Indices Stage Impressive Reversal
by Jerome "Mel" Hickerson
This morning, earnings disappointments abounded. Stocks futures were moving down as more companies continued to miss revenue targets (this morning BK, JNJ, and GS all reported revenues below consensus). Goldman Sachs quarterly net profit dropped. U.S. housing starts dropped 5% to an eight month low to an annualized rate of 549K, which was well below the consensus for 576K. Building Permits for May rose 2.1% to 586K. This was above the consensus of 567K and the May total of 574K. Futures plunged to a low of 1051 overnight but were rebounding a bit as the open approached.
The session opened with about a ten point gap downward, continued down another five points and quickly put the low of the day on the chart just nine minutes into the day. The rest of the day was simply an ascent with few significant pullbacks as the SPX climbed to close almost at the session highs 25 points off the bottom.
From an internal viewpoint, today’s action was wild and as rare as Friday’s action only from the opposite extreme. Friday’s 31 point drop was extremely unusual because of the scarcity of extreme negative ticks; today’s action was unusual because of the overabundance of extreme positive ticks. +1500 ticks are extremely rare; I can’t recall ever seeing one before. Today had two. Friday’s big down day had four -1000 ticks; today had 80 ticks of +1000 or more. The enthusiasm for buying today far exceeded the enthusiasm for selling last Friday. Total volume today was lower than Friday’s volume, but the volume on the up-move today during the afternoon outstripped the volume during the down-moves on Friday.
Bears will strive to find some flaw in today’s ramp but where can it be found? The XLF rebounded to slightly outperform the SPX. Small caps rebounded strongly during the day to far outpace the SPX. After hours today, AAPL exceeded expectations on their earnings. Where can the bears hang their hopes?
Experience teaches that when a bounce occurs from the midpoint of a down trending channel, odds are pretty good for a challenge of the top of the channel, currently somewhere overhead near the 1100 area. So even though earnings news will dominate the action, the technicals would support a further upward move.
When looking at the NYSE advance/decline line we see that the A/D line continues near the highs. If breadth leads, this suggests that the indices are underperforming and headed higher. You make the call.
Our trade systems ended today in cash after carrying a swing short position the last few nights. We didn’t manage to exit at the highs for SDS, but in retrospect we didn’t miss it too far, either, as SDS moved down throughout the day, closing more than $1.30 below where we exited.
Wednesday, July 21
Economics
10:30 Crude Inventories
Earnings
Before: ABT, MO, APH, BLK, CHKP, KO, CMA, ETN, EMC, FCX, GENZ, HCBK, LUFK, MAN, MS, NTRS, OSTK, PJC, SWK, SY, TXT, USB, WFC
After: AFFX, AF, BIDU, CA, CFNL, CLB, EWBC, EBAY, FFIV, HBI, ISRG, NFLX, NVEC, QCOM, RT, SBUX, TEX, TSS, WRN, XLNX
Speeches
10:00 Ben Bernanke
Mel’s Missives from the Matrix:
- Total tick for the day was 339,000 and the average tick for the day was 220. There were 311 ticks greater than 600 and 27 ticks more extreme than -600. There were 80 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
- The day's range was 27.06 points. The intraday trading range - 9:35 to the close - was 27.06. The 5 DMA of daily range is 22.33.
- Evidence of the intraday trend: At 10am volume was 108.66% of the 10 day average. By noon the volume was 104.27% of the 10 day average, and by 2pm volume was 105.19% of the 10 day average.
- The day's volume was 94.7% of the average daily volume for the last year. Volume was 107.7% of the last 10 day average and 112.3% of the previous day’s volume.
- 5% of the SPX stocks closed with two day RSI above 90. 18% closed with RSI above 80. 6% closed with RSI below 20 and 4% closed with RSI below 10.
- 63.4% of the SPX are above their five day moving average, 66.8% are above their 10 day average, 70.6% are above their 20 day moving average, 44.8% are above their 50 day moving average, 30.6% are above their 100 day moving average, and 37.6% are above their 150 day moving average.
- 69% of the SPX closed above their most recent previous high.
- 3% of the SPX stocks closed below their most recent previous lows.
- 423 SPX issues advanced and 66 issues declined, a net SPX advance/decline of 357.
- Evidence of the intraday trend: At 10am, 71% 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, 97% were in the top half of the range.
- 97% of stocks closed in the top half of the day's range. (2.8% closed in bottom half.)
- 78.4% of stocks closed in the top 10% of the day's range. 91.2% of stocks closed in the top 20% of the day's range.
- 0.4% of stocks closed in the bottom 10% of the day's range. 1% of stocks closed in the bottom 20% of the day's range.
- 6.2% of stocks closed within 2% of their 52 week high. 15.6% of stocks closed within 5% of their 52 week high.
- 77% of stocks closed within 50% of their 52 week low. 44.6% of stocks closed within 25% of their 52 week low.
- 62.4% of stocks closed within ¼% of their high for the day.
- 0.4% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 17.2% of the SPX components were up since the open. By noon, 29.6% were up since the open, and by 2pm, 71.6% were up since the open.
- 85% of the SPX closed up from the previous close; 97% closed higher than the open.
- Sectors stronger than the SPX for Tuesday:
- Basic Materials -- Outperformed the SPX by +191%.
- Energy -- Outperformed the SPX by +119%.
- Financials -- Outperformed the SPX by +8%.
- Industrials -- Outperformed the SPX by +43%.
- Consumer Discretionary -- Outperformed the SPX by +29%.
- Sectors weaker than the SPX for Tuesday:
- Technology -- Underperformed the SPX by -49%.
- Consumer Staples -- Underperformed the SPX by -5%.
- Utilities -- Underperformed the SPX by -24%.
- Health Care -- Underperformed the SPX by -143%.
- The $SOX index strength was weaker relative to the SPX Tuesday by -1.1%.
- The XLF outperformed the SPX by 0.08% Tuesday.
- The 2 Day RSI of the SPX is 67. The Dow RSI is 62, the NASDAQ is 67 and the Russell is 65.
- Over the last four sessions, the average session closed 66.5% of the range above the low. Tuesday closed at 98.3% of the daily range.
- Upside momentum decreased Tuesday, from Monday’s -0.57 to today’s -1.08. The ratio of SPX components giving a crossover sell signal compared to buy signals moved downward to B 3.27 to 1.
- The ISEE Equity 10 day moving average Tuesday was 170.7. 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.
- 219 SPX components moved upward and 134 components downward during the after hours with 208 million shares traded.
Trade 'em well on Wednesday everyone!
-Mel
