marketspath

Rally Continues as Indices Close Near Highs Again

Posted by Gary Dean 08/25/11 @ 9:30 am
Written my Mel

Market Recap:

Overseas markets were mixed with Asia moving lower on Moody's downgrade of Japan while European markets were slightly higher despite another raft of disappointing data. Here at home, the futures were flat as the open approached. Orders for long-lasting goods rose in July. The Commerce Department reported that Durable Goods orders increased by +4.0% during the month, which was above the consensus expectations for an increase of +2.2%. When you strip out the volatile orders for transportation, orders rose by +0.7%, which was below the consensus for -0.4%. The June reading was revised higher to +0.6%.

Wednesday�s session began without a significant gap and proceeded to trade in a very choppy fashion for several minutes, putting the low of the day on the chart in the opening moments. But after about ten minutes of choppiness the SPX found momentum to the upside, gaining about sixteen points in a half an hour. Then sellers began to work and the index spent the next two hours working lower to test the low of the day just after noon. From there, it was all bulls as the index climbed throughout the rest of the session to close near the highs.

Looking at our Market Leaders board, most of our leaders closed higher today but the SOX was fractionally lower. The big winner today was the Financial sector tacking on almost 3% after yesterday�s large gains. Technology and the NYSE Composite Index were lagging a bit today so this bears watching on Thursday.

SPX big winners were Bank Of America Corp (BAC) 10.85%, Mcgraw-Hill Companies (MHP) 6.78%, and Tenet Healthcare Corp (THC) 6.72%. SPX big losers were Micron Technology Inc (MU) -6.39%, Sprint Nextel Corp (S) -3.8%, and Coca-Cola Enterprises (CCE) -3.35%.

SPX five day big winners are Gamestop Corp (GME) 14.13%, Autonation Inc (AN) 9.22%, and Cerner Corp (CERN) 8.82%. SPX five day big losers are Pulte Homes Inc (PHM) -20.%, Hewlett-Packard Co (HPQ) -19.69%, and Hartford Financial Services Group (HIG) -13.56%.

New Ten Day Highs: ABT, AMD, AGN, MO, AEE, AEP, AXP, AMGN, AIZ, T, ADP, AN, AZO, BAX, HRB, BMY, CELG, CEPH, CF, XEL, CINF, CMS, KO, CL, ED, CEG, COST, DFS, DTE, DUK, ECL, ERTS, EXC, FE, GME, GIS, GPC, GWW, HRS, HAS, HCP, HCN, HSY, HD, TEG, INTU, JNJ, KMB, LLY, LTD, LMT, LO, LOW, MAT, MCD, MHP, MDT, MON, GAS, NKE, NI, NU, ORLY, PDCO, POM, PCG, PNW, PPL, PCP, PG, PGN, PEG, RTN, RSG, SCG, SRE, SO, STJ, SRCL, TE, TMK, TSS, VTR, VZ, WMT, WM

New Ten Day Lows: MU, PLD

<see attached graphic>

Volume & Breadth Indicators

For the SPX Index there were 414 components advancing and 60 components declining. On the NYSE 3,132 issues were traded with 2,110 advancing issues and 938 retreating issues, a ratio of 2.25 to one advancing. There were 17 new highs and 31 new lows. The five day moving average of New Highs is 10 while the five day moving average of New Lows is 187 and the ten day moving average of Net Advancing is 379. The Net Advancing data indicates a bullish trend.

Advancing volume was higher at a ratio of 3.42 to one. The closing TRIN was 0.67 and the final tick was 544. The five day average of TRIN is 1.35 and the ten day average of TRIN is 1.15. The NYSE Composite Index gained 0.88% today while the SPX gained 1.3%.

For the NYSE, relative to the previous 30 session average, volume was -14.24% 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, 8 of last 10. For the SPX, the day's volume was 96.6% of the average daily volume for the last year. Volume was 85.4% of the last 10 day average and 79.9% of the previous day�s volume.

The ten day average of Net Advancing has surged above 200 for the first time since early July. This is most often a bullish signal. But notice that the broad NYSE Composite Index significantly underperformed the SPX today.

