Bears Fumble the Ball
by Jerome "Mel" Hickerson
The week began with mixed news. Overnight comments made about the U.S. budget deficit and the dollar from China's Premiere created some selling pressures in the futures. Before the open, the Empire Manufacturing Index for March was reported at 22.86, which was above consensus expectations for 22.00 but below February's level.
The regular session opened with the familiar “deer in the headlight” look that we’ve seen all too often of late. Pressure from the futures caused a quick three point gap down in the SPX but within minutes the gap was filled painting the high of the morning at 9:50 as the indices tried to go positive. But in the following ten minutes the index gave back the gap, briefly tried to bounce again, then fell eight points in an hour to put the low of the day on the chart at 11:23. From that morning low, the indices traded choppily, mostly upward until the final 90 minutes. At 2:30, a buying spree hit the market as the SPX began surging upward into the close, putting the high of the day on the chart just ten minutes before the end of the session.
A high-volume advance with rising breadth should accompany a breakout above the 1150 area in order to confirm a legitimate breakout and emphasize that the primary trend of the market is upward. But breadth has been rising (see chart) while volume has been abysmal.
A failure to make a new high could create a double-top. The Wednesday FOMC announcement will likely clarify which way things will go.
Let’s take a quick look at the bullish case:
• The A/D Line/Breadth line has been leading higher. This will almost always carry the indices higher. (But has breadth turned downward?)
• The primary trend is upward. (But is it stalled?)
There may be more to the bullish case here but I really do not see it. But Price is King. And that alone is enough for the bullish case.
On the bearish side:
• SOX, small caps, technology all led the way upward. They all are pointing south here. SOX is often a market leader and it’s been struggling for two weeks.
• The daily trading range has seriously contracted; the 10 day average range is a mere 8.75 points. This is the third time in three years that we have had an extended period of the trading range averaging less than 10 points: October 2007, mid January 2010, and now.
• Volume has evaporated. The low volume shows a total lack of buyer interest; there is no conviction.
• Overbought conditions can lead to sudden moves. When you stack the overbought conditions on top of the volume and range environment, we are ripe for a sudden 20-30 point move downward.
SPX Summary for Monday, March 15, 2010
239 Advancers/248 Decliners
Today's SPX component winners and losers:
• Largest one day loser is BSX with -12.71%
• Largest three day loser is BSX with -11.11%
• Largest five day loser is BSX with -13.92%
• Largest ten day loser is BSX with -12.03%
• Largest one day winner is STJ with 8.00%
• Largest three day winner is SVU with 7.95%
• Largest five day winner is AIG with 18.02%
• Largest ten day winner is AIG with 32.51%
*** SPX Technical Summary ***
The average 14 day RSI of all 500 components is 71.
The greatest positive five day momentum component is AIG; the greatest negative five day momentum component is BSX. The average five day momentum of all 500 components is 0.97.
75.00% of the SPX components are giving a crossover Buy signal; 5.80% of the SPX components are giving a Sell signal. This is a 12.9 to 1 ratio of Buy signals over Sell signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 6 components.
• From Buy to Neutral: 25 components.
• From Neutral to Sell: 12 components.
• From Neutral to Buy: 9 components.
NYSE Summary
On the NYSE 3175 issues were traded with 1284 advancing issues and 1767 retreating issues, a ratio of 1.38 to 1 declining. There were 264 new highs and 6 new lows.
Declining volume was higher at a ratio of 1.48 to 1. The closing TRIN was 1.07 and the final tick was 776.
Evidence of trend:
Relative to the previous 30 session average, volume was -15.07% 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, 26 sessions ended on a positive tick, 9 of last 10.
Remember: Breadth leads, indices follow. Today, the NYSE Advance/Decline line decreased from 201828 to 201345. This -0.24% decrease came while the SPX was gaining 0.05%.
Tuesday, March 16
Economics
08:30 Building Permits 614k cons.
08:30 Export Prices ex-ag
08:30 Housing Starts 587k cons.
