Morning Gap Higher Fades Away Due to Poor Economic Data
by Jerome "Mel" Hickerson
Market Recap:
Stock futures were pointing higher before today's open on the back of the new fiscal compact getting done in Europe as well as a report out of China that the government may encourage local Chinese pension funds to invest a portion of their capital in equities.
Tuesday's open saw a gap higher but the high of the day was in the opening minutes as economic data released during the first half hour failed to meet expectations. But the market bottomed just before noon, found support, and began to work higher. The rest of the day was controlled by buyers although there were some minor pullbacks along the way.
Our Market Leaders Board shows that our leaders all closed near break-even today but the Financials were relatively strong while the Dow was lagging.
SPX big winners were CBRE Group, Inc. (CBG) 5.65%, Edwards Life Sciences (EW) 5.5%, and US Steel Corp (X) 4.93%. SPX big losers were Avery Dennison Corp (AVY) -5.84%, Best Buy Co Inc (BBY) -5.82%, and Alpha Natural Resources (ANR) -4.62%.
SPX five day big winners are Netflix Inc (NFLX) 29.71%, J.C. Penney Company Inc (JCP) 20.09%, and Textron Inc (TXT) 17.91%. SPX five day big losers are E Trade Financial Corp (ETFC) -14.24%, Corning Inc (GLW) -11.97%, and Allegheny Technologies (ATI) -10.65%.
New Ten Day Highs: AET, AMT, AZO, AVB, BHI, BMC, CAH, CFN, CBG, CBS, COH, DELL, DTV, DOV, DD, EMC, EQR, EXPE, FIS, FLS, FMC, BEN, HAL, HRS, IBM, JNJ, LXK, MA, MAT, MCK, MON, NBR, NKE, NUE, PCAR, PDCO, RL, PFG, PSA, RSG, STJ, SBUX, SYMC, TSO, TXT, UPS, QLD, VRSN, VMC, AAPL, GS
New Ten Day Lows: ABT, AES, ATI, APOL, ADM, ADP, AVY, AVP, BBY, BMY, COG, CB, COP, SAI, ROST, ETR, EFX, XOM, FII, FRX, GD, GIS, GT, GWW, DHI, KEY, KSS, KR, LLL, LM, LEG, LEN, LXK, L, LO, MHP, MWV, MRK, NYT, NSC, PH, BTU, PBCT, PFE, PNW, PBI, PCL, PCP, PG, RSH, RTN, RAI, SNI, S, SPLS, TROW, TLAB, TIE, DYN, WPO
Volume & Breadth Indicators
For the SPX Index there were 192 components advancing and 239 components declining. On the NYSE 3,130 issues were traded with 1,756 advancing issues and 1,247 retreating issues, a ratio of 1.41 to one advancing. There were 203 new highs and 12 new lows. The five day moving average of New Highs is 182 while the five day moving average of New Lows is 9 and the ten day moving average of Net Advancing is 607. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 1.06 to one. The closing TRIN was 1.4 and the final tick was 391. The five day average of TRIN is 1.46 and the ten day average of TRIN is 1.17. The NYSE Composite Index gained 0.05% today while the SPX lost -0.05%.
For the NYSE, relative to the previous 30 session average, volume was 29.65% above the average. Of the last 15 sessions 6 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 22 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 93.9% of the average daily volume for the last year. Volume was 98.1% of the last 10 day average and 109% of the previous day’s volume.
Advancing volume continues to be weak suggesting a reluctance of traders to chase stocks higher at this level.
Looking at the NYSE 15-second tick data, the total tick for the day was 134,000 and the average tick for the day was 87. There were 62 ticks greater than 600 and 25 ticks more extreme than -600. There were 12 ticks greater than 1000 and 1 ticks more extreme than -1000. The tick action suggests institutional accumulation.
Looking at the one-minute tick data, there were 84 ticks greater than 500 and 47 ticks more extreme than -500. 57.4% one-minute ticks were positive. There were no ticks greater than 900 and 1 tick more extreme than -900. The tick action suggests institutional accumulation.
The tick data today shows that buyers were in control despite the morning pullback. But the tick numbers continue to be very mild suggesting a lack of enthusiasm on the part of buyers.
The intraday volume pattern shows a large spike of volume during the morning decline and falling relative volume the rest of the session. The Nightly Breadth Indicators continue to be overbought but every day like today relieves some of the pressure.
Moving Average and Support/Resistance Indicators:
38.8% of the SPX are above their five day moving average, 53.6% are above their 10 day average, 70.4% are above their 20 day moving average, 83.2% are above their 50 day moving average, and 63.6% are above their 200 day moving average.
There was one significant moving average crossover today as the SPX 50 DMA moved above the 200 DMA. This is the so-called "Golden Cross." Our moving average Power Rating is 88 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Tuesday:
- Financials -- Outperformed the SPX by +33%.
