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US Stock Service
Daily Hotline
 
19 August 2014    By John Gray
Market Action
  • US stocks held onto their sharp early gains through the afternoon yesterday, as the weekend saw tension ease in Ukraine and European markets staged recoveries. The major domestic averages gains were all near 1% and fresh 14-years highs were achieved by the NASDAQ Comp and 100. The S&P 500 ended within 1% of a new all-time high.
  • The NYSE had four stocks up for each decline while the NASDAQ showed a three-to-one margin. New 52-wk stock highs overwhelmed new lows for another strong sign. Volume fell though due to the comparison with option expiration on Friday. The higher NASDAQ close that session did signal new accumulation.
  • Corporate deal news gave an additional list to the market. The three ‘dollar store chains' are fighting over mergers. Crude prices slid back from Friday's fear rally, giving the airline and transportation sector in general a boost. Falling gasoline prices and lower northeast heating costs should contribute to higher consumer spending.
  • Nearly every index chart advanced with the larger-cap averages at or near their highs. The smaller stock indexes had solid catch-up sessions showing new willingness to take risks. That is a sign of a rallying market.
  • Indicator gains also continued and most oscillators remain well below their prior top levels. They are the targets in any rally after drops to oversold territory. That is now well underway. More upside stock breakouts are still needed to turn the bullish % indicators higher and further strengthen the upside projections.
Market Drivers
  • Dollar General trumped Dollar Tree's bid for Family Dollar sending both stocks up sharply. Dollar Tree fell 2%. If successful the combined firm could challenge Wal-Mart and Target for the discount market. Also facing new competition are the drugstore chains, which now have similar offerings if drugs are excluded.
  • European markets were all strong as they followed the late Friday action in the US. Russia is apparently not immediately invading Ukraine although their support for the rebels remains strong. Europe fears any conflict that might impact their energy sources and force them to react with meaningful sanctions.
  • On Wednesday the latest Fed minutes will be released and studied. The current near zero rates continue to boost equities so any hints at a change will impact the market. The 10-year yield remains below 2.4%.
Technical Outlook
  • Yesterday's broad market advance included further gains on the indicator charts. The short term action has been bullish for just over two weeks, with increasing confirmation from the medium-long term charts. Now that they are solidly bullish we expect more gains until they approach prior tops and overbought territory. Momentum typically slows then. We still await overall confirmation from reversals up amongst the slowest changing broad area bullish % indicators. The first hints for that will be upturns amongst the 46 industry group bullish % charts.
Portfolios
  • Large Caps 85% invested, Mid Caps 75% and Small Caps 70%.
  • Bear Portfolio is 20% short.
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
39.7% (+1.80%)
Bull Alert
NYSE %10 Week Moving Average
56.7% (+9.11)
Bull Alert
II Short Term Sector Sum
-20.50    (n/c)
Bearish
New P&F Signals: US Breakouts
Close 1-Day Change
Bulls 15 0
Bears 5 -6
NYSE Bullish % Indicator
58.68% (+0.38%)
Bear Confirmed
NYSE %30 Week Moving Average
62.37% (+3.97)
Bear Correction
II Long Term Composite Indicator
-3.00      (weekly)
Neutral
  • The short term composite and major % 10-wk MA charts moved higher. The NASDAQ 10-wk shifted to bull confirmed status.
  • New stock buy signals again outnumbered new sells.

  • Daily high low ratio and cumulative advance decline line charts moved higher, along with all five broad area % 30-wk MA oscillators.
Index Trends
  Close Volume 1-Day Change P&F Signals Support
Signal Trend Start Date Trend Reversal
DJ Industrials 16,838.7 109.2m +175.83 +1.1% Bull Up 3 Apr 2014 16,300.00 16015.3/16312.7
S&P 500 Index 1,971.74 599.7m +16.68 +0.9% Bull Up 22 Apr 2014 1,900.00 1944.69/1904.78
NASDAQ Comp. 4,508.31 510.0m +43.39 +1.0% Bull Up 18 Aug 2014 4,320.00 4284.53
NASDAQ 100 4,020.5 219.6m +32.99 +0.8% Bull Up 13 Aug 2014 3,840.00 3751.69/3837.16
S&P Midcap 400 1,412.49 117.9m +16.99 +1.2% Bull Up 14 Aug 2014 1,370.00
Russell 2000 Index 1,158.4 287.6m +16.75 +1.5% Bull Up 15 Aug 2014 1,125.00
Closing prices through Monday August 18, 2014
Chart Activity - Broad Index Moves 

The averages all popped at Monday's open, easily erasing the modest final Friday declines. Stocks were already up from that session's panic lows and the gains continued. After the initial surge the indexes moved sideways with a small upside bias to the close. That showed the DJ I up 1.06%, the S&P 500 higher by 0.85%, the NASDAQ Comp gaining 0.97% and the Russell 2000 1.47%. That latter index still has more catching up to do after its weeks of underperformance. The advance decline data was better than three-to-one to the upside but volume failed to increase.

