A Bullish Close to a Bullish Week
by Jerome "Mel" Hickerson
The final session of the first week of the year opened under a little selling pressure after the disappointing payroll data release before the open. Most of the first 30 minutes reflected that disappointing data, with the low for the day put on the charts just 12 minutes after the open. The SPX stabilized around 10am and sideways in a boring fashion for the next five hours. As we've seen many times recently, a little after 3:00 the index began the late day creep upward. On days like this, a four point move seems explosive, as the index surged to close near the high of the day, closing green after spending almost the entire session in negative territory.
In the last 24 months, when the employment data comes in below consensus, the SPX averages a gain of 0.3%. When it’s better than expected, the SPX has an average loss of 0.1%. Friday's gain of 0.29% was right on the mark and should not have surprised us.
If you're holding short positions, Friday's session was a bit disappointing because you are now faced with the prospect of being short headed into the first earnings season of the new year. If you're holding long positions, the session was less disappointing because of the late day come back, but you have to have concerns thinking how many days in a row the SPX can keep the winning streak alive.
This streak is now at five days and counting. Know how long the longest streak of 2009 was? Six days. In spite of the rally, the SPX has managed a six day streak only three times (and a five day stretch only four times).
But the earnings season is upon us. When I search my historical database for recent occurrences that look similar to current data, I keep coming across hits in late July. That late July timeframe is one of those time periods that I'll remember for a long time; and long time readers will likely recall that my signals were calling for a pullback for a couple of weeks.
I do not believe we are in a similar rare circumstance but I can not rule it out. The late July timeframe was the only period of any significance all year that my signals failed so I want to examine that period and compare and contrast similarities and differences, then and now.
We entered the July earnings season oversold after dropping 48 points in the previous eight sessions. We enter this earnings season overbought, on a five day winning streak, with only two negative sessions out of the last 14, and only four negative sessions out of the last 21 (one of those four negative sessions was a minus two.)
Expectations going into the July earnings was low; hence the oversold conditions at the time. Expectations are much higher this time; that's one reason we are overbought. But the bar might still be artificially low this time, too. The year over year numbers are going to be a cinch to beat; but guidance going forward will be crucial this time around.
I won't claim to have a clear vision of what next week will bring. My model is clearly telling me to expect a pullback. But in a ramped up relentless up trending market, sometimes a pullback is a +3 day, it seems.
Monday, January 11
Earnings
Before: MDRX, TROY
After: AA, WDFC
Speeches
12:40 Dennis Lockhart
Auctions
11:30 3-Month Bill Auction
11:30 6-Month Bill Auction
01:00 10-Yr TIPS Auction
Mel’s Random Hits:
• Total tick for the day was +190,000. The entire session was positive with the exception of the first 20 minutes. On the inside, this session strongly resembled Thursday's session.
• Total tick for the week exceeded a million. The last week to do this was September 14th through 18th. The following week lost 24 SPX points.
• The day's range was 9.17 points. This remains the longest tight range stretch since October, 2007. Since the Dubai Default, we've had one day with range greater than 20 points (22.61) and 16 sessions with less than a 10 point range.
• The day's volume was 79.0% of the average daily volume for the last year. Volume was 130% of the last 10 day average. The volume during the last 30 minutes -- the ramp upward -- was notably light.
• It was certainly a bullish week. The week opened at the lows and closed just .4 of a point off the weekly high. The range was 28.83 points and the Friday over Friday close was up 29.88. This was the second time in the last three weeks that the net gain for the week exceeded the weekly range.
• It was the largest range week in five weeks and the largest gaining week in nine weeks. The largest weekly loss in the last 10 weeks has been 11.38 points (all on one day, New Year's Eve). There really has been no significant pullback since late October.
• 28% of the SPX stocks closed with two day RSI above 90. 40% closed with RSI above 80. 11% closed with RSI below 20 and 6% closed with RSI below 10.
• 68% of the SPX are above their five day moving average, 68% are above their 10 day average, and 78% are above their 20 day moving average.
• 8% of the SPX stocks closed below their most recent previous lows.
• 38% of the SPX closed above their most recent previous high.
• 76.0% of stocks closed in the top half of the day's range. (24.0% closed in bottom half.)
• 3.8% of stocks closed in the bottom 20% of the day's range.
• 36.0% of stocks closed in the top 10% of the day's range.
• 30.6% of stocks closed within 2% of their 52 week high.
• 24.4% of stocks closed within 50% of their 52 week low.
• 40.4% of stocks closed within ¼% of their high for the day.
• 2.4% of stocks closed within ¼% of their low for the day.
• 58.0% of the SPX closed up from the previous close; 69.8% closed higher than the open.
• Sectors weaker than the SPX for the day: Financials, Health Care, Utilities, Consumer Discretionary, and Consumer Staples.
• Sectors stronger than the SPX for the day: Basic Materials, Energy, Industrials, and Technology.
• The $SOX index strength was stronger than the SPX Friday.
• The 2 Day RSI of the SPX is 95. The Dow RSI is 87, NASDAQ is 86 and Russell 88.
• SPX components moved upward slightly during the after hours with less than 26 million shares traded.
• Market breadth was lagging the indices throughout most of November and December, but has rebounded strongly since then. Breadth is now pointing higher (see chart).
• The XLF is also not far from confirming a higher move for the SPX. A new 52 week high on the XLF would be confirmation.
• The first five days of January were up. Statistics suggest that this implies a positive year for stocks.
• Since 1950, the SPX has had 10 or more consecutive months of higher highs 5 times. 1954 (19), 1959 (13), 1986 (11), 1996 (14), 2010 (10).
• The non-farm payroll numbers have been below estimates eight times while SPX was at 52 week highs. Monday was up small all eight times. Tuesday was up twice following the eight times (the two wins were tiny).
Have a great weekend!
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"Mel"
