Markets Digest Yesterday's Gains
by Jerome "Mel" Hickerson
Market Recap:
The bears returned this morning as renewed worries about the banking system in Europe as well as an unconfirmed story that Spain was considering asking the EU/IMF for bailout loans pushed stocks in the major European indices and U.S. futures to overnight lows as the open approached.
The session began with a small gap lower and proceeded to work lower to put the low of the day on the chart just after the end of the first hour of trading. The SPX then began to work higher in a choppy fashion with sudden spurts, but generally drifting higher until the final hour. Still, the SPX managed to close not far from the highs of the session as the equities consolidated from yesterday's gains.
Checking our Market Leaders Board we find our leaders closed mixed today, with relative weakness in the Russell 2000 small caps and strength in the Technology sector.
SPX big winners were Netflix Inc (NFLX) 11.35%, Cabot Oil & Gas Corp (COG) 6.97%, and Vf Corp (VFC) 4.4%. SPX big losers were Autonation Inc (AN) -6.93%, Metropcs Communications Inc (PCS) -6.49%, and Tenet Healthcare Corp (THC) -5.45%.
SPX five day big winners are Netflix Inc (NFLX) 13.95%, Micron Technology Inc (MU) 11.84%, and Owens Illinois Inc (OI) 11.05%. SPX five day big losers are Williams Companies Inc (WMB) -17.79%, Autonation Inc (AN) -9.08%, and Sears Holding Corp (SHLD) -7.73%.
New Ten Day Highs: URBN, APD, ARG, AKS, AA, APC, ADM, T, BHI, BLL, COG, COF, CAT, CF, CHK, CTAS, CSCO, CLX, CMCSA, CNX, CSX, CMI, CVS, DE, DNR, DTV, RRD, DOW, DD, ETN, ESRX, FII, FLS, F, FCX, GD, GE, GILD, GT, HAL, HCBK, INTC, ISRG, JNS, JCI, CLF, LOW, LSI, MRO, MAR, MAS, MHS, MU, MSFT, MON, NOV, NKE, NBL, NSC, OI, BTU, PXD, RL, PX, QCOM, SPLS, SYK, STI, TER, TSO, TMO, TWC, UNP, X, UNH, QLD, AEM, VFC, DIS, WFC, AAPL, GOOG
New Ten Day Lows: MO, AN, AZO, BMY, EK, EBAY, EXC, FE, KSS, MA, ORLY, SHLD, LUV, SRCL, TGT
Volume & Breadth Indicators
For the SPX Index there were 212 components advancing and 256 components declining. On the NYSE 3,133 issues were traded with 1,509 advancing issues and 1,555 retreating issues, a ratio of 1.03 to one declining. There were 80 new highs and 11 new lows. The five day moving average of New Highs is 131 while the five day moving average of New Lows is 23 and the ten day moving average of Net Advancing is 725. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 1.05 to one. The closing TRIN was 0.83 and the final tick was -95. The five day average of TRIN is 1.71 and the ten day average of TRIN is 1.24. The NYSE Composite Index lost -0.16% today while the SPX gained 0.02%.
For the NYSE, relative to the previous 30 session average, volume was -10.90% below the average. Of the last 15 sessions 4 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 16 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 87.5% of the average daily volume for the last year. Volume was 127.9% of the last 10 day average and 95.3% of the previous day’s volume.
Slightly negative breadth today but advancing volume was greater than declining volume. The stats look pretty bullish considering Tuesday’s strong gains. There is nothing that doesn’t look like bullish consolidation.
Total tick for the day was 129,000 and the average tick for the day was 83. There were 27 ticks greater than 600 and 12 ticks more extreme than -600. There were 1 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick data today shows a lack of conviction from both sides. While bulls were in control today, the numbers were quite low as most of the day simply drifted.
The intraday volume pattern once again shows heavy relative volume during the morning followed by declining volume. But today the volume spike was during the morning lows and the declining volume came as the market drifted higher. Looking at the Nightly Breadth Indicators, we see that the McClellan Oscillator moved back somewhat from the overbought level of last night, Also notice that the High Low Logic Index backed off from yesterday's highs. Both of these moves suggest that the rally could continue higher.
