Rejection at 1131?
by Jerome "Mel" Hickerson
Market Recap:
World markets were mostly in the green Friday morning, with the German DAX being a noteworthy exception. Tech stocks had the U.S. futures in rally mode but futures, while bouncing a bit from the 8am lows were still about seven points below their overnight highs.
The quadruple options expiration session began with a huge upward gap and quickly put the high of the day on the chart just eight minutes into the session. Consumer sentiment data just before 10:00 am disappointed traders and the SPX quickly surrendered the gains and put the low of the session on the chart at 10:12. The rest of the day backed and filled within a four point trading range.
Friday was one of the one or two sessions each year where the entire day trades within the range established during the first hour. One quarter of the day's volume came in the opening 30 minutes, as is typical of options expiration sessions.
Turning to our Market Leaders Board we see another mixed session with the broad NYSE Composite Index down, along with the XLF and Emerging Markets. For a day that dawned with the futures above 1130, Friday had to be a bit of a disappointment for the bulls. As last mentioned in Wednesday's report, the SPX was on a mission to test 1131 and that mission is now complete.
Market Trend: Nine Sectors Report
The question remains: What comes next? The best answer may come from a review of where we've been.
The trading for the week covered a range of just 1.62%, barely an 18 point range for the entire week. The 60 year average daily range for the SPX is greater than this week's range. The two week range is 3.66%; the last time the two week range fell below 4% was the week that began August 2nd and the following week fell 42 points. Prior to that, the previous time the two week range fell below 4% was the week beginning April 26th; the following week saw the index drop more than 75 points. While it’s certainly true that forming tops can drag on almost endlessly (March/early April an excellent recent example), we certainly have one of the prime characteristics of a top forming.
Stepping further back and looking at the monthly chart we see a four month pattern of alternating reversals. The highs for the four months are 1131, 1121, 1129 and 1131. The index is up against resistance that it has failed to overcome on several attempts. As we read the charts, the trend was downward going into this stall and a breakout downward seems more likely than upward.
Taking one more look closer in at the data and checking the ES Mini daily chart, we find it hard to not comment on the bearish red reversal bar painted by Friday's spike to ES 1132.75 and then closing at 1119.75. Be as bullish as you like, but that smacks of a reversal and rejection at the highs.
So looking ahead to next week, we check in with our Nine Sectors Report. Friday's action left us with three more changes, all Neutrals moving to Sells. We now have eight of the nine sectors giving Sell signals. But next week's action is likely to be driven by the Fed's meeting on Tuesday. Technicals drive the longer-term moves but in the short-term news drives. And a drive of the index above 1131 on a closing basis can certainly change the outlook of the technicals.
For now, resistance is clearly at 1131 and support at the 5 DMA (1123) and 200 DMA (1116). We are sandwiched between support and resistance and until we break through one or the other anything is possible.
Volume & Breadth Indicators
For the SPX Index there were 280 Advancers/208 Decliners. On the NYSE 3,127 issues were traded with 1,792 advancing issues and 1,236 retreating issues, a ratio of 1.45 to one advancing. There were 249 new highs and 14 new lows. The five day moving average of New Highs is 205 while the five day moving average of New Lows is 8 and the ten day moving average of Net Advancing is 475. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 1.28 to one. The closing TRIN was 1.86 and the final tick was 362. The NYSE Composite Index lost -0.21% today.
For the NYSE, relative to the previous 30 session average, volume was 85.01% above the average. Of the last 15 sessions four sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 20 sessions ended on a positive tick, eight of last ten. For the SPX, the day's volume was 86.5% of the average daily volume for the last year. Volume was 120.7% of the last 10 day average and 123.1% of the previous day’s volume.
We see declining volume with advancing issues. While this is not rare, it is uncommon, last occurring on July 29th. The TRIN suggests that Friday was more of a sell-off. After the options expiration inspired heavy volume at the open, the rest of the session was light volume. Final tick was moderately strong suggesting little fear about holding over the weekend, and was the fifth consecutive Friday with a positive final tick.
Further, total tick for the day was 149,000 and the average tick for the day was 97. There were 80 ticks greater than 600 and 16 ticks more extreme than -600. There were three ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
The tick action appears to favor the bullish case but once again the action was very mild. Extreme ticks have been rare this week. The nightly indicators are mixed but lean bearish.
Moving Average Indicators:
82.60% of the SPX components are giving a crossover Buy signal; 2.40% of the SPX components are giving a Sell signal. This is a 34.4 to 1 ratio of Buy signals over Sell signals.
54.4% of the SPX are above their five day moving average, 69.8% are above their 10 day average, 88.6% are above their 20 day moving average, 74.2% are above their 50 day moving average, 62.4% are above their 100 day moving average, and 55% are above their 150 day moving average.
The NYA 20 DMA crossed above the 100 DMA. Other moving average data continues to show that we are overbought.
Overall the data from Friday is quite mixed, illustrating that the market is deliberating on direction and has not yet decided.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Industrials -- Outperformed the SPX by +35%.
- Technology -- Outperformed the SPX by +6%.
Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -212%.
- Energy -- Underperformed the SPX by -103%.
- Financials -- Underperformed the SPX by -73%.
- Consumer Staples -- Underperformed the SPX by -105%.
- Utilities -- Underperformed the SPX by -127%.
- Health Care -- Underperformed the SPX by -54%.
- Consumer Discretionary -- Underperformed the SPX by -53%.
Stocks on the Move:
Today's SPX component winners and losers:
- Largest one day loser is MEE with -7.45%
- Largest three day loser is COG with -7.85%
- Largest five day loser is TWC with -8.59%
- Largest ten day loser is DF with -8.35%
- Largest one day winner is ORCL with 6.91%
- Largest three day winner is NOVL with 9.87%
- Largest five day winner is JCP with 15.37%
- Largest ten day winner is ORCL with 22.42%
In Late Trading:
170 SPX components moved upward and 217 components downward during the after hours with 234 million shares traded.
Week of September 20 - September 24 Overview
Date/Time Release/Consensus
09/20/10 10:00 NAHB Market Index/14
09/21/10 8:30 Housing Starts/550K
09/21/10 8:30 Building Permits/560K
09/21/10 14:15 FOMC Rate Decision/0.0025
09/22/10 10:30 Crude Inventories/NA
09/23/10 8:30 Initial Claims/450K
09/23/10 8:30 Continuing Claims
09/23/10 10:00 Existing Home Sales/4.04M
09/23/10 10:00 Leading Indicators/0.001
09/24/10 8:30 Durable Orders/-0.013
09/24/10 8:30 Durable Orders -ex Transportation/0.007
09/24/10 10:00 New Home Sales/290K
Monday, September 20
Economics
10:00 NAHB Market Index 14 cons.
New Zealand Consumer Confidence
New Zealand Performance Services Index
Great BritainMajor Banks Mortgage Approvals
Earnings
Before: DFS, LEN
Auction
11:303-Month Bill
11:306-Month Bill
Have a great weekend!
-Mel
