A Return to Rally?
by Jerome "Mel" Hickerson
Futures were flying high all night with rumors of the Greece bailout; the announcement then came and the “sell the news” reaction began. By the time the regular session opened, futures were flat and the sell off continued into the open. The low of the day was set at 9:45 as the SPX once again bounced off the 1060 area. It didn’t appear to be much of a bounce until around 11am when the SPX quickly ascended vertically for much of an hour. From noon through the close the index mostly chopped sideways with a slight upward bias.
In last night’s report, we looked at how this correction resembled the late June pullback in both depth and duration. But tonight, let’s delve deeper and look under the technicals and see what is significantly different now than then. Let’s focus on fuel; every sustained rally has a catalyst then fuel to keep it ignited.
Late June had worries regarding the upcoming earning season. Early in July it became clear that the financials were benefiting significantly, among many things, from the early Spring changes in the “mark to market” accounting rules. This relieved fears regarding the earnings and this served as a catalyst to re-ignite the rally. The XLF then took off and led the way higher as the SPX and XLF each began bouncing to new highs. Earning season began and there was further fuel for the rally. FED money and sideline money poured in and the rally raced upward.
Now we move forward to late January and our current correction. This correction was fueled downward by extremely high expectations of earnings; many earnings were great but just not quite up to expectations. The sideline money that wanted into the market in July is already in; the money remaining on the sideline is likely too timid to jump in here. There’s also the aspect that cold weather tends to dampen the interest in risk taking; it may sound strange, but historically February is a struggle for the market. And many believe the FED has already expended their many bullets and will be forced to stand aside and let the market decide its own future here.
But maybe most important is the action of the XLF. It looks quite weak here and it would be surprising to see it rebound enough to provide fuel for the rally to continue.
The current environment of sovereign bailouts such as Dubai and Greece and more yet to come is simply not the environment for the market to be fueled to new highs. The SPX is likely to bounce around, chopping through the same 1000-1100 range for quite some time from what I see. I just can’t see the fuel lying around for a sustained rally that goes higher than 1120, if that.
For Friday, our model is suggesting a breather and possibly a bit of a pullback. A gap up wouldn’t surprise, but the gaps are ruled by the morning news.
SPX Summary for Thursday, February 11, 2010
420 Advancers/74 Decliners
Today's SPX component winners and losers:
• Largest one day loser is BSX with -10.13%
• Largest three day loser is DF with -16.94%
• Largest five day loser is DF with -18.67%
• Largest ten day loser is DF with -19.89%
• Largest one day winner is AYE with 11.65%
• Largest three day winner is HAR with 23.89%
• Largest five day winner is ARG with 41.64%
• Largest ten day winner is ARG with 31.14%
*** SPX Technical Summary ***
The lowest 14 day RSI component is BSX; the highest 14 day RSI component is SLE. The average 14 day RSI of all 500 components is 47.
The greatest positive five day momentum component is ARG; the greatest negative five day momentum component is DF. The average five day momentum of all 500 components is 1.89.
6.80% of the SPX components are giving a crossover Buy signal; 71.60% of the SPX components are giving a Sell signal. This is a 10.5 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 42 components.
• From Buy to Neutral: 1 component.
• From Neutral to Sell: 10 components.
• From Neutral to Buy: 9 components.
Friday, February 12
Economics
09:55 Michigan Sentiment 74.8 cons.
Earnings
Before: ALE, IR, PAS, UPL
After: DUK
Mel’s Random Hits:
• Total tick for the day was +223,000. The first 90 minutes belonged to the bears again; very similar to Wednesday. The rest of the session breadth was positive and the bulls romped.
• The day's range was 19.45 points.
• The day's volume was 80.53% of the average daily volume for the last year. Volume was 84.51% of the last 10 day average but 98.4% of Wednesday.
• 21% of the SPX stocks closed with two day RSI above 90. 47% closed with RSI above 80. 3% closed with RSI below 20 and 2% closed with RSI below 10. Very little change from yesterday.
• 82.0% of the SPX are above their five day moving average, 55.6% are above their 10 day average, and 30.2% are above their 20 day moving average. Absolutely huge change in these numbers today.
• 2% of the SPX stocks closed below their most recent previous lows.
• 56% of the SPX closed above their most recent previous high.
• 89.6% of stocks closed in the top half of the day's range. (10.4% closed in bottom half.)
• 3.0% of stocks closed in the bottom 20% of the day's range.
• 38.6% of stocks closed in the top 10% of the day's range.
• 3.6% of stocks closed within 2% of their 52 week high. 12.2% of stocks closed within 5% of their 52 week high.
• 29.0% of stocks closed within 50% of their 52 week low. 9.4% of stocks closed within 25% of their 52 week low.
• 38.2% of stocks closed within ¼% of their high for the day.
• 1.4% of stocks closed within ¼% of their low for the day.
• 84.4% of the SPX closed up from the previous close; 86.2% closed higher than the open.
• Sectors weaker than the SPX for the day: Financials, Consumer Staples, Health Care, and Utilities.
• Sectors stronger than the SPX for the day: Energy, Basic Materials, Industrials, Technology, and Consumer Discretionary.
• The $SOX index strength was stronger again than the SPX today.
• The 2 Day RSI of the SPX is 81. The Dow RSI is 84, NASDAQ is 87 and Russell 89. The NASDAQ and Russell led the way today; that is often bullish.
• Over the last five sessions, the average session closed 61% of the range above the low.
• Downside momentum bounced from yesterday’s -2.72to today’s 1.89. The ratio of SPX components giving a crossover sell signal compared to buy signals has dropped to 10.5 to 1.
• 147 SPX components moved upward and 106 components downward during the after hours with 97 million shares traded. Volume was light.
Have a great Friday everyone.
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"Mel"
Today we closed out of:
Proshares Ultrashort S&P500 (SDS) -0.43%
