Bulls Continue to Strangle the Bears
by Jerome "Mel" Hickerson
Market Recap:
Futures were moving higher before the jobs data was released Friday morning but the data blew away expectations and markets applauded.
Markets exploded upward out of the gate Friday morning and continued higher throughout the session but most of the move was finished during the opening half hour. But the SPX closed at the highs of the session after drifting all afternoon.
On our Market Leaders Board the Financials and small caps led the charge upward while the Dow was lagging. But all of our leaders were strong and the Dow and the Russell Technology Index both closed at 52-week closing highs.
SPX big winners were Genworth Financial (GNW) 12.8%, Gilead Sciences Inc (GILD) 10.07%, and Tenet Healthcare Corp (THC) 9.82%. SPX big losers were Edwards Life Sciences (EW) -12.63%, Wynn Resorts Ltd (WYNN) -4.96%, and International Game Technology (IGT) -4.5%.
SPX five day big winners are Whirlpool Corp (WHR) 25.75%, Marathon Petroleum Corp (MPC) 17.19%, and Genworth Financial (GNW) 17.11%. SPX five day big losers are Abercrombie & Fitch Co (ANF) -14.23%, Edwards Life Sciences (EW) -9.65%, and Ryder Systems Inc (R) -7.97%.
New Ten Day Highs: MMM, ADBE, AMD, URBN, AFL, A, AKAM, AA, ALL, AXP, AIG, APC, APA, AIV, AMAT, AIZ, AZO, AVB, AVP, BHI, BAC, BAX, BBT, BIG, XL, HRB, BMC, BA, BXP, BRCM, BF/B, CA, CAM, COF, CFN, CCL, CAT, CNP, CF, CME, CINF, CTAS, CSCO, CLX, COH, CCE, CTSH, CMCSA, CSC, CPWR, CNX, STZ, COST, CSX, CMI, CVS, DRI, DE, DELL, DTV, DFS, DOV, DOW, DNB, DD, EMN, ETN, EBAY, ECL, EMC, EMR, ESV, EOG, EQR, EXPE, FDO, FAST, FII, FDX, FIS, FHN, FE, FISV, FLS, FLR, FMC, BEN, GPS, GNW, GILD, GR, HOG, HAR, HRS, HIG, HAS, HPQ, HON, DHI, HST, ITW, IPG, IFF, INTU, ISRG, IVZ, ITT, JBL, JEC, JNS, JCI, JPM, KSS, KFT, LH, LEN, LUK, LTD, LNC, LLTC, LMT, LSI, M, MAR, MMC, MA, MAT, MHS, MDT, WFR, MDP, MET, PCS, MCHP, MSFT, MCO, MS, MYL, NBR, NOV, NTAP, NBL, NU, NTRS, NVLS, NUE, NVDA, ODP, ORCL, PLL, PDCO, PKI, PXD, PNC, RL, PFG, PGN, PGR, PLD, PRU, PSA, PHM, PWR, RHT, RF, RDC, CRM, SLE, SCG, CVG, SLB, SCHW, SEE, SPG, SLM, SNA, LUV, STJ, SWK, HOT, STT, SRCL, SUN, STI, SYMC, SYY, TGT, THC, TDC, TXT, BK, TMO, TIF, TWC, TMK, TSN, UPS, X, UTX, DRYS, QLD, KBH, UNM, USB, VTR, VNO, VMC, DIS, WM, WAT, WDC, WU, WY, WHR, AAPL, C, GS, ICE
New Ten Day Lows: ANF, ARG, AKS, AGN, AMP, CAH, CI, EL, JDSU, KR, MRK, PFE, PPL, PG, R, SNI, SO, SE, SPLS, TJX, VXX, SH, DYN
Market Recap – Weekly Review:
The SPX gained 28.57 points during the week (2.17%). The range for the week was 44.85, 3.41%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 85. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 695,000. On the NYSE, the advance/decline line increased during the week by 3,862 and the 10 day average of Net Advancing increased by 91. There were 1169 New Highs and 45 New Lows. The week closed at 99.02% of the weekly range.
For the week, SPX advancing issues (397) averaged 6.1 million shares traded per day ($219. million each stock) and declining issues (92) averaged 7.3 million shares traded per day ($232.4 million each stock.)
For the week, the NASDAQ 100 advancing issues (84) averaged 7.7 million shares traded ($336.9 million each stock) each day and declining (16) issues averaged 4.4 million shares traded ($294.7 million each stock each day.)
