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US Stock Service
Daily Hotline
 
11 July 2014    By John Gray
Market Action
  • Stocks recovered from an ugly start Thursday but still ended lower. The NASDAQ lost 0.5% while the S&P 500 and DJ I ended down 0.4%. Declining shares also swamped advancing issues and higher NYSE volume meant another day where institutions were taking chips off of the table. That maintains the new pressure on the market so maintain caution.
  • The opening weakness was blamed on news from Europe of a potential Portuguese bank collapse along with weak economic data from Italy. Gold rallied along with US and German bonds while European stock markets fell hard. US trading showed initial losses well above 1%. However cooler heads then decided problems overseas will not likely impact the US so buyers swooped in and stocks rebounded to only modestly negative closes. The early weakness did see a spike in volatility
  • Last week ended with all indexes at highs after six weeks of gains. Indexes and indicators were overextended at top levels. That contributed to the bullishness which should be evident at market highs.
  • Traders are now concerned the high expectations for the new quarter will not be met. That caused the Monday/Tuesday indicator weakness with many short term bear confirmed signals. Yesterday's latest declines included some readings around 50% where moves pause to regroup. After that we could see more weakness so maintain defensive measures. If markets do rally from here there will be new buying chances through rotation.
Market Drivers
  • An obscure bank in Portugal faced liquidity problems that sent world stocks markets lower Thursday. That shows how interconnected we all are. The negative impact didn't last but it reminded traders how fragile Europe's recovery is. They again pondered why German economic strength should provide cover for very low rates in other nations (Portugal, Italy, Spain & Greece) that never fulfilled their agreements to make structural reforms when they were rescued by the ECB.
  • That could also turn more investors to US focused stocks as our economy remains on a growth track. Thursday's news had a larger than forecast drop in jobless claims for another good sign. Additionally major retailers reported a 5.5% increase in same-store sales in June.
Technical Outlook
  • There was more technical damage impacting the market outlook yesterday. Short term conditions remain bearish but the indicator retreats have reached levels allowing for consolidation attempts. That may mean an index rebound. However further declines are likely after that and oscillating charts could near prior oversold levels to set up broad buying chances. Recent broad index retreats have been mild but included sector rotation and many groups much weaker than the broad market. We don't think the time is right for broad new buying. Caution and defense should remain as the focus.
Portfolios
  • Large Caps 40% invested, Mid Caps 35% and Small Caps 25%.
  • Bear Portfolio is 85% short.
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
46.6% (-8.60%)
Bear Confirmed
NYSE %10 Week Moving Average
59.04% (-6.66)
Bear Confirmed
II Short Term Sector Sum
-0.50     (-1.50)
Neutral
New P&F Signals: US Breakouts
Close 1-Day Change
Bulls 3 -4
Bears 42 +33
NYSE Bullish % Indicator
68.03% (-0.95%)
Bear Correction
NYSE %30 Week Moving Average
69.68% (-3.97)
Bull Top
II Long Term Composite Indicator
+157.50     (weekly)
Bullish
  • The short term composite and NYSE and NASDAQ % 10-wk MA charts all moved lower. The latter joined the former two with bear confirmed sell signals after retreats from prior overbought top levels.
  • Negative stock breakouts jumped to a high for the last month, lowering the reading for the sector sum. It could shift bearish any day.

  • The NYSE % 30-wk MA chart reversed down, barely holding overbought. The NASDAQ 30-wk also moved lower but avoided a negative high pole formation.

Index Trends
  Close Volume 1-Day Change P&F Signals Support
Signal Trend Start Date Trend Reversal
DJ Industrials 16,915.1 67.1m -70.54 -0.4% Bull Up 3 Apr 2014 16,300.00 16312.7/16703.7
S&P 500 Index 1,964.68 415.0m -8.15 -0.4% Bull Up 22 Apr 2014 1,860.00 1925.78/1944.69
NASDAQ Comp. 4,396.2 419.3m -22.83 -0.5% Bull Down 12 May 2014 4,020.00 4207.61/4284.53
NASDAQ 100 3,880.04 147.0m -12.88 -0.3% Bull Down 12 May 2014 3,540.00 3489.6/3751.69
S&P Midcap 400 1,413.81 85.9m -9.15 -0.6% Bear Down 10 Jul 2014 1,455.00
Russell 2000 Index 1,161.86 221.9m -11.95 -1.0% Bear Down 10 Jul 2014 1,215.00
Closing prices through Thursday July 10, 2014
Chart Activity - Broad Index Moves 


US markets followed the lead from Europe with sharply lower opens for all indexes Thursday. Losses were quickly well above 1% but buyers stepped in and trading turned higher. The losses were trimmed all morning and by mid-afternoon they were minor. Some new selling expanded them slightly to the close. That had the DJ I down 0.4%, or 70 pts, after early losses of 180 pts. The S&P 500 had the same 0.4% final decline and the NASDAQ Comp fell 0.5%. Relatively poor action continued for the Russell 2000 as it lost 1%, after tumbling 3% over the Monday/Tuesday selloff. The overall uptrend is under pressure but still intact.

