A Quiet Minor Victory for the Bears Ahead of the FOMC
by Jerome "Mel" Hickerson
The session began with selling pressure from the futures and gapped down and consolidated quickly. From 10:00 until just before 11:00 the index move upward filling the gap and painting the high of the day at 10:52 almost exactly at Monday’s close. From there, the index slowly chopped downward into the close with the downward bias accelerating in the final hour as the SPX finally broke below the six point trading range. The index found support in he 1105 area, setting the low for the day at 3:46 before bouncing sharply upward into the close.
The market came into Tuesday with overbought conditions and several negative news items hit this morning (financial concerns regarding Greece and Austria, the New York manufacturing failed to meet consensus, and credit card concerns with banks.) The dollar was up significantly as well. When you add all this up, the only thing surprising about today was that it was only a six point drop. There was a time not long ago that this would have been a -20 day. While bears are pleased with a six point move, it is rather bullish that the drop today wasn’t much worse.
The last minute surge in the SPX also allowed the index to avoid closing below Monday’s open. If you examine the charts from an unbiased viewpoint you see that even with today’s drop the SPX still managed to retain all the gains from Monday’s opening gap. While this is not powerfully bullish, it certainly doesn’t seem very bearish, either.
From last night’s report: “I look for Tuesday to differ from the last couple days: more volatility, wider range, and more struggle for the SPX.” We didn’t get much wider range, but most of the rest we did see today. And we also made some money on our swing trade short.
But I don’t deny that day trading the last several days has been almost impossible. The average daily range for 2009 continues to fall, but even when compared to that falling average the last session that even had an average range was November 3rd. I can never recall a time when the 10 day moving average of daily trading range was less than 0.67%. Think about this a moment: The last ten sessions the average range is 7.6 points, just 2/3rds of one percent, from top to bottom each day.
As the result of the narrow range, I find myself trading less frequently. When a pitcher tries to pitch around a great hitter, the good hitters wait for their pitch rather than swinging at pitches outside the strike zone. I’d rather take a walk than swing wildly. It’s frustrating; but I know that eventually my pitch is coming. Patience is key in this game. I trade for a living, not for the thrill of trading.
Yesterday and today were really pretty typical of FOMC weeks. What makes this week slightly different is the quadruple options expirations. I keep telling myself that volatility is likely after 2:15 Wednesday.
I expect that we see a small quiet rally Wednesday morning heading into the 2:15 announcement. What happens after that is anyone’s guess; it is usually an entertaining and wild ride. I always suggest lightening your positions before the announcement.
Wednesday, December 16
Economics
08:30 Building Permits 570k cons.
08:30 Housing Starts 575k cons.
08:30 CPI
08:30 Core CPI 0.1% cons.
10:30 Crude Inventories
02:15 FOMC Rate Decision
Earnings
Before: JOYG
After: APOG, MLHR, HOV, MATK, NDSN, OHB, PAYX
Events
GAS Analyst Meeting
LII Investment Community Meeting
HON FY10 Outlook
DHR Investor Day
The Consumer Price Index (CPI), a measure of consumer inflation, is due in the morning from the Commerce Department. November CPI is expected to show little to no change after rising 0.2% in the previous month. Core CPI is expected to have risen 0.1% in November after rising 0.3% in October. The Commerce Department releases a pair of housing market indicators in the morning as well. Housing starts are expected to have risen to a 575,000 annual unit rate in November, from a 529,000 unit annual rate in October. Building permits, a measure of builder confidence, is expected to have risen to a 570,000 unit annual rate in November from a 552,000 unit annual rate. The weekly crude oil inventories report is also due in the morning.
Mel’s Random Hits:
• Total tick for the day was more than 19,000. Breadth alternated between negative and positive the entire day; the day began and ended with negative breadth.
• The day's range was 8.76 points.
• The day's volume was 89.2% of the average 2009 daily volume. Volume was 117% of the 10 day average.
• 25% of the SPX stocks closed with two day RSI above 90. 34% closed with RSI above 80. 10% closed with RSI below 20 and 4% closed with RSI below 10. The short-term overbought conditions were reduced by today’s action.
• 69% of the SPX are above their 10 day moving average and 68% are above their 20 day moving average.
• 22% of the SPX stocks closed below their most recent previous lows.
• 23% of the SPX closed above their most recent previous high.
• 40.2% of stocks closed in the top half of the day's range. (59.9% closed in bottom half.)
• 23.6% of stocks closed in the bottom 20% of the day's range.
• 6.4% of stocks closed in the top 10% of the day's range.
• 23.6% of stocks closed within 2% of their 52 week high.
• 24.8% of stocks closed within 50% of their 52 week low.
• 9.2% of stocks closed within ¼% of their high for the day.
• 11.8% of stocks closed within ¼% of their low for the day.
• 32.6% of the SPX closed up from the previous close; 44.0% closed higher than the open.
• Sectors weaker than the SPX for the day: Basic materials, Financials, Technology, Consumer Staples, and Utilities
• Sectors stronger than the SPX for the day: Energy, Industrials, Health Care and Consumer Discretionary
• The $SOX index was stronger than the SPX today.
• The 2 Day RSI of the SPX is 48. The Dow RSI is 45, NASDAQ is 53 and Russell 70. We did see the expected pullback today and managed to book some profit on a swing trade; but the pullback was really not very large.
• SPX components moved upward during the after hours.
Have a great Wednesday!
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"Mel"
Today we closed out of:
Proshares Ultrashort S&P500 (SDS) +0.88%
