A Volatile Year Ends Where it Began
by Jerome "Mel" Hickerson
Market Recap:
Futures were little different on Friday morning with no significant economic data or earnings to be reported.
The final session of the year began without a gap and traded in a choppy fashion in a narrow six point range until the final ninety minutes of trading. Then, as is often seen on the final trading session of the year, there were a couple of sharp moves lower as institutions adjusted their portfolios for tax purposes. But on this tight range session even sharp moves had little range.
Checking our Market Leaders Board, all of our U.S. market leaders closed marginally lower but notice that the broad NYSE Composite Index was relatively the strongest. This is often a signal that the market is unlikely to continue selling.
SPX big winners were Metropcs Communications Inc (PCS) 5.35%, Alpha Natural Resources (ANR) 3.74%, and US Steel Corp (X) 3.09%. SPX big losers were Sears Holding Corp (SHLD) -3.47%, Leggett & Platt Inc (LEG) -3.25%, and Rowan Companies Inc (RDC) -2.25%.
SPX five day big winners are International Game Technology (IGT) 7.77%, Gilead Sciences Inc (GILD) 5.76%, and Tenet Healthcare Corp (THC) 4.27%. SPX five day big losers are Sears Holding Corp (SHLD) -30.64%, Computer Sciences Corp (CSC) -9.51%, and Netflix Inc (NFLX) -6.16%.
New Ten Day Highs: ABT, URBN, AFL, AGN, AEE, AMT, AMGN, APH, T, ADP, AVY, AVP, BDX, BMS, HRB, BSX, BMY, CPB, CFN, CBS, CTL, CF, XEL, CTAS, KO, CPWR, COP, ED, DF, DTE, DUK, DNB, ECL, EIX, EP, EXC, FII, FRX, BEN, FTR, GD, GILD, HAL, HAR, HCP, HCN, HD, HST, TEG, ISRG, JCI, LLY, LMT, LO, MRO, MHP, MWV, MDT, PCS, MCHP, NWSA, NI, NSC, NU, NOC, OMC, OI, PBCT, POM, PKI, PCL, PGN, PGR, PEG, PHM, SLE, SCG, SRE, SYK, SUN, TE, THC, TWX, UNP, VAR, VTR, VZ, VNO, WPO, WU, WY, GOOG
New Ten Day Lows: SHLD
Market Recap – Weekly Review:
The SPX lost -7.73 points during the week (-.61%). The range for the week was 20.73, 1.64%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 58. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 535,000. On the NYSE, the advance/decline line decreased during the week by -111 and the 10 day average of Net Advancing increased by 350. There were 584 New Highs and 121 New Lows. The week closed at 43.22% of the weekly range.
For the week, SPX advancing issues (152) averaged 2.5 million shares traded per day ($130.2 million each stock) and declining issues (335) averaged 4.3 million shares traded per day ($112.4 million each stock.)
For the week, the NASADQ 100 advancing issues (33) averaged 4.4 million shares traded ($261.7 million each stock) each day and declining (66) issues averaged 4.5 million shares traded ($142.7 million each stock each day.)
Dollars were greater on advancing issues this week suggesting that traders were willing to chase advancing stocks.
Volume & Breadth Indicators
For the SPX Index there were 134 components advancing and 335 components declining. On the NYSE 3,131 issues were traded with 1,440 advancing issues and 1,584 retreating issues, a ratio of 1.1 to one declining. There were 149 new highs and 18 new lows. The five day moving average of New Highs is 149 while the five day moving average of New Lows is 27 and the ten day moving average of Net Advancing is 461. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 1.52 to one. The closing TRIN was 1.05 and the final tick was 348. The five day average of TRIN is 1.85 and the ten day average of TRIN is 1.46. The NYSE Composite Index lost -0.11% today while the SPX lost -0.43%.
For the NYSE, relative to the previous 30 session average, volume was -31.98% below the average. Of the last 15 sessions 4 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 16 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 52.8% of the average daily volume for the last year. Volume was 70.3% of the last 10 day average and 93.4% of the previous day’s volume.
Total tick for the day was 176,000 and the average tick for the day was 114. There were 32 ticks greater than 600 and 3 ticks more extreme than -600. There were no ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick data Friday shows that the strength of intraday moves was weak and that conviction was lacking although buyers did rule the day.
The intraday volume pattern shows a single spike of volume during the morning and decreasing relative volume throughout the day. It's interesting to notice that there really was no volume spike associated with the late session selling.
Moving Average and Support/Resistance Indicators:
36.8% of the SPX are above their five day moving average, 72.6% are above their 10 day average, 61.8% are above their 20 day moving average, 54.6% are above their 50 day moving average, and 36.8% are above their 200 day moving average.
There was one significant moving average crossover Friday as the NYSE Composite Index 20 DMA crossed below the 50 DMA. Our moving average Power Rating is 46 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +22%.