Volume & Breadth Indicators
For the SPX Index there were 388 components advancing and 83 components declining. On the NYSE 3,132 issues were traded with 2,386 advancing issues and 653 retreating issues, a ratio of 3.65 to one advancing. There were 301 new highs and 5 new lows. The five day moving average of New Highs is 234 while the five day moving average of New Lows is 9 and the ten day moving average of Net Advancing is 705. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 6.19 to one. The closing TRIN was 0.58 and the final tick was 462. The five day average of TRIN is 1.03 and the ten day average of TRIN is 1.16. The NYSE Composite Index gained 1.45% today while the SPX gained 1.44%.
For the NYSE, relative to the previous 30 session average, volume was 17.84% above the average. Of the last 15 sessions 9 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 22 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 95.% of the average daily volume for the last year. Volume was 99% of the last 10 day average and 97.8% of the previous day’s volume.
It’s the same song and dance almost every day since the start of the year; market breadth is going parabolic.
Looking at the NYSE 15-second tick data, the total tick for the day was 158,000 and the average tick for the day was 102. There were 32 ticks greater than 600 and 3 ticks more extreme than -600. There were 4 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
Looking at the one-minute tick data, there were 68 ticks greater than 500 and 4 ticks more extreme than -500. 67.9% one-minute ticks were positive. There were no ticks greater than 900 and no ticks more extreme than -900. The tick action suggests institutional accumulation.
The tick data from Friday shows that the bulls were in absolute control. Sellers struggled to manage hardly any negative ticks.
The intraday volume pattern shows a midmorning spike in volume as the SPX was moving upward, then decreasing volume the rest of the day. The Nightly Breadth Indicators are once again extremely overbought. The McClellan Summation Index is above 3,700 for the first time since the market topped in 2007 although the Summation Index reached just under this number on April 15th, 2010. The market soon topped and dropped almost 20% over the next couple of months.
Moving Average and Support/Resistance Indicators:
88.4% of the SPX are above their five day moving average, 85.8% are above their 10 day average, 87.2% are above their 20 day moving average, 90.6% are above their 50 day moving average, and 73.6% are above their 200 day moving average.
There were no significant moving average crossovers Friday. Our moving average Power Rating is 88 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Energy -- Outperformed the SPX by +19%.
- Financials -- Outperformed the SPX by +115%.
- Industrials -- Outperformed the SPX by +28%.
- Consumer Discretionary -- Outperformed the SPX by +59%.
Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -10%.
- Technology -- Underperformed the SPX by -18%.
- Consumer Staples -- Underperformed the SPX by -114%.
- Utilities -- Underperformed the SPX by -134%.
- Health Care -- Underperformed the SPX by -84%.
In Late Trading:
191 SPX components moved upward and 90 components downward during the after hours with 98 million shares traded.
What We Learned from Friday's Action:
Friday was session 3 to close above the 5 DMA, session 3 to close above the 10 DMA, session 31 to close above the 20 DMA, and session 31 to close above the 50 DMA. This was also session 29 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 23.75 points above the 10 DMA.
The SPX 5 DMA is 1323.99, 10 DMA is 1321.14, 20 DMA is 1308.53, 50 DMA is 1265.18, 100 DMA is 1236.29, and 200 DMA is 1257.47.
On Friday the SPX traded above the opening range but did not trade below the opening range. 82% of the SPX closed up from the previous close; 65.6% closed higher than the open. During Friday's session the SPX gained 18.68 points from open to close. The SPX intraday trading range was 8.28 points. The 5-Day average intraday trading range is 10.74 points, the 10-Day average is 12.37 points, and the 20-Day average is 10.98 points. The trading range is contracting.
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 Monday is -2. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be higher. Mel's 10 Day Oscillator is 61 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, our bias is slightly bearish for Monday's session.
To say that this week's bullish rampage surprised us would be an understatement. Our data has consistently told us to look for lower prices and our data has been consistently wrong for several days. As we have mentioned before, this sometimes happens during exceptionally strong trends, and more frequently at market tops. But it doesn't help much to know this and still watch as the market screams relentlessly upward.
Data that we follow continues to suggest lower prices ahead. We grow weary of writing the same night after night. But our data is built upon a historical matrix of data and we trade by following what has most often happened in the past with similar data. Unfortunately, what is happening now is an anomaly when compared to historical data. So trader beware; we are well outside the norms, but we will continue to compare to historical data because that is what we do and because this works more often than fails.
Let's continue by reviewing our SPX sectors and see what changed during the week.
For Basic Materials, 26 components advanced during the week and four declined. 40.0% components have their 50 DMA above their 200 DMA (up from 33.3% last week.)
For Energy, 29 components advanced during the week and eight declined. 48.6% components have their 50 DMA above their 200 DMA (flat from 48.6% last week.)
For Financials, 69 components advanced during the week and 12 declined. 35.8% components have their 50 DMA above their 200 DMA (up from 30.9% last week.)
For Industrials, 49 components advanced during the week and 12 declined. 49.2% components have their 50 DMA above their 200 DMA (up from 39.3% last week.) As a sector, Industrials had their 50 DMA move above the 200 DMA this week.
