Weekend Market Summary

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7/25/14
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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

- AMZN, Durable Orders blamed for selling, but good data was credited for the Thursday move higher. In short, the volatility continues as does the pullback.
- DJ30 breaks the 20 day EMA for the first time since May.
- Jobless claims heralded as an all clear. Perhaps there is no one left to fire.
- Economic data continues its mediocre showing.
- Earnings reflect the economic data: bottom line beats are not the best indicator of economic status.
- SP500, 2+ years without a 10% correction, is the lone index holding its May uptrend.

Friday the stock market was down, but as has been the case, the losses were uneven. This session, however, the selling wasn't focused on just the growth indices. Sure SP500 held up just fine, as usual, and NASDAQ, while down a half percent, managed to hold the 10 day EMA.

SP500 -9.64, -0.48%
NASDAQ -22.55, -0.50% (came 19.5 points off its low)
DJ30 -123.23, -0.72%
SP400 -0.68%
RUTX -1.00%
SOX -1.98%

Volume faded: -11% NYSE, -10% NASDAQ

A/D: -2:1 NYSE, -2.1:1 NASDAQ

While SP500 managed the session business as usual, DJ30 broke the 20 day EMA. SP400 broke its uptrend channel's lower trendline. RUTX gapped lower, managed to hold at the 200 day MA on the close. SOX is ominous, gapping below the 50 day EMA and continuing to the downside, closing near the session low.

The big moves for the week:

SOX breaking below the low in its trading range and undercutting the late June low with no attempt to hold that level.

DJ30 showing it is vulnerable, breaking its 20 day EMA.

NASDAQ: Rallied to the early July high then gapped lower Friday. Very similar to SOX as it bumped the high then rolled over . . . hard.

Bigger picture: The stock market continues its consolidation of the 7 week run off of the mid-May low that followed 2.5 months of selling or lateral consolidation (depending upon the index) off the March peak.

That tally thus far: RUTX, SOX breaking trend and breaking down. SP400 breaking trend but not breaking down as of yet. NASDAQ is hanging onto trend, SP500 is holding trend.

The next most interesting move appears to belong to DJ30. It closed below the 20 day EMA for the first time since mid-May, the time the market overall bottomed and started this rally. The 50 day EMA is just 100 points away, less than the Friday point total. That looks like a logical support point and where DJ30 held in mid-May when DJ30 bottomed.

Is the market topping now or just consolidating a 7 week run? Each new high and each new selling bout from those highs raises the question of a bigger market top and rollover. Remember, however, the market sold for 2.5 months in the spring to early summer and it was nowhere near topping.

Perhaps this is it, the 'big' selloff. Perhaps it is just another consolidation of another run higher. Predictions of a market collapse are as common as predictions of another 500 points upside on SP500. Yes, Friday we saw SP500 2500 predictions.

I am not that smart to know which is which. No one in this group of highly successful traders and investors knows which one it is. We do know that bigger tops after long runs take quite a bit of time to set up. Heck, even shorter tops typically take time to set in. NASDAQ is three weeks into this choppy action and it is showing a double top; sure looks as if it has put in the peak on the 7 week run and is in for some kind of test, following RUTX and now SOX lower.

Again, the most interesting aspect, outside of whether this is the top of tops on this run (the Fed is, after all, getting out of the stimulus game . . for the moment), is if DJ30 and then SP500 join into the selling versus simply marking time laterally as they did from March to May.

OTHER MARKETS

A mush of conflicting signals. Dollar surges on the dollar index versus other currencies. Bonds hit a new recovery high. Gold jumps at the same time.

Euro/Dollar: Dollar surging past the June peak, now heading toward the November and January highs.

1.3433 versus 1.3464 versus 1.3460 versus 1.3468 versus 1.3522 versus 1.3524 versus 1.3526 versus 1.3523 versus 1.3568 versus 1.3619 versus 1.3608 versus 1.3600 versus 1.3644 versus 1.3611 versus 1.3605 versus 1.3608 versus 1.3658 versus 1.3769 versus 13693 versus 1.3648 versus 1.3612 versus 1.3630 versus 1.3604 versus 1.3603 versus 1.3600 versus 1.3603 versus 1.3592 versus 1.3545 versus 1.3573

Dollar/Yen: Up through the 50 day EMA as the dollar tries to work higher in the range against the yen. Typically not good for the market when the dollar strengthens, but offset by stronger bonds.

