Technical Analysis Published by Raymond James & Associates

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1 Published by & Associates P. Arthur Huprich, CMT, (727) , November 16, 2012 Weekly - Needed: Fiscal Cliff Resolution or Low-Rally-Retest. Until Then Downtrend Rules. Friday Morning 11/16 Inside of a ring or out, ain t nothing wrong with going down. It s staying down that s wrong. - Muhammad Ali There is no denying that the stock market is down, an intermediate-term Bear trend, that is. However yesterday s tape action, though negative at the close (no positive divergences, new 52-week lows expanded on the NYSE, declining issues held a 2 to 1 margin over advancing issues, the traditional McClellan Oscillator fell deeper into oversold territory etc.) exhibited some intraday signs, recorded each of the three times the DJIA tested its early intraday low, that demand and supply are t-r-y-i-n-g to balance out. Another intraday observation is that I counted at least a dozen times the DJIA crossed the unchanged line. Rapid directional changes coming after a big move can signal a p-o-s-s-i-b-l-e directional change. Finally, the stock market was able to contain bad news, at least to a degree, as the Philly Fed report was described by Chief Economist Dr. Scott Brown as worse than expected. Let me please say, these three signs imply the stock market is trying to not, stay down, short-term. For anything of more substance relative to the beginning stages of a low-rally-retest bottoming sequence ( W pattern), as described in a bit more detail yesterday, we still need to see: 1) one to three days in which advancing volume is 80% to 90% of total advancing and declining volume and/or 2) some positive divergences from the stock market s internal statistics on further weakness or during a retest of yesterday s low. Resolution or compromise over the fiscal cliff, by our elected politicos, would also go a long way in helping repair the current, intermediate-term Bear trend. Until then, I would ask that accounts please not stay down when it comes to managing risk. As stated last week, the quality of your equity holdings and the suitability of your stop loss measures should be reviewed now. I was asked yesterday, How much upside is there, if/when the market rallies? In other words, where is there some overhanging selling pressure (resistance)? In looking at the chart of the DJIA ( ), besides resistance in the area of 12900, I m of the opinion that any type of oversold bounce doesn t make it past resistance between and DJ Industrial Average 08-Jul-2011 to 16-Nov-2012 (Daily) 1 Year - Daily Last: To answer a question relative to Where does selling pressure exist? My answer: Besides resistance in the area of 12900, I m of the opinion that any type of oversold bounce doesn t makes it past resistance between and ,000 13, , ,500 12,000 11,500 The next area of support exists between and A downside price target, based on the H&S Top ~ ,000 10, Day Moving Average 200 Day Moving Agerage Price(DJII-USA) 10/11 1/12 4/12 7/12 10/12 10,000 FactSet Research 22 Systems Please read domestic and foreign disclosure/risk information beginning on page 9 and Analyst Certification on page 9. International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 In looking for a tactical move, besides using rallies to reduce stocks trading below a downward trending 200-DMA, is to balance off (short-hedge) your long exposure with something that has generated a technical sell signal and is viewed unfavorably from a fundamental perspective. Case in point, Underperform-rated Lumber Liquidators Holdings (LL). The stock has recorded three consecutive high volume declines, which is distributive tape action. Also, after testing and holding its 50-DMA six times over the past six months, LL closed below the 50-DMA yesterday. I think LL goes lower on an absolute and/or relative basis. Support = $47.31 and $42, target = $ An uptrend line and 150-DMA is closer to $40. A move above $56.13 would nullify this bearish observation and imply covering shorts or related positions. Lumber Liquidators Holdings Inc. (LL) 50-day average volume = 667,600 shares. Beta = For more specifics, please refer to written portion of the report Mar Apr May Jun Jul Aug Sep Oct Nov Price Price - Moving Average 1 Price - Moving Average 2 50 Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Relative Strength to S&P Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Volume 19 FactSet Research Systems For another tactical alternative, please consider the following: One sign that the risk-off trade is being implemented is evident by the bullish short-term relative strength trend of the Consumer Staples Sector SPDR Fund (XLP). You can buy this if you want to balance off