Sluggish Trading Before and After the Employment Data
Market Recap:
Things were fairly quiet ahead of the jobs report Friday morning. However, another stronger-than expected report on the U.S. economy managed to put some green on the screens both in the U.S. and in Europe. The labor department reported that Nonfarm Payrolls rose by 200K in December, which was above expectations for a gain of 153K and November's increase of 120K. The Unemployment Rate dropped to 8.5% and average hourly earnings increased by +0.2. Private sector job growth saw an increase of +212K jobs. Other early morning news that impacted the market was Alcoa suspending production of aluminum by 12% worldwide. This announcement mostly offset the economic jobs data.
The Friday session opened without a significant gap and quickly sold off to the low of the day before the end of the first half hour of trading. A rebound put the high of the day on the chart just before noon and the rest of the day drifted within a five point trading range on low volume as the SPX closed in the middle of the intraday range.
Checking our Market Leaders Board, most of our leaders closed lower with only Technology and the chip makers (SOX) managing a narrow close in positive territory. Leading the way lower were the Financials and the NYSE Composite Index.
SPX big winners were Netflix Inc (NFLX) 8.83%, Devry Inc (DV) 5.96%, and Apollo Group Inc Cl A (APOL) 5.27%. SPX big losers were Family Dollar Stores Inc (FDO) -7.66%, Rockwell Automation Inc (ROK) -4.51%, and Electronic Arts Inc (EA) -4.2%.
SPX five day big winners are Netflix Inc (NFLX) 24.52%, Micron Technology Inc (MU) 14.83%, and Denbury Resources Ltd (DNR) 13.77%. SPX five day big losers are Williams Companies Inc (WMB) -15.85%, Sears Holding Corp (SHLD) -11.25%, and Autonation Inc (AN) -10.54%.
New Ten Day Highs: AET, A, AMT, ABC, APA, APOL, AMAT, ADP, AZO, AVY, BLL, BBY, BIIB, BSX, COG, CAT, CBG, CHK, CI, CTAS, COH, CMA, GLW, CSX, CMI, DVA, DE, DELL, DV, DTV, DFS, DOW, ROST, EMN, ETN, EOG, EQT, ESRX, FAST, FII, FDX, FITB, F, FRX, GE, GILD, GT, HOG, HAR, HRS, HD, DHI, HCBK, HUM, HBAN, IPG, IP, IVZ, IRM, ITT, JBL, JCI, LEN, LIFE, LSI, MTB, M, MAR, MHS, MET, MSFT, MOLX, MON, MWW, MCO, NBR, NWL, NWSA, NUE, ORCL, OI, PBCT, PKI, PXD, PBI, PCL, PCP, PRU, PHM, QLGC, QCOM, RSH, RHT, COL, R, SCHW, SNI, SRE, SLM, SWK, SPLS, SYK, STI, TROW, TER, TMO, TJX, UNH, QLD, UNM, DIS, WPI, WLP, WDC, AMZN, AAPL
New Ten Day Lows: BMC, BF/B, CPB, CME, CL, ED, COST, CVH, DF, D, EQR, FDO, HNZ, HRL, KMB, MMC, MA, MDP, GAS, PPL, RAI, SCG, SO, S, TSS, VXX, VZ, ICE
Market Recap – Weekly Review:
The SPX gained 20.21 points during the week (1.61%). The range for the week was 25.76, 2.05%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 66. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 748,000. On the NYSE, the advance/decline line increased during the week by 2,019 and the 10 day average of Net Advancing increased by . There were 475 New Highs and 43 New Lows. The week closed at 73.56% of the weekly range.
For the week, SPX advancing issues (332) averaged 6.8 million shares traded per day ($211.3 million each stock) and declining issues (155) averaged 5.0 million shares traded per day ($171.8 million each stock.)
For the week, the NASADQ 100 advancing issues (75) averaged 8.5 million shares traded ($343.6 million each stock) each day and declining (25) issues averaged 3.5 million shares traded ($127.6 million each stock each day.)
Notice that traders last week were willing to chase the advancing issue.
Volume & Breadth Indicators
For the SPX Index there were 197 components advancing and 266 components declining. On the NYSE 3,127 issues were traded with 1,398 advancing issues and 1,628 retreating issues, a ratio of 1.16 to one declining. There were 95 new highs and 13 new lows. The five day moving average of New Highs is 125 while the five day moving average of New Lows is 12 and the ten day moving average of Net Advancing is 461. The Net Advancing data indicates a bullish trend.
Declining volume was higher at a ratio of 1.67 to one. The closing TRIN was 1.56 and the final tick was 264. The five day average of TRIN is 1.02 and the ten day average of TRIN is 1.4. The NYSE Composite Index lost -0.56% today while the SPX lost -0.25%.
For the NYSE, relative to the previous 30 session average, volume was -15.75% below the average. Of the last 15 sessions 2 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 18 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 85.3% of the average daily volume for the last year. Volume was 123.7% of the last 10 day average and 85.1% of the previous day’s volume.
The only real concern within the breadth data is that the broad MYSE Composite Index is underperforming. This may not be significant given the low volume but will be a concern if we see this continue on Monday.
Total tick for the day was 97,000 and the average tick for the day was 62. There were 36 ticks greater than 600 and 31 ticks more extreme than -600. There were no ticks greater than 1000 and 1 ticks more extreme than -1000.
The tick data today shows that buyers were mostly in control but the data was thin today as it appeared that buyers and sellers were both disinterested.
The intraday volume pattern shows the now familiar early morning volume spike with diminishing volume the rest of the day. The Nightly Breadth Indicators are much more mixed after Friday's session.
