AI
Friday, October 31, 2008 1:16:46 PM
Weekly Technical Comments by ArtHuprich_Morning_10/31 w/charts
Friday Morning 10/31
“Stocks surged around the world on Thursday after other central banks joined the Federal Reserve and slashed rates to help boost economic growth. To illustrate how volatile markets around the world currently are, one can simply look at the action in nearly any major stock market. For example, last week Russia was forced to close its market early to prevent further selling, only to see its benchmark index surge nearly +20% on Thursday! Stocks in South Korea soared +12%, Hong Kong's Hang Seng Index surged +13% and Taiwan's Taiex jumped +6.3% after the Fed provided $120 billion to spark lending in emerging markets.”
So said Adam Sarhan of Source Capital Group yesterday. Within the context of an intermediate-term downtrend and short-term basing period, rallies can be sharp and fast, in my opinion! At the final bell yesterday, following another session of wide intra-day swings, the DJIA (9180.69) gained almost 190 points. NASDAQ (1698.52) tacked on 41 points, and the small and mid-cap indices recorded some good relative strength versus the bigger cap indices.
On the NYSE volume contracted to 1.33 billion shares. There were 1,994 net advancing issues. While the relative strength lines of the Telecommunication and Utility macro sectors of the S&P are exhibiting positive action (joining Healthcare and Consumer Staples), signs of emerging leadership are difficult to spot. This is evident by only five new 52-week highs on the NYSE.
Conclusion
While the chart shown below of the DJIA is a little busy, I think it depicts an index that is rebuilding a short-term base. You can also see the underlying support levels (8143 and 7882) as well as overhanging levels of selling pressure (9390ish and 9794). Please use them accordingly.
Additionally, you’ll notice that a short-term MACD buy signal has now been registered. I last discussed this indicator in August. Back then, it took a few weeks for the signal to take effect.
Like a heart attack patient who doesn’t immediately get up and start running a marathon, until proven otherwise, I will respect this short-term buy signal but wouldn’t be surprised if there is a similar lag effect.
Source: Thomson Reuters.
While placing more emphasis on “price and volume,” versus “seasonality,” here are some historical statistics for the month of November. November is the first month of, historically, the strongest three month period (November – January) of the year for the DJIA, SPX, and NASDAQ.
Thursday Morning 10/30
On Tuesday, following the Consumer Confidence report, it was “...buy the despair.” Yesterday, following the news of another interest rate cut by the Federal Reserve, it was “sell the news.” Sell they did, as prior to the Fed news the DJIA was up 148 points. Following the Fed news, the DJIA was down 126 points, only to regroup. With 10 minutes of trading left, the DJIA was up 297 points; with one minute of trading left, the “senior index” was down 175 points. At the final bell, the DJIA lost 74 points. That’s a swing of approximately 572 points in the final ten minutes. The Volatility Index (VIX) remains at a high level, implying that we could continue to see a lot of volatility. A close below 60, or so, by the VIX (69.96) would help the bulls’ cause. During the month of October there haven’t been two consecutive up days. Following Tuesday’s surge, with ten minutes of trading left yesterday, I was all full of myself. Now, after yesterday’s final minutes of tape action, my almost four week old beard is fully gray. I think it is time to shave.
Conclusion
On the NYSE, volume contracted to 1.59 billion shares. I think yesterday’s final minute downside gyrations, which offset some of Tuesday’s final minute upside gyrations, were, as one colleague described them, “noise.”
There were 831 net advancing issues, an excellent reading. While the DJIA tested one of the resistance levels discussed in yesterday’s report and “turned tail,” the volume and A-D statistics imply that yesterday was more of a “fill-in” session, than anything else.
The DJIA and SPX never recorded a new reactionary low earlier this week; they actually tested (SPX) or came close to testing (DJIA), their 10/10/08 lows. Meanwhile, as discussed yesterday, on Tuesday a key short-term bullish “outside reversal day” was registered by the SML, MID and TRAN. This pattern is defined when a new 52-week intraday low is registered, a big intraday reversal occurs, in this case a stock market index closes above the previous day’s intraday high and volume expands. A “key reversal day” often marks a potential short- term change in trend.
