2012 Begins with Large Gap Higher
by Jerome "Mel" Hickerson
Market Recap:
The better than expected PMI data from China and Europe pushed foreign markets significantly higher while the U.S. was closed for the holiday. And with additional gains in both China and Europe overnight it appeared that the US would be playing catch up at the open.
The first session of the year began with a large gap higher. The SPX continued to trade strongly throughout the first hour but then began to slide and continued giving back gains until about 1:00 pm. But buyers put a bid under the market during the early afternoon and the SPX bounced several points but the final hour of trading saw some giveback. Still, this was a bullish session as the indices retained most of their morning gains.
Checking our Market Leaders Board, all of our leaders began the year with strong sessions. The Financials led higher while relative weakness was shown in the Tech sector and the chip makers (SOX.)
SPX big winners were Nabors Industries Inc (NBR) 9.34%, Peabody Energy (BTU) 9.1%, and Metropcs Communications Inc (PCS) 8.19%. SPX big losers were Williams Companies Inc (WMB) -22.5%, US Steel Corp (X) -5.24%, and Altria Group Inc (MO) -3.8%.
SPX five day big winners are Metropcs Communications Inc (PCS) 15.18%, Mead Johnson Nutrition Company (MJN) 9.28%, and Masco Corp (MAS) 7.65%. SPX five day big losers are Sears Holding Corp (SHLD) -31.45%, Williams Companies Inc (WMB) -18.01%, and Zions Bancorporation (ZION) -9.44%.
New Ten Day Highs: MMM, ABT, ANF, ADBE, AMD, AES, URBN, AFL, A, APD, AKS, AKAM, AA, ATI, AGN, ALL, ALTR, AEP, AXP, AIG, AMP, ABC, AMGN, APH, APC, ADI, APA, AIV, AMAT, ADM, AIZ, T, ADP, AVB, AVY, AVP, BHI, BLL, BAC, BAX, BBT, BDX, BMS, BBY, BIG, BIIB, HRB, BA, BXP, BSX, BF/B, BRK.B, CAM, CPB, COF, CAH, CFN, CAT, CBG, CBS, CELG, CTL, CF, CHRW, CVX, CME, CB, XEL, CINF, CTAS, CSCO, CLX, CMS, KO, CCE, CMCSA, CMA, CAG, COP, CNX, STZ, SAI, GLW, COST, CSX, CMI, CVS, DHR, DVA, DF, DE, DNR, XRAY, DVN, DV, DO, DTV, DFS, D, RRD, DOV, DOW, DNB, DD, ETFC, EMN, ETN, EBAY, ECL, EIX, EP, ESV, EOG, EQT, EFX, EQR, EL, EXPD, ESRX, XOM, FAST, FII, FIS, FITB, FHN, FSLR, FISV, FLIR, FLS, FLR, FMC, FTI, F, FRX, BEN, FCX, GME, GCI, GD, GE, GPC, GNW, GILD, GR, GT, HOG, HAR, HRS, HIG, HCP, HCN, HNZ, HSY, HES, HPQ, HON, HRL, DHI, HSP, HST, HCBK, HBAN, ITW, TEG, INTC, IPG, IBM, IGT, IP, INTU, ISRG, IVZ, IRM, JEC, JNS, JDSU, JCI, JPM, JNPR, CLF, K, KEY, KLAC, KFT, KR, LLL, LM, LEN, LUK, LXK, LIFE, LLY, LTD, LNC, LLTC, LMT, L, LO, LSI, MTB, M, MRO, MAR, MMC, MAS, MAT, MKC, MCD, MHP, MCK, MWV, MHS, MDT, WFR, MRK, MDP, MET, PCS, MU, MSFT, MOLX, TAP, MON, MWW, MCO, MS, MUR, MYL, NBR, NDAQ, NOV, NTAP, NYT, NWL, NWSA, NI, NBL, JWN, NSC, NU, NTRS, NOC, NVLS, NUE, NYX, OXY, OMC, OI, PCAR, PLL, PH, PDCO, PAYX, BTU, JCP, PBCT, PEP, PKI, PFE, PM, PXD, PBI, PCL, PNC, PPG, PX, PCP, PFG, PG, PGN, PGR, PLD, PRU, PEG, PSA, PHM, QLGC, QCOM, PWR, STR, RRC, RTN, RF, RHI, ROK, COL, RDC, R, SWY, SLE, SCG, CVG, SLB, SCHW, SNI, SEE, SRE, SHW, SPG, SLM, LUV, S, SWK, SBUX, HOT, STT, SRCL, SYK, SUN, STI, SVU, SYMC, SYY, TROW, TE, TLAB, THC, TER, TSO, TXN, TXT, BK, TMO, TIF, TWC, TWX, TIE, TMK, TSS, TRV, UNP, UPS, X, UTX, QLD, AEM, MBI, UNM, USB, VAR, VTR, VRSN, VZ, VFC, VNO, VMC, WMT, DIS, WM, WAT, WFC, WU, WY, AAPL, C, GS, GOOG, ICE
New Ten Day Lows: MO, AZO, DPS, EXC, KSS, ORLY, SHLD, TGT, SH
Volume & Breadth Indicators
For the SPX Index there were 355 components advancing and 116 components declining. On the NYSE 3,151 issues were traded with 2,370 advancing issues and 715 retreating issues, a ratio of 3.31 to one advancing. There were 202 new highs and 5 new lows. The five day moving average of New Highs is 157 while the five day moving average of New Lows is 25 and the ten day moving average of Net Advancing is 555. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 4.22 to one. The closing TRIN was 0.74 and the final tick was 681. The five day average of TRIN is 1.86 and the ten day average of TRIN is 1.44. The NYSE Composite Index gained 1.97% today while the SPX gained 1.52%.
