Topping Pattern Building
by Jerome "Mel" Hickerson
Market Recap:
The Labor Department reported that initial claims for unemployment insurance for the week ending 9/4 fell by 27,000 to 451K. The week’s total was below the consensus for a reading of 471K. Continuing Claims for unemployment for the week ending August 28 were a bit above consensus at 4.478M vs. expectations for 4.448M. For comparison purposes, last week’s revised total was 4.448M (from 4.456M). Traders were happy with employment numbers as the futures moved up sharply on the news.
The session began by gapping higher and following through to move up a total of ten points and put the high of the day on the chart just two minutes after the open. Three hours of tight range consolidation followed. But just before 1 pm sellers arrived and the index quickly gave back seven points. The SPX then found a bottom and traded sideways for an hour before rallying for almost seven points between 2:30 and 3:30. But the final minutes were bearish as the index gave back half of that seven points.
It was a most interesting session during the last three hours but before that was really dull. It was the kind of session that can lull you into a false sense of security then the trap door is sprung and you find yourself hanging without a floor underneath. It was only a nine point range and while the first half of the day felt more like a four point trading range the last half of the day felt more like twenty. In the end, it was the narrowest trading range in the last seven days (NR7). These NR7 days are often followed by an explosive day (frequently down) within a day or two.
Looking at our Market Leaders board we find all the major indices were up for the session. The SOX index continues to be a concern for the bulls.
Market Trend: Nine Sectors Report
Our Nine Sectors Report tonight shows several changes. By rule, this constitutes a trend change indicator tonight and we see the signal moving to Sell. This doesn't necessarily mean to back up the truck and load up short-side but seeing the trend signal change on an up-day and also on an NR7 day does suggest that we could see a large trend day down soon. Still, caution is recommended here because a down move should see 1060 and missing the first ten points of a move is much more preferable than being early - and the moving averages suggest that this Sell signal could be early.
Volume & Breadth Indicators
For the SPX Index there were 319 Advancers/165 Decliners. On the NYSE 3,134 issues were traded with 1,892 advancing issues and 1,152 retreating issues, a ratio of 1.64 to 1 advancing. There were 248 new highs and 9 new lows. The 5 day moving average of New Highs is 180 while the 5 day moving average of New Lows is 10 and the 10 day moving average of Net Advancing is 571. The Net Advancing data indicates a bullish trend.
Advancing volume was higher at a ratio of 2.17 to 1. The closing TRIN was 0.75 and the final tick was 367. The NYSE Composite Index gained 0.49% today.
For the NYSE, relative to the previous 30 session average, volume was -16.25% below the average. Of the last 15 sessions 8 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 20 sessions ended on a positive tick, 7 of last 10. For the SPX, the day's volume was 71.0% of the average daily volume for the last year. Volume was 94.1% of the last 10 day average and 104.3% of the previous day’s volume.
Breadth was bullish with New Highs obliterating New Lows and the advancing volume ratio somewhat higher than the advancing issues ratio. The final tick was not a ringing endorsement of holding overnight yet it was a positive final tick.
Further, total tick for the day was 106,000 and the average tick for the day was 69. There were 118 ticks greater than 600 and 80 ticks more extreme than -600. There were 2 ticks greater than 1000 and 7 ticks more extreme than -1000.
First, let’s take notice of the large volume spike on the mid-afternoon selling spree. Volume was reasonably heavy this morning during the early up move but nothing came close to the volume during the down move. Looking at the indicators, we see several that should be moving upward on an up day that were moving downward today. This can’t be looked upon as bullish but could turn around tomorrow.
Today’s tick action was very mixed but the extremes over 1000 versus under -1000 suggest that there was some nervous institutional selling this afternoon.
Moving Average Indicators:
57.80% of the SPX components are giving a crossover Buy signal; 1.80% of the SPX components are giving a Sell signal. This is a 32.1 to 1 ratio of Buy signals over Sell signals.
60.6% of the SPX are above their five day moving average, 87.8% are above their 10 day average, 83.6% are above their 20 day moving average, 66% are above their 50 day moving average, 48.4% are above their 100 day moving average, and 48.4% are above their 150 day moving average.
One of the reasons that caution on the short-side is recommended here is due to the action of the moving averages. We had three significant bullish crossovers today: The SOX 5 DMA joined in with the other indices and crossed above the 20 DMA. China’s 20 DMA crossed above the 100 DMA and Emerging Markets 50 DMA crossed above the 200 DMA. These crosses don’t rule out the probability of a pullback here but traders looking for a market crash might want to consider the longer-term implications of these crossovers.
Sectors on the Move:
Sectors stronger than the SPX for Thursday:
- Financials -- Outperformed the SPX by +75%.
- Utilities -- Outperformed the SPX by +49%.
- Health Care -- Outperformed the SPX by +57%.
Sectors weaker than the SPX for Thursday:
- Basic Materials -- Underperformed the SPX by -76%.
- Energy -- Underperformed the SPX by -29%.
- Industrials -- Underperformed the SPX by -42%.
- Technology -- Underperformed the SPX by -31%.
- Consumer Staples -- Underperformed the SPX by -16%.
- Consumer Discretionary -- Underperformed the SPX by -40%.
Stocks on the Move:
Today's SPX component winners and losers:
- Largest one day loser is DPS with -6.71%
- Largest three day loser is NSM with -8.63%
- Largest five day loser is ANF with -6.12%
- Largest ten day loser is MA with -6.83%
- Largest one day winner is ADBE with 12.08%
- Largest three day winner is ADBE with 11.39%
- Largest five day winner is JDSU with 15.50%
- Largest ten day winner is MWW with 19.86%
In Late Trading:
136 SPX components moved upward and 190 components downward during the after hours with 81 million shares traded.
Friday, September 10
Economics
10:00 Wholesale Inventories
French Industrial Production 5.7% cons.
Great Britain Producer Price Index 
0.2% cons.
Canada Net Change in Employment -9.3k cons.
Canada Unemployment Rate 8.0% cons.
Earnings
Before: BRC, LULU
Government figures on July whole sale inventories are expected before the market opens.
Make it a great Friday!
-Mel
