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US Stock Service
Daily Hotline
 
9 October 2014    By John Gray
Market Action
  • The FOMC minutes ignited a major Wall Street rally, erasing some modest morning losses and producing the strongest one-day gain this year. The major index advances neared 2% on the prospects of low rates extending through most of next year. Nine of the ten S&P 500 sectors ended up, with eight gaining 1% or more. Advancing shares and up volume swamped declines and the jump in volume signaled large traders were finally buying.
  • The rally erased the large Tuesday losses, after morning weakness showed lower lows and tests of the worst levels from early last Thursday. The finish exceeded prior highs to suggest a key reversal. Index chart reversals will have to wait for today, unless there are lows below yesterday. Most major index charts show double bottom lows and all ended with potential upturns.
  • Earnings season began with Alcoa after the close. It set a positive tone by exceeding forecasts. Expectations are for broad strength which, when added to the negative Europear data, should confirm the US as the most attractive investment around the world.
  • Indicator charts showed many reversals up and the strong index gains allowed them to spread to the medium term oscillators. They show recent trading deep into oversold territory, with many multiyear lows. Some charts also had up, down and up action that have strong bull confirmed status shifts very close. We expect higher market by the end of October and more gains at the end of this year.
Market Drivers
  • The Fed minutes said the central bank would raise interest rates only when measures of the economy's health and inflation showed the time was right. They have no specific date or period. With bond buying stimulus ending this month and the latest drop in the jobless rate, some traders had feared rate hikes may occur early in 2015. Now it appears late next year will be the soonest can occur. That allowed a focus shift back to companies, with optimism for quarterly results.
  • The prospects of slower growth outside the US continued to depress crude prices, which dropped below $87 intraday. Increasing US production adds more downside pressure. Lower gasoline and heating oil prices are certain to help shoppers as the holiday season nears.
Technical Outlook
  • Wednesday's strong rebound may have saved the near term rally. Indexes all recovered from morning tests of recent lows and many oscillating indicator charts also turned up. They fell to multiyear lows last week so they have major recovery potential. That should be signaled shortly as many charts are close to new bull confirmed breakouts. Many stocks have also corrected much more than 10% so we have been suggesting adding exposure as oscillator reversals up occurred over the last week. That remains in order.
Portfolios
  • Large Caps 80% invested, Mid Caps 55% and Small Caps 40%.
  • Bear Portfolio is 0% short.
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
12.1% (+6.90%)
Bull Alert
NYSE %10 Week Moving Average
24.55% (+8.34)
Bull Alert
II Short Term Sector Sum
-37.00      (n/c)
Bearish
New P&F Signals: US Breakouts
Close 1-Day Change
Bulls 8 +7
Bears 53 +10
NYSE Bullish % Indicator
47.35% (-1.09%)
Bear Confirmed
NYSE %30 Week Moving Average
36.38% (+8.20)
Bull Alert
II Long Term Composite Indicator
-160.50      (weekly)
Bearish
  • The short term composite reversed up. It ended near a bull confirmed shift at 18%, that should occur today.
  • All five % 10-wk MA charts reversed up, with the NASDAQ Comp and S&P 500 just below bull confirmed breakouts.

  • Four of the five broad area % 30-wk MA charts reversed up. The NYSE turn from oversold levels produced a positive status shift.
  • The NYSE and NASDAQ Comp bullish % charts continued their tests of support.
    last Friday.