For the NYSE, relative to the previous 30 session average, volume was -0.83% below the average. Of the last 15 sessions 4 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 17 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 92.4% of the average daily volume for the last year. Volume was 129.1% of the last 10 day average and 174.9% of the previous day’s volume.
Only a permabear could find anything bearish within the breadth data tonight. New Highs blew away New Lows. Advancing volume exceeded advancing issues. The ten day average of New Advancing surged higher. Volume was a whopping 174% of Friday’s volume. And the broad NYSE Composite Index outperformed the SPX significantly. All very bullish looking.
Total tick for the day was 221,000 and the average tick for the day was 143. There were 108 ticks greater than 600 and 8 ticks more extreme than -600. There were 13 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick data today shows that there were buyers anxious to buy even after the large overnight gap higher. The data strongly suggests that institutional buying was strong throughout the day.
The intraday volume pattern shows strong volume in the early session with relative volume falling off as the day progressed. The Nightly Breath Indicators are bullish looking without any significant signs of overbought conditions yet, although the McClellan Oscillator is somewhat overbought.
Moving Average and Support/Resistance Indicators:
76.2% of the SPX are above their five day moving average, 81.6% are above their 10 day average, 76.8% are above their 20 day moving average, 63.4% are above their 50 day moving average, and 41.2% are above their 200 day moving average.
There was one significant moving average crossover today as the NYSE Composite Index 20 DMA crossed below the 50 DMA. Our moving average Power Rating is 49 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Tuesday:
- Basic Materials -- Outperformed the SPX by +122%.
- Energy -- Outperformed the SPX by +108%.
- Financials -- Outperformed the SPX by +88%.
- Industrials -- Outperformed the SPX by +56%.
Sectors weaker than the SPX for Tuesday:
- Technology -- Underperformed the SPX by -14%.
- Consumer Staples -- Underperformed the SPX by -162%.
- Utilities -- Underperformed the SPX by -330%.
- Health Care -- Underperformed the SPX by -25%.
- Consumer Discretionary -- Underperformed the SPX by -70%.
In Late Trading:
296 SPX components moved upward and 69 components downward during the after hours with 141.8 million shares traded.
What We Learned from Tuesday's Action:
Tuesday was session 1 to close above the 5 DMA, session 9 to close above the 10 DMA, session 9 to close above the 20 DMA, and session 9 to close above the 50 DMA. This was also session 7 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 24.82 points above the 10 DMA.
The SPX 5 DMA is 1262.55, 10 DMA is 1252.25, 20 DMA is 1244.9, 50 DMA is 1238.57, 100 DMA is 1207.93, and 200 DMA is 1258.81.
On Tuesday the SPX traded below the opening range but did not trade above the opening range. 73.4% of the SPX closed up from the previous close; 36.8% closed higher than the open. During Tuesday's session the SPX gained 18.21 points from open to close.
Note: The Opening Range Breakout is one of the simplest day trading set-ups to understand. The first hour of the trading day is the most volatile. Bears and bulls are battling it out in the stock market, trying to show you who’s going to be in charge for the day. If we break out of that trading range, it's telling us that new buying or selling is impacting traders' assessments of value. Looking back at today’s breakouts also helps us grasp sentiment going forward because when a clear trend is established it often carries through for several sessions.
Looking Ahead:
The Market Environment for Wednesday is +3. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, our bias is slightly bullish for Wednesday's session.
We are always reluctant to pull the trigger on a long-side entry when the indices are already up more than 2% for the day and today was a good example. We saw something that made us get into TNA and then we failed to exit when the lows of the day were broken. Our second layer worked well enough but we remain trapped in the first layer.
There were some concerns within tonight’s data. The put/call data suggests that traders were beginning to get overconfident and this often is the prelude to a pullback, but usually requires a few days to begin. We will watch this carefully on Wednesday. Meanwhile, the action in the U.S. dollar is suggesting higher prices ahead for the equities.
Wednesday, January 4
Economics
07:00, MBA Mortgage Applications, Dec. 30 week
10:00 Factory Orders, Nov., est +2.0% from -0.4%
5:00 Total Vehicle Sales, Dec., est. 13.52m from 13.59m
5:00 Domestic Vehicle Sales, est. 10.35m from 10.53m
11:00 Fed to sell $8b-$8.75b in 2-year notes
11:30 U.S. to sell 4-week bills
08:55 EUR German PMI
09:00 EUR Euro-Zone PMI
09:30 GBP PMI
09:30 GBP Consumer Credit
10:00 EUR Euro-Zone CPI estimate
Germany selling up to EU5b 10-yr Bunds
Earnings
Before: CVGW, UNF
After: DRWI, MOS, NWPX, RECN, SONC, TXI, TRIP
The ISM mfg. index was 53.9, more than the expected 53.2. Construction spending rose 1.2%, more than the consensus 0.5%. On Wednesday we will get factory orders.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