Moving Average and Support/Resistance Indicators:
61.8% of the SPX are above their five day moving average, 68.2% are above their 10 day average, 78.4% are above their 20 day moving average, 64.2% are above their 50 day moving average, and 41.6% are above their 200 day moving average.
There was one significant moving average crossovers Friday as the NYSE Composite Index 20 DMA moved below the 50 DMA. Short term moving averages on our chart remain rising. Our moving average Power Rating is 62 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +11%.
- Industrials -- Outperformed the SPX by +26%.
- Technology -- Outperformed the SPX by +29%.
- Health Care -- Outperformed the SPX by +34%.
- Consumer Discretionary -- Outperformed the SPX by +40%.
Sectors weaker than the SPX for Friday:
- Energy -- Underperformed the SPX by -24%.
- Financials -- Underperformed the SPX by -27%.
- Consumer Staples -- Underperformed the SPX by -38%.
- Utilities -- Underperformed the SPX by -29%.
In Late Trading:
204 SPX components moved upward and 89 components downward during the after hours with 166 million shares traded.
What We Learned from Friday's Action:
Friday was session 4 to close above the 5 DMA, session 12 to close above the 10 DMA, session 12 to close above the 20 DMA, and session 12 to close above the 50 DMA. This was also session 10 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 10.98 points above the 10 DMA.
The SPX 5 DMA is 1274.17, 10 DMA is 1266.83, 20 DMA is 1247.89, 50 DMA is 1240.86, 100 DMA is 1210.74, and 200 DMA is 1258.55.
On Friday the entire session traded within the SPX opening range. 40.8% of the SPX closed up from the previous close; 41.6% closed higher than the open. During Friday's session the SPX lost -3.12 points from open to close. The daily bar painted an Inside day.
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 Monday is +4. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, we are bullish for Monday's session.
A tough week for our trading. First, a four day week but we also missed what could have been the best day for trading while we were receiving medical care on Thursday. Our handful of trades shown below does not include an underwater position that remains open.
There is plenty of economic news next week to keep the markets roiled. Earnings season begins on Monday with AA reporting after the close. Major rate decisions from two central banks - England and the ECB. On Monday, Merkel and Sarkozy are to meet to discuss the ongoing debt crisis. So next week should provide some needed volatility to enhance day trading.
Looking at the SPX daily chart, the trend seems obvious. The later portion of January can seasonally be a difficult time for the equities. The January earnings season is often a negative one, especially when the markets are overbought going in. But the breakaway gap from Tuesday morning has not been breached and this momentum suggests that we are historically likely to motor higher despite the seasonality.
So we have opposing forces at work. We continue to believe that until we see the SPX push above 1290 (and stay above 1255ish) that we can stay long but we also still look for the SPX to eventually retest the 1230 level, just below the 50 day average.
Those traders looking for financial catastrophe may well be right. But the way we see it, most of the worst has been priced into the market since August.
Looking at our weekly SPX sector changes, there are not so many of them this week. Most of the changes were positive moves but we do see a couple of the defensive sectors showing negative moves. The Consumer Staples sector had the moving average cross below the 10 day moving average while the Utilities sector moved below both the 10 and 20 day averages.
We continue to keep a close eye on the risk sectors as they creep ever closer to having the "Golden Cross", the 50 DMA climb above the 200 DMA. This week the Basic Materials sector closed with 30% of the components with their 50 DMA above the 200 DMA (26.7% last week), Energy closed with 35.1% (35.1% last week), Financials with 22.2% (18.5% last week), and Industrials with 23.9% (21.3% last week.) These sectors have a long way yet to go. We will continue to see the market rally as likely to fail until we see these sectors show more movement higher.
For next week, we see increased volatility. We're not comfortable looking out to next week's close and projecting whether it is higher or lower. We know that we are overbought and heading into a seasonally difficult time period yet studies show that failing to close Tuesday's gap after three sessions suggests that we grind upward. With such opposing forces at work, anything may happen.
Week of January 09 - January 13 Overview
Date/Time Release/Consensus
01/09/12 15:00 Consumer Credit/NA
01/10/12 10:00 Wholesale Inventories/NA
01/11/12 7:00 MBA Mortgage Purchase Index/NA
01/11/12 10:30 Crude Inventories/NA
01/11/12 14:00 Fed's Beige Book/
01/12/12 8:30 Initial Claims/NA
01/12/12 8:30 Continuing Claims/NA
01/12/12 8:30 Retail Sales/NA
01/12/12 8:30 Retail Sales ex-auto/NA
01/12/12 10:00 Business Inventories/NA
01/12/12 14:00 Treasury Budget/NA
01/13/12 8:30 Trade Balance/NA
01/13/12 8:30 Export Prices ex-ag./NA
01/13/12 8:30 Import Prices ex-oil/NA
01/13/12 9:55 Mich Sentiment/NA
Monday, January 9
Economics
3:00 Consumer Credit – consensus $7.0b
11:00 Fed to sell $8b-$8.75b notes/bonds in 1 year range
11:30 U.S. to sell $29b 3-month and $27b 6-month bills
CNY CPI
00:30 AUD Retail Sales
06:45 CHF Unemployment Rate
11:00 German Industrial Production
15:30 CAD Business Outlook Future Sales
5:15 Germany to sell EU4b 6-month bills
9:00 France to sell up to EU1.7b 364-day, EU1.8b 182-day, EU4.2b 91-day Bills
Earnings
Before: AYI, MG, SCHN
After: AA, OCZ, SMSC, WDFC
Non Farm payrolls rose 200,000, more than the consensus 150,000 and the unemployment rate dropped to 8.5% from a revised 8.7%. There are no significant releases on Monday but plenty of overseas news to possibly cause some volatility.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel