An Overbought Market Meets Bad Economic Data, Moody’s Downgrades, and Goldman Sach’s Sell Signal
Market Recap:
Despite higher yields at the latest Spanish bond auction and another batch of weak preliminary PMI numbers out of Europe and China, European markets and U.S. futures moved modestly higher. Initial Claims for Unemployment Insurance for the week ending 6/16 were reported at 387K, which was above the consensus estimate for 382K but a bit below last week’s revised total of 389k (up from 386k). Continuing Claims for the week ending 6/9 came in at 3.299M vs. consensus of 3.266M.
The Thursday session opened with a slight move higher to put the high of the day on the chart in the opening minutes of trading. But the rest of this session was one massive wave of selling as bounces were almost indistinguishable from the downward trend during the day; bears owned this one from start to finish.
Our Market Leaders Board shows that all of our leaders got pummeled today with the Sox getting crushed for more than a 4% loss while the Dow was the only leader on the board to get off with less than a 2% loss.
SPX big winners were Gannett Co Inc (GCI) 3.21%, Conagra Foods (CAG) 2.65%, and Sprint Nextel Corp (S) 1.59%. SPX big losers were Bed Bath & Beyond Inc (BBBY) -19.18%, Celgene Corp (CELG) -12.98%, and Micron Technology Inc (MU) -8.11%.
SPX five day big winners are Jabil Circuit Inc (JBL) 8.6%, First Solar Inc (FSLR) 8.1%, and CF Industries Holdings Inc (CF) 6.88%. SPX five day big losers are Bed Bath & Beyond Inc (BBBY) -15.05%, Celgene Corp (CELG) -9.82%, and Eog Resources Inc (EOG) -8.45%.
New Ten Day Highs: MMM, ABT, AFL, MO, AMAT, BCR, BAX, BBT, BDX, BIIB, BA, BMY, BF/B, CFN, CB, CMA, CAG, DVA, DF, DTV, DFS, DNB, EQT, FITB, FHN, GCI, GPS, GIS, GILD, HOG, HSY, HON, HSP, HCBK, ISRG, JPM, KEY, KFT, KR, LH, LIFE, LO, MTB, MA, MCK, MRK, MSFT, NWSA, NSC, NYX, OMC, PBCT, PFE, PCL, PNC, RL, RTN, RAI, SPG, S, SBUX, SUN, STI, SVU, TROW, THC, TJX, TSN, UPS, UTX, MBI, USB, VLO, WMT, WAT, WU, AMZN
New Ten Day Lows: AET, ARG, AEP, APC, APA, ADM, AN, AZO, BBBY, XL, BMC, CAM, CELG, XEL, CMS, CSC, COP, ED, GLW, CMI, DNR, DVN, DO, DOV, ETFC, ETN, ECL, EIX, EMR, EOG, EQR, EXC, EXPD, FLIR, FLR, FTI, FRX, HES, HPQ, HRL, ITW, ITT, JEC, JCI, JNPR, LM, LEG, M, MRO, MMC, MU, MUR, NOV, NEM, GAS, NKE, NI, NBL, OXY, PH, POM, PCG, PXD, QCOM, STR, RHT, ROK, RDC, SCG, SLB, SHW, SO, TIF, TIE, VXX, WDC
Volume & Breadth Indicators
For the SPX Index there were 12 components advancing and 488 components declining. On the NYSE 3,141 issues were traded with 575 advancing issues and 2,495 retreating issues, a ratio of 4.34 to one declining. There were 64 new highs and 39 new lows. The five day moving average of New Highs is 95 while the five day moving average of New Lows is 28 and the ten day moving average of Net Advancing is 320. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 14.81 to one. The closing TRIN was 3.16 and the final tick was -111. The five day average of TRIN is 1.44 and the ten day average of TRIN is 1.32. The NYSE Composite Index lost -2.47% today while the SPX lost -2.28%.
