Euphoria from "Less Bad" Employment Data
by Jerome "Mel" Hickerson, MarketsPath.com
A net loss of “only” 36,000 jobs in February created market euphoria before the open and the market responded with a large gap up followed by spiking even higher for the opening hour. The next four hours of the session traded within a two point range, sideways chop. But shortly before 3pm, the index surged upward several more points before trading choppily into the weekly close.
This closed out a bullish week, the best weekly gain for the SPX since the week of October 5th. Notice that the following three weeks in October netted a loss of 35 points.
So what do we think happens here? The oscillators are wound about as tight as they can get; all four major indices that I like to follow have two day RSI values of 99. The longer term RSI – I prefer the four week for longer term – has not yet reached the critical point of 80 except on the Russell but the other three are all in the 70s. From strictly an overbought standpoint, the technicals are calling for a pullback. But whether a pullback comes after a break above 1150 is in question.
And a break above 1150 could trigger a short-covering rally spike upward, as it is reasonable to assume that many bears have stops set just above the 52 week high. It may even be that the “market movers” intend to try to run those stops prior to any market pullback.
There’s no doubt that Friday’s rally was caused by the catalyst of the employment numbers – which personally I did not find impressive, I mean, eventually we need to actually begin to add jobs and put people back to work rather than blame snowstorms and settle for “less bad” numbers. But price is the Ultimate Indicator and Friday it moved upward yet again. But what was really happening?
The data I follow makes some strong suggestions about Friday; all of these suggestions are subjective and subject to many interpretations. But you are reading this to hear ideas as well as facts: What follows is analysis presented as my observation and interpretation, not as fact, just my thoughts, but hopefully presented with the facts that influence my thinking.
What I saw Friday morning was pretty much par in this employment numbers obsessed market. The less bad numbers caused the expected reaction with the opening hour surge. We then had four hours of decreasing volume as the indices moved nowhere with few buyers and even fewer sellers.
Now here come my opinions mixed with observations: The last 90 minutes traders began anticipating the bullish Monday syndrome and started to cover short positions. There were few sellers; covering short positions drove prices higher on low volume causing yet more bears to cover.
Facts: The tick pattern on Friday was extremely unusual. On the plus side, there were four ticks greater than 1000, two during the morning surge and two right at 3pm. This near lack of extreme positive ticks on such a rally day is very unusual; on days such as this institutional buying usually drives several ticks to extremes. The other telling thing was the total absence of negative ticks the entire day. At 3:26pm there was a minute and a half of -400 ticks. And that sums up the entire selling surge of the day. Even at that, it was a mild sell, certainly too small to be institutional. Everything about Friday’s tick pattern strongly suggests a lack of institutional activity.
The tick evidence also makes me think we had a day dominated not by bulls but by bears. I think bulls were on the sideline watching while bears were scrambling; there was certainly an absence of sellers but buyers were also almost absent. I think we were watching bears cover positions rather than bulls driving prices upward.
For Monday, I am taking a bearish bias in spite of the recent history of bullish Mondays. My model suggests that we are seeing a timeframe similar to late August 2009 or similar mid January 2010; take your pick, but both time periods led to a pullback.
SPX Summary for Friday, March 05, 2010
459 Advancers/36 Decliners for the week of March 1st
472 Advancers/24 Decliners
Today's SPX component winners and losers:
• Largest one day loser is FTR with -4.69%
• Largest three day loser is FTR with -4.57%
• Largest five day loser is SPLS with -9.52%
• Largest ten day loser is HRB with -20.98%
• Largest one day winner is DF with 6.24%
• Largest three day winner is NOVL with 23.64%
• Largest five day winner is NOVL with 25.74%
• Largest ten day winner is MIL with 47.42%
*** 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 71.
The greatest positive five day momentum component is NOVL; the greatest negative five day momentum component is SPLS. The average five day momentum of all 500 components is 3.95.
81.20% of the SPX components are giving a crossover Buy signal; 4.40% of the SPX components are giving a Sell signal. This is a 18.5 to 1 ratio of Buy signals over Sell signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 9 components.
• From Buy to Neutral: 6 components.
• From Neutral to Sell: 5 components.
