Dow Holds Strong While Small Caps Crumble
Weak data out of Germany, S&P's downgrade of 16 Spanish banks, and the fact that Spain has slipped back into recession pushed European markets into the red and the SPX futures down to begin the week. Personal Incomes rose by +0.4% in March, which was above the consensus expectations for an increase of +0.2%. The February level was revised to +0.3% from +0.2%. Personal Spending for the month increased by +0.3% which was below the expectations for +0.5% and the February reading of +0.9%.
The Monday session began with a small gap lower and worked lower throughout the opening half hour before the SPX tried to bounce. But the bounce failed quickly and the lows were tested. Tested again and again throughout the session as the SPX traded within a narrow range. The SPX lows were at 2:38 pm and the index traded with an upward bias after that. The final minutes the small caps diverged significantly lower than the SPX; this is often a bearish sign.
Our Market Leaders Board has all of our leaders closing lower today with the Russell 2000 small caps and Technology getting the worst of it while the Dow escaped without significant damage.
SPX big winners were Sunoco Inc (SUN) 17.%, Expedia Inc (EXPE) 5.84%, and Sprint Nextel Corp (S) 5.08%. SPX big losers were Humana Inc (HUM) -8.71%, Nyse Euronext (NYX) -4.99%, and Netflix Inc (NFLX) -4.36%.
SPX five day big winners are Expedia Inc (EXPE) 35.87%, Sunoco Inc (SUN) 24.88%, and Amazon.Com Inc (AMZN) 23.19%. SPX five day big losers are Netflix Inc (NFLX) -21.31%, Big Lots Inc (BIG) -19.84%, and Akamai Technologies Inc (AKAM) -14.46%.
New Ten Day Highs: MO, AEP, AMT, APA, T, AN, BBT, BDX, BIIB, BXP, COG, CAH, CNP, CTL, XEL, CMS, CCE, CMCSA, ED, GLW, DF, DNR, XRAY, DVN, D, DPS, DTE, EBAY, EIX, EMR, ESV, EOG, EQT, EXC, EXPE, FII, FMC, GPS, GPC, HAR, HAS, HSY, HCBK, TEG, JNJ, KFT, LLY, LNC, L, MMC, MAT, MCK, MDT, MRK, MUR, GAS, NKE, PLL, PDCO, BTU, PCG, PPG, PGN, PLD, STR, RRC, RDC, SLE, SCG, SO, SWN, SE, SUN, TE, TSO, TMO, TIE, UTX, AEM, VLO, VMC, WPI, AMZN
New Ten Day Lows: AET, AKAM, CME, CI, ESRX, FLIR, FTR, HUM, IGT, JDSU, CLF, LEG, NYX, OI, PG, RSH, SWY, SVU, TLAB, UNH, JASO, VAR
Volume & Breadth Indicators
For the SPX Index there were 167 components advancing and 300 components declining. On the NYSE 3,166 issues were traded with 1,191 advancing issues and 1,854 retreating issues, a ratio of 1.56 to one declining. There were 92 new highs and 14 new lows. The five day moving average of New Highs is 130 while the five day moving average of New Lows is 16 and the ten day moving average of Net Advancing is 380. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 1.89 to one. The closing TRIN was 1.15 and the final tick was 349. The five day average of TRIN is 1.14 and the ten day average of TRIN is 1.27. The NYSE Composite Index lost -0.41% today while the SPX lost -0.39%.
For the NYSE, relative to the previous 30 session average, volume was 8.17% above the average. Of the last 15 sessions 5 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 18 sessions ended on a positive tick, 8 of last 10. For the SPX, the day's volume was 80.% of the average daily volume for the last year. Volume was 88.6% of the last 10 day average and 91% of the previous day’s volume.
Moving Average and Support/Resistance Indicators:
64.2% of the SPX are above their five day moving average, 67.8% are above their 10 day average, 62.8% are above their 20 day moving average, 54% are above their 50 day moving average, and 76% are above their 200 day moving average.
