Bulls Counter-Punch!
Market Recap:
The "hope trade" was in full swing this morning as a WSJ article by Fed Watcher Jon Hilsenrath suggested that the Fed is ready to do more. In addition, more talk of "bank fixing" in Europe had the futures pointing to a strong open on Wall Street. The government reported U.S. Nonfarm Productivity in the first quarter of 2012 fell by -0.9%, which was below the first reading of -0.5% and below Q4’s +0.7%. On the inflation front, Unit Labor Costs rose by +1.3% versus the preliminary read of +2.0% and Q4’s +1.2%.
The session began with a significant gap higher and continued to work higher throughout the morning into the lunch hour. The SPX pulled back about four or five points throughout the afternoon but the final half hour of trading rallied strong as the indices closed at the intraday highs going away.
Our Market Leaders Board was led higher by the Sox and the Financials but this was a session where all of the leaders were flying.
SPX big winners were Iron Mountain Inc (IRM) 12.3%, Morgan Stanley (MS) 8.21%, and Bank Of America Corp (BAC) 7.46%. SPX big losers were Frontier Communications Corp (FTR) -6.05%, Alpha Natural Resources (ANR) -5.29%, and Kinder Morgan, Inc. (KMI) -3.48%.
SPX five day big winners are Iron Mountain Inc (IRM) 12.5%, Chesapeake Energy Corp (CHK) 10.77%, and Netapp Inc (NTAP) 8.34%. SPX five day big losers are Fastenal Company (FAST) -11.17%, Alpha Natural Resources (ANR) -9.92%, and Kohl's Corp (KSS) -9.52%.
New Ten Day Highs: AET, ALL, MO, AEE, AEP, ABC, APH, ADI, AIV, APOL, T, AN, AZO, BLL, BAC, BBY, BIG, HRB, BMY, BRCM, BF/B, CBS, CHK, CME, XEL, CINF, CLX, CMS, CMCSA, COP, ED, STZ, COST, CVH, DF, RRD, DPS, DTE, ROST, EBAY, EIX, ETR, EXPE, EXPD, FII, FISV, FLIR, FRX, FCX, HRS, HD, HST, HUM, INTU, ISRG, IVZ, IRM, JNS, KMB, LLL, LLTC, L, MCHP, MON, MS, NYT, NEM, NU, NUE, ORLY, OXY, ORCL, POM, PCG, PNW, PGN, PGR, PSA, STR, SNDK, SCG, CVG, SNI, SRE, SHW, SLM, SO, S, TE, TXT, TMK, UNH, AEM, DYN, MBI, WPO
New Ten Day Lows: BHI, COH, FAST, HAL, DGX, SLE
Volume & Breadth Indicators
For the SPX Index there were 487 components advancing and 13 components declining. On the NYSE 3,141 issues were traded with 2,691 advancing issues and 377 retreating issues, a ratio of 7.14 to one advancing. There were 61 new highs and 18 new lows. The five day moving average of New Highs is 39 while the five day moving average of New Lows is 103 and the ten day moving average of Net Advancing is 173.
Advancing volume was higher at a ratio of 12.17 to one. The closing TRIN was 0.61 and the final tick was 708. The five day average of TRIN is 1.18 and the ten day average of TRIN is 1.12. The NYSE Composite Index gained 2.44% today while the SPX gained 2.25%.
For the NYSE, relative to the previous 30 session average, volume was -1.04% below 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, 17 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 92.2% of the average daily volume for the last year. Volume was 99.2% of the last 10 day average and 112.7% of the previous day’s volume.
Looking at the NYSE 15-second tick data, the total tick for the day was 123,000 and the average tick for the day was 80. There were 65 ticks greater than 600 and 10 ticks more extreme than -600. There were 14 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
Moving Average and Support/Resistance Indicators:
91% of the SPX are above their five day moving average, 59% are above their 10 day average, 41.6% are above their 20 day moving average, 20.4% are above their 50 day moving average, and 47.4% are above their 200 day moving average.
There were no significant moving average crossovers today. Our moving average Power Rating is 16 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Basic Materials -- Outperformed the SPX by +9%.
- Energy -- Outperformed the SPX by +78%.
- Financials -- Outperformed the SPX by +55%.
- Industrials -- Outperformed the SPX by +45%.
Sectors weaker than the SPX for Wednesday:
- Technology -- Underperformed the SPX by -2%.
- Consumer Staples -- Underperformed the SPX by -94%.
- Utilities -- Underperformed the SPX by -83%.
- Health Care -- Underperformed the SPX by -82%.
- Consumer Discretionary -- Underperformed the SPX by -14%.
Checking the sectors of the SPX tonight: (The sector Buy and Sell signals come from a mechanical trend trading system; there will be some whipsaw but the signal will never be on the wrong side for long.)
The Basic Materials sector advancing issues (30) totaled 1,085,564 shares traded (36,185 average per stock.) 17 components are on an uptrend (14 new uptrends today) and 13 components are on a downtrend (no new downtrends today.) There were no New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -1.43% below the 20-Day average.
The Energy sector advancing issues (40) totaled 2,344,871 shares traded (58,622 average per stock) and declining issues (4) totaled 1,199,751 shares traded (299,938 average per stock.) 26 components are on an uptrend (23 new uptrends today) and 18 components are on a downtrend (no new downtrends today.) There were no New Highs and 1 New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -3.56% below the 20-Day average.
The Financials sector advancing issues (81) totaled 8,436,365 shares traded (104,153 average per stock.) 43 components are on an uptrend (39 new uptrends today) and 38 components are on a downtrend (no new downtrends today.) There were no New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed -3.57% below the 20-Day average.
