InvestmentHouse - Dive Lower Provides Shakeout to End First Leg (Weekend Newsletter)
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- A dive lower after a positive open may have provided the shakeout to end
the first leg lower.
- Fed letting the market find some pricing closer to reality?
- Looking to play the relief move with some familiar names and some very
good patterns that held up during all the selling.
Another day, another 1022 point swing on DJ30. 286 on NASDAQ. 106 on
SP500. Huge swings. Thursday it was high to low. Friday it was high to
way low to way high. As the market finished upside, many were saying that
Friday was THE day the market showed a change. Oversold, reached lower then
surged. Big volume on the rebound.
Yeah, sure. Heard that Tuesday and look what happened. But there were
differences Tuesday was not the ideal reversal day: it never had that real
selloff. It was down pre-market but was recovering and did so from the
opening bell. There was not that purge. Friday was better: an upside start
after an ugly selloff gave hope. Then it was dashed when the gains were
replaced by big losses. On top of that, the indices were just lower,
undercutting the prior lows and reversed on massive volume. THE reversal?
Very well could be . . . for this leg of the selloff.
JPM came out with an afternoon note stating the selling was just about done.
That helped act as the trigger and stocks surged into the close. Gains that
were turned to losses turned to gains once more. Maybe the day marked the
end of the volatility, but it was certainly a volatile day. And again, if
it did mark the end, it is the end for THIS leg, likely not the ultimate
bottom in this selling event.
SP500 38.55, 1.49%
NASDAQ 97.33, 1.44%
DJ30 330.44, 1.38%
SP400 1.09%
RUTX 0.96%
SOX 3.05%
NASDAQ 100 1.69%
NEWS/ECONOMY
Not a lot of news. The government shut down at midnight but an early
morning deal opened it right back up. AMZN announced its own shipping
service to take on FDX and UPS.
Earnings continued with mostly beats, but even stocks beating expectations
did not have an easy go of it. It would appear the market volatility has
overtaken every other story other than perhaps the Fed agreeing to lay down
regarding rate hikes. Even that, however, would not be a market positive.
The Fed: Where does it stand?
Since Bernanke and through Yellen, the Federal Reserve has stood behind a
rallying stock market. Every serious dip was met with the Fed backtracking
on vows to remove stimulus or indeed actual new stimulus.
That has changed, at least on the surface. As Yellen walked out the door,
seat still warm, she threw out for discussion that yes, equities and real
estate values were 'high.' A week ago, at the start of the selling, Kaplan
said that 3 rate hikes were the base case and likely more could come if
economics were strong. Kaplan reiterated his position Thursday.
Also Thursday, Mr. Dudley referred to the stock market selloff as 'small
potatoes' and opined the economy would continue to grow above pace. With
that, Dudley believes the Fed "is going to have to continue to remove
monetary policy accommodation."
Thus it appears the Fed is bound to continue hiking rates, and if the
economic data is right, it should. It has been behind the curve as always.
The fear of markets, of course, is the Fed panics, overreacts, and again
affects a market breakdown the presages an economic fall from expansion and
prosperity to more stagnation. Heck, we just got out of 10 years of that.
Don't send us back, please.
Nonetheless, the Fed, for now, is sticking to its path of 3 or more rate
hikes in 2018. It must. Can you imagine if the Fed came out otherwise? At
first the market pops upside but then panic sets in as to why the Fed
panicked.
Given that, the market drop as Yellen walks out and as Powell takes over is
perfect for Powell. If the market continues falling he can cite changed
circumstances. For now he sticks to the plan already in place, and if the
market does bottom as it should, then everyone concludes he is wise and
restrained. Confidence follows, and then good things, good things. Nothing
can go wrong, right?
The point: The market actually has a chance to go to real price discovery
versus Fed put pricing. In other words, there is no guarantee of a Fed step
in. That means looking for typical market moves as outlined the past week
for this correction.
THE MARKET
CHARTS
On the lows some important levels were touched. SP500 sold to tap the 200
day SMA, passing the 78% Fibonacci retracement along the way. Then a sharp
rebound to the 61% retracement. DJ30 did not get that far, undercutting the
61% Fibonacci retracement then rebounding to close much higher. NASDAQ
touched close to its 200 day and it held right at the 78% retracement and
shot back upside. All show doij with long tail, a reversal indication.
RUTX and SP400 undercut their 200 day MA's and then snapped back to show
nice doji with tail over that level on the close. That kept RUTX over the
200 day and the November low. SP400 ditto.
SOX gapped higher sold to undercut the Thursday low, also undercutting the
December low. Then a surge back up to close well above both. Hmm. Looks
as if the neckline to a head and shoulders is set, and now you watch SOX'
rebound to see if it stalls at 1350ish and rolls back over. That, however,
is the move after the next, not the next move that is a rebound back up to
test that 1350 level.
It is a pretty decent bet to surmise the Friday low is the low of the first
leg. It is not a proven fact, but it is a good support level with good
extreme internals that suggest a high probability of a rebound that lasts
more than a day and a half. It is not THE bottom, but one that supports a
relief bounce that sets up THE bottom or at least a try at THE bottom after
the coming relief move stalls and falls to test the Friday low.
That said, we didn't buy the rebound. Really thought about it, but opted to
wait and see if stocks can hold Monday. A soft open met with buying is a
great entry point for the relief rally back up to test somewhere below the
highs from late January. That is the tradable move we are looking at this
weekend with plays. We get in, ride it, take the gains when the move starts
to sputter after a good week or so, then look to play the test downside to
or below the Friday low. Same play book as before, just starting from a
lower level after a deeper test.