08:30 Import Prices ex-oil
02:15 FOMC Rate Decision 0.25% cons.
Earnings
Before: ARIA, CFSG, CYPB, DSW, EVEP, FTK, GSI, MDZ, SCR, TBSI
After: AIR, ABK, APP, JRJC, NKBP, DFS, DXPE, EM, FMCN, KONG, RUE
Events
Association Life Science Innovation Northwest Conference
CXO at Wells Fargo Securities Boston Exploration & Production Forum
CMI Analyst Meeting
STN Investor Day
JACK at Morgan Stanley Retail Field Trip
BRCM, NETL, QCOM, MDVN at ROTH OC Growth Stock Conference
DNDN, CBMX, SGEN at Washington Biotechnology & Biomedical
GR, GE at Goldman Sachs Industrials Unscripted Conference
FSLR, FCEL, RTK, ENOC at Jefferies Global Cleantech Conference
New home construction is expected to have dipped slightly in February, with housing permits falling to a 587,000 unit annualized rate from a 591,000 unit annualized rate in the previous month. The report is also expected to show that building permits fell to a 614,000 unit annualized rate from a 622,000 unit rate in the previous month. February import and export prices are also due in the morning.
Mel’s Random Hits:
• Total tick for the day was +44,000. The first hour was negative, the second hour was positive, the third hour once again negative. But the rest of the session was ruled by our bullish friends.
• The day's range was 9.53 points.
• The day's volume was 79.7% of the average daily volume for the last year. Volume was 95.7% of the last 10 day average and 83.5% of Friday’s volume. Citi volume was “only” 634 million today; more than twice normal volume, but only 1/7th of the SPX volume.
• 17% of the SPX stocks closed with two day RSI above 90. 25% closed with RSI above 80. 20% closed with RSI below 20 and 8% closed with RSI below 10. These overbought conditions are moderating as the index moves sideways.
• 59.4% of the SPX are above their five day moving average, 73.2% are above their 10 day average, and 85.8% are above their 20 day moving average. These overbought conditions are moderating as the index moves sideways.
• 29% of the SPX stocks closed below their most recent previous lows.
• 15% of the SPX closed above their most recent previous high.
• 76.0% of stocks closed in the top half of the day's range. (24.0% closed in bottom half.) Considering that we closed at the top of the range, these numbers are a bit surprising.
• 2.4% of stocks closed in the bottom 20% of the day's range.
• 20.2% of stocks closed in the top 10% of the day's range.
• 29.8% of stocks closed within 2% of their 52 week high. 54.4% of stocks closed within 5% of their 52 week high.
• 32.6% of stocks closed within 50% of their 52 week low. 9.2% of stocks closed within 25% of their 52 week low.
• 36.0% of stocks closed within ¼% of their high for the day.
• 0.8% of stocks closed within ¼% of their low for the day.
• 48.0% of the SPX closed up from the previous close; 58.2% closed higher than the open.
• Sectors weaker than the SPX for the day: Technology, Energy, Consumer Discretionary, Industrials, Basic Materials, and Financials.
• Sectors stronger than the SPX for the day: Consumer Staples, Utilities, and Health Care.
• The $SOX index strength was again weaker than the SPX today. This is 14 of the last 17 sessions that the SOX has underperformed the SPX.
• The 2 Day RSI of the SPX is 99. The Dow RSI is 99, NASDAQ is 50 and Russell 46. Take note of these numbers; on the way up the NASDAQ and small caps led the way.
• Over the last four sessions, the average session closed 77.4% of the range above the low.
• Upside momentum retreated Monday, from Friday’s 1.14 to today’s 0.97. The ratio of SPX components giving a crossover buy signal compared to sell signals also declined to 12.9 to 1.
• SPY closed upward for a recording tying 12th consecutive time today.
• 200 SPX components moved upward and 149 components downward during the after hours with 85 million shares traded. Volume was light.
Have a great Tuesday everyone!
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"Mel"
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