A Wild Ride Back to Where We Began, Both for the Week and the Day
by Jerome "Mel" Hickerson
Futures Friday morning peaked just after 3am and began to weaken ahead of the GDP data. The GDP showed that the economy decelerated in the second quarter as growth is slowing and the futures responded by weakening even further, suggesting a weak open.
The Friday session opened with a ten point gap downward and quickly moved down four more points and put the low of the day on the chart at 9:40am. The indices then quickly moved upward back into positive territory and put a morning high on the chart at 10:46am. From then until about 2pm the SPX traded mostly sideways but with a downward bias. But after 2pm buyers were buying the dip and took the index up as much as 12 points before some selling during the final half hour brought the index back down a bit more than four points off the session highs.
The session was impressive to watch. I found myself alternating between thinking “the bulls are relentless” to “this could get ugly here” b ack to “they’re going to pump this into the close.” The end result was a doji painted on the daily chart.
Looking at the daily chart, we see four successive days with a lower low. The short-term trend clearly appears to be downward (red arrow). But the Friday bar could be a sign of a trend change; until we see a bit more we really can’t get too sure. If the trend can be turned back upward here, it would be most bullish because it could put higher lows and higher highs on the intermediate timeframe (yellow arrow).
The weekly chart shows a similar down then up pattern but something a bit more troubling to bears is that doji at the far right on the chart painted this week. Something I pointed out last weekend was the weekly pattern of reversals every week; we broke that pattern this week with the doji. This marks the fourth successive week with a higher high and the doji suggests that the weekly pattern of choppy up down up down may be breaking to the upside. It’s a possibility that should not be ignored.
But we have reached month end and we can examine what the monthly chart might be saying. We continue to see revealed to us the same stair-stepping pattern that 2009 painted, except this time we seem to have begun a downward cycle as we see four monthly bars with lower highs and lower lows.
As we have seen, examining the charts reveals inclusive results; this market looks confused at the moment. So let’s examine the market internals and see what we may find.
We saw a net of one positive move on the Nine Sectors Report after Friday’s action; two Sells moved to Neutral and one Neutral moved to Sell. This does not suggest a trend change away from our Sell signal so we will keep the signal at Sell for yet another day.
Frankly, the Matrix data looks quite confused. We have about as many bearish suggestions as we do bullish. The end result is that the Matrix has a Neutral outlook on all time frames. The one clue I like to look at, the ADX, is suggesting some further downside. But there are too many upside suggestions to discount.
Looking at internals from Friday also yields pretty inconclusive results. The one thing here that I tend to focus on is the market breadth and it remains very strong, suggesting more upside even if we have some downside first. The breadth data is impressively strong, and usually quite reliable. The moving averages are also beginning to show some bullish crossovers and all the short-term (5 Day) averages are above the longer-term (20 Day) averages.
To wrap it all up, I am open minded to whatever comes next week. I suspect we see a bit more downside before upside, but the choppy trade of the last couple days is likely to continue for a while until things resolve.
Our trade systems struggled a bit last week. We made money but it was not as easy as many weeks. We stayed focused the entire week on the SSO and SDS combo, trying to work both sides of the SPX.
The philosophy of our trade system is not to try for home runs; we’re reaching for successive singles. Swinging for home runs requires risk taking; many traders achieve results by taking larger losses along with even larger wins. We strive to trade with the trend and our goal is to detect trend changes quickly to get an early entry, grab a piece of the action and take our money off the table. This kind of trading can produce consistent gains of 12% and up per month. While it will never produce spectacular gains, it also does not produce spectacular losses.
The hazard with this type of trading is when the market whipsaws wildly you can often find yourself whipsawed in and out; but if timing is right, this type of market can also produce significant gains.
Mel’s Missives from the Matrix:
- Total tick for the day was 193,000 and the average tick for the day was 125. There were 180 ticks greater than 600 and 38 ticks more extreme than -600. There were 35 ticks greater than 1000 and 1 ticks more extreme than -1000. The tick action suggests institutional accumulation.