Total tick for the day was 61,000 and the average tick for the day was 39. There were 167 ticks greater than 600 and 144 ticks more extreme than -600. There were 16 ticks greater than 1000 and 18 ticks more extreme than -1000.

Our tick chart for Wednesday is very mixed. While this isn�t rare after a large day upward like we had on Tuesday, the tick chart does strongly suggest that traders are willing to jump out of their positions quickly if the market turns lower.

<see attached graphic>

Wednesday�s volume was lighter than Tuesday�s. Looking at the intraday volume pattern we see that volume spiked on the index down move as well as spiking on the up move. Looking at our Nightly Breadth Indicators things remain mixed but a bit more bullish looking tonight. The McClellan Oscillator is inching towards overbought.

<see attached graphic>

Moving Average and Support/Resistance Indicators:

93.4% of the SPX are above their five day moving average, 54.4% are above their 10 day average, 28.2% are above their 20 day moving average, 9.4% are above their 50 day moving average, and 17.6% are above their 200 day moving average.

We had one significant moving average crossover Wednesday as the Dow 50 DMA moved below the 200 DMA. The center of our chart is now entirely red for the first time since March, 2009. We believe that this is a crucial turning point of our markets. If the bull market is dead, this chart should remain entirely red for awhile. But if the bull market survives, within five to ten trading sessions we should begin to see some green creep into the left of the chart. Our moving average Power Rating is 0 of a possible 100.

<see attached graphic>

Sectors on the Move:

Sectors stronger than the SPX for Wednesday:
- Basic Materials -- Outperformed the SPX by +6%.
- Financials -- Outperformed the SPX by +138%.
- Industrials -- Outperformed the SPX by +72%.
- Utilities -- Outperformed the SPX by +80%.
- Consumer Discretionary -- Outperformed the SPX by +39%.

Sectors weaker than the SPX for Wednesday:
- Energy -- Underperformed the SPX by -72%.
- Technology -- Underperformed the SPX by -41%.
- Consumer Staples -- Underperformed the SPX by -87%.
- Health Care -- Underperformed the SPX by -18%.

What We Learned from Wednesday's Action:

Wednesday was session 2 to close above the 5 DMA, session 2 to close above the 10 DMA, session 21 to close below the 20 DMA, and session 21 to close below the 50 DMA. This was also session 20 for the 5 DMA to close below 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 10.54 points above the 10 DMA.

The SPX 5 DMA is 1145.59, 10 DMA is 1167.06, 20 DMA is 1193.86, 50 DMA is 1264.2, 100 DMA is 1295.1, and 200 DMA is 1284.22.

Looking Ahead:

Wednesday�s ES closed 46 points higher than Tuesday�s open and the SSO closed $3.31 higher than Tuesday�s open. This was a productive two day trade for anyone who took it.

The real question now is whether this has just been an oversold bounce or whether bulls are back in the game to stay. Recently, large upward sessions have been followed by sell-offs. Overnight trading took the futures down as much as sixteen points last night. But today was different as the market recovered and continued the rally.

While a market breather is likely we believe that the recent lows were tested successfully and that our current two day rally continues at least to 1200 SPX and probably beyond.

Thursday, August 25

Economics
08:30 Initial Claims
08:30 Continuing Claims
01:30 AUD Average Weekly Wages
08:30 GBP Retail Sales
08:30 GBP Retail Sales w/Fuel
12:30 CAD Leading Indicators

Earnings
Before: BIG, BRLI, CDCS, CYBX, DRQ, ENER, FRED, HRL, OSIS, PDCO, RGS, SAFM, SCHS, SDRL, SHP, SFL, SIG, VHS
After: ARUN, BEBE, BNHNA, JRJC, CPWM, DLLR, FMD, KKD, JADE, LAVA, MCRS, OVTI, P, SCVL

The Labor Department's weekly jobless claims figures will be out at 8:30 am. Traders are looking for unemployment claims to fall 8,000 to 400,000 claims.

Thank you for reading. Think on it, trade on it, and be well.