Weekend Market Summary

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10/17/14
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TONIGHT:

We have DIVIDED the video into component parts: Market Overview, Technical Summary and the Next Session. This allows you to choose the segments you are interested in without having to find the spot in a longer video. Click on the link to the portion you wish to view.

MARKET OVERVIEW

TO VIEW THE MARKET OVERVIEW CLICK THE FOLLOWING LINK:
Market Overview Video

TO VIEW THE TECHNICAL SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Technical Summary Video

TO VIEW THE NEXT SESSION VIDEO CLICK THE FOLLOWING LINK:
Next Session Video

SUMMARY

- Large caps finally show some life, but after such tough selling, still less than impressive.
- Small caps take a breather, SOX and SP400 a bit problematic.
- Smaller biotechs have a tough Friday after a good week.
- Economic data bad and good on the week, but good outweighs.
- ECB ready to buy assets . . . any day now . . . really.
- Yellen 'greatly concerned' about economic inequality.
- Short interest diving, bullish sentiment down 20 points from September.
- Critical juncture for the market bounce.

I'm not dead yet . . . (Monty Python and the Holy Grail, 1975)

A classic from Monty Python portraying the Black Death. Appropriate timing? Bad taste on our part? Likely both but what do we care? Doesn't appear our government does so why should anyone else? In any event, as pertaining to the stock market, while the old man was not dead and stated so, his fate was already sealed as his recovery was cut short when the body collector dispatched him. Kind of a medieval version of the ACA's death panels, eh?

Back to the market. After a hard time getting started, the large cap indices finally bounced, following, somewhat, the footsteps of the small caps. While the small caps bottomed and bounced on the week, the large caps were still catching down to the losses the smaller issues sustained before the bounce. Each to its own timetable I suppose.

SP500 24.00, 1.29%
NASDAQ 41.05, 0.97%
DJ30 263.17, 1.63%
SP400 0.84%
RUTX -0.35%
SOX 0.81%

VOLUME: NYSE flat; NASDAQ -13%.

A/D: 1.9:1 NYSE, flat NASDAQ

New lows: NYSE 24, NASDAQ 46. First day below 100 in 5 weeks. This after NYSE new lows hit 594 on Wednesday. 245 the prior Thursday, 436 the prior Friday, 421 Monday, 358 Tuesday, 594 Wednesday, 176 Thursday, 24 Friday. A definite spike and now a fade, indicating the market is sold out near term.

In any event, Friday the large caps finally bounced. Solid 1%+ moves that closed somewhat off the intraday highs. At this point, despite the solid gains, Friday was just a relief bounce for the large caps. Damaged patterns, not a lot of quality large caps in good patterns to lead a move. It is up to the smaller caps to lead and the large caps to follow, hopefully forming up bases as the smaller issues provide cover in the form of a continued upside move.

So, the market is relying on the small caps along with SOX and SP400. Friday those indices didn't perform all that well. RUTX was not bad. Down, yes, but holding the 10 day EMA and it has the look of just a breather after a nice bottom and surge Wednesday and Thursday.

SOX put in a good bottom on the week and surged also, but Friday it gapped to the 10 day EMA and lower gap point, then stalled. Not the kiss of death, and it is just testing as well, but it has to show next week it can hold and continue the recovery from that ugly gap lower just over a week back.

Same with the SP400 midcaps. Gapped to the 10 day EMA, stalled, but this after a good bottoming process on the week and a nice Thursday move and Friday gap.

The week and indeed the finish of the week kept up the talk of a weak and dying market. Maybe it is, maybe the bounce was just fluff. Friday the smaller biotechs and healthcare stocks, strong in the RUTX' bounce, did not look all that great.

Ebola, Europe imploding, QE ending, US data mixed, television anchors all glum.

New lows jumped to almost 600 Wednesday, and then Friday the combined NYSE/NASDAQ new lows were 52 - - the first sub-100 day in 5 weeks.

Put/call ratio over 1.0 for the past 6 sessions, finally racking up sufficient days to provide ammo for the turn.

NYSE short interest is plunging after holding at highs.

Bullish advisors are dropping dramatically from the recent highs, off 20 points from the September peak and at the lows hit on the last market decline.

Perfect timing for an October bottom.

It would be quite fitting that the market bottoms when everyone is so negative and no one notices the good patterns in certain areas, overlooked areas that don't have the name brands. If the patterns hold up, it can work.