A confirmation of the move often appears within a few days of the actual reversal. If traders immediately ignore the day and send the indices lower, then the signal is abandoned.
Consistent with the first two concluding paragraphs, until proven otherwise, I am of the opinion that further base building and upside testing is the call.
Wednesday Morning 10/29
“October Consumer Confidence: Worst Reading Ever”, is how Chief Economist Scott Brown described the Consumer Confidence report yesterday. Given Wall Street’s perverse behavior recently, especially in the final minutes of trading (the DJIA gained almost 490 points in the final 50 minutes of trading and 250 points in the final 15 minutes yesterday), the old Wall Street maxim of “Sell on hope – buy on despair” sure looked at work yesterday. Consequently, the DJIA gained 889 points. NASDAQ rallied just over 143 points. On the NYSE, volume expanded to 1.69 billion shares. There were 1861 net advancing issues, which given the “point and percentage” gains yesterday (see tables at the end of the report), this is a poor figure. I think this is because the A-D statistics couldn’t keep up with the huge, computer generated, gains registered by the DJIA in the final 15 to 50 minutes.
An “outside reversal day,” which is bullish short-term, was recorded yesterday by the small and mid-cap indices (more on this in the next few days). A confirmation of this pattern often appears within a few days of the actual reversal. If traders immediately ignore the pattern and send the small and mid-cap indices lower, the signal is aborted.
Conclusion
In light of yesterday’s topside move, I think one key short-term guidepost will be volume. Specifically, as prior resistance peaks are approached [resistance points for the SPX (940.51) = 985 and 1044, for the DJIA (9065.12) resistance points = 9285 and 9795], it will be important to compare the volume readings registered on the days the indices peaked, versus the volume readings that are being recorded when those peak levels are tested. I would use the ETFs that mimic the SPX and DJIA to do so.
If volume on the test of resistance is greater than what was recorded on the initial peak, the odds will favor higher prices. If volume is lighter, the odds will favor a decline.
In the meantime, prior to this, some low volume “fill-in” sessions which is accompanied by good internal statistics, would help the “Bulls” cause.
Source: Raymond James Research, Thomson Reuters
Tuesday Morning 10/28
With 10 minutes left of trading yesterday, the DJIA was down three points. However, “volatility” reared its ugly head again as computer-driven selling produced a “dumping” of stocks into the close. Regardless of why the final minutes sell-off occurred, there were signs of internal weakness throughout the session, as measured by the intraday advance-decline (A-D) readings. This intraday indicator (hourly A-D readings) proved to be a good short-term guidepost. At the closing bell, the DJIA (8175.77) fell 203 points; NASDAQ (1505.90) lost 46 points, and the small- and mid-cap indices fell more than four percent. On the NYSE volume contracted to 1.33 billion shares. There were 1,847 net declining issues. There were 748 new 52-week lows. I would consider the 52-week low figure a bullish short-term reading, relative to: 1) the fact that the NYSI, NASDAQ, NDX, SML, MID, and many advance-decline lines are below their 10/10/08 low and the DJIA and SPX (848.92) aren’t far from their respective lows registered on 10/10/08; and 2) its 10/10/08 reading of 2901.
I’ve got to believe, again, that some type of short-term countertrend rally is due. Please use it, no matter how minor it may be, to hedge, reduce, or sell stocks whose relative strength trend is below their 10/10/08 level.
Based on some additional conversations yesterday, I want to show the following decade-long charts of the DJIA and SPX again. The first chart is logarithmic. The second chart is linear.
As we work on year number nine of no upside progress by the major market indices, please realize that this type of “decade long plus” sideways action by the big cap market indices (and many, many big-cap stocks) is completely consistent with history.