- Technology -- Outperformed the SPX by +23%.
- Consumer Staples -- Outperformed the SPX by +4%.
- Utilities -- Outperformed the SPX by +48%.
- Health Care -- Outperformed the SPX by +13%.
- Consumer Discretionary -- Outperformed the SPX by +2%.
Sectors weaker than the SPX for Tuesday:
- Basic Materials -- Underperformed the SPX by -4%.
- Energy -- Underperformed the SPX by -56%.
- Industrials -- Underperformed the SPX by -37%.
In Late Trading:
187 SPX components moved upward and 183 components downward during the after hours with 248.7 million shares traded.
What We Learned from Tuesday's Action:
Tuesday was session 3 to close below the 5 DMA, session 2 to close below the 10 DMA, session 28 to close above the 20 DMA, and session 28 to close above the 50 DMA. This was also session 26 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 3.08 points below the 10 DMA.
The SPX 5 DMA is 1317.25, 10 DMA is 1315.48, 20 DMA is 1300.58, 50 DMA is 1257.79, 100 DMA is 1231.37, and 200 DMA is 1257.19.
On Tuesday the SPX traded below the opening range but did not trade above the opening range. 38% of the SPX closed up from the previous close; 22.2% closed higher than the open. During Tuesday's session the SPX lost -1.13 points from open to close. The SPX intraday trading range was 14.72 points. The 5-Day average intraday trading range is 15.42 points, the 10-Day average is 12.82 points, and the 20-Day average is 11.58 points. The trading range is expanding.
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. The short-term trend appears to be sideways. Mel's 10 Day Oscillator is 64 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, our bias is slightly bearish for Wednesday's session.
This was the first time that January didn't have a session with at least a 0.6% loss, so stating that this was an unusual January is an understatement. But the SPX managed the "Golden Cross" today, a crossover which has historically led to significant market gains, not necessarily in the short-term but over the following several months.
While we continue to look for a decline to begin soon, we don't really believe that Wednesday will be the day. With the SPX down on the last four sessions of a month, the SPX closed higher on the following first of the month on six of the last seven occurrences and five of those were greater than 1% gains. This would seem to line up the odds in favor for a positive session Wednesday.
Intraday support continues to be at the 20-Day moving average (SPX 1300) and resistance at 5-Day average (SPX 1317.)
Looking at seasonality for February, the last two Februarys have given nice gains but overall the last ten years have seen February log an average 1.12% loss.
Meanwhile, market breadth is suggesting the possibility that we are watching a sideways correction. At the very least, any decline is probably a good place to get long and ride that side for a while.
Wednesday, February 1
Economics
07:00 MBA Mortgage Purchase Index
08:15 ADP Employment Change – consensus 185K
10:00 Construction Spending – consensus 0.5%
10:00 ISM Manufacturing – consensus 54.5
10:00 ISM Prices Paid – consensus 49.8
5:00 Domestic Vehicle Sales – consensus 10.50M
5:00 Total Vehicle Sales – consensus 13.55M
01:00 CNY PMI Manufacturing
08:15 CHF Retail Sales
08:55 EUR German PMI
10:00 EUR Euro-Zone CPI Estimate
5:15 Germany to sell add’l EU5b 10-yr notes
Earnings
Before: AET, AGYS, AMSC, ASCA, AOL, ARW, ATMI, AUDC, ALV, BEAV, GIB, CVLT, COCO, DWSN, DSPG, ENR, ENTG, EPD, BEN, HBI, HSY, IACI, ITG, LQDT, MAN, MKTX, MDCI, NDAQ, NI, NOC, OIIM, PMT, RDWR, ST, TMO, TUP, VHS, WHR
After: NDN, ABCO, AFFX, ALGT, ALL, DOX, AFG, AMP, AMLN, AIZ, ATW, AVB, AVNW, BYI, BMC, CELL, CBT, CACI, CDNS, CMO, CRME, CENT, CMG, COHU, CNQR, CLB, CMRE, CVTI, CCK, EDMC, EA, EXXI, ENTR, EQR, ESS, EXAR, FBHS, GMCR, GTAT, HAIN, HI, INSP, IPHI, ININ, ISIL, JDSU, KMPR, LVS, MKL, MTSN, MDU, MEAS, MERU, MKSI, NETL, NQ, NEU, OTEX, OPWV, QCOM, QNST, RLD, REG, SGMO, SWM, SHOR, SFLY, SLH, SRDX, SYA, TSO, TLLP, TTEK, TSCO, VASC, VMC, WGL
The Case-Shiller home price index showed a decline of 0.7%, more than the expected decline of 0.4%. Consumer Confidence was 61.1, down from last month's 64.5. Chicago PMI came in at 60.2, less than the expected 63.0. On Wednesday we will get the ADP employment report, ISM manufacturing, construction spending and oil inventories.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
