Bullish Consolidation or Bearish Distribution?
by Jerome "Mel" Hickerson
Once again the market opened without pressure from the futures, but overnight the futures were red most of the night. The first half hour of the regular session saw the indices retreat, setting the low of the day at 9:45. The rest of the session traded in a very tight range, with each successive test of the lows bouncing from a point just a bit higher than the previous intraday low. The release of the FOMC minutes proved to be a catalyst moving the indices higher for a time, setting the high of the day at 2:38. But gains could not be held. Of course, on a day the Dow trades within a 47 point range, all moves seem magnified.
You’ll hear talk that today was normal bullish consolidation. It may have been. But we witnessed a lot of sector rotation today, out of tech stocks into financials. Whether that suggests bullishness longer term remains to be seen; for today it resulted in volume but very little movement of the indices. The numbers I follow strongly suggest that today was distribution rather than consolidation.
But in several ways it was an odd day. Many market leaders closed red: AMZN, AAPL, GOOG, RIMM, GS, GE, WMT, DIS, DRYS, FDX, UPS, the Dow Jones Transportation Index, the Russell. Financials and Basic Materials had great days and carried the market. But it doesn’t seem to me likely that this continues into Thursday.
I think the $VIX is suggesting market complacency that will lead to a correction soon. The lack of intraday range also seems to be suggesting an imminent correction. The news today was mostly negative but the dollar was weak so the market managed to inch upward.
For Thursday, our model remains calling for a pullback. In really strong rally phases (late July comes to mind) I can remember the model stuck in “pullback mode” for several days while the market was grinding upward. I don’t see that happening here; but as traders, we have to be aware that the market will do whatever it wishes, not what we wish. Trade what you see.
Thursday, January 7
Economics
08:30 Initial Claims
08:30 Continuing Claims
Earnings
Before: STZ, GBX, LEN, MTRX, MSM, SCHN
After: APOL, DMAN, GPN, HIS, LWSN, SNX
Mel’s Random Hits:
• Total tick for the day was +170,000. The entire session was positive except briefly around 2:00 and 3:15. 70% of all ticks throughout the day were positive; this seems a bit odd for a day that the SPX gained less than a point.
• The day's range was 5.24 points. Yuck. There really was very little movement in the indices at all today. With the exception of the last two sessions of 2009, we have already broken the lowest range of the year for 2009. Eight of the last ten sessions have traded within less than a seven point intraday range. On a percentage basis, there is no similar ten day period this century.
• The day's volume was 89.48% of the average daily volume for the last year. Volume was 141% of the last 10 day average.
• 30% of the SPX stocks closed with two day RSI above 90. 41% closed with RSI above 80. 14% closed with RSI below 20 and 9% closed with RSI below 10. These remain mildly overbought numbers with plenty of room to go higher.
• 66% of the SPX are above their five day moving average, 63% are above their 10 day average, and 77% are above their 20 day moving average.
• 14% of the SPX stocks closed below their most recent previous lows.
• 37% of the SPX closed above their most recent previous high.
• 59.4% of stocks closed in the top half of the day's range. (40.6% closed in bottom half.)
• 16.8% of stocks closed in the bottom 20% of the day's range.
• 12.4% of stocks closed in the top 10% of the day's range.
• 24.6% of stocks closed within 2% of their 52 week high.
• 23.8% of stocks closed within 50% of their 52 week low.
• 18.8% of stocks closed within ¼% of their high for the day.
• 9.2% of stocks closed within ¼% of their low for the day.
• 57.0% of the SPX closed up from the previous close; 61.0% closed higher than the open.
• Sectors weaker than the SPX for the day: Technology, and Consumer Staples
• Sectors stronger than the SPX for the day: Energy, Industrials, Basic Materials, Financials, Health Care , Utilities, and Consumer Discretionary
• The $SOX index strength was weaker than the SPX again today.
• The 2 Day RSI of the SPX is 84. The Dow RSI is 68, NASDAQ is 52 and Russell 63. Evidence of the sector rotation out of tech into financials.
• Today was the first session in two years to have a less than 1 point gap and less than 1 point net loss/gain on the SPX.
• SPX components moved upward during the after hours with more than 101 million shares traded.
Have a great Thursday!
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"Mel"
