SPX Surmounts and Closes Week Above 1100
by Jerome "Mel" Hickerson, MarketsPath.com
We didn't have any economic news before Friday’s open but earnings continued to provide plenty of input and the economic data from the UK and Germany was pretty good. But all eyes were on those stress tests results Friday at noon. Futures were off their highs and declining but still pointing to a higher open.
The session began with a small two point gap down. The opening five minutes saw increasing sell pressure but the SPX quickly bounced into positive territory followed by a quick rejection putting the low of the day on the chart at 10:01. The index then quickly bounced again, this time for eight points by 10:30. And then the waiting began as traders wanted to see the results of the European banks stress test.
During the noon hour, as the stress test results began to flow in and be digested by the market, the indices traded choppily and erratically. But as 1pm approached, the market started to respond positively. The SPX added 12 points by 1:30 and then spent the rest of the session consolidating to close near the highs of the day.
Needless to say, it was a bullish session as traders applauded the results from Europe. But will it hold over the weekend? Or will traders come to the conclusion that the stress tests were gamed to produce positive results?
The SPX managed the first close above 1100 since June 21st. By my calculations, the McClellan Oscillator closed at the most overbought condition in more than a year (although recently June 16th and March 8th were close.)
So we are quite overbought. But I remind you: Overbought does not mean Short. Overbought signals make great trade signals until they fail – which they eventually always do. The largest market moves come when conditions are overbought or oversold. There are many internal suggestions that we are going higher. Trade short side carefully, if at all. Earnings may provide fuel for further gains.
Stepping back and reviewing the daily charts, we see a closing high Friday that is the highest of the month, four successive days with higher highs. We closed above the top of the downtrend channel Friday, suggesting a break out above the range: Beware if you are short.
Looking at the weekly charts, we see many successive weeks of reversal weeks; extremely choppy trade. We painted yet another outside week; outside weeks tend to be rare during trends but are much more common during churning action. From the March 2009 lows through the mid April highs, we saw just two outside weeks. Since then, we have seen four outside weeks. This recent pattern of weekly bars suggests that next week will once again reverse and close lower than this week. So caution long side is suggested by the weekly charts.
As we move into late month, a glance at the monthly chart shows four successive lower lows and lower highs. But the high of June may be within reach at 1131.
My thinking is that next week the overbought conditions begin to catch up with us and that the weekly reversal pattern holds again. But I won’t swing short-side while my systems are showing a Buy signal; I’ll be patient, day trade either direction, and wait for a set up that shows a chart pattern that matches my trade signals. Swing trading requires patience waiting for the right conditions or you will always struggle.
What to watch this week:
I’ll be watching the XLF closely. It’s the laggard among the Market Leaders I follow. Without a surge in the XLF, I expect the market to turn down; but if the XLF starts playing catch-up, the SPX could move to the 1130 area quickly.
Our trade systems closed the week with a decent day Friday. It wasn’t a spectacular week but we had a good one; we walked away with decent money, finishing the week in cash. The key to any successful trade system is to minimize losses on the days you struggle so that on the better days the money you make is realized gain rather than simply recovered losses. We struggled a bit early in the week but without daily losses; the last few days of the week were a bit easier.
Mel’s Missives from the Matrix:
- Total tick for the day was 308,000 and the average tick for the day was 200. There were 252 ticks greater than 600 and 31 ticks more extreme than -600. There were 45 ticks greater than 1000 and 1 tick more extreme than -1000. The tick action suggests institutional accumulation.
- The day's range was 15.85 points. The intraday trading range - 9:35 to the close - was 15.34. The 5 DMA of daily range is 22.99.
- Evidence of the intraday trend: At 10am volume was 102.07% of the 10 day average. By noon the volume was 93.77% of the 10 day average, and by 2pm volume was 107.72% of the 10 day average.
- The day's volume was 91% of the average daily volume for the last year. Volume was 105.8% of the last 10 day average and 97.5% of the previous day’s volume.
- Evidence of the intraday trend: The largest increase in relative volume came between 12:00 and 12:15 when relative volume increased 75.2% while the SPX was dropping -0.04%. The largest drop in relative volume came between 12:15 and 12:30 when relative volume dropped -53.5% while the SPX was rising 0.09%.
- 32% of the SPX stocks closed with two day RSI above 90. 67% closed with RSI above 80. 3% closed with RSI below 20 and 2% closed with RSI below 10.
- 84.2% of the SPX are above their five day moving average, 78.6% are above their 10 day average, 82.8% are above their 20 day moving average, 64.8% are above their 50 day moving average, 40.8% are above their 100 day moving average, and 48.8% are above their 150 day moving average.
- 64% of the SPX closed above their most recent previous high.
- 4% of the SPX stocks closed below their most recent previous lows.
- 406 SPX issues advanced and 82 issues declined, a net SPX advance/decline of 324.
- Evidence of the intraday trend: At 10am, 33% of the SPX components were in the top half of the range. By noon, 76.8% were in the top half of the range, and by 2pm, 87.4% were in the top half of the range.
- 89% of stocks closed in the top half of the day's range. (10.8% closed in bottom half.)
- 39.8% of stocks closed in the top 10% of the day's range. 63% of stocks closed in the top 20% of the day's range.
- 0.8% of stocks closed in the bottom 10% of the day's range. 2% of stocks closed in the bottom 20% of the day's range.
- 10% of stocks closed within 2% of their 52 week high. 19% of stocks closed within 5% of their 52 week high.
- 76.8% of stocks closed within 50% of their 52 week low. 44% of stocks closed within 25% of their 52 week low.
- 40.4% of stocks closed within ¼% of their high for the day.
- 1% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 28.4% of the SPX components were up since the open. By noon, 66.8% were up since the open, and by 2pm, 81.4% were up since the open.
- 81.6% of the SPX closed up from the previous close; 83.6% closed higher than the open.
- Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +138%.
- Industrials -- Outperformed the SPX by +118%.
- Consumer Staples -- Outperformed the SPX by +11%.
- Consumer Discretionary -- Outperformed the SPX by +64%.
- Sectors weaker than the SPX for Friday:
- Energy -- Underperformed the SPX by -46%.
- Financials -- Underperformed the SPX by -12%.
- Technology -- Underperformed the SPX by -13%.
- Utilities -- Underperformed the SPX by -65%.
- Health Care -- Underperformed the SPX by -92%.
- The $SOX index strength was weaker relative to the SPX Friday by -0.3%.
- The XLF underperformed the SPX by -0.12% Friday.
- The 2 Day RSI of the SPX is 83. The Dow RSI is 85, the NASDAQ is 83 and the Russell is 88.
- Over the last four sessions, the average session closed 73.66% of the range above the low. Friday closed at 92.6% of the daily range.
- Upside momentum increased Friday, from Thursday’s 0.03 to today’s 4.42. The ratio of SPX components giving a crossover sell signal compared to buy signals moved upward to B 4.42 to 1.
- The ISEE Equity 10 day moving average Friday was 168.2. 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.
- 211 SPX components moved upward and 91 components downward during the after hours with 91 million shares traded.
Have a great weekend everyone!
-Mel
