Unproven Bear

QUICK TAKE: No Bias. Leadership shows crumbles as the technical support of key moving averages is tested. 

Choppy price action on the major indexes as the third week of straight selling for large caps saw rotation into value oriented defensive names. 

INDEXWEEK CLOSECHANGE% CHANGEYTD %
DJIA27657.42-8.22-0.0-3.1
Nasdaq10793.28-60.27-0.620.3
S&P 5003319.47-21.50-0.62.7
Russell 20001536.7839.512.6-7.9

A decline in sell volume bodes well for the bull market. Heavy, buying volume is partly attributed to options expiration Friday. 

Look for second quarter window dressing to boost recent winners as we get closer to October. 

The Bull isn’t over until it cast its shadow. Low interest rates, easy money and cheap borrowing for companies has been rocket fuel for this market. 

Lots of news to stir the pot this week. 

Weekly Bullishness: 

  • Buyouts: NVIDIA (NVDA, +0.20%) to buy Arm Holdings from Softbank for ~$40 billion in cash and stock, and Gilead Sciences (GILD) buying Immunomedics (IMMU, +102%) for $21 billion, more than 100% premium.
  • The Snowflake (SNOW, +100%) IPO was off to a good start after being initially priced at $120 and closing the week at 240.
  • Marriott (MAR, +0.62%) reported a pickup in demand. Dividend remains on Hold.
  • AstraZeneca (AZN, +5.06%) resumed its COVID-19 vaccine trial in the UK. Pfizer’s (PFE, +1.55%)said it believes it will have enough data by the end of October to know if its vaccine is safe and effective. Merck (MRK, +2.31%) has begun human testing of a COVID-19 vaccine candidate.

Weekly Bearishness:

  • Federal Reserve Chairman Jerome Powell went on warning, “More fiscal support is likely to be needed,” for a  “highly uncertain” economy, and that Congress needs to act quickly on another coronavirus relief package.
  • More virus lockdowns for Israel and social restriction for Europe as Covid-19 fears linger. 
  • Predictions for lesser oil demand from the IEA, which said, “We expect the recovery in oil demand to decelerate markedly in the second half of 2020.” And BP, which called an end of an era for high growth in demand. 
  • Retail Sales report for August was weaker than expected. Total sales were up 0.6% m/m (Briefing.com consensus 1.0%) following a downwardly revised 0.9% increase (from 1.2%) in July. Excluding autos, sales were up 0.7% (Briefing.com consensus 1.0%) following a downwardly revised 1.3% increase (from 1.9%) in July. The key takeaway from the report is that it points to some slowing in retail spending activity following the expiration of enhanced unemployment benefits, but, importantly, it didn’t reveal a spending contraction as increases were seen in many categories.
  • Initial jobless claims for the week ending September 12 fell 33K to 860K, against a forecast of 830K. Claims remain sky high compared to same week a year ago when they were 211K.
  • Online business review portal Yelp said their data showed that 60% of businesses that have permanently closed since the pandemic. Restaurants were hit hardest.  The National Restaurant Association also said that 100,000 restaurants have closed either permanently or long term, accounting for $240B in lost sales. 

LEADERSHIP

The tech bigs are in pullback mode. The overall market is likely to go where they do. 

  • Microsoft (MSFT, -1.78%), raised its dividend by 1%. Stock has fallen sharply below its 50-day, which we’ll have to consider resistance now. 
  • Facebook (FB, -5.28%) is dealing from a backlash from celebrities as well as antitrust issues from the FTC.  It’s testing the support of the 50-dma.
  • Apple (AAPL, -4.61%) is also testing its 50-dma.
  • Alphabet (GOOG, -3.99%), is trading above its 50-dma.
  • Amazon (AMZN, -5.18%) is also trading above its 50-dma. 

