Friday's Wild Ride
by Jerome "Mel" Hickerson
An interesting rather than boring session Friday, the market opened with a large “better than expected” employment numbers induced gap upward. The first 30 minutes were pure strength; the next 90 minutes were consolidation. All was pretty much business as usual until about 11:30. But then something changed. Apparently, reports of interest rate hikes circulated. Within 15 minutes, the SPX dropped 14 points before bouncing off support. The index struggled back upwards then retested support once again before bouncing somewhat timidly into the weekly close.
Moves Friday were sudden; this session was a great reminder that large moves often occur quickly. We’ve been somewhat lulled to sleep by the sleepy sessions of recent days. Count me among those who were struggling to react to the pace; I had technical difficulties right at the worst time Friday.
I suspect that the way you interpret Friday’s action depends a lot on your bias. I am going to spend more time defending the bullish side but that should not be interpreted to mean that the Bears don’t have valid points. I just know that many of my readers are bearish and it will be good for them to hear a different perspective. But please keep in mind that while I am wearing the short-term Bulls cap today, I am intermediate term bearish. There are too many weaknesses to overlook when you start looking out several days.
Looking at Friday’s tape, I see a session with a large gap upward; such gaps are almost always suspect. The gaps caused by employment data are almost always filled. So filling Friday’s gap does not seem too bearish to me. The index then bounced nicely off support twice, before managing to close near another level of resistance. I don’t see anything really bearish in this action; actually, it seems more bullish than anything. Support held twice.
Looking at the charts, starting with the daily chart, we keep closing right about in the same area. Friday’s bar was a wide range outside bar with a close just below the middle of the range. This kind of bar is not bullish but neither is it bearish; it’s more a signal of volatility and indecision. Stepping back and looking at the daily chart from a greater distance... see the attached chart. Can you really see anything bearish in that chart? Really?? I challenge anyone to show it to me.
Next, let’s look at the weekly chart. The index had a good week, closing Friday-over-Friday up almost 15 points. That’s supposed to be bearish? Huh? We opened the week near the bottom of the weekly bar and closed in upper third of the bar. Looks pretty good to these eyes.
And a quick and early glance at the monthly chart after four trading sessions shows that we have a good chance of yet again continuing the stair-stepping pattern upward. Only trade below 1030 would significantly alter this pattern; we’ve already set a new high this month as the pattern requires.
So from a chart pattern perspective, I don’t see the bearishness. The bearishness of many people is caused by fears (conviction) that we have outstripped the fundamentals. While this may well be true, if true it was also true months ago. Calling a top because of this seems just as fruitless as it was months ago.
Now, a quick review of the reasons to be suspicious of the rally here.
1. The XLF has exhibited (before Friday) weakness.
2. The increased volatility and skittishness exhibited Friday is more typical of a topped market than a strong market.
3. The repeated inability of the index to break above the current trading range; the inability to close above 1111.
4. Market breadth, which was so consistently positive through September, has become inconsistent.
5. The daily chart pattern does appear to be consistent with a topping pattern.
Based on everything I see, my outlook for next week is bullish; at least at the beginning of the week. I saw this headline Friday: “U.S. stocks close higher; dollar has biggest one-day gain since June” On a day with a green close the dollar also went up? Markets running with the dollar, the inverse correlation starting to decouple, can this be anything but a bullish sign, at least for the near-term? But if we would happen to get a couple days upward in succession, I think overbought conditions could begin to weigh on the market by later in the week.
For Monday, I expect an up day. Since Labor Day, we’ve had 13 weeks. Two weeks began with a negative session; 11 weeks began with a positive session. I’ve placed my money on the 11-2 odds.
Mel’s Random Hits:
• Total tick for Friday was 67,000. Breadth was powerful at the open; weaker through 11:30, then fell off the cliff before bouncing around 1:00. Breadth was positive for the 1:00 hour, negative for the 2:00 hour, and then turned up again for the weekly close.
• Friday's range was 22.61 points. It was a wild ride.
• Friday's volume was 101% of the average 2009 daily volume. Volume was heavy the entire session, running at 158% of the last 10 days average.
• The weekly volume was just under 77% of the average week for 2009. The weekly range was 32.88 points (3.01%) making it the 11th smallest weekly range of 2009.
• 18% of the SPX stocks closed with two day RSI above 90. 33% closed with RSI above 80. 16% closed with RSI below 20 and 7% closed with RSI below 10. This looks like we are arriving in short-term overbought territory.
• 62% of the SPX are above their 10 day moving average and 58% are above their 20 day moving average.
• 19% of the SPX stocks closed below their most recent previous lows.
• 22% of the SPX closed above their most recent previous high.
• 48% of stocks closed in the top half of Friday’s range. (52% closed in bottom half.)
• 8% of stocks closed in the bottom 20% of Friday’s range.
• 9.4% of stocks closed in the top 10% of Friday’s range.
• 20.2% of stocks closed within 2% of their 52 week high.
• 23.6% of stocks closed within 50% of their 52 week low.
• 8.6% of stocks closed within ¼% of their high for Friday.
• 1.6% of stocks closed within ¼% of their low for Friday.
• 74.8% of the SPX closed up for today.
• The 2 Day RSI of the SPX is 60. The Dow RSI is 45, NASDAQ is 80 and Russell 80. The NASDAQ and Russell had been lagging but have been the strongest for a couple days. Once again, this is how strong markets work, not weak markets. Weak markets are led down by the weak sectors; strong markets keep switching roles.
• SPX components moved significantly upward during the after hours Friday.
Have a great weekend!
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"Mel"
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