Spanish Debt Downgraded to "Junk" Status and Markets Tank
Market Recap:
Overseas markets were mixed overnight with Asia mostly higher and Europe mostly lower. U.S. futures moved lower on the Retail Sales numbers and were pointing to a modestly lower open. The Labor Department reported the Producer Price Index for May fell by -1.0%, which was below the consensus estimate for a rise of -0.6%. The Commerce Department reported that Retail Sales were down -0.2% in the month of May, which was in line with the consensus for -0.2%. When you strip out the sales of autos, sales were down -0.4%, which was below the consensus for a reading of +0.0% and last month’s level of +0.1%. And when you take out autos and gasoline, sales were off by -0.1%.
The midweek session began with a small gap lower and continued lower for the opening half hour followed by an hour of sharp rally. The time before noon was an hour dominated by sellers before buyers once again regained control. But yet again sellers hit the tape hard as Egan-Jones downgraded Spain's debt to "junk" status and the SPX sold off sixteen points before the final few minutes which saw a quick five point recovery.
Our Market Leaders Board has all of our leaders taking losses today, led lower by the Russell 2000 small caps while Technology and the Dow got off relatively light.
SPX big winners were Dell Inc (DELL) 2.43%, Southwest Airlines Co (LUV) 2.23%, and Verisign Inc (VRSN) 2.14%. SPX big losers were First Solar Inc (FSLR) -7.53%, WPX Energy Inc (WPX) -6.35%, and Macy's Inc (M) -5.08%.
SPX five day big winners are Frontier Communications Corp (FTR) 11.98%, Sprint Nextel Corp (S) 8.09%, and Marathon Petroleum Corp (MPC) 6.72%. SPX five day big losers are Alpha Natural Resources (ANR) -13.79%, Harman Internat Ind Inc (HAR) -11.23%, and Electronic Arts Inc (EA) -10.36%.
New Ten Day Highs: MMM, AMAT, T, BIIB, CCL, CLX, COP, SAI, CVH, CSX, CVS, DVA, DTE, ESRX, FDO, FII, FTR, GE, GT, HNZ, HSY, TEG, INTC, JNJ, JPM, KMB, KLAC, LLL, LH, MAT, MDT, WFR, MCHP, NWSA, NU, ORLY, PAYX, PFE, PM, PNW, PFG, QCOM, RTN, SRE, LUV, STT, SYK, BK, UNP, UNH, AEM, VRSN, VZ, DIS, WPO
New Ten Day Lows: ATI, AVY, CSC, DVN, DTV, FLIR, GME, ITT, JCI, JNPR, KSS, KR, M, PCS, MUR, NBR, NDAQ, NKE, ODP, PGR, RSH, RSG, SWY, SLE, SWN, SE, SWK, SBUX, SYMC, TLAB, WPI
Volume & Breadth Indicators
For the SPX Index there were 87 components advancing and 408 components declining. On the NYSE 3,155 issues were traded with 991 advancing issues and 2,072 retreating issues, a ratio of 2.09 to one declining. There were 45 new highs and 53 new lows. The five day moving average of New Highs is 63 while the five day moving average of New Lows is 44 and the ten day moving average of Net Advancing is 79.
Declining volume was higher at a ratio of 2.82 to one. The closing TRIN was 1.06 and the final tick was 334. The five day average of TRIN is 1.31 and the ten day average of TRIN is 1.24. The NYSE Composite Index lost -0.68% today while the SPX lost -0.71%.
For the NYSE, relative to the previous 30 session average, volume was -17.04% 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, 16 sessions ended on a positive tick, 6 of last 10. For the SPX, the day's volume was 83.5% of the average daily volume for the last year. Volume was 88.7% of the last 10 day average and 100.9% of the previous day’s volume.
Looking at the NYSE 15-second tick data, the total tick for the day was -58,000 and the average tick for the day was -37. There were 68 ticks greater than 600 and 81 ticks more extreme than -600. There were 1 ticks greater than 1000 and 5 ticks more extreme than -1000.