The final gains moved most index charts up for the second day. The DJ I hit 16,800, advancing both its long term [100 pts/box] and short term [50 pts] charts. The July peak at 17,150 is now in sight. There were new 14-year highs for the NASDAQ 100 and NASDAQ Comp charts. The latter just exceeded two prior peaks for a new breakout. An immediate downturn would now be bearish. The S&P 500 and 100 charts both ended two-boxes below their July all-time highs. The NYSE Comp moved to a low pole, a formation already shown on the Value Line Comp and IBD Mutual Fund index charts. They neared breakouts. The smaller stock indexes, S&P Mid-Cap, Small-Cap and Russell 2000 all show short term buys with the latter still facing overhead resistance.  Bullish formations are again shown for all index charts.

Chart Activity - Sector Indexes 

The DJ Transports surged 1.71%, reclaiming X 8400 and near its high at 8500. The S&P 500 Transport chart also ended two-boxes below its recent record along with the Airline XAL chart. The S&P Health Care and Info Tech charts equaled their highs while those Consumer Discretionary and Industrial charts reversed up. The Biotech BTK moved close to its high and the MS High MSH equaled it.

 

Chart Activity - Commodities

Spot gold prices slipped back below $1300 at Monday's close. The chart held its 8-Aug upmove to X $1320, rebounding from its 1-Aug low at O $1280. It still holds a negative high pole formation with a sell stop at O $1270. More gains to X $1350 are needed to turn it bullish. The two gold index [XAU & HUI] charts show reversals down but still held their buy signals from last Wednesday.

Crude oil prices gave back half of their Friday gain, ending at $96.45. The chart held its last Thursday move down to O $96, a six month low. It shifted to a sell signal at O $98. That fulfilled the forecast of the prior high pole formation. The decline has broken rising support, from the O $92 low that started 2014. That level could be tested. The energy indexes have started to weaken. On Thursday the Oil Service OSX chart reversed down but the XOI missed that.

 

Index Breadth

% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 56.7 +9.11 Bull Alert 8 Aug 2014
Nasdaq Composite 53.67 +8.25 Bull Confirmed 18 Aug 2014
S&P 500 62.17 +9.25 Bull Confirmed 11 Aug 2014
Nasdaq 100 71.72 +1.01 Bull Confirmed 15 Aug 2014
Option Stocks 56.58 +12.77 Bull Alert 8 Aug 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 62.37 +3.97 Bear Correction 11 Aug 2014
Nasdaq Composite 53.82 +5.47 Bull Confirmed 11 Aug 2014
S&P 500 73.84 +4.83 Bull Confirmed 14 Aug 2014
Nasdaq 100 80.81 +4.04 Bull Confirmed 11 Aug 2014
Option Stocks 61.59 +6.48 Bear Correction 11 Aug 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 58.68 +0.38 Bear Confirmed 1 Aug 2014
Nasdaq Composite 53.2 +0.20 Bear Confirmed 1 Aug 2014
S&P 500 68.41 +0.40 Bear Alert 6 Aug 2014
Nasdaq 100 65.66 n/c Bear Alert 28 Jul 2014
Option Stocks 60.41 +0.10 Bear Alert 31 Jul 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:

Many indexes gained 1% yesterday and more than three stocks closed up for each decline. Those strong readings were also reflected by the gains for the daily moving average breadth values, which moved all but one chart higher. The overall improvement still allows for more gains, with prior top levels still to be approached. Four of the five % 10% MA charts rallied with only the newly overbought NASDAQ 100 unchanged. The NASDAQ Comp chart moved above its last top for new bull confirmed status. That fulfills the forecast of its prior low pole formation, which is also shown on the NYSE chart. It would make the same shift at X 60%.  


Medium-term:

All five % 30-wk MA charts moved up, with smaller advances than on the short term indicators. All are rebounding from the 50% area that was touched Thursday, 7-Aug. The NYSE now shows a low pole formation rebound of its decline that approached but did not penetrate prior 2014 lows. The NASDAQ Comp also reversed up without penetration to hold rally potential which is now underway. Now they could return to highs.

Long-term:

The daily breakout ratio improved with new highs tripling new lows. The 20 total signals still showed subdued activity and must improve if there are to be upturns on the broad area bullish % charts. Their recent declines also held above prior lows. On 7-Aug the NYSE fell to a second bottom at O 58%, equaling its Feb-14 low. The NASDAQ Comp moved down to O 52%. It bottomed at O 48% in May.

