Mr. Market's Wild Ride
by Jerome "Mel" Hickerson, MarketsPath.com
Friday morning saw selling pressure from the futures after the monthly Non Farm Payroll economic release. But that pressure from the futures was not intense; the session opened a little down, then almost immediately popped upward suggesting a possible rally attempt, setting the high of the day just two minutes into the session.
And then Mr. Market’s Wild Ride began. The SPX took a quick turn down then popped up almost to the high of the day at 9:47. Then the ride continued through the Fun House painting a new low for the day just after 10am before careening wildly back near the high of the session at 10:44. After leaving the Fun House the amusement ride took us down through the House of Horrors for several hours setting the low of the day at 1:59. The hour from 2pm until 3pm was mostly a mild drift upward before an explosive rally on heavy volume in the final hour.
Anyone not following the market closely came home Friday and saw that the DOW finished up a mere 10 points and thought “what a dull market day.” The 170 point ride through the House of Horrors and back isn’t obvious to the casual bystander.
But it’s a day many of us will not soon forget. And for many of us, it brought back memories of late July/early August 2007, a time frame I have brought up too many times here, but once more I suggest to you to review charts of that scary time period and keep in mind that just eight weeks later the indices were setting new 52 week highs (that stand out still as the all-time index highs.) What we are seeing now could lead to new highs. I am not saying it will – I believe it will not – but getting too bearish too soon is not a good idea.
Okay, let’s review where we are and where it might lead us. We are one week into the shortest month of the year. The monthly chart sits below the monthly open in spite of the successive 1% up days early this week; data was presented earlier this week suggesting that those gains would not survive long and we see they have disappeared already.
The weekly chart closed below the open for the fourth consecutive week. This marks the third four week losing stretch since the rally began 11 months ago. Arguments can be made that the 100 point drop is a routine correction rather than a rally killer; this remains to be seen. But notice that the 4 week RSI for the SPX is the lowest it has been in almost a year; in a healthy market this would signal an imminent rally.
Stepping back to the daily chart, Friday painted an unusually long tailed large range doji with the open and close near the top of the range (a "dragonfly doji" or a " bullish hammer ".) This is considered a bullish signal in a downtrend and confirmation would be an up day on Monday. In a bearish trending market the dragonfly illustrates an unsustainable sell-off, where price drives to new lows but buyers take control of the trend by market close. It is a warning that the downtrend is losing momentum and bulls may retake the market soon.
In the last 13 months, only two days were similar: March 6, 2009 (the market bottom) and July 8, 2009 (the bottom before the long July run up.) I wouldn’t draw any conclusions from just two examples but if you are bullish you can probably use the encouragement; this week belonged to the bears in spite of successive 1% up days.
For Monday, our model is calling for an up day. More than that; the model is suggesting that Friday’s turnaround may have marked a short-term bottom and that the market could respond with a multi-day rally attempt. I think the 1084-1114 area will yet once again come into play. I remain short-term bullish and intermediate-term bearish.
SPX Summary for Friday, February 05, 2010
262 Advancers/234 Decliners
Today's SPX component winners and losers:
• Largest one day loser is APD with -6.85%
• Largest three day loser is WU with -12.42%
• Largest five day loser is GCI with -16.22%
• Largest ten day loser is QCOM with -18.82%
• Largest one day winner is ARG with 39.78%
• Largest three day winner is ARG with 36.40%
• Largest five day winner is ARG with 44.43%
• Largest ten day winner is EK with 38.07%
*** SPX Technical Summary ***
The lowest 14 day RSI component is AIG; the highest 14 day RSI component is JAVA. The average 14 day RSI of all 500 components is 36.
The greatest positive five day momentum component is ARG; the greatest negative five day momentum component is GCI. The average five day momentum of all 500 components is -0.64.
8.60% of the SPX components are giving a crossover Buy signal; 54.20% of the SPX components are giving a Sell signal. This is a 6.3 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 40 components.
• From Buy to Neutral: 6 components.
• From Neutral to Sell: 19 components.
• From Neutral to Buy: 7 components.
