Groundhog Day Deja Vu
by Jerome "Mel" Hickerson
The session opened with mild buying pressure but internals were showing weakness and the index chopped in a small two wave pattern setting the low of the day at 10:04. From there the bulls charged back and were in total control. Shorting the index was futile the rest of the session as the high of the day was at 3:21 and there were really no tradable pullbacks along the way. The day closed after a very mild pullback but near the highs of the day.
It’s Groundhog Day and the market has returned to repeatedly closing in between 1084 and 1114. It’s déjà vu all over again. From November 9th through December 21st the index closed within that range 30 sessions consecutively. We have now closed within that range seven of the last eight days. The six weeks when we were range bound before, the winning trade was to buy 1085 and sell 1110. We made that journey up and down at least four times. Only 21 of the last 58 sessions have closed outside of that narrow range and many of those were within a few points of the range.
Are we going to relive our own version of Groundhog Day and travel this same territory multiple times yet again? I wouldn’t be surprised. The market has a way of remembering past trading ranges.
Before we get too bullish, I suggest that everyone remember how bearish they were just a couple of sessions ago. This bounce may last a few more days but I believe it is just a snapback bounce. Short-term momentum appears to have turned the corner to the upside but the ratio of stocks giving sell signals has not changed much.
There are many internal indications that this rally is weak; those indications may yet turn bullish but for now they are not. This still has every appearance of a rebound during a downward move. Yes, volume did increase on today’s rally; but it was hardly convincing. Financials, Technology, and Basic Materials are not the sectors that should be lagging to sustain a rally; these sectors should be leading, not lagging.
For Wednesday, the economic data released will likely drive the market. Our model is mildly suggesting consolidation or a slow pullback but the ADP numbers before the open will likely heavily influence the early part of the trading day. Another 1% up day would be surprising.
SPX Summary for Tuesday, February 02, 2010
432 Advancers/62 Decliners
Today's SPX component winners and losers:
• Largest one day loser is ETFC with -4.38%
• Largest three day loser is AVY with -11.83%
• Largest five day loser is QCOM with -16.60%
• Largest ten day loser is X with -26.68%
• Largest one day winner is DHI with 12.87%
• Largest three day winner is EK with 15.85%
• Largest five day winner is EK with 52.67%
• Largest ten day winner is EK with 37.95%
*** SPX Technical Summary ***
The lowest 14 day RSI component is AYE; the highest 14 day RSI component is EK. The average 14 day RSI of all 500 components is 44.
The greatest positive five day momentum component is EK; the greatest negative five day momentum component is QCOM. The average five day momentum of all 500 components is 1.23.
9.80% of the SPX components are giving a crossover Buy signal; 70.60% of the SPX components are giving a Sell signal. This is a 7.2 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 42 components.
• From Buy to Neutral: 5 components.
• From Neutral to Sell: 12 components.
• From Neutral to Buy: 5 components.
Wednesday, February 3
Economics
07:30 Challenger Job Cuts
08:15 ADP Employment Change
10:00 ISM Services 51.0 cons.
10:30 Crude Inventories
Earnings
Before: ALVR, BDK, BCO, CMCSA, DBD, ITT, LAZ, NOV, PFE, RL, R, SVVS, SLAB, TMO, TWX, TZOO, WU, WWW
After: AKAM, AMP, NLY, ATW, BBBB, CELL, BRCM, CDNS, CBG, CSCO, EFX, FNF, HRC, KIM, WFR, MWW, NBIX, ONNN, OTEX, RNOW, SSTI, SFN, SPF, STLD, THQI, V, WLT, YUM
Speeches
01:00 Kevin Warsh
A heavy volume of labor market news kicks off Wednesday. A report from payrolls-services firm ADP is expected to show that private-sector employment fell 40,000 in January after falling 84,000 in December. Outplacement firm Challenger Gray & Christmas reports on announced job cuts in January. The Institute for Supply Management's January reading on the services sector of the economy is due in the morning, as is the government's latest report on crude inventories.
Mel’s Random Hits:
• Total tick for the day was 392,000. Breadth was negative for 45 minutes at the start of the day then the rest of the session was wildly positive. October 5th was the last day with similar breadth; the index proceeded to rally 60 points in the next eight sessions.
• The day's range was 16.77 points.
• The day's volume was 86.33% of the average daily volume for the last year. Volume was 91.47% of the last 10 day average.
• 15% of the SPX stocks closed with two day RSI above 90. 43% closed with RSI above 80. 4% closed with RSI below 20 and 2% closed with RSI below 10.
• 87.8% of the SPX are above their five day moving average, 61.8% are above their 10 day average, and 32.8% are above their 20 day moving average.
• 2% of the SPX stocks closed below their most recent previous lows.
• 69% of the SPX closed above their most recent previous high.
• 87.6% of stocks closed in the top half of the day's range. (12.4% closed in bottom half.)
• 1.8 of stocks closed in the bottom 20% of the day's range. Again, powerful evidence that we closed at the highs for the session.
• 31.4% of stocks closed in the top 10% of the day's range.
• 6.2% of stocks closed within 2% of their 52 week high. 22.4% of stocks closed within 5% of their 52 week high. These numbers surged today.
• 26.6% of stocks closed within 50% of their 52 week low. 8.2% of stocks closed within 25% of their 52 week low.
• 31.2% of stocks closed within ¼% of their high for the day.
• 1.6% of stocks closed within ¼% of their low for the day.
• 85.0% of the SPX closed up from the previous close; 80.6% closed higher than the open.
• Sectors weaker than the SPX for the day: Basic Materials, Financials, Utilities, and Technology. It’s okay for Utilities to lag but the other three sectors need to lead.
• Sectors stronger than the SPX for the day: Consumer Staples, Consumer Discretionary, Energy, Industrials, and Health Care.
• The $SOX index strength was weaker than the SPX today.
• The 2 Day RSI of the SPX is 83. The Dow RSI is 86, NASDAQ is 69 and Russell 76. The NASDAQ continues to lag.
• Over the last five sessions, the average session closed 63% of the range above the low. This becomes an oversold condition at 80%.
• Downward momentum has turned positive moving from -4.81 last Tuesday to the 1.23 currently. But the ratio of SPX components giving a crossover sell signal compared to buy signals remains at 7.2 to 1.
• February is historically a difficult month for the markets. It is not common for February’s low to be at the monthly open but recent examples include 1998 and 2005. Since 1950, ten Februarys have failed to move at least 0.5% lower than the month opened (1950, 1951, 1962, 1970, 1986, 1987, 1995, 1996, 1998, and 2005.) The average February since 1950 moves 3% lower than the open and more than 75% of the Februarys since 1950 have traded at least 1% lower than the open. So far in 2010, the monthly open has been the low; odds would seem to favor that we trade lower as some point during the month.
• 287 SPX components moved upward and 107 components downward during the after hours with 125 million shares traded.
Have a great Wednesday everyone.
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"Mel"
