Technology Stocks : Wennerstrom Semi Equipment Analysis
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To: Return to Sender who wrote (77268)10/1/2017 12:01:25 PM
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Donald Wennerstrom

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InvestmentHouse - Stocks Continue to Rally (Weekend Newsletter)

- End of month, end of quarter, and stocks continue the rally through
- SP500 breaks through the trendline as NASDAQ and SOX move to new highs
while RUTX and SP500 continue adding to theirs.
- Stocks rally on even as money flows out of the market.
- Personal spending and income hardly impressive. What is new?
- Inflation is falling as the Fed's plan just doesn't seem to fit the model.
- The battle of the tax plan analysts: of course they reach opposite
- How long can this continue? Stocks still look good, many in good runs,
many set up to make moves.

September is typically the worst month of the year for stocks, falling and
then setting up more selling but a bottom in October. Didn't happen this
year. September was straight up for some indices, e.g. RUTX, while all
indices moved higher. The watched pot never boiled.

Now that September and Q3 are over, all clear right? Well, there certainly
is a lot of relief after the market stepped through September with gains,
but I would posit that is exactly the time to keep checking the leaders to
see if any are breaking. While many FAANG stocks recovered last week, they
are not out of the clear.

At the same time, many stocks continue to look very good. Many are rallying
and there are still great setups to break higher and join or rejoin the
rally. Money continues to chase stocks higher, and was certainly doing so
to end the month and quarter.

Indeed, NASDAQ, SP500, SOX all broke to new highs Friday, SP500 clearing the
2009 channel upper trendline. That is one thing SP500 could not do when it
last tested these levels in July and August, i.e. close above the trendline.
That is a definitely a change in character.

SP500 9.30, 0.37%
NASDAQ 42.51, 0.66%
DJ30 23.89, 0.11%
SP400 0.13%
RUTX 0.14%
SOX 0.87%

VOLUME: NYSE +17%, NASDAQ +5%. Back above average on some breakout moves
though month and quarter end typically see stronger volume sessions.


The question, again, is whether the change in character is a true change in
the market pattern or will the algorithms use every index hitting a higher
high the clearing another level of resistance as a cue to sell?

Thus far they have not showed at all. September ended, the quarter ended,
and often you get some new money coming to work with the start of a new
month and quarter. After that hits will the algos then strike?

Perhaps, but as noted last weekend, that is fearing shadows that are not
there, or if they are fearing things in the shadows that may not be there.

That said, the weekly and quarterly money flows came out Friday, and for the
week $7.6B flowed out of US equity funds. This as the market rallies
higher. For the quarter $23B left US equity funds. This as the indices
trended higher. Recall, a lot of big name managers said they were selling,
that things were too high and too crazy. Ultimately if enough sell out who
will be there to buy? Oh, I suppose THEY would be there if the market
continues higher and they be forced to knuckle under and buy again. Would
that happen? It sure does not seem as if it would, but this low to no
volatility move higher just won't die. Yet.

All week we let positions work, picked up new positions, and took some nice
gain per our plan as the gain presented itself. Friday we banked gain on
ACAD, BRKS, CONN -- kind of the ABC's of taking gain I suppose. It is
always a good idea to take gain when it presents, particularly when some
good moves are logged.

There are still positions we like and like a lot. We picked up some on
Friday even though we do not typically like buying on Fridays. There are
several plays on the report this weekend that offer a lot of upside
potential in the same groups that have worked so well and continue to set up
and break higher. Obviously if they continue to work we will continue to
work them.


Personal Income: 0.2 vs 0.3 (from 0.4%) July

Spending: 0.1 vs 0.3 July

PCE: 0.2% vs 0.1% prior

Core PCE: 0.1%. 1.29% year/year. Fed's most important inflation gauge down
6 straight months and the lowest year/year since 10/2015.

