Jack's Wrap for Mon June 20th 2011
by Jack Steiman, SwingTradeOnline.com
And that had to be expected on some level. No matter how bad the situation is in terms of poor market action, it's normal protocol to bounce when the oscillators get too compressed to the down side, especially when you study the MACD's. They are at low levels not seen for a very long time, and that has to be respected from a more positive perspective short-term. You can only push things down so much before you are basically forced to have some upside action, which then unwinds the oversold oscillators. You can get just a small amount of upside while things unwind, but you have to think at some point you'll at least get things to move higher. If not, how can the market keep going lower into such oversold conditions?
It can happen in a deep bear market, and maybe that's where we are, but for now, as long as we're trading above 1249 on the S&P 500, we are still technically in a bull market. There are some bad signs, for sure, and I'll discuss them as this letter moves on, but we can only go by what is in the moment, and that's the fact that the oscillators are deeply compressed down. Thus, some short-term upside action is likely. Nothing major but some upside should be the case here. It tells me to keep away from shorts, but that doesn't mean we go up every day for a while. It could be a very fractured move up, but for now, down side action will be a tad more difficult. Bigger picture is another story I'll discuss in this letter, but very short-term I have a hard time imagining sustained down side action.
So what would cause the market to just give it up? A huge financial melt down, such as could happen if Greece were to default. There are rescuers, it appears, but only if the country forces changes on their citizens that will likely cause civil unrest. It seems as if it's a lose-lose situation, but that's probably what will take place. The country would prefer to stabilize financially, even at the cost of its citizens. If we get some type of financial melt down then I would expect a market mini crash, but for now, I just don't see that taking place. If it doesn't, I expect some real chop with a minor upward bias to unwind. If the move up is weak and labored, much as today was, then we can expect to see this market lose critical support, which is 11,750 Dow, 2600 Nasdaq and 1249 S&P 500. If those levels go with some force then it's lights out for this bull market and hello bear.
When I study the weekly charts it is now clear that the Dow, S&P 500 and Nasdaq are no longer having to deal with those negative divergences. They have completely worked themselves off. The oscillators are totally unwound now. Stochastic’s near 10, RSI’s below 50, and Macd's getting close to the zero line, although they're still not quite there. So maybe a bit more work but real close. In addition, coming into this week, the bull-bear spread has come down from 41.6% to 11%. No longer a problem clearly for the bulls.
In fact, another bad week, or two, and we'll have an inverted bull-bear spread, which would be very bullish for the market. It'll be very interesting to see what the numbers look like after last weeks action come this Wednesday morning. Will it be under 10% on the spread? Possible, for sure. It doesn't take long to unwind. Eight weeks to go from 41.6% to 11%. Fear is an interesting beast to say the least. At least the bulls can say that they no longer have the two big headaches to deal with they did just eight weeks ago.
The bulls do, however, have an even bigger problem than sentiment and weekly negative divergences. They have to deal with a daily eroding economy. Severely eroding to be blunt. The velocity from which the economy has fallen down is unbelievable at best. In one simple month we went from healthy numbers on economic activity to recessionary type levels. What in the world happened? Hard to say, but the economy has hit the wall and things are getting bad very rapidly. If the bulls didn't have the economy to deal with then we would be rocking higher now with those negative divergences gone and sentiment no longer a headache. The move down to these levels would have been an all in scenario.
It's too bad as things really would have been wonderful in terms of buying stocks for a long period of time with safety. Unfortunately, we have things falling apart thanks to the actions of Mr. Greenspan in the late 90's and now with Mr. Bernanke making a bad situation worse. Greenspan caused this entire mess. Bernanke didn't know what to do with it so he made bad worse. It seems like it would take a miracle to get this economy rocking again short-term, but I guess we can always hope there is a miracle out there.
S&P 500 has resistance at 1292, or the 20-day exponential moving average. The Nasdaq has resistance at the 200-day exponential moving average at 2640. Getting through these levels won't be easy, but if we do then the S&P 500 can run up to the 50-day exponential moving average at 1308, and the Nasdaq can move up to its 20-ay exponential moving average at 2696. That will be extraordinarily tough for the bulls to pull off, especially with stocks such as Apple Inc. (AAPL) in a bear market. Play it slowly and lightly here. Nothing aggressive.
