The Week Paints Five Lower Highs on the Chart
by Jerome "Mel" Hickerson
Economic news released before the open Friday showed that the government’s final revision to first quarter GDP shows the economy grew at an annualized rate of 2.7%, which was below the expectations for a growth rate of 3.0%. Looking at the all-important consumer activity, the Personal Consumption component of the report came below expectations with a gain of 3.0%, which was below the estimates for 3.5%. The GDP Price index was a tenth higher than expectations at 1.1% and the Core PCE was also a tenth above consensus at +0.7%.
The futures reached an overnight high around 3:30 Friday morning, and then descended to the lows just before 6am. After climbing back near the highs just before 8am, the futures stair-stepped downward into the 8:30 economic data release. The news caused a spike downward, then futures fought back a bit, but appeared to be giving back those gains as the open approached.
The end of the week session began with a slight gap upward followed by a down then up move that took us to a little after 10am. The SPX then dropped ten points over 40 minutes to set the low of the day at 10:54am. The index then began a multi-wave ascent that gained about 15 points putting the high of the day on the chart at 1:56pm. The rest of the session was choppy trade with a slight downward bias that closed in the upper third of the daily range.
In some ways, the Friday session was a bit odd. Breadth and volume were stronger than many of indices reflected; in general, the broader indices were stronger than smaller indices such as the Dow. In particular, the Russell small caps were quite strong.
Stepping back to review the week, five successive lower highs and lower lows, yet the total tick for the week was almost flat at only -26,000 due to Friday’s large positive tick count. This would suggest that much of the down move is the result of overnight news, just as the up move for months resulted from overnight gaps.
It’s easy to find sell signals within the internals as well as on the chart. But some rays of possible sunlight can also be found. While the technology sector is lagging, the basic materials, financials, and industrials were all relatively strong on Friday. Breadth and small caps, which often lead the way out of sell-offs, were both strong as well.
Looking ahead to next week, it is possible that the low on Friday will hold and the upcoming week could find some strength. End of month and beginning of month might add some bullishness and we may look back upon Friday’s candle as a reversal candle, especially for the Russell 2000.
I still believe we are range bound; that would suggest that we drift higher for a few days here. But Friday’s SPX low around 1068 must hold.
Day Trade Systems Update: (Signals today)
* SSO at: 10:45
* SSO at: 11:02
* SDS at: 12:02
* SSO (longer hold) at: 12:32
We were focused on ProShares Ultra S&P500 ETF (SSO) and ProShares Ultrashort S&P500 ETF (SDS) Friday. Market Vectors Gold Miners (GDX) took off like a rocket leaving us behind and we were unable to find a suitable entry. The key for our trading on Friday was quickly recognizing that we were on the wrong side during lunch hour with SDS. So we exited and reversed to SSO and rode the index upward for the afternoon.
There is an important lesson here for some traders: It is more important to make money than to be “right.” We could have been stubborn and stayed in SDS and hoped for the best. But as the chart shows, the data was lining up against us. We were watching two things closely: The SPX Advance/Decline line and the computers that drive the action. The computer buying began accelerating and then quickly the A/D line popped up above the SPX line. We won’t be stubborn in the face of such facts; we surrendered, exited SDS losing a few pennies and switched sides and turned a losing trade into a profitable afternoon.
SPX Summary for Friday, June 25, 2010
332 Advancers/156 Decliners
42 Advancers/452 Decliners for the week
Today's SPX component winners and losers:
- Largest one day loser is APOL with -4.81%
- Largest three day loser is APC with -9.51%
- Largest five day loser is DRI with -12.33%
- Largest ten day loser is DHR with -50.19%
- Largest one day winner is MCO with 6.94%
- Largest three day winner is MI with 7.16%
- Largest five day winner is BTU with 5.87%
- Largest ten day winner is SUN with 18.92%
*** SPX Technical Summary ***
The lowest 14 day RSI component is ESRX; the highest 14 day RSI component is BDK. The average 14 day RSI of all 500 components is 58.
The greatest positive five day momentum component is BTU; the greatest negative five day momentum component is DRI. The average five day momentum of all 500 components is -3.68.
