Tight Range Trading Dominates the Week
Market Recap:
SPX big winners were Harman Internat Ind Inc (HAR) 7.45%, CareFusion Corporation (CFN) 6.74%, and J.C. Penney Company Inc (JCP) 5.42%. SPX big losers were Monster Beverage Corporation (MNST) -11.86%, Big Lots Inc (BIG) -7.18%, and Yahoo! Inc (YHOO) -5.64%.
SPX five day big winners are Dean Foods Company (DF) 36.2%, Fossil Inc (FOSL) 26.36%, and Computer Sciences Corp (CSC) 26.14%. SPX five day big losers are Monster Beverage Corporation (MNST) -18.73%, priceline.com Inc (PCLN) -15.19%, and Big Lots Inc (BIG) -7.4%.
New Ten Day Highs: AKS, AA, APOL, BSX, BRCM, CFN, CAT, CELG, CHRW, CVX, CSC, CAG, SAI, DTV, DOV, ETN, EMR, EL, EXPD, FCX, HAR, HCBK, ITW, INTC, IVZ, IRM, JNS, JCI, K, LXK, LIFE, LMT, MRO, MET, MYL, NSM, NYT, NEM, JWN, NVDA, OMC, PCAR, PH, PAYX, BTU, JCP, PPL, PCP, QCOM, RTN, RHI, CRM, SLB, SNI, STI, TDC, TER, TWX, JASO, MBI, UNM, VRSN, VMC, WLP, WDC
New Ten Day Lows: AXP, AZO, BIG, BXP, BMY, BF/B, XEL, CMS, KO, ED, COST, DVA, DPS, DTE, EQR, EXPE, FDO, GWW, TEG, MCO, PSA, SRE, SO, SRCL, VXX, VTR, VZ, VNO
Market Recap – Weekly Review:
The SPX gained 14.95 points during the week (1.07%). The range for the week was 16.1, 1.16%. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 2000) is 78. Pullbacks often occur as this RSI reaches 80 and bounces near 20.
Total tick for the week was 324,000. On the NYSE, the advance/decline line increased during the week by 2,316 and the 10 day average of Net Advancing increased by 172. There were 826 New Highs and 53 New Lows.
For the week, Russell 2000 advancing issues (872) totaled 24,184,561 shares traded (27,735 average per stock) and declining issues (716) totaled 13,038,313 shares traded (18,210 average per stock.) 801 components are on a weekly uptrend (133 new uptrends this week) and 802 components are on a weekly downtrend (113 new downtrends this week.) There were 118 New Highs and 30 New Lows.
For the week, SPX advancing issues (298) totaled 75,750,837 shares traded (254,197 average per stock) and declining issues (108) totaled 17,008,121 shares traded (157,483 average per stock.) 267 components are on a weekly uptrend (58 new uptrends this week) and 140 components are on a weekly downtrend (9 new downtrends this week.) There were 37 New Highs and 1 New Lows.
The week also the smallest trading range since early 2007.
For the week, NASDAQ Composite Index advancing issues (1,093) totaled 56,130,800 shares traded (51,355 average per stock) and declining issues (1,367) totaled 28,049,852 shares traded (20,519 average per stock.) There were 48 New Highs and 37 New Lows.
Checking the sectors of the SPX for the week:
The Basic Materials sector advancing issues (27) totaled 3,944,457 shares traded (146,091 average per stock) and declining issues (3) totaled 502,354 shares traded (167,451 average per stock.) 18 components are on a weekly uptrend (9 new uptrends this week) and 12 components are on a weekly downtrend (no new downtrends this week.) There were 3 New Highs and no New Lows.
The Energy sector advancing issues (40) totaled 10,215,834 shares traded (255,396 average per stock) and declining issues (5) totaled 803,156 shares traded (160,631 average per stock.) 38 components are on a weekly uptrend (9 new uptrends this week) and 7 components are on a weekly downtrend (1 new downtrends this week.) There were 6 New Highs and no New Lows.
The Financials sector advancing issues (52) totaled 16,279,319 shares traded (313,064 average per stock) and declining issues (28) totaled 3,383,293 shares traded (120,832 average per stock.) 50 components are on a weekly uptrend (15 new uptrends this week) and 31 components are on a weekly downtrend (4 new downtrends this week.) There were 6 New Highs and no New Lows.
The Industrials sector advancing issues (48) totaled 5,604,522 shares traded (116,761 average per stock) and declining issues (12) totaled 1,432,750 shares traded (119,396 average per stock.) 40 components are on a weekly uptrend (8 new uptrends this week) and 20 components are on a weekly downtrend (no new downtrends this week.) There were 7 New Highs and no New Lows.
