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Wednesday, May 16, 2018

Market Alert - The Close

After a Tuesday pullback stocks were a bit soft to start hump day. The question in our mind was whether stocks would put in another good test or consolidation session. As it turns out, stocks tested only modestly, and all of that was before the open. When the bell sounded, stocks rallied to positive and held the gains through the session.

More than just rallying off a lower open, RUTX started higher and powered to a new all-time high. After just two day's rest on the heels of its 6 session rally, the small caps set the upside pace yet again and RUTX is the first index to break to new highs.

SP500 11.01, 0.41%
NASDAQ 46.67, 0.63%
DJ30 62.52, 0.25%
SP400 0.68%
RUTX 1.00%
SOX 1.41%
NASDAQ 100 0.60%

VOLUME: NYSE -3%, NASDAQ -1.5%. Unfortunately, no new surge of buying on the bounce from a short test. Well below average on NYSE, again a shade below average on NASDAQ. Not the same more impressive upside volume seen in the initial leg of this rally.

ADVANCE/DECLINE: NYSE 1.9:1, NASDAQ 1.9:1. Rather anemic breadth given the small cap performance.

Okay, so the internals were not a huge success. That is disappointing because the first leg of this rally was built on internals the market has not shown for quite some time. It would be quite nice to see internals rally again as the move resumes. On what looked to be day one, that was not the case.

Yes, the question is whether the move was the start of the next leg higher and whether it can lead to new highs for the other indices. RUTX is there. No other index is close. You have to like the look of the SP400 midcaps pattern, but it still has a long way to go to new highs. The large cap index patterns are not bad, they just are not as strong and have to show they can seriously resume the upside started early May.

And that is what Thursday is about: will it prove Wednesday to be the start of a new upside leg in the rally that started on that Thursday reversal early May or is there more testing/consolidation ahead for the large caps? Always questions about this market's rallies because there always seem to be weak links in the internals.

Leadership remains decent enough but most that faded to test are not making great moves to the upside just yet.

Oil stocks found legs again with SLB surging over 2% on volume. NBR added 3%, PTEN up again, SPN 1.9%. ESV touched the initial target. HAL still cannot get out of the lateral range but still looks good.

Software saw some upside, some downside. Mixed. ULTI moved higher but just no volume. RHT faded farther; its move is over until the 50 day EMA is tested. CRM bounced weakly. FFIV still in a nice weeklong test to the 10 day EMA. DATA bounced just modestly at the 10 day EMA while NOW faded to the 20 day. VMW faded as well and afterhours TTWO (gaming) was slammed on earnings but has recovered almost to flat.

China was mixed but still solid as BIDU took off upside for us again. BABA edged higher. HTHT added more upside. BZUN is trying to bounce form the trendline and 50 day EMA. ATHM is steady, SOHU flat NTES is interesting, showing a big volume spike as it works laterally.

Chips showed some decent moves. LRCX rallied off the 50 day SMA on rising but still low volume. MU was upgraded and gapped over the April peak, AMD as well. ENPHS jumped on some rather huge trade. XLNX is setting up for a run to the top of its range. SLAB is trying to break higher again. QRVO still working on its 10 day EMA test. NVDA may just about be finished with its 20 day EMA test.

Metals: Some great action from STLD as it surged 3% on volume, clearing its base. AKS showing good volume as it possible is ready to move off the bottom of its range. SID could be similarly situated. X trying to make a break higher.

FAANG: FB in a very nice 1-2-3 pullback could be setting up a new entry. AAPL bounced off the 10 day EMA test. AMZN still at the 20 day. NFLX still at the 10 day. GOOG managed to hold the 10 day after that Tuesday thump to that level.

Retail: HD missed on revenues but said things were great. After gapping lower Tuesday it still could not break higher Wednesday. TGT surged higher on volume. BBY was off but solid. COST started to make a break higher form its 5 week lateral range. ZUMZ jumped almost 4%.

We took some gain on CDXS and ESV, picked up a position on SQ. As for new positions, well, just as everyone else we have to see if this market can continue the move and add some internal strength as it did leg one. If so, beautiful; we can pick up positions off a test and be in great position for a new leg higher.

Have a great evening!
Jon Johnson, Chief Market Strategist
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