Stocks Rally as Good Economic Data Continues
by Jerome "Mel" Hickerson
Market Recap:
European shares bounced following successful German and Portuguese debt auctions and after a report that the IMF may be considering an increase to its lending capacity. Meanwhile, Greece plans to resume talks with its international creditors that broke down last week on a debt swap plan crucial to Athens' chances of avoiding a messy bankruptcy. As the open approached, U.S. futures cut their overnight gains to turn flat Wednesday morning following a handful of tepid economic news and amid fears over the ongoing European debt crisis.
The midweek session opened without a significant gap but quickly established an upward trend. The low of the day was just four minutes after trading began as this day clearly belonged to the bulls. Pullbacks were shallow as buyers kept a constant bid under the market, with the equities relentlessly crawling higher. Resistance was futile.
Checking our Market Leaders Board, all of our leaders had strong days, with the Dow lagging and the SOX chip makers and the Russell 2000 small caps leading the charge higher.
SPX big winners were Linear Technology Corp (LLTC) 10.7%, Amphenol Corp (APH) 9.77%, and Altera Corp (ALTR) 9.68%. SPX big losers were Sunoco Inc (SUN) -14.67%, State Street Corp (STT) -6.84%, and Apollo Group Inc Cl A (APOL) -6.39%.
SPX five day big winners are Sears Holding Corp (SHLD) 29.65%, Valero Energy Corp (VLO) 14.79%, and Amphenol Corp (APH) 11.63%. SPX five day big losers are R.R. Donnelley & Sons Company (RRD) -19.15%, Supervalu Inc (SVU) -17.64%, and Urban Outfitters Inc (URBN) -14.65%.
New Ten Day Highs: ADBE, AMD, AET, AFL, A, APD, ALL, ALTR, AXP, AMP, AMGN, APH, ADI, AMAT, ADSK, ADP, AZO, BDX, BBBY, BBY, BIG, BSX, BRCM, BRK.B, CA, CAM, CAH, CF, CINF, CSCO, CTXS, CLX, COH, CSC, CAG, CMI, CVS, DHR, DE, DELL, XRAY, DO, DFS, DOW, DNB, DD, ETFC, ECL, EP, ESV, EL, EXPE, EXPD, ESRX, FII, FDX, FHN, FSLR, FLIR, FLR, F, FRX, FCX, GCI, GPC, GILD, GWW, HAR, HRS, HES, HPQ, HD, HON, DHI, HSP, HST, IPG, IFF, IP, INTU, JBL, JEC, JNS, JDSU, KMB, KIM, KLAC, KFT, LH, LM, LEN, LUK, LXK, LTD, LNC, LLTC, LOW, LSI, M, MRO, MAR, MAS, MKC, MCD, MHS, WFR, MCHP, MU, MOLX, MS, MUR, NOV, NWSA, NKE, NOC, NVLS, NUE, ORLY, OXY, ODP, OMC, ORCL, OI, PH, PAYX, PKI, PXD, PCL, PPG, PX, PFG, PGR, PLD, PRU, PHM, QLGC, QCOM, RSH, RTN, RHT, RF, ROK, RDC, CRM, SNDK, SLE, SNI, SEE, SHLD, SHW, SIAL, SLM, SJM, LUV, SWK, SPLS, SBUX, SYMC, TDC, TER, TSO, TXN, TMO, TWC, TIE, TJX, TSS, UPS, UNH, QLD, JASO, KBH, VLO, VMC, WHR, AMZN, AAPL, GS
New Ten Day Lows: ADM, AVY, BHI, BMS, BMY, CNP, CHK, CPWR, CNX, CEG, DTV, D, RRD, DUK, ETR, EXC, FE, FTR, TEG, IGT, MCK, NEM, NU, BTU, PM, PEG, PWR, SLB, STT, SUN, TE, TSN, SH, AEM, DYN, ICE
Volume & Breadth Indicators
For the SPX Index there were 390 components advancing and 79 components declining. On the NYSE 3,134 issues were traded with 2,408 advancing issues and 647 retreating issues, a ratio of 3.72 to one advancing. There were 130 new highs and 16 new lows. The five day moving average of New Highs is 108 while the five day moving average of New Lows is 19 and the ten day moving average of Net Advancing is 538. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 6.07 to one. The closing TRIN was 0.56 and the final tick was 814. The five day average of TRIN is 1.1 and the ten day average of TRIN is 1.04. The NYSE Composite Index gained 1.26% today while the SPX gained 1.1%.
For the NYSE, relative to the previous 30 session average, volume was -1.54% below the average. Of the last 15 sessions one session ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 21 sessions ended on a positive tick, 8 of last 10. For the SPX, the day's volume was 87.4% of the average daily volume for the last year. Volume was 96.1% of the last 10 day average and 93% of the previous day’s volume.
All the breadth data looks bullish while volume was light.
