SPX "Death Cross"
by Jerome "Mel" Hickerson
Just before Friday’s open, the Labor Department reported that Nonfarm Payrolls fell in the month of June by 125,000. This total was a bit below the consensus estimates of economists surveyed by Dow Jones for a decrease of 110,000. The government reported that the census was responsible for 225K job cuts during the month. The nation’s Unemployment Rate fell 0.2% to 9.5%, which was below expectations for a reading of 9.8 and May’s level of 9.7%. The rate of unemployment is the lowest since June 2009. The reaction of the futures was simply wild; quite an oscillation back and forth. As the open approached we were pointed towards a flat-to-moderately positive beginning.
The session opened with a little quick pop that put the high of the day on the chart just six minutes into the session. The next three hours were a three wave descent putting the low on the chart at 1:01. The final three hours climbed back up near the highs but the final eleven minutes gave back a quick eight points to close the day near the middle of the intraday range and to close the week in the lower quadrant of the weekly bar.
The SPX and the XLF both joined the NYSE Composite today: their 50 DMA crossed below their 200 DMA; the so-called “Death Cross” has occurred. The Chicken Littles that have been screaming that the sky is falling for the last 18 months may finally get some satisfaction as a summer of discontent seems certain to continue. But I’ll remind readers that Chicken Little ended up in the Fox’s den and never came out again.
If traders make a habit of allowing their bias to become their trading methodology, it may work for some time. But the market is like the Fox, wily and cunning. If you want to avoid becoming a meal for the market, you also have to be as wily as the Fox.
The action this week was truly rare. The RSI(2) of the Dow closed at zero yet again, for the fourth consecutive day. That marks seven consecutive days of RSI(2) of three or lower. My data only goes back as far as 1950 but this is the first occurrence in at least 60 years that the Dow RSI(2) has failed to rebound for seven such days.
The NASDAQ 100 again closed lower than the open, for the tenth consecutive time. This was the first time in history that this has occurred. The end of March 1994 had nine consecutive down closes; interestingly, while the NDX 100 then did go a bit lower, it was much higher three months later and more than 40% higher a year later.
But overlooking the current weakness in the markets would be as foolish as Chicken Little; you can certainly find yourself in the Fox’s den just as easily that way.
The SPX lost almost 55 points for the week and the last two weeks have lost 8.5%. As I search the data, losing 8.5% in a two week stretch is a pretty rare occurrence. There have been 3,156 weeks since the beginning of 1950 and only 30 times has a two week period closed with an 8.5% or greater loss. So I decided it might be enlightening to look at what happened after the previous occurrences.
The first thing that stands out is that sometimes decades go by without seeing such a decline within a two week period. I guess it shouldn’t be too surprising that such declines tend to come clustered together; 11 of the 30 have occurred since September of 2008. 2/3rds of the time the market bounces the following week, by an average of 4.25%. But that stat is a bit misleading because the 1/3rd of the time that the index doesn’t bounce back, it declines by an average of -10.97%.
So if there is any tradable edge, it is that odds favor a bounce. But if a bounce isn’t coming, a large move down is the likely alternative. So the question to be answered is: Will next week resemble October 2008’s plunge or January 2009’s bounce within a downdraft?
For me, while I believe we go much lower over the coming weeks, I am betting on a bounce sometime next week. We could even bounce early in the week and still plunge later in the week. But my reasoning is based on the chart patterns in this line of thought:
- Friday painted an inside day after a reversal day. Yes, the Dow was an exception, but all the broader indices painted inside days. By definition, this means a lower low followed the Thursday reversal.
- This type of pattern has followed every reversal since at least February 5th (05/06, 05/25, 06/08, and now 07/01.) Not all were inside days, but all the days following the reversal days had higher lows and closed lower than the open.
- Several up days followed each of the above patterns.
- Additional note: The significance of the “Death Cross” may be overstated. There have been eight such crosses since 1990. Six times there was no pullback of any kind; the market rallied until the Golden Cross occurred. The other two occasions the SPX still bounced both times in the days following the cross (average of 24 SPX points.)
I realize that many are expecting a major market crash; I don’t rule that out, either. But a glance at the chart might convince someone we’ve already had a crash; and even if more downside is coming (I believe it is), I think we have a head-fake rally first, for the above mentioned reasons.
I’ll leave one more thought for those expecting a major crash. While not always true, market breadth is one of the more reliable indicators; breadth usually leads the market. The NYSE Advance/Decline bottomed in early February right along with the SPX. But since then, while the index is currently making new lows, the A/D line is not confirming. Experience suggests that the A/D line will lead the index at least for a rebound.
