Weekend Market Summary

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12/12/14
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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

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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:
Watch Next Session Video

SUMMARY

- Stocks and oil fall together. Weaker world economy? Increased supply? Does it matter?
- Yearend rally is off the rails, but leaders continue holding the line, holding out the chance for a little Christmas magic.
- IEA cuts its oil forecast as well.
- Michigan Sentiment surges as citizens accept lower growth, lower standards of living as the new normal.
- Looking for indications of a new bounce attempt. Some indicators gelling, but still has to show it.

Stocks sell again, oil blamed, but low oil historically is good for economies, good for stocks.

Last week the one thing we felt could derail the yearend rally did just that: international issues. It started with Mario Draghi and the ECB doing nothing in terms of QE. It worsened when the PBOC tightened liquidity. It continued with oil plunging, again, and pundits speculating it was all about a slower world economy.

Friday oil took another $2+ hit and stocks suffered a 1.2% to 1.8% kick per the stock indices. Oil is blamed, understandably so, given it has accounted for virtually all of the US economic growth in the recovery and because the drop is viewed as a lack of world demand, ominous for economic output and thus earnings.

Of course as touched upon Thursday, is it really lack of demand or a massive new amount of supply causing the decline? No question without the US entry as a top crude producer oil prices would be higher. Then again, without the US entry into the market the US economy would not be as strong as it is and the entire world economics would be slower and thus perhaps oil prices lower via lack of demand. Interesting give and take.

If it is oil, it is just a recent phenomena. Oil put in its last high in June and has dropped from 108 to 58 in a steady, sharp slide. Stocks, on the other hand, have rallied with just one big hiccup (October), and just this past week started to sell. If it is oil causing stock weakness, it is something the market just woke up to.

Oil or just the market having gas? To borrow a phrase from former Secretary of State Hillary Clinton, what difference does it make? Can you imagine the CEO of GM after people died from a known issue with an electrical switch saying 'what difference, at this time, does it make?' Can you imagine how she would have been strung up by the media, Congress, the public? Of course it does matter because it can continue if not corrected, but that is another story and, apparently, another election to come. After Thursday, I would suggest Elizabeth Warren will have a lot to do with who is the democratic nominee in 2016 as the democrats push aside Clinton again. But I digress.

Either way stocks were off sharply again Friday, ending a week that saw sharp declines, attempts at reversals, but not enough to overcome the sellers. Perhaps just too much upside off of the October low, perhaps there are economic issues bubbling up under the surface that the economic data as reported is not picking up. In any event, the holiday rally is off the rails and the best it can hope for now is a pullback to next support and then a more traditional Christmas rally, i.e. from Christmas into the first few days of 2015.

SP500 -33.00, -1.62%
NASDAQ -54.56, -1.16%
DJ30 -315.51, -1.79%
SP400 -1.35%
RUTX -1.24%
SOX -1.73%

VOLUME: NYSE +21%. NASDAQ +1.1%. Some serious distribution on the NYSE indices as volume spiked on sharp selling. Distribution means dumping of stocks. 4 distribution sessions in the past 10 is fairly significant and suggests continued pressure on stocks.

A/D: -3.8:1 NYSE, -2.5:1 NASDAQ. Pretty strong but not as strong as the Wednesday -4 and -5:1.

Support was the issue Friday, and for several of the indices that next level did not hold. On others it did. Those that did break support are already at the next.

Leadership took hits but if you look at our positions, for the most part they remain in solid position. That seems surprising to many given the strength of the selling, but it is showing that some groups are simply using the selling to test and set up for a new move. As long as there are leaders doing just that, the market has the foundation to bounce after it finds the key support. The 38% Fibonacci retracement of the October move is getting closer, and if the upside still has momentum that should provide some kind of bounce.

It doesn't hurt that the VIX contracts are entering backwardation, that situation where the near term contract is valued higher than longer term contracts. When that occurs the market has bottomed over the past few years. When that lines up with a solid support level in the indices, the bounces are solid.

Friday was basically play management. We took some gain on DECK as it tripped the initial target. We closed STX, SNDK, and ACXM with trailing stops, and also closed VICR. Most of our positions, however, held up very well on the day and on the week. As noted, if leadership holds good support and good patterns, the ability to post up and give us an end of year run remain.

