An Unconvincing Snap-Back Rally
Market Recap:
Word that a Chinese government official said that the country's economic policies would remain flexible was seen as a positive input for the ongoing Eurozone crisis. In the Eurozone it appeared that the Greeks will try to push on with a public referendum on the EU bailout and staying in the EU. But first, PM Papandreou's government must survive a confidence vote on Friday and then the entire parliament must approve the holding of a referendum. Thus, there are questions as to whether or not a referendum will ever be held. Challenger reported that planned job cuts were 42,759 in October, the lowest level since June. In addition, ADP reported that the private sector job market expanded by 110K jobs during the month, which was slightly above the consensus expectations for a gain of about 107K.
The midweek session opened with a significant gap higher. The opening hour saw some mild weakness before the SPX moved higher nine points and stalled again ninety minutes ahead of the 12:30 pm FOMC rate announcement. Today we saw the typical Fed pattern of strength in the morning and some weakness just ahead of the announcement. The initial reaction after the announcement was mildly negative. While the selling accelerated for a time, this was a mild reaction for a Fed day as traders seemed to be waiting for the 2:30 pm Bernanke press conference. Traders must have somewhat liked what Bernanke had to say as the SPX closed eight points higher than when he began.
Checking our Market Leaders Board we can see that we had all winners on the board. Technology was weakest while the Financials, the Russell 2000 and the NYSE Composite Index were the leaders. This looks much more bullish than it did the last couple of days.
SPX big winners were Pioneer Natural Rescs Co (PXD) 11.61%, Metropcs Communications Inc (PCS) 11.56%, and Eog Resources Inc (EOG) 11.2%. SPX big losers were Becton Dickinson & Co (BDX) -4.94%, Pitney Bowes Inc (PBI) -3.52%, and Unum Group (UNM) -3.35%.
SPX five day big winners are Cabot Oil & Gas Corp (COG) 20.32%, Zions Bancorporation (ZION) 17.58%, and Newell Rubbermaid Inc (NWL) 17.39%. SPX five day big losers are Avon Products Inc (AVP) -22.47%, Cablevision Systems Cl A (CVC) -17.48%, and Whirlpool Corp (WHR) -13.15%.
New Ten Day Highs: COG, CNP, EOG, FE, JDSU, MA, PXD, PWR, CVG
New Ten Day Lows: AMGN, AIV, APOL, BDX, BMY, BRCM, CPB, CNP, CI, CLX, CMS, SAI, DV, EXPD, FISV, HCBK, KFT, LO, MSFT, TAP, GAS, NVDA, PBI, PG, SVU, TWX, UNM, WPO, WM, ICE
Volume & Breadth Indicators
For the SPX Index there were 419 components advancing and 54 components declining. On the NYSE 3,111 issues were traded with 2,529 advancing issues and 508 retreating issues, a ratio of 4.98 to one advancing. There were 25 new highs and 15 new lows. The five day moving average of New Highs is 63 while the five day moving average of New Lows is 15 and the ten day moving average of Net Advancing is 502. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 8.8 to one. The closing TRIN was 0.59 and the final tick was 395. The five day average of TRIN is 1.48 and the ten day average of TRIN is 1.33. The NYSE Composite Index gained 1.67% today while the SPX gained 1.59%.
For the NYSE, relative to the previous 30 session average, volume was -15.2% below the average. Of the last 15 sessions 3 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 20 sessions ended on a positive tick, 6 of last 10. For the SPX, the day's volume was 97.5% of the average daily volume for the last year. Volume was 86.3% of the last 10 day average and 74.5% of the previous day’s volume.
Volume was rather anemic but the breadth was strong.
Total tick for the day was 62,000 and the average tick for the day was 40. There were 149 ticks greater than 600 and 114 ticks more extreme than -600. There were 32 ticks greater than 1000 and 23 ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick data today is mixed, reflecting that the session really was pretty flat after the overnight gap.
The intraday volume pattern shows a spike in volume early in the day as the market attempted to rally and a volume spike early afternoon as the market tried to sell off. The volume pattern is rare for a FOMC day; there are usually greater spikes. The McClellan Oscillator is in neutral with the ten day average somewhat overbought.
Moving Average and Support/Resistance Indicators:
21.2% of the SPX are above their five day moving average, 54.6% are above their 10 day average, 76.8% are above their 20 day moving average, 78.2% are above their 50 day moving average, and 31.2% are above their 200 day moving average.
There were two significant moving average crossovers today as Emerging Markets 20 DMA crossed above the 50 DMA and the SOX 20 DMA crossed above the 100 DMA. Our moving average Power Rating is 63 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Basic Materials -- Outperformed the SPX by +59%.
- Energy -- Outperformed the SPX by +143%.
- Financials -- Outperformed the SPX by +112%.
- Industrials -- Outperformed the SPX by +29%.
- Utilities -- Outperformed the SPX by +4%.
Sectors weaker than the SPX for Wednesday:
- Technology -- Underperformed the SPX by -32%.
- Consumer Staples -- Underperformed the SPX by -70%.
- Health Care -- Underperformed the SPX by -107%.
- Consumer Discretionary -- Underperformed the SPX by -60%.
What We Learned from Wednesday's Action:
Wednesday was session 3 to close below the 5 DMA, session 2 to close below the 10 DMA, session 18 to close above the 20 DMA, and session 18 to close above the 50 DMA. This was also session 17 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 7.89 points below the 10 DMA.
The SPX 5 DMA is 1255.83, 10 DMA is 1245.81, 20 DMA is 1222.03, 50 DMA is 1192.3, 100 DMA is 1229.35, and 200 DMA is 1273.44.
Looking Ahead:
Based solely on observation of the charts, we would not be surprised to see some further weakness ahead before any significant and sustainable rally begins. Today's rally was entirely overnight as the SPX closed right about where it opened and only once today exceeded the overnight highs and only by a mere point. This was an unconvincing bounce back from the previous two sessions.
Still, we believe the long side is the safe side if your timeframe is more than a few days. Of course, intraday moves should be traded without a strong bias either way.
Our Monday report stated that Wednesday's close should be higher than Tuesday's open. A trader using SSO buying at the open Tuesday and selling at Wednesday's close netted $1.36.
Thursday, November 3
Economics
08:00 RBC Consumer Outlook Index
08:30 Nonfarm Productivity – consensus 2.8%
08:30 Unit Labor Costs – consensus -0.5%
08:30 Jobless Claims – consensus 400k
08:30 Continuing Claims – consensus 3.7million
10:00 ISM Non-Manufacturing Composite Index – consensus 53.6
10:00 Factory Orders – consensus -0.1%
00:30 AUD Retail Sales
01:00 CNY China Non-manufacturing PMI
09:00 EUR Euro-Zone PMI
12:45 EUR ECB
5:30 Spain to sell 4.25% 2016, 4.25% 2014 bonds
Earnings
Before: HCN
After: AIG, AWH, CBOE, CPT, ERIE, GNW, NYX, PSA, REG
Thank you for reading. Think on it, trade on it, and be well.
-Mel