Indices Show Strength
by Jerome "Mel" Hickerson
Stocks overseas moved up on Alcoa's uncharacteristic earnings beat. This helped stock futures here in the U.S. to move up in the early going. On the economic front, the U.S. reported that the U.S. trade deficit in May fell to -42.27 billion versus estimates for -39.1 billion. Apparently all this was wonderful to traders and investors.
The session opened with a ten point gap springing above resistance in the 1085 area. The indices continued working higher throughout the session with the only significant pullbacks coming just after 1pmand right before the close. The high of the day was at 3:48and the low of the day was the open. It was truly a trend day.
The tiny sell off before the close was likely caused by traders reluctant to hold into the Intel earnings report; but Intel, pretty much as expected, blew away the expectations and the futures after hours jumped about six points. This is a common reaction after the INTC report and often results in a pullback the following day.
We are very overbought at the moment and most indicators reflect this, suggesting a pullback. But overbought is not a good enough reason in itself to get short.
Many novice traders come up with a “system” based on overbought/oversold conditions and are successful. For a while. But all overbought/oversold systems eventually fail. And I don’t mean fail occasionally. I mean they fail over time. Because the largest market moves are made during overbought and oversold conditions, it is possible to win a lot of trades this way but over enough time, a trader gets his face ripped off.
Having said all this, I am short here. But for more reasons than the fact that we are overbought. Here are my reasons:
- The INTC earnings report often causes a market pop then drop. I will add to my short-side position if we pop. (I layered in additional short-side after the close today.)
- The resistance of the moving averages overhead. Yes, we may well leap some of this resistance in the morning. But for now, we have the 50 day moving average at 1096 and the 200 DMA at 1112.
- I believe there will be some psychological resistance at 1100.
- And of course, the overbought conditions.
Any trade may fail at any time, often for unseen and unknowable reasons. But my reasons for being short are more than just “oversold conditions.”
Day Trade Systems Update: (Signals today)
* SDS at: 11:24
* 1/2 GDX at: 2:02
* SDS at: 3:31
It was a miserable day to day trade because the market mostly just drifted, even though it edged higher and higher. This was the fourth consecutive day of a ten point or less intraday trading range; I’ve never seen a day trade system that can consistently do well in such an environment. We thrive on volatility and it’s been lacking the last several days.
Wednesday, July 14
Economics
08:30 Retail Sales -0.3% cons.
08:30 Retail Sales ex-auto -0.1% cons.
08:30 Import Prices (oil)
08:30 Export Prices (ag)
10:00 Business Inventories -0.2% cons.
10:30 Crude Inventories
2:00 Minutes of FOMC Meeting
04:00 Bank of Japan Monetary Policy Meeting
08:30 Great Britain Claimant Count
08:30 Great Britain Jobless Claims
09:00 Euro-Zone CPI
09:00 Euro-Zone Industrial Production
Earnings
Before: IGTE, JTX, PGR, TXI
After: LSTR, MAR
Auctions
1:00 30-yr Treasury Bonds
The Commerce Department releases the retail sales report before trading starts. Sales are expected to have fallen 0.2% in June after having fallen 1.2% in May. Sales excluding volatile autos are expected to have held steady after falling 0.8% in April. Reports are also due in the morning on import and export prices, business inventories and weekly crude oil inventories, but those are typically not market movers. In the afternoon, the minutes from the last Federal Reserve policy meeting are due for release, along with Fed forecasts on the economy.
Mel’s Missives from the Matrix:
- Total tick for the day was 328,000 and the average tick for the day was 213. There were 260 ticks greater than 600 and 18 ticks more extreme than -600. There were 23 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
- The day's range was 18.81 points. The intraday trading range - 9:35to the close - was 10.51. The 5 DMA of daily range is 13.05.
- Evidence of the intraday trend: At 10am volume was 111.24% of the 10 day average. By noon the volume was 100.59% of the 10 day average, and by 2pm volume was 101.43% of the 10 day average.
- The day's volume was 93.1% of the average daily volume for the last year. Volume was 100.5% of the last 10 day average and 136.4% of the previous day’s volume.
- Evidence of the intraday trend: The largest increase in relative volume came between 12:15 and 12:30 when relative volume increased 29.7% while the SPX was rising 0.08%. The largest drop in relative volume came between 12:30 and 12:45 when relative volume dropped -40.9% while the SPX was dropping -0.09%.
- 47% of the SPX stocks closed with two day RSI above 90. 70% closed with RSI above 80. 1% closed with RSI below 20 and 0% closed with RSI below 10.
- 92.8% of the SPX are above their five day moving average, 95.2% are above their 10 day average, 69.2% are above their 20 day moving average, 47.2% are above their 50 day moving average, 34.6% are above their 100 day moving average, and 43.8% are above their 150 day moving average.
- 74% of the SPX closed above their most recent previous high.
- 2% of the SPX stocks closed below their most recent previous lows.
- 469 SPX issues advanced and 22 issues declined, a net SPX advance/decline of 447.
- Evidence of the intraday trend: At 10am, 55.2% of the SPX components were in the top half of the range. By noon, 76.2% were in the top half of the range, and by 2pm, 53.2% were in the top half of the range.
- 69.6% of stocks closed in the top half of the day's range. (30.2% closed in bottom half.)
- 2.8% of stocks closed in the top 10% of the day's range. 22.6% of stocks closed in the top 20% of the day's range.
- 3.6% of stocks closed in the bottom 10% of the day's range. 8.2% of stocks closed in the bottom 20% of the day's range.
- 6.6% of stocks closed within 2% of their 52 week high. 14.8% of stocks closed within 5% of their 52 week high.
- 66% of stocks closed within 50% of their 52 week low. 35.6% of stocks closed within 25% of their 52 week low.
- 5.6% of stocks closed within ¼% of their high for the day.
- 5.8% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 94% of the SPX components were up since the open. By noon, 94% were up since the open, and by 2pm, 87.4% were up since the open.
- 94% of the SPX closed up from the previous close; 69.4% closed higher than the open.
- Sectors stronger than the SPX for Tuesday:
- Basic Materials -- Outperformed the SPX by +104%.
- Financials -- Outperformed the SPX by +34%.
- Industrials -- Outperformed the SPX by +28%.
- Consumer Discretionary -- Outperformed the SPX by +98%.
- Sectors weaker than the SPX for Tuesday:
- Energy -- Underperformed the SPX by -54%.
- Technology -- Underperformed the SPX by -9%.
- Consumer Staples -- Underperformed the SPX by -63%.
- Utilities -- Underperformed the SPX by -119%.
- Health Care -- Underperformed the SPX by -77%.
- The $SOX index strength was stronger relative to the SPX Tuesday by 0.57%.
- The XLF outperformed the SPX by 0.34% Tuesday.
- The 2 Day RSI of the SPX is 99. The Dow RSI is 99, the NASDAQ is 99 and the Russell is 85.
- Over the last four sessions, the average session closed 87.19% of the range above the low. Tuesday closed at 60.1% of the daily range.
- Upside momentum moved upward Tuesday, from Monday’s 5.47 to today’s 7.05. The ratio of SPX components giving a crossover sell signal compared to buy signals flipped to the buy side to B 2.53 to 1.
- The ISEE Equity 10 day moving average Tuesday was 174.8. The lowest 10 day average in the last 52 weeks was 136.6 on 06/14/10and the highest 10 day average in the last 52 weeks was 249.3 on 04/15/10.
- 293 SPX components moved upward and 91 components downward during the after hours with 235 million shares traded.
Trade 'em well on Wednesday everyone!
-Mel