The early lows moved most index charts lower but the long term DJ I, S&P 500 and S&P 100 still avoided downturns to hold at highs. The Value Line Comp, S&P Mid-Cap, S&P Small-Cap and Russell 2000 charts all hit their sell stops, fulfilling the forecasts of their high pole retreats from new highs last week. The NASDAQ Comp, NASDAQ 100 and NYSE Comp also declined but held above low pole signals and the falling short term DJ I chart avoided its sell stop at O 16,700. That level would also turn down its long term chart.

Chart Activity - Sector Indexes 

The sector charts showed less activity and again the DJ Transport and Utilities were steady. Amongst the S&P 500 groups only Health Care shows a reversal down from highs. Yesterday the Biotech BTK chart reversed up while the Drug DRG, MS High Tech MSH and Semiconductor SOX charts moved down. The SOX moved to a trading sell signal.

Chart Activity - Commodities 

Spot gold ended up $8 to $1335 but intraday it was $10 higher. That moved the chart up to X $1340. It holds a short term buy signal and now tests technical resistance from the Mar-14 high at $1390. The chart is rallying from its 30-May drop to support at O $1250. The two gold indexes [XAU & HUI] moved up to more highs intraday but then ended the session with losses and potential downturns.

Crude oil prices also swung intraday, ending up near $103 after falling below $102. That lowered the chart one-box and shifted it to negative with a new high pole formation, ending the early June Iraq inspired rally to X $107. The energy index [OSX & XOI] charts hold pullbacks from highs and the latter weakened with a negative high pole signal Thursday.

 

Index Breadth

% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 59.04 -6.66 Bear Confirmed 8 Jul 2014
Nasdaq Composite 49.29 -9.36 Bear Confirmed 10 Jul 2014
S&P 500 73.09 -4.42 Bull Top 8 Jul 2014
Nasdaq 100 81.82 -1.01 Bull Top 8 Jul 2014
Option Stocks 59.75 -7.76 Bear Confirmed 10 Jul 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 69.68 -3.97 Bull Top 10 Jul 2014
Nasdaq Composite 55.77 -4.76 Bull Correction 8 Jul 2014
S&P 500 83.73 -2.62 Bull Confirmed 22 May 2014
Nasdaq 100 79.8 -1.01 Bull Confirmed 19 May 2014
Option Stocks 70.03 -4.24 Bull Top 10 Jul 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 68.03 -0.95 Bear Correction 4 Mar 2014
Nasdaq Composite 57.98 -1.42 Bear Correction 9 Jun 2014
S&P 500 80.52 -0.40 Bull Confirmed 13 May 2014
Nasdaq 100 73.74 -1.01 Bull Confirmed 21 May 2014
Option Stocks 71.79 -0.71 Bull Confirmed 10 Jun 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:

Despite the rebounds the major averages were still down about 0.5% Thursday and there were many more than two stocks down for each advance. After some small gains Wednesday that weak action resumed the broad losses for the daily moving average breadth values shown Monday and Tuesday. Most charts moved lower with new medium term reversals down. Four of the five short term % 10% MA charts declined with only the NASDAQ 100 unchanged. The NASDAQ Comp and option stocks charts fell through their stoplosses to join the NYSE with bear confirmed status. All three also show drops from overbought territory and prior highs. The NASDAQ Comp decline is down to O 50%, a level where oscillators often regroup. However there were also chances for more declines ending with oversold readings. For the NASDAQ that last occurred in early May while the NYSE hasn't touched oversold since its Feb-14 low. That is where the best broad buying chances occur.

Medium-term:

The NYSE and option stocks % 30-wk MA charts reversed down while the NASDAQ Comp showed further declines to O 56%. The former two still held overbought to avoid bearish signals. The NASDAQ Comp also remains above its potential high pole signal at O 52%, so these declines are not yet bearish and suggest nothing more than a modest market pullback.

Long-term:

Stocks breakouts can occur from the intraday highs and lows so yesterday's initial declines increased the number of new sell signals to 42, the most in weeks. There were only three new buys. That increased the negative readings for the broad area bullish % indicators. None of the charts moved, with each still pointing higher. However the last three changes for the NYSE have been lower to shift its short term momentum to the downside.

Current outlook:

The overall indicator status weakened further yesterday with some medium term daily moving average breadth chart downturns. The main short term % 10-wk MAs are bear confirmed and at or approaching 50%, so an attempt at consolidation may occur. That was the action during the recent brief market retreats that failed to develop into broad corrections. They saw sector rotation instead. At the moment the upcoming action could go either way so remain defensive in case there is a larger overall decline. The jump in stocks hitting their sell stops yesterday and Tuesday increases our concerns.


