More Cautious Optimism
by Jerome "Mel" Hickerson
Market Recap:
U.S. futures were up in response to the much improved auction results seen in both Italy and Spain. Then this morning's U.S. data came in on the dark side, which caused some selling. Initial Claims for Unemployment Insurance for the week ending 1/7 rose by 24,000 to 399K, which was well above the consensus estimate for 376K and also last week’s revised total of 375k (from 372K). Continuing Claims for the week ending 12/31 came in at 3.628M vs. consensus of 3.600M and last week’s 3.609M. The Commerce Department reported that Retail Sales were up just +0.1% in the month of December, which was well below the consensus for +0.4%. When you strip out the sales of autos, sales were down -0.2%, which was below the consensus for a reading of +0.4% as well as last month’s revised +0.3%. Futures were pointing to a modestly higher open.
Thursday’s session began with an insignificant gap higher and the SPX quickly put the high of the day on the chart after just five minutes of trading. Then the recent pattern of early morning lows followed by drifting higher the rest of day repeated as the lows were just after the end of the opening hour. The SPX then traded higher throughout the session testing the intraday highs just before the close.
Checking our Market Leaders Board, all of our leaders closed in positive territory today with the chip makers (SOX) leading the way and with the DOW lagging.
SPX big winners were Jacobs Engineering Group (JEC) 5.22%, Ingersoll-rand Ltd Cl A (IR) 5.16%, and Broadcom Corp Cl A (BRCM) 5.11%. SPX big losers were WPX Energy Inc (WPX) -5.09%, Helmerich & Payne Inc (HP) -4.64%, and Baker Hughes Inc (BHI) -3.81%.
SPX five day big winners are First Solar Inc (FSLR) 17.22%, Netflix Inc (NFLX) 16.2%, and Eastman Chemical Co (EMN) 14.94%. SPX five day big losers are Cabot Oil & Gas Corp (COG) -18.81%, Eqt Corporation (EQT) -12.39%, and Urban Outfitters Inc (URBN) -12.26%.
New Ten Day Highs: ADBE, AMD, A, APD, ARG, AA, AGN, ALL, ALTR, AXP, AIG, AMT, AMP, AMGN, APH, ADI, AZO, AVP, BLL, BAC, BAX, BBT, XL, BA, BRCM, BRK.B, CA, COF, CCL, CAT, CBG, CELG, CF, CINF, CLX, CMA, CSC, CAG, STZ, SAI, GLW, CSX, CMI, CVS, DHR, DVA, DE, DELL, XRAY, DV, DO, DFS, DOV, DOW, DNB, DD, ROST, ETFC, EMN, ETN, EBAY, ECL, EMC, EMR, FAST, FII, FDX, FHN, FISV, FLIR, FLR, FMC, FRX, FCX, GCI, GD, GNW, GR, GWW, HOG, HRS, HIG, HAS, HCN, HPQ, HD, HON, DHI, HSP, HST, ITW, IFF, IGT, INTU, IVZ, ITT, JEC, JNS, JCI, JPM, CLF, K, KEY, KIM, KFT, LLL, LM, LUK, LXK, LNC, LOW, LSI, MTB, M, MAR, MJN, MKC, WFR, MET, MOLX, TAP, MON, MCO, MS, NOV, NWL, NEM, NWSA, NKE, NSC, NTRS, NOC, NUE, OXY, ODP, OMC, OI, PCAR, PLL, PH, PDCO, BTU, PKI, PCG, PBI, PCL, PNC, PPG, PX, PFG, PLD, PRU, PHM, RSH, RTN, RSG, ROK, COL, R, SLB, SCHW, SEE, SHW, SIAL, SJM, SNA, LUV, STJ, SPLS, SBUX, STT, SRCL, SUN, STI, SYMC, TER, TXN, BK, TWX, TIE, TSS, TRV, UPS, UTX, DRYS, QLD, JASO, UNM, USB, VAR, VNO, VMC, WM, WAT, WFC, WU, WY, C, GS
New Ten Day Lows: ABT, AIV, AIZ, AVB, BIG, BXP, COG, CNP, CHK, CVX, XEL, COH, KO, COP, CEG, D, DPS, DUK, ESV, EQT, EQR, EXC, XOM, TEG, IBM, KMB, KR, NTAP, NI, JWN, NU, POM, PM, PPL, PGN, PEG, DGX, STR, RRC, SWY, SPG, SWN, SVU, TIF, SH, DYN
Volume & Breadth Indicators
For the SPX Index there were 293 components advancing and 174 components declining. On the NYSE 3,135 issues were traded with 1,857 advancing issues and 1,174 retreating issues, a ratio of 1.58 to one advancing. There were 103 new highs and 15 new lows. The five day moving average of New Highs is 106 while the five day moving average of New Lows is 15 and the ten day moving average of Net Advancing is 709. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 1.52 to one. The closing TRIN was 1.17 and the final tick was 419. The five day average of TRIN is .99 and the ten day average of TRIN is .89. The NYSE Composite Index gained 0.25% today while the SPX gained 0.23%.
