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Monday, October 9, 2017

Market Alert - The Close

Stocks started the morning higher, but they put all the effort into the open. Once the bell rang they didn't have much upside fight. The rest of the session was fading the gains, at least for everything outside of SOX. SOX started higher and rallied, hanging onto the gains in the close. Some up (chips, big name China), many more down, but not a lot of train wrecks.

SP500 -4.60, -0.18%
NASDAQ -10.45, -0.16%
DJ30 -12.60, -0.06%
SP400 -0.29%
RUTX -0.44%
SOX 0.71%
NASDAQ 100 -0.10%

Of course, any session where there is no new high (again, outside of SOX), the pundits and the journalism majors on the financial stations get flustered. Yes there were new highs early session, but they did not hold. 'What the hell is wrong with this market?' is the expression you read on their faces and just about what they ask. Then there are those who, after a stock dives 15% on some news love to say, 'yes, but it is up 25% this year' as if that assuages the pain of a 15% drop. Kind of like cousin Eddie in 'Christmas Vacation' telling Clark that the Jelly of the Month club certificate he received in lieu of a bonus was the gift that keeps on giving all year long. That it is, Edward. That it is.

The problem is clear. The VIX is at record lows, so the TV people are told by their favorite experts (who are subtly pushing their books through the unwitting dupes), so if the market does not go up it must be ready to crash. Reminds me of that movie 'Broadcast News' from the 1980's, back when network news actually made the attempt to appear unbiased. One of the reporters passed over for anchor was providing information via his home phone to the people at the station. He then watches as the anchor says just what he told them. "I say it here, it comes out there" he says to himself. You would feel sorry for him but he was such an ass himself.

Anyway . . . they parrot the lines they are told, we are supposed to react with the 'lions, tigers, and bears, oh my!' mindset.

Okay, yes the indices, again outside of SOX, sold. Now the algos have started their selling with innocuous sessions, but typically when they enter you see a sharp reversal: sailing along one session then monkey-hammered the next. That was not the case Monday.

It was a reversal from early highs, so you can argue the move was used to sell. It was in many instances. It was just not a breakdown and not a lot of stocks broke down. We see how the rest of the week plays out, but it was not a clear rollover Monday.

We did, however, take some gain off the table on stocks that were hitting or were darn close to hitting targets, e.g. GOOG, C, DLTR, HTHT. Prudent, and of course, sticking to the plan. We got out of MLNX and the rest of CONN; the latter gapped back into the gap zone from late September so we were not hanging around. MLNX gapped below the 50 day MA; did not want to stay in as the point of the play was gone.

Now we watch for any more of a test after these new highs. A 10 day EMA test by SP500, DJ30, SP400, NASDAQ, RUTX would be so, so normal. Yet also so worrisome for everyone that it would feel like a serious 'correction' just going to the 10 day EMA. Okay, that is an overstatement, but you know what I am talking about.

The key for any move, up or down, is always the leadership. Is the leadership in a normal test or are leaders really rolling over? We are still looking across the market, but for the most part not many sharp breaks suggesting a rollover. Indeed, some of the solid names such as BABA, BIDU, NVDA, HTHT, MU, INTC, AMAT moved up on the session. Those are all leaders, all still performing as the rest of the market tests.

Thus, Tuesday we again play 'leader watch' and which stocks test normally, which move higher, which break through support. That is the best litmus test of the market.

Have a great evening!

Jon Johnson, Chief Market Strategist
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