Shorts are Squeezed as SPX Closes at 1295 Support/Resistance
by Jerome "Mel" Hickerson
Market Recap:
Markets around the globe cheered word that the Chinese appear to be willing to lend a hand in the European situation. In addition, expectations were rising that PM Papandreou's new government would receive a vote of confidence today in Greece. We didn't have any economic data to review before the bell but we did get a report on Existing Home Sales at 10:00 am.
Tuesday's session opened with a gap higher and didn't even think about going lower until just before noon. From noon until 2:00 pm the SPX gave back a mere four points before heading higher and putting the high of the day on the chart at 2:39 pm. The final hour was a bit choppy but the index refused to give back much of the day's gains as the SPX closed in the top 15% of the intraday range and right on the 1295 support and resistance line that we have written so much about the last few months.
Checking our Market Leaders board after Tuesday's session, our board shows only China as closing slightly lower. The rest of our leaders had an exceptional session with small caps, Technology, and Sox leading the way. This is a very bullish trio to be leading as all three gained more than 2% today.
SPX big winners were Monster Worldwide Inc (MWW) 6.92%, Tellabs Inc (TLAB) 6.37%, and Priceline.com Inc (PCLN) 6.25%. SPX big losers were Walgreen Co (WAG) -4.46%, Motorola Mobility Holdings Inc (MMI) -2.94%, and Sears Holding Corp (SHLD) -2.15%.
SPX five day big winners are Whole Foods Market Inc (WFM) 10.3%, Autonation Inc (AN) 7.85%, and Best Buy Co Inc (BBY) 7.47%. SPX five day big losers are Owens Illinois Inc (OI) -13.13%, Moody's Corporation (MCO) -9.08%, and Memc Electronic Material (WFR) -7.37%.
New Ten Day Highs: MMM, ABT, AET, A, ARG, AGN, AEP, ABC, AIV, ADM, T, AN, BAX, BDX, BBY, BIG, BIIB, BXP, BMY, BF/B, CAM, CAH, CVX, CME, CI, CTAS, CLX, CCE, CL, CMA, CAG, COP, ED, CEG, COST, CVH, DHR, DVA, DELL, DFS, D, DOV, DOW, DUK, DD, EK, EMR, EL, EXC, EXPE, FDO, FAST, FII, FITB, FSLR, FE, FMC, FRX, FO, BEN, GME, GCI, GD, GIS, GPC, GR, GWW, HCP, HCN, HNZ, HSY, HD, HON, HRL, HSP, HUM, TEG, IBM, IFF, IGT, ISRG, IVZ, IRM, ITT, JCI, KEY, KMB, KR, LM, LXK, LIFE, LLY, LOW, MRO, MMC, MI, MAT, MKC, MCD, MDP, MSFT, TAP, MWW, NSM, NYT, NWL, GAS, NKE, JWN, NSC, NU, NOC, ORLY, ODP, OMC, PCAR, PLL, JCP, PBCT, POM, PNW, RL, PPG, PX, PCP, PGN, PLD, STR, RTN, RHT, RSG, COL, R, SWY, CVG, SRE, SIAL, SLM, SNA, SE, STJ, SWK, SBUX, SYMC, TE, THC, TDC, TXT, TMO, TIF, TWX, TSS, TSN, UNP, UTX, UNH, DYN, KBH, UNM, VAR, VZ, VFC, VMC, WPI, WLP, AMZN, ICE
New Ten Day Lows: ERTS, ESRX, FDX, FLIR, WAG
Market Trend: Nine Sectors Report
Looking at our Nine Sectors Report after Tuesday's action we had three changes as all of our sectors are now showing a Buy signal. As a result, our Nine Sectors signal remains a Buy. Today's action was exactly what we have been writing about; when the index was pushed above 1280, buyers were in a panic that the train was leaving without them. Institutions that must report to fund holders at the end of the quarter were buying heavily today in fear that they were about to miss the next leg higher. While a breather is likely after a session such as this, can you really believe that the institutions won't be buying the dip and protecting themselves, at least until quarter end? As traders, it is our job to ride along with whatever the big players are doing.
