Bears Get Second-Straight Weekly Win
"The bulls had a rough start to the week as the bears relied on a number of zombies and taper talk to slow the recent momentum following the break to new highs to start August. Near-term support that had served as prior resistance during July's mini-trading range was paper thin so we figured prior support levels would be tested if they failed.
We aren't sure what the odds are in Vegas for QE tapering to begin in September but it seems most of the "smart" money is betting on it. We must be the "dumb money" because we have said for months we don't expect the zombies to do a tap dance anytime soon, especially with a still troubled jobs market and a possible government shutdown.
We wish those last 2 words in the prior paragraph would come true and we have talked about the upcoming budget battle between the zombies who are on vacation until the second week of September. Believe it or not, they still have a month away before the have to come back to the Hill.
The zombies will then have 3 weeks of political posturing to coincide with raising the government's debt ceiling by September 30 - the cutoff date for government funding.
Nothing in D.C. gets done until the very last minute and the real danger for the market will be the shenanigans and back-and-forth bickering. We are sure a resolution will get done because the zombies live off us, the taxpayers, but the process and debate over the debt ceiling could slow the current recovery if both sides bunker down like reports have them doing. Five bucks says John Boehner cries by the end of by the time a deal eventually gets done.
BTW, zombie pay for members of Congress make a minimum of $175,000 a year, get over 200 days a year of "vacation" time, free airline travel, free (sweet) car and gas allowance, free healthcare that is and won't be Obamacare and free gym memberships. They have no guilt living these lavish lifestyles with excessive pay so expect a deal to get done to support their habits.
We do see a chance of Fed Head Ben Bernanke trimming back the $85 billion a month of QE in December as the Head Zombie has already shown him the door. There are already names circulating on who will be the next Fed Head Zombie but Big Ben will at least want to start the process of unwinding the Fed's balance sheet before hitting the road in January. Then again, he might leave it to his successor to decide when to turn off the printing presses but with the upcoming budget battle, we doubt the Fed cuts back in September in case there is an implosion.
If taper talk is all the bears have as ammo then they are in trouble. Last week's action felt bearish with the Dow leading the way lower and cracking near-term support. However, we have learned this year to be more patient with trading ranges as they have tricked the Wall Street pros who have been betting on a major pullback all year long and evrytime there is a dull market.
We were bullish in late December 2012 and said 2013 could be a special year for the bulls as we predicted gains north of 20% based on our chart work. The S&P 500 was at 1,426 to start the year and when we gave a yearend target of 1,700 we had quite a few emails asking what we were smoking.
Understandable as there were no Price Targets of 1,700 for the S&P by any of the brokerage houses or Wall Street firms. There were a few for 1,600 but now there are 10 and counting for the S&P to trigger 1,700. Dow 16,000 when the blue-chips were barely above 14,000? People thought we were crazy but not after the index cleared 15,600 earlier this month.
While these targets are still in play, it remains to be seen if there is a pullback before they are triggered again. For those of you just joining us, we don't change Price Targets during the year because why put a target out if you are going to change it?
We mentioned midweek that Thursday would be crucial for a bulls win following the 3-session slide as the Dow and S&P 500 have not finished lower 4-straight all year long. That streak is still intact.
There have been 4 three-day losing streaks for the S&P 500 this year. The first was in mid-March when the index fell from 1,560 to 1,548 after setting new highs. There was no selloff as the S&P was testing 1,570 by month end.
In late May, the S&P 500 slipped from 1,669 to 1,649 in 3 days but held support. In June, the index fell from 1,642 to 1,612 and tested the 100-day MA so there was a pullback of some sorts that shook out the weak hands. Last week's 3-session skid started at 1,709 to 1,690.
If the streak lasted to 4 and if the S&P would have closed below 1,685 last Thursday then we would have felt safer in possibly going short but we still would have waited for a few more clues. Support has held all year long for the most part and with all of the predications for the proverbial 5%-10% correction, the bulls could still surprise Wall Street (again).
The major indexes are well above their 50-day MA's and these levels will need to be watched, first, before we would turn bearish. Write these levels down and stick them on your desktop: Dow 15,264; S&P 1,652; Nasdaq 3,516; Russell 1,020.
If our near-term support targets of Dow 15,350; S&P 1,675; Nasdaq 3,625; Russell 1,040 crack, the aforementioned 50-day MA's could come into play this week. If not, and the bulls clear resistance, the indexes could challenge new highs one last time before the zombies get back from vacation.
This week is August expiration and options expire this Friday on the close. We mentioned at the end of July the first few weeks of August are typically bearish and although last week was down, the first few days of August were super bullish and the market is showing some gains for the month.
The Dow is down 72 points but take away Friday's losses and the blue-chips would be up for the month. The S&P 500 is higher by a 6-pack. The Nasdaq has advanced 34 points and the Russell 2000 has added 3 points. The VIX was at 13.45 and is lower.