LEADERSHIP
One of the only groups that used the selling it its benefit is the
drug/biotech areas, and even in that group the large cap stocks were
murdered while the mid and smaller versions are using the selling to set up
new patterns and entries.
FAANG is not bad either in some instances, plus the fact that people such as
Cramer and others are touting the group to buy on this dip. Whatever, if it
works for us.
Everything else is something of a wildcard. Heavy selling broke many
patterns and frankly if the market is going to bounce then sell off again,
you want to focus on a handful of stocks that can make you money. For us
that means good patterns and decent patterns in stocks people love to buy
when they are sold off.
MARKET STATS
DJ30
Stats: +330.44 points (+1.38%) to close at 24190.90
Nasdaq
Stats: +97.33 points (+1.44%) to close at 6874.49
Volume: 3.16B (+16.18%)
Up Volume: 2.04B (+1.677B)
Down Volume: 1.09B (-1.25B)
A/D and Hi/Lo: Advancers led 1.36 to 1
Previous Session: Decliners led 5.58 to 1
New Highs: 20 (-12)
New Lows: 264 (+114)
S&P
Stats: +38.55 points (+1.49%) to close at 2619.55
NYSE Volume: 1.3B (+8.33%)
A/D and Hi/Lo: Advancers led 1.45 to 1
Previous Session: Decliners led 7.84 to 1
New Highs: 9 (-7)
New Lows: 356 (+149)
SENTIMENT INDICATORS
VIX: 33.46; +5.73. Up, but not soaring and did not take out the prior
high from Tuesday, not even close. Indeed, it is lower than Monday.
Something strange there.
VXN: 33.89; +9.16
VXO: 32.36; +11.36
Put/Call Ratio (CBOE): 1.14; +0.23. First spike over 1.0 in a long time.
Finally shaking the tree of those upside buyers.
Bulls and Bears: From highs and lows greater than the prior 30+ years,
bulls tumbled over 10 points and bears jumped 3 points -- major moves.
Okay, so the damage has been done.
Bulls: 54.4 versus 66.00
Bears: 15.5 versus 12.6
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: 54.4 versus 66.00
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
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: 15.5 versus 12.6
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 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: 2.8577% versus 2.844%. Bond selloff below the 10 day EMA continues.
Looks like a downtrend that will test the late 2016, early 2017 double
bottom near 116.
Historical: the last sub-2% rate was in November 2016 (1.867%). 2.844%
versus 2.813% versus 2.805% versus 2.707% versus 2.841% versus 2.792% versus
2.713% versus 2.72% versus 2.72% versus 2.66% versus 2.66% versus 2.639%
versus 2.617% versus 2.656% versus 2.661% versus 2.618% versus 2.587% versus
2.535% versus 2.55% versus 2.559% versus 2.551% versus 2.482% versus 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%
EUR/USD: 1.22524 versus 1.2273. Dollar rallied and pushed EUR to the 50
day MA but showing a pair of doji and ready to rebound against the dollar.
Historical: 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 versus 1.22169 versus 1.2241 versus 1.2198
versus 1.22698 versus 1.22060 versus 1.20608 versus 1.19507 versus 1.19322
versus 1.19662 versus 1.20313 versus 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: 108.797 versus 108.88. Dollar trying to set up a short double
bottom to bounce.
Historical: 108.88 versus 109.33 versus 109.58 versus 108.651 versus
110.001 versus 109.46 versus 109.50 versus 108.77 versus 108.84 versus
108.601 versus 109.411 versus 109.033 versus 110.159 versus 110.159 versus
110.70 versus 110.834 versus 111.036 versus 111.290 versus 110.357 versus
111.024 versus 111.204 versus 111.534 versus 112.706 versus 113.15 versus
113.58 versus 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: 59.20, -1.95. Oil gaps below the 50 day MA as the selloff continues
after hitting that recovery high to end January.
Gold: 1315.70, -3.30. Still holding the 50 day EMA after dropping to that
level Wednesday. Important test for this upside move in gold.
SUPPORT AND RESISTANCE
NASDAQ: Closed at 6874.49
Resistance:
6914 is the late November all-time high
6918 - 6980 are price points from November/December 2017
The 50 day EMA at 7081
7240, the upper gap point from early February 2018
7506 is the January 2018 all-time high
7300 from a modest mid-January consolidation
Support:
6796 is the early November 2017
6641 is the October high
The 200 day SMA at 6557
6477 is the September intraday high
6461 is the July 2017 prior all-time high
6450 is the early September high
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 2619.55
Resistance:
2694 is the mid-December peak
The 50 day EMA at 2713
2751 from early January 2018
2808 from the mid-January consolidation. Some support, not that strong.
2850 from a January 2018 gap point
2873 is the January all-time high
Support:
2597 is the November 2017 high
2569 is the upper channel line from the March 2009 uptrend channel
The 200 day SMA at 2539
2491 is the August all-time high
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 24,190.90
Resistance:
24,835 is the mid-December consolidation range
The 50 day EMA at 25,003
26,000 from mid-January consolidation
26,439 is a gap point from the January high
January 2018 all-time high 26,617
Support:
23,602 is the early November 2017 high
23,608 is the early November high
The 200 day SMA at 22,794
22,420 is the September high
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
End part 1 of 3 |
