The Correction Continues
by Jerome "Mel" Hickerson
The overnight futures were up large but gave back most of the gains before the regular session opened. The session then opened with mild buying pressure, painted the tape green for about five minutes, then sellers jammed the doors looking for exits. The low of the day was put on the charts at 11:35 and the SPX tried to mount a comeback. The first wave upward was anemic; the second wave a bit stronger, followed by a third wave that looked like a decent rally attempt. But the last 20 minutes sellers took control of the tape and as we have seen frequently recently, a nasty end to the day.
On the daily chart, today painted a large range outside day (LROD) with a close just a point and a fraction above yesterday’s low. We have not had many large range outside bars with closes near the low since the rally began. Let’s take a look at each one.
• May 7th. The following day was up but the index lost a net of 2.6% over the next six sessions in spite of the large up day following May 7th.
• May 20th. The index lost 1.7% the following day.
• June 10th. The following day was up but the index lost a net of 6.2% over the next 18 sessions. There were a couple of additional LRODs within those 18 sessions. (Similar to now?)
• September 1st. The next day continues downward but bounced. No further damage was done to the index.
• September 23rd. The SPX lost 3.5% over the next seven sessions.
• October 21st. The next day was up but the SPX lost 4.3% over the next eight days.
• December 3rd. The next day was up but the index lost an additional 1.5% over the next few days.
• December 31st. January rolled in and the market rallied.
• January 26th. Our current stretch. We are down .75% from the January 26th close.
Nine examples, all but two continued downward. This current stretch most resembles the June 10th stretch when the SPX lost 9.1% over an 18 day stretch. By that measure, we could still have another 35-40 points more on the downside and maybe another seven to ten sessions before any sustained bounce. This is just food for thought; while I think we have bounces I don’t want anyone to think I am convinced that this correction has run out. Today’s action was an eye opener and tomorrow’s monthly and weekly close are crucial. As stated yesterday, a close tomorrow below 1085 gives the monthly chart the large range outside bar; a sell signal.
But the flip side is that we are sitting on the 100 day moving average. The index may find significant support at this level. If you are a swing trader, beginning to layer in on the long side may work well from here.
All signals are calling for a bounce; momentum is downward (but moderating). Momentum once started is difficult to break; within the SPX you have 500 individual stocks and more than 300 of them are telling traders “sell me!” This is a difficult cycle to break without a catalyst.
We once again generated the signal that says “Monday’s close should be higher than Friday’s open.” I think I may pass on this signal; three consecutive failures tell me that this market is weak and this reliable signal fails most often in weak markets. I do believe Monday’s close will be higher; maybe just not enough belief to put my money (or recommend that you put yours) on the line.
Friday, January 29
Economics
08:30 GDP 4.5% cons.
08:30 Chain Deflator 1.3% cons.
08:30 Employment Cost Index 0.4% cons.
09:45 Chicago PMI 56.0 cons.
09:55 University of Michigan Sentiment 73.0 cons.
Earnings
Before: ACI, AVY, CVX, DOV, FO, HON, MAT, NWL, PCAR,
The initial reading on gross domestic product growth in the fourth quarter is due out Friday morning from the government. GDP is expected to have grown at a 4.5% annualized rate after growing at a 2.2% rate in the third quarter. The consumer sentiment index from the University of Michigan is due shortly after the start of trading. The index is expected to have risen to 73 in late January from 72.8 in early January.
SPX Summary for Thursday, January 28, 2010
105 Advancers/389 Decliners
Today's SPX component winners and losers:
• Largest one day loser is MOT with -12.70%
• Largest three day loser is X with -18.99%
• Largest five day loser is X with -20.95%
• Largest ten day loser is X with -27.89%
• Largest one day winner is MCO with 24.99%
• Largest three day winner is EK with 34.77%
• Largest five day winner is EK with 30.33%
• Largest ten day winner is EK with 19.24%
*** SPX Technical Summary ***
The lowest 14 day RSI component is PWR; the highest 14 day RSI component is BNI. The average 14 day RSI of all 500 components is 37.
The greatest positive five day momentum component is EK; the greatest negative five day momentum component is X. The average five day momentum of all 500 components is -2.93. Interestingly, momentum has increased upward the last two sessions.
7.60% of the SPX components are giving a crossover Buy signal; 63.00% of the SPX components are giving a Sell signal. This is an 8.3 to 1 ratio of Sell signals over Buy signals. A clear sign of weakness.
SPX component signal changes today (evidence of trend):
• From Sell to Neutral: 3 components.
• From Buy to Neutral: 17 components.
• From Neutral to Sell: 45 components.
• From Neutral to Buy: 8 components.
Mel’s Random Hits:
• Total tick for the day was -123,000. The total tick was much worse around 1pm. The afternoon erased some of the negative numbers before piling back on in the last 20 minutes.
• The day's range was 21.76 points.
• The day's volume was 98.97% of the average daily volume for the last year. Volume was 116.2% of the last 10 day average. It is extremely rare for the volume the day after a FOMC announcement to exceed the FED day volume; I can find no other examples.
• 2% of the SPX stocks closed with two day RSI above 90. 6% closed with RSI above 80. 47% closed with RSI below 20 and 30% closed with RSI below 10. These numbers suggest a rally attempt at least at some point Friday.
• 30% of the SPX are above their five day moving average, 14% are above their 10 day average, and 19% are above their 20 day moving average. These numbers are giving sell signals on individual stocks.
• 26% of the SPX stocks closed below their most recent previous lows.
• 8% of the SPX closed above their most recent previous high.
• 22.2% of stocks closed in the top half of the day's range. (77.8% closed in bottom half.)
• 27.2 of stocks closed in the bottom 20% of the day's range.
• 2.4% of stocks closed in the top 10% of the day's range.
• 3.2% of stocks closed within 2% of their 52 week high. 11.4% of stocks closed within 5% of their 52 week high.
• 28.2% of stocks closed within 50% of their 52 week low. 9.6% of stocks closed within 25% of their 52 week low.
• 3.0% of stocks closed within ¼% of their high for the day.
• 13.6% of stocks closed within ¼% of their low for the day.
• 18.0% of the SPX closed up from the previous close; 11.4% closed higher than the open.
• Sectors weaker than the SPX for the day: Basic Materials, and Technology.
• Sectors stronger than the SPX for the day: Consumer Staples, Consumer Discretionary, Industrials, Utilities, Financials, Health Care, and Energy.
• The $SOX index strength was weaker than the SPX today.
• The 2 Day RSI of the SPX is 14. The Dow RSI is 12, NASDAQ is 15 and Russell 19.
• Over the last five sessions, the average session closed 36% of the range above the low.
• 272 SPX components moved upward and 157 components downward during the after hours with 140 million shares traded.
Have a great Friday.
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"Mel"