some high-beta positions please don t stay down but decide! Consumer Staples vs. S&P 500 Consumer Staples Select Sector SPDR Fund Relative Strength Mar Apr May Jun Jul Aug Sep Oct Nov Source: FactSet 20 Prices International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 Finally, let me please mention that I believe Outperform-rated Apple Inc. (AAPL) is confined to a period of approximately four to six months of underperformance, which is consistent with how the stock has traded numerous times since its big top-side move off the 2008 to 2009 lows. On a here and now basis, support exists at $ (May intraday low). A decisive close below that level opens up a retest of either a 50% retracement level at $508, an uptrend line drawn off the 2009 low in the area of $450, and/or $432 to $420 (breakout points from the beginning of the year). If appropriate, please consider using some type of hedging strategy to potentially benefit from this observation. Thursday Morning 11/15 Flush: Declining stocks as a percentage of advancing and declining stocks equaled 89.8% yesterday, call it 90%. Declining volume as a percentage of advancing and declining volume equaled 92%. The McClellan Oscillator ended yesterday close to where it was last April and May, just prior to a counter trend rally. New 52-week lows on the NYSE (210) were as high as they have been since October The ratio of declining volume to advancing volume was over 11 to 1. Bullish newsletter writers (the BULLS) came out at 38.3%, down from their mid-september reading of 54.2% while the BEARS ended at 28.7%. The S&P 500 ( ) undercuts support at 1354 yet closed above it. Finally, as to Chief Investment Strategist Jeffrey Saut s 17 to 25-day count sequence, since the DJIA peaked on 10/5/12, yesterday was day number 26. If you measure from the point when the DJIA completed a Double Top and first established a downtrend (10/10/12), yesterday was day number 24 of the current selloff. All of this to say that yesterday was the first day that had the feel of near-term panic selling. This doesn t mean that a Bottom is in place. A Bottom requires a low-rally-retest sequence with some positive divergences during the retest sequence, all of which is a function of price and time. However, yesterday s statistics are indicative of a market that is ATTEMPTING to establish a Low. In order to lock in yesterday s attempt to establish a Low, we need to see either 1) one to three days in which advancing volume is 80% to 90% of advancing and declining volume - this signals that prices got low enough to interest buyers. 2) Some positive divergences from the stock market s internal statistics on further weakness or during a retest of yesterday s low. My current desire to preserve wealth recommends patience and letting the bottoming sequence work itself out let the stock market regain its sea legs. With that said, based on my s yesterday, I know many people disagree with me and they want to buy the market. For very aggressive accounts that want to buy a counter-trend move higher, buy the trading vehicle of choice now and please use a move beneath yesterday s low as a stop. Alternatively, if there is early weakness today that undercuts yesterday s low but is followed by an intraday reversal higher, use the reaction low as a stop. S&P 500 (SP50-SPX) 1 Year Daily You can see the short-term and intermediate-term breakdown points. Hence MY desire for some type of Low-Rally-Retest sequence, i.e. the fall of 2011 and/or earlier this spring ,500 1,450 1,400 1,350 1,300 1,250 Yesterday s low of marginally breached support at 1354, but the SPX managed to close above it. Better support that is consistent with the H&S Top from 11/7/12 equates to 1333 to 1325, with more between 1310 and ~ ,200 1,150 1,100 Price 50 ma 200 ma Volume 10/11 1/12 4/12 7/12 10/12 1, Dec Jan Feb Mar Apr May Jun FactSet Research Systems 21 International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Wednesday Morning 11/14 (commentary originally published under the heading Morning Tack ) "Market Correction! What Say You? " We learned a long time ago not to worry about always being exactly right or exactly wrong but to always try and make the good probability call. - Stan Weinstein Following a relatively rare feat Monday, a trading session in which the DJIA, the S&P 500, and the NASDAQ all moved less than a point, stocks opened lower yesterday as Congress returned to work. Following a 67-point decline by the DJIA at the open, the senior index quickly regrouped and was up 83 points prior to noon. Looks can be deceiving however, as while the DJIA was in the green column into the 3:00 hour, my hourly net breadth statistics were negative, more declining issues than advancing issues, from noon on. This meant