The four 'risk sectors' totaled 167 advancing issues and 48 declining issues this week with 41 new uptrends and 5 new downtrends.
The Technology sector advancing issues (70) totaled 27,104,858 shares traded (387,212 average per stock) and declining issues (8) totaled 3,569,239 shares traded (446,155 average per stock.) 56 components are on a weekly uptrend (19 new uptrends this week) and 22 components are on a weekly downtrend (1 new downtrends this week.) There were 7 New Highs and no New Lows.
The Consumer Staples sector advancing issues (23) totaled 4,857,353 shares traded (211,189 average per stock) and declining issues (17) totaled 2,557,141 shares traded (150,420 average per stock.) 25 components are on a weekly uptrend (1 new uptrends this week) and 15 components are on a weekly downtrend (no new downtrends this week.) There were 6 New Highs and 1 New Lows.
The Utilities sector advancing issues (8) totaled 1,218,063 shares traded (152,258 average per stock) and declining issues (23) totaled 2,182,300 shares traded (94,883 average per stock.) 28 components are on a weekly uptrend (no new uptrends this week) and 3 components are on a weekly downtrend (2 new downtrends this week.) There were 1 New Highs and no New Lows.
The Health Care sector advancing issues (38) totaled 5,457,012 shares traded (143,606 average per stock) and declining issues (14) totaled 3,896,024 shares traded (278,287 average per stock.) 31 components are on a weekly uptrend (6 new uptrends this week) and 21 components are on a weekly downtrend (1 new downtrends this week.) There were 2 New Highs and no New Lows.
The Consumer Discretionary sector advancing issues (54) totaled 12,494,656 shares traded (231,383 average per stock) and declining issues (27) totaled 4,959,757 shares traded (183,695 average per stock.) 44 components are on a weekly uptrend (4 new uptrends this week) and 37 components are on a weekly downtrend (3 new downtrends this week.) There were 13 New Highs and 1 New Lows.
Volume & Breadth Indicators
For the SPX Index there were 314 components advancing and 184 components declining. On the NYSE 3,126 issues were traded with 1,630 advancing issues and 1,372 retreating issues, a ratio of 1.19 to one advancing. There were 119 new highs and 8 new lows. The five day moving average of New Highs is 165 while the five day moving average of New Lows is 11 and the ten day moving average of Net Advancing is 221. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 1.61 to one. The closing TRIN was 0.73 and the final tick was 116. The five day average of TRIN is .73 and the ten day average of TRIN is 1.03. The NYSE Composite Index gained 0.25% today while the SPX gained 0.22%.
For the NYSE, relative to the previous 30 session average, volume was -24.17% below the average. Of the last 15 sessions 6 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 13 sessions ended on a positive tick, 5 of last 10. For the SPX, the day's volume was 67.6% of the average daily volume for the last year. Volume was 68.3% of the last 10 day average and 82% of the previous day’s volume.
Looking at the NYSE 15-second tick data, the total tick for the day was -64,000 and the average tick for the day was -41. There were 7 ticks greater than 600 and 3 ticks more extreme than -600. There were no ticks greater than 1000 and no ticks more extreme than -1000.
Moving Average and Support/Resistance Indicators:
66.6% of the SPX are above their five day moving average, 78% are above their 10 day average, 75.6% are above their 20 day moving average, 74.6% are above their 50 day moving average, and 61.8% are above their 200 day moving average.
There were no significant moving average crossovers Friday. Our moving average Power Rating is 76 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Friday:
- Energy -- Outperformed the SPX by +5%.
- Industrials -- Outperformed the SPX by +23%.
- Utilities -- Outperformed the SPX by +6%.
- Health Care -- Outperformed the SPX by +18%.
Sectors weaker than the SPX for Friday:
- Basic Materials -- Underperformed the SPX by -27%.
- Financials -- Underperformed the SPX by -8%.
- Technology -- Underperformed the SPX by -1%.
- Consumer Staples -- Underperformed the SPX by -27%.
- Consumer Discretionary -- Underperformed the SPX by -37%.
Checking the sectors of the SPX after Frdiay: (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 (14) totaled 352,705 shares traded (25,193 average per stock) and declining issues (16) totaled 197,794 shares traded (12,362 average per stock.) 22 components are on an uptrend (no new uptrends Friday) and 8 components are on a downtrend (1 new downtrends Friday.) 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 2.08% above the 20-Day average.
The Energy sector advancing issues (17) totaled 559,475 shares traded (32,910 average per stock) and declining issues (28) totaled 697,889 shares traded (24,925 average per stock.) 41 components are on an uptrend (no new uptrends Friday) and 4 components are on a downtrend (1 new downtrends Friday.) 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 3.32% above the 20-Day average.
The Financials sector advancing issues (19) totaled 273,649 shares traded (14,403 average per stock) and declining issues (61) totaled 1,464,359 shares traded (24,006 average per stock.) 59 components are on an uptrend (2 new uptrends Friday) and 22 components are on a downtrend (3 new downtrends Friday.) 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 2.09% above the 20-Day average.
The Industrials sector advancing issues (39) totaled 334,668 shares traded (8,581 average per stock) and declining issues (21) totaled 368,526 shares traded (17,549 average per stock.) 49 components are on an uptrend (2 new uptrends Friday) and 11 components are on a downtrend (1 new downtrends Friday.) There were 1 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 2.6% above the 20-Day average.
The four 'risk sectors' totaled 89 advancing issues and 126 declining issues Friday with 4 new uptrends and 6 new downtrends. 79.2% of Risk Sector components are uptrending.
The Technology sector advancing issues (37) totaled 1,427,739 shares traded (38,588 average per stock) and declining issues (42) totaled 2,380,439 shares traded (56,677 average per stock.) 71 components are on an uptrend (2 new uptrends Friday) and 8 components are on a downtrend (3 new downtrends Friday.) There were 1 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 3.13% above the 20-Day average.
The Consumer Staples sector advancing issues (18) totaled 241,416 shares traded (13,412 average per stock) and declining issues (23) totaled 511,751 shares traded (22,250 average per stock.) 26 components are on an uptrend (3 new uptrends Friday) and 15 components are on a downtrend (2 new downtrends Friday.) There were 1 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 1.01% above the 20-Day average.
The Utilities sector advancing issues (16) totaled 131,914 shares traded (8,245 average per stock) and declining issues (14) totaled 177,880 shares traded (12,706 average per stock.) 11 components are on an uptrend (3 new uptrends Friday) and 20 components are on a downtrend (1 new downtrends Friday.) There were no New Highs and no New Lows. The sector is on a Sell signal and closed below the daily pivot. The sector 5-Day average closed .02% above the 20-Day average.
The Health Care sector advancing issues (27) totaled 556,485 shares traded (20,611 average per stock) and declining issues (25) totaled 431,889 shares traded (17,276 average per stock.) 37 components are on an uptrend (8 new uptrends Friday) and 15 components are on a downtrend (1 new downtrends Friday.) 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 .74% above the 20-Day average.
The Consumer Discretionary sector advancing issues (26) totaled 869,922 shares traded (33,459 average per stock) and declining issues (55) totaled 1,164,154 shares traded (21,166 average per stock.) 57 components are on an uptrend (1 new uptrends Friday) and 24 components are on a downtrend (8 new downtrends Friday.) There were 3 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 1.91% above the 20-Day average.
Based on the SPX sector data, we are on a Buy for the SPX and the Russell 2000.
What We Learned from Friday's Action:
Friday was session 6 to close above the 5 DMA, session 12 to close above the 10 DMA, session 12 to close above the 20 DMA, and session 21 to close above the 50 DMA. This was also session 10 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 15.63 points above the 10 DMA.
The SPX 5 DMA is 1401.29, 10 DMA is 1390.24, 20 DMA is 1375.22, 50 DMA is 1349.72, 100 DMA is 1360.25, and 200 DMA is 1326.7.
On Friday the SPX traded above the opening range but did not trade below the opening range. 60.4% of the SPX closed up from the previous close; 74.6% closed higher than the open. During Friday's session the SPX gained 3.29 points from open to close. The SPX intraday trading range was 10.25 points. The 5-Day average intraday trading range is 7.54 points, the 10-Day average is 9.64 points, and the 20-Day average is 12.06 points. The trading range is contracting. The daily bar painted an Outside day. The 5-Day SPX gain is 1.07%, the 10-Day gain is 1.44%, and the 15-Day gain is 3.17%.
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 Monday is -2. Greater than three is bullish and less than negative three is bearish. The short-term trend appears to be sideways. Mel's 5-Day Oscillator is 64 and Mel's 10-Day Oscillator is 48 (below 35 is oversold and above 65 is overbought.) Based solely on the technicals, our bias is slightly bearish for Monday's session.