Moving Average and Support/Resistance Indicators:
68.8% of the SPX are above their five day moving average, 68.4% are above their 10 day average, 75.6% are above their 20 day moving average, 61.8% are above their 50 day moving average, and 40.8% are above their 200 day moving average.
There were two significant moving average crossovers today as both Germany's and Emerging Markets 5 DMA crossed above the 20 DMA. All of our short term moving averages are moving upward but most of our 50 day averages remain below falling 200 day averages. Our moving average Power Rating is 56 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Basic Materials -- Outperformed the SPX by +74%.
- Energy -- Outperformed the SPX by +23%.
- Industrials -- Outperformed the SPX by +45%.
- Technology -- Outperformed the SPX by +33%.
- Consumer Discretionary -- Outperformed the SPX by +85%.
Sectors weaker than the SPX for Wednesday:
- Financials -- Underperformed the SPX by -32%.
- Consumer Staples -- Underperformed the SPX by -24%.
- Utilities -- Underperformed the SPX by -53%.
- Health Care -- Underperformed the SPX by -70%.
In Late Trading:
175 SPX components moved upward and 138 components downward during the after hours with 124.9 million shares traded.
What We Learned from Wednesday's Action:
Wednesday was session 2 to close above the 5 DMA, session 10 to close above the 10 DMA, session 10 to close above the 20 DMA, and session 10 to close above the 50 DMA. This was also session 8 for the 5 DMA to close above the 20 DMA. One early sign of a sustainable rally or pullback is often a close above or below the 10 DMA. The SPX closed 17.86 points above the 10 DMA.
The SPX 5 DMA is 1264.93, 10 DMA is 1259.44, 20 DMA is 1245.92, 50 DMA is 1239.35, 100 DMA is 1208.98, and 200 DMA is 1258.71.
On Wednesday the SPX traded both below and above the opening range. 41.8% of the SPX closed up from the previous close; 52.8% closed higher than the open. During Wednesday's session the SPX gained .27 points from open to close. The daily bar painted an Inside day.
Note: The Opening Range Breakout is one of the simplest day trading set-ups to understand. The first hour of the trading day is the most volatile. Bears and bulls are battling it out in the stock market, trying to show you who’s going to be in charge for the day. If we break out of that trading range, it's telling us that new buying or selling is impacting traders' assessments of value. Looking back at today’s breakouts also helps us grasp sentiment going forward because when a clear trend is established it often carries through for several sessions.
Looking Ahead:
The Market Environment for Thursday is +2. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, our bias is slightly bullish for Thursday's session.
Let's begin with a note on our trading style. We remain underwater on one layer of TNA. But we keep layering in and out on the second layer, trying to grab small moves in the market, whittling away at our net cost on the TNA. This approach works very well with our methodology while "all-in" traders who don't use layers will find this approach not to their liking. But we recommend it because it is a good way to manage stress at the same time as managing risk. Stress management and risk management go hand-in-hand.
Once again, it's hard to see much truly bearish here. Historically, when the SPX has had a strong first session of the year, followed by another higher close, the SPX has closed even higher two days later on eleven of thirteen occurrences. While we may well be building a topping pattern, such patterns can take a long time to build and the SPX can often drift several percent higher.
Thursday, January 5
Economics
7:30 Challenger Job Cuts, previous -12.8%
8:15ADP Employment, est. 175k
8:30 Initial Jobless Claims, Dec. 31 week, est. 375k from 381k
8:30 Continuing Claims, Dec. 24 week, est. 3.522m from 3.601m
10:00 ISM Non-Manufacturing, est. 53 from 52
10:00 EUR Euro-Zone Industrial New Orders
10:00 EUR Euro-Zone PPI
15:00 CAD Ivey PMI
France to sell 3.25% 2021 bonds, 4.25% 2023 bonds, 4.75% 2035 bonds, 5.5% 2041 bonds
Earnings
Before: STZ, HELE, IPSU, MON, MSM, RPM, WOR
After: SHLM, ANGO, APOL, DMND, FDO, GPN, RT, SABA, XRTX
Factory orders rose 1.8%, less than the expected rise of 2.0%. On Thursday we will get the ADP employment report, initial claims, the ISM services index and oil inventories.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
Personal Note: I will be offline Thursday as I see my oncologists and hopefully continue with the chemo. The Nightly Report may be late and/or light on analysis, depending on how I react to the chemo.
-Mel
