DOW Rallies 132 Points from 188 Points Down
by Jerome "Mel" Hickerson
Thursday’s session opened under intense selling pressure as the futures plunged overnight due to escalating concerns regarding the Greece debt issues and other economic concerns, including but not limited to employment numbers released shortly before the open that just added further fuel to the negativity. So the SPX gapped down hard at the open finding stability down almost 19 points fifteen minutes into the trading putting the low of the day on the chart. From there, the index traded sideways within a four point range for several hours in choppy trade before breaking out of the coil to the upside in a powerful thrust about 1:45. The last two hours were a bullish run into the close.
But should today’s powerful (and don’t kid yourself, it was powerful) reversal be seen as bullish? Let’s back up a moment and review the last couple of days.
On Wednesday the market rallied despite bad news from the housing market based on the testimony by FED Chairman Bernanke that the recent rise in the discount rate did not necessarily mean that interest rates on Fed funds would be going higher anytime soon. But even though the major indices recovered a significant portion of Tuesday's losses, they were not able to completely erase the losses of the prior two days, nor were the indices able to push above their 50 day moving averages.
The SPX 50 day average is near 1108; any credible rally attempt must close above and hold that. The 20 day average is in the 1086 area and bulls need to keep the index above that. These averages also correspond well with the 1084-1114 trading range that we have been mired within for much of the last three months. Trading between the two averages is like playing football between the 20 yard lines; it’s a defensive struggle as we move back and forth.
With buyers remaining absent, Wednesday’s rally should be interpreted as an unenthusiastic attempt to surmount the overhead resistance that is becoming stronger. Today’s morning decline hints of further weakness ahead although the powerful afternoon surge argues for upside ahead.
For me, as long as the market remains mired within the 1084-1114 trading range, I will continue to recommend selling at 1110 and buying at 1090. Try to take some money from the battleground and who cares who eventually wins.
But looking at the daily SPX chart for February might be telling us something. Today’s reversal painted a Dragonfly Doji on the chart, similar to February 5th. I am not saying we rally hard in the upcoming days, but you have to consider the possibility. It does appear likely that we may at least for a short time break out to the upside.
Our model has mixed signals for Friday, but one signal that I trust is suggesting a couple of days of upside. So I’ll be neutral-to-bullish on Friday and trade accordingly.
SPX Summary for Thursday, February 25, 2010
211 Advancers/279 Decliners
Today's SPX component winners and losers:
• Largest one day loser is GME with -6.96%
• Largest three day loser is HRB with -13.95%
• Largest five day loser is HRB with -18.59%
• Largest ten day loser is HRB with -16.59%
• Largest one day winner is CCE with 32.90%
• Largest three day winner is CCE with 30.12%
• Largest five day winner is MIL with 33.13%
• Largest ten day winner is MIL with 37.24%
*** SPX Technical Summary ***
The lowest 14 day RSI component is HRB; the highest 14 day RSI component is MIL. The average 14 day RSI of all 500 components is 63.
The greatest positive five day momentum component is MIL; the greatest negative five day momentum component is HRB. The average five day momentum of all 500 components is 0.33.
66.20% of the SPX components are giving a crossover Buy signal; 7.60% of the SPX components are giving a Sell signal. This is a 8.7 to 1 ratio of Buy signals over Sell signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 7 components.
• From Buy to Neutral: 30 components.
• From Neutral to Sell: 12 components.
• From Neutral to Buy: 29 components.
Friday, February 26
Economics
08:30 GDP - Second Estimate 5.6% cons.
8:30 GDP Deflator - Second Estimate 0.6% cons.
9:45 Chicago PMI 59.0 cons.
9:55 U Michigan Consumer Sentiment - Final 73.9 cons.
10:00 Existing Home Sales 5.5 mln cons.
Earnings
Before: AYR, FRO, FCN, JRCC
After: AES
A busy day for economic news with the release of the second reading on fourth-quarter gross domestic product growth. GDP is expected to hold steady at 5.7%, unchanged from the first reading. The National Association of Realtors report is due out shortly after the start of trading. Existing home sales are expected to have improved in January after falling in December. Sales are expected to have risen to a 5.50 million unit rate from a 5.45 million unit rate in December. The Chicago PMI is expected to have fallen to 59.0 in February from 61.5 in January. The revised reading on consumer sentiment from the University of Michigan is expected to have risen to 74 from 73.7.
Mel’s Random Hits:
• Total tick for the day was +147,000. Breadth usually leads the market and breadth continues to suggest upward. Today, breadth was mostly negative through noon; and never negative after that.
• The day's range was 17.48 points.
• The day's volume was 84.0% of the average daily volume for the last year. Volume was 97.7% of the last 10 day average and 109% of Wednesday’s volume.
• 9% of the SPX stocks closed with two day RSI above 90. 21% closed with RSI above 80. 16% closed with RSI below 20 and 8% closed with RSI below 10.
• 44.4% of the SPX are above their five day moving average, 64.0% are above their 10 day average, and 73.6% are above their 20 day moving average.
• 12% of the SPX stocks closed below their most recent previous lows.
• 28% of the SPX closed above their most recent previous high.
• 96.4% of stocks closed in the top half of the day's range. (3.6% closed in bottom half.)
• 0.6% of stocks closed in the bottom 20% of the day's range.
• 62.0% of stocks closed in the top 10% of the day's range.
• 11.8% of stocks closed within 2% of their 52 week high. 30.2% of stocks closed within 5% of their 52 week high.
• 27.2% of stocks closed within 50% of their 52 week low. 8.6% of stocks closed within 25% of their 52 week low.
• 30.82% of stocks closed within ¼% of their high for the day.
• 0.2% of stocks closed within ¼% of their low for the day. That is one stock; it was a broad bounce.
• 41.0% of the SPX closed up from the previous close; 89.0% closed higher than the open. The snapback was broad.
• Sectors weaker than the SPX for the day: Basic Materials, Financials, Industrials, and Technology. These are the wrong laggers for a sustained rally; we’ll watch carefully tomorrow.
• Sectors stronger than the SPX for the day: Energy, Consumer Staples, Health Care, Utilities, and Consumer Discretionary.
• The $SOX index strength was weaker than the SPX today.
• The 2 Day RSI of the SPX is 52. The Dow RSI is 38, NASDAQ is 55 and Russell 56. The NASDAQ and Russell may again be leading.
• Over the last four sessions, the average session closed 59.7% of the range above the low.
• Upside momentum inched downward from yesterday’s 0.59 to today’s 0.33. The ratio of SPX components giving a crossover buy signal compared to sell signals has decreased slightly to 8.7 to 1. This stat can be important to watch; it’s really difficult for the index to plunge dramatically when ten times as many components are signaling Buy as Sell.
• 158 SPX components moved upward and 213 components downward during the after hours with 85 million shares traded. Volume was light.
Good trading Friday everyone!
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"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
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PS UTLRSHRT QQQ (NYSE: QID)
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PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
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