THE NEWS

November PPI fell 0.25 thanks to a 3.1% energy and 7.7% fuel decline. The core was 0.0% when energy was stripped out. Deflation? Hardly. Lower prices in fuel is a good thing for economies. Plenty of other items are not deflating but are inflating in price. There is concern that iron ore and other metals prices are floundering lower as well. With China no longer buying to hoard in addition to building ghost cities, the demand just isn't what it was.

IEA lowered its oil outlook for 2015 for the fourth time in as many months. Dropped daily demand expectations by 230K/bbl per day down to 900K. Demand down, supply up. Perfect storm for oil prices.

Are the sentiment measures correct?

Michigan Sentiment, Preliminary surges to the highest since January 2007 (96.9). 93.8 blasted past expectations (89.5). Wages may be stagnant at best (real median incomes are 5% lower than 2007 and HIS Global Insight says it will take until 2019 to hit new highs!), but the consensus reports (Conference Board, Michigan Sentiment) show a more sanguine, even enthused, consumer.

Is this the 'new normal' as well, i.e. satisfied with less economic growth (because we don't remember what real growth is like) and thus satisfied with lower levels of living standards?

Frightening when you think of the parallels of 'settling,' e.g. willing to allow and accept complete government intrusion into every aspect of our lives. I have not heard one person complain of the passage of the appropriations bill Thursday night in the House that codified the NSA's ability to gather all of our electronic communications for use as it sees fit. Give us our iPhones, our student loans, our subprime auto loans, our false promises of affordable care, and we don't care. Disturbing.

THE MARKET

CHARTS

SP500: Broke the lower trendline and the 50 day EMA Friday but held the 50 day SMA at the close. Still 22 points over the 38% Fibonacci retracement of the October surge (1980), but at support from the 50 day and the late July, August peaks. Wasn't showing any signs of slowing as of Friday, but it is getting in the zone and now start looking for some doji at these prior highs to see if the sellers are losing momentum.

NASDAQ: Down on the week but not gutted. Gapped lower Friday but holding over the 50 day EMA and well over the late October gap point at 4600ish. So far a very normal test, though well, well above the 38% Fibonacci retracement of the October run (4545). Closer support at the 50 day (4631) down to 4600.

DJ30: Two big dives lower Wednesday and Friday left DJ30 at the 50 day SMA and September prior all-time high. Good place to hold but could give up some more ground to the 38% Fibonacci retracement (17,176; closed at 17,280). As with SP500, not showing any slowing as of the Friday close, but time to start looking for bottoming signals. A doji with tail would be nice.

RUTX: Gapped downside to the 200 day MA, closing at that level. This is the bottom of the 5 week trading range, still holding the range despite all the selling. Okay, it will show the next move from here. Duh.

SOX: As with NASDAQ, a down week but a rather normal fade. Undercut the 20 day EMA Friday, still well over the 38% Fibonacci retracement (645; closed at 671). 656 is the next real support from the November gap and the September peak.

LEADERSHIP:

Talking about leadership on a week when the large cap indices lost 4% may seem strange, but was is likely stranger to most is that almost all of our plays held near support, basically ignoring the selling or using it to make modest, orderly tests of recent moves.

Now perhaps these stocks are simply the last holdouts that will be taken out and shot, but they are holding up well in the selling. They of course have to continue holding their patterns, but if there is another break lower where the indices test that next support and rebound, they will be in great shape to continue their upside moves after some nice tests.

Plays holding up in lots of market selling:

Biotech: ACHN, CLDX, EXAS, PETX, PTCT, XON

Electronics: BSFT, ENPH, OCLR, SIMO

Tech/Software: AAPL, FLTX, ZBRA

Retail: BWLD, CRTO, EVLV

Internet: LLNW, TRLA

Miscellaneous: CMLS (radio), NMBL, SWIR (telecom), TREX (building materials)

Some leaders had issues: STX, SNDK. When you have that kind of selling something has got to give. Mostly, however, the leadership that had the good patterns, the sound bases that show accumulation over time, held up even after a week of pretty intense downside in the stock indices.

MARKET STATS

NASDAQ
Stats: -54.57 points (-1.16%) to close at 4653.6
Volume: 1.834B (+1.11%)

Up Volume: 507.57M (-772.43M)
Down Volume: 1.36B (+780.41M)

A/D and Hi/Lo: Decliners led 2.46 to 1
Previous Session: Advancers led 1.52 to 1

New Highs: 57 (-36)
New Lows: 190 (+74)

S&P
Stats: -33 points (-1.62%) to close at 2002.33
NYSE Volume: 1B (+21.3%). Volume jumping on the selling as stocks are dumped.

