Bears May Have Dodged A Bullet
by Jerome "Mel" Hickerson
Good morning. Saturday arrives after a week that saw new 52 week highs for the SPX, but extreme lows on volume and daily range. Daily range topped out at a mere 11 points on Thursday while approaching all-time low territory at four points on Monday.
Before the open Friday the Commerce Department reported that Retail Sales rose in the month of February by +0.3%, above the consensus for a decline of -0.2%. The market was in the mood to celebrate a new 52 week high and futures were putting buying pressure on at the open. The SPX promptly responded with a gap up setting the high of the day at 9:54. The next eight minutes covered 80% of the day’s trading range and 26 minutes after the high of the session came the low of the session at 10:20. The rest of the day was mostly a tight range choppy session with a test of the low of the day at 3:32 and then a mild bounce limping into the close. If you missed the six point move around 10am, you missed the day.
Volume was once again heavily distorted by the action in Citi which again provided a quarter of the SPX volume. Looking beyond the Citi aberration, volume was extremely low. The session was significant in one regard: The index gapped up to a 52 week high and then closed lower. Historically, this is not a good sign going forward. But the gap was not large and the move down was not a hard sharp rejection; so we’ll have to wait to see what next week brings. But days that gap up and then close below the open have been a bit rare lately. August 28th and September 29th are good examples; both led to pullbacks.
The week gained a mere 1.08% and the trading range was a tiny 18.5 points, a 1.63% trading range; one of the smallest weekly ranges in several years. The week of January 11th was similar; a 1.66% range. Such small weekly ranges often lead to range expansion the following week; the week after the January 11th snoozer was a 5.3% range, all downward. But next week is options expiration week so it’s not easy to guess which way this will go. The last Opex weeks that were significantly down weeks were in May and June; it has been awhile.
Outlook for Next Week
Next week promises to be one of the more interesting weeks, especially when compared to the recent narrow range low volume affair. We have the upcoming FED announcement, options expirations, and it is the week following an NR7 (narrow range) week. (Actually, it is the narrowest range five day week since October 8th, 2007 – an interesting date because that was the all-time high of the SPX.) While I think I’ve been clear that I expect a pullback here, let’s take some time and list off some of the reasons.
1. Low volume, low trading range, low volatility are all symptoms of a topping pattern. We’ve certainly seen this the last week. A breakout should be accompanied by higher-than-average volume, which would show conviction that prices belong up here and that the markets are heading higher.
2. The four week RSI of the major indices has passed 80. This almost always leads to a week of declining indices. See chart.
3. Our five week rolling average shows a 7.26% gain over the last five weeks. This average last hit 7.24% September 14th; the following two weeks gave back 44 points.
4. The Emerging Markets ETF (EEM) has consistently led the SPX. The EEM set the 52 week high on January 11th; the SPX on January 19th. But the EEM is lagging here, well under the January high while the SPX is setting a new high. I think this divergence is noteworthy and shouldn’t be overlooked. The Dow is also lagging behind. A true breakout should include the Dow as well as the EEM.
5. We have a new moon this weekend. For whatever reason, when the moon is new or full and we are at the extremes of overbought or oversold, the market often reacts. See chart.
SPX Summary for Friday, March 12, 2010
For the week: 323 Advancers/170 Decliners
244 Advancers/244 Decliners
Today's SPX component winners and losers:
• Largest one day loser is C with -5.02%
• Largest three day loser is EQT with -7.18%
• Largest five day loser is CF with -7.87%
• Largest ten day loser is CF with -9.17%
• Largest one day winner is SVU with 6.85%
• Largest three day winner is WFR with 10.69%
• Largest five day winner is AIG with 20.97%
• Largest ten day winner is AIG with 37.55%
*** SPX Technical Summary ***
The average 14 day RSI of all 500 components is 65.
The greatest positive five day momentum component is AIG; the greatest negative five day momentum component is CF. The average five day momentum of all 500 components is 1.14.
78.20% of the SPX components are giving a crossover Buy signal; 4.60% of the SPX components are giving a Sell signal. This is a 17.0 to 1 ratio of Buy signals over Sell signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 0 components.
• From Buy to Neutral: 38 components.