Indeed, there are great patterns in the smaller issues, Russell put in good bottoming action and turned, and Friday was just a day off at near support. Again, next week will tell a big part of the tale. This week we took some great gain on many downside positions and then picked up some of those upside patterns. This coming week we look for them to move higher again and provide a follow through session to the reversal. Of course in the event they cannot, it behooves us to be ready for more downside. Always.

THE MARKET

CHARTS

RUTX: Rallied through the 20 day EMA Friday but could not hold the move, fading to a loss but holding over the 10 day EMA. Strong move Wednesday and Thursday after a good bottom early in the week. Doji Friday, closing well off the high, and that can suggest the move is out of gas with what is called a tombstone doji. Likely just a continuation doji in our view, but as noted, the upcoming week tells the story for RUTX in that it either continues upside and provides the follow through session or fails after this initial bump higher.

SP500: After a doji Tuesday and a pair of big doji with tails Wednesday and Thursday, SP500 finally got into upside gear. Rallied over 1% but gave up 11 points off the high, one-third of the session gain, after tapping at the 10 day EMA on the high. Has the look of just a relief move but for the big volume. Needs RUTX to continue upside this week to give it some cover to put in more work on its pattern. The large caps were badly damaged and need work. Any bounce, until more patterns set up, is just a relief move.

DJ30: Held most of the 1.63% move Friday, its first surge after the Wednesday and Thursday big doji with long tails. Good volume on the tests lower and reversals, and volume moved higher Friday as the Dow surged. Really good action.

NASDAQ: A sharp selloff into Wednesday then a reversal that session. Thursday a gap lower and reversal to a modest gain. Friday a gap higher that tapped the 200 day SMA on the high and faded to close below the open. Doji below a key resistance level. Lots of work to be done, and as with SP500, NASDAQ needs the small caps to continue rallying to let the techs form up behind the scenes.

SP400: Midcaps gapped upside, moved through the 10 day EMA, then faded to close just below the 10 day EMA. Not a great finish but a good bottom similar to RUTX and a good turn back upside. This week is the test, i.e. whether the midcaps stall at the 10 day EMA or continue the move that this week started.

LEADERSHIP

Biotechs/Drugs/Healthcare: Friday the large cap biotechs enjoyed the better session with CELG, GILD, BIIB enjoying gains. But, they look mostly like relief bounces, particularly GILD. The smaller biotechs that led the move had a tougher session, but only in some cases. They have performed so well, any issues are glaring. Some problems in XON, NBIX, ZLTQ were no issue for AGIO, ACAD, CLVS, RGEN, INSY. Still solid, just taking a day off.

Telecom: Another leading group that lost some ground Friday but did not tank. IDCC gapped upside but could not hold it, fading to the 50 day EMA on the close. UBNT Gapped over the 10 day EMA, showing a doji. Good pause after a good reversal off of key support. Seeing that a lot.

Energy: Reversed Wednesday, rallied Thursday, rallied again Friday, but could not make the move stick. Looks very much like a rebound failing.

Big Names: Some look as if they are setting serious bottoms, others look as if they are still trying to figure it out. TSLA looks as if it could have put in a near term bottom at the 200 day SMA. GOOG sold on its earnings but is at an important support level. AAPL looks toppy after gapping through the 50 day EMA and a weak test. CMG is struggling below the 50 day EMA. Still struggling.

MARKET STATISTICS

NASDAQ
Stats: +41.05 points (+0.97%) to close at 4258.44
Volume: 2.18B (-13.66%)

Up Volume: 1.44B (-90M)
Down Volume: 782.85M (-277.15M)

A/D and Hi/Lo: Decliners led 1.02 to 1
Previous Session: Advancers led 2.06 to 1

New Highs: 32 (+12)
New Lows: 46 (-87)

S&P
Stats: +24 points (+1.29%) to close at 1886.76
NYSE Volume: 1.1B (0%)

A/D and Hi/Lo: Advancers led 1.88 to 1
Previous Session: Advancers led 2.33 to 1

New Highs: 37 (+16)
New Lows: 24 (-152). As low Friday as they were high Wednesday.

DJ30
Stats: +263.17 points (+1.63%) to close at 16380.41

SENTIMENT INDICATORS

VIX: 21.99; -3.21
VXN: 23.13; -3.6
VXO: 19.93; -3.01

Put/Call Ratio (CBOE): 1.2; +0.19. The sixth session in a row over 1.0%. That starts putting the pieces in place for a rebound.