101.82 versus 101.82 versus 101.54 versus 101.45 versus 101.39 versus 101.34 versus 101.25 versus 101.63 versus 101.68 versus 101.57 versus 101.30 versus 101.325 versus 101.60 versus 101.564 versus 101.855 versus 102.210 versus 101.7595 versus 101.534 versus 101.3150 versus 101.4413 versus 101.722 versus 101.8695 versus 101.9195 versus 101.925 versus 102.059 versus 101.9595 versus 101.9335 versus 102.13 versus 101.955

Bonds: New high on this move as it puts some distance on the May prior high.

10 year: 2.47% versus 2.50% versus 2.47% versus 2.46% versus 2.47% versus 2.48% versus 2.46% versus 2.55% versus 2.55% versus 2.52% versus 2.54% versus 2.55% versus 2.56% versus 2.61% versus 2.64% versus 2.62% versus 2.56% versus 2.52% versus 2.53% versus 2.53% versus 2.56% versus 2.58% versus 2.61% versus 2.61% versus 2.63% versus 2.60% versus 2.65% versus 2.60%

Oil: 102.10, +0.04. Trying to hold the bounce off the 200 day SMA.

Gold: 1303.30, +13.10. Bouncing off the weeklong drop to the 200 day SMA.

MARKET STATISTICS

NASDAQ
Stats: -22.54 points (-0.5%) to close at 4449.56
Volume: 1.684B (-9.85%)

Up Volume: 607.47M (-432.53M)
Down Volume: 1.03B (+162.93M)

A/D and Hi/Lo: Decliners led 2.11 to 1
Previous Session: Decliners led 1.2 to 1

New Highs: 54 (-19)
New Lows: 58 (+25)

S&P
Stats: -9.64 points (-0.48%) to close at 1978.34
NYSE Volume: 499M (-10.73%)

Up Volume: 852.65M (-837.35M)
Down Volume: 1.74B (+320M)

A/D and Hi/Lo: Decliners led 1.95 to 1
Previous Session: Decliners led 1.12 to 1

New Highs: 78 (-119)
New Lows: 39 (+22)

DJ30
Stats: -123.23 points (-0.72%) to close at 16960.57

SENTIMENT INDICATORS

VIX: 12.69; +0.85
VXN: 13.36; +0.28
VXO: 11.07; +0.71

Put/Call Ratio (CBOE): 0.95; +0.04

Bulls and Bears:

Bulls flatten out after that 4 point drop: 56.5% versus 56.6%

Bears finally rise and rise sharply, at least relatively: 17.2% versus 15.1%

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.

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

Bulls: 56.5% versus 56.6%
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: 17.2% versus 15.1%
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

Friday the last piece of Q2 economic data was released with Durable Goods Orders. They were up over May's decline, showing some promise, though year/year they fell 1.6%, the first decline since February 2014.

0.7% versus 0.3% versus -1.0% (from -0.9%) May

The rub: Capital Expenditures

Cap-Ex non-defense ex-transports: 1.4 versus 0.5% expected (good) versus -1.2% versus +0.7% May (bad as it is more than a negative wash).

Core CapEx: -1.0% versus 0.4% expected versus 0.1% prior (from 0.4%).

That low capital investment weighed on stocks and shot bonds to a higher high on this current rally.

Low to no cap-ex is the ongoing weakness in the recovery. Companies prefer to 1) pay dividends, 2) buy back stock (some big buybacks this week) to up EPS without selling one item more, and 3) buy other companies (Z covets TRLA). M&A is a cheaper alternative to developing your own products. Think of it as buying a house with a barn on ranch acreage versus buying the acreage then having to build a road, put in electricity, drill for water, install septic tanks, build a barn, erect fences, build the house . . . you may get exactly what you want building, but it is always cheaper to buy what is already there if you can make it work.