Let's see here, the Fed has intended to fuel some inflation to avoid
deflation. That seems so fake, does it not? You artificially create price
increases that are not truly the result of scarcity of resources, etc., and
then claim all is well because you avoided deflation.

The Fed chairman admitted she did not understand inflation. It would appear
there are several other things economic she does not understand.

Suffice it to say, incomes remain tepid with spending the lowest since
January 2016. A hearty 'well done!' Of course, the economist apologists
point out how well the Fed has done. The still labor under the delusion
that if nothing was done, if the Fed had not continued for years and years
and years to act, that we would all be dead. Perhaps. The regulations and
taxes the past 10 years killed a lot of business and perhaps there would not
have been enough willingness to invest to make it happen.

The thing is, the Fed and the administration engaged in the same policies
and actions that prolonged the Great Depression and turned the 1970's into
the 'malaise' (a word Carter did not utter in his address that was dubbed
the 'malaise' speech, but the idea was certainly conveyed to the extent that
EVERYONE called it the malaise speech). If you do the same thing and think
the results will be different because you are smarter and will do it right
this time, then you really are not smarter.

The tax proposal does what?

Of course tax reform would help the US out of the current malaise. And yes,
it is a malaise: in breadwinner job creation, in business creation, in
wages. Lots of malaise.

On Friday reports started emerging about the 'cost' of the tax proposal.
First, cost? Is it a 'cost' for Americans to keep more of their earnings?
They should measure the 'expense' to taxpayers, i.e. how much THEY have to
give up of THEIR wages to fund a profligate government, one that is taking
in RECORD tax revenues and STILL is carping about tax cuts and reform
'costing' it money. Until we drop the BS, we are not going to get anywhere.

Okay, back to the 'scoring' of the proposals. One group comes out and says
the lower earners will see their taxes go up, the higher earnings will go
down. You ALWAYS hear that with any tax reduction proposal. At the same
time, another group scored the proposal, as sparse as it is, with the lower
80% seeing a slight decrease in taxes while the top 20% see an increase in

Who is right? IT DOESN'T MATTER! The GOAL is getting investment started
once more so we can see small business creation leap higher again with money
pushed into new ideas, innovations, and tech. That creates new products and
services and the QUALITY jobs needed to make and provide those products and
services. It happened in the 1980's and 1990's with crazy ideas such as
personal computers that led to all the support products and services and the
tens upon tens upon tens of millions of jobs that were created.

No one wanted to invest in the 1970's: the reward was much to small for the
risk involved. The Reagan tax cuts and reformation changed the risk/reward
balance to where it was worth taking the risk. Money poured out of tax
shelters and into investments. It launched a 20 year boom.

Right now we have seen YEARS of low investment in the US because the return
is not there. Companies instead pump money into financial markets and stock
buybacks because THAT is where the favorable risk/reward ratio is. The Fed
is backing their play, so go financial.

Again, these 'scores' of the tax plan are first, politically driven and thus
bogus. Second, they have nothing really to score. Third, they do not and
never have, measured the true outcome of tax cuts. There has never been a
time in the history of the US that substantial tax cuts did not produce a
surplus well in excess of what the tax cuts purportedly 'cost.' The ones
that didn't work? The absurd $600.00 'rebates' to people who never paid
taxes in the first place. Wasted Keynesian effort. As President Kennedy
said, the best welfare is a well-paying job. He did not say it was a
giveaway. Who creates the well-paying jobs, the ones that result from the
need for employees for the new technologies, processes and services created?
Not the government; it just takes. It does not create. It is the
businesses that do this. THAT MUST be the focus.

That is why the reduction on the business entity taxes is so huge. It is
absurd the opening bid was 20% for corporations. Even more absurd is the
25% for pass through entities the small businesses use. If the primary
focus is on small businesses, THEIR rate should be 15% or at least as low as
the corporate rate. That is my main beef with the proposal thus far.
Outside of that, it works to do what needs to be done: get more money in the
hands of American entrepreneurs to let them start, grow, and expand their
businesses. The rest follows from that.