that while the DJIA was up, the broad market was being sold. This intraday guidepost proved accurate as the DJIA turned tail and closed down 59 points. Away from the fact that the stock market is in a downtrend, if you are looking for a reason for yesterday s poor tape action, blame the political wrangling over the fiscal cliff, thus dampening investor sentiment. Also, lawmakers in Europe gave Greece two more years to lower its deficit yet failed to agree on how the country will repay its debt. On a here and now basis, while there are many ways to measure an oversold condition and everyone has their favorite, Jeffrey Saut has a preference for the traditional McClellan Oscillator chart below. What I want to point out is that this indicator has been in, or very close to, oversold territory (- 100, the lower white line) a number of times over the past four to six weeks and there has not been a sustainable rally. Also, after moving close to or into the oversold territory, when the oscillator did move up, it only barely made it past a neutral reading (green, 0 line). This may change due to some earnings reports last night, but my point is that barring an agreement on the fiscal cliff or a consistent string of days in which advancing volume equates to 80% to 90% of advancing plus declining volume, the inability to rally in the presence of oversold conditions is a sign that selling pressure is still in control. Source: Thomson Reuters Data as of Source: Thomson Reuters. Speaking of such, while I don t think a 1987 event (22% drop in one day) is in the cards, as I have been asked about, I will mention that as a market attempts to build a bottom through a low-rally-retest sequence, in many cases the biggest down days often occur near the end of the move, not the beginning. Stay tuned. International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 Support: S&P 500 ( ) (50% retracement of the June to September rally), 1354 (small ledge) and between 1333 and 1325 (price target from recent breakdown and June low). Tuesday Morning 11/13 (commentary originally published under the heading Morning Tack ) "Up Early, Down Late is Not Good" Neither the length nor the duration of a trend can be forecast. The best we can do is identify trend changes and act accordingly -Charles Dow With markets mixed in Asia (Japan was down, China was higher), flat in Europe, and the DJIA latching onto some very near-term trading support in and around last Friday (please refer to 11/12/12 for a visual of this), the senior index opened higher yesterday. The DJIA then traded down, was up almost 50 points shortly after noon, but closed fractionally lower disappointing that the early gains couldn t hold and indicative of a trend under pressure. Also, Housing stocks experienced high volume selling! Since the stock market doesn t like confusion, and as Dennis Gartman stated,...they can deal with almost any reality, but it is confusion that is most distressing, I think the odds favor continuing stock market volatility over the next two to six weeks as both sides (Executive and Legislative) jaw-bone for position relative to taxes and spending cuts. This is one reason why the stock market is struggling, both on a short-term and intermediate-term basis. Uncertainty causes market participants (investors, traders, mutual funds, hedge funds) to move to the sidelines until there is more clarity. Headlines out of Europe will also play a role in this uncertainty and in turn, volatility. One thing that a technical analyst looks for is a change in character. This means that when there is a change in an established trend, either in terms of price action or personality (how an index reacts to a resistance level for instance), it can be helpful in discerning the strength or weakness of the current trend. A 10-month chart of the NASDAQ 100 ($NDX) is a case in point. Please notice that following a break below two separate uptrend lines, which then become a point of selling pressure (resistance), the subsequent rally was turned back right at the underside of said trend line a sign of weakness. These resistance points are labeled A and B. My point is that on any throw-back rallies by the $NDX, how the index handles resistance, defined by the underside of the broken trend line and labeled C, currently at approximately 2653 yet subject to marginally change each day, will be helpful in discerning the index s strength or weakness. International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Monday Morning 11/12 To all the veterans who have served our country and those who are currently serving our country, Thank you! Post-Election Hangover: Within the context of last week s presidential and congressional elections, Wall Street experienced a hangover, evident