Index Trends
  Close Volume 1-Day Change P&F Signals Support
Signal Trend Start Date Trend Reversal
DJ Industrials 16,994.2 79.4m +274.83 +1.6% Bull Down 3 Apr 2014 16,600.00 16312.7/16674
S&P 500 Index 1,968.89 519.2m +33.79 +1.7% Bear Down 25 Sep 2014 1,980.00 1904.78/1926.03
NASDAQ Comp. 4,468.59 516.2m +83.39 +1.9% Bear Down 25 Sep 2014 4,500.00 4321.89/4367.74
NASDAQ 100 4,041.12 157.5m +82.53 +2.1% Bear Down 1 Oct 2014 4,060.00 3837.16/3934.94
S&P Midcap 400 1,359.67 129.8m +19.38 +1.4% Bear Down 22 Sep 2014 1,375.00
Russell 2000 Index 1,097.12 332.8m +20.81 +1.9% Bear Down 22 Sep 2014 1,110.00
Closing prices through Wednesday October 8, 2014
Chart Activity - Broad Index Moves 


Investors cheered the minutes projecting an extension of low rates with strong buying yesterday afternoon. That moved every index up more than 1˝% with some of the best gains this year. The DJ I swung 340 pts from its low to session peak. Internal breadth was very positive and higher volume pointed to institutions finally stepping up and buying. However the session got off to a slow start with some modest declines around 11AM that lowered many charts. P&F charts make one directional move per day so while all indexes closed strong enough to advance their charts, the moves have to wait until today. The action of a lower low and then a higher high is called a key day reversal, a bullish technical sign.

The DJ I morning low reversed its long term [100 pts/box] chart down to a double bottom at O 16,700, with the short term [50 pt] chart also falling to the same formation. The S&P 500, NYSE Comp and NASDAQ 100 also fell to double bottom lows, with suggestions of support. The NASDAQ Comp decline just exceeded its last low. Lower lows were also shown on the Value Line, Russell 2000, S&P Mid-Cap and Small-Cap charts. The S&P 100 avoided a further decline so it reversed up, ending with a double top high, just below its all-time record.

Chart Activity - Sector Indexes
 

More wide swings occurred for the DJ Transports, which ended 200 pts above session lows. Those did move the chart down to O 8100, breaking its last bottom, before recovering to show a potential upturn at its close. The rate news increased the attraction of dividends, sending the DJ U and Utility UTY charts up to double-top formations. Other declines on early lows were for the Airline XAL, Drug DRG, MS High Tech MSH and Semiconductor SOX charts. From the S&P 500 industry group, new declines were shown for the Transports, Energy, Industrials, Health Care and IT. The Consumer Staples group advanced to a new high.

Chart Activity - Commodites 

Spot gold had a modest $12 gain to close above $1220. That reversed its P&F chart up, ending a 13-box vertical drop to O $1190. That equaled a low last seen at its end of 2013 bottom so a new floor may be signaled. Session lows dropped the two gold index [XAU & HUI] charts further. They show lows last seen in Oct/Nov 2011. Both shifted to sell signals on 4-Sep and ended at their bullish support uptrend lines the next day. The XAU is now down 26-boxes in-a-row and the HUI is down 30-boxes. The Precious Metals bullish % had a bear confirmed status shift on 30-Sep and dropped into oversold territory last week.

Crude oil fell another $1.27, closing below $88. It traded down another $1 intraday, dropping the chart to O $87. That is another low since Apr-13 when it fell to O $86. It may be working on a short tem bottom.  The energy indexes also remain weak and each reversed down to show lower lows. They also show work on bases but longs are premature.

 

 

 

Index Breadth

% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 24.55 +8.34 Bull Alert 8 Oct 2014
Nasdaq Composite 30.67 +9.36 Bull Alert 8 Oct 2014
S&P 500 38.03 +12.68 Bull Alert 8 Oct 2014
Nasdaq 100 41.41 +12.12 Bull Alert 8 Oct 2014
Option Stocks 27.42 +9.87 Bull Alert 8 Oct 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 36.38 +8.20 Bull Alert 8 Oct 2014
Nasdaq Composite 36.57 +6.05 Bear Confirmed 25 Sep 2014
S&P 500 56.74 +10.86 Bear Correction 8 Oct 2014
Nasdaq 100 65.66 +11.11 Bear Correction 8 Oct 2014
Option Stocks 39.55 +7.89 Bear Correction 8 Oct 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 47.35 -1.09 Bear Confirmed 1 Aug 2014
Nasdaq Composite 45.56 -0.97 Bear Confirmed 1 Aug 2014
S&P 500 59.15 -1.01 Bear Confirmed 2 Oct 2014
Nasdaq 100 61.62 n/c Bear Confirmed 2 Oct 2014
Option Stocks 50.44 -0.70 Bear Confirmed 23 Sep 2014

Breadth Indicators oscillate between overbought highs, at 70% and above, and oversold lows, at 30% or lower.
The % 10-week moving average is short term, % 30-week moving average intermediate, and the bullish %s are longer term.