The Leaders

Semiconductors: Impressive week with stocks such as LRCX, AMAT, ON, ACLS,
HIMX, BRKS pushing higher, sharply higher.

Biotechs/Drugs: The large caps perhaps were not as strong, but the small
guys were moving. ARRY, IMGN, IMMU, CLVS all worked very well.

China Stocks: As usual mixed, but good movers and good setups. BIDU broke
higher Friday. YY enjoyed a good week. SOHU started upside Friday. SINA
is in good position to move higher.

Financial: Broke higher midweek with gaps. C, JPM, BAC. GS continued the
surge into Friday.

Retail: Solidly higher again. CONN gapped to target. DLTR trended higher
all week, breaking upside Friday. HD up again.

FAANG: AMZN showed a doji Friday below the 20 day EMA as it rebounded on
the week. Still a weak kind of recovery. AAPL is hanging on below the 10
day EMA after rebounding. FB broke back through the 50 day SMA; not bad.
NFLX bounced off the 50 day MA but worked laterally to Friday. GOOG
continued a nice break higher.

Transports: Trucks continued higher, e.g. ODFL, JBHT and more. DJ-20 broke
higher to a new high, confirming the DJ30's high and a Dow Theory positive.


Stats: +23.89 points (+0.11%) to close at 22405.09

Stats: +42.51 points (+0.66%) to close at 6495.96
Volume: 1.97B (+4.79%)

Up Volume: 1.37B (+385.14M)
Down Volume: 551.07M (-261.74M)

A/D and Hi/Lo: Advancers led 1.36 to 1
Previous Session: Advancers led 1.35 to 1

New Highs: 283 (+64)
New Lows: 21 (-5)

Stats: +9.30 points (+0.37%) to close at 2519.36
NYSE Volume: 900M (+17.32%)

A/D and Hi/Lo: Advancers led 1.54 to 1
Previous Session: Advancers led 1.46 to 1

New Highs: 205 (+50)
New Lows: 12 (-2)


VIX: 9.51; -0.04
VXN: 13.85; -1.13
VXO: 7.87; -0.25

Put/Call Ratio (CBOE): 1.05; +0.32

Bulls and Bears: Money may be leaving, but the bulls are still growing, up 7
points in three weeks. Bears fell precipitously.

Bulls: 54.3 versus 50.5

Bears: 17.1 versus 19.0

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: 54.3 versus 50.5
50.5 versus 47.1 versus 49.5 versus 49.5 versus 48.1 versus 50.5 versus 57.5
versus 60.0 versus 60.2 versus 57.8 versus 50.0 versus 52.5 versus 54.9
versus 51.5 versus 50.00 versus 55.8 versus 50.00 versus 51.9 versus 58.1
versus 58.7 versus 58.5 versus 54.7 versus 51.9 versus 56.3 versus 55.8
versus 49.5 versus 56.7 versus 53.4 versus 57.7 versus 63.1 versus 61.2
versus 61.8 versus 62.7 versus 61.8 versus 58.2 versus 60.6 versus 58.6
versus 60.2 versus 59.8 versus 59.8 versus 59.6 versus 58.8 versus 56.3
versus 55.6 versus 51.0 versus 42.9 versus 41.7 versus 47.1 versus 42.9
versus 46.1 versus 46.7 versus 45.2

Bears: 17.1 versus 19.0
19.0 versus 20.2 versus 19.1 versus 19.1 versus 18.3 versus 18.1 versus 17.0
versus 16.2 versus 16.5 versus 16.7 versus 18.6 versus 18.8 versus 18.6
versus 18.3 versus 19.2 versus 18.3 versus 17.1 versus 17.3 versus 17.9
versus 17.9 versus 18.3 versus 17.5 versus 18.3 versus 18.1 versus 17.3
versus 13.75 versus 17.3 versus 16.5 versus 17.5 versus 17.6 versus 16.7
versus 17.6 versus 17.5 versus 17.3 versus 18.3 versus 18.4 versus 19.6
versus 19.6 versus 19.2 versus 19.6 versus 22.3 versus 21.6 versus 23.5
versus 25.7 versus 24.3 versus 23.1 versus 23.8 versus 23.1 versus 22.8
versus 23.1 versus 24.3


Bonds: 2.339% versus 2.312%. Bonds gapped lower Wednesday on the Yellen
speech, did not recover much ground.

