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US Stock Service
Daily Hotline
 
10 October 2014    By John Gray
Market Action
  • Note - John Gray had to leave early today for his son's wedding, so content is lighter in places. Full service to resume Monday.
  • Yesterday saw volatility return, with the VIX surging 24%, nearing highs from earlier in the year. Those highs may yet be tested, so investors should really wait for the dust to settle and indicators to confirm bases.
  • We would watch technical developments today and on Monday before committing new funds to the market. Indicators are oversold but the market can still drop further near-term. Decent support on the S&P 500 is around 1900.
  • Medium-term indicators really need to avoid any further deterioration, otherwise it could signal a rotten end to the year.
Market Drivers
  • Worries over the global economy weighed on equities yesterday. That was best reflected by November crude oil ending at its lowest level since 2012.
  • Economic data today is limited to import and export prices, unlikely to cause a major move on its own.
Technical Outlook
  • With many short-term indicators at lows the eventual snap-back by the market could be powerful, therefore we would avoid fresh bearish positions at this stage in the rout.
Portfolios
  • Large Caps 80% invested, Mid Caps 60% and Small Caps 45%.
  • Bear Portfolio is 0% short.
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
20.7% (+8.60%)
Bull Confirmed
NYSE %10 Week Moving Average
16.41% (-8.14)
Bear Confirmed
II Short Term Sector Sum
-37.50     (-0.50)
Bearish
New P&F Signals: US Breakouts
Close 1-Day Change
Bulls 8 0
Bears 51 -2
NYSE Bullish % Indicator
45.95% (-1.40%)
Bear Confirmed
NYSE %30 Week Moving Average
27.35% (-9.03)
Bear Confirmed
II Long Term Composite Indicator
-153.50    (+ 7.00)
Bearish
  • The short term composite rallied to bull confirmed status at X 20%. It will most likely pull back today.
  • All five % 10-wk MA charts reversed down, with the NYSE, NASDAQ Comp and S&P 500 equaling their recent lows. Breakdowns would be negative.
  • Stock sell signals again dominated the daily breakouts. That lowered the sector sum value slightly, with a reading near long term bottom levels.

  • All broad area % 30-wk MA charts moved down with many lower lows. That is a bad sign.
  • The NYSE bullish % chart moved down, just breaking support.
  • The Long Term Composite was steady on its chart. It holds at prior lows but needs to turn up to confirm a rally is underway.
Index Trends
  Close Volume 1-Day Change P&F Signals Support
Signal Trend Start Date Trend Reversal
DJ Industrials 16,659.2 106.9m -334.97 -2.0% Bull Down 3 Apr 2014 16,600.00 16312.7/16663.3
S&P 500 Index 1,928.21 610.7m -40.68 -2.1% Bear Up 25 Sep 2014 1,980.00 1904.78/1925.25
NASDAQ Comp. 4,378.34 604.1m -90.26 -2.0% Bear Up 25 Sep 2014 4,500.00 4321.89/4355.34
NASDAQ 100 3,969.32 201.5m -71.80 -1.8% Bear Up 1 Oct 2014 4,060.00 3837.16/3934.94
S&P Midcap 400 1,327.62 147.6m -32.05 -2.4% Bear Up 22 Sep 2014 1,375.00
Russell 2000 Index 1,067.99 383.2m -29.13 -2.7% Bear Up 22 Sep 2014 1,110.00
Closing prices through Thursday October 9, 2014
Chart Activity - Broad Index Moves 


Averages ended sharply lower yesterday with the DJ I moving more than 340 points intraday for the second session. Volatility is suddenly the most since 2011. Most averages gave back their large gains from Wednesday and trading ending near the lows. Advance decline breadth was horrible but the count of new lows contracted along with the volume. That showed no institutional panic selling.

Just as most P&F charts moved down Wednesday on the opening lows, nearly every index chart reversed up yesterday as the Thursday lows were nearly all higher. The only exception was the short term [50 pts/box] DJ I chart, which just hit a lower low at O 16.650. The small losses at Thursday's open were enough to turn the index charts back up. Only the S&P 100 reversed down as it has the only upturn Wednesday. Thursday was an inside day (highs & lows between the prior day) while Wednesday was an key day reversal up. As long as charts show bases forming there is a near term rally chance. Breaking to new lows would be bearish.

Chart Activity - Sector Indexes
 

Again the DJ Transports moved more than 200 pts and its lower low more than wiped out Wednesday's 2% gain, with its chart down to O 8050. The Airline XAL also moved down. Oil's latest drop dropped the S&P 500 Energy chart again the Health Care and I-T group charts turned up. Other chart reversals up were on the Biotech BTK, Drug DRG, MS High Tech MSH and Semiconductor SOX charts. They ended weak enough for potential reversals down.

Chart Activity - Commodities

Spot gold had a small final gain but the intraday move pushed the chart up to X $1230. It is rebounding from O $1190, a low last seen at its end of 2013 bottom. A new floor may be signaled. Both gold index [XAU & HUI] charts also reversed up from their lows last seen in Oct/Nov 2011. The XAU ended a 26-box drop and the HUI a 30-box decline.  The Precious Metals bullish % had a bear confirmed status shift on 30-Sep and dropped into oversold territory last week.

Crude oil tumbled another $2.50 Thursday, closing below $85. The chart is now down 9-boxes to O $85, equaling lows from Oct and Nov-11. The energy indexes also remain weak with each dropping further. The Oil Service OSX ended at a 15-month low. The Oil XOI shows a 7-month low.



