Smallest Range Week of the Year Includes FOMC Announcement and Options Expiration
by Jerome "Mel" Hickerson
Friday’s option expiration session began with a futures inspired gap upward painting the high for the day just 15 minutes into the day. From there, the indices began an orderly decent putting the low on the chart at 11:18. After a choppy sideways hour, the market slowly began to drift upwards with a sharp drop just before 3:30 triggering a hard snapback rally in the final half hour. The session ended with the indices at or near their high for the day in a bullish fashion.
But after the day is done, you have to ask, just how bullish was this session really? After a volatile session of futures and a large gap upward, the high for the day was set just 15 minutes after the open and the SPX could only sport a 6.39 point gain at the end. So less than half of Thursday’s losses were erased.
Even worse, consider the action after the gap. A mere 45.8% of the SPX components managed to post a gain after the open. The 500 components managed to eke out just 0.10% gain after the open. And this was a session coming off a 13 point loss when some kind of bounce could have been expected.
On the other hand, Thursday’s hemorrhaging was stopped. The NASDAQ even managed to end the week with meager gains. The glass is either half full or half empty depending on your bias.
The week closed at 1102.47. The previous five weekly closes were 1105.88, 1105.60, 1091.49, 1091.69, and 1093.80. That’s six successive weekly closes within a 14 point range. This is highly unusual. It is either a bullish consolidation or a bearish topping pattern and we still have no sign which; analysts are guessing, educated guesses hopefully, but don’t kid yourself that anyone really knows. We all have our ideas; I'll present mine with my supporting evidence tomorrow.
It really wasn’t much of a week worth reviewing, in spite of the FOMC announcement and quadruple options expiration both in the same week – and that lack of being memorable is telling in itself. This should have been a week of volatility rather than the quiet week we had. The memorable characteristics of the week were two: The smallest weekly range of 2009 and the increased volume caused by the banks diluting their stocks. Even with the billions of shares of new stocks thrown into the market place the week managed to only average 100.2% of the 2009 average volume. 20% of that volume this week was Citi.
Looking ahead to the upcoming holiday week, I anticipate low volume. Recent experience with low volume suggests low volume levitation. Our model has generated a zero indicator for Monday, giving us no clue as to what to expect, so I suspect we have a green close on Monday. The first session of the week has trended bullish for several months now. (Remember early this year when you could count on a Monday morning gap down? How things change.)
I'll leave you with one chart. Just an interesting bar pattern that has repeated several times over the last month or so. I am not suggesting it will repeat once again; but it is something to be watchful of.
Mel’s Random Hits:
• Total tick for the day was almost 115,000. The first half hour was positive, the next two hours were negative, then the rest of the day was positive with a small downturn around 2:00. If you were bullish, the day left you relieved but a bit disappointed; if you were bearish, you probably felt about the same.
• The day's range was 9.86 points. This is still only half of the average daily range but we are likely to see little more than this until after the first of the year.
• The week lost just under four points for the SPX, Friday to Friday. Seven of the last 13 weeks have closed red; the index has gained 34.17 points during those 13 weeks.
• The day's volume was 111.7% of the average 2009 daily volume. Volume was 130% of the 10 day average. Once again volume was skewed by heavy activity in the financials. One other thing to note was the unusual volume after hours. This volume was centered on Citi again, but SPY was unusually heavy as well. The changes to the SPX components likely contributed to the heavy volume in SPY.
• 13% of the SPX stocks closed with two day RSI above 90. 23% closed with RSI above 80. 19% closed with RSI below 20 and 8% closed with RSI below 10.
• 63% of the SPX are above their 10 day moving average and 69% are above their 20 day moving average.
• 15% of the SPX stocks closed below their most recent previous lows.
• 30% of the SPX closed above their most recent previous high.
• 63.4% of stocks closed in the top half of the day's range. (36.6% closed in bottom half.)
• 7.6% 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.
• 15.6% of stocks closed within 2% of their 52 week high.
• 26.8% of stocks closed within 50% of their 52 week low.
• 22.0% of stocks closed within ¼% of their high for the day.
• 4.0% of stocks closed within ¼% of their low for the day.
• 64.2% of the SPX closed up from the previous close; 45.8% closed higher than the open.
• Sectors weaker than the SPX for the day: Basic materials, Industrials, Health Care, Energy, Consumer Staples, Utilities, and Consumer Discretionary
• Sectors stronger than the SPX for the day: Financials and Technology
• The $SOX index was stronger than the SPX Friday. I track this because there is a statistical correlation between the action of the SOX index and the next day's action of the SPX. It is not an overwhelming correlation but it's strong enough to warrant looking at each night.
• The 2 Day RSI of the SPX is 46. The Dow RSI is 15, NASDAQ is 69 and Russell 65. These are interesting divergences; it isn't often to see such a disparity.
• Since Labor Day, there has been a strong tendency for the market to start the week on a positive note. Since mid September (12 Mondays since then), December 7th is the only Monday to gap down. The average gap up has been 4.5 points. The average net gain for the 12 Mondays is 9 points. Earlier this year we had 12 of 14 Mondays that began the week negatively.
• SPX components moved upward significantly during the after hours. This has been the recent trend on many Friday evenings.
Have a great weekend!
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"Mel"
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