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Monday, August 14, 2017

Market Alert - The Close

What thermonuclear war? Why would we attack Venezuela? And who cares about a trade war with China? Such appeared to be the sentiment Monday as US officials tried to walk back fears of fingers hovering over launch buttons (or wrists warming up to turn launch keys?) or invading the utterly pathetic Venezuela. A China trade war? Sure the Chinese newspapers wrote of a 'poison' relationship between the US and China as a result of the US actually looking into IP theft (the nerve), but China also announced an embargo on importing North Korean lead, coal, and iron -- it would appear China is definitely engaged in efforts to rein in North Korea, taking this action in addition to voting in the Security Council to sanction NK.

That left it up to better news. Japan's GDP jumped well above expectations (4.0% versus 2.5%) as personal consumption and capex investment both enjoyed solid increases. With easing world tensions, for the day, that is worth some additional upside as well.

Then there was New York Fed president Dudley stating that market expectations were 'unreasonable' regarding the a September balance sheet reduction. Dudley further stated he saw just one more rate hike in 2017 if data stays as it is.

Stocks gapped higher as soon as the premarket commenced, holding the tight gap range into the open. Stocks rallied farther, then entered a session long lateral move. Sellers to a shot mid-afternoon and broke stocks below the tight intraday lateral range. Then Dudley opined and stocks jumped back up into the range where the closed out the session with nice percentage gains all around.

SP500 1.00%
NASDAQ 1.34%
DJ30 0.62%
SP400 1.16%
RUTX 1.46%
SOX 2.58%

VOLUME: NYSE -24%, NASDAQ -6%. Impressively weak NYSE trade, falling to holiday light levels on a 1% NYSE move. Not many buyers all buying. It would not take much selling to turn it. NASDAQ trade faded further below average with volume 33% lower than the Thursday selling volume. The point: IF sellers return in those numbers, they can easily overrun this number of buyers.

ADVANCE/DECLINE: NYSE 3.2:1, NASDAQ 3.3:1. Definitely more buyers than sellers, but again, the it's the numbers. As Eomer said of Merry's fighting prowess in 'The Two Towers,' it is not the size of his heart that is in doubt, but the length of his reach. There were no doubt buyers, but not nearly in numbers as the prior sellers. Perhaps that fear is now over and can be forgotten. If good stocks make good moves, that kind of solves the conundrum, doesn't it?


CHARTS

SP500, SOX and NASDAQ gapped over the 50 day MA and held the moves. SP400 gapped off the 200 day SMA and rallied to near the 10 day EMA. RUTX did the same with a very impressive move. DJ30 gapped up off the 20 day EMA and closed over the 10 day EMA; nothing unexpected about the Dow's move.

LEADERSHIP

FAANG stocks were all up, but they are also in different patterns. AAPL gapped nicely on a story AAPL is meeting with Aetna to get every Aetna insured a watch. FB did a nice job of bouncing off near support. NFLX held the 50 day EMA and the June high. AMZN and GOOG both gapped but they also gapped to resistance and could go no further. All were up, but no relative change to the patterns.

Financial: Up as well, some better than others. C gapped up off the Friday downside gap to a doji. Not bad. BAC gapped back over the 50 day MA's. JPM, WFC also gapped, though WFC's pattern is not great. GS surged higher through the 200 day SMA, but it could not hold that move. Not bad, not blowing higher.

China stocks: BITA posted a nice breakout gap and run. SINA gapped and rallied off the 50 day MA test. Many others were just holding status quo. BZUN continued a nice 3 week pennant formation. SOHU gapped but faded to near flat. BIDU held the Friday reversal off the 20 day EMA. HTHT was flat over the 20 day EMA. JD showed a doji with a big tail after reporting earnings. Not bad overall and very similar to how these stocks tend to perform.

Software: VMW posted a nice gain and run for us. DATA gapped and rallied on a decent volume increase, giving ups a new entry. MSFT gapped off the 50 day MA test. TTWO gapped higher but had zero volume. GLUU rallied . . . then closed near flat. Overall still a solid group.

Semiconductors: DIOD jumped on volume. SWKS, LRCX, AVGO all loved the Apple Watch/Aetna story. MLNX, MXL, XLNX not great. VSH looks interesting at the 50 day EMA. NVDA gapped off the Friday doji at the 50 day MA, showing good volume as well.

Metals/Materials: FCX, SID still not bad at all. CX, LPX not that great in the pattern department.

Manufacturing: HON bouncing off a week of moderate testing. HOLI is matching the late July highs. UTX is showing a somewhat lethargic bounce to test the selling. CAT holding a 3 week lateral move over the 20 day EMA. TEX coming off its 50 day EMA test. All in all, holding their uptrends.

Retail: Some unable to recover from last week's gaps lower. DDS, KSS both were working higher, nicely so, when they gapped lower last week. Still not recovering. M is sucking on an exhaust pipe and JWN is not better, indeed looking good as a downside play. COST, however, continues setting up an inverted head and shoulders. DG setting up a handle to a 2.5 month cup. WMT in a test of its breakout, holding the 10 day EMA.


TUESDAY

It was clear that the algorithms were not selling. But not a lot were buying despite the impressive percentage gains. Volume lagged dramatically. Of course you have to ask in this market, does volume matter that much? Perhaps in seeing if the algos were heavy buyers, but lack of volume has not stopped this market now or indeed many times in the past during this long rally.

So, despite the volume, if good stocks in good patterns were moving, we participated. Thus we bought some BITA, DATA, and GLUU, all holding good moves but GLUU as it faded much of its session gain. There are still good setups to the upside and, yes, downside. These powerful point surges with no volume tend to bounce stocks up to resistance where they fizzle unless they have legs. A rally after a selloff can be like a bike racer who is really on the limit, loses some ground but then makes a valiant effort to catch back up to the leaders. Once a new serious climb is hit, however, the legs, already marginal, wilt. That makes these weak recovery bounces very enticing as downside plays if they recover only to wilt when they feel resistance.

Yes you note the low breadth in the bounce and how that is symptomatic of relief moves that ultimately fail. You also note that in this long rally, these type of recoveries from sharp selling have tenacity, whether it represents true buying or the more artificial, but nonetheless successful, buying floors put in by the plunge protection group in conjunction with the Fed and the kind of statements you read from Dudley today.

All of this means you look for opportunity from really solid setups, upside or downside, and take what the market is giving.

Have a great evening!

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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