Total tick for the day was 251,000 and the average tick for the day was 162. There were 62 ticks greater than 600 and 0 ticks more extreme than -600. There were 1 ticks greater than 1000 and no ticks more extreme than -1000. #DIV/0!
The tick data today shows just how one-sided this session was. It isn’t often we see such a shutout on either side. Sellers simply failed to show up today.
Our Nightly Breadth Indicators reflect an overbought market. The McClellan Oscillator is above 200 for the first time since late October.
Moving Average and Support/Resistance Indicators:
81.6% of the SPX are above their five day moving average, 80.6% are above their 10 day average, 84.4% are above their 20 day moving average, 81.6% are above their 50 day moving average, and 54.6% are above their 200 day moving average.
There was one significant moving average crossover today as the SOX 20 DMA crossed above the 50 DMA. Our moving average Power Rating is 74 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Wednesday:
- Energy -- Outperformed the SPX by +71%.
- Financials -- Outperformed the SPX by +44%.
- Technology -- Outperformed the SPX by +31%.
- Consumer Discretionary -- Outperformed the SPX by +43%.
Sectors weaker than the SPX for Wednesday:
- Basic Materials -- Underperformed the SPX by -2%.
- Industrials -- Underperformed the SPX by -17%.
- Consumer Staples -- Underperformed the SPX by -88%.
- Utilities -- Underperformed the SPX by -121%.
- Health Care -- Underperformed the SPX by -59%.
In Late Trading:
251 SPX components moved upward and 109 components downward during the after hours with 144.7 million shares traded.
What We Learned from Wednesday's Action:
Wednesday was session 2 to close above the 5 DMA, session 19 to close above the 10 DMA, session 19 to close above the 20 DMA, and session 19 to close above the 50 DMA. This was also session 17 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 19.27 points above the 10 DMA.
The SPX 5 DMA is 1295.75, 10 DMA is 1288.77, 20 DMA is 1270.51, 50 DMA is 1246.25, 100 DMA is 1220.11, and 200 DMA is 1257.61.
On Wednesday the SPX traded above the opening range but did not trade below the opening range. 78.4% of the SPX closed up from the previous close; 84% closed higher than the open. During Wednesday's session the SPX gained 14.39 points from open to close.
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 -3. Greater than three is bullish and less than negative three is bearish. Based solely on the technicals, our bias is somewhat bearish for Thursday's session.
We continue to watch an overbought market climb above significant resistance in the face of adverse negative seasonality while becoming even more overbought. This can often be a characteristic of a bullish breakout.
But it is rare to see such a session without any bearish ticks; sellers simply were not interested today as buyers ruled the day. There were four similar days last year when the bears were completely shut down without a single extreme tick: February 16th, April 29th, May 10th, and July 7th. All four instances were either the day of a significant market top or within a session or two. Today the NYSE tick also posted its highest intraday low since June 30th.
We continue to believe that the overbought conditions will bring an imminent pullback. Still, today’s session was a bit of a surprise and rattles the confidence a bit. Yet we remain short via TZA.
Our thinking is that the indices have come too far too fast; one fifth of the Russell 2000 stocks closed above their upper Bollinger Band today and experience strongly suggests that when this occurs that a day or two of selling is the likely result. We’re betting on it.
Thursday, January 19
Economics
08:30 Consumer Price Index – consensus 3.0%
08:30 CPI Ex Food & Energy – consensus 2.2%
08:30 Consumer Price Index NSA – consensus 225.804
08:30 Housing Starts – consensus 680K
08:30 Building Permits – consensus 680K
08:30 Initial Jobless Claims – consensus 385K
08:30 Continuing Claims – consensus 3595K
10:00 Philadelphia Fed – consensus 10.9
1:00 U.S. to sell $15b 10-Yr TIPS
00:30 AUD Employment Change
09:00 EUR ECB Publishes January Monthly Report
4:30 Spain to sell 5.85% 2022, 4.6% 2019, 4.25% 2016 bonds
5:00 France to sell 2.5% 2016, 2% 2015, 3% 2014 notes
6:00 France to sell 1.8% I/L 2040, 1.1% I/L 2022, 0.45% I/L 2016 notes
Earnings
Before: BAC, BBT, BLK, FCS, FCX, GMT, HOMB, HBAN, IIIN, JCI, KCG, VIVO, MS, NTCT, PACW, PPG, PGR, COL, LUV, OKSB, UNP, UNH, WBS
After: AXP, ASBC, COF, CYN, ED, CBST, DGII, EWBC, EZPW, FLEX, GOOG, HTLD, IBM, INDB, INTC, IBKR, ISRG, MSFT, PBCT, SWKS, SIVB
The PPI dropped 0.1%, under the consensus of 0.0%. Industrial production rose 0.4%, less than the expected 0.5%. The home price index came in at 25 which was above the consensus 21. On Thursday we will get the CPI, housing starts, initial jobless claims, the Philadelphia Fed Survey and oil inventories.
Good trading!
Thank you for reading. Think on it, trade on it, and be well.
-Mel