We mentioned on Friday we had a feeling this week could be bullish but with the lower close we also said the first part of the week could be bearish. Wednesday's Tech earnings could be the bulls savior if the bears get off to a good start.
A lot of traders are looking to short the market at current levels and no one seems to be bullish on one last pop to new highs except us. We have done well betting against the crowd all year long and over the past decade, August expiration Friday's have been bullish, but choppy in the past few years.
The good news is that while the slick talking pros are giving August no chance, price action is proving otherwise." (from 8/11/2013 Weekly Wrap…)
The market started the week off with another mixed Monday as the broader market fell while Tech and the small-caps showed some strength. The bears continued to test support on Tuesday but the bulls showed some signs of life after one of the Fed Heads said current economic data could push back the Fed's stimulus package plans of maybe tapering in September further out. Tech also got a lift with Apple's (AAPL, $502.33, up $4.42) push towards $500.
The bears were back on Wednesday but didn't go away as the Dow fell triple-digits for the first time in 31 sessions while closing below key support. The Financial stocks showed some strength and the VIX remained below 13.50 providing hope for Thursday but no such luck as the bears had their best day in 6 weeks.
Much of the pullback can be blamed on Cisco Systems (CSCO, $24.27, down $0.22) and its earnings report. The company beat Wall Street's estimates by a penny but cut 4,000 jobs and sandbagged their numbers for the current quarter. The news sent futures sharply lower Wednesday night and we warned the next wave of support would be tested.
The bears pushed the indexes right on our downside targets and while the bulls were looking for a slight rebound on Friday, there was continued weakness although the losses were minor. The Nasdaq closed within 3 points of our downside target while the S&P 500 came within 5 points. The Russell 2000 overshot our 1,025 target by a point. Folks, you can't call the market action much better than that as we were able to close a number of winning trades for some sweet profits. We have prepared well for the pullback to the bottom of the trading range. (read more…)
The Dow dipped 30 points, or 0.2%, to close at 15,081 on Friday. The blue-chips tested support at 15,350 on Monday and Tuesday after trading to a low of 15,359 and 15,342 before holding 15,400 into the closes. Tuesday's peak reached 15,504 following the bounce off the lows but Wednesday's close below 15,350 to 15,337 was bearish. We have been mentioning a close below this level would lead to 15,200-15,000 and Thursday's low checked-in at 15,094. There was a rebound to 15,139 on Friday but the drop to 15,054 was a lower low and the close below the 100-day MA was bearish. There is further risk down to 14,800 if the bulls fail to hold 15,000 this week. A close back above 15,200 and the 50-day MA would be bullish. The Dow started the week at 15,425 and dropped 344 points, or 2.2%, by Friday's close. For the year, the blue-chips have gained 1,977 points, or 15.1%.
The S&P 500 slipped 5 points, or 0.3%, to settle at 1,655. The bulls did a great job holding down 1,685-1,675 to start the week as the bears pushed 1,683 and 1,682 before Tuesday's rebound to 1,696. Resistance at 1,700 was never challenged on Wednesday following a 1-point pop to 1,695 but the bears got a close to 1,685 by the bell. We said a finish below this level would lead to 1,675-1,650 and Thursday's low checked- in 1,658. There was a run to 1,663 on Friday but the bears sniffed 1,652 after our midday update and got under the 50-day MA by the bell. There is further pressure down to the 100-day MA and 1,625 but if there is panic there could be an onslaught down to 1,600 to flush out the weak hands. A close back above 1,675 would stop the bleeding. The S&P 500 came into Monday's session at 1,691 and was lower by 36 points, or 2.1%, for the week. For 2013, the index has advanced 229 points, or 16.1%.
The Nasdaq gave back 3 points, or 0.1%, to finish at 3,602. Tech danced around support at 3,650 after trading to a low of 3,645 and 3,648 on Monday and Tuesday before clearing 3,675 on the latter session's close of 3,684. Resistance at 3,700 was in play for Wednesday's session but Tech struggled and finished below 3,675 to 3,669. The index held 3,650 but it was a warning sign as we said to expect further weakness to 3,625-3,600 if this level cracked. Thursday's low was 3,600.96 before the finish at 3,606. Friday's low was 3,598. The breakdown gets 3,550 and the 50-day MA in play with 3,500 serving on an overshoot if there is continued weakness. A close above 3,625 and more importantly 3,650 would indicate the dip is being bought. The Nasdaq began the week at 3,660 and gave back 58 points, or 1.6%, by Friday's closing bell. Year-to-date, Tech has jumped 583 points, or 19.3%.