The point: companies, even after 5.5 years in this recovery, still the worst in US history by the way, still do not want to fork out the money for old fashioned, organic growth. That shows 1) a lack of comfort in so doing (again, the worst recovery ever), 2) the lack of need given so-so demand, 3) the lack of need given other companies are ripe for the picking. The only problem with this is, as is usual, companies are buying other companies at peak prices versus at value. So many companies still beating on the bottom line but missing the top line, i.e. showing no growth in sales. With so much excess money in the system, however, prices are higher, exactly what Mr. Bernanke desired. So, prices are up, there is some better sentiment, organic investment is still down, but with the excess money, companies want to use it. So, dividends, buybacks, and now acquisitions at inflated prices. What is new, right?

So despite Thursday's jobless claims below 300K that supposedly show how strong the jobs market and thus the economy is, the falling new home sales, a sharp drop in the Markit US PMI, declining annual wages, weak capital investment, etc. all suggest the economy, while not stumbling lower is not powering higher.

There are no doubt pockets of strength thanks to the O&G industry, but very, very uneven and very nonexistent for most of the middle class. With well over 100M able bodied US citizens not in the workforce, perhaps jobless claims are so low because there is truly no one left to fire. We hear from CEO's on the financial stations that there are no skilled workers available, but again, with so many college graduates living at home jobless with stacks of student loan bills, how can that be? Is this the final crippling indictment of our education system run by the Department of Education the past 30 years?

Are the colleges producing crops of unemployable test takers? Is the companies' claims they cannot find workers just bogus talk by CEO's who want to sound good but have no intention of hiring given the lack of sales growth? Are the college graduates turning their noses up at entry level jobs because their heads have been filled with delusions of starting at the top? All of the above? Something else?

Whatever the reason, it does not appear that the solution is readily apparent.

Earnings: Earnings are not bad, though still somewhat mixed. Friday was all about AMZN's miss and 'don't give a damn attitude' on the conference call, but there were some very good stories from DECK (Ugg's), SKX, and UA on Thursday. Of course V, KLAC, P, KO, MCD, TXN, QCOM, etc. didn't have stories that great.

Then there are the beats that are not. MSFT, AAPL, PEP, CAT. They miss either top or bottom line but they are still rewarded or at least called a beat. As I said earlier in the week, how can lower revenues on the top line be considered good news, particularly if the bottom line beat is due to share buybacks, personnel cutting, or other cost reduction/share reduction actions. Again, how is it such a great recovery if companies cannot beat the top line with sales so they have to resort to bottom line tactics to produce higher profits with lower sales?

NEXT WEEK

Friday we picked up some downside positions but unfortunately could not get all we wanted, e.g. SMH as it gapped sharply lower. Still, we did get some more good downside going to take advantage of any further weakness, a good offset to our upside.

The market remains split with some groups/stocks moving higher, others heading south. The notable move to end the week was DJ30 breaking the 20 day EMA for the first time since the May run began. Another index breaking lower, not higher, off its trend form the May low, leaving SP500 as the index holding the trend. As in the old 'Seinfeld' episode about each character holding out against self gratification of their desires and frustrations, and then there was one.

This split will have to resolve, but for now it looks as if the market is going to test some more, then show its next step. There is plenty of news this week to influence the action: earnings, the next FOMC rate decision, the monthly Jobs Report on Friday.

As noted earlier, selling after a run higher doesn't have to mean a major selloff. Sure it has been some incredibly long period since SP500 posted a 10% correction (800 days, 2.2 years), but one thing years in the market show: oversold or overbought conditions can last much, much longer than you rationally think they could.

Thus while the near term is in the throes of downside similar to the March to May selling and the SP500, as the lone holdout holding the near trend as well as holding out from a real correction for over two years, remains overbought, it doesn't mean there cannot be another March to May consolidation that sets the next move upside.

Near term it looks as if the volatility we saw starting up a few weeks back and the subsequent weakness is not over. There is still solid upside action just as there was from March to May, but many stocks in the smaller cap indices and now SOX are correcting again and thus our downside plays as well. Watching DJ30 and after that SP500 tell a big part of the tale: they held off the sellers in the last market dip (though there were some tense sessions mid-April during that earnings season). If they break there is a deeper test coming. For reference, however, both SP500 and DJ30 broke the 50 day EMA in April, but after just a couple of sessions, they both recovered.

