An Untypical FOMC Day Session
by Jerome "Mel" Hickerson
Today’s FOMC trading session began with modest buying pressure, popped upward from the open and then chopped sideways into the afternoon announcement. After the announcement, the market saw a modest sell-off, but volume remained low throughout the day, with very little volume spike after the announcement.
This was anything but your typical FED day. The post-FED dance was canceled and traders were not informed. Small range and low volume are not typical; the range today was the lowest trading range of any FED day since 2000. Even the typical volume surge after the announcement was lacking today. There simply was little institutional buying or selling this afternoon and that is very rare on a FED day. Overall, while odd for a FED day, today was just another boring session.
Looking at the daily chart patterns, today’s bar is mildly bearish but would have been more bearish if we had moved lower than yesterday’s range or closed lower than yesterday’s close. In the chart shown, I have drawn lines through the top range closes and the bottom range closes for the past month. We are obviously in a wedge pattern with a breakout likely soon. The direction of the prior trend was upward. The SPX continues to stay above significant support levels. Many technicals continue to support an upside breakout but there are others that suggest we break down.
The action of the financials has improved somewhat the last few days. Several of the “leading” stocks are moving upward (GS, AAPL, GOOG, RIMM, DRYS, the Dow Transportation Index, SOXX Index); Market breadth is strong and often leads. If I simply had to bet, I’d bet on some more upside yet to come but I am not entirely convinced, either. Bears and bulls will each continue to see what they wish; there is plenty of support for both cases. An unbiased eye sees that the scales here are balanced and this can tip either way; or even more likely, back and forth.
I’ll admit to being a bit frustrated with the narrow daily trading ranges; my methods do best with 12 point ranges and more; seven and eight point days are not to my liking. None of the last six sessions have been as much as a 12 point range; this is the longest such streak this year.
Even worse is the lack of direction within the market makes swing trading almost impossible. We not only have tiny intraday ranges but the market has been going sideways for several weeks.
We also have exceeded the average daily volume only twice since November’s first session; and each of those sessions just barely exceeded the average for 2009. Buyers and sellers have both vacated the market. Remember the research I mentioned last week: Data suggests that low volume periods consistently breakout to the upside. Periods of low volatility are not associated with tops and bottoms, either. So no matter what you think of the other technicals, these historic patterns should also be considered.
I am frustrated by the lack of movement in the market... but I won't allow frustration to force me into a trade without a setup.
For Thursday, we’ve generated a +4 indicator. This suggests a mild upward move throughout the day. My short-term view: I expect the next two days to move upward and close bullishly into options expiration and the weekly close.
Thursday, December 17
Economics
08:30 Initial Claims
08:30 Continuing Claims
10:00 Leading Indicators 0.7% cons.
10:00 Philadelphia Fed 16.5 cons.
Earnings
Before: ATU, BRLI, DFS, FDX, GIS, LEN, MS, PIR, RAD, WGO
After: CAN, APSG, DRI, NKE, ORCL, PALM, ZQK, RIMM, SCS
Events
HLF Analyst Meeting
ONXX Analyst Briefing
PLL Analyst Meeting
AVT Analyst Meeting
BEC Annual Business Review
BCR Analyst Meeting
The November index of leading economic indicators is due out shortly after the start of trading. LEI is expected to have risen 0.7% after rising 0.3% in October. The Philadelphia Fed index, a regional read on manufacturing, is expected to have fallen to 16.5 in December from 16.7 in November. The weekly jobless claims report is also due in the morning. The Senate Banking Committee will be voting on Federal Reserve Chairman Ben Bernanke's confirmation. Package-delivery firm FedEx is due to report results before the start of trading. FedEx is expected to have earned $1.04 versus $1.58 a year ago. After the close Thursday, Oracle is expected to report a profit of 36 cents per share versus 34 cents a year ago.
Mel’s Random Hits:
• Total tick for the day was more than 102,000. Breadth was strong until the FOMC announcement. The advance/decline ration was bullish today in spite of the last session pullback.
• The day's range was 8.25 points. Our range indicator this morning suggested a tiny trading range and this was certainly the tiniest FED day trading range in more than a decade.
• The day's volume was 85.4% of the average 2009 daily volume. Volume was 109% of the 10 day average. Very unusual volume for a FED day.
• 28% of the SPX stocks closed with two day RSI above 90. 40% closed with RSI above 80. 10% closed with RSI below 20 and 4% closed with RSI below 10.
• 77% of the SPX are above their 10 day moving average and 74% are above their 20 day moving average.
• 14% of the SPX stocks closed below their most recent previous lows.
• 35% of the SPX closed above their most recent previous high.
• 33.6% of stocks closed in the top half of the day's range. (66.4% closed in bottom half.)
• 32.2% of stocks closed in the bottom 20% of the day's range.
• 4.4% of stocks closed in the top 10% of the day's range.
• 24.2% of stocks closed within 2% of their 52 week high.
• 25.2% of stocks closed within 50% of their 52 week low.
• 4.0% of stocks closed within ¼% of their high for the day.
• 22.6% of stocks closed within ¼% of their low for the day.
• 60.0% of the SPX closed up from the previous close; 44.0% closed higher than the open.
• Sectors weaker than the SPX for the day: Industrials, Health Care, Consumer Discretionary Consumer Staples, and Utilities
• Sectors stronger than the SPX for the day: Basic materials, Energy, Financials, and Technology
• The $SOX index was stronger again than the SPX today.
• The 2 Day RSI of the SPX is 57. The Dow RSI is 38, NASDAQ is 68 and Russell 85. The broader Russell index is much stronger than the Dow.
• SPX components moved upward slightly during the after hours.
Have a great Thursday!
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"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)