For the NYSE, relative to the previous 30 session average, volume was -0.54% below the average. Of the last 15 sessions 2 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 17 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 90.5% of the average daily volume for the last year. Volume was 99.6% of the last 10 day average and 101.8% of the previous day’s volume.
Looking at the NYSE 15-second tick data, the total tick for the day was -83,000 and the average tick for the day was -53. There were 21 ticks greater than 600 and 100 ticks more extreme than -600. There were no ticks greater than 1000 and 3 ticks more extreme than -1000. The tick action suggests institutional distribution.
Moving Average and Support/Resistance Indicators:
10.4% of the SPX are above their five day moving average, 36.8% are above their 10 day average, 46% are above their 20 day moving average, 35.6% are above their 50 day moving average, and 46.6% are above their 200 day moving average.
There was one significant moving average crossover today as Germany had the 50 DMA cross below the 200 DMA. This is the so-called “Death Cross.” We don’t place a lot of emphasis on this cross-under but we are beginning to take notice of the number of our leaders making this cross. It won’t take many more crosses before the longer-term implications become bearish. Our moving average Power Rating is 45 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Thursday:
- Industrials -- Outperformed the SPX by +26%.
- Consumer Staples -- Outperformed the SPX by +110%.
- Utilities -- Outperformed the SPX by +118%.
- Health Care -- Outperformed the SPX by +80%.
- Consumer Discretionary -- Outperformed the SPX by +4%.
Sectors weaker than the SPX for Thursday:
- Basic Materials -- Underperformed the SPX by -105%.
- Energy -- Underperformed the SPX by -191%.
- Financials -- Underperformed the SPX by -3%.
- Technology -- Underperformed the SPX by -14%.
Checking the sectors of the SPX tonight: (The sector Buy and Sell signals come from a mechanical trend trading system; there will be some whipsaw but the signal will never be on the wrong side for long.)
The Basic Materials sector declining issues (30) totaled 1,162,831 shares traded (38,761 average per stock.) 11 components are on an uptrend (no new uptrends today) and 19 components are on a downtrend (17 new downtrends today.) There were no New Highs and 1 New Lows. The sector is on a Sell signal and closed below the daily pivot. The sector 5-Day average closed 1.69% above the 20-Day average.
The Energy sector declining issues (44) totaled 3,182,003 shares traded (72,318 average per stock.) 11 components are on an uptrend (no new uptrends today) and 33 components are on a downtrend (20 new downtrends today.) There were no New Highs and 2 New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed 1.21% above the 20-Day average.
The Financials sector declining issues (81) totaled 6,678,086 shares traded (82,446 average per stock.) 49 components are on an uptrend (no new uptrends today) and 32 components are on a downtrend (27 new downtrends today.) There were no New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed 2.41% above the 20-Day average.
The Industrials sector advancing issues (1) totaled 10,751 shares traded (10,751 average per stock) and declining issues (60) totaled 2,103,673 shares traded (35,061 average per stock.) 28 components are on an uptrend (no new uptrends today) and 33 components are on a downtrend (15 new downtrends today.) There were 1 New Highs and no New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed 1.34% above the 20-Day average.
The four 'risk sectors' totaled 1 advancing issues and 215 declining issues today with 0 new uptrends and 79 new downtrends. 45.8% of Risk Sector components are uptrending.
The Technology sector advancing issues (3) totaled 802,457 shares traded (267,486 average per stock) and declining issues (75) totaled 6,711,807 shares traded (89,491 average per stock.) 46 components are on an uptrend (no new uptrends today) and 32 components are on a downtrend (23 new downtrends today.) There were no New Highs and 4 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 1.71% above the 20-Day average.
The Consumer Staples sector advancing issues (4) totaled 202,031 shares traded (50,508 average per stock) and declining issues (37) totaled 1,777,008 shares traded (48,027 average per stock.) 23 components are on an uptrend (1 new uptrends today) and 18 components are on a downtrend (12 new downtrends today.) There were 8 New Highs and no New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed 1.08% above the 20-Day average.