Moving Average and Support/Resistance Indicators:
26.6% of the SPX are above their five day moving average, 46.8% are above their 10 day average, 27.8% are above their 20 day moving average, 19.8% are above their 50 day moving average, and 43.4% are above their 200 day moving average.
There was one significant moving average crossover today as China's 5 DMA crossed above the 20 DMA. The green continues to flow into the left of our chart. Our moving average Power Rating is 45 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Financials -- Outperformed the SPX by +60%.
- Technology -- Outperformed the SPX by +17%.
- Consumer Staples -- Outperformed the SPX by +57%.
- Utilities -- Outperformed the SPX by +73%.
- Health Care -- Outperformed the SPX by +60%.
Sectors weaker than the SPX for Wednesday:
- Basic Materials -- Underperformed the SPX by -84%.
- Energy -- Underperformed the SPX by -48%.
- Industrials -- Underperformed the SPX by -33%.
- Consumer Discretionary -- Underperformed the SPX by -83%.
Checking the sectors of the SPX tonight: (The sector Buy and Sell signals come from a mechanical trend trading system; there will be some whipsaw but the signal will never be on the wrong side for long.)
The Basic Materials sector advancing issues (1) totaled 60,027 shares traded (60,027 average per stock) and declining issues (29) totaled 884,587 shares traded (30,503 average per stock.) 12 components are on an uptrend (no new uptrends today) and 18 components are on a downtrend (11 new downtrends today.) There were no New Highs and 1 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 1.49% above the 20-Day average.
The Energy sector advancing issues (3) totaled 314,513 shares traded (104,838 average per stock) and declining issues (41) totaled 1,879,049 shares traded (45,830 average per stock.) 11 components are on an uptrend (no new uptrends today) and 33 components are on a downtrend (10 new downtrends today.) There were no New Highs and 3 New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed .01% above the 20-Day average.
The Financials sector advancing issues (13) totaled 3,500,100 shares traded (269,238 average per stock) and declining issues (67) totaled 2,327,598 shares traded (34,740 average per stock.) 37 components are on an uptrend (no new uptrends today) and 44 components are on a downtrend (23 new downtrends today.) There were no New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .53% above the 20-Day average.
The Industrials sector advancing issues (6) totaled 198,419 shares traded (33,070 average per stock) and declining issues (54) totaled 1,570,546 shares traded (29,084 average per stock.) 29 components are on an uptrend (no new uptrends today) and 32 components are on a downtrend (16 new downtrends today.) There were no New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .2% above the 20-Day average.
The four 'risk sectors' totaled 23 advancing issues and 191 declining issues today with 0 new uptrends and 60 new downtrends. 41.2% of Risk Sector components are uptrending.
The Technology sector advancing issues (14) totaled 1,622,514 shares traded (115,894 average per stock) and declining issues (63) totaled 4,196,427 shares traded (66,610 average per stock.) 41 components are on an uptrend (no new uptrends today) and 37 components are on a downtrend (16 new downtrends today.) There were 2 New Highs and 5 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .75% above the 20-Day average.
The Consumer Staples sector advancing issues (17) totaled 379,773 shares traded (22,340 average per stock) and declining issues (24) totaled 1,046,577 shares traded (43,607 average per stock.) 24 components are on an uptrend (no new uptrends today) and 17 components are on a downtrend (5 new downtrends today.) There were 2 New Highs and 1 New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .7% above the 20-Day average.
The Utilities sector advancing issues (15) totaled 223,842 shares traded (14,923 average per stock) and declining issues (16) totaled 486,453 shares traded (30,403 average per stock.) 30 components are on an uptrend (no new uptrends today) and 2 components are on a downtrend (1 new downtrends today.) There were 6 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed 2.08% above the 20-Day average.
The Health Care sector advancing issues (14) totaled 1,226,199 shares traded (87,586 average per stock) and declining issues (37) totaled 1,076,665 shares traded (29,099 average per stock.) 27 components are on an uptrend (1 new uptrends today) and 25 components are on a downtrend (13 new downtrends today.) There were 2 New Highs and no New Lows. The sector is on a Buy signal and closed above the daily pivot. The sector 5-Day average closed .53% above the 20-Day average.