A/D and Hi/Lo: Decliners led 3.8 to 1
Previous Session: Advancers led 1.37 to 1

New Highs: 52 (-49)
New Lows: 360 (+147). Getting more extreme but not there yet. Need to see 500+.

Stats: -315.51 points (-1.79%) to close at 17280.83

SENTIMENT INDICATORS

VIX: 21.08; +1. VIX is close to backwardation right now, i.e. when the near term contract as a percentage of the next month's contract reaches a value historically greater than normal. When that has occurred over the past couple of years the market was near a bottom. Not there yet, but another shakeout in the indices could do the trick.
VXN: 22.51; +2.11
VXO: 20.89; +2.61

Put/Call Ratio (CBOE): 1.13; +0.14

Bulls and Bears:

Bulls: 51.5% versus 53.4% versus 56.5%. Still backing off from near 60%, a red flag top indicator for the market the past few years. Never made 60% on this trip so after a bit of backtracking the market would be in position to move higher again.

Bears: 14.8% versus 13.9% versus 13.8% versus 14.9%. Bounced back up to the level hit a month back. Bears are stubborn, but they usually move less than the emotions on their sleeve bulls.

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: 51.5%
53.4% versus 56.5% versus 56.4% versus 55.5% versus 54.6% versus 47.0% versus 35.3% versus 37.8% versus 45.5% versus 47.5% versus 48.0% versus 52.5% versus 57.6% versus 56.1% versus 52.5%

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

Bears: 14.8%
13.9% versus 13.8% versus 14.9% versus 14.8% versus 15.1% versus 16.3% versus 18.2% versus 17.3% versus 14.1% versus 15.1% versus 15.3% versus 15.2% versus 14.1% versus 13.3% versus 15.1% versus 16.2%

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 (10 year): 2.08% versus 2.18% versus 2.16% versus 2.22% versus 2.26% versus 2.31% versus 2.24% versus 2.29% versus 2.29% versus 2.22 versus 2.17% versus 2.21% versus 2.24% versus 2.26% versus 2.30% versus 2.31% versus 2.34% versus 2.35% versus 2.32% versus 2.34% versus 2.32% versus 2.35% versus 2.36% versus 2.36% versus 2.30% versus 2.38% versus 2.34% versus 2.33% versus 2.339% versus 2.33% versus 2.31%

Soaring to a new closing high on this move. Only the early October intraday spike is higher.

Oil: 57.81, -2.14.

Gold: 1222.50, -3.10. Tested the Tuesday surge higher, still trying to keep the rebound off the early November low going but facing serious resistance.

$/JPY: 118.75 versus 119.07 versus 118.12 versus 119.76 versus 120.55 versus 121.42 versus 119.78 versus 119.81 versus 119.21 versus 118.36 versus 118.63 versus 117.58 versus 117.93 versus 118.27 versus 117.73 versus 117.96 versus 118.00 versus 116.98 versus 116.47 versus 116.29 versus 115.74 versus 115.53 versus 115.32 versus 114.86 versus 114.60 versus 114.98 versus 114.64 versus 113.60 versus 113.73 versus 112.32 versus 109.23 versus 108.89 versus 108.16 versus 107.83 versus 108.13 versus 108.17 versus 107.20 versus 106.88

What a move over the past month. Taking a breather last week, testing the 20 day EMA, but the trend is still in place.

Euro/$: 1.2462 versus 1.2389 versus 1.2439 versus 1.2366 versus 1.2318 versus 1.2289 versus 1.2379 versus 1.2313 versus 1.2383 versus 1.2473 versus 1.2452 versus 1.2509 versus 1.2477 versus 1.2442 versus 1.2386 versus 1.2549 versus 1.2543 versus 1.2532

MONDAY

December expiration is this week and that precedes the shortened Christmas week. Christmas falls on Thursday this year and that means, according to the NYSE rules, Friday will be a half day session. No one will be there, but it will be a half day session because the market cannot be closed for more than 1.5 days during a normal trading week.

So much for the vagaries of the NYSE calendar rules.

The indices closed hard Friday, meaning they closed with big losses and at session lows. No signs of slowing such as bouncing up off the lows, showing doji with tails, etc. As noted, most are still well above the 38% Fibonacci retracement, but many are also at nearer potential support levels. Thus you start watching for indications they are trying to use these levels as support, i.e. selling lower then reversing off those lows to a doji, or gapping lower then rebounding and holding the gains. That action suggests the sellers are losing their grip, that the buyers are starting to move back in after the selling.

