal.
MONDAY
Again, the big question is whether the money keeps coming in. It poured
into the large caps the past week. As noted in the discussion of the small
caps, it is January and typically the smaller issues get the money. IF
money tapers its bid for the large caps after that first strong week, it
makes sense it would seek the small and midcaps, the more traditional
January buys. Thus, even if the large caps slow, the market can still rise
gratis bids moving to the smaller caps. We will see.
Definitely a strong start to the year and the old adages say that bodes well
for the year. Does not mean there are not fades, pullbacks, or even out and
out corrections. It is all a matter of when and what stocks.
For now the retail are a bit weaker after strong runs, but oil, FAANG,
manufacturing, tech are strong. Will chips continue gathering money their
way? Will others step up and move up, e.g. China, drugs, internet? The
market will need new sectors stepping up to keep the move rallying,
especially if SP500, DJ30 start to correct back after their extended moves
up from the 50 day MA.
We will continue playing the trend, watching how the leaders trade (e.g. any
reversals, stalls), and looking for and picking up good stocks in good
patterns that are not extended, taking what the market gives as the run
continues.
Have a great weekend!
SUPPORT AND RESISTANCE
NASDAQ: Closed at 1736.56
Resistance:
Support:
7,000 from mid-December
6914 is the late November all-time high
The 50 day EMA at 6842
6796 is the early November 2017
The 2016 trendline at 66.60
6641 is the October high
6477 is the September intraday high
6461 is the July 2017 prior all-time high
6450 is the early September high
The 200 day SMA at 6394
6341.70 is the all-time high from early June.
6300 is the mid-June interim high
6205 is the late May all-time high
5996 is the recent May 2017 low
5937 is the all-time high from April
5915 is the tops of the March to April 2017 range
5910 is the lower gap point from mid-April
5800 from the February consolidation lows
S&P 500: Closed at 2743.15
Resistance:
Support:
The 20 day EMA at 2682
2694 is the mid-December peak
The 50 day EMA at 2637
2597 is the November 2017 high
2549 is the upper channel line from the March 2009 uptrend channel
2491 is the August all-time high
The 200 day SMA at 2490
2480 the late August and early August highs
2453.46 is the June prior all-time closing high
2409 is the July 2017 closing low
2406 is the all-time high from May 2017
2401 is the March 2017 all-time high
2352 is the May 2017 low
Dow: Closed at 25,295.87
Resistance:
Support:
24,835 is the mid-December consolidation range
The 20 day EMA at 24,688
24,312
The 50 day EMA at 24,118
23,602 is the early November 2017 high
23,608 is the early November high
22,420 is the September high
The 200 day SMA at 22,194
22,179 is the August 2017 all-time high
22,086 is the mid-August lower high
21,681is the July prior all-time high
21,638 is the July 2017 closing high
21,529 is the June 2017 high |
