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Monday, June 18, 2018

Market Alert - The Close

The Sunday articles regarding tariffs and potential trade wars were large in number and heavy on hyperbole. Many were quick to extend a relatively miniscule $50B in tariffs in terms of the US economy's overall size to almost absurd extremes. One calculated an 11% decline in S&P earnings if a 10% tariff was placed on all US goods. Yes, and many argued that the stock market would crash if Trump was elected, we would have war with North Korea, etc. It is to the point you simply cannot believe what any 'expert' says.

In any event, 95+% of the articles hammered on the potential negatives. Very hard to be positive after that. Most people read the headlines and form their positions accordingly. It is the rare person, and I posit that most of you ARE the rare person, who thinks beyond the parameters set by the media, pundits, and hallowed experts, who does not accept their analysis as correct or even germane to the issue.

Yet, even with the negative lead from the headlines and the predisposition of most to follow those headlines, half the indices we follow managed to recover from very negative opens to positive closes. SP500 closed lower, but its loss was marginal at 0.21%. NASDAQ 100 was basically flat (-0.06%). It would appear the market money gets it, i.e. gets the 4+% GDP this quarter and that it is the US generating those gains, not China, Europe or any other country or region of the world where the economies were already stalled and falling far behind US growth. Once again the US proves that if we focus on freeing up our entrepreneurs and businesses that we can produce the world's best economic output. Investors simply used the lower open to enter new positions.

SP500 -5.91, -0.21%
NASDAQ 0.65, 0.01%
DJ30 -103.01, -0.41%
SP400 0.14%
RUTX 0.51%
SOX -0.99%
NASDAQ 100 -0.06%

VOLUME: NYSE -63%, NASDAQ -31%. NASDAQ trade fell back to pre-expiration levels, i.e. still nicely above average and on a recovery off lows. I consider that good action. NYSE trade remained above average as well, also near the pre-expiration highs. Given the comebacks, not bad actions.

ADVANCE/DECLINE: NYSE +1.3:1, NASDAQ +1.1:1. Not so negative as I have said.

Sure it was no massive overall move up, but check out the stocks that were moving:

FAANG: FB put in a new high with a low to high reversal. AMZN showed the same action, just missing closing at a new high. GOOG surged 1.84%. NFLX was quiet, AAPL still struggled, but the leaders of the group were again leading upside.

Software: DATA punched in a new high. RHT bounced nicely off the 10 day EMA. NTNX jumped almost 3%. GLUU at a new high, ATVI moving up as well.

China: Many low to high moves. IQ added another 9+%. BABA gapped lower, recovered to positive. HTHT surged to a new high. YNDX surged. SOHU as well.

Drugs/Biotech/Health: EXAS jumped again. ARWR exploded upside. IMMU is bouncing from the 20 day MA test.

Chips: Not a great session though QRVO rallied again along with AMD. MU looks great to move up. SIMO broke resistance. Important group and some big names struggled, e.g. INTC, AVGO, AMAT, MLNX.

Retail: A 'tapped out' consumer yet retail stocks continue driving higher after a rest. WSM up again. LULU moving to a new high. M coming off a 20 day EMA test, BKE as well. ROST in a nice test, COST continuing its strength. Discounters such as DLTR, WMT struggling. That is not an indication of a weak consumer or economy.

As you would expect, the industrial names took the blows. CAT, CMI, DE. At the same time, some of these gapped lower but recovered nicely, e.g. HON, EMR. Indeed, UTX gapped lower and reversed to positive off the 20 day MA.

In sum, it looks very much as if the same pattern is in place as before the late week tariff talk and the weekend 'analysis.' Of course the pundits and the doom and gloom websites will say that the stupid investors are wrong and will get caught holding the bag. Of course they will get caught; that always happens. Thing is, is THIS the time versus the other 1,000 calls for a top and crash made the past two years?

CHARTS

RUTX: Opened flat, sold to the 10 day EMA on the low, rebounded to a nice 0.51% gain and a new all-time high. Tariffs? Good! At least from the small cap perspective.

NASDAQ: No new high, but a gap to the 10 day EMA and a rebound to a modest gain. Very solid action in line with the uptrend and the breakout. Does not appear to be showing such a negative harbinger for the big tech stocks as the experts would have you believe.

SP400: Nothing huge, but an early test of the 20 day EMA and then a reversal back above the 10 day EMA to a modest gain. Good test of the last move, setting up SP400 for a run at that January high after testing it on the prior move.

SP500: Looked like business as usual, fading to test the 20 day EMA on the low, rebounding to near flat. Nice break higher through the first week of June then a week of testing to near support. Nothing here that suggests an imminent rollover, just SP500 testing, trying to get back upside and play some catchup to the other indices.

SOX: Not well. Gapped lower to a doji that undercut the 20 day EMA intraday, recovered to hold it. Perhaps this signals the end of this selling, but as noted last week, its pattern is still problematic.

DJ30: Similar to SP500 but a deeper test, tapping near the 50 day EMA on the low before rebounding to hold the 20 day EMA. It can put in a higher low holding here and be in great position to rally to take out that late February high. Okay, will need some help with some of the big names breaking higher off those tests and still fairly decent patterns.


On the day we took some ARWR gain as the second position surged to its initial target (22% stock, 53% options). Bought some AKAM, BOX, and LULU. Some really good moves, particularly BOX. With the stock indices and leaders testing lower then reversing it looked as if the same pattern was holding, so we had no issues moving into new plays.

Now we see if the pattern holds into Tuesday and growth leads the move back up. It would be great to see SOX repair itself and of course DJ30/SP500 break higher. Thus far the pattern is holding and that gives them that shot.

Have a great evening!
Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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