Is This The Top?
by Jerome "Mel" Hickerson
The session opened with slightly negative futures but popped up anyway, setting the high for the day only 23 minutes into the session. This high was tested at 1:22 and rejected with strength downward to set the low of the session at 2:45. From there, the index chopped up and down weakly into the close.
On the daily chart, we have produced an unusual three day pattern. Thursday and Friday were successive large range outside bars (this is not common) and Monday follows with a small range inside bar. All of this began Thursday with the SPX within 1% of the 52 week high. This setup has occurred only 15 times in 20 years; all 15 resulted in a new high for the year within the following five sessions.
But there are so many weaknesses visible within this market. Transportations are weak, financials are weak, shipping is weak, real estate is weak, and the technology sector is weak. The horses that carried the SPX aloft all appear to be weakening. And the examples of the chart pattern described above are also significantly different in some regards: The current large range bars are unique among the 16 examples. We ran up to a high on Thursday (rejected strongly), ran up to a new high on Friday (rejected strongly) making two outside bars with bottom finishes. The other 15 examples all have one outside range bar with a close near the high. This difference seems important to me.
But having said that, the market Breadth was strong today. Advancing stocks outnumbered declining stocks. Large buying today (15,000 share blocks within at least 50 SPX components at the same time) outnumbered selling more than two to one. Someone was buying today. Indeed, the pattern recently has been strong: Sell the new 52 week high and buy every approach down towards 1100.
My guess is that this pattern continues for awhile longer. A week ago I wrote that we were watching a topping pattern. The SPX closed seven points higher today than last Monday. We have closed between 1084.90 and 1110.31 every close since November 9th; 20 sessions in a 25 point range.
Last Thursday evening, I wrote this for subscribers: “The reason I found this question interesting is because I actually use the success rate of this signal as data for an input for another signal. Failures of this setup indicate a weak market; repeated successes strongly suggest a strong market. We’ve had four successes in a row.” The topic being discussed was a two day swing signal (Long) for Friday through Monday. This signal failed to work; my point for bringing this up is that this setup failing is in itself a signal that the market is weaker.
While I continue to look for another high, I am also looking for a pullback. I am by no means certain which will happen first; although I expect the high first. The only reason I can give for looking for another high is that my model data is calling for two more successive up days before any significant pullback.
No matter how fatalistic you are about an imminent pullback (or looking for two successive up days), even fatalistic people look both ways before crossing the street. No matter what your roadmap may happen to call for, it is more profitable to be flexible than to be right.
For Tuesday, our model has generated a null signal. I’ll enter Tuesday with a bearish bias. Yes, I’ll daytrade long if the situation warrants. But I can’t keep overlooking the divergence of the XLF and the SPX. I know I have shown this chart recently but I have to show it again. So I’ll show it in two ways tonight; monthly stretching back beyond the 2007 market top and daily chart since early October.
Notice how the XLF diverged from the SPX before the 2007 October top. There is a period of time starting in late June 2007 where the XLF starts building negative divergence and eventually the SPX topped in early October.
The point of these charts is simple: The SPX’s health is tied directly to the action of the XLF. When the XLF is strong, the index rallies. In my opinion, the negative divergence of the XLF since mid October can no longer be safely ignored. We may yet set another high but I believe it would be quickly rejected yet again so I am willing to put my thoughts out here: We won’t reach 1150 without a complete reversal of the XLF and I see nothing that is likely to cause that kind of reversal.
Tuesday, December 8
Economics
Nothing of note
Earnings
Before: AZO, BF.B, HRB, IPSU, KR, SAFM, TLB, TTC
After: AVAV, CKR, CMTL, COO, MW, MIND, NCS, SAI
Auctions
11:30 4-Week Bill Auction
01:00 3- Yr Note Auction
Speeches
12:20 Charles Plosser
Events
INTC, MSFT, VMW, NFLX at Barclays Technology Conference
HL at RBC Capital Markets Silver Conference
CNQR at RBC Capital Markets Software-as-a-Service One-on-One Symposium
CSCO Financial Analyst Conference
POZN Analyst Meeting
CBS, SIRI, THQI, VZ at UBS Media & Communications Conference
TEL Investor Meeting
NRGY, HEP, KMP, WES at Wells Fargo Securities MLP Pipeline and E&P, Energy Services & Utility Symposiums
AGCO Analyst Meeting
RF, JPM, MA, ZION at Goldman Sachs US Financial Services Conference
ACM, MOS, TYC, MON at Bank of America Securities Merrill Lynch Industrials Conference
KWK, ESV, PVA, XTO at Capital One Southcoast Energy Conference
TSCO, CPLA, JACK, URBN at Wedbush Morgan Securities California Dreamin Management Access Conference
MON at American Seed Trade Association Conference
GE Capital Investor Webcast
CPST at PennWell Corporation Power-Gen International Trade Show
TXN Mid-quarter Update
President Obama speaks about the economy at the Brookings Institution in Washington. After the close, chipmaker Texas Instruments issues its mid-quarter update.
Mel’s Random Hits:
• Total tick for today was 121,000. 60% of all ticks for the entire day were positive. The entire day was positive except for the period between 2:30 and 3:30. The real culprit keeping the market down today was the financials; they were sour from start to finish.
• Today's range was 9.89 points. One third of that range came in the 2:30 downward spike; the rest of the day was a real sleeper.
• Today's volume was 72% of the average 2009 daily volume. Volume was 99% of the 10 day average.
• 13% of the SPX stocks closed with two day RSI above 90. 23% closed with RSI above 80. 16% closed with RSI below 20 and 8% closed with RSI below 10.
• 59% of the SPX are above their 10 day moving average and 56% are above their 20 day moving average.
• 13% of the SPX stocks closed below their most recent previous lows.
• 11% of the SPX closed above their most recent previous high.
• 36% of stocks closed in the top half of today's range. (64% closed in bottom half.)
• 25.6 of stocks closed in the bottom 20% of today's range.
• 4.6% of stocks closed in the top 10% of today's range.
• 19.2% of stocks closed within 2% of their 52 week high.
• 23.0% of stocks closed within 50% of their 52 week low.
• 5.0% of stocks closed within ¼% of their high for today.
• 13.2% of stocks closed within ¼% of their low for today.
• 45.0% of the SPX closed up for today.
• The 2 Day RSI of the SPX is 43. The Dow RSI is 50, NASDAQ is 62 and Russell 82. The broader Russell index continues to lead as it has for a few days now. Look for any pullback to begin with the Russell.
• As observed last week: Signs that the market is topping are visible everywhere I look. But there are also signs of strength in the mix; ignoring these isn’t wise. Signs of strength include rising breadth (after weeks of falling breadth) and the SOX index. The fact that the NASDAQ and RUT are not just rolling over is also a positive sign. We may continue to be trade within the range of 1084-1111 for some time yet.
• SPX components moved upward significantly during the after hours. The FedEx earnings update seems to have provided fuel.
Have a great Tuesday!
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"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
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Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
