Markets Rally on Renewed Optimism Fueled by Earnings and Economic Data
by Jerome "Mel" Hickerson
Market Recap:
Reports out of China showing weakness in import growth had traders assuming that the Chinese will soon begin to ease monetary policy and jumpstart global growth. This put overseas markets in an upbeat mood with big gains in Europe this morning. U.S. futures were also pointing to a good gain at the open. The NFIB Small Business Optimism Index came in with a gain of 1.8 points in December. The increase was the fourth since September.
Tuesday’s session opened with a large gap higher and continued higher for thirty-five minutes while the SPX put the high of the day on the chart. The rest of the session traded within a six point range with a slight downward bias as the indices consolidated overnight gains.
Checking our Market Leaders Board, all of our leaders closed higher with the Financials leading the way and the Technology sector relatively weak.
SPX big winners were Borg Warner Inc (BWA) 12.08%, Life Technologies Corporation (LIFE) 7.65%, and Genworth Financial (GNW) 7.22%. SPX big losers were Tiffany & Co (TIF) -11.54%, Goodyear Tire&Rubber Co (GT) -8.14%, and Cablevision Systems Cl A (CVC) -3.
SPX five day big winners are Netflix Inc (NFLX) 32.66%, Bank Of America Corp (BAC) 14.31%, and Life Technologies Corporation (LIFE) 13.33%. SPX five day big losers are Metropcs Communications Inc (PCS) -11.61%, CareFusion Corporation (CFN) -10.41%, and T
New Ten Day Highs: MMM, ADBE, AMD, AES, URBN, A, AKS, AKAM, AA, AGN, ALL, AIG, AMT, ABC, AMGN, APH, APC, ADI, APA, APOL, AMAT, ADSK, AZO, AVP, BHI, BAC, BBT, BBBY, BMS, BBY, BA, BSX, BRCM, CA, CAM, COF, CAH, CCL, CAT, CBG, CBS, CELG, CF, CI, CINF, CTAS, CSCO, CTXS, CLX, CTSH, CMCSA, CMA, CAG, SAI, GLW, CSX, CMI, CVS, DHR, DVA, DE, DELL, DNR, DVN, DV, DFS, DOW, DNB, DD, ETFC, EMN, ETN, ECL, EMC, EMR, EOG, EFX, EXPD, ESRX, FAST, FDX, FIS, FITB, FHN, FSLR, FLS, FLR, FMC, F, FRX, BEN, FCX, GCI, GD, GE, GPC, GNW, GILD, GR, GT, GWW, HAL, HOG, HAR, HRS, HIG, HAS, HPQ, HD, HON, HST, HCBK, HUM, HBAN, ITW, INTC, IPG, IFF, IP, INTU, IVZ, IRM, ITT, JBL, JNS, JDSU, JCI, JPM, JNPR, CLF, K, KEY, KFT, LLL, LH, LM, LEN, LUK, LIFE, LNC, LLTC, LO, LOW, LSI, MTB, M, MRO, MAR, MKC, MHP, MCK, MHS, MDT, MET, MU, MSFT, MOLX, TAP, MON, MWW, MCO, MS, MUR, NBR, NOV, NWL, NEM, NWSA, NBL, NSC, NTRS, NVLS, NUE, NYX, OXY, ORCL, OI, PCAR, PH, PAYX, PKI, PXD, PBI, PCL, PNC, RL, PPG, PCP, PFG, PRU, PHM, QLGC, QCOM, PWR, RSH, RF, COL, R, SWY, SNDK, SLB, SCHW, SNI, SEE, SRE, SHW, SNA, SWK, SPLS, SBUX, HOT, STT, SRCL, SYK, STI, TROW, TER, TXN, TXT, BK, TMO, TWX, TIE, TSS, UNP, UTX, QLD, JASO, AEM, KBH, UNM, USB, VAR, WM, WPI, WLP, WFC, WDC, WU, WY, WHR, C, GS
New Ten Day Lows: AIZ, BMC, CFN, CL, ED, EIX, EQT, GT, HNZ, HSP, TEG, ISRG, LEG, NI, JWN, RRC, TIF, TSN, VXX, SH, GOOG
Volume & Breadth Indicators
For the SPX Index there were 386 components advancing and 85 components declining. On the NYSE 3,140 issues were traded with 2,333 advancing issues and 704 retreating issues, a ratio of 3.31 to one advancing. There were 150 new highs and 14 new lows. The five day moving average of New Highs is 107 while the five day moving average of New Lows is 14 and the ten day moving average of Net Advancing is 435. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 3.92 to one. The closing TRIN was 0.78 and the final tick was 685. The five day average of TRIN is .99 and the ten day average of TRIN is 1.42. The NYSE Composite Index gained 1.11% today while the SPX gained 0.88%.