Our trades this week will not exactly match the Twitter posts because we were trading on Wednesday from the hospital and we did not have Twitter access. For the week, we traded out of SPXU three times, +1.84%, +1.25%, +1.01%. We sold TZA three times, +2.91%, +2.91% and +2.49% and one time out of UVXY for +8.39%. We remain in UVXY averaged at 5.65, TZA at 17.70 and 18.20, and SPXU averaged at 42.83 (two layers). This was not an easy week to trade as trading range was consistently small and sluggish.
Let's get down to business this weekend by focusing on the potential for a breakout above the early year highs. One question we have heard often this week: Aren't we looking at the same type of situation as the first quarter when the market just kept relentlessly kept creeping higher?
As always, the market will do what it wants to do at the time it does it. A "prairie dog" pop up above the highs would certainly be a possibility and none too surprising as we have seen that quick pop and fade many times within our experience.
But let's look at the internals and see what the market is saying to those who want to look under the hood. This data is not cherry-picked; we see consistent data everywhere we look. The data is presented in no particular order as we think it is the conglomeration of consistency that is important rather than any one item.
First, we look at the McClellan Summation Index. The Summation was peaking above 4,000 in early February while it is struggling to hold the 1,300 level right now. The Summation is almost flat lining while the SPX continues to crawl higher. This just doesn't seem to support the idea of a significant breakout higher.
Looking at the NYSE stocks above their 40-Day averages reveals a similar pattern. Early this year the number was cruising upward as the markets were building strength whereas now, at best, it could be described as flat lining.
We have looked at the New Highs several times recently but will repeat that chart again for those who may have missed it. New Highs were booming during the first quarter but are obviously declining here. This strongly suggests that traders are unwilling to chase the high fliers. Rallies do not continue unless traders chase the rising issues.
The next chart shows the Russell 2000, the Financials, and the Sox all compared to the SPX. The small caps and the Financials are clearly diverging from the strength shown by the SPX. The chip makers are showing a bit more strength but it is still worth noting that during the first quarter the Sox was clearly much stronger. These are very important areas of the market.
Finally, the Transports. If Transports aren't moving higher, many theories suggest that the market won't either. And clearly, Transports are showing a lot of weakness.
We have no axe to grind; we simply trade by playing the odds as the data suggests to us. The question for every trader is what do they see? For us, we see a pretty consistent picture of weakness within the data that simply wasn't present during the first quarter rally. So our conclusion is that this is a shortable rally that can be sold into.
For nest week, while Monday is silent on U.S. economic data, the week as a whole will have much more than last week. So it could be an interesting week as well as options expiration.
Looking at Monday, the SPX has had eight six-day winning streaks over the last four years. It's been down on day seven each time.
Week of August 13 - August 17 Overview
Date/Time Release/Consensus
08/14/12 8:30 Retail Sales/0.002
08/14/12 8:30 Retail Sales ex-auto/0.003
08/14/12 8:30 PPI/0.002
08/14/12 8:30 Core PPI/0.002
08/14/12 10:00 Business Inventories/0.002
08/15/12 7:00 MBA Mortgage Index/NA
08/15/12 8:30 CPI/0.002
08/15/12 8:30 Core CPI/0.002
08/15/12 8:30 Empire Manufacturing/5
08/15/12 9:00 Net Long-Term TIC Flows/NA
08/15/12 9:15 Industrial Production/0.006
08/15/12 9:15 Capacity Utilization/0.793
08/15/12 10:00 NAHB Housing Market Index/35
08/15/12 10:30 Crude Inventories/NA
08/16/12 8:30 Initial Claims/368K
08/16/12 8:30 Continuing Claims/3300K
08/16/12 8:30 Housing Starts/763K
08/16/12 8:30 Building Permits/770K
08/16/12 10:00 Philadelphia Fed/-5
08/17/12 9:55 Mich Sentiment/72.2
Monday, August 13
Economics
No major U.S. economic reports
11:00 Fed to purchase $1.5b-$2b notes in 25 to 30-year range
11:30 Treasury selling $32b 3-month bills, $28b 6-month bills
22:45 NZD Retail Sales Ex Inflation
23:50 JPY Bank of Japan Minutes
10:00 Italy to sell EU8b in 12-month bills
10:30 Germany to sell EU4b in 6-month bills
14:00 France to sell bills
Earnings
Before:
Sysco (SYY) EPS 54c
After:
Groupon (GRPN) EPS 3c
There were no important economic releases on Friday and there are none for Monday.
Thank you for reading. Think on it, trade on it, and be well.
-Mel