Weekend Market Summary

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8/15/14
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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 cruise to more gains, toppled by Ukraine news, fight back.
- Indices recover to take on resistance again, leadership hanging in with new entries.
- Production and Capacity stronger, reality maybe not so.
- China power consumption flops.
- Institutions still selling, companies still buying, retail investors edges back in after a month of flight.

Stocks cruise - - until Ukraine again ignites.

Stocks were easily on the way to another gain in the bounce, a fifth gain in six tries for SP500. Leaders moving well, the indices piercing next resistance. Sure we anticipated some possible profit taking ahead of the weekend: Again, SP500 up 5 of 6 sessions, approaching next resistance, Friday in the summer. The market no doubt showed a good initial bounce a week ago, paused to catch its breath, then continued on to the upside into Friday. Not much volume but getting the moves aided by leadership pushing higher. Solid but likely some profit taking.

How about selling? It wasn't that the sellers just decided to sell. No it was the other influence, the geopolitical one. At 10:40ET a terse line hit the news wires that Ukraine had attacked the Russian aid convoy that crossed into Ukraine. Stocks not only stalled, they turned sharply lower. As more news blurbs hit the sellers hit. Over the next 1.25 hours SP500 fell 23 points from high to low. NASDAQ 55 points. DJ30 200 points. All indices flipped negative.

The market can scratch and claw its way along, posting a good rally from a technically oversold condition. It surged, paused, then surged again. Technically looking solid. Then the other side of the equation hits and stocks are hammered.

Hammered, but perhaps just with a rubber mallet. After the blowtorches were lit and stocks were burned off into lunch, the bids returned and stocks recovered into the close. NASDAQ and SOX even made it positive, SOX rising over 1% on the close. Big doji on the indices, reaching lower after a higher open, then surging back up to close. Not bad action at all: sellers took over from the early move from buyers, but the buyers returned, even before the weekend.

Think about it. Harsh selling in early August, up 5 of 6 sessions in a recovery bounce, approaching resistance, Friday, a world of geopolitical issues, and the one that scares people the most about a new hot war involving the East and West's old foes, sparks up. Yet, stocks, after selling off, rebounded to cut the losses and indeed some closed positive. That speaks well for the character of the bounce.

SP500 -0.12, -0.01%
NASDAQ 11.93, 0.27%
DJ30 -50.67, -0.30%
SP400 -0.08%
RUTX -0.15%
SOX 1.03%

Volume surged on expiration: 42% NYSE, 16% NASDAQ.

A/D: NYSE just negative, NASDAQ -1.35:1.

The indices showed great resilience in recovering from the losses after negative news thumped them lower. Leadership of course showed resilience as well given it was necessary to lead the move back upside. TRLA, NFLX, AMAT, KLAC, BIIB, ATHM, SWKS produced solid moves, moving the indices back up.

As per our plan, we picked up some positions with strong leaders that showed good action, e.g. TRLA, NFLX. We took positions on CMI as it turned lower. We picked up some GOOG though it faded on us. We also banked some gain on ATHM, FB, and TNXP.

The weekend likely holds more intrigue from Russia/Ukraine, but don't count out Gaza, Iraq, Ebola, not to mention the rather horrid economic data from Europe, China, and indeed the US. It would seem there are more than enough negatives to quell investors, but thus far not. Next week the indices have to deal with technical issues such as resistance, but if the Russia/Ukraine issue dies down again (at least as far as the market is concerned; it never really has died down now has it?), stocks can find their bids once again.

THE MARKET

CHARTS

NASDAQ: Impressive selloff from the gap higher, impressive recovery, reclaiming 38 points from low to close. Not bad. The gap is interesting as it took NASDAQ to the mid-July peak and just off the early July post-bear market NASDAQ high. Good volume, at least compared to the prior sessions, but that average trade is discounted given it was August expiration. Solid bounce on the week, good recovery after the selling (though showing it is vulnerable given the 'shoot first' selloff on the news), but has to deal with the technical issue of resistance next week.

SP500: A rather rare gap higher here as well, selling off below the 50 day EMA on Ukraine, then recovering to flat, just missing positive and just missing closing over the 50 day SMA. Leaves SP500 in the same position, inside its uptrend channel from 11/2012 and still room to rise to the upper channel, roughly 20 points. Not a great overall pattern, still looking heavy, but bounced where it should just over a week back and is thus far showing solid determination in the move.

