Black Candles
by Jerome "Mel" Hickerson
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The big question to be discussed is what happens in the upcoming week. Last week was historical; the SPX has never continued to rally a third week with the four week RSI above 80 all three weeks. Can the streak continue a fourth week?
Let's see what the charts are telling us. Looking at the four major indices we see that the SPX and the DOW set new 52 week highs on Thursday, while the NASDAQ and Russell 2000 did not. More often than not, the NASDAQ and Russell will lead. On Thursday the NASDAQ painted a second consecutive black candle while the other indices managed to close above their open.
Looking at the charts of significant sectors, we see that the financial sector put up a doji on Thursday while failing to get above the 52 week high. The Industrial sector painted a third consecutive black candle. The Technology sector shows a pretty nasty black candle. But the ugliest sector candle is the SOX index; this sector is often a leading indicator for the broader indices.
Drilling down deeper to some of the market leaders, we see many black candles on the charts.
Now, let's step back and look at the SPX performance over the last seven sessions. During this time the index has gained a mere three points while setting a new 52 week high twice with five of the seven candles black. Hardly an impressive performance and certainly not a bullish breakout.
Further examination of the last seven sessions also reveals another telling trait; only one time has the high of the day came late in the day and even that day it was only at 2:07. Closing at the highs is a characteristic of strength; selling off in the afternoon is a characteristic of a weakening market.
Now, briefly, the jobs data that was released Friday morning. Rarely does the jobs report have a lasting impact on the market; I see this report no differently. I see no lasting game changer within the data; there are positives (the governing is hiring new workers) and there are negatives.
Highlights from the jobs report:
• Non-farm payrolls increased 162,000 (less than expected.) Note: 100,000 plus monthly new jobs are needed just to hold even.
• The government hired 48,000 temporary workers for the census.
• The private sector increased by 123,000.
• Unemployment rate holds steady at 9.7%.
• Temporary hiring for the census came in lower than expected.
• The number of long-term unemployed continues to go up. (6.5 million have been unemployed 27 weeks or longer, an increase of 400,000 from the previous month. This is 44% of all the unemployed.)
• The average workweek for all employees rose to 34 hours from 33.9 hours.
• Underemployed workers edged up to 16.9 percent from 16.8 percent (about one in six people are not employed or not working as much as they want to.)
If you are interested in the economy, this jobs report has, on balance, probably more positive than negative signs but I believe the recent rally has priced that into the market already. I think the recently announced "regular meeting" of the FED on Monday will have more importance to traders. And believe me, investors are not jumping in here; it's all about the traders. Many traders were looking for a blow-out jobs report and I don't think that this was it.
I do think Monday's session will have more volatility, including some upward moves. But I think the evidence of the charts wins out by the end of Tuesday.
Summing up from my perspective:
• New highs on the SPX and the Dow show signs of rejection and the NASDAQ and the Russell failed to confirm with new highs.
• Several key sectors are showing signs of weakness.
• Many leading individual stocks painted some pretty ugly looking back candles on Thursday.
• Seven sessions of basically sideways movement in the SPX setting new 52 week highs twice is hardly a breakout move. Five of those seven sessions had their high of the day early in the day. Five of the seven closed lower than the open.
Volume patterns strongly corroborate the charts suggesting that we see weakness this week.
Have a great weekend everyone.
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"Mel"
