Weekend Market Summary

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9/12/14
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TONIGHT:

We have DIVIDED the video into component parts: Market Overview, Economy Summary, 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 ECONOMY SUMMARY VIDEO CLICK THE FOLLOWING LINK:
Economy Summary 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

- Stocks slide back into a holding pattern as Thursday's growth advance is flipped.
- Retail sales solid on autos, higher costs.
- China economic data shows a massive slowdown.
- Leaders still setting up but some are lagging.
- At this time of year a failure to launch when the opportunity is there can lead to trouble.

Stocks didn't roll over on Friday, but they certainly didn't help any upside cause, at least in terms of the overall action. Sure there were exceptions to the upside, but Friday, after a fairly promising Thursday as the small caps and growth posted nice gains, was definitely a step back in the attempt to break from the lateral consolidation.

Indeed, Thursday I talked a lot about the need for follow through to the nice advance the small caps and midcaps registered. Friday was not that day. RUTX gave up just about all of the Thursday bounce from the 50 day EMA and SP400 broke the 20 day EMA, the near support that was holding on the two week pullback. So, no follow through and moreover, given the good moves Thursday were tossed back, it was not just a lack of follow through but some undoing of what looked to be the start of a new advance effort.

SP500 -11.91, -0.60%
NASDAQ -24.21, -0.53%
DJ30 -61.49, -0.36%
SP400 -0.94%
RUTX -1.00%
SOX -1.27%

VOLUME: NYSE +15%, NASDAQ +4%. Rising volume just as the indices stretch to make new breaks but then are tossed back. Once again not the best price/volume action as sellers came in after a break higher just to toss RUTX, SP400 et al back down.

A/D: NYSE -3.8:1, NASDAQ -2:1. Recall how breadth lagged upside on NYSE Thursday (1.3:1) even as RUTX small caps posted nice gains. Clearly not the case Friday as breadth showed a broad blow torch application to stocks.

One step forward, one step backward. More than that, given the run to this point (moving to modestly higher highs or to resistance as the case may be) AND the time of year (September/October traditional correction period), this is more of a one step forward, one step back and stumble scenario. Add in renewed worries the Fed will have to take some form of accelerated rate hikes given retail sales and other economic data, dubious as the headlines may appear be, and you have to, as noted Thursday, remain vigilant with the upside positions. And of course the Fed meets again next week during option expiration week, so everyone will be watching what the statement says about the future plans. While Yellen no doubt will remain dovish, that won't forestall speculation as to what the statement really means and how investors, already worried about the Fed 'pulling forward' rate hikes, will interpret any statement even remotely hawkish.

In short, while leadership has performed quite nicely through at least Thursday, unless some upside follow through is generated that breaks the indices out of this lateral consolidation (some would call it malaise), the market could run out of time to put in a further move before the weight of the season along with worries about the future of easy money tries to roll stocks from these peaks.

THE MARKET

CHARTS

RUTX: From such a nice upside break Thursday to a turn right back down Friday. Back to the 50 day EMA and the coincident 38% Fibonacci retracement of the August to September move. Okay so it holds a new lateral move but a volatile one. Now once more RUTX needs to bounce. It did it Wednesday after a Tuesday dump so it will have the chance to do it again this week. Just as with the market, the Russell cannot make the break.

SP400: After the hold and bounce from the 20 day EMA the midcaps reversed and fell below the 20 day EMA. Promising move but then tossing it and more Friday. Okay, not a good move, not making the break higher. Doesn't mean it has to roll over. The 50 day EMA is still just below at 1414, another 8 points. It can test and hold and still put in a higher low at its own 38% Fibonacci retracement of the August move. It is, however, failing at the July peak and on lower MACD. Momentum is weaker. Now it has to show it can hold the 50 day.

NASDAQ: More of the same, moving laterally in a narrow range at the 10 day EMA. Back and forth, holding flat. This is not bad action at all, just would like to see the other growth indices hold their moves and then NASDAQ push them over the top. The issues are there, however. Three stronger downside sessions on higher volume in two weeks shows distribution, i.e. dumping of shares, building. NASDAQ can do it but make the break, but a lot of tech stocks that were leading the past week really struggled Friday.

