Market Alert - The Close

Again a session where NASDAQ led the rest of the market, thanks to its big names moving higher again, aided by some large biotechs as well. The rest? Holding the lateral move, SOX testing its post-2000 high, holding gains but not really going anywhere just yet.

SP500 -2.76, -0.13%
NASDAQ 22.07, 0.43%
DJ30 -27.73, -0.15%
SP400 -0.28%
RUTX -0.07%
SOX 0.16%

VOLUME: NYSE -29%, NASDAQ -8%

A/D: NYSE -1.5:1, NASDAQ flat

Looking at the index charts I like SOX' 3-day pullback, and DJ30 looks good in an 8-session pullback to the 20 day EMA. SP500, RUTX, and SP400 are edging just slightly higher in almost 3-week lateral-ish moves. NASDAQ, of course, is rallying still, moving up the 10 day EMA as the large cap NASDAQ stocks, just as they did in 2015, are moving higher as a lot of stocks are not.

Certainly there are more stocks than just the big names moving higher, but over the past 2.5 weeks those names are dominating the action as evidenced by NASDAQ being the only index, outside of SOX, really making the next move higher.

As I wrote during the early part of this lateral move, the action was positive, consolidating the gains and setting up for the next catalyst to move stocks higher. Several potential catalysts have come -- and gone -- and most indices are still stuck in the lateral move. Several better than expected economic reports, Abe announcing a new 28T yen stimulus package, the FOMC passing on rates, some good early earnings. Outside of some of the big names surging on their earnings and some M&A in chips pushing those stocks up higher, not much else has really made a new break higher. That leaves you asking just what do the indices want?

Perhaps nothing. Perhaps they have made their move. Certainly there are those out there with that view, e.g. Goldman saying sell stocks now for the next three months, JPM joining in on a market top call today, and Gundlach out almost daily railing about how the stock market is going to dive. These tight lateral moves at new highs can simply run out of gas and roll over; saw that a lot in the 2000 crash. Stocks back then hit new highs then spent several weeks in a tight lateral move. Would they break higher or lower was the question, and they answered it with a dive. Not saying that is the setup now, but it is one serious possibility.

On the other hand, maybe the lateral consolidations make the break higher, following NASDAQ and SOX. A market has leaders, others follow. As noted above, however, they have had a lot of certainty injected with earnings, central banks, economic data, yet nada.

Okay, then maybe the market is now just going to be, once again, more of a big name market, perhaps accompanied by chips as those patterns still look quite nice. NASDAQ is trending nicely higher up the 10 day EMA thanks to these two working together. That can keep those going for awhile but at some point even they look around and ask 'what's next?'

At the same time oil is taking it on the chin. It is not at 26.10/bbl as it was in the February selloff that was part of the stock slaughter, but it is not acting well. Oil broke below the 200 day SMA and the next support level, and now you look to see if it has a snapback rally after falling for just over 2 weeks in this last leg lower. After that kind of selling, if a snapback is coming, it should come pretty soon.

Positives

Now there are more than just big name NASDAQ and chip stocks moving higher. Biotech is looking much better and we have some good plays running and we are looking for more. Software is still stronger overall. Industrial equipment is still very solid. They have been working and many are still ready to go.

The Fed. Another factor to consider is, still, the central banks and the Fed. With oil diving lower, if it continues, the Fed is likely out of the rate hiking game even if Dudley commented over the weekend that you can't rule out hikes in 2016. If oil continues tanking, however, the Fed will be afraid to hike for fear of scuttling the stock move. Heck, if oil continues downside, so many view that as a negative that it may indeed result in another stock decline. That would, most assuredly, take the Fed out of any hiking mode for the year, particularly given the November election. For a market that was built on Fed stimulus, more is welcomed given the economics, despite the rosy scenario painted by the powers that be in the economy.

Indeed Monday the economic data, while not horrid in all cases, missed expectations in all cases, joining Durables Orders and Q2 GDP in a foursome of recent misses after a series of expectations beats.

ISM, July: 52.6 versus 53.1 expected and 53.2 June
Still expanding but backing off from the June high water mark for the year.

Construction Spending, June: -0.6% versus +0.7% expected versus -0.1% May (from -0.8%) -- thank goodness for the May revision!
After gains February to April, a huge May drop followed by a June decline and another in July.
That puts the year/year reading at 5 year lows at +0.3%.

Could the market be showing the same slump in the summer as seen in 2015 and other years? The reports started to run a bit better, but the recent releases are worrisome.

So, after a string of beats, a string of misses in the data is a 'positive' for stocks as it keeps the Fed in the game. The market appears to like the notion of just not hiking rates as being enough to keep stocks rising. I still have to posit that, if the economic data again craters after an early summer rebound attempt, will the Fed just holding off rates be enough to keep pushing stocks higher or will it take proactive action providing stimulus?

On the day we picked up some SIMO and HMY (chips and precious metals) but also took some positions off the table with trailing stops and stops, protecting the upside we have even with some positions having rougher sessions. At the same time we let plays on AMZN, FB, GOOG -- big names -- continue higher, along with several others that continue working well even as the market overall is, for the most part, moving laterally.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
______________________________________
Alert Key
http://www.investmenthouse.com/alertkey.htm


Customer Support: http://investmenthouse.com/contact_us.php