European Debt Downgraded; Mild Market Reaction
by Jerome "Mel" Hickerson
Market Recap:
European markets and U.S. futures first celebrated another better-than-expected bond auction in Italy. Then disappointing earnings from JPMorgan Chase triggered some selling. The government reported that Import Prices for the month of December fell by -0.1%, which was below the consensus for an increase of +0.1%. Export prices fell by -0.5%, which was below last month’s level of +0.1%. The U.S. Trade Deficit expanded to $47.8 billion in November, which was greater than the consensus estimate for a deficit of $44.7 billion. The October reading was revised to $43.27 billion from $43.47 billion.
Friday’s session began with a gap lower and then worked sideways for half an hour before selling off several more points to put the low of the day on the chart just before the end of the first hour of trading. The rest of the day pretty much duplicated the pattern we saw all week; early morning low followed by low volume drift higher as the SPX recovered to close eleven points off the lows near the intraday highs.
Checking our Market Leaders Board, all of our leaders closed in the red on Friday, with the chip makers (SOX) by far getting the worst of it.
SPX big winners were CF Industries Holdings Inc (CF) 3.8%, TripAdvisor (TRIP) 3.72%, and Harley-Davidson Inc (HOG) 3.17%. SPX big losers were Alpha Natural Resources (ANR) -10.88%, Electronic Arts Inc (EA) -7.63%, and Consol Energy Inc (CNX) -6.09%.
SPX five day big winners are TripAdvisor (TRIP) 15.41%, Sears Holding Corp (SHLD) 14.93%, and First Solar Inc (FSLR) 13.18%. SPX five day big losers are Cabot Oil & Gas Corp (COG) -16.76%, Supervalu Inc (SVU) -14.46%, and QEP Resources (QEP) -13.5%.
New Ten Day Highs: AXP, AZO, BBT, BIIB, COF, CAT, CF, CTXS, CMA, DO, DFS, DOV, DNB, DD, ROST, FAST, FITB, GWW, HOG, HBAN, JCI, KEY, LM, LXK, MTB, NYT, ORLY, OMC, PBCT, PBI, PRU, QCOM, RF, ROK, SLE, SHLD, STJ, SRCL, TSS, USB, VNO, VMC, WY
New Ten Day Lows: ABT, AFL, AIV, AIZ, AVB, BHI, BMS, BXP, COG, CFN, CNP, CHRW, CHK, CVX, XEL, KO, CL, COP, CNX, ED, CEG, CVH, D, DPS, DTE, DUK, EIX, ESV, ETR, EQT, EQR, EXC, EXPE, XOM, FE, GME, GT, TEG, IBM, JNJ, KMB, LO, MA, MCK, NTAP, GAS, NBL, JWN, NU, POM, PM, PPL, PG, PGN, PEG, DGX, STR, SCG, SPG, SVU, TE, TIF, TSN
Market Recap – Weekly Review:
The SPX gained 11.28 points during the week (0.88%). The range for the week was 22.27, 1.74%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 69. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 202,000. On the NYSE, the advance/decline line increased during the week by 2,561 and the 10 day average of Net Advancing decreased by -17. There were 535 New Highs and 87 New Lows. The week closed at 65.29% of the weekly range.
For the week, SPX advancing issues (345) averaged 6.2 million shares traded per day ($170.7 million each stock) and declining issues (141) averaged 5.9 million shares traded per day ($248. million each stock.)
For the week, the NASADQ 100 advancing issues (68) averaged 6.7 million shares traded ($228.8 million each stock) each day and declining (30) issues averaged 7.0 million shares traded ($418.7 million each stock each day.)
Once again, notice that during an up week that traders were putting their money into the declining stocks. This sort of “bottom feeding” most often signals a rally that is exhausted.
Volume & Breadth Indicators
For the SPX Index there were 115 components advancing and 353 components declining. On the NYSE 3,147 issues were traded with 1,062 advancing issues and 1,972 retreating issues, a ratio of 1.86 to one declining. There were 100 new highs and 25 new lows. The five day moving average of New Highs is 107 while the five day moving average of New Lows is 17 and the ten day moving average of Net Advancing is 444. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 2.92 to one. The closing TRIN was 1.72 and the final tick was -126. The five day average of TRIN is 1.02 and the ten day average of TRIN is 1.02. The NYSE Composite Index lost -0.64% today while the SPX lost -0.5%.
For the NYSE, relative to the previous 30 session average, volume was 1.68% above the average. Of the last 15 sessions one session ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 20 sessions ended on a positive tick, 8 of last 10. For the SPX, the day's volume was 86.3% of the average daily volume for the last year. Volume was 103.6% of the last 10 day average and 95.7% of the previous day’s volume.
Total tick for the day was 202,000 and the average tick for the day was 130. There were 57 ticks greater than 600 and 38 ticks more extreme than -600. There were no ticks greater than 1000 and 2 ticks more extreme than -1000.
The tick data Friday shows that the tick action was very quiet after the opening hour. But the largest ticks were ruled by the bears, suggesting that panic selling was somewhat more common than panic buying.
The intraday volume pattern once again shows the morning spike of volume followed by decreasing volume. This pattern was seen every day this week.
Moving Average and Support/Resistance Indicators:
50.8% of the SPX are above their five day moving average, 68.2% are above their 10 day average, 76.8% are above their 20 day moving average, 73.8% are above their 50 day moving average, and 47.6% are above their 200 day moving average.