SOX: Similar to RUTX the chips flushed a pretty decent Thursday move then slid lower to the 20 day EMA. No break of support and a pretty normal test, but SOX is also coming off of breaking to a higher high then coughing that up as well. As with SP400 it can hold the line for a higher low, but it is also dealing with a double top and lower MACD on that break upside. Many chips struggled on Friday as well.

DJ30: Actually not bad action, testing lower and coming close to the 50 day MA but then rebounding to hold the lows of last week. Looks as if it wants to seek that 50 day, and again, that is not bad, but you also have to factor in DJ30 is at the July high and thus far unable to push through. MACD is fine and shows some continuing momentum. The main issue: the time of year.

SP500: Was sitting at the 20 day EMA but below the upper trendline in its long channel from late 2012. Tuesday down harder, recovered to Thursday but no real upside advance, and then down harder on Friday with stronger volume. Still trying to hang on at the July peaks but struggling and looks as if a 50 day MA test down to 1970ish (closed at 1985.54) is likely before any attempts upside. Just not crisp in its upside action.

LEADERSHIP:

The problem Friday was not that there were no good moves; there were, e.g. SCTY, YNDX, GRUB, TXMD. The problem is some good looking stocks from earlier in the week turned back down rather hard similar to some of the indices, e.g. BWLD, CRM, MLNX, NFLX, SWKS, SN, UBNT.

Rapid rotation has plagued this last rally. I have discussed this before, where the market moves up but it has been slow and not nearly as crisp as the prior 7 week run. Stocks move up, then stall and backslide as money jumps from one group to another. Typically that is an indication that money is uncertain what to do. It is a positive it is still in the market, but it is flitting around like a butterfly on amphetamines. Either it catches a bid and surges or it burns itself out.

Metals, Industrial minerals: Looking interesting, e.g. PLM, CLF.

Chips: Some looking heavy, e.g. MLNX, SLAB. Solar, however, improving, e.g. CSUN, FSLR, JASO. Strange given the weakness in oil and energy companies.

Biotech: The big names are still struggling after good runs, but the smaller names are still looking solid, e.g. TXMD, EXAS, CLVS, TGTX.

MARKET STATISTICS

NASDAQ
Stats: -24.21 points (-0.53%) to close at 4567.6
Volume: 1.728B (+3.78%)

Up Volume: 702.38M (-327.62M)
Down Volume: 1.07B (+471.01M)

A/D and Hi/Lo: Decliners led 2.08 to 1
Previous Session: Advancers led 1.41 to 1

New Highs: 59 (-10)
New Lows: 43 (-11)

S&P
Stats: -11.91 points (-0.6%) to close at 1985.54
NYSE Volume: 694.4M (+14.78%)

A/D and Hi/Lo: Decliners led 3.77 to 1
Previous Session: Advancers led 1.28 to 1

New Highs: 38 (-4)
New Lows: 54 (+14)

DJ30
Stats: -61.49 points (-0.36%) to close at 16987.51

SENTIMENT INDICATORS

VIX: 13.31; +0.51
VXN: 14.67; +0.64
VXO: 11.96; +0.55

Put/Call Ratio (CBOE): 0.89; -0.12

Bulls and Bears:

Bulls still surging: 57.6% versus 56.1% versus 52.1% versus 49.5%

Bears however are rising again: 14.1% versus 13.3% versus 15.1% versus 16.2%

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.

Note the extreme bullishness: it was this high in 2007 at the crash, in early 2005 as well.

Bulls: 57.6% versus 56.1%
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: 14.1% versus 13.3%
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% is the threshold to be really be a good upside indicator. For reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.

OTHER MARKETS

Bonds: 2.61% versus 2.55% versus 2.54% versus 2.50% versus 2.47% versus 2.45% versus 2.45% 10 year.

Hard week for bonds, particularly back end loaded. Sold to the 50 day EMA midweek then broke down Thursday, gapping sharply lower Friday.

Oil: 92.27, -0.56. Still trending lower below the 10 day EMA but also at an old support level and trying to form up a bounce.

Gold: 1231.50, -9.60. Gold finding no haven status despite the world issues. With the Fed perceived as having to get tighter, gold is not wanted.