So, we play the obvious downside, pick up the upside in groups that are obviously stronger, e.g. industrial metals, letting the market work through this next round of testing the last move. The Fed is leaving the game it says, so perhaps this is the last top of the monetary policy market rally, but as noted, it takes a long time for tops to set in, particularly tops to long, 5 year runs.

Have a great weekend!

SUPPORT AND RESISTANCE

NASDAQ: Closed at 4449.56

Resistance:
4486 is the July 2014 high
4516 is the lower November 2012 trendline
4603 is the upper channel line formed off the 11/2012 low.

Support:
The 20 day EMA at 4420
4372 is the March 2014 high
The 50 day EMA at 4350
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 4158
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 1978.34

Resistance:
1986 is the July 2014 high

Support:
The 20 day EMA at 1972
1953 is the December 2012 up trendline
The 50 day EMA at 1948
1902 from early May was the intraday all-time high.
1902 is the lower trendline from 11/2012
1897 is the prior all-time high hit in April 2014
1883.57 is the early March high.
The 200 day SMA at 1852
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 16,960.57

Resistance:
16,970 is the June 2014 former all-time high
The 20 day EMA at 17,001
17,380 is a lower trendline off the 11/2012 low

Support:
The 50 day EMA at 16,860
16,736 is the penultimate all-time high from May 2014
16,341 is the May 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 16,281
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

July 25 - Friday
- Durable Orders, June (8:30): 0.7% actual versus 0.3% expected, -1.0% prior (revised from -0.9%)
- Durable Goods -ex tr, June (8:30): 0.8% actual versus 0.7% expected, -0.1% prior (revised from 0.0%)

July 28 - Monday
- Pending Home Sales, June (10:00): -0.8% expected, 6.1% prior

July 29 - Tuesday
- Case-Shiller 20-city, May (9:00): 10.0% expected, 10.8% prior
- Consumer Confidence, July (10:00): 85.6 expected, 85.2 prior

July 30 - Wednesday
- MBA Mortgage Index, 07/26 (7:00): 2.4% prior
- ADP Employment Change, July (8:15): 215K expected, 281K prior
- Chain Deflator-Adv., Q2 (8:30): 1.3% prior
- GDP-Adv., Q2 (8:30): 3.2% expected, -2.9% prior
- Chain Deflator-Adv., Q2 (8:30): 2.1% expected, 1.3% prior
- Crude Inventories, 07/26 (10:30): -3.969M prior
- FOMC Rate Decision, July (14:00): 0.25% expected, 0.25% prior

July 31 - Thursday
- Challenger Job Cuts, July (7:30): -20.2% prior
- Initial Claims, 07/26 (8:30): 310K expected, 284K prior
- Continuing Claims, 07/19 (8:30): 2525K expected, 2500K prior
- Employment Cost Index, Q2 (8:30): 0.4% expected, 0.3% prior
- Chicago PMI, July (9:45): 61.8 expected, 62.6 prior
- Natural Gas Inventor, 07/26 (10:30): 90 bcf prior

August 1 - Friday
- Nonfarm Payrolls, July (8:30): 220K expected, 288K prior
- Nonfarm Private Payrolls, July (8:30): 225K expected, 262K prior
- Unemployment Rate, July (8:30): 6.1% expected, 6.1% prior
- Hourly Earnings, July (8:30): 0.2% expected, 0.2% prior
- Average Workweek, July (8:30): 34.5 expected, 34.5 prior
- Personal Income, June (8:30): 0.4% expected, 0.4% prior
- Personal Spending, June (8:30): 0.4% expected, 0.2% prior
- PCE Prices - Core, June (8:30): 0.2% expected, 0.2% prior
- Michigan Sentiment -, July (9:55): 82.0 expected, 81.3 prior
- ISM Index, July (10:00): 55.9 expected, 55.3 prior
- Construction Spending, June (10:00): 0.3% expected, 0.1% prior
- Auto Sales, July (14:00): 5.9M prior
- Truck Sales, July (14:00): 7.5M prior

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