Perhaps a less inspiring recovery than Friday -- okay, a MUCH less inspiring recovery -- but stocks started lower then moved upside to post another session of gains for the indices across the board. Twelve in a row for the Dow according to those who count those sorts of things.
SP500 2.39, 0.10%
NASDAQ 16.59, 0.28%
DJ30 15.68, 0.08%
SP400 0.66%
RUTX 0.96%
SOX 0.92%
VOLUME: NYSE -7%, slipping to average on the decline. NASDAQ +11% as its trade moved back above average after a low volume recovery Friday. Most sessions above average for the past few weeks as NASDAQ rallied, showing good price/volume action.
A/D: NYSE +1.6:1, NASDAQ +1.8:1. As has been the case and as you would expect, breadth was anemic.
Any new driver? Any essential piece of information resulting in a new high? No. Durable goods were terrible (-0.2%) without military and Boeing airplanes. Pending Home Sales for January fell 2.8%, wholly missing expectations of a gain. Moreover, rate hike odds jumped to cycle highs with March now standing at 32%.
Not the kind of news to necessarily drive stocks higher in a post-FOMC rate cutting environment. Investors want growth when the Fed is done cutting rates, and this was more hard data that suggest the optimism and improved sentiment is not transferring anywhere near 1 to 1 to actual economic improvement.
So, it was necessary for the President to take to the microphone ahead of the Tuesday address to Congress and lay some groundwork for what was to come and try to goose the markets again with a promise. This time President Trump had to say his tax plan was not ready yet because the healthcare issues created by the ACA required that they be fixed first, noting that 'nobody' though healthcare was this complicated.
Here are the problems with that: First, the Trump administration is playing in the field designated by the ACA. That is a trap you can fall into, one that I saw many times when practicing law. Many lawyers would argue within the framework established by the other side's briefs or accepted theories for the facts and law at issue. Thus, they would be boxed in and not fully address their client's position. I always looked for the other issues, large or small, that would place the other side's staked out position in question, perhaps a threshold issue that the was assumed to be met. In more than a few cases I successfully argued that the standard arguments and law did not apply, that the other side was missing the bigger issues, thus putting the argument in my terms, thus not bound by the other side's arguments.
Thus, if the administration approaches the removal of this investment and small business strangling, healthcare cost surging law within its framework, it is a losing proposition. The entire basis must be scrapped. If there are a few ideas from the law you want to keep, start over and base it from a market-based perspective versus a top down, swallow it or choke to death forced system. If insurance companies could actually make money on policies again versus being told how much they can make, if other market forces were allowed to work, the problems with a state-structured Act mean to fail and give way to a single payor plan would be obviated. You have to get out of that structure altogether.
Second, if no tax cuts and no incentive to invest in the US and grow, there will NEVER be the growth needed bring in the revenue to take care of those who will benefit from the provisions in the current law Trump wants to keep, not to mention pay Medicare and social security payments. In other words, getting the growth engine going once more is the key to doing everything else. You want to spend $54B on the military and then a huge infrastructure program as Trump wants? You better have an economy growing that can pay for that as well as the entitlements. I don't care who is in charge. You will never, never, ever solve the issues without getting America's growth engine running fast again. Otherwise it is just for naught.
But I digress yet again.
The President tried to goose the market with a promise of a 'solution' to the healthcare problem, stating it wasn't easy but they had a solution. Okay, we will see. The market was up but it certainly didn't surge anew. This news was not major, was not 'phenomenal.' If it doesn't take out the current system by at least 99%, it won't work.
Then there was Warren Buffett this morning on CNBC's yearly 'let Warren talk his book while disguising it as fatherly advice' segment, swearing the market was not overvalued on a historical basis and that, by the way, he bought another 120M shares, personally, in AAPL in 2017.
I still have to ask how the market is not overvalued after 7 years of QE that inflated stock prices to all-time highs but did not spark any real economic activity. I can go through the list of tells, e.g. middle class below 50%, record highs of working aged people not working and drawing disability or some other assistance, multiple jobs holders at a record high -- the list is long and depressing. Anyway, how can stock prices built on years of the Fed buying assets, i.e. being the market in the assets, then running higher 12% post-election on the promise of growth favorable policies be anywhere near undervalued is an incredible proposition. It makes you almost believe that Buffett believes Trump can pull off a serious economic recovery.
So, even without great news the market managed new all-time highs. Rather wimpy, 'excuse me' kind of gains, but gains nonetheless. More modest gains in the better index patterns of SP500, DJ30 (better over the past several sessions), better gains in those that were more volatile (e.g. SOX, small caps, midcaps) as the latter tries to come back and catch up.
Infrastructure stocks (e.g. machinery, materials, metals) enjoyed a good day on the promised infrastructure spending (another promise).
Biotech stocks posted some nice gains as plays such as BLUE and CELG surged.
China stocks were not bad, bouncing back from support though not all participated.
Chips were rather sluggish, some up, some down, but even those that moved up were not that promising, e.g. NVDA testing potential resistance.
Oil tried to move higher and did in many cases, but the moves did not overcome the more near term bearish patterns.
Financial stocks performed decently given the rate hike odds improved considerably to start the week. Improved, but not breaking out. That is another story.
VIX moved up 5.4% as stocks put in an upside session. Sure it was nothing strong, but stocks put in an upside day and new highs and VIX, while still almost glued to the bottom of the long range, is rising as stocks rise. It has not broken out, but Monday it broke over the 50 day MA's, the resistance keeping VIX in check since it plummeted below those levels in early November. Right now that is not a huge factor, but this is something to watch as the week(s) advance. Near term it can lead to a pullback. If it continues in the weeks ahead and trends higher along with a market trend higher, that suggests a more severe pullback is ahead.
For the day we took some gain on BLUE stock as it shot higher. Still running and we left half the stock position to work. Also banked some ENPH as it surged early through the target; it then faded much of the move, but we had banked some solid gain.
Sold SMTC with a trailing stop. Considered selling XLNX as well, but it was showing a second doji at the 50 day EMA. Closed LLNW as it looked promising with that good volume but then it just fell.
We did buy some OREX (drugs) as it posted a 4.95% gain. Also picked up some more positions on FB.
For now the trends of course remain in place. Stocks are still rising with those trends though there are some struggles. So, we are playing the trend but also have some downside plays and are looking at new ones such as NVDA as it tests the support it broke last week. If money is coming out of such stocks, it can come out in quantity in between the respites where it comes up for air. If more such as NVDA break down, then the rally loses its leadership, loses its flash and glamor, and this its muscle. Thus far, very few breaks lower.
Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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