Day Trade Systems Update: (Signals today)
* SSO at: 10:07
* SSO at: 10:50
* SSO at: 11:20
* SSO at: 11:47
* SSO at: 12:53
* GDX at: 2:33
We worked the long side and we made money. Yes, it may have been easier to work the short side. But that’s easier to see after the day is done; there was money to be made on both sides Friday.
SPX Summary for Friday, July 02, 2010
104 Advancers/384 Decliners
30 Advancers/464 Decliners for the week
Today's SPX component winners and losers:
- Largest one day loser is ICE with -6.13%
- Largest three day loser is TSO with -10.80%
- Largest five day loser is TXT with -16.93%
- Largest ten day loser is GCI with -21.36%
- Largest one day winner is AGN with 7.15%
- Largest three day winner is CF with 10.39%
- Largest five day winner is ESV with 5.16%
- Largest ten day winner is CF with 6.37%
*** SPX Technical Summary ***
The lowest 14 day RSI component is FO; the highest 14 day RSI component is BDK. The average 14 day RSI of all 500 components is 33.
The greatest positive five day momentum component is ETFC; the greatest negative five day momentum component is STR. The average five day momentum of all 500 components is -4.44.
3.20% of the SPX components are giving a crossover Buy signal; 79.80% of the SPX components are giving a Sell signal. This is a 24.9 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
- From Sell to Neutral: 0 components.
- From Buy to Neutral: 4 components.
- From Neutral to Sell: 84 components.
- From Neutral to Buy: 7 components.
The moving averages: SPX NYA
Close 1022.58 6434.81
9 EMA 1026.01 Falling 6455.74 Falling
5 DMA 1039.29 Falling 6524.66 Falling
10 DMA 1064.75 Falling 6680.53 Falling
20 DMA 1077.35 Falling 6741.30 Falling
50 DMA 1111.65 Falling 6947.90 Falling
100 DMA 1131.73 Falling 7147.30 Falling
200 DMA 1111.74 Falling 7116.64 Falling
10 Wk MA 1098.75 Falling
SPX 50 DMA crossed below 200 DMA
XLF 50 DMA crossed below 200 DMA
NYSE Summary
On the NYSE 3186 issues were traded with 1243 advancing issues and 1844 retreating issues, a ratio of 1.48 to 1 declining. There were 37 new highs and 82 new lows.
Declining volume was higher at a ratio of 2.58 to 1. The closing TRIN was 1.74 and the final tick was 96.
Note that we finally see a positive last tick; but it’s weak.
Evidence of trend:
Relative to the previous 30 session average, volume was -23.53% below the average. Of the last 15 sessions 4 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 17 sessions ended on a positive tick, 4 of last 10.
The 5 day moving average of New Highs is 40 while the 5 day moving average of new lows is 100 and the 10 day moving average of Net Advancing is -756. The Net Advancing data indicates a bearish trend.
Remember: Breadth leads, indices follow. Today, the NYSE Advance/Decline line decreased from 199041 to 198440. This -0.30% decrease came while the SPX was losing -0.47%. The 10 day moving ratio of positive volume is 0.52 and the 10 day moving Advance/Decline ratio is 0.61. The 10 day moving ratio of positive volume has trended -0.06 over the last three days and the 10 day moving Advance/Decline ratio has trended -0.07 over the last three days.
The NYSE Composite Index lost -0.42% today.
NYSE Statistics:
Absolute Breadth Index: 55.79 up from previous day of 52.79
Cumulative Volume Index: 29,825.56 down from previous day of 31,551.67
High Low Logic Index: 0.81 up from previous day of 0.80
McClellan Oscillator: (204.03) down from previous day of (199.45)
McClellan 10 DMA: (80.05) down from previous day of (41.75)
McClellan Summation Index: (1,764.92) down from previous day of (1,560.89)
% Stocks Above 200 DMA: 36.07 down from previous day of 36.62
% Stocks Above 40 DMA: 25.35 up from previous day of 24.96
New High / New Low Ratio: 30.10 up from previous day of 19.54
26wk New High/Low Ratio: 16.69 up from previous day of 8.28
13wk New High/Low Ratio: 14.69 up from previous day of 8.04
4wk New High/Low Ratio: 23.77 up from previous day of 9.83
Cumulative 4-Week New Hi-Low: 436,095 down from previous day of 436,397
Nasdaq Adv/Decline: 1,220 down from previous day of 1,246
Russell 1000 Advance/ Decline Line: 2,026 down from previous day of 2,074
Russell 2000 Advance/ Decline Line: (2,174) down from previous day of (2,131)
Notes:
Absolute Breadth Index: Low numbers suggest a topping process and high numbers suggest a bottoming process.
Cumulative Volume Index: If this begins to trend down while the averages are trending up, it is a bearish sign. If this begins to trend up while the averages are trending down, it is a bullish sign.