Monday, February 8
Earnings
Before: BWP, CGA, CVS, GWR, HAS, L, NDAQ, SIRO
After: ADCT, ANDE, ERTS, ESLR, HIG, LNC, OTTR, TWTC, ZOLT
Auctions
11:30 3-Month Bill Auction
11:30 6-Month Bill Auction
Mel’s Random Hits:
• Total tick for the day was -138,000. Negative breadth at the open with brief positive periods around 11am and 12:15. The closing hour was all positive.
• Total tick for the week was flat. This follows two successive negative weeks and suggests that the correction may be ending.
• The day's range was 22.63 points.
• The range for the week was 60.23 points; 5.61%. The last time we saw the weekly range over 5% was the last week of October; that ended that correction.
• The week ended with a 7.68 point loss, the smallest of the last four weeks. But nevertheless, a loss in spite of successive 1% up days.
• The day's volume was 117.23% of the average daily volume for the last year. Volume was 122.5% of the last 10 day average. This was the second highest volume of the year (1/21 barely beat it.) Volume was ordinary until the last 90 minutes when the volume surged with the index.
• In spite of the late surge, the SPX did not regain the 100 DMA (just above 1080 currently). This level will provide significant resistance.
• The action on Thursday and Friday met all of my criteria for signaling the end of a correction. That does not mean the correction has ended; it simply means that a failure to post a multi-day rally soon would suggest that this is not an ordinary correction and that something different is at work.
• 1% of the SPX stocks closed with two day RSI above 90. 2% closed with RSI above 80. 40% closed with RSI below 20 and 18% closed with RSI below 10.
• 9.0% of the SPX are above their five day moving average, 13.4% are above their 10 day average, and 11.4% are above their 20 day moving average.
• 30% of the SPX stocks closed below their most recent previous lows.
• 6% of the SPX closed above their most recent previous high.
• 85.6% of stocks closed in the top half of the day's range. (14.4% closed in bottom half.)
• 0.6 of stocks closed in the bottom 20% of the day's range.
• 19.2% of stocks closed in the top 10% of the day's range.
• 1.0% of stocks closed within 2% of their 52 week high. 6.4% of stocks closed within 5% of their 52 week high.
• 30.8% of stocks closed within 50% of their 52 week low. 9.8% of stocks closed within 25% of their 52 week low.
• 18.0% of stocks closed within ¼% of their high for the day.
• 0.0% of stocks closed within ¼% of their low for the day. (This is quite rare for a day in which the index gained only three points, but it illustrates how broad the late afternoon rally was – no one was left behind.)
• 52.2% of the SPX closed up from the previous close; 55.6% closed higher than the open.
• Sectors weaker than the SPX for the day: Staples, Utilities, Consumer Industrials, Health Care, Energy, and Consumer Discretionary.
• Sectors stronger than the SPX for the day: Basic Materials, Financials, and Technology. These are the right sectors leading the way for a sustained rally attempt.
• The $SOX index strength was stronger than the SPX Friday.
• The 2 Day RSI of the SPX is 19. The Dow RSI is 14, NASDAQ is 34 and Russell 23. The NASDAQ and Russell seem to be leading the way upward.
• Over the last five sessions, the average session closed 65% of the range above the low.
• Upward momentum quickly moderated from yesterday’s -2.17 to today’s -0.64. The ratio of SPX components giving a crossover sell signal compared to buy signals is at to 6.3 to 1.
• 294 SPX components moved upward and 109 components downward during the after hours with 115 million shares traded.
Have a great weekend everyone!
-----------
"Mel"
ETF’s we trade:
Ultra S&P500 ProShares (NYSE: SSO)
Ultra Dow30 ProShares (NYSE: DDM)
Ultra QQQ ProShares (NYSE: QLD)
PS UTLRSHRT QQQ (NYSE: QID)
UltraShort S&P500 ProShares (NYSE: SDS)
UltraShort Dow30 ProShares (NYSE: DXD)
PowerShares QQQ Trust (NASDAQ: QQQQ)
Direxion Daily Small Cp Bear 3X (NYSE:TZA)
Direxion Daily Small Cp Bull 3X (NYSE:TNA)