 

Indicators

Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 46.6 -8.60 Falling Bearish Lower
NYSE High-Low Index 90.12 -1.28 Rising Bullish None
Nasdaq High-Low Index 69.89 -3.46 Falling Caution Lower
NYSE On Balance Volume (by DJIA) 278,543 -654.00 Rising Bullish None
NYSE On Balance Volume (by breadth) 541,661 -654.00 Rising Bullish None
Nasdaq on Balance Volume by Composite 492.78 -1.67 Falling Neutral None
Nasdaq on Balance Volume by Breadth 42.63 -1.67 Falling Bearish None
NYSE Cumulative Advance/Decline 406,235 -1215.00 Rising Bullish None
NYSE Money Flow Index 43,519.9 (weekly) Falling Bearish None

  • While markets recovered from early lows there were still lower readings for all daily indicators. The OBVs again were opposite to the prior day for no movement and only two charts did move down. Other potential downturns are close but many osciallator readings now around 50% and do allow for a pause in the pullback to consolidate.  
  • The daily short term composite chart moved down below 50%, holding a sell signal after a drop from its 2014 high. The move is now at levels where action often pauses to regroup. The two outcomes are a return to chart highs as the rally resumes or further declines to oversold territory as the market corrects some more.
  • The medium term daily NASDAQ high low chart ended barely overbought at O 70%. It will show its initial bearish status with any new decline which is likely today. The NYSE ended near its downturn reading of O 88.00%. At present it holds at prior top levels.
  • The medium term daily NYSE cumulative advance decline line chart was steady but it ended ‘235' away from a reversal down from its high.

 

Industry Bullish %s and Sector Sum
Daily Industry Groups Bullish %s:  Stock breakouts are generated from the intraday highs and lows. Thursday's initial market drop increased the number of stocks hitting their sell stops to 42. That was above the 31 sells counted Tuesday and again the most in a month. There were only three new buys. For the first time in weeks we also noted only down changes amongst the 46 broad area industry groups bullish % charts. Four moved down with reversals and one significant negative status shift. That group also left overbought territory. The sector sum value fell below zero. Its status is short term neutral and it could turn bearish any day. It remains long term bullish until a P&F sell signal.

The sector sum value was –0.5, down from +1.0.The chart moved lower. It reversed down Tuesday, ending the rally from the 27-May chart reversal to -19.0. On 30-May it hit the long term buy stop at -16.0. On 22-Apr the P&F chart reversed up from a 30-month low at -25.5. The last lower reading was in Oct-2011 when the sum reading fell to -44.0 so there was lots of upside potential from there.

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 and A-D line reversed up 27-May and with the NYSE bullish % already up three-days that completed the short term bullish status shift. The sum chart hit its long term buy stop on 30-May, ending the sell from 27-January. Now two short term elements are negative and the advance-decline line shift is close.


 
Sector Bullish% P&F Charts Lower:

Sector
Bullish %
Comment
Aerospace/Airlines
64%
Holds bear alert. .
Drugs
56%
Holds bear confirmed.
Internet
42%
Reversed to bull correction.
Textiles/Apparel
64%
Reversed to bear alert. Left overbought.

 
 
Sector Sum Indicator:


Short term P&F chart status
 
Neutral
Value
    -0.5
Change yesterday
     -1.5
Last reversal
8-Jul down to +1.0
Short term stop
     +3.0
Long Term P&F chart status
Bullish
Last long term signal
P&F chart Buy at -16.0 on 30-May
Long term P&F stop loss
Potential bearish at -23.0
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 UP -  # of rising groups
38
Trigger for bearish status   
37
Sector charts overbought
 13
Sectors charts oversold
0

 
 
 
 
 
 
Stock Action

The NYSE bullish % value fell 0.95% yesterday its largest decline in weeks. It was also the third negative value change (unchanged on 9-Jul) so its short term momentum is now negative. It closed at 68.03%, holding at X 68% after missing a move to overbought readings. The NASDAQ Comp bullish % ended at 57.98% after falling 1.42%.

Trading activity increased to near average levels with 503 stocks moving on their P&F charts. The prior day had 226 changes. Volume increased 11.0% on the NYSE for a new distribution session. That suggests large traders were selling. The NASDAQ volume fell 3.3%.

 

Sector Action

The Textiles Apparel Bullish % was weak by 3.03% on Thursday, enough to reverse down the chart from 70%, overbought. The status is now "bull alert" and investors should look to reduce holdings. The chart is likely to fall back down to at least the 50% neutral level.

G-III Apparel Group (GIII) was the sole sell signal yesterday. The chart is correcting and set to test rising trendline support at $73. Breaking that would call for a complete exit if long. In the meantime the primary uptrend should be given the benefit of any doubt.

 

 

 

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