12.00% of the SPX components are giving a crossover Buy signal; 19.60% of the SPX components are giving a Sell signal. This is a 1.6 to 1 ratio of Sell signals over Buy signals.
SPX component signal changes today (evidence of trend):
- From Sell to Neutral: 7 components.
- From Buy to Neutral: 77 components.
- From Neutral to Sell: 12 components.
- From Neutral to Buy: 3 components.
More movement to the Sell side again Friday.
The moving averages:
Close 1076.76
9 EMA 1071.36 Falling
5 DMA 1090.20 Falling
10 DMA 1100.40 Falling
20 DMA 1088.84 Falling
50 DMA 1127.95 Falling
100 DMA 1133.31 Falling
200 DMA 1112.05 Rising
10 Wk MA 1118.17 Falling
This is not a pretty picture for the bulls. Only 15 points now separates the 50 DMA from the 200 DMA. A bearish crossover seems imminent.
NYSE Summary
On the NYSE 3180 issues were traded with 2263 advancing issues and 830 retreating issues, a ratio of 2.73 to 1 advancing. There were 36 new highs and 51 new lows.
Advancing volume was higher at a ratio of 2.27 to 1. The closing TRIN was 1.2 and the final tick was -210.
Breadth was powerful but that final tick being negative suggests that some traders were nervous about holding long positions over the weekend.
Evidence of trend:
Relative to the previous 30 session average, volume was 70.51% above 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, 15 sessions ended on a positive tick, 7 of last 10.
The 5 day moving average of New Highs is 52 while the 5 day moving average of new lows is 33 and the 10 day moving average of Net Advancing is -6.
Remember: Breadth leads, indices follow. Today, the NYSE Advance/Decline line increased from 201812 to 203245. This 0.71% increase came while the SPX was gaining 0.29%. The 10 day moving ratio of positive volume is 0.93 and the 10 day moving Advance/Decline ratio is 1. The 10 day moving ratio of positive volume has trended -0.3 over the last three days and the 10 day moving Advance/Decline ratio has trended -0.3 over the last three days.
The NYSE Composite Index gained 0.5% today.
NYSE Statistics:
Absolute Breadth Index: 48.45 down from previous day of 49.52
Cumulative Volume Index: 42,636.41 up from previous day of 39,420.71
High Low Logic Index: 0.58 up from previous day of 0.48
McClellan Oscillator: (8.50) up from previous day of (108.58)
McClellan 10 DMA: 101.59 down from previous day of 116.23
McClellan Summation Index: (967.56) down from previous day of (959.06)
% Stocks Above 200 DMA: 50.84 up from previous day of 47.07
% Stocks Above 40 DMA: 40.68 up from previous day of 32.66
New High / New Low Ratio: 44.44 up from previous day of 35.14
26wk New High/Low Ratio: 34.39 up from previous day of 28.31
13wk New High/Low Ratio: 28.15 up from previous day of 23.36
4wk New High/Low Ratio: 45.54 up from previous day of 34.60
Cumulative 4-Week New Hi-Low: 439,249 down from previous day of 439,291
Nasdaq Adv/Decline: 1,394 up from previous day of 1,357
Russell 1000 Advance/ Decline Line: 2,284 up from previous day of 2,237
Russell 2000 Advance/ Decline Line: (1,945) up from previous day of (2,005)
Notes:
Absolute Breadth Index: Low numbers suggest a topping process and high numbers suggest a bottoming process.
Cumulative Volume Index: If this begins to trend down while the averages are trending up, it is a bearish sign. If this begins to trend up while the averages are trending down, it is a bullish sign.
High Low Logic Index: High readings are bearish; low readings are bullish.
McClellan Oscillator: -100 is oversold and +100 is overbought. Also watch for crosses above and below zero.
McClellan Summation Index: Interpreted as bullish or bearish when it crosses over the zero line.
Cumulative 4-Week New Hi-Low: The difference between the number of issues reaching new highs (during a 4-week period) and the number of issues reaching new lows (during the same 4-week period).
The signals from the NYSE data are mixed. As the chart below shows, some data such as the percentage of stocks above their 40 DMA is outperforming the SPX. Overall, the data seems more bearish than bullish but some of the data has reached levels where short-term bottoms have formed in the past.