The Industrials sector advancing issues (61) totaled 1,959,402 shares traded (32,121 average per stock.) 28 components are on an uptrend (24 new uptrends today) and 33 components are on a downtrend (no new downtrends today.) There were no New Highs and no New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed -2.88% below the 20-Day average.
The four 'risk sectors' totaled 212 advancing issues and 4 declining issues today with 100 new uptrends and 0 new downtrends. 52.8% of Risk Sector components are uptrending.
The Technology sector advancing issues (75) totaled 6,607,171 shares traded (88,096 average per stock) and declining issues (3) totaled 265,323 shares traded (88,441 average per stock.) 50 components are on an uptrend (42 new uptrends today) and 28 components are on a downtrend (1 new downtrends today.) There were 1 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed -1.66% below the 20-Day average.
The Consumer Staples sector advancing issues (41) totaled 1,591,273 shares traded (38,812 average per stock.) 17 components are on an uptrend (10 new uptrends today) and 24 components are on a downtrend (no new downtrends today.) There were 3 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -1.08% below the 20-Day average.
The Utilities sector advancing issues (31) totaled 823,687 shares traded (26,571 average per stock) and declining issues (1) totaled 36,109 shares traded (36,109 average per stock.) 31 components are on an uptrend (12 new uptrends today) and 1 components are on a downtrend (no new downtrends today.) There were 9 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .37% above the 20-Day average.
The Health Care sector advancing issues (50) totaled 1,764,178 shares traded (35,284 average per stock) and declining issues (2) totaled 37,073 shares traded (18,537 average per stock.) 27 components are on an uptrend (16 new uptrends today) and 25 components are on a downtrend (no new downtrends today.) There were no New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -1.61% below the 20-Day average.
The Consumer Discretionary sector advancing issues (78) totaled 3,830,468 shares traded (49,109 average per stock) and declining issues (3) totaled 148,629 shares traded (49,543 average per stock.) 44 components are on an uptrend (35 new uptrends today) and 37 components are on a downtrend (no new downtrends today.) There were 2 New Highs and no New Lows. The sector is on a Sell signal and closed above the daily pivot. The sector 5-Day average closed -1.91% below the 20-Day average.
Based on the SPX sector data, we are on a Buy for the SPX and the Russell 2000.
What We Learned from Wednesday's Action:
Wednesday was session 1 to close above the 5 DMA, session 1 to close above the 10 DMA, session 23 to close below the 20 DMA, and session 23 to close below the 50 DMA. This was also session 21 for the 5 DMA to close below 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 10.87 points above the 10 DMA.
The SPX 5 DMA is 1293.43, 10 DMA is 1304.26, 20 DMA is 1316.76, 50 DMA is 1359.91, 100 DMA is 1357.16, and 200 DMA is 1286.5.
On Wednesday the SPX traded above the opening range but did not trade below the opening range. 92.2% of the SPX closed up from the previous close; 90.2% closed higher than the open. During Wednesday's session the SPX gained 29.52 points from open to close. The SPX intraday trading range was 19.53 points. The 5-Day average intraday trading range is 15.9 points, the 10-Day average is 18.2 points, and the 20-Day average is 17.64 points. The trading range is contracting. The 5-Day SPX gain is 0.37%, the 10-Day gain is -0.11%, and the 15-Day gain is -1.17%.
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 Thursday 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 35 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, our bias is slightly bearish for Thursday's session.
Wowsers. The strongest day in 100 sessions right on the heals of the worst day in 100 sessions just a few days ago. This is usually a bullish signal going forward but the times that is hasn't been bullish, the times it has failed, were dramatic as this kind of action was a prelude to the crashes of 1929, 1987, and 2008. Odds favor continuation upward while the handful of failures are scary.
The charts are still governed by a pattern of lower highs. The significant moving average crossovers have not yet begun to signal any bullish crossovers. Market follow through is vital but a small range consolidation session on Thursday seems a reasonable probability.
We are looking for continued choppy and volatile trading but our Market Internals data has suddenly turned bullish; we have learned to be very cautious about betting against the internals. While this may well be a time where the internals get whipsawed, conservative traders can make good money enduring whipsaw and simply going with the data. It is worth mentioning that the Market Internals turned bearish after trading on May 3rd. The Russell 2000 closed at 807 on May 3rd. A trader who was short and held even through today's face-ripping rally would have netted 42 points.
SPX levels to watch include 1307; a close above is bullish and a close below is bearish. For the Russell 2000, keep an eye on the 759 level.
Thursday, June 7
Economics
08:30 Initial Jobless Claims – consensus 380K, prior 383K
08:30 Continuing Claims – consensus 3238K, prior 3242K
3:00 Consumer Credit – consensus $10.30B, prior $21.35B
01:30 AUD Employment Change
05:00 JPY Leading Index
05:45 CHF Unemployment Rate
07:15 CHF CPI
11:00 GBP BOE Asset Purchase Target
11:00 GBP BOE Rate Decision
23:50 JPY GDP
France and Spain selling bonds
Earnings
Before:
Anheuser-Busch Inbev (BUD) EPS 91c, revs $9.30B
J.M. Smucker (SJM) EPS 98c, revs $1.35B
Lululemon (LULU) EPS 30c, revs $272.95M
UTI Worlwide (UTIW) EPS 16c, revs $1.24B
After:
No major earnings
Oil inventories dropped 100,000 barrels. Last week they rose 2.2 million. On Thursday we will get initial claims.
Thank you for reading. Think on it, trade on it, and be well.
-Mel