DJ30: Sold off to support at the early April peak, bounced to recover 88 points off the low. On the high DJ30 cracked through the 50 day EMA. It could not hold it and could not come close to recovering it, leaving DJ30 something of a question mark next week as it shows a doji BELOW the next key resistance. Recall, we were looking for a move to 16,750 as a ballpark range for resistance. Hit 16,775 on the high and faded.

SOX: Gapped upside through the 50 day EMA that was hemming it in as late as Thursday. Tested and filled the gap on the low, then rebounded to close ABOVE its opening level. Very solid action. Got a lot of help from AMAT with its earnings. Moved into the late July gap down zone and closed just below the late June low. Logical resistance, the overall pattern is somewhat daunting, the bounce has lasted over a month. Makes next week very important.

RUTX: Not the poster for a strong recovery. Yes RUTX did recover, but it was also well off the high. Well off. RUTX gapped over the 200 day SMA and the 50 day EMA but could not hold them. RUTX is bumping some strong resistance and it could not hold a gap through it Friday. Of all indices, RUTX looks the weakest and most problematical in terms of not putting up much of a fight to hold last week's gains.

SP400: Gapped upside over the 50 day EMA, sold to undercut it, bounced from support and closed just over the 50 day. Good doji with tail, good week upside, but also at next resistance and has to prove it can continue next week.

Summary: Good recovery off the selling, showing the buyers' resilience and willingness to enter on selling. Still has serious technical hurdle to overcome next week even without the geopolitical problems. Plenty of problems but thus far, shooting them down. Still, be cautious and ready to move.

LEADERSHIP

Internet-based: Trying to assert its leadership still. TRLA jumped and Z as well as they moved off their tests. We opted for TRLA given its price and thus gain leverage. ATHM enjoyed a great week. NFLX surged on volume.

Drugs: Biotechs enjoyed a good week as well. BIIB is running, CELG broke out, VRTX is bouncing up off a 50 day EMA test. Good sectors with plenty of strength and ability to lead and make us money.

Chips: Some excellent action. AMAT gapped on earnings and others are working well on the week. SWKS moving well, posting a higher high. CAMT started up off a nice double bottom at the 50 day SMA. MLNX looks very good to move higher out of a three week faded to the 20 day EMA.

Machinery: Tough week as DE missed earnings, CMI started to rollover Friday from a bounce, CAT now at the gap down point after a two week recovery.

Tech: AAPL enjoyed a solid if unspectacular week. STX broke higher on the week, holding at the prior peaks and rallying off an ABCD pattern. VMW still looks good to break higher.

Summary: Leadership is still present with some former leader in tests starting to move back upside. Biotech emerged as a leadership group the past week. The leadership ranks are still a bit thin but key stocks are holding the line and providing the market backbone. Key, key, key this week given the indices are currently testing that next resistance level.

MARKET STATISTICS

NASDAQ
Stats: +11.92 points (+0.27%) to close at 4464.93
Volume: 1.772B (+16.2%)

Up Volume: 932.82M (-4.97M)
Down Volume: 793.06M (+211.29M)

A/D and Hi/Lo: Decliners led 1.35 to 1
Previous Session: Advancers led 1.3 to 1

New Highs: 71 (+26)
New Lows: 58 (+11)

S&P
Stats: -0.12 points (-0.01%) to close at 1955.06
NYSE Volume: 661M (+42.15%)

A/D and Hi/Lo: Decliners led 1.03 to 1
Previous Session: Advancers led 2.12 to 1

New Highs: 101 (+29)
New Lows: 33 (+8)

DJ30
Stats: -50.67 points (-0.3%) to close at 16662.91

OTHER MARKETS

Bonds: Strong all week but exploding higher Thursday and Friday. Indeed, the 10 year hit 2.30% on the Friday yield low.

2.34% versus 2.40% versus 2.42% versus 2.44% versus 2.43% versus 2.42% versus 2.39%

Oil: 97.31, +3.23. Surging off the Thursday flop and back in the early August two week range. Oversold bounce time? Looks like it but the 10 day EMA has held it down since mid-June.

Gold: 1306.60, -8.60. Big selloff below the 50 day EMA intraday, but then its own recovery to hold that level on the week.

USD/JPY: Tried to rally, sold below the 200 day SMA again After 1.5 weeks in recovery bounce, problematical here.

102.33 versus 102.45 versus 102.43 versus 102.24 versus 102.20 versus 102.01 versus 102.10.

SENTIMENT INDICATORS

Bulls are falling off nicely, dropping into the 40's, a good indication that some froth was removed after the last rally.

A new sentiment indication has cropped up, however, one negative for the market: institutional selling and other cash outflows.