Bulls and Bears:

Bulls continue a fairly serious fade. Okay, they tanked: 37.8% versus 45.5%

Bears posted the most substantial climb in months: 17.3% versus 14.1%

Theory: When everyone is bullish and has put all their capital to work, where does the ammunition to drive the market come from? There is always new money to start a new year. After that is used will more money be coming? That is the question.

Bulls: 37.8%
45.5% versus 47.5% versus 48.0% versus 52.5% versus 57.6% versus 56.1% versus 52.5% versus 49.5% versus 46.4% versus 50.5% versus 55.6% versus 56.5% versus 56.6% versus 60.6% versus 57.6% versus 60.2% versus 61.4% versus 62.6% versus 62.2% versus 58.3% versus 57.2% versus 55.1 versus 55.7 versus 54.7

Background: Last undercut 35%, the threshold for bullishness, in early June 2012.

Bears: 17.3%
14.1% versus 15.1% versus 15.3% versus 15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2% versus 16.2% versus 17.1% versus 16.2% versus 17.2% versus 15.1% versus 15.2% versus 16.1% versus 16.3% versus 17.2% versus 17.4% versus 17.3% versus 18.3% versus 19.4% versus 20.6% versus 19.7% versus 21.7% versus 20.6 versus 18.6%

Background: Over 35% for bears is the threshold to be really be a good upside indicator. The best indication is when bears cross up through bulls as the two merge. Right now bulls are coming back down from the 60 level that has consistently marked market tops over the past two years. The rapid decline in progress is pushing the bulls/bears lines toward one another. Still far from a cross with bulls falling faster than bears are rising, but bears are warming up to the notion of market weakness.

OTHER MARKETS

Bonds: 2.20% versus 2.16% versus 2.14 versus 2.20% versus 2.28% versus 2.31% versus 2.34% versus 2.42% versus 2.44% versus 2.44% versus 2.41% versus 2.49% versus 2.48% versus 2.53% versus 2.51% versus 2.56% versus 2.53% versus 2.56% versus 2.58% versus 2.63% versus 2.62% versus 2.59% versus 2.59% versus 2.61% versus 2.55% versus 2.54% versus 2.50% versus 2.47% versus 2.45% versus 2.45% 10 year.

After a massive swing that saw the 10 year below 2% and in the low 2's for much of the week, just not on the closes. After big surges and purges Wednesday and Thursday, showing a doji over the 10 day EMA Friday.

Oil: 82.75, +82.80. Bounced modestly after a big selloff for October.

Gold: 1239.00, -2.20. Rallied up to the 50 day EMA, taking a breather Thursday and Friday.

$/JPY: 106.875 versus 106.33 versus 105.92 versus 107.05 versus 107.29 versus 107.66 versus 108.12 versus 107.95 versus 108.96 versus 109.76 versus 108.42 versus 109.21 versus 109.63 versus 109.390 versus 109.287 versus 108.70 versus 109.12 versus 109.04 versus 108.89 versus 108.78 versus 108.982 versus 109.17 versus 108.265 versus 107.13 versus 107.19 versus 107.34 versus 107.13 versus 106.80.

Nice gain Friday, moving back to the 50 day EMA after crashing through that level Wednesday.

Euro/$: 1.2760 versus 1.2809 versus 1.2838 versus 1.2658 versus 1.2683 versus 1.2628 versus 1.2748 versus 1.2680 versus 1.2627 versus 1.2516 versus 1.2669 versus 1.2608 versus 1.2631 versus 1.2685 versus 1.2747 versus 1.2780 versus 1.2847 versus 1.2850 versus 1.2831 versus 1.2916 versus 1.2875 versus 1.2960 versus 1.2940 versus 1.2963 versus 1.2912.

Holding a two week pullback following that July to late September run.

MONDAY

Will this week continue the bounce in the small caps, SOX and midcaps that gelled the past week and paused Friday? In other words, will there be follow through to the reversal that continues the rally for another week? Or will the bids fade after the end of the week bounce and more selling ensue?

As noted earlier, the pessimism is high and there is a litany of other reasons to support an argument the market, at least in terms of small and midcaps, has bottomed for a run to year end. You can argue that, but that is not our position. Remember, we are just looking at playing a tradable rally and have chosen plays that can make great moves without having to plow new ground. If it goes further great. Not expecting it to, however, as we focus on working the trades.

