Market Alert - The Close

Another uninspired session -- for the market overall -- while the same leaders continued to perform with a move higher or at least held their ground. Indeed, many areas, despite the mixed close, continued to hold and set up quite decently.

SP500 -4.78, -0.20%
NASDAQ 0.53, 0.01%
DJ30 -8.76, -0.04%
SP400 -0.52%
RUTX -0.53%
SOX 0.77%

VOLUME: NYSE -67%, NASDAQ -43%. Back below average after that huge quad-expiration spike. Going nowhere but no churn as volume was low.

A/D: NYSE -1.4:1, NASDAQ -1.6:1.

This market is dull, slow, sporting low and rangebound volatility. Many remain worried and skeptical of continued gains, pointing out the next 20% move would more likely be downside than upside. Wow, 20% is a big number and that is pretty negative. Not all say 20%; you hear 10%, 5% -- just some number downside. There is that old adage about never shorting a dull market. Outside of some leaders, this is about as dull as you can get.

One thing the worried groups point to is President Trump's steadily declining approval (now in the 30's) and the high disapproval level (in the 50's). With the daily pounding from the press and the talk of the healthcare and tax policy reform plans stalling, it is easy to see that happen. Getting the reforms passed is totally doable as discussed over the weekend, and making that happen will be a big shot in the arm for the markets.

The question on the minds of the hand-wringers is will it be soon enough. Most say no way, there are too many bridges to cross to get both the House and Senate agreed by anytime before summertime recess.

I believe that they are again underestimating this guy. They underestimated his ability to put together a winning election game plan, saying he didn't have the ground game and other indicia of historically successful campaigns. But his group figured out how to use the internet even better than Google and others who make their livings gleaning data from the web and they were obviously highly effective in targeting the areas their web research told them were the important areas. I think that despite all the press about how no one wants to work with Trump, those that meet with him are bear hugged so to speak, finding it hard to disagree with what he wants of them. As with shorting a dull market, I would not sell Trump's chances short if nothing else based upon his history in the election and a reputation for getting things done.

That said, the near term is what is on the big money managers' and fund managers' minds, and the timing is nothing happening in the next few weeks. Even so, the market continues to hold support and in some areas move higher as no sellers show up and investors still put money to work in solid sectors, e.g. semiconductors, biotechs/drugs, software.


NEWS/ECONOMY

Today the news was as slow and dull as parts of the market.

The G-20 turned out to be a nonevent in terms of the world market reaction as well as the impact of the failure to agree on the same pat language included in the last several statements. Is the failure to agree any surprise given the outcome of the US election? Anyone shocked by this? Of course not. This was part of what Trump ran on and thus not any seriously negative market reaction to the events.

The big takeaway was the failure to affirm free trade by dropping the phrase "resist all forms of protectionism." Treasury Secretary Mnuchin blunted any consternations over leaving that wording out by stating "was not necessarily relevant from my standpoint." That seemed to take care of the issue and the currency markets are fairly quiet in the aftermath. Hey, they did agree to combat currency devaluations, so there. Some say it was a failed meeting, some called it disappointing, but it was what was likely to happen with the Trump administration in power.

China: Did not like the outcome and is supposedly set to meet each trade adjustment by the US with reciprocity. Okay, we will see.

China did report home prices +11.8% yr/yr, more than expected though lower than the 12.2% prior.


The other news was the FBI Director heading to Congress to discuss Russia's involvement in the election. It would appear our worries were unfounded. Whatever Russia did if it did anything at all, had no impact on the election according to Comey. No evidence, no evidence, no evidence was repeated often. Not a lot of excitement after a ton of speculation.


MARKET

While most of the market snoozed, SOX continued its upside, punching out another new high (though still not an all-time high; those from 2000 are still a long way off, over 300 points to the upside). I know it is just a relatively small index, the market tends to follow it. SMH (semiconductor ETF) hit higher highs as well. While some early leader chips are a bit stymied, new blood is working higher for the chips, the definition of a rallying leader group.

On the other end, RUTX and SP400 led the downside, but their action was not terrible, just testing the bounce off the 50 day EMA for SP400, the bottom of the range for RUTX. Not a bad session, just testing a 3-day move higher with respect to RUTX.

All in all, the indices did nothing to hurt their position, and SOX posted another nice move. The other indices tested modestly, holding near support. Not upside for sure, but at this juncture not trend-breaking and, as I have said many times, thus far no sellers are willing to really make a run at the market.

CHARTS

SOX continues higher. The other charts, while showing sluggish action on lower MACD (suggesting slowed momentum), are still technically in good shape and trending higher. Upside catalysts have not sent them surging in new breakouts, but they also are not getting sold off on the lack of the Trump agenda steaming ahead. It is a matter of seeing which side leads the move.

SOX: New post-2000 high as the chips are in a pattern of a break higher, a short pause, then a new break higher. Nothing huge, just very steady as the group continues putting forth new stocks to move higher even as the original group leaders test their upside moves.

RUTX: Down 0.53%, but after a 3-day bounce from a short double bottom over the lows in the December/February trading range, all RUTX is doing is testing the 50 day MA's while holding the move higher. A good setup to continue higher, it only has to do it.

NASDAQ: Eked out a gain as it spent its third session in a tight lateral test over the 10 day EMA following the Wednesday break higher. NASDAQ is sitting just below the early March new high, in great position to make a new break higher. It is helpful the chips are still solid and FAANG enjoyed a pretty good day. Obviously NASDAQ will need a bit more than those two groups, however, as they performed decently but NASDAQ was flat.

DJ30: Very similar to NASDAQ in a 3-day lateral move after bouncing off a short double bottom at the 20 day EMA.

SP500: Faded a third session, moving below the 10 day EMA and may want to test the 20 day EMA again as it did last Tuesday and the Thursday before. The financials are not helping as they faded as bonds rallied and pushed yields lower. The financials are not getting a benefit from the Fed hiking rates and indeed are struggling with C at the 50 day EMA and BAC gapping below the 20 day EMA Monday.

SP400: Very similar to RUTX, holding at the 20 day EMA in a 3-day lateral move after jumping off a short double bottom at the 50 day MA's.


Some of the same groups that have led upside continued. There were some good moves in chips and we picked up some positions (PLAB, RTEC). Biotechs were on the move as positions we had last week rallied along with some that tested and are rebounding. We picked up some new positions (IMGN, INVA). China stocks, despite the G-20, were moving and we picked up a new NTES position as CTRP, BABA put in good moves and others in the group look solid (YNDX, BIDU, BITA).


The action was not terrible at all. You would think the market was falling all around you given the commentary about corrections. We still feel one will come, and perhaps it does indeed emerge out of this lethargic period once the leaders exhaust themselves. If that is the way it plays out, that works because we will see the leaders slow, turn, and crack.

The thing you hate the most is waking up one morning with the futures down hard. It can happen, and if some negative surprise hits that could be the trigger. After all, potential upside triggers have had little to no effect. For now the moves are so good in the biotechs, China stocks, and semiconductors we continue to play them, but realizing that with this much negative sentiment, while it helps climb the wall of worry, the big funds are the ones that have keep putting money to work to raise the market. If they all go on a buyer's strike, the new money is spent and there is no more coming in. Even so, the sellers would still have to show up. For now, if these sectors keep running, we will be taking some gain as a matter of course and will have more cash on hand.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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