There was one significant moving average crossover Friday as China’s 20 DMA crossed above the 100 DMA. Our moving average Power Rating is 69 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Energy -- Outperformed the SPX by +15%.
- Consumer Staples -- Outperformed the SPX by +43%.
- Utilities -- Outperformed the SPX by +43%.
- Health Care -- Outperformed the SPX by +4%.
- Consumer Discretionary -- Outperformed the SPX by +24%.
Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -17%.
- Financials -- Underperformed the SPX by -9%.
- Industrials -- Underperformed the SPX by -28%.
- Technology -- Underperformed the SPX by -12%.
In Late Trading:
196 SPX components moved upward and 128 components downward during the after hours with 189.9 million shares traded.
What We Learned from Friday's Action:
Friday was session 1 to close below the 5 DMA, session 17 to close above the 10 DMA, session 17 to close above the 20 DMA, and session 17 to close above the 50 DMA. This was also session 15 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 7.02 points above the 10 DMA.
The SPX 5 DMA is 1289.97, 10 DMA is 1282.07, 20 DMA is 1262.2, 50 DMA is 1244.19, 100 DMA is 1217.49, and 200 DMA is 1257.89.
On Friday the SPX traded above the opening range but did not trade below the opening range. 23.4% of the SPX closed up from the previous close; 51.6% closed higher than the open. During Friday's session the SPX lost -5.73 points from open to close.
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 Tuesday is -2. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, our bias is slightly bearish for Monday's session.
This was another difficult week for trading as the intraday trading range during the week averaged less than ten points. This type of range gives very few tradable moves during the session and forces most trade activity to be short term swing trades. We closed four positions during the week and have two open layers of TZA, from $24.00 and from $23.80.
Now, let’s take a quick look at our SPX sectors and review key sectors to see what changed during the week. This was a narrow range week and we can see that reflected on our chart as there aren’t many changes.
For Basic Materials, 29 components advanced during the week and one (BMS) declined. 33.3% components have their 50 DMA above their 200 DMA (up from 30.0% last week.) The 20 DMA crossed above the 50 DMA this week.
For Energy, 16 components advanced during the week and 21 declined. 40.5% components have their 50 DMA above their 200 DMA (up from 35.1% last week.) The sector closed below the 10 DMA this week.
For Financials, 67 components advanced during the week and 13 declined. 21.0% components have their 50 DMA above their 200 DMA (down from 22.2% last week.)
For Industrials, 54 components advanced during the week and 7 declined. 29.5% components have their 50 DMA above their 200 DMA (up from 23.0% last week.)
So even though the SPX gained only 0.88% for the week, the “risk” sectors appear to have had a pretty strong week. But we continue to have strong doubts about the staying power of this rally while all four of the risk sectors have their 50 DMA below the 200 DMA.
The Advance/Decline Line continues to outperform the indices. This is frequently a bullish signal and contradicts some of the other internal data.
For the upcoming week, seasonality turns distinctly negative for January option expiration week. This is especially true for the Technology sector. Seasonality can easily be overwhelmed by fundamental developments and other factors. But starting any earnings season with the market overbought has a strong tendency to set up traders for disappointment as high expectations are often difficult to exceed. Coupled with the seasonal tendency, the overbought conditions make us expect a down week.
Week of January 16 - January 20 Overview
Date/Time Release/Consensus
01/17/12 8:30 Empire Manufacturing/101/18/12 7:00 MBA Mortgage Index/NA
01/18/12 8:30 PPI/0.001
01/18/12 8:30 Core PPI/0.001
01/18/12 9:00 Net Long-Term TIC Flows/NA
01/18/12 9:15 Industrial Production/0.005
01/18/12 9:15 Capacity Utilization/0.781
01/18/12 10:00 NAHB Housing Market Index/21
01/19/12 8:30 Initial Claims/387K
01/19/12 8:30 Continuing Claims/3613K
01/19/12 8:30 CPI/0.001
01/19/12 8:30 Core CPI/0.001
01/19/12 8:30 Housing Starts/670K
01/19/12 8:30 Building Permits/680K
01/19/12 10:00 Philadelphia Fed/10
01/19/12 11:00 Crude Inventories/NA
01/20/12 10:00 Existing Home Sales/4.57M
Monday, January 16
Economics
US Markets are closed for holiday
00:30 AUD Home Loans
10:00 Italian General Government Debt
21:45 NZ Card Spending
5:15 Germany to sell EU4b 6-month bills
9:00 France to sell up to EU1.7b 364-day, EU1.8b 182-day, EU4.2b 91-day Bills
Tuesday, January 17
Economics
08:30 Empire Manufacturing – consensus 11
11:30 U.S. to sell $29b 3-month, $27b 6-month bills
02:00 CNY Real GDP
02:00 CNY Industrial Production
02:00 CNY Retail Sales
09:30 GBP CPI
10:00 EUR Euro-Zone CPI
10:00 EUR German ZEW Sentiment Survey
14:00 CAD Bank of Canada Rate Decision
04:30 Spain to sell 12-, 18-month bills
05:00 Greece to sell bills
06:00 EFSF to sell up to EU1.5b 182-day bills
Earnings
Before: CHKP, C, FRC, FRX, MTB, MMR, EDU, EDU, AMTD, WFC
After: ADTN, CREE, FULT, LLTC, PNFP, RNST
The trade deficit came in at $47.8 billion, more than the expected $45.8 billion. Consumer sentiment was 74, better than last month's 69.9. On Tuesday we will get the Empire State manufacturing survey.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
