Market Closes Sharply Higher But Down for the Week
by Jerome "Mel" Hickerson
Market Recap:
Before Friday’s open, the U.S. government report (1st revision) on the nation’s second quarter GDP shows the economy grew at an annualized rate of 1.6% in the quarter, which is below the preliminary reading of 2.4% but above the consensus expectations for a growth rate of 1.3%. Looking at the all-important consumer activity, the Personal Consumption component of the report came above expectations with a gain of 2.0% vs. 1.6%. And on the inflation front, the GDP Price index was a in line with expectations at 1.8% and the Core PCE came in at +1.1%. UK's GDP revision came in above expectations.
The final session of the week began with a five point pop in the opening two minutes then quickly surrendered the gains before attempting to rally just before 10am. At 9:55 the Michigan Consumer confidence data disappointed traders and the index again took a quick five point dive. But the real disappointment came minutes later when traders first reacted to Mr. Bernanke’s speech. The index plunged quickly tagging just below 1040 and putting the low of the session on the chart at 10:08 before mounting a furious rally. From the lows just after 10am through the close the SPX gained almost 25 points to close just off the highs.
Looking at Friday’s action, you have to feel bad for permabears who were just crushed. There were simply no real pullbacks that amounted to much and anyone shorting the pumps was getting whacked with no way to escape. But the action was also difficult for anyone to trade long-side unless they were in when the action began; the lack of pullbacks made picking an entry spot difficult if not impossible. Let’s face it: If you are a day trader, you live on volatility and Friday’s session had range but the volatility was all on one steep and scary move. There are easier days to trade.
Market Trend: Nine Sectors Report
Eight net changes on the Nine Sectors Report; huge positive moves as might be expected from a large rally day near the bottom of a short-term pullback. And we do believe this marks the bottom of this pullback with more upside to come. But don’t misunderstand: This market appears to have more work to do on the downside after a brief surge.
The irony is that Mr. Bernanke appears to be the cause at both ends of this pullback; the pullback began with Bernanke’s comments with the last FOMC announcement and appears to have ended with his speech on Friday. That sort of thing doesn’t make the market appear particularly healthy.
Stepping back and looking at the monthly chart, August appears certain to paint a higher high and a higher low than July. But a longer-term downtrend appears to remain intact.
On the weekly chart the downtrend is even more obvious as we are painting a succession of lower highs and lower lows. It seems likely that we break that pattern next week but don’t be fooled. This rally is tradable but it has all the earmarks of a sucker’s rally; trade it but don’t invest in it. We may challenge 1100 yet again but odds are not good for going higher and a test of 1010 still seems likely.
Volume & Breadth Indicators
For the SPX Index there were 463 Advancers/29 Decliners. On the NYSE 3,140 issues were traded with 2,645 advancing issues and 408 retreating issues, a ratio of 6.48 to 1 advancing. There were 141 new highs and 74 new lows. The 5 day moving average of New Highs is 145 while the 5 day moving average of New Lows is 81 and the 10 day moving average of Net Advancing is 33.
Advancing volume was higher at a ratio of 11.58 to 1. The closing TRIN was 0.56 and the final tick was 789. The NYSE Composite Index gained 1.95% today.
Advancing volume significantly exceeded advancing issues while the final tick was significantly positive; traders were buying the advancing stocks and buying at the close. Also notice that the broader NYSE Composite Index outperformed the SPX. This would suggest a bullish Monday open.
Further, total tick for the day was 362,000 and the average tick for the day was 235. There were 305 ticks greater than 600 and 27 ticks more extreme than -600. There were 40 ticks greater than 1000 and 1 tick more extreme than -1000. The tick action suggests institutional accumulation.
The McClellan Summation Index continues downward bearishly but the Absolute Breadth Index is below 40 where the market often shows strength.
Moving Average Indicators:
7.60% of the SPX components are giving a crossover Buy signal; 77.20% of the SPX components are giving a Sell signal. This is a 10.2 to 1 ratio of Sell signals over Buy signals.
79.8% of the SPX are above their five day moving average, 42.4% are above their 10 day average, 22.8% are above their 20 day moving average, 38% are above their 50 day moving average, 30.8% are above their 100 day moving average, and 35% are above their 150 day moving average.
In addition, all major U.S. and international indexes continue to have their 5 DMA below their 20 DMA.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +138%.
- Energy -- Outperformed the SPX by +106%.
- Financials -- Outperformed the SPX by +49%.
- Industrials -- Outperformed the SPX by +39%.
- Utilities -- Outperformed the SPX by +24%.
Sectors weaker than the SPX for Friday:
- Technology -- Underperformed the SPX by -65%.
- Consumer Staples -- Underperformed the SPX by -87%.
- Health Care -- Underperformed the SPX by -63%.
- Consumer Discretionary -- Underperformed the SPX by -5%.
Stocks on the Move:
Today's SPX component winners and losers:
Largest one day loser is SNDK with -3.72%
Largest three day loser is SNDK with -9.98%
Largest five day loser is SNDK with -16.93%
Largest ten day loser is SNDK with -17.07%
Largest one day winner is LNC with 10.17%
Largest three day winner is LNC with 13.16%
Largest five day winner is LNC with 11.10%
Largest ten day winner is MFE with 57.21%
In Late Trading:
215 SPX components moved upward and 123 components downward during the after hours with 108 million shares traded.
Monday, August 30
Economics
08:30 Personal Income 0.3% cons.
08:30 Personal Spending 0.3% cons.
08:30 PCE Price-Core 0.1% cons.
Australia Company Operating Profit 3.9% cons.
Euro-Zone Business Climate 0.66 cons.
Euro-Zone Industrial Confidence
Euro-Zone Service Confidence 6 cons.
Canada Current Account -$7.8B
Japan Industrial Production -1.1% cons.
Earnings
After: DCI, SEED, PIKE, PSEC, WINN
Auction
11:30 3-Month Bill
11:30 6-Month Bill
Have a great weekend!
-Mel