- Energy -- Outperformed the SPX by +40%.
- Technology -- Outperformed the SPX by +11%.
- Consumer Staples -- Outperformed the SPX by +3%.
- Utilities -- Outperformed the SPX by +8%.
- Health Care -- Outperformed the SPX by +26%.
Sectors weaker than the SPX for Friday:
- Financials -- Underperformed the SPX by -15%.
- Industrials -- Underperformed the SPX by -10%.
- Consumer Discretionary -- Underperformed the SPX by -21%.
In Late Trading:
157 SPX components moved upward and 146 components downward during the after hours with 33.9 million shares traded.
What We Learned from Friday's Action:
Friday was session 1 to close below the 5 DMA, session 8 to close above the 10 DMA, session 8 to close above the 20 DMA, and session 8 to close above the 50 DMA. This was also session 6 for the 5 DMA to close above the 20 DMA. One early sign of a sustainable rally or pullback is often a close above or below the 10 DMA. The SPX closed 11.09 points above the 10 DMA.
The SPX 5 DMA is 1260.21, 10 DMA is 1246.51, 20 DMA is 1243.27, 50 DMA is 1237.33, 100 DMA is 1206.37, and 200 DMA is 1258.82.
On Friday the SPX traded below the opening range but did not trade above the opening range. 26% of the SPX closed up from the previous close; 32.4% closed higher than the open. During Friday's session the SPX lost -5.22 points from open to close. The session was an NR7 day (Narrowest Range last 7 days).
Note: The Opening Range Breakout is one of the simplest day trading set-ups to understand. The first hour of the trading day is the most volatile. Bears and bulls are battling it out in the stock market, trying to show you who’s going to be in charge for the day. If we break out of that trading range, it's telling us that new buying or selling is impacting traders' assessments of value. Looking back at today’s breakouts also helps us grasp sentiment going forward because when a clear trend is established it often carries through for several sessions.
Looking Ahead:
The Market Environment for Monday is +3. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, our bias is slightly bullish for Monday's session.
Trading during the holidays can be difficult due to the low volumes and in general decreased volatility. So our number of trades during the last week dropped as we were cautious. Our trades this week as posted real-time on Twitter:
Looking at the year as a whole, the year painted a perfect doji on the candle chart. Contrary to what many traders believe, this has more often been bullish for the following year rather than bearish. Seasonality-wise, the year also followed historical patterns although the late summer selling spree was a bit later in the summer than historical patterns would have suggested.
Checking our SPX sectors chart the first thing that jumps out to us is that all sectors closed Friday below their five day moving average. The risk sectors (Basic Materials, Energy, Financials, and Industrials) all remain with their 50 DMA significantly below their 200 DMA. This is a bearish scenario that continues to suggest that rallies should be sold.
Looking ahead to next week, while the first couple of sessions of the year are historically bullish, our data is extremely neutral, to a point we rarely see. We believe traders looking for a sharp drop over the next few days will be disappointed. But we also do not see a reason within our data for a large rally, either.
Week of January 02 - January 06 Overview
Date/Time Release/Consensus
01/03/11 10:00 ISM Index/53.4
01/03/11 10:00 Construction Spending/0.005
01/03/11 14:00 FOMC Minutes/
01/04/11 7:00 MBA Mortgage Index/NA
01/04/11 10:00 Factory Orders/0.021
01/04/11 14:00 Auto Sales/NA
01/04/11 14:00 Truck Sales/NA
01/05/11 7:30 Challenger Job Cuts/NA
01/05/11 8:15 ADP Employment Change/180K
01/05/11 8:30 Initial Claims/375K
01/05/11 8:30 Continuing Claims/3620K
01/05/11 10:00 ISM Services/53
01/05/11 11:00 Crude Inventories/NA
01/06/11 8:30 Nonfarm Payrolls/150K
01/06/11 8:30 Nonfarm Private Payrolls/170K
01/06/11 8:30 Unemployment Rate/0.087
01/06/11 8:30 Hourly Earnings/0.002
01/06/11 8:30 Average Workweek/34.3
Monday, January 2
US Markets closed for holiday
EUR German Retail Sales
08:55 EUR German PMI
Tuesday, January 3
Economics
10:00 Construction Spending, Nov., Est. 0.5% from 0.8%
10:00 ISM Manufacturing, Dec., 53.2 from 52.7
2:00 FOMC Minutes
11:30 U.S. to sell $29b 3-month, $27b 6-month bills
08;30 CHF SVME-PMI
08:55 EUR German Unemployment Change
09:30 GBP PMI
Earnings
After: LNDS, PRGS, TISI
There were no significant economic releases on Friday. On Tuesday we will get ISM mfg. index and construction spending.
Have a great Holiday and a prosperous and healthy 2012!
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