Last week saw a $0.71B increase in inflows to high yield funds and ETF's. That followed four weeks of rather large outflows hitting a crescendo with a -$6.7B outflow before last week's return to positive. Of course that withdrawal coincided with the July selling, but note in the chart how in the March to May selling the outflows were nowhere near as strong as in July, and indeed saw some inflows during the selling. The July event was different.

If you look bigger at who is buying and who is selling (the new figures of buys and sells of big investors were released last week) Bank of America notes you see the same pattern of the past two years: institutions selling and companies buying . . . their own stock.

As the charts show, this pattern is nothing new: institutions selling, corporations buying for the past year. The market has performed to the upside during this time because companies are very interested in buying their stock. Recall that is one of the 'new' forms of 'capital investment' companies are engaged in versus the old fashioned equipment, research, and people. Dividends were first, now stock buybacks.

The question is: when do the buybacks run dry? For now the big companies are making money even with a still high percentage of companies showing no revenue growth or even declines. They opt to use that to buy back stock to keep the price higher and thus assure executive bonus incentives are reached. I suppose that will go on as long as they are making money and don't see any appreciable change in the government's policies.

You could argue the wildcard is the outflows from ETF's and other funds those four weeks. Will that start a trend where truly the only major players in the stock market are companies buying back stock? Heck, it is already there is it not? I mean, the retail investor has never really come back to the stock market, and the majority that did only put money in ETF's that supposedly mimic the performance of whatever they invest in, and not too well at that. Kind of designed mediocrity. Given their numbers as a percentage of the total players, their exit would thus likely not be all that notable.

The interesting thing is, this exodus pretty much started at the top as the indices hit those higher post-crash highs. Are they acting smarter this time or does this simply mean they are again bailing at the wrong time, i.e. before a new surge? Something to keep in mind as the market action unfolds, but as always the leaders and indices will tell the story. This kind of data just heightens your focus in keeping tabs on the market and leader action.

VIX: 13.15; +0.73
VXN: 13.37; +0.42
VXO: 11.73; +0.35

Put/Call Ratio (CBOE): 1.01; +0.09

Bulls and Bears:

Bulls still falling hard: 46.4% versus 50.5% versus 55.6%

Bears back down, still in the 16 to 17 range: 16.2% versus 17.1% 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: 46.4% versus 50.5%
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 versus 51.6 versus 50.5 versus 54.6% versus 50.5 versus 54.7% 52.0% 54.6% 53.5% 46.5% 41.8% 45.9% 53.1% 57.6 56.1 60.6% 61.6% 60.0% 58.2% 57.1% 55.7% 53.6% 52.6% 55.2% 52.6 49.5 42.3% 45.4 46.4% 44.3% 42.3% 37.1% 37.1% 38.1% 43.3%.

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

Bears: 16.2% versus 17.1%
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% 18.6% 17.5% 17.4% 15.1% 17.2% 17.2% 17.4% 17.4% 15.3% 15.1 15.3% 15.2% 15.2% 14.0 14.3 14.3% 14.4 15.5 15.5% 15.6% 16.5% 18.5 21.6% 20.6% 18.6% 20.6% 21.6% 22.7% 23.7% 23.8% 21.6%.

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.

THE NEWS

Industrial Production, Capacity utilization continue gains, but there are issues even here.

Appears to show a recovery from a late spring/early summer slowdown.

Capacity Utilization posted the highest reading since June 2006. Impressive.

But . . . we have conducted many surveys as we always do, and there is a definite slowdown in machine shops. In 2013 you could not buy time on machines if you wanted to. Machine shops were producing 24 hours per day to meet oilfield demand. If you tried to buy time you were politely told that contracts prevented it; they had to be available when existing clients wanted the machines, and clients wanted them 24 hours per day.

Now, there is plenty of slack. No trouble getting into the rotation to get parts manufactured.

Does that equate to capacity at 2006 levels? Perhaps in 2013, but not now. Moreover, it just goes to our point made many months in a row: but for the oil and gas industry and its robust activity despite the Administration trying to stop it whenever possible, the US economy would be rivaling the weakness in Europe, Fed money printing or not. Why? Outside oil and gas and related industries, consumers have crappy jobs, negative wages, higher prices (who cares if gasoline falls from $37.5 to $3.61? tomato, tomato), and no prospects for improvement. THEY are not going to fill the void.

New York PMI

After a huge beat in July, a 4 year high, a pretty surprising miss in August. Hmmm. What about my comments about machine shops? Where is a lot of the manufacturing performed?

Employees, new orders, inventories flop.

Expectations jumps to almost match 2009 to 2011 highs.

