A Slow Week Closes Near the Top of the Trading Range
by Jerome "Mel" Hickerson
The Friday session opened with mild buying pressure from the futures, popped up but quickly retested the low before popping upward again at 10:00. The next hour was a choppy mostly sideways hour, setting the high for the day just before 11:00. The pre-lunch hour was downhill, setting the low for the session at 11:49. From there, the rest of the day was choppy low volume tight range sideways action showing some strength into the close. The end result was a quiet session closing bullishly in the upper half of the range.
The week had a range of just 2.25% making it the second smallest trading range of the year. Volume averaged only 78% of the average for 2009 making the week the third smallest volume of the year. The SPX gained a mere 0.89 from Monday’s open to Friday’s close but an even smaller 0.43 points from the previous Friday’s close. Such weeks are difficult to successfully day trade. The easiest money recently is being made swing trading, buying at 1090 and selling at 1110. Until this fails, why not?
Stepping back and reviewing the charts, the daily chart remains in a bullish three day pattern but the last 24 days have repeatedly and consistently closed in our narrow 25 point range. We continue to experience either bullish consolidation or a bearish topping pattern. I’ve stated here many times that I believe we are watching a topping pattern form but we have to remain aware of the other possibilities. Stall patterns such as this often break out in the direction of the earlier trend.
I have been researching low volume patterns lasting more than 50 sessions. We are currently enmeshed in a long term low volume trading pattern. What I expected to find was that these low volume patterns would consistently break downward with increasing volume. My research has only taken me back as far as 1990, but that’s almost 20 years of data and what I have found surprises me. I have not yet found a single occurrence of low volume (defined as a period of 50 sessions averaging less than 90% of the current year’s volume) that did not break out upward. I’d be reluctant to place too much emphasis on this pattern but likewise I’d be careful looking for a large downturn here, either.
We have another historical clue that we probably would be wise to not ignore: Volatility and volume both accompany tops and bottoms; we have neither right here. That suggests that we have not yet reached the high, even though I believe we are close. By close, I mean within 5%. But if you are trading short-side, 5% can be painfully far from the top.
I also find interesting the failure of my trusted slow paced swing indicator to give a signal. This is the longest time frame this year without a signal – but when you glance at the charts and see the long period we’ve been stuck in this trading range, it’s obvious that it isn’t the signal that is broken.
Past history is never a guarantee of future action but it’s all we have to guide us. Trading against historical odds always has a fair chance of succeeding. I just prefer good chances over fair chances.
For the week ahead, I don’t see the downturn that many are seeing and have seen for weeks. I also (as stated before) don’t see us reaching 1150. There isn’t a lot else that would surprise me here, but what would surprise me the least would be a head fake upward above the 52 week high, followed by a pullback into the 1070 area (not all this upcoming week). I’m not even convinced we see this begin this week; but be aware that it is options expiration week so we may see some extended range that should make for better trading. At least we can hope.
For Monday, our model has generated another +1 indicator; a null signal yet again. If Monday were to be similar to Friday I would not be surprised. 12 of the last 14 first sessions of the week have closed positive; this may be one that doesn’t but when I place my money at risk I prefer to have the odds with me.
Monday, December 14
Earnings
After: PAY, SNS
Auctions
11:30 3-Month Bill Auction
11:30 6-Month Bill Auction
Events
AGLN, BABY, CPTX, VOLC at Roth Capital Partners Medical Device Conference
SYY Investor Day
Mel’s Random Hits:
• Total tick for Friday was more than 182,000. Breadth was positive most of the day with periods negative limited to just before 11:00 through 12:30 and briefly around 2:45. Once again, the tick was just about the only thing that was consistently positive Friday other than the indices themselves. This was the second consecutive session that the indicators looked more like a down day than an up day. Since I have not seen this happen before, I am unsure what this is suggesting; my hunch is that we will see something unusual in the days to come.
• Friday's range was 7.16 points. Yuck; these are not easy days to day trade. The 5 day moving average of daily range is 10.04. The moving average of the range has reached less than 10 points only once this year (mid October.) Soon after that, range was explosive.
• Friday's volume was 67% of the average 2009 daily volume. Volume was 83% of the 10 day average. Friday’s volume was the lowest volume of the week and the lowest volume since November 13th.
• 19% of the SPX stocks closed with two day RSI above 90. 33% closed with RSI above 80. 13% closed with RSI below 20 and 6% closed with RSI below 10. RSI starting to suggest that we are soon to see a short-term pullback.
• 59% of the SPX are above their 10 day moving average and 58% are above their 20 day moving average.
• 16% of the SPX stocks closed below their most recent previous lows.
• 30% of the SPX closed above their most recent previous high.
• 60.4% of stocks closed in the top half of Friday's range. (39.6% closed in bottom half.)
• 12.0% of stocks closed in the bottom 20% of Friday's range.
• 20.2% of stocks closed in the top 10% of Friday's range.
• 20.8% of stocks closed within 2% of their 52 week high.
• 24.8% of stocks closed within 50% of their 52 week low.
• 22.8% of stocks closed within ¼% of their high for Friday.
• 7.4% of stocks closed within ¼% of their low for Friday.
• 67.2% of the SPX closed up for Friday.
• Sectors weaker than the SPX Friday: Basic materials, Energy, Technology, and Health Care
• Sectors stronger than the SPX Friday: Financials, Industrials, Consumer Staples, Utilities, and Consumer Discretionary
• This was the second consecutive day that the $SOX index was weaker than the SPX.
• The 2 Day RSI of the SPX is 82. The Dow RSI is 87, NASDAQ is 68 and Russell 72. We are approaching short-term overbought.
• SPX components moved downward during the after hours.
Have a great week!
-----------
"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
Ultra Dow30 ProShares (NYSE: DDM)
Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