There were four significant moving average crossovers today as the SPX, the Russell 2000, the Financials, and Germany all had their 5 DMA cross above the 20 DMA. Our moving average Power Rating is 69 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Monday:
- Energy -- Outperformed the SPX by +87%.
- Consumer Staples -- Outperformed the SPX by +14%.
- Utilities -- Outperformed the SPX by +54%.
- Health Care -- Outperformed the SPX by +35%.
Sectors weaker than the SPX for Monday:
- Basic Materials -- Underperformed the SPX by -36%.
- Financials -- Underperformed the SPX by -18%.
- Industrials -- Underperformed the SPX by -54%.
- Technology -- Underperformed the SPX by -30%.
- Consumer Discretionary -- Underperformed the SPX by -19%.
What We Learned from Monday's Action:
Monday was session 4 to close above the 5 DMA, session 4 to close above the 10 DMA, session 4 to close above the 20 DMA, and session 4 to close above the 50 DMA. This was also session 1 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 11.68 points above the 10 DMA.
The SPX 5 DMA is 1392.79, 10 DMA is 1386.23, 20 DMA is 1386.42, 50 DMA is 1384.15, 100 DMA is 1337.17, and 200 DMA is 1275.07.
On Monday the SPX traded below the opening range but did not trade above the opening range. 33.4% of the SPX closed up from the previous close; 42.6% closed higher than the open. During Monday's session the SPX lost -5.35 points from open to close. The SPX intraday trading range was 6.27 points. The 5-Day average intraday trading range is 8.81 points, the 10-Day average is 10.04 points, and the 20-Day average is 11.85 points. The trading range is contracting. The 5-Day SPX gain is 2.27%, the 10-Day gain is 2.07%, and the 15-Day gain is 1.14%.
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.
The Market Environment for Tuesday is zero. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be lower. Mel's 10 Day Oscillator is 50 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, we are neutral on Tuesday's bias.
Note: Working to streamline the report a bit, so the format is subject to a bit of change as we tinker with it this week. Our fear is that something important gets lost amid too much information.
Let's spend some time this evening examining our Market Internals chart. We're convinced that this chart is the most important piece of data that we provide. So it's important to understand.
On the upper left, the first data element is the Risk Sectors Uptrending. This is the percentage of uptrending stocks within the Basic Materials, Energy, Financials, and Industrial sectors. It is usually a good idea to avoid going long when this percentage is below 25% and usually not a good idea to be short when it is above 75%. We emphasize the Risk sectors because our data shows that these sectors lead.
The second data element is the SPX uptrending. This is the percentage of stocks within all the sectors of the SPX that are uptrending. We like to see this number differ from the Risk sectors by at least 4%. If it differs by more than 4%, trading bias should be long if the Risk sectors are higher and short if the Risk sectors are lower.
The third data element is the Russell 2000 Uptrending. This is the percentage of uptrending stocks within the small caps. It is usually a good idea to avoid going long when this percentage is below 25% and usually not a good idea to be short when it is above 75%.
The fourth data element compares all of the components of the four SPX Risk sectors to their Pivot price and calculates the average distance above or below the pivot. Long side is preferred when stocks are above their Pivot and short side is preferred when stocks are below their Pivot.
The last data element shows the percentage of Risk sector components that closed higher on the day. Below that field each of the four risk sectors are broken down so you can easily see where there was strength and/or weakness. (Notice today that the strength was within the Energy sector.)
So now we move onto the visual representation of the data on the chart. The easiest to explain is the Black line which is simply the Russell 2000 daily closing price.
The light green line with the daily markers represents the Risk sector percentage uptrending. (See the first data element on the left column.)
The light red line with the daily markers represents the SPX percentage uptrending. (See the second data element on the left column.)
This leaves us with two additional lines on the chart. The thick green line is a short term moving average of the thin green line while the thick red line is a slower moving average of the thin green line.