The Utilities sector declining issues (32) totaled 876,538 shares traded (27,392 average per stock.) 13 components are on an uptrend (no new uptrends today) and 19 components are on a downtrend (12 new downtrends today.) There were no New Highs and no New Lows. The sector is on a Sell signal and closed below the daily pivot. The sector 5-Day average closed 1.22% above the 20-Day average.
The Health Care sector advancing issues (2) totaled 256,670 shares traded (128,335 average per stock) and declining issues (50) totaled 1,894,696 shares traded (37,894 average per stock.) 36 components are on an uptrend (no new uptrends today) and 16 components are on a downtrend (13 new downtrends today.) There were 5 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 2.13% above the 20-Day average.
The Consumer Discretionary sector advancing issues (2) totaled 161,733 shares traded (80,867 average per stock) and declining issues (79) totaled 3,751,089 shares traded (47,482 average per stock.) 43 components are on an uptrend (no new uptrends today) and 38 components are on a downtrend (22 new downtrends today.) There were 1 New Highs and 1 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 1.4% above the 20-Day average.
Based on the SPX sector data, we are on Neutral for the SPX and the Russell 2000.
What We Learned from Thursday's Action:
Thursday was session 1 to close below the 5 DMA, session 1 to close below the 10 DMA, session 8 to close above the 20 DMA, and session 1 to close below the 50 DMA. This was also session 8 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 7.45 points below the 10 DMA.
The SPX 5 DMA is 1345.36, 10 DMA is 1332.96, 20 DMA is 1318.93, 50 DMA is 1345.64, 100 DMA is 1359.46, and 200 DMA is 1294.85.
On Thursday the SPX traded below the opening range but did not trade above the opening range. 3.6% of the SPX closed up from the previous close; 5.2% closed higher than the open. During Thursday's session the SPX lost -29.92 points from open to close. The SPX intraday trading range was 33.86 points. The 5-Day average intraday trading range is 16.7 points, the 10-Day average is 18.08 points, and the 20-Day average is 17.75 points. The trading range is contracting. The 5-Day SPX gain is -0.27%, the 10-Day gain is 0.80%, and the 15-Day gain is 1.16%.
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 Friday is +3. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be lower. Mel's 10 Day Oscillator is 46 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, our bias is slightly bullish for Friday's session.
An overbought market was hit with bad news today and what resulted wasn’t very pretty but probably provided an opportunity to buy into. Unless we are in a waterfall decline, large down days such as today tend to bounce back quickly over the following couple of trading sessions. The problem as a trader is that it can be scary to buy into. Fear prevents many traders from making the gains that they desire.
We’re going to post our Volume Index chart tonight, showing that it still appears bullish to us. But keep in mind that this is a longer-term signal, not a signal for the next few days. But this chart strongly suggests that dips should be bought.
Looking at our Market Internals data tonight, things have really changed from last night yet we remain in Neutral with the SPX and Russell 2000 both closing above critical levels (barely). So, for now, we remain in a buy-the-dip formation.
SPX levels to watch include 1323; a close above is bullish and a close below is bearish. For the Russell 2000, keep an eye on the 763 level.
Trade Idea: Monday’s close has three-to-odds of being higher than Friday’s open.
Friday, June 22
Economics
No major U.S. economic reports
11:00 Fed to purchase $1.5b-$2.25b notes in 25 to 30-year range
01:00 NZD NBNZ Business Confidence
08:00 EUR German IFO Business Climate
12:30 CAD CPI
11:10 UK to sell bills
Earnings
Before:
Darden Restaurants (DRI) EPS $1.16, revs $2.11B
Initial claims were 387,000, more than the consensus 383,000. Existing home sales were 455,000, less than the expected 457,000. The Philly Fed Index was - 11.6, much less than the anticipated 0.5. There is nothing of significance scheduled for Friday.
Thank you for reading. Think on it, trade on it, and be well.
-Mel