• From Neutral to Buy: 49 components.
Monday, March 8
Economic
No economic news of significance scheduled
Earnings
Before: COMV, DGW, FREE, YGE
After: ARNA, CASY, FPRT, HRB, MAKO, RSCR, SNHY, TIVO, VVUS
Auction
11:30 3-Month Auction
11:30 6-Month Auction
Speeches
08:35 Kevin Warsh
Events
DENN, AZO, LTM, URBN at Stifel Nicolas Consumer Conference
HERO, KNOL, NVDA, CHKP at Raymond James Institutional Investors Conference
MSFT, CRNT, RSYS, ACTL at Jefferies & Co Global Technology Conference
AOL, VZ, LVLT, CTL at Credit Suisse Group Global Media and Communications Conference
BABY, LLY, INCY, IMMU at Cowen and Company Healthcare Conference
PEG Analyst Conference
Mel’s Random Hits:
• Total tick for the day was +441,000. Friday was quite the unusual day; until around 30 minutes before the close, it was unique. Until the last half hour, the most negative tick of the entire day was -300. Needless to say, with those numbers, there were no stretches of negative breadth; there were no time periods even close.
• Total tick for the week was over a million; there have been two such weeks in the last six months: September 14th – 18th and January 4th – 8th. The following two weeks after the September 14th week lost 43 SPX points total, and the first week of January was followed by four losing weeks giving up a total of 78 SPX points.
• The day's range was 14.26 points. This is still a quite small trading range in spite of the significant move upward.
• The week’s trading range was 3.08%, opening at the low of the week and closing a half point from the top of the weekly range. Since 1950 the first week of March has been up more than +2.5% ten times. The rest of month was up only twice.
• The day's volume was 78.1% of the average daily volume for the last year. Volume was 98.2% of the last 10 day average and 104.8% of Thursday’s volume.
• The average daily volume for the week was the lowest since Christmas and New Years week. If you exclude holiday weeks, there are no examples of similar volume for an entire week going back several years to when average volume was lighter. This week was unique when considering volume patterns.
• 48% of the SPX stocks closed with two day RSI above 90. 69% closed with RSI above 80. 2% closed with RSI below 20 and 1% closed with RSI below 10. Step back and digest these numbers again; 242 of the SPX components have an RSI greater than 90. This is about as overbought as it gets.
• 90.4% of the SPX are above their five day moving average, 93.0% are above their 10 day average, and 94.4% are above their 20 day moving average. These numbers are stunningly overbought.
• 2% of the SPX stocks closed below their most recent previous lows.
• 70% of the SPX closed above their most recent previous high.
• 88.4% of stocks closed in the top half of the day's range. (11.6% closed in bottom half.)
• 2.2% of stocks closed in the bottom 20% of the day's range.
• 32.4% of stocks closed in the top 10% of the day's range.
• 30.8% of stocks closed within 2% of their 52 week high. 48.6% of stocks closed within 5% of their 52 week high. These numbers surged upward Friday.
• 25.6% of stocks closed within 50% of their 52 week low. 8.2% of stocks closed within 25% of their 52 week low.
• 43.6% of stocks closed within ¼% of their high for the day.
• 2.2% of stocks closed within ¼% of their low for the day.
• 94.2% of the SPX closed up from the previous close; 85.4% closed higher than the open.
• Sectors weaker than the SPX for the day: Basic Materials, Technology, Consumer Staples, and Utilities.
• Sectors stronger than the SPX for the day: Industrials, Energy, Health Care, Financials, and Consumer Discretionary.
• The $SOX index strength was equal to the SPX today.
• The 2 Day RSI of the SPX is 99. The Dow RSI is 99, NASDAQ is 99 and Russell 99. Symmetry is a thing of beauty.
• Over the last four sessions, the average session closed 59% of the range above the low.
• Upside momentum moved upward from yesterday’s 2.46 to today’s 3.95. This is an overbought indicator. The ratio of SPX components giving a crossover buy signal compared to sell signals has jumped to 18.5 to 1. This is an overbought indicator.
• 201 SPX components moved upward and 147 components downward during the after hours with 113 million shares traded.
Have a great weekend everyone!
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"Mel"
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