Short-term:

The strongest index gains this year and solid advance-decline readings contributed to sharply higher readings for every daily moving average breadth value. The changes were the largest in a week and turned most charts back up. All five short term % 10-wk MA charts rallied with the NYSE showing an upturn from its 1-Oct low. That ended a 24-box vertical drop to a multiyear oversold low. The four other oscillators also set lows 1-Oct but then moved up and down last Friday and Tuesday. That lowered their buy stops for strong bull confirmed signals, with the NASDAQ Comp and S&P 500 ending just below those shifts. Both rallied after equaling their chart lows from last week. Higher market levels are projected.

Medium-term:

Four of five % 30-wk MA charts also reversed higher with the NASDAQ Comp missing the 38.0% reading it needed for that move. The NYSE turned up from its oversold reading from 1-Oct for bull alert status. That was a low since Nov-12. The other turns came from above 30% so their signals weren't as strong. The S&P 500 would shift to bear confirmed sty X 58%. These oscillators follow and confirm the short temr action so their upturns were positive signs.

Long-term:

Stock breakouts are calculated from intraday highs and lows so the early extension of Tuesday's decline caused a small increase in sells to 53, from 32 on Tuesday. New buys jumped to 8, from the prior lonely count of just 1. Lower readings were shown for four broad area bullish % values and three charts fell. The NYSE ended just below its long term uptrend line support at O 50% and the NASDAQ Comp bullish % tests it support line at O 46%.

Current outlook:

Yesterday's strong index finish and indicator chart upturns may have saved our scenario of at least an upcoming trading rally. Bull alert status is again universal for the daily short term moving average breadth indicators but now stronger bull confirmed shifts are close for four of those charts. Upturns on the % 30-wk MA are a confirming sign of a direction shift. Now we await the stock breakout readings to also turn positive and add more momentum. We have suggested increasing equity exposure over the last week and that building accumulation should continue.


 

Indicators

Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 12.1 +6.90 Rising Bullish Reversal Up
NYSE High-Low Index 15.96 -0.38 Falling Bearish None
Nasdaq High-Low Index 17.65 -1.09 Falling Bearish Lower
NYSE On Balance Volume (by DJIA) 280,101 +920.00 Falling Bearish None
NYSE On Balance Volume (by breadth) 538,499 +921.00 Rising Caution None
Nasdaq on Balance Volume by Composite 496.96 +2.33 Falling Bearish None
Nasdaq on Balance Volume by Breadth 36.59 +2.33 Falling Bearish None
NYSE Cumulative Advance/Decline 402,749 +1913.00 Falling Caution None
NYSE Money Flow Index 40,509.1 -1123.63 Falling Bearish None

  • After early sideways trading stocks surged Wednesday afternoon. Sharp index gains were accompanied by very strong advance decline breadth significantly higher volume. With only one up session most indicator charts were steady but gains today should cause more upturns. They will lead to stronger bullish signals.
  • The daily short term composite chart had its third reversals over the last four days. It turned up to again show bull alert status after its Tuesday drop held above its multiyear low at O 2% from last week. That pullback maintained its low pole formation which projected an upcoming breakout. That bull confirmed signal is now close at X 18%. That will easily be shown today when its index chart components show their reversals up.
  • The only other action was a decline for the medium term daily NASDAQ high low ratio chart. Like the NYSE it shows a multiyear oversold low. The Wednesday morning weakness did see a jump in new lows suggesting more capitulation similar to 10-Oct. Trading is at bottom levels.