 

Index Breadth

% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 16.41 -8.14 Bear Confirmed 9 Oct 2014
Nasdaq Composite 20.76 -9.91 Bear Confirmed 9 Oct 2014
S&P 500 25.35 -12.68 Bear Confirmed 9 Oct 2014
Nasdaq 100 28.28 -13.13 Bear Confirmed 9 Oct 2014
Option Stocks 16.96 -10.46 Bear Confirmed 9 Oct 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 27.35 -9.03 Bear Confirmed 9 Oct 2014
Nasdaq Composite 29.06 -7.51 Bear Confirmed 25 Sep 2014
S&P 500 44.06 -12.68 Bear Confirmed 9 Oct 2014
Nasdaq 100 53.54 -12.12 Bear Confirmed 9 Oct 2014
Option Stocks 28.6 -10.95 Bear Confirmed 9 Oct 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 45.95 -1.40 Bear Confirmed 1 Aug 2014
Nasdaq Composite 44.92 -0.64 Bear Confirmed 1 Aug 2014
S&P 500 57.55 -1.60 Bear Confirmed 2 Oct 2014
Nasdaq 100 61.62 n/c Bear Confirmed 2 Oct 2014
Option Stocks 48.86 -1.58 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:

Markets reversed the best index gains this year Thursday, with very weak advance-decline readings. Every daily moving average breadth value fell sharply and all rising charts reversed down. Nearly all also ended at their recent lows, with double and triple bottom formations. All five short term % 10-wk MA charts reversed with the NYSE back to its 1-Oct low and the NASDAQ Comp and S&P 500 ending with triple bottom oversold lows. If these levels hold and upturns follows a trading rally will occur. Any further breakdowns will postpone it, possibly to the end of this month.

Medium-term:

Four of five % 30-wk MA charts also reversed down and the NASDAQ Comp dropped below its prior 2014 bottoms to enter oversold territory. Many of these charts achieved new lower lows yesterday. That is not a good sign for an immediate market rally.

Long-term:

The broad weakness meant more stocks hit their sell stops although that reading was still well below the 129 sells from 1-Oct. Yesterday's count was 8 buys and 51 sells. That did drop every broad area bullish % value. The NYSE hit O 46%, just below its long term uptrend line support. That is another bad sign for a near term rally. The NASDAQ Comp bullish % tests it support line at O 46%.

Current outlook:

Yesterday quick reversal of the best day for 2014 was fairly negative. Most moving average breadth indicators dropped back down to the same level as their recent lows. Unless there is an unlikely return to highs today those levels could give way. That would postpone any trading rally. There is a slight chance for upturns without new lows. That would allow index rebounds.




 

Indicators

Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 20.7 +8.60 Rising Bullish Higher
NYSE High-Low Index 16.68 +0.72 Falling Bearish None
Nasdaq High-Low Index 17 -0.65 Falling Bearish None
NYSE On Balance Volume (by DJIA) 279,206 -895.00 Falling Bearish None
NYSE On Balance Volume (by breadth) 537,603 -896.00 Rising Caution None
Nasdaq on Balance Volume by Composite 494.74 -2.22 Falling Bearish None
Nasdaq on Balance Volume by Breadth 34.37 -2.22 Falling Bearish None
NYSE Cumulative Advance/Decline 400,339 -2410.00 Falling Caution None
NYSE Money Flow Index 40,509.1 (weekly) Falling Bearish None

  • Markets fell sharply Thursday, with the worst advance decline in weeks. However indicator charts were little changed again, with many values back at their prior day levels. One oscillator did advance. The index lows must hold to avoiding aborting the recent positive rally signals.
  • As most indexes held above their Wednesday lows yesterday they reversed up on their charts. That boosted the daily short term composite chart to X 20%, causing its status to strengthen to bull confirmed. That comes from a base that includes a multiyear low at O 2% from last week. It will likely reverse back down today as the index charts also retreat.
  • The two medium term daily high low ratio charts are at their oversold multiyear lows. The number of new 52-wk lows was below Wednesdays readings so they may be making bottoms.
  • Another daily reversal left all four daily on-balance-volume charts unchanged. Three turned down Tuesday and all four show bearish status.
  • The medium term daily NYSE cumulative advance decline line chart was unchanged. It shows a pullback from its high to signal caution. It holds just above the stoploss at O 400,000. Its reading is below its 10-days ago level for another sign of momentum loss.  
  • The weekly long-term composite chart was steady at -160.0, a low level last seen in Aug-11. The move below the early Aug-14 low was negative but the quick sell off also ended at a prior chart low. That allows for a strong rally back to top levels last shown early Jul but it has to reverse up to signal that. The value was -153.5, up from -160.5.

 

Industry Bullish %s and Sector Sum

Sector Action

The Health care bullish % was one of the few areas to show a gain on Thursday's market down session. The indicator value rose by 0.44%. Although the status is “bear confirmed” the indicator is holding at the neutral level as well as rising trendline support drawn up off the 2011 low. We would see current weakness as an opportunity to buy this area.
 
Two buy signals yesterday, Alpha Pro Tech (APT) and Medbox (MDBX). Plus one sell signal yesterday, Misonix (MSON). All three charts are volatile so caution is needed. APT is rallying towards falling trendline resistance at $6 but the move there will be choppy, yesterday it rose 27.7% alone. We would consider longs in the sector's large caps as they are more stable.

 

 

 

 

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