- The day's range was 18.43 points. The intraday trading range - 9:35 to the close - was 18.39. The 5 DMA of daily range is 16.06.
- Evidence of the intraday trend: At 10am volume was 90.57% of the 10 day average. By noon the volume was 89.32% of the 10 day average, and by 2pm volume was 89.43% of the 10 day average.
- The day's volume was 80.9% of the average daily volume for the last year. Volume was 88.3% of the last 10 day average and 85.2% of the previous day’s volume.
- Evidence of the intraday trend: The largest increase in relative volume came between 10:30 and 10:45 when relative volume increased 36.3% while the SPX was rising 0.44%. The largest drop in relative volume came between 3:30 and 3:45 when relative volume dropped -35.9% while the SPX was dropping -0.07%.
- 6% of the SPX stocks closed with two day RSI above 90. 17% closed with RSI above 80. 26% closed with RSI below 20 and 13% closed with RSI below 10.
- 35.8% of the SPX are above their five day moving average, 59.8% are above their 10 day average, 73% are above their 20 day moving average, 64.8% are above their 50 day moving average, 42% are above their 100 day moving average, and 48.6% are above their 150 day moving average.
- 14% of the SPX closed above their most recent previous high.
- 11% of the SPX stocks closed below their most recent previous lows.
- 315 SPX issues advanced and 168 issues declined, a net SPX advance/decline of 147.
- Evidence of the intraday trend: At 10am, 80.2% of the SPX components were in the top half of the range. By noon, 84.8% were in the top half of the range, and by 2pm, 49.4% were in the top half of the range.
- 89.4% of stocks closed in the top half of the day's range. (10.4% closed in bottom half.)
- 24.6% of stocks closed in the top 10% of the day's range. 59% of stocks closed in the top 20% of the day's range.
- 0.6% of stocks closed in the bottom 10% of the day's range. 1.2% of stocks closed in the bottom 20% of the day's range.
- 5% of stocks closed within 2% of their 52 week high. 17.8% of stocks closed within 5% of their 52 week high.
- 80% of stocks closed within 50% of their 52 week low. 49.4% of stocks closed within 25% of their 52 week low.
- 23.4% of stocks closed within ¼% of their high for the day.
- 0.8% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 19% of the SPX components were up since the open. By noon, 49.8% were up since the open, and by 2pm, 23.8% were up since the open.
- 61.4% of the SPX closed up from the previous close; 89% closed higher than the open.
- Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +53%.
- Financials -- Outperformed the SPX by +1%.
- Industrials -- Outperformed the SPX by +40%.
- Consumer Staples -- Outperformed the SPX by +20%.
- Health Care -- Outperformed the SPX by +33%.
- Consumer Discretionary -- Outperformed the SPX by +64%.
- Sectors weaker than the SPX for Friday:
- Energy -- Underperformed the SPX by -16%.
- Technology -- Underperformed the SPX by -38%.
- Utilities -- Underperformed the SPX by -61%.
- The $SOX index strength was weaker relative to the SPX Friday by -1.13%.
- The XLF outperformed the SPX by 0.01% Friday.
- The 2 Day RSI of the SPX is 25. The Dow RSI is 34, the NASDAQ is 32 and the Russell is 39.
- Over the last four sessions, the average session closed 43.49% of the range above the low. Friday closed at 85.4% of the daily range.
- Upside momentum decreased Friday, from Thursday’s 0.5 to today’s -0.33. The ratio of SPX components giving a crossover sell signal compared to buy signals also decreased slightly to B 7.2 to 1.
- The ISEE Equity 10 day moving average Friday was 167.8. The lowest 10 day average in the last 52 weeks was 136.6 on 06/14/10and the highest 10 day average in the last 52 weeks was 249.3 on 04/15/10.
- 41 SPX components moved upward and 432 components downward during the after hours with 135 million shares traded.
Have a great weekend everyone!
-Mel