For the NYSE, relative to the previous 30 session average, volume was -8.53% below the average. Of the last 15 sessions 0 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, 9 of last 10. For the SPX, the day's volume was 88.3% of the average daily volume for the last year. Volume was 111.2% of the last 10 day average and 95.2% of the previous day’s volume.
Total tick for the day was 179,000 and the average tick for the day was 115. There were 37 ticks greater than 600 and 13 ticks more extreme than -600. There were no ticks greater than 1000 and no ticks more extreme than -1000.
The tick data today shows a general malaise as traders were reluctant to buy and even more reluctant to sell. These are unusually low numbers across the board.
The intraday volume pattern yet again shows the early session spike of volume followed by diminishing volume as the market rises. This can’t be seen as anything but a bearish volume pattern every day. Meanwhile the McClellan Oscillator is a bit more overbought today than it was yesterday and even the ten day average has moved into overbought territory.
Moving Average and Support/Resistance Indicators:
75.4% of the SPX are above their five day moving average, 75.4% are above their 10 day average, 84.4% are above their 20 day moving average, 76.2% are above their 50 day moving average, and 50.2% are above their 200 day moving average.
There was one significant moving average crossover today as the SOX 20 DMA crossed above the 100 DMA. All of our short term averages continue to rise while the 200 day averages continue to be falling. Our moving average Power Rating is 67 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Thursday:
- Basic Materials -- Outperformed the SPX by +120%.
- Financials -- Outperformed the SPX by +16%.
- Industrials -- Outperformed the SPX by +67%.
- Technology -- Outperformed the SPX by +15%.
- Health Care -- Outperformed the SPX by +8%.
- Consumer Discretionary -- Outperformed the SPX by +7%.
Sectors weaker than the SPX for Thursday:
- Energy -- Underperformed the SPX by -119%.
- Consumer Staples -- Underperformed the SPX by -23%.
- Utilities -- Underperformed the SPX by -37%.
In Late Trading:
191 SPX components moved upward and 127 components downward during the after hours with 181.3 million shares traded.
What We Learned from Thursday's Action:
Thursday was session 8 to close above the 5 DMA, session 16 to close above the 10 DMA, session 16 to close above the 20 DMA, and session 16 to close above the 50 DMA. This was also session 14 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 16.04 points above the 10 DMA.
The SPX 5 DMA is 1287.71, 10 DMA is 1279.46, 20 DMA is 1258.34, 50 DMA is 1242.78, 100 DMA is 1215.84, and 200 DMA is 1258.08.
On Thursday the SPX traded below the opening range but did not trade above the opening range. 59% of the SPX closed up from the previous close; 49.8% closed higher than the open. During Thursday's session the SPX gained 3.02 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 Friday is -4. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, we are bearish for Friday's session.
A quick review of our market leaders board shows that the SPX is now less than 5% below the bull market highs while the Dow is even closer. Yet the Russell 2000 small caps are about 11% below its highs. The broad NYSE Composite Index is more than 11% below its high. This does not strike us as a very bullish scenario as the broader indices most often lead.
Another factor that catches our attention is the 50 and 200 day moving averages. When the 50 DMA crosses above the 200 DMA many analysts refer to it as the “Golden Cross” and it is usually seen as a bullish signal. The SPX is not far from the Golden Cross as the 50 DMA is only 1.3% below the 200 DMA. But the Russell 2000 is 3.8% from such a crossover. And the Financials (XLF) are buried with the 50 DMA more than 8% below the 200 DMA. This continues to strike us as a rally destined to fail.
Today was interesting in that the SPX futures high of the day was before the session and was not confirmed during the regular session. This can often be a suggestion that a top has formed.
During January’s option expiration week, historical patterns favor the bears and major market indices will probably take a breather from the recent run-up.
With earnings in full swing next week and high expectations built into the overbought conditions, surprises should come to the downside. Range should expand and intraday trading should improve.
Friday, January 13
Economics
08:30 Import Price Index – consensus 8.2%
08:30 Trade Balance – consensus -$44.6B
09:55 University of Michigan Confidence Statement – consensus 70.5
11:00 Fed to purchase $4.25b-$5b notes in 9 to 10-year range
CNY Industrial Production
CNY Real GDP
CNY Retail Sales
04:00 JPY Bankruptcies
09:30 GBP PPI
10:00 EUR Euro-Zone Trade Balance
5:00 Italy to sell bonds/floating rate notes
Earnings
Before: JPM
Retail sales rose 0.1%, less than the expected 0.4%. Jobless claims were 399,000, more than the consensus 375,000. On Friday we get the trade deficit and consumer sentiment.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