During this almost decade-long period, there have been very profitable “bull” (and “bear”) moves in commodities, currencies, small and mid-cap stocks, sectors, etc. Holding cash has also been prudent. The key has been to 1) accept that the major market indices have recorded periods in history when no actual uptrend occurred and 2) adjust your tactical approach by being more vigilant in cutting losses, taking or hedging profits, and “taking” what the market is giving you.
Source: The Stock Trader’s Almanac, Raymond James & Associates research.
Source: Thomson Reuters.
Monday Morning 10/27
Forced liquidation to meet current and future needs, margin calls, the global economy / market, “throw in the towel,” an intermediate-term down trend, etc., versus, global coordinated efforts to stem the selling. Using “rounded” figures, for the week, the SPX shed about 7%, the DJIA dropped more than 5%, and NASDAQ led the way lower, falling more than 9%. This morning, “the beat goes on.” Overseas markets are lower as are U.S. futures.
In the midst of the environment described above, since many participants are comfortable managing risk through sector rotation versus hedging, reducing, or selling positions or even, raising cash, please consider the following: While the actual chart patterns for the following S&P macro sectors are awful, their relative price line is trending higher, Health Care, Consumer Staples, and Telecommunication. Additionally, I am watching the relative price trend of the Utility sector closely.
Conclusion: Over the past week, I have shown decade long and multi-year charts of the SPX and the DJIA. Here is a short-term chart of the SPX (876.77).
Someone asked me Friday about a current “triangle” pattern that is being exhibited by a number of market indices. “Triangles” are generally considered to be “continuation” patterns. This means they develop within the confines of the current trend and when completed, imply the current trend in force, continues. The pattern was completed Friday.
Additionally, shown below is the S&P 500 Advance Decline Line. With Friday’s action, you can see that the underlying components of the SPX are weaker than what is being exhibited by the “sound bite” indice. This implies that, short-term counter trend rallies aside, a close below 839.80 by the S&P 500 accompanied by more selling pressure than what was recorded that day, would be viewed very negatively.
Until then, let’s see how the “sound bite” indices do with a retest “in and around” their recent lows.
Stay tuned.
Charts courtesy of Thomson Reuters and Raymond James & Associates research
Friday Morning 10/31
“Stocks surged around the world on Thursday after other central banks joined the Federal Reserve and slashed rates to help boost economic growth. To illustrate how volatile markets around the world currently are, one can simply look at the action in nearly any major stock market. For example, last week Russia was forced to close its market early to prevent further selling, only to see its benchmark index surge nearly +20% on Thursday! Stocks in South Korea soared +12%, Hong Kong's Hang Seng Index surged +13% and Taiwan's Taiex jumped +6.3% after the Fed provided $120 billion to spark lending in emerging markets.”
So said Adam Sarhan of Source Capital Group yesterday. Within the context of an intermediate-term downtrend and short-term basing period, rallies can be sharp and fast, in my opinion! At the final bell yesterday, following another session of wide intra-day swings, the DJIA (9180.69) gained almost 190 points. NASDAQ (1698.52) tacked on 41 points, and the small and mid-cap indices recorded some good relative strength versus the bigger cap indices.
On the NYSE volume contracted to 1.33 billion shares. There were 1,994 net advancing issues. While the relative strength lines of the Telecommunication and Utility macro sectors of the S&P are exhibiting positive action (joining Healthcare and Consumer Staples), signs of emerging leadership are difficult to spot. This is evident by only five new 52-week highs on the NYSE.
Conclusion
While the chart shown below of the DJIA is a little busy, I think it depicts an index that is rebuilding a short-term base. You can also see the underlying support levels (8143 and 7882) as well as overhanging levels of selling pressure (9390ish and 9794). Please use them accordingly.
Additionally, you’ll notice that a short-term MACD buy signal has now been registered. I last discussed this indicator in August. Back then, it took a few weeks for the signal to take effect.
Like a heart attack patient who doesn’t immediately get up and start running a marathon, until proven otherwise, I will respect this short-term buy signal but wouldn’t be surprised if there is a similar lag effect.
Source: Thomson Reuters.
