The session was quite mixed even if the indices closed basically flat. AMZN, ROKU, GOOG, MMM, VMW powered higher. Retail was up but just modestly despite a solid Thursday to Sunday spending bounce. Chips were off as many 'names' again struggled, e.g. LRCX, AMAT, MU -- while others were fine, e.g. QRVO, RMBS, INTC, AVGO. Some old standbys of the rally, e.g. SQ, were hammered.
It could be that the chips and some other high fliers are facing some outbound rotation. Could be. MS downgraded chips saying the cycle had peaked. That is a specific reason for some weakness just as AAPL showed some weakness on an iPhone call by UBS. Could be that this is just some of the frequent post-Thanksgiving/Black Friday softness OR some of those sharp moves that sometime appear around Thanksgiving during a rally higher.
It could also be the move higher continues narrowing. FAANG stocks performed relatively well though AAPL was down on a UBS downgrade that is attacking iPhone sales as soft -- just as they were attacked ahead of the last earnings. You could see the big names continue to perform as other areas stumble after good moves. That is the essence of a narrowing market. Not necessarily great, but with big names moving, the large cap indices still move higher.
As for the indices, they were not bad, just perhaps a bit tired in some cases.
SP500 -1.00, -0.04%
NASDAQ -10.64, -0.15%
DJ30 +22.79, +0.10%
SP400 -0.17%
RUTX -0.39%
SOX -1.31%
VOLUME: NYSE +111%; NASDAQ +105%
ADVANCE/DECLINE: NYSE -1.6:1, NASDAQ -1.5:1
SP500: Rallied to a new high then sputtered and closed flat, showing a doji on below average volume. Good break to a new high last Tuesday, moving higher Friday. Everyone says the indices, SP500 included, have to fall. No doubt they do. For now they are in very well defined uptrends and there is not a lot of rolling over in SP500 stocks.
DJ30: Rallied to a new high then backed off to a modest gain, matching the early November high. Of course this is a possible short double top and if you are finding issue with the moves you can jump on that. I see the 20 day EMA test, the break, then the immediate recovery to a new high. As with the SP500, DJ30 is high, but the trend is still in place. From historical technical action, it is due for a 50 day MA test after its 2 month run up the 10 day EMA. Even if it continues the upside, you would anticipate that test of the 50 day likely before any additional big upside move comes. That is what you would believe, but it has fought against that thus far.
NASDAQ: New high as AMZN surged, then a slip as AMZN gave back some of its session gains. Still a trend up the 20 day EMA; 2 20 day EMA tests are in place and a third will come, but this new bounce is just 7 sessions old. Typically you get about 10 to 12 sessions in the latter bounces from the near term moving averages.
SOX: Gapped lower, sold to the 10 day EMA. SOX last tested the 50 day MA in very early September. It has note closed at the 20 day EMA since the second half of that month. That leaves SOX very extended on this move, and the action in some of the big names that have led the move, e.g. LRCX, AMAT, MU shows a bit of selling as they all gapped lower on volume Monday. Of course Morgan Stanley downgraded the sector and some of its leaders, saying that the chip cycle had run its course. MS is likely just anticipating the 50 day MA test that would normally occur after such impressive runs up the 10 and 20 day EMA.
SP400: SP400 lost a bit of ground as it continues the test of the rally off the 50 day MA test 8 sessions back. A test of the 10 day EMA or down to 1845, the early November highs it gapped through, would be normal. The point: not extended, put in a good consolidation, broke higher. A normal test and it would be ready to move again, but of course that also depends on whether there is continued rotation their way even if the large cap indices struggle. Oh, and the tax reform/cut attempts bear somewhat on the SP400 action.
RUTX: As for tax reform, I suppose RUTX is the most impacted, but if the Senate bill is what the working paper is, I don't see how the small caps benefit any. Once again they get the shaft, left to 'flourish' on the trickle down or table scraps from the large corporations. Thus, I am not sure if tax 'reform' Senate-style would matter even if it did not pass. That said, after a blistering recovery off the 38% Fibonacci retracement to a nominal new high, RUTX is testing the past three sessions. That is normal action: rally to the prior high, pause, then move to the 127% Fibonacci extension -- IF the reasons that led to the surge off the 38% Fibonacci retracement remain in place. Was that tax reform or something else?
We picked up ROKU on the session as it started to surge back up. We also bought some XONE and ARWR. Had to take the rest of the SQ gain as it was downgraded and did not rebound. Took some AMZN gain as it continued its surge, and also took some HOV gain as it came close to its target and then started showing a doji. PLAY took its marbles and tried to go home; we closed it. We let the chips work, but they need to show they can take a punch from the MS downgrades.
SOX, DJ30 may be primed for tests of their impressive runs. RUTX, SP400 remain in very good position, and after a test should be ready to move back up. NASDAQ is still relatively young and spry in its latest move, though near term it can start a test to the 20 day EMA in a few sessions. That means we look for good tests in NASDAQ stocks as potential new plays, and we also look at those SP400 and RUTX stocks as they put in a modest test. And of course, any other leadership stocks that set up a good entry are, as always, fair game.
It may be that there is some testing to set up those moves as SPY futures are down rather heavy afterhours. Is it the yield curve now at 60BP between the 2 year and 10 year? Crashing dollar? Rising oil? Those are the same issues as before, but if the market gets extended enough, they take on more meaning. We will see how the morning looks but also note that over the past few weeks and indeed months, futures bear little resemblance to the regular session action.
Have a great Cyber Monday evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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