Volume & Breadth Indicators
For the SPX Index there were 429 components advancing and 45 components declining. On the NYSE 3,158 issues were traded with 2,614 advancing issues and 464 retreating issues, a ratio of 5.63 to one advancing. There were 68 new highs and 25 new lows. The five day moving average of New Highs is 33 while the five day moving average of New Lows is 57 and the ten day moving average of Net Advancing is 80.
Advancing volume was higher at a ratio of 8.3 to one. The closing TRIN was 0.67 and the final tick was 627. The five day average of TRIN is 1.14 and the ten day average of TRIN is 1.02. The NYSE Composite Index gained 1.54% today while the SPX gained 1.32%.
For the NYSE, relative to the previous 30 session average, volume was -12.46% below the average. Of the last 15 sessions 9 sessions ended with volume greater than the previous rolling 30 day average volume. Of the last 30 sessions, 14 sessions ended on a positive tick, 3 of last 10. For the SPX, the day's volume was 104.5% of the average daily volume for the last year. Volume was 85.6% of the last 10 day average and 112.5% of the previous day’s volume.
Ten day average of Net Advancing broke above zero today. The NYSE Composite Index outperformed the SPX as well. Advancing volume was wildly bullish. For the bulls, what’s not to like here? Still, after a session this positive it is normal that the market take a breather from the heavy lifting, The wild card tomorrow is the FOMC rate decision.
Total tick for the day was 217,000 and the average tick for the day was 140. There were 69 ticks greater than 600 and 3 ticks more extreme than -600. There were 1 ticks greater than 1000 and no ticks more extreme than -1000. The tick action suggests institutional accumulation.
Our tick chart for Tuesday shows that the bulls again controlled the action. But today was different in that large ticks were mostly lacking; today was a very measured and steady session rather than one that the ticks were excessively large. This is a characteristic of a trend day on the way up rather than a characteristic of a top or bottom.
Tuesday’s volume was heavier but still failed to exceed the ten day average. There were two distinct peaks in volume, both associated with large up moves on the SPX. This is a bullish pattern. Our Nightly Breadth Indicators look much more bullish this evening. The McClellan Oscillator is approaching overbought while the ten day average remains oversold; this has a tendency to be bullish until the ten day average moves into neutral. We continue to watch the Summation Index for a break above zero; today it finally reversed and is headed higher.
Moving Average and Support/Resistance Indicators:
94.2% of the SPX are above their five day moving average, 82.2% are above their 10 day average, 47.6% are above their 20 day moving average, 28.4% are above their 50 day moving average, and 60.8% are above their 200 day moving average.
We had no significant moving average crossovers Tuesday. Our moving average Power Rating is 20 of a possible 100.
Sectors on the Move:
Sectors stronger than the SPX for Tuesday:
- Basic Materials -- Outperformed the SPX by +124%.
- Energy -- Outperformed the SPX by +59%.
- Financials -- Outperformed the SPX by +6%.
- Industrials -- Outperformed the SPX by +21%.
- Technology -- Outperformed the SPX by +43%.
- Consumer Discretionary -- Outperformed the SPX by +69%.
Sectors weaker than the SPX for Tuesday:
- Consumer Staples -- Underperformed the SPX by -144%.
- Utilities -- Underperformed the SPX by -107%.
- Health Care -- Underperformed the SPX by -72%.
Wednesday, June 22
Economics
07:00 MBA Mortgage Index
10:00 FHFA Housing Price Index
10:30 Crude Inventories
12:30 FOMC Rate Decision
08:30 Bank of England Minutes
09:00 Euro-Zone Industrial New Orders YoY
Earnings
Before: APWR, AMSC, FDX, KMX, RBN
After: BBBY, FLOW, FUL, MLHR, HIS, PAYX, RHT, SONC, SCS
The Federal Reserve will conclude its two-day meeting on Wednesday, with the interest rate decision being announced at 12:30 pm. Fed Chairman Ben Bernanke's press conference starts at roughly 2:00 pm. In earnings, shipping company FedEx is scheduled to report its results before the market open, with analysts expecting the company to earn $1.72 a share.
Have a great Wednesday!