Also watch how stocks that have not broken down perform. Biotechs, drugs, retail, semiconductors, leading techs. If they hold their patterns/support, when combined with index action described above, the rebound probability jumps.

Energy is worth watching as well. It has been hammered. When buyers sense it is time, they move into leaders that held up and some of the worst hit sectors as a value perception play.

This move is at the point it needs to show a rebound if the rally, and I am not talking about the yearend rally now but the overall rally, is going to hold. December is usually up. It is clearly not thus far. When December is negative it tends to speak to how the market performs the following year. Thus, for the upside, you want to see this selling start to abate pretty soon and a continued move upside return.

We go into this week cautious of course but willing to let plays that are holding patterns and support work. It appears that when the international issues hit the market some decided to avoid the Christmas rush and book some gains. Again, we are looking at how the stocks that held the line continue to perform and for any signs of a bottom forming such as that further selloff to close support and then bounces to close higher off those lows. As we saw last week that is not always the all clear, but it shows the buyers are trying to step in, and if you string a couple of those sessions together back to back, that probabilities climb sharply.

Have a great weekend!

SUPPORT AND RESISTANCE

NASDAQ: Closed at 4653.60

Resistance:
4782 is the November 2014 peak

Support:
4650 is some support
4631 is the October 2014 upside gap point
The 50 day EMA at 4632
4610 is the September 2014 post-bear market high.
4566 is the lower gap point from late October
4486 is the July 2014 high
The 200 day SMA at 4394
4372 is the March 2014 high
The August low at 4321
4316 is the lower gap point from October 2014
4289 is the July 2000 recovery high
4277 is the March lower gap point
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

S&P 500: Closed at 2002.33

Resistance:
2011 is the September prior all-time high
The 50 day EMA at 2020
2034 is the lower trendline from 11/2012
2076 is the all-time high from November
2093 is the December 2012 up trendline

Support:
The 50 day SMA at 2001
1991 is the July 2014 high
The 200 day SMA at 1946
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
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

Dow: Closed at 17,280.33

Resistance:
17,351 is the September 2014 all-time high.
The 50 day EMA at 17,436
17,991 is the all-time high

Support:
17,152 is the mid-July post bear market high
17,068 is the early July 2014 peak
16,970 is the June 2014 former all-time high
16,946 is the June 2014 peak
The 200 day SMA at 16,853
16,736 is the penultimate all-time high from May 2014
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
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

December 12 - Friday
- PPI, November (8:30): -0.2% actual versus -0.1% expected, 0.2% prior
- Core PPI, November (8:30): 0.0% actual versus 0.1% expected, 0.4% prior
- Michigan Sentiment, December Preliminary (9:55): 93.8 actual versus 89.5 expected, 88.8 prior

December 15 - Monday
- Empire Manufacturing, December (8:30): 14.0 expected, 10.2 prior
- Industrial Production, November (9:15): 0.7% expected, -0.1% prior
- Capacity Utilization, November (9:15): 79.3% expected, 78.9% prior
- NAHB Housing Market , December (10:00): 58 expected, 58 prior
- Net Long-Term TIC Fl, October (16:00): $164.3B prior

December 16 - Tuesday
- Housing Starts, November (8:30): 1035K expected, 1009K prior
- Building Permits, November (8:30): 1060K expected, 1080K prior

December 17 - Wednesday
- MBA Mortgage Index, 12/13 (7:00): 7.3% prior
- CPI, November (8:30): -0.1% expected, 0.0% prior
- Core CPI, November (8:30): 0.1% expected, 0.2% prior
- Current Account Balance, Q3 (8:30): -$95.0B expected, -$98.5B prior
- Crude Inventories, 12/13 (10:30): 1.454M prior
- FOMC Rate Decision, December (14:00): 0.25% expected, 0.25% prior

December 18 - Thursday
- Initial Claims, 12/13 (8:30): 292K expected, 294K prior
- Continuing Claims, 12/06 (8:30): 2510K expected, 2514K prior
- Philadelphia Fed, December (10:00): 26.5 expected, 40.8 prior
- Leading Indicators, November (10:00): 0.5% expected, 0.9% prior
- Natural Gas Inventor, 12/13 (10:30): -51 bcf prior

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