Buying the Rumor This Week?
by Jerome "Mel" Hickerson
The session opened with mild selling pressure from the futures, rushed down to equalize with the futures, stabilized until about 9:45 before dropping hard setting the low of the day at 9:59. From there, the SPX bounced hard until 11:00 then coiled sideways for several hours before moving upward just before 3:00 and then making a very sudden down move just after 3:00. But after the down move, the index climbed bullishly into the close, closing near the high of the day setting a new closing 52 week high.
Today’s action was fueled by bad news in the early going; China credit tightening, then the dollar opened strongly. But then bank upgrades and same store sales gave the market a boost and the bulls took control back from the bears.
The financials are once again leading the charge higher. There has been significant rotation this week out of the tech stocks into the financials. This is either a head fake or a signal that this rally has more legs than a centipede. I can’t yet decide which it is but I know that this bears watching. We had a clear signal into late December that the rally was likely to fade; that signal is no longer so clear. The XLF sits atop a rising 50 day moving average; if the XLF should also set a new 52 week high, then we have a clear rally signal. Until then, we’re blessed with mixed signals and caution either way is the recommended course. I was pretty well convinced the rally was ready to expire; I am no longer as confident of that. I am beginning to believe that we are going to see a lot of sideways, with a couple of corrections and rallies, before seeing more upside action in the second quarter.
But before getting too carried away with today’s upward appearance, let’s take a moment to look at a few other indices (See the attached chart.) The weaknesses in the tech stocks, including the chips index, as well as weaknesses within utilities and transportation indices all suggest that bulls need to be concerned before charging in. The strength in the XLF may carry the day; or we may see these weaknesses overtake the SPX in the next few days.
Reviewing the stocks of some market leaders, I see a lot of red: AMZN, AAPL, GOOG, RIMM, INTC, YHOO, MSFT, FDX, UPS. There is a lot of weakness to be seen within the strength.
For Friday, the early morning is almost certain to be driven by the non-farm payroll numbers released before the open. If you have read my analysis for any length of time, you know that I am neither bullish nor bearish; but I have opinions and I voice them. And I’ll continue to do so, including my thoughts on tomorrow’s payroll numbers.
I believe that much of this week’s 27 point gain has been in anticipation of good numbers tomorrow. There have been many indications that the numbers will be quite good, not the least of which is data that shows that the government collected more payroll taxes in December than analysts had expected. So I believe good employment numbers are baked in for tomorrow. I think we’ve seen a “buy the rumor” reaction this week, and we may well see a “sell the news” response tomorrow regardless of however good the numbers might be. So if we get good employment data and the market sells off, don’t scratch your head and wonder what happened.
The overbought conditions could also aggravate any potential for a sell-off. My model (which does not take into account news releases) is calling for a pullback. Yes, it has been for a couple days, and eventually we will get a pullback; everything is about timing. A mathematical model leaves all kinds of room for error; it simply provides an edge, it isn’t and doesn’t claim to be a crystal ball.
Friday, January 8
Economics
08:30 Average Workweek 33.2 cons.
08:30 Hourly Earnings 0.2% cons.
08:30 Nonfarm Payroll 0k cons. (Note that the consensus is zero jobs lost)
08:30 Unemployment Rate 10.0% cons.
10:00 Wholesale Inventories -0.1% cons.
03:00 Consumer Credit -$5.0 B
Earnings
Before: AZZ, PSMT
Mel’s Random Hits:
• Total tick for the day was +195,000. The entire session was positive with the exception of the first 45 minutes.
• The day's range was 11.14 points. This is still a very tight trading range; less than 1%.
• The day's volume was 94.8% of the average daily volume for the last year. Volume was 166% of the last 10 day average.
• 28% of the SPX stocks closed with two day RSI above 90. 40% closed with RSI above 80. 14% closed with RSI below 20 and 7% closed with RSI below 10.
• 68% of the SPX are above their five day moving average, 66% are above their 10 day average, and 78% are above their 20 day moving average.
• 19% of the SPX stocks closed below their most recent previous lows.
• 32% of the SPX closed above their most recent previous high.
• 69.2% of stocks closed in the top half of the day's range. (30.8% closed in bottom half.)
• 7.2% of stocks closed in the bottom 20% of the day's range.
• 22.0% of stocks closed in the top 10% of the day's range.
• 24.2% of stocks closed within 2% of their 52 week high.
• 24.0% of stocks closed within 50% of their 52 week low.
• 25.6% of stocks closed within ¼% of their high for the day.
• 3.6% of stocks closed within ¼% of their low for the day.
• 54.0% of the SPX closed up from the previous close; 60.6% closed higher than the open. Only 54% closed higher than yesterday’s close?
• Sectors weaker than the SPX for the day: Energy, Basic Materials, Health Care , Utilities, Technology, and Consumer Staples
• Sectors stronger than the SPX for the day: Industrials, Financials, and Consumer Discretionary. Six sectors weaker than the SPX today.
• The $SOX index strength was weaker than the SPX again today.
• The 2 Day RSI of the SPX is 92. The Dow RSI is 84, NASDAQ is 45 and Russell 83. Evidence of the sector rotation out of tech into financials continues.
• SPX components were flat during the after hours with more than 114 million shares traded.
• Historical data suggests fading the gap tomorrow, regardless of which way it goes. The employment data gap – usually significant – is almost always filled within a few days.
• On a purely personal note, with apologies to all my Wolverines readers, my 17 year old daughter received her Ohio State University acceptance letter today and we are looking forward to becoming even more of Buckeye fans. GO BUCKS!
Have a great Friday!
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"Mel"