There are any number of stories that could trample the bounce, e.g. more US Ebola outbreaks. The outbreak is at a critical point as most cases are 'old' ones and we are at the 21 day incubation period more or less. If no new cases start popping up we could be in the clear in the US . . IF we had closed the border. One of the persons displaying Ebola just returned from Liberia two weeks ago. Are you kidding me? Totally avoidable.

In any event, note that outside of the death in Dallas, there have been no US deaths. The poor Dallas fellow was turned away; perhaps if the hospital was on the ball it would have recognized the problem and saved him as well.

The point: if no new cases crop up, Ebola fades as a front burner issue, at least in the US.

If the ECB goes QE as it is threatening, then there is even more reason for investors to relax.

All conjecture. What we know are small and midcaps bottomed well last week and surged well. After a day off Friday we see if they can continue to the upside and buy the large cap indices time to form up.

Have a great weekend!

SUPPORT AND RESISTANCE

NASDAQ: Closed at 4258.44

Resistance:
4277 is the March lower gap point
4289 is the July 2000 recovery high
The 200 day SMA at 4302
The August low at 4321
4372 is the March 2014 high
The 50 day EMA at 4427
4486 is the July 2014 high
4610 is the September 2014 post-bear market high.

Support:
4246.55 is the January 2014 peak
4185, the May lower gap point
4131 is the March 2014 low
4104 is the lower gap point from 12/20/13
4070 is the series of highs from late November/early December
3991 is the prior November 2013 high and the post-bear market high.
3968 is the February 2014 low
3946 is the April 2014 intraday low

S&P 500: Closed at 1886.76

Resistance:
1897 is the prior all-time high hit in April 2014
1902 from early May was the intraday all-time high.
The 200 day SMA at 1906
1905 is the August 2014 low
The 50 day EMA at 1951
1982 is the lower trendline from 11/2012
1991 is the July 2014 high
2011 is the all-time high
2038 is the December 2012 up trendline

Support:
1883.57 is the early March high.
The December and January highs at 1848
The April 2014 low at 1814
1808 is the November and December 2013 twin peaks
1775.22 is the October prior all-time high
1768 is the December 3013 low
1738 is the February 2014 low
1730 is the September 2013 peak
1710 is the August 2013 peak.
1698 to 1700 are the July and August interim highs
1687 is the May high and post-bear market high
1685 is the mid-August 2013 upper gap point

Dow: Closed at 16,380.41

Resistance:
The 10 day EMA at 16,468
16,506 is the March 2014 peak
16,589 is the December 2013 all-time high
The 200 day SMA at 16,586
16,632 is the April 2014 all-time high
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,815
16,946 is the June 2014 peak
16,970 is the June 2014 former all-time high
17,068 is the early July 2014 peak
17,152 is the mid-July post bear market high
17,351 is the September 2014 all-time high.

Support:
16,341 is the May low
16,334 is the August 2014 low
16,257 is the January 2014 low
16,179 is the November 2013 peak.
15,739 is the December 2013 low
15,696 is the September 2013 peak
15,659 is the August 2013 peak

ECONOMIC CALENDAR

October 17 - Friday
- Housing Starts, September (8:30): 1017K actual versus 1013K expected, 957K prior (revised from 956K)
- Building Permits, September (8:30): 1018K actual versus 1030K expected, 1003K prior (revised from 998K)
- Michigan Sentiment, October Preliminary (9:55): 86.4 actual versus 84.0 expected, 84.6 prior

October 21 - Tuesday
- Existing Home Sales, September (10:00): 5.11M expected, 5.05M prior

October 22 - Wednesday
- MBA Mortgage Index, 10/18 (7:00): 5.6% prior
- CPI, September (8:30): 0.0% expected, -0.2% prior
- Core CPI, September (8:30): 0.2% expected, 0.0% prior
- Crude Inventories, 10/18 (10:30): 8.923M prior

October 23 - Thursday
- Initial Claims, 10/18 (8:30): 283K expected, 264K prior
- Continuing Claims, 10/11 (8:30): 2390K expected, 2389K prior
- FHFA Housing Price I, August (9:00): 0.1% prior
- Leading Indicators, September (10:00): 0.6% expected, 0.2% prior
- Natural Gas Inventor, 10/18 (10:30): 94 bcf prior

October 24 - Friday
- New Home Sales, September (10:00): 473K expected, 504K prior

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