High Low Logic Index: High readings are bearish; low readings are bullish.
McClellan Oscillator: -100 is oversold and +100 is overbought. Also watch for crosses above and below zero.
McClellan Summation Index: Interpreted as bullish or bearish when it crosses over the zero line.
Cumulative 4-Week New Hi-Low: The difference between the number of issues reaching new highs (during a 4-week period) and the number of issues reaching new lows (during the same 4-week period).
Mel’s Missives from the Matrix:
- Total tick for the day was 47,000 and the average tick for the day was 30. There were 129 ticks greater than 600 and 115 ticks more extreme than -600. There were 14 ticks greater than 1000 and 9 ticks more extreme than -1000.
- The day's range was 17.02 points. The intraday trading range - 9:35 to the close - was 16.88. The 5 DMA of daily range is 23.84.
- Evidence of the intraday trend: At 10am volume was 84.43% of the 10 day average. By noon the volume was 84.48% of the 10 day average, and by 2pm volume was 86.73% of the 10 day average.
- The day's volume was 79.5% of the average daily volume for the last year. Volume was 80.6% of the last 10 day average and 58.6% of the previous day’s volume.
- Evidence of the intraday trend: The largest increase in relative volume came between 1:00 and 1:15 when relative volume increased 43.7% while the SPX was rising 0.09%. The largest drop in relative volume came between 1:15 and 1:30 when relative volume dropped -53.1% while the SPX was dropping -0.15%.
- 1% of the SPX stocks closed with two day RSI above 90. 3% closed with RSI above 80. 65% closed with RSI below 20 and 51% closed with RSI below 10.
- 9.4% of the SPX are above their five day moving average, 5.4% are above their 10 day average, 6.8% are above their 20 day moving average, 5.8% are above their 50 day moving average, 9.4% are above their 100 day moving average, and 17% are above their 150 day moving average. Some of these percentages haven’t been seen since the fall of 2008.
- 6% of the SPX closed above their most recent previous high.
- 9% of the SPX stocks closed below their most recent previous lows.
- 104 SPX issues advanced and 384 issues declined, a net SPX advance/decline of -280.
- Evidence of the intraday trend: At 10am, 34% of the SPX components were in the top half of the range. By noon, 12% were in the top half of the range, and by 2pm, 19.2% were in the top half of the range.
- 18.8% of stocks closed in the top half of the day's range. (81% closed in bottom half.)
- 0.2% of stocks closed in the top 10% of the day's range. 1% of stocks closed in the top 20% of the day's range.
- 10.8% of stocks closed in the bottom 10% of the day's range. 29.4% of stocks closed in the bottom 20% of the day's range.
- 1.2% of stocks closed within 2% of their 52 week high. 2.2% of stocks closed within 5% of their 52 week high.
- 73.4% of stocks closed within 50% of their 52 week low. 45.2% of stocks closed within 25% of their 52 week low.
- 0.6% of stocks closed within ¼% of their high for the day.
- 10.6% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 57% of the SPX components were up since the open. By noon, 21.2% were up since the open, and by 2pm, 21% were up since the open.
- 20.6% of the SPX closed up from the previous close; 18% closed higher than the open.
- Sectors stronger than the SPX for Friday:
- Technology -- Outperformed the SPX by +35%.
- Consumer Staples -- Outperformed the SPX by +14%.
- Utilities -- Outperformed the SPX by +60%.
- Health Care -- Outperformed the SPX by +49%.
- Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -18%.
- Energy -- Underperformed the SPX by -7%.
- Financials -- Underperformed the SPX by -89%.
- Industrials -- Underperformed the SPX by -75%.
- Consumer Discretionary -- Underperformed the SPX by -63%.
- The $SOX index strength was stronger relative to the SPX Friday by 0.04%.
- The XLF underperformed the SPX by -0.89% Friday.
- The 2 Day RSI of the SPX is 0. The Dow RSI is 0, the NASDAQ is 0 and the Russell is 2.
- Over the last four sessions, the average session closed 35.15% of the range above the low. Friday closed at 37.7% of the daily range.
- Upside momentum moved downward Friday, from Thursday’s -3.1 to today’s -4.44. The ratio of SPX components giving a crossover sell signal compared to buy signals increased to the sell side to S 24.94 to 1.
- The ISEE Equity 10 day moving average Friday was 155.7. The lowest 10 day average in the last 52 weeks was 136.6 on 06/14/10and the highest 10 day average in the last 52 weeks was 249.3 on 04/15/10.
- 255 SPX components moved upward and 121 components downward during the after hours with 109 million shares traded.
Have a great Holiday weekend everyone!
-Mel