For the NYSE, relative to the previous 30 session average, volume was -1.51% below the average. Of the last 15 sessions 1 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 19 sessions ended on a positive tick, 8 of last 10. For the SPX, the day's volume was 96.2% of the average daily volume for the last year. Volume was 136.7% of the last 10 day average and 122.2% of the previous day’s volume.
Volume was heavy enough to consider today a breakout, but we would have liked to have seen more volume during the afternoon rather than heavy volume in the morning and then declining all afternoon.
Total tick for the day was 187,000 and the average tick for the day was 121. There were 59 ticks greater than 600 and 6 ticks more extreme than -600. There were 18 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick data today shows just how few sellers there were today despite the large gap up at the open.
The intraday volume pattern once again shows the recent daily pattern of heavy early morning volume followed by decreasing volume. This strikes us as a somewhat bearish volume pattern in that buyers seem to lose interest later in the day. The McClellan Oscillator is overbought.
Moving Average and Support/Resistance Indicators:
79.4% of the SPX are above their five day moving average, 80.2% are above their 10 day average, 84.9% are above their 20 day moving average, 75.6% are above their 50 day moving average, and 48.8% are above their 200 day moving average.
There were no significant moving average crossovers today. Our moving average Power Rating is 64 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Tuesday:
- Basic Materials -- Outperformed the SPX by +96%.
- Financials -- Outperformed the SPX by +98%.
- Industrials -- Outperformed the SPX by +55%.
Sectors weaker than the SPX for Tuesday:
- Energy -- Underperformed the SPX by -2%.
- Technology -- Underperformed the SPX by -54%.
- Consumer Staples -- Underperformed the SPX by -51%.
- Utilities -- Underperformed the SPX by -57%.
- Health Care -- Underperformed the SPX by -15%.
- Consumer Discretionary -- Underperformed the SPX by -24%.
In Late Trading:
192 SPX components moved upward and 126 components downward during the after hours with 132.6 million shares traded.
What We Learned from Tuesday's Action:
Tuesday was session 6 to close above the 5 DMA, session 14 to close above the 10 DMA, session 14 to close above the 20 DMA, and session 14 to close above the 50 DMA. This was also session 12 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 19.91 points above the 10 DMA.
The SPX 5 DMA is 1281.79, 10 DMA is 1272.17, 20 DMA is 1252.05, 50 DMA is 1241.79, 100 DMA is 1212.6, and 200 DMA is 1258.29.
On Tuesday the SPX traded below the opening range but did not trade above the opening range. 77.2% of the SPX closed up from the previous close; 52% closed higher than the open. During Tuesday's session the SPX gained 11.31 points from open to close.
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 Wednesday 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 Wednesday's session.
We took advantage of the strength today to step aside our TNA position taking what profit the market allowed us. Despite the current bullishness of the market, we began building a short position by taking a layer of TZA at the close today. We’d like to layout our reasoning for starting to get short. The reasons presented below are in no particular order.
• The November rally was capped right around 1290. Today’s gap above that important level of resistance failed to persuade us. We need to see the SPX fueled by buyers rather than fueled by the overnight futures. A close above 1300 would be more convincing, or a pullback followed by an intraday rally taking us back above 1290.
• The recent intraday volume pattern of low volume after a morning rally strikes us as a bearish pattern; traders simply seem to lose interest at these prices.
• The intraday trading range since mid December has narrowed to less than 1%. This is often a characteristic of a topping process.
• The market is quite overbought. While being overbought is not a sell signal, when considered with all the other factors, it does contribute to looking at the short side here. Historically, entering earnings season while overbought, especially while hovering around a significant resistance level, has shown to be likely to lead to a pullback.
• Historical patterns suggest that January earnings season is more often bearish than bullish, and even more so when the first day of earnings is positive. Possibly this is because of too much optimism, optimism that often leads to disappointment.
Wednesday, January 11
Economics
07:00 MBA Mortgage Purchase Index
2:00 Fed’s Beige Book
11:00 Fed to buy $2.25b-$2.75b in 25 to 30-year notes
1:00 U.S. to sell $21b in 10-yr reopened notes
CNY New Yuan Loans
05:00 JPY Leading Index
08:00 EUR German Real GDP Growth
09:30 GBP Visible Trade Balance
5:15 Germany to sell EU4b 5-yr notes
Earnings
Before: LEN, LEDS, SVU
After: DRWI, XFO, FUL
There were no important economic releases on Tuesday. On Wednesday we get oil inventories and the Fed's Beige Book.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