Here is how we use the chart to assist in our trading. When the thick green line is above the think red line, bias is long and bias is short when the thick red line is above the thick green line. When looking at the thin lines with the daily markers, we look for a larger move in the Risk sectors when compared to the SPX. The Risk sectors will often telegraph a market move the day before by suddenly showing an increase or decrease in risk appetite among traders.
Bringing this all together tonight to evaluate the chart and what it might be telling us about tomorrow, here is what we see. The data to the left of the chart says "bullish." When we look to the far right of the chart we see that today's pullback didn't significantly weaken the Risk sectors uptrending components. And the thick green line (faster moving average) remains above the thick red line (slower moving average.)
The whole point of this data is an attempt to remain on the side of the trend. Anything may happen Tuesday, but with the thick lines both sloping bullishly uphill and the high number of stocks uptrending, unless news erupts, odds would seem to favor the bulls. But we have three methodologies for evaluating the data and all three evaluate to zero this evening. Even Mel's Oscillator comes in at 50, dead even. So Tuesday could be a lifeless trading session.
Tuesday, May 1
10:00 Construction Spending - consensus 0.5%
10:00 ISM Manufacturing - consensus 53.0
10:00 ISM Prices Paid - consensus 58.5
5:00 Total Vehicle Sales - consensus 14.45M
5:00 Domestic Vehicle Sales - consensus 11.15M
11:00 Fed to purchase $4.25b-$5b in 6 to 8-year notes
11:30 Treasury selling 4-week bills
1:00 US selling $35b 2-year notes
EUR German Retail Sales
01:30 AUD House Price Index
04:30 AUD Reserve Bank of Australia Rate Decision
08:30 GBP PMI
Before: CAS, AMG, AGCO, GAS, ALLT, ECOL, ACI, ADM, ARW, ATRO, ADP, AVP, BDX, BIIB, BP, BPI, BRKR, CZR, CCC, CCJ, CIE, CMI, CYNO, XRAY, DIN, DPZ, DORM, DST, ECL, EMR, ENDP, EXAS, FCH, FE, FWLT, FDP, GKSR, GWR, GLT, GOV, HRS, HCP, HPY, HSP, HUN, IPXL, IPGP, JKS, KNOL, KLIC, FSTR, LM, MMC, MLM, MDSO, TYPE, NI, ODP, OSG, PFCB, PFE, PNK, POZN, PLD, RDN, RDWR, ABH, RIGL, SIRI, SPAR, SAVE, SRI, SXC, TLM, TECH, TFX, TRI, TRW, VLO, VQ, VPHM, WRES, WLK, WEC
After: ALSK, ARE, ALNY, AMAG, DOX, ACAS, ANAD, AJG, AZPN, ATW, RATE, BGFV, BIO, BMR, BXP, BRE, BRCM, BTUI, CBT, CALX, CECO, CHSI, CAVM, CBOE, CBS, CHMT, CHK, CNW, CGX, CSGS, CW, CVI, UAN, DVA, DDR, DGI, DEI, BOOM, EXAC, XCO, FEIC, FISV, FBC, FLEX, FORM, GGP, GHDX, GNW, GEVO, HR, HT, ONE, HIW, IPHS, IN, JKHY, JAZZ, JLL, KNXA, KEYN, KFRC, KND, MMI, MOTR, MWA, MYGN, NBIX, NTRI, OCZ, OKE, OKS, OTEX, OPEN, PZZA, PEET, PSEM, PLT, PRI, QSFT, QUIK, RAH, RLOC, RGC, RBC, ROG, SIMG, STRI, RGR, TMH, TE, TTEC, THOR, TWTC, TNS, TRIP, TRLG, TTMI, UBNT, UTI, UNM, VRSK, VOCS, WTS, WWWW, WBMD, INT, WMGI, AUY, ZIPR
The Chicago PMI came in at 56.2, less than the consensus 60.8. The Dallas Fed manufacturing survey came in at 5.6, less than the expected 11.1. Personal income rose 0.4%, which was more than the anticipated 0.3%.
Thank you for reading. Think on it, trade on it, and be well.