While placing more emphasis on “price and volume,” versus “seasonality,” here are some historical statistics for the month of November. November is the first month of, historically, the strongest three month period (November – January) of the year for the DJIA, SPX, and NASDAQ.
Thursday Morning 10/30
On Tuesday, following the Consumer Confidence report, it was “...buy the despair.” Yesterday, following the news of another interest rate cut by the Federal Reserve, it was “sell the news.” Sell they did, as prior to the Fed news the DJIA was up 148 points. Following the Fed news, the DJIA was down 126 points, only to regroup. With 10 minutes of trading left, the DJIA was up 297 points; with one minute of trading left, the “senior index” was down 175 points. At the final bell, the DJIA lost 74 points. That’s a swing of approximately 572 points in the final ten minutes. The Volatility Index (VIX) remains at a high level, implying that we could continue to see a lot of volatility. A close below 60, or so, by the VIX (69.96) would help the bulls’ cause. During the month of October there haven’t been two consecutive up days. Following Tuesday’s surge, with ten minutes of trading left yesterday, I was all full of myself. Now, after yesterday’s final minutes of tape action, my almost four week old beard is fully gray. I think it is time to shave.
Conclusion
On the NYSE, volume contracted to 1.59 billion shares. I think yesterday’s final minute downside gyrations, which offset some of Tuesday’s final minute upside gyrations, were, as one colleague described them, “noise.”
There were 831 net advancing issues, an excellent reading. While the DJIA tested one of the resistance levels discussed in yesterday’s report and “turned tail,” the volume and A-D statistics imply that yesterday was more of a “fill-in” session, than anything else.
The DJIA and SPX never recorded a new reactionary low earlier this week; they actually tested (SPX) or came close to testing (DJIA), their 10/10/08 lows. Meanwhile, as discussed yesterday, on Tuesday a key short-term bullish “outside reversal day” was registered by the SML, MID and TRAN. This pattern is defined when a new 52-week intraday low is registered, a big intraday reversal occurs, in this case a stock market index closes above the previous day’s intraday high and volume expands. A “key reversal day” often marks a potential short- term change in trend.
A confirmation of the move often appears within a few days of the actual reversal. If traders immediately ignore the day and send the indices lower, then the signal is abandoned.
Consistent with the first two concluding paragraphs, until proven otherwise, I am of the opinion that further base building and upside testing is the call.
Wednesday Morning 10/29
“October Consumer Confidence: Worst Reading Ever”, is how Chief Economist Scott Brown described the Consumer Confidence report yesterday. Given Wall Street’s perverse behavior recently, especially in the final minutes of trading (the DJIA gained almost 490 points in the final 50 minutes of trading and 250 points in the final 15 minutes yesterday), the old Wall Street maxim of “Sell on hope – buy on despair” sure looked at work yesterday. Consequently, the DJIA gained 889 points. NASDAQ rallied just over 143 points. On the NYSE, volume expanded to 1.69 billion shares. There were 1861 net advancing issues, which given the “point and percentage” gains yesterday (see tables at the end of the report), this is a poor figure. I think this is because the A-D statistics couldn’t keep up with the huge, computer generated, gains registered by the DJIA in the final 15 to 50 minutes.
An “outside reversal day,” which is bullish short-term, was recorded yesterday by the small and mid-cap indices (more on this in the next few days). A confirmation of this pattern often appears within a few days of the actual reversal. If traders immediately ignore the pattern and send the small and mid-cap indices lower, the signal is aborted.
Conclusion
In light of yesterday’s topside move, I think one key short-term guidepost will be volume. Specifically, as prior resistance peaks are approached [resistance points for the SPX (940.51) = 985 and 1044, for the DJIA (9065.12) resistance points = 9285 and 9795], it will be important to compare the volume readings registered on the days the indices peaked, versus the volume readings that are being recorded when those peak levels are tested. I would use the ETFs that mimic the SPX and DJIA to do so.
If volume on the test of resistance is greater than what was recorded on the initial peak, the odds will favor higher prices. If volume is lighter, the odds will favor a decline.