• From Neutral to Sell: 7 components.
• From Neutral to Buy: 7 components.
Monday, March 15
Economic
08:30 Empire Manufacturing Survey 23.45 cons.
09:00 Net Long Term TIC Flows
09:15 Capacity Utilization 72.3% cons.
09:15 Industrial Production 0.0% cons.
Earnings
Before: AAON, AOB, GSOL, GTXI, HWCC, RDNT, STRL
After: ADY, ATHN, ESC, GOK, HQS, SSW, SQNM, CLUB
Auction
11:30 3-Month Auction
11:30 6-Month Auction
Events
VPRT Investor Day
ATHR, DIVX, ACTU, ATEC at ROTH OC Growth Stock Conference
LIFE at UBS West Coast Life Sciences Bus Tour Investor Conference
Mel’s Random Hits:
• Total tick for the day was slightly less than +20,000. This was the lowest total in three weeks; breadth is led us upward and is now suggesting a decline.
• Total tick for the week was +840,000; 680,000 of that came during Monday, Tuesday and Wednesday and only 160,000 on Thursday and Friday. Breadth is declining.
• The day's range was 6.44 points. The entire range was in the opening hour; only a couple times a year does this occur.
• The day's volume was 94.2% of the average daily volume for the last year. Volume was 118.0% of the last 10 day average and 107.0% of Thursday’s volume. Citi volume was again 900,000,000 beyond the average; if you adjust today’s volume to discount that difference then today would have been only 75% of the yearly average. Volume was again really light today other than Citi. This is not the enthusiasm a 52 week high should be showing.
• 26% of the SPX stocks closed with two day RSI above 90. 38% closed with RSI above 80. 10% closed with RSI below 20 and 4% closed with RSI below 10.
• 64.2% of the SPX are above their five day moving average, 79.2% are above their 10 day average, and 89.0% are above their 20 day moving average.
• 8% of the SPX stocks closed below their most recent previous lows.
• 36% of the SPX closed above their most recent previous high.
• 45.8% of stocks closed in the top half of the day's range. (54.2% closed in bottom half.)
• 18.0% of stocks closed in the bottom 20% of the day's range.
• 7.8% of stocks closed in the top 10% of the day's range.
• 31.0% of stocks closed within 2% of their 52 week high. 53.2% of stocks closed within 5% of their 52 week high.
• 30.0% of stocks closed within 50% of their 52 week low. 8.6% of stocks closed within 25% of their 52 week low.
• 16.2% of stocks closed within ¼% of their high for the day.
• 10.2% of stocks closed within ¼% of their low for the day.
• 48.2% of the SPX closed up from the previous close; 33.4% closed higher than the open.
• Sectors weaker than the SPX for the day: Utilities, Health Care, and Financials.
• Sectors stronger than the SPX for the day: Technology, Energy, Consumer Staples, Consumer Discretionary, Industrials, and Basic Materials.
• The $SOX index strength was again weaker than the SPX today. This is 13 of the last 16 sessions that the SOX has underperformed the SPX. The SOX underperformed the SPX 7 of 9 sessions from January 5th through January 15th.
• The 2 Day RSI of the SPX is 99. The Dow RSI is 99, NASDAQ is 99 and Russell 93.
• The 4 Week RSI of the SPX is 79. The Dow RSI is 75, NASDAQ is 84 and Russell 84; this gives us an average of 81 among the four major indices. We last had an average of 80 the last week of December (lost 11 points), and before that was September 21-25 (lost 24 points). Weeks with a 4 week RSI greater than 80 rarely have gains (see chart).
• Over the last four sessions, the average session closed 66.9% of the range above the low.
• Upside momentum retreated Friday, from Thursday’s 2.75 to Friday’s 1.14. The ratio of SPX components giving a crossover buy signal compared to sell signals also declined to 17 to 1.
• Overbought and oversold indicators are not buy and sell signals; but when used with other analysis and signals, they can provide a valuable confirmation tool. As with all tools, it is how you use them that determine how well they work. Any tool is dangerous if misused.
• 219 SPX components moved upward and 159 components downward during the after hours with 80 million shares traded. Volume was light.
Have a great weekend everyone!
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"Mel"
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