Historical: the last sub-2% rate was in November 2016 (1.867%). 2.312%
versus 2.307% versus 2.236% versus 2.222% versus 2.253% versus 2.276% versus
2.273% versus 2.246% versus 2.234% versus 2.201% versus 2.186% versus 2.19%
versus 2.167% versus 2.134% versus 2.042% versus 2.105% versus 2.072% versus
2.166% versus 2.210% versus 2.136% versus 2.129% versus 2.175% versus 2.169%
versus 2.189% versus 2.217% versus 2.183% versus 2.197% versus 2.185% versus
2.225% versus 2.264% versus 2.24% versus 2.191% versus 2.201 versus 2.246%
versus 2.262% versus 2.257% versus 2.264% versus 2.221% versus 2.266% versus
2.253% versus 2.296% versus 2.291% versus 2.303% versus 2.287% versus 2.330%
versus 2.255% versus 2.241% versus 2.270% versus 2.261% versus 2.318% versus

EUR/USD: 1.1812 versus 1.17817. Recovered late week after breaking the 50
day MA's early week.

Historical: 1.17817 versus 1.1746 versus 1.17852 versus 1.18540 versus
1.19476 versus 1.19420 versus 1.19420 versus 1.19954 versus 1.19436 versus
1.1918 versus 1.1874 versus 1.19706 versus 1.19551 versus 1.20379 versus
1.2025 versus 1.19258 versus 1.19143 versus 1.18621 versus 1.19131 versus
1.18938 versus 1.19731 versus 1.19678 versus 1.19212 versus 1.18 versus
1.17516 versus 1.1813 versus 1.17595 versus 1.17107 versus 1.17812 versus
1.17445 versus 1.17751 versus 1.18216 versus 1.17652 versus 1.17596 versus
1.17619 versus 1.17975 versus 1.1774 versus 1.18718 versus 1.18457 versus
1.18072 versus 1.18281 versus 1.18293 versus 1.1683 versus 1.17419 versus
1.1646 versus 1.1637 versus 1.16640 versus 1.16271 versus 1.15280 versus
1.15549 versus 1.14735 versus 1.14672 versus 1.13986 versus 1.14335 versus
1.14682 versus 1.13964

USD/JPY: 112.47 versus 112.442. Holding the move higher through the 200
day SMA.

Historical: 112.442 versus 112.86 versus 112.289 versus 111.649 versus
1.12125 versus 111.995 versus 112.454 versus 111.559 versus 111.435 versus
110.846 versus 110.01 versus 110.62 versus 110.216 versus 109.434 versus
107.847 versus 108.444 versus 109.132 versus 108.747 versus 110.254 versus
110.049 versus 110.289 versus 109.652 versus 108.04 versus 109.160 versus
109.573 versus 109.195 versus 109.648 versus 109.173 versus 109.205 versus
109.333 versus 109.842 versus 110.6621 versus 109.927 versus 109.183 versus
109.177 versus 110.03 versus 109.09 versus 110.09 versus 110.757 versus
110.689 versus 109.963 versus 110.717 versus 110.368 versus 110.28 versus
110.704 versus 111.07 versus 111.166 versus 111.897 versus 111.176

Oil: 51.67, +0.11. Broke higher Monday, tested back to the 10 day EMA the
balance of the week. Still a solid breakout.