by a decline of 2.1% by the DJIA, a 2.4% decline by the benchmark S&P 500 and a 2.6% setback by the NASDAQ. Consistent with this and as stated in last week s Morning Tack report dated 11/8/12, the S&P 500 completed an intermediate-term breakdown (head and shoulders top [followed by a trend line break drawn off October 2011 low]), which opened up additional downside potential of approximately 4% to 5%, for starters. Let me please repeat what I stated in one of last week s Morning Tack reports, specifically: risk management strategies should be revisited again... and the quality of your equity holdings and the suitability of your stop loss measures should be reviewed now. Also relative to last week, Utilities fell sharply as Wall Street focuses on the fact that tax rates on dividends are likely to be higher in Thus, utility stocks are being sold as a result of potential tax reform - ditto for certain Energy, Telecommunications, and Staple stocks. Please consider using some type of hedging strategy to potentially benefit from this observation. On a relative basis, the Basic Material sector is basing nicely and is improving. With all of this said, as shown on the chart of the DJIA below, the senior index latched onto some minor support last Friday. Therefore, how a snap-back rally by the DJIA handles the initial layer of selling pressure (resistance) between approximately and (neckline resistance) will be a good guidepost for traders. From a non-trading perspective, I reiterate my risk management tactics above. In the meantime, only a string of high volume rallies, a resolution to the fiscal cliff or a low-rallyretested sequence will lessen my angst. Chart courtesy of Thomson Reuters. International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Thursday Morning 11/8 (commentary originally published under the heading Morning Tack ) A Market Under Pressure Breaks Down Further The investor s chief problem and even his worst enemy is likely to be himself. Benjamin Graham Consistent with a market that has traded under its 50-DMA for over two weeks, Wall Street cast its own vote yesterday relative to Obama 2.0, Draghi speak, and the U.S. fiscal cliff. Based on a 2.8% intraday decline and an intermediate-term breakdown by the S&P 500, a high volume close under its 50-DMA by the Financial Select Sector SPDR (XLF/$15.61) please use the XLF s ability to recapture or not its 50-DMA as a guidepost and a decisive close below its 40-week moving average by AAPL, their vote was a resounding 0. I think yesterday was partially about a plea for bipartisanship between the two parties, i.e., Clinton reaching across the aisle in 1992 and/or Reagan and O Neill in the 1980s. While the S&P 500 hasn t closed beneath its 200-DMA, the DJIA, the NASDAQ, and the Russell 2000 Index ($RUT) have. An inability by these three indices to immediately recapture said moving averages will be a sign that risk levels are rising further. Regardless, risk management strategies should be revisited again. As a former colleague said, The quality of your equity holdings and the suitability of your stop loss measures should be reviewed now. Since declining volume equated to 90% of advancing and declining volume, the McClellan Oscillator is oversold, and the SPX is close to support (see chart), a reflex rally is due. Into such, I want to stress the tactics above. At this point only a string of high volume rallies or a resolution to the fiscal cliff will lessen my angst. Source: Thomson Reuters Data as of International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 Company Citations Company Name Ticker Exchange Currency Closing Price RJ Rating RJ Entity Apple Inc. AAPL NASDAQ $ RJ & Associates Lumber Liquidators Holdings, Inc. LL NYSE $ RJ & Associates Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions. Stocks that do not trade on a U.S. national exchange may not be approved for sale in all U.S. states. NC=not covered. The opinions offered in this piece should be considered a part of your overall decision-making process. These comments are published individually on a daily basis. This report contains a compilation of several days' worth of comments and is updated weekly. Unless otherwise noted, prices included are as of the previous day's close. For more information about these reports - to discuss how this outlook may affect your personal situation, to learn how this insight may be incorporated into your investment strategy, and/or to receive individual daily reports - please contact your financial advisor or use the office locator at to find our offices(s) nearest you today. International Headquarters: The Financial Center 880 Carillon Parkway St. Petersburg, Florida

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