SECTOR ACTION

SYMBOLNAMESCTR% CHG
XLEEnergy Sector Fund17.43.03
XLIIndustrial Sector Fund89.21.51
XLBMaterials Sector Fund94.51
XLVHealth Care Sector Fund500.91
XLREReal Estate Sector Fund400.14
XLFFinancial Sector Fund41.2-0.12
XLUUtilities Sector Fund24.8-0.7
XLKTechnology Sector Fund82.6-1.06
XLPConsumer Staples Sector Fund35.2-1.48
XLYConsumer Discretionary Sector Fund88.7-1.49
XLCCommunication Services Sector Fund53.8-1.74

EXCHANGE DATA

NYSE18-Sep
Issues Traded3,149
Advances1,841
Declines1,265
Unchanged43
New Highs206
New Lows51
Adv Vol12,490,600,585
Decl Vol11,437,924,845
Total Vol24,203,797,886
NASDAQ 
Issues Traded3,633
Advances2,373
Declines1,183
Unchanged77
New Highs230
New Lows85
Adv Vol12,259,610,396
Decl Vol8,331,960,826
Total Vol20,812,849,671
Volume Stats 
NYSE Vol % Chng f/prev wk46%
 NYSE Adv/Dec Vol                          1.1 
Naz Vol % Chng f/prev wk40%
 Naz Adv/Dec Vol                          1.5 
Advances/Declines 
 NYSE                          1.5 
 Naz                          2.0 
New Highs 
NYSE96%
Nasdaq76%
New Lows 
NYSE0%
Nasdaq-21%

Stay loose,

Dan

Last Buyer

QUICK TAKE: Sellers are running the game. Look out below. SELL BIAS. 

Dear Reader:

Recent selling on heavy volume has nearly erased the S&P 500’s gains for August, sending it into its 50-day moving average for a test. 

FOR THE WEEK:

INDEXCLOSECHANGE% CHANGEYTD %
DJIA27665.64-467.67-1.7-3.1
Nasdaq10853.55-459.58-4.121.0
S&P 5003340.97-85.99-2.53.4
Russell 20001497.27-38.03-2.5-10.2

There is no triggering event for the selling. Market tops don’t need a bell to signal, neither do short-term corrections.

The 10% correction is the fastest in history. 

Look for signs the selling is over. Down volume will dry up, leaders will regain their momentum, money will stay in the market, perhaps rotating to different sectors rather than fleeing to cash. 

We always want to be on the side of the majority of the institutions that tend to move the market.

Bull markets end when the last guy puts in his buy order. This, as far as I’m aware, has always been the inexperienced person turned sucker looking to ride the easy train. 

This market has been nothing but an easy train for the new crop of young buyers gambling on their smart phones. That guy who founded Barstool Sports, companies like Nikola and Tesla that catch crazy bids without any earnings to back them are reminiscent of the tech bubble of 2000. 

Don’t be surprised to see a retest of the 3000 level in the S&P. There’s no telling where the bottom is, just as there’s no really telling a top. 

LEADERSHIP:

Biotech tests failure of a 5-year breakout. Many names in the group are posting solid earnings. Long-term outlook here is bullish given the post-pandemic interest in the field. Don’t be surprised to see a shakeout here. 

Gold and Silver remain hot despite the pullback. Forget the macro gamble and just observe the price action here. That simple. 

Still strong: Internet, Semiconductors, Cloud Computing and anything Stay At Home related. 

The Big Five all look like bullish pullbacks on the weekly charts:  Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), and Facebook (FB). 

WEEKLY SECTOR ACTION:

SYMBOLNAME% CHG
XLBMaterials Sector Fund0.98
XLIIndustrial Sector Fund-0.3
XLUUtilities Sector Fund-0.74
XLYConsumer Discretionary Sector Fund-0.74
XLVHealth Care Sector Fund-1.05
XLPConsumer Staples Sector Fund-1.36
XLREReal Estate Sector Fund-1.93
XLFFinancial Sector Fund-2.29
XLCCommunication Services Sector Fund-3.24
XLKTechnology Sector Fund-4.37
XLEEnergy Sector Fund-6.45

Look for individual names later this week. 

Dan

“If you gape after externals, you will inevitably be forced up and down according to the will of your master.”  — Epictetus