 

Industry Bullish %s and Sector Sum
Daily Industry Groups Bullish %s: While the averages ended Wednesday with their best gains in 2014, the initial weakness caused a small jump in stock sell signals to 53. There were also 8 new buys. That maintained the downside pressure on the 46 broad area industry groups bullish %s, with 1 chart up and 13 down. There were no significant status shifts but 1 more group entered oversold territory and another chart reversed down. Only 3 of the 46 charts still point up. All resource related bullish %s are now oversold.

The sum holds its 11-July short term bearish status shift. It now shows a long term P&F sell signal that fulfilled the forecast of the prior high pole formation. It is still above its April low at -25.0. The sector sum value held at -37.0. The Bell Curve now shows almost 75% of groups to the left side of 50%. That is becoming attractive for longs.

The sector sum short term status is determined by its chart direction, along with the direction of the groups' cumulative advance decline line and the last three day's direction on the NYSE bullish %. The sum chart reversed down 8-Jul and on 11-Jul the A-D line followed to complete the negative shift. The NYSE bullish % already had three down days. The sum chart hit its long term sell stop on 30-Sep, ending the buy from 30-May. That signal was already aborted by the last Jul high pole.

Sector Bullish% P&F Chart Higher:  
 

Sector
Bullish %
Comment
Restaurants
56%
Holds bear correction.



Sector Bullish% P&F Charts Lower:  
 

Sector
Bullish %
Comment
Airlines/Aerospace
44%
Holds bear confirmed.
Biotech
32%
Holds bear confirmed.
Insurance
70%
Holds bull top.
Leisure
44%
Holds bear confirmed.
Machinery/Tools
20%
Holds bear confirmed.
Media
28%
Holds bear confirmed.
Oill/Coal
24%
Holds bear confirmed.
Oil Service
24%
Holds bear confirmed.
Precious Metals
24%
Holds bear confirmed.
Semiconductors
52%
Holds bear confirmed.
Steel/Iron
30%
Holds bear confirmed. Now oversold.
Transport- Non Air
40%
Holds bear confirmed.
Wall Street
58%
Reversed to bear confirmed.



Sector Sum Indicator:

                      
Short term P&F chart status
 
Bearish
Value
    -37.0
Change yesterday
     -0.0
Last reversal
22-Sep down to -19.0
Short term stop
     -34.0
Long Term P&F chart status
Bearish
Last long term signal
P&F chart Sell at -23.0 on 30-Sep
Long term P&F stop loss
Potential bullish at -15.0
Last major resistance (& date)
+45.0 (Feb 12 highs)
Last major support (& date)
-46.5 (Sep 11 lows)

 

Sector P&F chart direction:
 

Total number of sectors
46
Last signal Down, # of rising groups
 3
Trigger for bullish  status   
 6
Sector charts overbought
3
Sectors charts oversold
9








Stock Action

The NYSE bullish % value was down 1.09% yesterday. It has shown only one positive change (3-Oct) since 4-Sep. Its short term momentum shifted negative after three falling sessions and will remain negative until there are three consecutive higher readings. It closed at 47.35%. The chart shows O 48% testing major support at that level. The NASDAQ Comp bullish % fell to O 46%, also at the area of its uptrend line.

Trading activity jumped again, ending to near average levels with 812 stocks moving on their P&F charts. There were 536 changes the prior session. Volume surged 21.2% for the NYSE and 16.6% for the NASDAQ. With index gains that signaled institutions were finally buying.

 

Sector Action

The only sector breadth indicator to show a gain yesterday was the Restaurants Bullish %, up by 2.13%. That was enough to advance the chart by a box, extending the bounce off the neutral 50% level. Further strength looks likely and longs are worth considering here.
 
There was one buy signal yesterday, Zoe's Kitchen (ZOES). It has only been trading since April but the chart trades above its IPO price and should soon challenge its all-time high recorded in June. We would follow the signal.
 
 
 
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