| US Stock Service Daily Hotline 12 August 2010 By Mike Burke & John Gray |
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Daily Market Commentary
- The bears came out in force yesterday slamming the indexes to their biggest drop in nearly four weeks. The NASDAQ Composite tumbled 3%, the S&P 500 fell 2.8% and the DJ Industrials dropped 2.5% with trading ending near lows. The DJ Transports collapsed 4.25% with the thought a much slower economic recovery would mean lower demand for shipping.
- Volume increased with the decline, a sign that institutional traders were taking some chips off of the table. That latest distribution session put the uptrend under pressure, with the worst action shown for the NASDAQ. It fell below its 200-day and 50-day moving averages. Other major averages fell below the former but held above the latter. The number of declining stocks swamped advancing issues as well.
- There was a plethora of bad news that had the drop forecast well before the open. China and Britain both reported slowing growth following similar cautious statements from the Fed on Tuesday. The entire world has been looking to China for economic leadership so that news in particular was scary. US trade data confirmed that with a drop in exports.
- Index charts turned down with many new caution signals. Indicators also exhibited short term weakness so defensive measures are called for. That doesn't mean an immediate closing of all positions but rather a shift to preserving existing gains rather than seeking broad new opportunities. Tighten stops at a minimum and close trades on individual bearish formations.
- The last month has seen building optimism that has been noted in the weekly Sentiment. From a plurality of bears early July, it shifted to the bulls 14% above the bears with the latest data, which reflects trading through mid-last week. We now look for a jump in pessimism that could prove positive if it does occur.
- We have not yet seen any sector indicator weakness so the negative outlook is only for the short term for now. When all is gloom and doom it is usually time to buy.
Today's Portfolio Changes
- We will open a short in WellPoint (WLP).
New Technical Signals
- The extreme weakness Wednesday caused deterioration amongst the short and medium-term indicators that puts the market up trend under extreme pressure. Defensive measures are called for.
Short Term View
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Medium Term View
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Index Trends
| Close | Volume | 1-Day Change | P&F Signals | Support | |||||
| Signal | Trend | Start Date | Stop | ||||||
| DJ Industrials | 10,378.8 | 223.2m | -265.42 | -2.5% | Bull | Down | 26 Jul 2010 | 10,000.00 | 10347.5 |
| S&P 500 Index | 1,089.47 | 974.5m | -31.59 | -2.8% | Bull | Down | 23 Jul 2010 | 1,080.00 | 1088.01 |
| NASDAQ Comp. | 2,208.63 | 642.3m | -68.54 | -3.0% | Bull | Down | 26 Jul 2010 | 2,200.00 | 2160 |
| NASDAQ 100 | 1,845.38 | 279.7m | -53.86 | -2.8% | Bull | Down | 26 Jul 2010 | 1,820.00 | 1833.9 |
| S&P Midcap 400 | 743.01 | 127.5m | -26.36 | -3.4% | Bear | Down | 11 Aug 2010 | 785.00 | |
| Russell 2000 Index | 620.39 | 245.8m | -25.97 | -4.0% | Bear | Down | 11 Aug 2010 | 665.00 | |
| Closing prices through Wednesday August 11, 2010 | |||||||||
The Fed's cautious statements Tuesday afternoon were followed news from China suggesting that nation's fast growing economy was slowing. The Bank of England then issued lower forecasts for the already weak British economy. Finally the latest US trade data showed exports were faltering, the one bright spot in the recovery.
Together all that bad news cast a pall over the early Wednesday futures which were translated into a very negative session that put the market uptrend under severe pressure. The optimism that has been growing over the past few weeks, and was reflected in our weekly Sentiment Survey, is suddenly shifting back to pessimism with the growing realization that the policies initiated from Washington to rescue the US economy are not working and could actually be having a negative impact.
Indexes all opened sharply lower and never looked back with only the smallest intraday rebound attempts and trading ended near session lows. The DJ Industrials closed down 265 points, of 2.49%, and held up the best with some defensive constituents. The S&P 500 tumbled 2.82% to end near its next technical support around 1,084. The NASDAQ Composite had the weakest session, closing down 3.01%.
