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Wednesday, January 3, 2018

Market Alert - The Close

Two days in 2018 down, two days to the upside. The best start for NASDAQ since 2006 -- and NASDAQ rallied through April that year. Once gain it was growth leading in the form of RUTX, SOX, and NASDAQ while DJ30, once again, lagged. An IBM upgrade bounced that stock nicely, but even with that gain, INTC, HON and some others hampered the Dow's upside. Everything else pretty much followed along, with the FAANG also in the lead once again.

SP500 17.25, 0.64%
NASDAQ 58.63, 0.84%
DJ30 98.67, 0.40%
SP400 0.31%
RUTX 1.11%
SOX 1.72%
NASDAQ 100 0.99%

VOLUME: NYSE flat, NASDAQ +12.5%. NYSE trade again disappointed with close but still below average volume. NASDAQ found real bids, however, as volume moved easily above average, back up on the upside as has been the case with the start of every upside leg on this rally off the 50 day EMA that started in mid-ish September. That shows good underpinnings as this leg really got underway.

ADVANCE/DECLINE: NYSE 1.45:1, NASDAQ 1.45:1. Wow. Even with RUTX +1.11%, breadth was puny. NASDAQ A/D fell from 2.25:1. Clearly FAANG was in control on NASDAQ, but you would expect more from NYSE with RUTX gaining over 1%.

Stocks entered the session rather mushy pre-market, though holding modest gains. I speculated that was not bad for a move higher as it would give buyers an entry after a solid upside session Tuesday, and sure enough, they were on stocks like bees to honey (was going to say flies, but it was a good upside move, not a stinker). Three big runs on the session, a modest fade to the close. Impressive high to low action on the day, and intraday with the surges and tests, surges and tests, ending near session highs.


Lots of upgrades as is always the case to start a year -- or downgrades depending upon the mood. Obviously the upbeat mood from tax reform and regulatory reduction has carried over into 2018. Specifically, LUV and AAL said they were giving employees a . . . $1K bonus. Upgrades included IBM as noted, then UTX, GIS, AXP, ORCL to name some.

Geopolitics continued to show up with more on North Korea, Iran, but the market is not paying much attention.

More important were data points such as Redbook retail survey showing +5% on sales for the last week of the Christmas season. AMZN is said to have received 4% of all 2017 retail sales and AMZN continued its rebound from the Friday USPS tweet selling, adding another 15 clicks.

Auto sales mostly topped expectations. F +0.9% versus -2% expected. GM -3.3% versus -5.5% expected. 17.9 M annualized units in December, 17.23M for all of 2017. That makes 17+M per year the past three years. Americans love their new car . . . leases.

ISM, December: 59.7 versus 58.0 expected versus 58.2 November. Ramping up more as new orders jumped to 69.4 from 64.0. Production 69.4 from 63.9. Inventories continued to grow leaner as sales are pushing inventories lower. With expansion in the economy, that suggests more production to come.


New highs all around on the indices sans SOX, but SOX started from a deficit and a weak pattern. It has caught some serious bids and of course its stocks are rising. NVDA did not hurt with 6+% gain on the day, gapping out of a more bearish than bullish pattern.

Leadership turned in a very familiar pattern to Tuesday. A lot of industrials and financials not going much of anywhere, oil stocks mostly higher, chips surging, FAANG surging, software moving up, some drugs and biotechs rallying, China not bad. Retail saw some up (ULTA, COST, AMZN), many took a breather.

Where does that leave the market? Two days into the year, two solid moves across the board with emphasis on big tech, small caps, and growth. Something of a January effect with some mega caps thrown in. It appears the animal spirits that were not present at the yearend showed up.

Some stocks are up two strong sessions, others just got going Wednesday. That suggests upside for a lot of stocks still, but don't lose sight of the timeframe, i.e. the first two days of a new year and new money getting put to work. It remains to be seen if this move sticks, though there are good patterns and reversals from bearish patterns that are making that case.

Three or four sessions upside, however, and the indices may be ready to make the first test and some rest after the first move. Perhaps just a pause before continuing; that would not be surprising given the strength exhibited.

We picked up new positions, quite a few, that started new moves or continued new moves. Took some gain on positions we already held, similar to Tuesday, e.g. ULTA. Some stocks have worked on moves for some time, others are joining the upside.

For now, solid, and buying good patterns and good moves is warranted. Still, watch for any reversals, i.e. gaps higher that reverse on strong volume. That suggests that the stocks just bought vigorously are being sold vigorously, indicating that strong sellers are using the upside to exit. A modest test on so-so volume is just fine, it is the high volume, sharp reversals of good moves that raise the warning flags. For now, as noted, solid upside action.

Have a great evening!

Jon Johnson, Chief Market Strategist
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