The Consumer Discretionary sector advancing issues (4) totaled 152,960 shares traded (38,240 average per stock) and declining issues (77) totaled 3,461,480 shares traded (44,954 average per stock.) 28 components are on an uptrend (no new uptrends today) and 53 components are on a downtrend (21 new downtrends today.) There were 3 New Highs and 1 New Lows. The sector is on a Buy signal and closed below the daily pivot. The sector 5-Day average closed .36% above the 20-Day average.
Based on the SPX sector data, we are Neutral for the SPX and the Russell 2000.
What We Learned from Wednesday's Action:
Wednesday was session 1 to close below the 5 DMA, session 6 to close above the 10 DMA, session 2 to close above the 20 DMA, and session 28 to close below the 50 DMA. This was also session 2 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 9.3 points above the 10 DMA.
The SPX 5 DMA is 1317.73, 10 DMA is 1305.58, 20 DMA is 1309.43, 50 DMA is 1350.7, 100 DMA is 1357.84, and 200 DMA is 1290.44.
On Wednesday the SPX traded both below and above the opening range. 18.6% of the SPX closed up from the previous close; 28.6% closed higher than the open. During Wednesday's session the SPX lost -9.14 points from open to close. The SPX intraday trading range was 16.66 points. The 5-Day average intraday trading range is 18.86 points, the 10-Day average is 17.38 points, and the 20-Day average is 18.65 points. The trading range is expanding. The 5-Day SPX gain is -0.02%, the 10-Day gain is 0.35%, and the 15-Day gain is -0.13%.
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 Thursday is +4. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be sideways. Mel's 10 Day Oscillator is 33 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, we are bullish for Thursday's session.
It's kind of sad that a rating agency such as Egan-Jones can downgrade a country's debt rating and kill a market rally in its steps. But our markets are driven by such news even when it surprises no one. Still, these are the same rating agencies that completely blew it in 2008 yet now people pay attention like they know what they are doing.
One thing worth noting about today's late afternoon selling spree. Usually volume rises during the late afternoon; this is the usual and normal volume pattern. But today volume was basically flat while the market was falling. In our mind, this raises at least some doubt about the conviction behind the selling.
The Market Internals once again slipped into neutral today. In the past when we have seen the internals turn bullish, then toggle between neutral and bullish, it has most often resulted in a continued uptrend. But in this environment with options expiring Friday, Italian bond sales overnight tonight, and Greek elections this weekend, all bets are off. It could get uglier before it gets better. We're certainly not thrilled with the long side as the pattern of declining highs persists.
Thursday, June 14
Economics
08:30 Initial Jobless Claims – consensus 375K, prior 377K
08:30 Continuing Claims – consensus 3269K, prior 3293K
08:30 Consumer Price Index – consensus -0.2%, prior 0.0%
08:30 CPI Ex Food & Energy – consensus 0.2%, prior 0.2%
08:30 CPI NSA – consensus 229.800, prior 230.085
08:30 Current Account Balance – consensus -$132.0B, prior -$124.1B
11:00 Fed to purchase $1.5b-2.25b in 25 to 30-year bonds
1:00 U.S. to sell $13b in 30-yr bonds (reopening)
04:30 JPY Industrial Production
07:30 CHF Swiss National Bank Rate Decision
08:00 EUR ECB Publishes June Monthly Report
09:00 EUR Eurozone CPI
12:30 UK to sell GBP1.5b 48-year bonds
Earnings
Before:
Kroger (KR) EPS 73c, revs $29.25B
Smithfield Foods (SFD) EPS 56c, revs $3.23B
After:
No major earnings
The PPI dropped 1.0%, more than the expected 0.6%. Retail sales were down 0.2%, in line with expectations. Oil inventories dropped 200,000 barrels. Last week they dropped 100,000. On Thursday we will get the CPI and jobless claims.
Thank you for reading. Think on it, trade on it, and be well.
-Mel