Mel’s Missives from the Matrix:
- Total tick for the day was 290,000 and the average tick for the day was 188. There were 254 ticks greater than 600 and 29 ticks more extreme than -600. There were 27 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
- The day's range was 15.67 points. The intraday trading range - 9:35to the close - was 15.42. The 5 DMA of daily range is 18.41.
- Evidence of the intraday trend: At 10am volume was 118.67% of the 10 day average. By noon the volume was 111.15% of the 10 day average, and by 2pm volume was 117.38% of the 10 day average.
- The day's volume was 102.9% of the average daily volume for the last year. Volume was 112.6% of the last 10 day average and 97.6% of the previous day’s volume.
- Evidence of the intraday trend: The largest increase in relative volume came between 11:15 and 11:30 when relative volume increased 32.6% while the SPX was rising 0.18%. The largest drop in relative volume came between 1:45 and 2:00 when relative volume dropped -58.4% while the SPX was rising 0.09%.
- 3% of the SPX stocks closed with two day RSI above 90. 7% closed with RSI above 80. 25% closed with RSI below 20 and 17% closed with RSI below 10.
- 19.6% of the SPX are above their five day moving average, 12.4% are above their 10 day average, 35.4% are above their 20 day moving average, 20% are above their 50 day moving average, 28.8% are above their 100 day moving average, and 36.8% are above their 150 day moving average.
- 26% of the SPX closed above their most recent previous high.
- 11% of the SPX stocks closed below their most recent previous lows.
- 332 SPX issues advanced and 156 issues declined, a net SPX advance/decline of 176.
- Evidence of the intraday trend: At 10am, 50.4% of the SPX components were in the top half of the range. By noon, 51.8% were in the top half of the range, and by 2pm, 88.2% were in the top half of the range.
- 70.6% of stocks closed in the top half of the day's range. (29.2% closed in bottom half.)
- 15% of stocks closed in the top 10% of the day's range. 30.8% of stocks closed in the top 20% of the day's range.
- 2.8% of stocks closed in the bottom 10% of the day's range. 10.2% of stocks closed in the bottom 20% of the day's range.
- 2% of stocks closed within 2% of their 52 week high. 8.2% of stocks closed within 5% of their 52 week high.
- 66.4% of stocks closed within 50% of their 52 week low. 34.6% of stocks closed within 25% of their 52 week low.
- 14.6% of stocks closed within ¼% of their high for the day.
- 5% of stocks closed within ¼% of their low for the day.
- Evidence of the intraday trend: At 10am, 49.2% of the SPX components were up since the open. By noon, 49% were up since the open, and by 2pm, 79.6% were up since the open.
- 67% of the SPX closed up from the previous close; 59.8% closed higher than the open.
- Sectors stronger than the SPX for Friday:
- Basic Materials -- Outperformed the SPX by +110%.
- Financials -- Outperformed the SPX by +246%.
- Industrials -- Outperformed the SPX by +39%.
- Utilities -- Outperformed the SPX by +7%.
- Health Care -- Outperformed the SPX by +7%.
- Sectors weaker than the SPX for Friday:
- Energy -- Underperformed the SPX by -9%.
- Technology -- Underperformed the SPX by -49%.
- Consumer Staples -- Underperformed the SPX by -141%.
- Consumer Discretionary -- Underperformed the SPX by -9%.
- The $SOX index strength was weaker relative to the SPX Friday by -0.36%.
- The XLF outperformed the SPX by 2.46% Friday.
- The 2 Day RSI of the SPX is 20. The Dow RSI is 3, the NASDAQ is 20 and the Russell is 59.
- Over the last four sessions, the average session closed 29.76% of the range above the low. Friday closed at 64% of the daily range.
- Upside momentum moved upward slightly Friday, from Thursday’s -4.36 to today’s -3.68. The ratio of SPX components giving a crossover sell signal compared to buy signals switched over to the sell side to S 1.63 to 1.
- The ISEE Equity 10 day moving average Friday was 151.5. The lowest 10 day average in the last 52 weeks was 136.6 on 06/14/10 and the highest 10 day average in the last 52 weeks was 249.3 on 04/15/10.
- 182 SPX components moved upward and 237 components downward during the after hours with 98 million shares traded.
Have a great weekend everyone!
-Mel