Michigan Sentiment, Preliminary August: A big miss, 9 month lows, biggest miss in 8 years

Chinese Power Consumption Tanks

Overall: +3.0% year/year, falling from 5.9% in June. Lowest growth in 16 months.

Shanghai: -10%

Anhui, Guizhou, Hubei, Hunan, Zhejiang: -22%

Even China admits this is weak industrial performance as a senior man at the China Electricity Council state the obvious.

How do you explain the Shanghai index surging? Could it be . . . adopting the US Fed's money injection policies? Bingo!

MONDAY

As noted earlier, stocks showed resilience all week starting with the Monday and Tuesday pause after the big Friday surge. Friday they overcame more trouble out of Ukraine and finished well. Next week the indices have to deal with technical issues such as resistance in addition to the geopolitical concerns. That has not kept them from finding the bid they need to rise, and indeed NASDAQ put in a follow through session last week. In short, an important test of resistance ahead and plenty of issues on the geopolitical front, but stocks have some leadership and after a test of resistance and maybe a pause, they have the backing to punch through to higher highs.

We will continue watching the leaders and looking at ways to use them to make money. As noted, we picked up some new upside even on Friday because stocks such as NFLX and TRLA were breaking upside. Not our favorite buy time but they were showing the moves. This week we will start with looking at more upside but also acknowledging the indices have risen close to resistance, and if the sellers awaken, they can push NASDAQ back down in its range. That of course, opens up more downside opportunity and even if it is just for near term plays downside.

Have a great weekend!

SUPPORT AND RESISTANCE

NASDAQ: Closed at 4464.93

Resistance:
4486 is the July 2014 high
4576 is the lower November 2012 trendline

Support:
The 20 day EMA at 4409
The 50 day EMA at 4374
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
4246.55 is the January 2014 peak. Key level.
The 200 day SMA at 4198
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 1955.06

Resistance:
1974 is the December 2012 up trendline
1991 is the July 2014 high

Support:
The 50 day EMA at 1945
1921 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
1883.57 is the early March high.
The 200 day SMA at 1867
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 16,663.91

Resistance:
The 20 day EMA at 16,694
16,736 is the penultimate all-time high from May 2014
The 50 day EMA at 16,749
16,970 is the June 2014 former all-time high

Support:
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 16,376
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
15,542 is the May 2013 intraday high
15,340 is the February 2014 low
15,318 is the June closing high
15,050 from the August 2013 interim recovery high
14,888 is the April peak and prior all-time high
14,844 is the June intraday low
14,762 is the August 2013 low
14,551 is the June 2013 intraday low on the selloff (14,659 closing)

ECONOMIC CALENDAR

August 15 - Friday
- PPI, July (8:30): 0.1% actual versus 0.2% expected, 0.4% prior
- Core PPI, July (8:30): 0.2% actual versus 0.2% expected, 0.2% prior
- Empire Manufacturing, August (8:30): 14.7 actual versus 15.5 expected, 25.6 prior
- Net Long-Term TIC Fl, June (9:00): -$18.7B actual versus $18.6B prior (revised from $19.4B)
- Industrial Production, July (9:15): 0.4% actual versus 0.3% expected, 0.4% prior (revised from 0.2%)
- Capacity Utilization, July (9:15): 79.2% actual versus 79.2% expected, 79.1% prior
- Michigan Sentiment, August (9:55): 79.2 actual versus 81.7 expected, 81.8 prior

August 18 - Monday
- NAHB Housing Market Index, August (10:00): 53.0 expected, 53 prior

August 19 - Tuesday
- CPI, July (8:30): 0.1% expected, 0.3% prior
- Core CPI, July (8:30): 0.1% expected, 0.1% prior
- Housing Starts, July (8:30): 964K expected, 893K prior
- Building Permits, July (8:30): 1001K expected, 963K prior

August 20 - Wednesday
- MBA Mortgage Index, 08/16 (7:00): -2.7% prior
- Crude Inventories, 08/16 (10:30): 1.401M prior
- FOMC Minutes, 7/30 (14:00)

August 21 - Thursday
- Initial Claims, 08/16 (8:30): 308K expected, 311K prior
- Continuing Claims, 08/09 (8:30): 2530K expected, 2544K prior
- Existing Home Sales, July (10:00): 5.00M expected, 5.04M prior
- Philadelphia Fed, August (10:00): 15.5 expected, 23.9 prior
- Leading Indicators, July (10:00): 0.7% expected, 0.3% prior
- Natural Gas Inventor, 08/16 (10:30): 78 bcf prior

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