There is no denying that the action was quite bullish this week as the SPX Golden Cross (50 DMA moved above the 200 DMA) occurred. One of the "risk" sectors also had the 50 DMA move above the 200 DMA but three (Basic Materials, Financials, and Energy) are still lagging behind. These three could have their Golden Cross during the upcoming week but we remain skeptical of the rally while these sectors are lagging behind. But the parabolic market breadth (see the Advance/Decline chart) is telling us that any dip will be bought.
In order to look ahead to next week, let's touch on a few historical data points.
Friday, the SPX closed above the upper Bollinger Band fir the first time since July 1st, 2011. The SPX closed at that time just five points lower than Friday's close. Within six weeks the SPX was trading in the mid-1100 area and touched a low of 1075 about two months later.
Friday's 1.46% gain was the best jobs report Friday for the SPX since May 8th, 2009 when the index rallied 2.41%. The SPX lost more than 5% the following week.
The RSI(4-week) of the four indices that we follow closely (the SPX, Dow, NASDAQ, and Russell 2000) closed at 85 this week. Since the market bottomed in March, 2009, these are the occurrences where this RSI closed above 80:
• 05/08/09 SPX dropped 50 points following week
• 06/05/09 SPX dropped 70 points in the following four weeks
• 08/07/09 SPX dropped 22 points over following two weeks
• 08/21/09 SPX dropped 35 points over following two weeks
• 09/18/09 SPX dropped 43 points over following two weeks
• 12/04/09 SPX dropped 20 points following week
• 03/12/10 thru 04/30/10 The SPX was at 1148 when this timeframe began and at 1219 at the high. But the following collapse brought the SPX down to 1010.
• 10/08/10 thru 11/12/10 The SPX simply kept climbing
• 12/10/10 thru 01/21/11 The SPX kept climbing thru mid February.
• 02/11/11 thru 02/25/11 SPX dropped 40 points following week
• 04/29/11 SPX dropped 90 points in the following five weeks
While nothing is ever certain, the pattern clearly suggests lower prices will be more likely than higher.
When the SPX traded at a 6-month high on a Nonfarm payroll day after gapping higher and without filling the gap, the SPX never has traded up 1.0% or more three days later but traded lower more than 1.0% six of the twelve occurrences. This certainly slants the odds in favor of a pullback near term.
Our viewpoint therefore remains bearish as we look ahead to next week. Economic reports will be light after the jobs report on Friday. Consumer credit and the University of Michigan's Confidence statement will be two reports to keep an eye on. Of course, as always, the situation with Greece will likely move markets as well.
But a trader must recognize that the momentum is extreme and the market has been simply ignoring historical precedents as it screams upward relentlessly. The market will certainly become more fun to trade, more fun to analyze, and most important, more profitable, when it begins to breathe.
Week of February 06 - February 10 Overview
Date/Time Release/Consensus
02/07/12 15:00 Consumer Credit/$8.5B
02/08/12 7:00 MBA Mortgage Index/NA
02/08/12 10:30 Crude Inventories/NA
02/09/12 8:30 Initial Claims/370K
02/09/12 8:30 Continuing Claims/3475K
02/09/12 10:00 Wholesale Inventories/0.004
02/10/12 8:30 Trade Balance/-$48.2B
02/10/12 9:55 Mich Sentiment/74
02/10/12 14:00 Treasury Budget/-$40.0B
Monday, February 6
Economics
No significant U.S. reports scheduled
11:30 US to sell $33b in 3-month, $31b 6-month bills
00:30 AUD Retail Sales
11:00 EUR German Factory Orders
15:00 CAD Ivey PMI
21:45 NZD Average Hourly Earnings
9:00 France to sell EU2.2b 364-day, EU2.1b 182-day, EU4.2b 91-day bills
Earnings
Before: ATRO, BWP, CYOU, CAN, GSM, HAS, HCA, HUM, LAZ, L, MCY, NNN, NLSN, GOLD, SOHU, SYY, TW, UDR, USAK, USG
After: ADVS, AGNC, AMLN, APC, AHL, BMI, RATE, BRE, CBM, CSTR, CRK, DNB, FN, GHDX, GBCD, IEX, IPHS, KNXA, KFN, LDR, LEG, LNCR, LMNX, NCR, OTTR, OMI, PKY, PRE, PXD, PMCS, PPS, RBC, SXT, SREV, SPF, SUN, TMK, UNM, VECO, VSAT, VMC, YUM
The non farm payrolls added 243,000 jobs, more than the expected 125,000. The ISM services index came in at 56.8, more than the consensus 53.3. Factory orders rose 1.1%. The consensus was for a rise of 1.5%. There are no significant economic releases on Monday.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