$/JPY: 107.34 versus 107.13 versus 106.80. Huge week for the dollar though it paused Friday. Massive upside breakout and after a test, buy more dollars versus yen.

Euro/$: 1.2963 VERSUS 1.2912. Taking a breather Tuesday through Friday after a big surge.

THE ECONOMY

Retail Sales, August rose but the July revision is the 'whew' event.

0.6% gain in retail sales was in line with expectations. That July was revised from 0.0% to 0.3% was the thing that made the television economists slobber and traders fret.

The television economists first. They see this as proof the economy continues to improve. It is good news if that is the case, and no doubt the figures are better than they were 2013, much steadier (thanks to the July revision) versus the hit or miss, up one week down the next 2013 series.

That said, it is all still about autos. Auto sales rose 1.5% to an 8 year high. Take out autos and Retail Sales rose 0.3%, half the headline and the lowest rate since January.

Core retail sales (ex-food, auto, building materials) rose 0.4% versus 0.5% expected. Yes you need to take out some of these costs to get a better feel for reality. Remember, retail sales are based on total dollars, not units. Thus higher prices mean bigger retail sales figures even if less goods are purchased.

So, take out autos; the sub-prime market is alive and well there so the figures are rather meaningless. Food as well. Food prices are rocketing higher with milk, butter, beef at highs. Pork prices are fading after the spike on the pig diarrhea, but other prices continue to climb as 80% of California is now in drought. With so much produce coming from California, the drought is driving everything in your salad higher, fruit or vegetable.

China having its own very serious economic issues.

Ghost cities are still ghost cities. But after the latest round of economic data dump Chinese style, there may be a few more cropping up from cities that once had real people living in them.

World's largest shopping mall bustles . . . Same kids still in downtown Zhengzhou

Parks, copies of Paris, Manhattan empty. Bustling Zhengzhou remains empty.

The data released are so far below expectations that concerns about Chinese GDP slowing to the 7% range are misplaced. After these numbers GDP appears to be trending below 7%, the slowest since the pre-crash LEH implosion.

Industrial Production 6.9% versus 8.8% expected. Slowest since early 2009.

Fixed investment 16.5% the lowest since 2001.

Housing: Sales -13.4% August, -17.9% July.

Electrical output: Declined year/year, the first since 2007.

Bloomberg and JPM say this data shows Chinese GDP at 6.3%. That is almost cataclysmically low for China. Add on top of that Europe heading toward recession again. Thank goodness the oil and gas industry is so strong and the QE, stimulus, and regulations that were enacted during the financial crisis have kept the favored companies making lots of money. Otherwise US GDP would be scraping by a 0.5% if we were lucky. Oh, is the Fed to be credited? I suppose; but for the liquidity financial assets would be much lower in value and what little wealth effect would be nowhere. Of course the Fed cannot change the economy for the good; it can only try to keep it afloat while the federal government and those that elected it put forth policies. Unfortunately those policies are not producing a real recovery for most of the country.

MONDAY and the WEEK

The action to end last week was disappointing on the heels of solid moves Thursday and generally good action in leaders all week long. As noted earlier, the rapid rotation starts moves but then leaves them hanging or in some cases the advances are turned back.

At the same time the indices are hanging in, working along some support or at some resistance. Holding gains is always good. But, with the up and down bumps as money moves quickly through the market can erode the consolidation; quiet ones are typically better as money slowly moves in, sets up, then demand outstrips supply and the break higher occurs. With this kind of action you have to be wary of the foundation weakening, not strengthening.

Throw in the time of year, this failure to launch gets worrisome after a few attempts. We were looking for another advance before perhaps a September/October seasonal dip, but if stocks cannot find the bounce this last bounce to this point may be all it can deliver before a dip that then leads to another seasonal move, the year end run.

Thing is, there are still a LOT of good looking stocks in the market. Good tests of breaks higher, good patterns; there are many that look worthy of money if the moves show up. At this juncture, THAT is the key: if the moves show up. Pullbacks that look great can just keep pulling back further and further. Patterns that are setting up or are set up can just fall apart. As we say, they are just pretty pictures until they make the moves.

As noted a few weeks back, the risk/reward at this level is more problematic with the move higher up to new highs in some cases, resistance in others. Add on that the worries of the FOMC meeting this week and any indications of additional hawkishness or even the perception of more hawkishness. Then you have the billionaires worried even as individual investor bullishness spiked two weeks back. It is mitigating some but still at high levels.