In the meantime, prior to this, some low volume “fill-in” sessions which is accompanied by good internal statistics, would help the “Bulls” cause.
Source: Raymond James Research, Thomson Reuters
Tuesday Morning 10/28
With 10 minutes left of trading yesterday, the DJIA was down three points. However, “volatility” reared its ugly head again as computer-driven selling produced a “dumping” of stocks into the close. Regardless of why the final minutes sell-off occurred, there were signs of internal weakness throughout the session, as measured by the intraday advance-decline (A-D) readings. This intraday indicator (hourly A-D readings) proved to be a good short-term guidepost. At the closing bell, the DJIA (8175.77) fell 203 points; NASDAQ (1505.90) lost 46 points, and the small- and mid-cap indices fell more than four percent. On the NYSE volume contracted to 1.33 billion shares. There were 1,847 net declining issues. There were 748 new 52-week lows. I would consider the 52-week low figure a bullish short-term reading, relative to: 1) the fact that the NYSI, NASDAQ, NDX, SML, MID, and many advance-decline lines are below their 10/10/08 low and the DJIA and SPX (848.92) aren’t far from their respective lows registered on 10/10/08; and 2) its 10/10/08 reading of 2901.
I’ve got to believe, again, that some type of short-term countertrend rally is due. Please use it, no matter how minor it may be, to hedge, reduce, or sell stocks whose relative strength trend is below their 10/10/08 level.
Based on some additional conversations yesterday, I want to show the following decade-long charts of the DJIA and SPX again. The first chart is logarithmic. The second chart is linear.
As we work on year number nine of no upside progress by the major market indices, please realize that this type of “decade long plus” sideways action by the big cap market indices (and many, many big-cap stocks) is completely consistent with history.
During this almost decade-long period, there have been very profitable “bull” (and “bear”) moves in commodities, currencies, small and mid-cap stocks, sectors, etc. Holding cash has also been prudent. The key has been to 1) accept that the major market indices have recorded periods in history when no actual uptrend occurred and 2) adjust your tactical approach by being more vigilant in cutting losses, taking or hedging profits, and “taking” what the market is giving you.
Source: The Stock Trader’s Almanac, Raymond James & Associates research.
Source: Thomson Reuters.
Monday Morning 10/27
Forced liquidation to meet current and future needs, margin calls, the global economy / market, “throw in the towel,” an intermediate-term down trend, etc., versus, global coordinated efforts to stem the selling. Using “rounded” figures, for the week, the SPX shed about 7%, the DJIA dropped more than 5%, and NASDAQ led the way lower, falling more than 9%. This morning, “the beat goes on.” Overseas markets are lower as are U.S. futures.
In the midst of the environment described above, since many participants are comfortable managing risk through sector rotation versus hedging, reducing, or selling positions or even, raising cash, please consider the following: While the actual chart patterns for the following S&P macro sectors are awful, their relative price line is trending higher, Health Care, Consumer Staples, and Telecommunication. Additionally, I am watching the relative price trend of the Utility sector closely.
Conclusion: Over the past week, I have shown decade long and multi-year charts of the SPX and the DJIA. Here is a short-term chart of the SPX (876.77).
Someone asked me Friday about a current “triangle” pattern that is being exhibited by a number of market indices. “Triangles” are generally considered to be “continuation” patterns. This means they develop within the confines of the current trend and when completed, imply the current trend in force, continues. The pattern was completed Friday.
Additionally, shown below is the S&P 500 Advance Decline Line. With Friday’s action, you can see that the underlying components of the SPX are weaker than what is being exhibited by the “sound bite” indice. This implies that, short-term counter trend rallies aside, a close below 839.80 by the S&P 500 accompanied by more selling pressure than what was recorded that day, would be viewed very negatively.
Until then, let’s see how the “sound bite” indices do with a retest “in and around” their recent lows.
Stay tuned.
Charts courtesy of Thomson Reuters and Raymond James & Associates research
Discover What Traders Are Watching
Explore small cap ideas before they hit the headlines.
