Market Internals: Stocks edged higher in the latest holiday-abbreviated week of trading. The Dow Jones Industrial Average ($INDU) rose two times, fell twice, and after giving up more than 200 points last week, rose eighty points during this week’s four days of trading. The Nasdaq Composite Index ($COMPQ) performed better than the Dow. For the week, the composite index rose nearly 40 points or 2.3%. In addition, market internals were net positive in Nasdaq trading. Up volume led down volume during three of four trading sessions. In addition, the Nasdaq New High-New Low Index saw considerable improvement. Thursday, it rose to +223, with 231 stocks setting new 52-week highs and only 8 new lows. Overall, it seems that the technical action and market internals improved somewhat on both the New York Stock Exchange and the Nasdaq in the latest week—but the action may have been somewhat distorted due to the market’s transition from the second to the third quarter and due to the low volume holiday trading Thursday.
Sentiment Data: Overall, there was little change in the sentiment data in the latest week. For instance, the CBOE Volatility Index ($VIX)—a.k.a. the market’s “fear gauge”—fell only .10, from 21.71% to 21.61%. VIX remains near one-year lows. Meanwhile, options trading volumes remained relatively light prior to the holiday. Average daily call volume on the Chicago Board Options Exchange [CBOE] was less than 500,000 contracts. By way of comparison, average daily volume during the first week of June was closer to 800,000 contracts. On June 6, more than 1 million calls traded on the CBOE. Therefore, relative to early June, call buying (and therefore bullishness) has fallen sharply during the first week of July.
Meanwhile, put volume averaged only 425,000 contracts and the CBOE put-to-call ratio spent the week between .77 and 1.08. Generally, readings of 1.00 are a sign of high levels of pessimism and provide short-term buy signals. However, the latest action was distorted by Thursday’s holiday abbreviated trading session when the ratio jumped up to 1.08. Nevertheless, the readings of .99 on Monday and .96 Wednesday indicate relatively high levels of pessimism, which, from a contrarian’s perspective, are actually reasons to be bullish and to expect the recent uptrend to continue. However, the ten-day moving average of the ratio is still in neutral territory at .88 and therefore, like many of the sentiment indicators today, not really pointing to extreme levels of bullish or bearish sentiment.
Disk drive stocks are the week’s best performers. After surging 55% in the second quarter, DDX is still strong and now trading at 18-month highs. The index is approaching major resistance between 115 and 120.
The Japan index is among the week’s best gainers. JPN was also one of the best performers in June. The index is trying to break above 100, which would be another bullish sign.
Brokerage stocks continue their winning ways. XBD has been on fire since early March, but faces major resistance here (540) and at 560.
Large cap tech stocks are the week’s leaders. The gains in the Nasdaq 100 are modest, however, and the index has not been able to break 1,250. A move about that level is a bullish signal that the trend is still alive.
One of the second quarter’s top performers lags the market this week. The losses are small however, and XNG is approaching trendline support.
Oil service stocks are still weak and OSX is testing support at these levels (90). MACD indicates lower.
Airline stocks are the weakest during the first week of July. However, XAL surged in the second quarter and was the market’s top performer. Traders looking for volatility can look here.
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