Current outlook:

Yesterday's surge easily wiped out the Friday losses suggesting they were only a news-driven interruption to the rally. All daily moving average breadth charts continue to advance. The short term % 10-wk MA charts are rallying from their 2014 lows with bullish formations projecting more gains. Overbought tops are their targets. The initial upside potential triggered by their upturns increased as the medium term % 30-wk MAs rebounded and turned positive. Now we await similar reversals on the slower moving bullish % charts. The July retreat maintained overall upward potential with projections of indexes returning to their highs.

 

Indicators

Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 39.7 +1.80 Rising Bullish HIgher
NYSE High-Low Index 60.21 +6.26 Rising Neutral HIgher
Nasdaq High-Low Index 42.84 +4.73 Rising Bullish Higher
NYSE On Balance Volume (by DJIA) 278,595 +605.00 Rising Bullish None
NYSE On Balance Volume (by breadth) 540,234 +605.00 Falling Bearish None
Nasdaq on Balance Volume by Composite 496.66 +1.56 Rising Bullish Higher
Nasdaq on Balance Volume by Breadth 36.3 +1.56 Rising Neutral None
NYSE Cumulative Advance/Decline 408,140 +1789.00 Rising Bullish Higher
NYSE Money Flow Index 44,793.3 (weekly) Rising Neutral None

  • The markets surged at Monday's open and held solid gains at the close along with strong internal breadth. Volume was lacking but many indicator charts advanced. They continue to strengthen and allow for further near term gains.
  • The daily short term composite edged higher again, ending Monday at X 38%. The chart reversed up from a 21-month low at O 6% on 8-Aug and added a low pole signal last Thursday. That projects a P&F buy will occur before a return to the lows, and points to higher markets. The buy stop is X 50% but down and up action could lower it.
  • There were jumps for both medium term daily high low charts as the single-day data shows new highs overwhelming new sells. The NYSE has quickly moved up from O 40%, just above its prior 2014 bottom. If the readings repeat it could reach 70% this week. The NASDAQ chart is rallying from just oversold readings after equaling its last two lows at O 30%.
  • The daily NASDAQ Comp on-balance-volume chart showed the only action for the second day, holding a new low pole formation and near its confirming buy stop. The NASDAQ breadth OBV would turn positive if it advances today.
  • The daily medium term daily NYSE cumulative advance decline line chart ended just below its recent high. It remains bullish with a close sell stop.

Industry Bullish %s and Sector Sum
Daily Industry Groups Bullish %s: Indexes ended Monday sharply higher and advancing shares swamped declines. However there was a contraction in overall stock breakouts from 26 to 20, although the ratio did improve. There were 15 new buys and five new sells. They were widely disbursed amongst the 46 broad area industry groups bullish % indicators and failed to move a single chart. Of course there was no change to the sector sum value or chart. It held its 11-July short term bearish status shift and high pole formation. It remains long term bullish until a P&F sell signal but that is now projected from the high pole.

The sector sum value was -20.5. It needs -17.0 to turn back up. The chart reversed down 8-Jul, 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 at -44.0.

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 buy stop on 30-May, ending the sell from 27-January.


 
Sector Sum Indicator:


Short term P&F chart status
 
Bearish
Value
    -20.5
Change yesterday
     0.0
Last reversal
8-Jul down to +1.0
Short term stop
     -17.0
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 Down -  # of rising groups
13
Trigger for bullish status   
16
Sector charts overbought
 5
Sectors charts oversold
0

 
 
 
 
 
 

Stock Action

The NYSE bullish % value was up 0.38% yesterday, after no change Friday and a tiny advance Thursday. Its short term momentum is negative until its rallies three consecutive sessions. It closed at 58.68%, with its chart steady at O 58%. It holds bear confirmed status and has equaled its Feb-14 low. The NASDAQ Comp bullish % ended at 53.20%, holding at O 52% on its chart. It holds bear confirmed status with its May low at O 48%. Avoiding new lows is critical to maintaining the overall market uptrend.

Trading activity remained at below average levels with 374 stocks moving on their P&F charts. The prior day had 312 changes. Volume dropped 11.9% for the NYSE and 13.1% for the NASDAQ. That was somewhat disappointing with the NASDAQ high but also reflected the comparison to the heavy option expiration trading Friday.

 

Sector Action

The Metals Non Ferrous Bullish % continues to consolidate across the neutral 50% level, Monday saw a value gain of 1.39%. The chart holds its "bull confirmed" status, with a break of three year trendline resistance in June. A push higher towards the peak from February 2012 is likely in the months ahead.

Yesterday there was one buy signal, Great Northern Iron Ore (GNI). The share has been attempting a bottom since the sharp collapse in January. Speculative longs could use the potential base's floor at $16.80 as a stoploss. 
 

 

 

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