That poor action caused down moves on almost all index P&F charts. The S&P 500, NASDAQ Composite and NASDAQ 100 all reversed down from double-tops at resistance, ending with sell alerts. Any new drops will show P&F sell signals. The long-term [100 point] DJ Industrials reversed down from at X 10,700, ending just above a negative high pole formation at O 10,300. That signal was triggered for the broad NYSE Composite chart. The S&P 100 missed a reversal down by less than one-point.The short term [50 point] DJ Industrials fell through its stop loss at O 10,400 but holds above support at 10,000. Other short term sells were shown for the S&P Mid-Cap, Value Line Composite and Russell 2000, with the latter chart also testing support.
Rallies again turned down from technical resistance, including prior tops, the areas of 200-day moving averages and down trendlines from the April top. Those also turned back rallies in June and July. Early July trading successfully tested support and watch those levels to halt any declines.
The sector charts also showed large declines. The DJ Transports tumbled 4.27% with a new P&F sell at O 4,300. Support is close at 4,150. Other short term bearish shifts were shown for the AMEX MS Cyclical CYC and High Tech MSH charts. The already weak PHLX Semiconductor SOX chart fell to the June and July bottoms.
Spot gold pulled back to 1195, with overhead resistance shown at 1220. Spot crude retreated to O 78, just enough for a high pole formation which was also shown for the OSX Oil Service chart.
Index Breadth
| % 10 Week | Close | 1-Day Change | P&F Trends | ||
| Signal | Status | Date Changed | |||
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| NYSE | 37.56 | -24.79 | Bear | Confirmed | 11 Aug 2010 |
| Nasdaq Composite | 30.21 | -15.66 | Bull | Correction | 6 Aug 2010 |
| Dow Industrials | 50 | -20.00 | Bear | Confirmed | 11 Aug 2010 |
| S&P 500 | 40.89 | -25.30 | Bear | Confirmed | 11 Aug 2010 |
| Nasdaq 100 | 37 | -25.00 | Bear | Confirmed | 11 Aug 2010 |
| Option Stocks | 33.84 | -24.32 | Bear | Confirmed | 10 Aug 2010 |
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| % 30 Week | Close | 1-Day Change | P&F Trends | ||
| Signal | Status | Date Changed | |||
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| NYSE | 43.12 | -16.00 | Bear | Confirmed | 11 Aug 2010 |
| Nasdaq Composite | 35.12 | -10.40 | Bull | Correction | 10 Aug 2010 |
| Dow Industrials | 46.67 | -16.66 | Bear | Confirmed | 11 Aug 2010 |
| S&P 500 | 47.77 | -13.97 | Bear | Confirmed | 11 Aug 2010 |
| Nasdaq 100 | 45 | -12.00 | Bear | Confirmed | 11 Aug 2010 |
| Option Stocks | 38.4 | -16.72 | Bear | Confirmed | 11 Aug 2010 |
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| Bullish % | Close | 1-Day Change | P&F Trends | ||
| Signal | Status | Date Changed | |||
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| NYSE | 54.23 | -1.57 | Bull | Confirmed | 27 Jul 2010 |
| Nasdaq Composite | 44.19 | -1.29 | Bear | Correction | 5 Aug 2010 |
| Dow Industrials | 50 | n/c | Bear | Correction | 2 Aug 2010 |
| S&P 500 | 56.68 | -2.02 | Bull | Confirmed | 27 Jul 2010 |
| Nasdaq 100 | 52 | -5.00 | Bull | Correction | 11 Aug 2010 |
| Option Stocks | 52.4 | -1.68 | Bull | Confirmed | 27 Jul 2010 |
Breadth Indicators oscillate between overbought highs, at 70% and above, and oversold lows, at 30% or lower. The aim is to buy on from low levels, and sell on weakness at tops. The % 10-week moving average is short term, % 30-week moving average intermediate and the bullish %s are longer term. Oscillating indicators typically show up and down movement, at both highs and lows, before major moves.