The Russell 2000 declined 3 point, or 0.3%, to end at 1,024 on Friday. The small-caps needed to hold 1,040 to start the week and the bears were able to push 1,042 but the index rebounded ahead of its brothers by clearing 1,050 by the close. The high checked-in at 1,053. Tuesday was a little disappointing following a 1-point pop to 1,054 as the Russell retraced its gains and traded down to 1,046. It was a lower low but the index still held 1,050 by the bell. Wednesday's pullback to 1,047 felt a little bearish as the index went out near its lows and we have warned of a close below 1,040. Thursday's open at 1,039 was a point below our danger zone target that we said would get 1,025-1,000 back in play. The low for the session was 1,026.73 before a close at 1,027.61. Friday's bottom was 1,023 but the 50-day MA held. The bears are naturally going to try to get the small-caps back into the triple-digits and it will be imperative the bulls hold the 1,000 mark while trying to recover 1,040 this week. The Russell 2000 was at 1,048 before Monday's open and tanked 24 points, or 2.2%, for the week. YTD, the small-caps are up 175 points, or 20.6%.
The S&P 500 Volatility Index ($VIX, 14.37, down 0.36) came into the week at 13.41 and fell below 13 despite Monday's mixed action. The close at 12.80 was bullish and lead to Tuesday's drop to 12.31 but by Wednesday's close the VIX was back above 13 to 13.04. We have warned to watch for a pop past 13.50 as it would get 15 in play and Thursday's open was 14.14. The high was 14.85 and the VIX settled at 14.73 heading into Friday's action. The index reached 14.88 but ended lower while holding 15. This was a great sign for the bulls and we talked about this throughout the week. It will be okay to flinch if 15 cracks and to possibly go short the market but not until then. If the bulls can get back below 13.50 it would calm some of the choppy waters.
The bears came out attacking and pushed lower lows as the market suffered it worst weekly decline of the year. The Dow fell triple-digits on back-to-back sessions for the first time since mid-June. Over 40% of the S&P 500 companies are trading below their 50-day MA's. Things look bad but support is holding.
We don't talk about the 10-Year Treasury Note Yield ($TNX) that often because we don't invest in bonds. However, we are watching the 3% level as the uptrend in bond yields continued last week. A close above 3% could signal a correction "of 5%-10%" is coming as many of the suit-and-ties have been calling for all year.
The 10-year is trading at its highest level in two years and the surge in Thursday's action was a result of China and Japan cashing out $40-$60 billion. The two countries are the largest foreign holders of U.S. debt and it seems they are joining the crowd in thinking a September taper is coming and brace for an eventual end in the Fed's bond buying.
We have been mentioning the smart money is pricing in an 80% chance (or greater) that the Fed Zombies will announce tapering in September but with last week's pop in yields, we wouldn't be surprised to see Bernanke send a message to curb the rise. The jump in bond yields (and more talk of Fed tapering), along with Cisco's cloudy outlook, and the turmoil in Egypt weight on the market but volume has been low and it could mean weaker players are folding their hands.
Gold is showing signs of life after struggling with its 50-day MA for much of the year. The yellow metal made a solid move above $1,300 at the beginning of the month and tested $1,375 last week. We have been bearish on gold for many months as we correctly called its drop below $1,200 in late July. Since then we have said to look for a rebound back to $1,300 with $1,350-$1,375 coming into play on an overshoot. The close above the $1,375 level is just below the 100-day MA and a close above this level will likely lead to a run to $1,400-$1,425. A close back below $1,350 will likely get $1,325-$1,300 in play.
Silver has shown a much stronger rebound and we mentioned a test to $22 could come if $20 held. Following a brief test of $19 the prior week, silver busted through $20 and ran to a high of $23.40 on Friday. We have been targeting $17.50 as a possible entry point to start adding silver again to our portfolio and we may or may not get that chance over the near-term as a run to $24-$26 could come on continued strength. A close back below $22 would cool the momentum.
Apple made a run to $500 after Carl Ichan revealed a stake in the company. The shares strength helped the Nasdaq and broader markets from taking a possible nosedive. If Apple remains strong and makes a run to $550, this should help the indexes heading into September. However, if Apple pulls back to $470, the market could fall in tandem based on sympathy.
The Financial Select Spiders (XLF, $20.02, down $0.03) have been holding $20 following the breakout above this level in early July. Support has been strong at $20 and there is risk down to $19.75 and the 50-day MA, or $19.50, on continued softness. As long as support holds, the Financial Spiders could test $21 and fresh highs on a breakout.
The Monday/ Friday closes have been mixed over the past few weeks as the bears have won the last 2 Monday's on the Dow but the past two Friday's have been split. This Monday could be a good clue if the Dow closes lower but the losses have been mild as the Dow has fallen back to the bottom of its trading range. If the blue-chips give back another triple-digits to start the week, there is a good chance the June lows come into play.
As we head to press, futures look like this: Dow futures are up 20 points to 15,058 while the S&P 500 futures are higher by 2 points to 1,653. The Nasdaq 100 futures are advancing 4 points to 3,073.