Bears Are Roadkill
by Jerome "Mel" Hickerson
Market Recap:
As Friday dawned in the U.S., Thursday's fear was a thing of the past as the economic data in Germany wasn't bad and U.S. futures were pointing higher. The headline for the Durable Goods report shows orders decreased -1.3% during August, which was a tenth above the consensus expectations for -1.4%. And when you strip out the volatile orders for transportation, orders rose by 2.0%, which was above the consensus for +0.7%. But the key to the report may have been the Non-defense capital goods which rose +4.1% in August. This was well above the consensus for an increase of +2.0%.
The Friday session began with a ten point gap higher and by a few minutes after 10:00 was fully twenty points up. The rest of the session was mostly dull sideways consolidation with the largest pullback amounting to no more than a couple points.
This was truly a session that left bears agonizing. It seemed to come out of nowhere after Thursday's sell-off and was an impressive feat for the market posting some internal stats as extreme as we've ever seen. The real damage was done to the bears before the market was open and during the first half hour.
Checking in with our Market Leaders board we find, as expected, all indices were up on Friday. But notice that the Emerging Markets closed at its 52 week high; and the Emerging Markets has been a leader. Traders looking for a market crash should recognize that indices such as the EEM setting new 52 week highs is more compelling than the Hindenburg Omen and "Death Crosses".
Market Trend: Nine Sectors Report
Turning to our Nine Sectors Report, we find four positive changes from Friday’s action as four sectors move from Sell to Neutral. This suggests a signal change but we will hold the Sell signal for another day for several reasons:
Let’s examine our reasons.
1. The ISEE data for Index and ETFs was over 100 at the close Friday. This is rather unusual, last occurring on August 4th and previous to that on January 11th. Historically the SPX closes lower within a couple sessions about 70% of the time after the ISEE Index and ETF value closes above 100.
2. The VXX dropped a bit more than 9% Friday. When the VXX drops 10% or more the SPX often pulls back within a day or two. The 9% VXX drop on Friday is close enough to get our attention.
3. Both the SPX and the VXX closed outside the Bollinger Bands. Often there will be a market reaction to pull back within the bands.
4. The week closed as the second four week winning streak this year. Conditions are overbought and extended.
Adding all the reasons together along with the Nine Sectors Report still showing five Sell signals and zero Buy signals, we feel it is reasonable to hold our Sell signal for another day. But let’s not fool ourselves, either. On Friday the bulls showed muscle and left the bears dead along the way. While we don’t expect another day like that on Monday, traders have to react intraday and trade what is before them. When writing analysis the night before, we write about possibilities and probabilities; during the session concern yourself with what is.
Volume & Breadth Indicators
For the SPX Index there were 476 Advancers/14 Decliners. On the NYSE 3,163 issues were traded with 2,540 advancing issues and 540 retreating issues, a ratio of 4.7 to one advancing. There were 211 new highs and 8 new lows. The five day moving average of New Highs is 195 while the five day moving average of New Lows is 11 and the ten day moving average of Net Advancing is 276. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 8.94 to one. The closing TRIN was 0.53 and the final tick was 1021. The NYSE Composite Index gained 2.23% today.
For the NYSE, relative to the previous 30 session average, volume was 6.41% above 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, 19 sessions ended on a positive tick, 6 of last 10. For the SPX, the day's volume was 87.8% of the average daily volume for the last year. Volume was 105.1% of the last 10 day average and 110% of the previous day’s volume.
All bullish looking here with only 14 SPX declining components and hugely positive breadth on the NYSE. Volume continues to be light but that final tick sticks in the eye of the bears again. This is the sixth consecutive week ending on a positive final tick and nine of the last ten weeks as traders continue to bet on a bullish Monday gap.
Further, total tick for the day was 287,000 and the average tick for the day was 184. There were 174 ticks greater than 600 and 4 ticks more extreme than -600. There were 1 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
That ratio of 174 to four is not just exceptional; it is unheard of. It is the most extreme ratio within our data. Even the crash of 2008 did not have days this extreme.
Looking at the nightly indicators, we see that the Absolute Breadth Index has reached the lowest point since April 23rd, one day before the SPX high of the year. That is not to suggest that we are going to plunge here, but traders should at least be careful to not get too bullish.
Interestingly, the NYSE Advance/Decline line closed Friday more than 800 lower than Monday’s close. So while breadth continues to be strong, taken as a whole the last four days of the week were a net negative on the breadth.
Moving Average Indicators:
70.80% of the SPX components are giving a crossover Buy signal; 3.80% of the SPX components are giving a Sell signal. This is a 18.6 to 1 ratio of Buy signals over Sell signals.
80% of the SPX are above their five day moving average, 80.6% are above their 10 day average, 89.4% are above their 20 day moving average, 83.8% are above their 50 day moving average, 73.2% are above their 100 day moving average, and 63.6% are above their 150 day moving average.
The XLF 20 DMA crossed above the 50 DMA and Germany 20 DMA crossed above the 50 DMA as bullish crossovers continue. We’ve modified the Moving Average display to display the XLF and Russell 2000 and added the current crossover situations for more than just the 5 DMA/20 DMA. Any feed back or suggestions will be appreciated.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +34%.
- Energy -- Outperformed the SPX by +5%.
- Financials -- Outperformed the SPX by +48%.
- Industrials -- Outperformed the SPX by +19%.
- Consumer Discretionary -- Outperformed the SPX by +47%.
Sectors weaker than the SPX for Friday:
- Technology -- Underperformed the SPX by -17%.
- Consumer Staples -- Underperformed the SPX by -76%.
- Utilities -- Underperformed the SPX by -49%.
- Health Care -- Underperformed the SPX by -78%.
Stocks on the Move:
Today's SPX component winners and losers:
- Largest one day loser is IGT with -3.11%
- Largest three day loser is ADBE with -18.66%
- Largest five day loser is ADBE with -18.06%
- Largest ten day loser is ADBE with -17.02%
- Largest one day winner is MU with 7.93%
- Largest three day winner is AMD with 10.89%
- Largest five day winner is NVDA with 16.02%
- Largest ten day winner is NVDA with 21.03%
In Late Trading:
264 SPX components moved upward and 106 components downward during the after hours with 131 million shares traded.
Week of September 27 - October 01 Overview
Date/Time Release/Consensus
09/28/10 9:00 Case-Shiller 20-city Index/0.034
09/28/10 10:00 Consumer Confidence/52.9
09/29/10 10:30 Crude Inventories/NA
09/30/10 8:30 GDP - Third Estimate/0.016
09/30/10 8:30 GDP - Deflator/0.019
09/30/10 8:30 Initial Claims/457K
09/30/10 8:30 Continuing Claims
09/30/10 9:45 Chicago PMI/56
10/01/10 8:30 Personal Income/0.003
10/01/10 8:30 Personal Spending/0.003
10/01/10 8:30 PCE Prices - Core/0.001
10/01/10 9:55 U Michigan Consumer Sentiment - Final/67.1
10/01/10 10:00 Construction Spending/-0.005
10/01/10 10:00 ISM Index
10/01/10 14:00 Auto Sales/3.8M
10/01/10 14:00 Truck Sales/4.9M
Have a great weekend!
-Mel
