Moderating Economic News Plus Oversold Conditions Equals Explosive Up Day
by Jerome "Mel" Hickerson
Market Recap:
Stock futures pointed higher this morning as traders around the globe received more data suggesting that the assumption of double-dip recessions may be overblown. The Chinese data showed the economy continuing to expand while the data out of Europe suggested that the economy is not diving. ADP reported that the private sector job market contracted during the month of August. The report showed that private sector jobs fell by 10,000 jobs during the month, which was a bit below the consensus expectations for a gain of about 10.7K. (July’s report showed 42K jobs created.)
The trading session began with a double-digit gap higher and spent about 20 minutes consolidating about 15 points up for the day. But at 10am ISM data was pleasing to traders and the SPX quickly jumped another ten points. The rest of the day was bullish consolidation with very minor pullbacks as the index closed just off the highs of the day.
The strength of today's action was a bit surprising. But the direction of the move was pretty easy to see coming. The failure of the bears to break down through 1040 on repeated tries as well as the index refusing to close Tuesday below last Thursday's close was a tell that the market wanted higher. Then some moderately good economic news on the extremely oversold conditions and the result is a day like today. We hope everyone was long rather than short and that they were enjoying today's romp. It seems unlikely to last too long.
Looking at the Market Leaders board we see that the real weakness lies in the SOX index. This is a problem for the bulls. Historically, a lasting rally requires the participation of the SOX. Either the SOX comes along or this upward leg of the SPX will simply turn back down. Higher SPX seems likely but above 1100 does not. Until we see the SOX and XLF consistently moving higher, the SPX will be rangebound and we will continue trading the range.
Market Trend: Nine Sectors Report
Tonight's Nine Sectors Report shows three changes, all positive, as would be expected on a day such as this. So obviously the long signal remains on. But experienced traders know that nothing moves in a straight line; a healthy market breathes. While follow-through is important, the market should be expected to consolidate after an explosive move higher such as today.
Volume & Breadth Indicators
For the SPX Index there were 482 Advancers/8 Decliners. On the NYSE 3,166 issues were traded with 2,668 advancing issues and 431 retreating issues, a ratio of 6.19 to 1 advancing. There were 234 new highs and 10 new lows. The 5 day moving average of New Highs is 132 while the 5 day moving average of New Lows is 51 and the 10 day moving average of Net Advancing is -181.
Advancing volume was higher at a ratio of 24.67 to 1. The closing TRIN was 0.25 and the final tick was 1287. The NYSE Composite Index gained 3.09% today.
For the NYSE, relative to the previous 30 session average, volume was 15.08% above the average. Of the last 15 sessions 8 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 21 sessions ended on a positive tick, 5 of last 10. For the SPX, the day's volume was 91.57% of the average daily volume for the last year. Volume was 113.4% of the last 10 day average and 110.4% of the previous day’s volume.
Advancing volume far exceeded the advancing issue ratio. The broader NYSE Composite Index outperformed the SPX. The 10 day moving average of Net Advancing has moved out of bearish territory into neutral ground. Volume on the up day today increased. These are all bullish factors.
Further, total tick for the day was 250,000 and the average tick for the day was 163. There were 146 ticks greater than 600 and 10 ticks more extreme than -600. There were 5 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The last time we saw such a strong total tick was August 14th. But the most impressive stat tonight has to be the extreme ticks stat: 146 to 10 tells us that there was simply no interest in selling today. As a trader, you can be as biased as you wish to be, but you have to see the facts for what they are: Institutions were simply not selling today, even at the higher prices.
This isn’t about the economy; it is about the market and the market reaction to economic news. The economic news today was mixed but the market reaction was explosively higher. This short-term trend is unlikely to change until a catalyst kicks it into the other direction. Don’t fight the market just because you believe the economy is terrible therefore the market should decline. Trade what is rather than what you believe should be.
Within the indicators, we see a positive move tonight as we’d expect. But watch that McClellan Summation Index. Until it turns positive, this is just a market move higher that won’t be sustained.
Moving Average Indicators:
10.80% of the SPX components are giving a crossover Buy signal; 53.80% of the SPX components are giving a Sell signal. This is a 5 to 1 ratio of Sell signals over Buy signals.
There were no significant moving average crossovers today.
93% of the SPX are above their five day moving average, 82.4% are above their 10 day average, 51.6% are above their 20 day moving average, 49% are above their 50 day moving average, 37.8% are above their 100 day moving average, and 40% are above their 150 day moving average.
The short-term moving averages all moved significantly higher today but we didn’t have any bullish crossovers.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Basic Materials -- Outperformed the SPX by +1%.
- Energy -- Outperformed the SPX by +61%.
- Financials -- Outperformed the SPX by +90%.
- Industrials -- Outperformed the SPX by +97%.
- Consumer Discretionary -- Outperformed the SPX by +45%.
Sectors weaker than the SPX for Wednesday:
- Technology -- Underperformed the SPX by -47%.
- Consumer Staples -- Underperformed the SPX by -118%.
- Utilities -- Underperformed the SPX by -79%.
- Health Care -- Underperformed the SPX by -65%.
Stocks on the Move:
Today's SPX component winners and losers:
Largest one day loser is BF/B with -4.47%
Largest three day loser is NVDA with -7.10%
Largest five day loser is SNDK with -7.67%
Largest ten day loser is SNDK with -22.39%
Largest one day winner is ODP with 9.41%
Largest three day winner is RDC with 9.25%
Largest five day winner is FCX with 14.13%
Largest ten day winner is MFE with 57.58%
In Late Trading:
241 SPX components moved upward and 129 components downward during the after hours with 152 million shares traded.
Thursday, September 2
Economics
08:30 Initial Claims
08:30 Continuing Claims
08:30 Productivity -1.5% cons.
08:30 Unit Labor Costs 1.0% cons.
10:00 Factory Orders 0.5% cons
10:00 Pending Home Sales
Australia Trade Balance 3539M cons.
Swiss Gross Domestic Product 2.2% cons.
Euro-Zone GDP 1.0% cons.
European Central Bank Interest Rate Decision
Earnings
Before: DLM, LAYN, MOV, SCMR, UTIW
After: ARST, COO, ESL, HRB, MITL, ZQK, SEAC, TTWO, ULTA
The Department of Labor releases a weekly report on jobless claims before the bell. The number of Americans filing new claims for unemployment insurance is expected to have edged up slightly last week to 475,000 from 473,000 in the previous week. Continuing claims are expected to have dropped to 4,435,000 from 4,456,000. Meanwhile, the government is expected to report that pending home sales were unchanged in July after dropping 2.6% in June. Factory orders are due from the Commerce Department in the morning. Economists forecast orders to have risen 0.3% in July after falling 1.2% in June. The Commerce Department will issue a report on second-quarter business productivity, which is expected to be downwardly revised to a decline of 1.6% from the 0.9% drop that was initially projected.
Have a great Thursday!
-Mel