The horrible close yesterday left no question as to the direction of the differences for the daily moving average breadth data. The almost 3% indexes losses and horrible near 10-to-1 declines vs. advancing stocks meant those changes were also very large. There were large down moves for all of the MA charts and many negative status shifts.
There was also a jump in the number of new stock sell signals to 11X buys. That also meant lower values for the bullish % indicators and one chart reversal down.
Nearly all of the % 10-week moving average indicators fell more than 20% and bear confirmed status shifts are shown for all except the NASDAQ Composite. That chart did weaken with a high pole formation which suggests it will also see a P&F sell signal before it returns to its recent high.
More reversals down were also shown amongst the % 30-week moving average indicators and the same status shifts as shown for the shorter-term charts. Again the NASDAQ Composite fell to a pole. Most charts pulled back from the area of their down trend lines. These bearish shifts suggest an end of the summer rally.
The NASDAQ 100 bullish % chart reversed down and barely holds a bullish formation that would end with a high pole at O 50%. The broad areas are not yet near reversals down but a few more sessions such as Wednesday's and that will occur. The NYSE indicator holds at X 54%, up from June and July lows at O 40%. It has a high pole stop loss at O 46%.
Indicators
| Close | Change | Chart Direction | Chart Status | Chart Action | |
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| Short term Composite Indicator | 39.7 | -22.40 | Falling | Bearish | Reversal Down |
| NYSE 10 Day Advance/Decline | 51.19 | -1.86 | Falling | Bearish | Lower |
| NYSE 10 Day Up/Down Volume | 46.21 | -2.36 | Falling | Bearish | Lower |
| NYSE High-Low Index | 89.25 | -2.98 | Rising | Bullish | None |
| Nasdaq High-Low Index | 55.2 | -4.23 | Falling | Neutral | Lower |
| NYSE On Balance Volume (by DJIA) | 211,475 | -1165.00 | Falling | Bullish | Lower |
| NYSE On Balance Volume (by breadth) | 433,702 | -1166.00 | Rising | Bullish | None |
| Nasdaq on Balance Volume by Composite | 317.23 | -2.28 | Falling | Bearish | Lower |
| Nasdaq on Balance Volume by Breadth | 4.08 | -2.27 | Falling | Bearish | Lower |
| NYSE Cumulative Advance/Decline | 258,014 | -2205.00 | Rising | Bullish | None |
| Nasdaq Cumulative Advance/Decline | -352,652 | -2087.00 | Falling | Bullish | Reversal Down |
| NYSE Money Flow Index | 18,749.2 | (weekly) | Falling | Bullish | None |
- Stocks tumbled Wednesday and the near 3% index drops were accompanied by very poor breadth, particularly for the NASDAQ. The uptrend is under pressure but the sharp decline also has some indicators quickly approaching bottom levels.
- After no movement since reaching X 68% on 2-Aug the daily short term composite chart reversed down and fell to O 40%. The last bit of that drop included a new P&F sell signal for bear confirmed status. That negative shift was confirmed by the NYSE % 10-wk MA chart and both 10-day ratios were already bearish. This shift calls for defensive measures for the near term.
- Modest additional declines were shown for both daily 10-day ratio charts. They ended last week with confirming P&F sell signals after trading at prior top levels. That called for caution and we are now getting similar negative shifts on other short term indicator charts. Both charts are now down to the 50% area, where moves often pause.
- There was a lower level for the NASDAQ daily high-low ratio indicator. That chart pullback occurred from below overbought readings so its status is neutral until it shows a high pole. The NYSE holds at super overbought readings at 90% and higher but is also threatening to reverse down. The daily readings are deteriorating quickly.
- There were lower levels for three of the four daily on-balance-volume charts. Both NASDAQ indicators shifted to bearish status with new P&F sell signals. That is not promising for the near term.
- The remaining chart change was a reversal down for the daily NASDAQ cumulative advance-decline line chart. It holds a positive low pole formation and the pullback lowered the buy stop. The NYSE chart missed its reversal down by a difference of ‘14'.
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