Don't want to sound as if we are scared of our own shadows, but given the risk/reward alone it pays to be cautious. So we have existing upside positions and will look at some more given the nice setups that still exist. At the same time if the indices cannot make the breaks higher we need to be ready to take positions off the table as we have done of late using trailing stops as well as prep for some downside with new plays. With the time of year, etc. best to work with good positions we have, be ready if the upside makes its break, but also if the market doesn't have anything left to continue this move.

Have a great weekend!

SUPPORT AND RESISTANCE

NASDAQ: Closed at 4567.60

Resistance:
4657 is the lower November 2012 trendline

Support:
The 20 day EMA at 4546
4486 is the July 2014 high
The 50 day EMA at 4476
4372 is the March 2014 high
The August low at 4321
4289 is the July 2000 recovery high
4277 is the March lower gap point
The 200 day SMA at 4257
4246.55 is the January 2014 peak. Key level.
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 1985.54

Resistance:
The 20 day EMA at 1989
1991 is the July 2014 high
2003 is the December 2012 up trendline
2011 is the all-time high

Support:
The 50 day EMA at 1971
1949 is the lower trendline from 11/2012
1905 is the August 2014 low
1902 from early May was the intraday all-time high.
1897 is the prior all-time high hit in April 2014
The 200 day SMA at 1888
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 16,987.51

Resistance:
The 20 day EMA at 17,000
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak

Support:
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
The 50 day EMA at 16,909
16,736 is the penultimate all-time high from May 2014
16,341 is the May low
16,334 is the August 2014 low
16,632 is the April 2014 all-time high
16,589 is the December 2013 all-time high
16,506 is the March 2014 peak
The 200 day SMA at 16,493
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

September 12 - Friday
- Retail Sales, August (8:30): 0.6% actual versus 0.6% expected, 0.3% prior (revised from 0.0%)
- Retail Sales ex-auto, August (8:30): 0.3% actual versus 0.3% expected, 0.3% prior (revised from 0.1%)
- Export Prices ex-ag., August (8:30): -0.3% actual versus 0.3% prior
- Import Prices ex-oil, August (8:30): 0.1% actual versus 0.0% prior
- Mich Sentiment, September (9:55): 84.6 actual versus 83.5 expected, 82.5 prior
- Business Inventories, July (10:00): 0.4% actual versus 0.4% expected, 0.4% prior

September 15 - Monday
- Empire Manufacturing, September (8:30): 16.0 expected, 14.7 prior
- Empire Manufacturing, October (8:30)
- Industrial Productio, August (9:15): 0.3% expected, 0.4% prior
- Capacity Utilization, August (9:15): 79.3% expected, 79.2% prior

September 16 - Tuesday
- PPI, August (8:30): 0.0% expected, 0.1% prior
- Core PPI, August (8:30): 0.1% expected, 0.2% prior
- Net Long-Term TIC Fl, July (16:00): -$18.7B prior

September 17 - Wednesday
- MBA Mortgage Index, 09/13 (7:00): -7.2% prior
- CPI, August (8:30): 0.0% expected, 0.1% prior
- Core CPI, August (8:30): 0.2% expected, 0.1% prior
- Current Account Bala, Q2 (8:30): -$114.5B expected, -$111.2B prior
- NAHB Housing Market , September (10:00): 56 expected, 55 prior
- Crude Inventories, 09/13 (10:30): -0.972M prior
- FOMC Rate Decision, September (14:00): 0.25% expected, 0.25% prior

September 18 - Thursday
- Initial Claims, 09/13 (8:30): 305K expected, 315K prior
- Continuing Claims, 09/06 (8:30): 2945K expected, 2487K prior
- Housing Starts, August (8:30): 1045K expected, 1093K prior
- Building Permits, August (8:30): 1054K expected, 1052K prior
- Philadelphia Fed, September (10:00): 23.5 expected, 28.0 prior
- Natural Gas Inventor, 09/13 (10:30): 92 bcf prior

September 19 - Friday
- Leading Indicators, August (10:00): 0.4% expected, 0.9% prior

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