Gold: 1284.80, -3.90. Broke below the 50 day MA' on the week, did not
recover the ground.


New highs continued through Friday. A new month and quarter could bring
some more buying into the market. After that, then what? Will new highs
become the targets for the algorithms to sell? After all, David Stockman
this weekend says to get out of the 'casino' markets now lest ye be caught
in the 40% to 70% meltdown he predicts. He is so vocal, so wild-eyed in his
statements and comments, I have a hard time taking him seriously. Oh sure,
I believe this is all a stack of cards but calls for collapse have come and
gone. At some point, poof; but what makes Stockman right THIS time when so
many before, including him, have been wrong? Nothing.

No, you look at the market and what the leaders do. Perhaps the hope
regarding the tax reform proposal gets dashed as the 'experts' issue more
and more reports on the 'cost' of the proposal.

The runs have been impressive. Crazily so. It is getting to the second
half 1999 kind of craziness in the continued upside. That, of course,
cannot last and will stall and fall. But again, when? Nobody knows! It
thus behooves us to play the good plays as they set up, play the leaders as
long as they lead. When they run out of gas and turn over, then worry. No,
don't worry. Then play the downside. Indeed, we have a downside play on
ATHM this weekend, a leading stock that suddenly gapped lower, then failed a
recovery attempt. If it breaks down hard and the market then gets more
leaders like ATHM was, it will have less leaders like ATHM was.

The point is, no one knows when the market cracks and rolls over. We will
play the moves the market gives. For now, upside, but watching over the
shoulder. We will do that until the leaders break and roll over. Then we
play the downside and make money from that versus wringing our hands and
retreating to dark spaces.

Have a great weekend!


NASDAQ: Closed at 6495.96

New high Friday.

64.77 is the September intraday high
6461 is the July 2017 prior all-time high
6450 is the early September high
The 50 day EMA at 6363
6341.70 is the all-time high from early June.
The 2016 trendline at 6315
6300 is the mid-June interim high
6205 is the late May all-time high
The 200 day SMA at 6023
5996 is the recent May 2017 low
5937 is the all-time high from April
5915 is the tops of the March to April 2017 range
5910 is the lower gap point from mid-April
5800 from the February consolidation lows
5661 is the late January upper gap point
5601 is the January lower gap point

S&P 500: Closed at 2519.36

New high Friday.

2511 is the upper channel line from the March 2009 uptrend channel
2491 is the August all-time high
2480 the late August and early August highs
The 50 day EMA at 2474
2453.46 is the June prior all-time closing high
2409 is the July 2017 closing low
2406 is the all-time high from May 2017
2401 is the March 2017 all-time high
The 200 day SMA at 2389
2352 is the recent May 2017 low
2348 is the April 2017 lower gap point
2329 is the March and April twin lows
2322 is the March 2017 low
2301 is the late January 2017 high
2298 is the late January 2017 high
2282 - 2280 from January 2017
2277.53 is the December 2016 high
The November 2016 all-time high at 2213.25
2194 is the August 2016 prior all-time high
2175 is the June 2016 high

Dow: Closed at 22,405.09

22,420 is the September high

The 10 day EMA at 22,316
22,179 is the August 2017 all-time high
22,086 is the mid-August lower high
The 50 day EMA at 21,9981
21,681is the July prior all-time high
21,638 is the July 2017 closing high
21,529 is the June 2017 high
21,169 is the March 2017 all-time high
The 200 day SMA at 21,027
20,547 is the lower gap point from late April 2017
20,412 is the March 2017 low
20,400 is the mid-April 2017 low.
20,126 is the January 2017 intraday high
20,101 is the late January closing high.
19,994 - 19,999 (early January high, upper gap point from late January
19750 is the lows of the December/January range
19,732 is the January 2017 low
18,669 is the August 2016 all-time high
18,595 is the July 2016 peak
18,351 is the prior all-time high from May 2015
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