Weekly Technical Commentary by Art HuprichAdvance-Decline Lines Are Bullish, Pointing Higher
Friday Morning 03/05
“Risk control is the most important thing in trading. I am always thinking about losing money, as opposed to making money.” -- Paul Tudor Jones Despite better-than-expected retail sales figures and upgrades of three “DJIA components,” yesterday’s tape action took on the look of a third consecutive day of “churning.” Specifically, the DJIA opened higher, up 52 points, down six points shortly thereafter, and then proceeded to “float” through most of the day. However and to the credit of the bulls, stock market indices rallied into the close. The DJIA gained 47 points; the NASDAQ rallied almost 12 points. On the NYSE, volume, while anemic in front of today’s seemingly ever critical employment report (the stock market’s reaction to the employment news, versus the news itself, is most telling short-term), expanded to 960 million shares. There were 549 net advancing issues, another good reading! There were only 227 new 52-week highs. I wonder why, with the stock market higher, have new 52-week highs contracted over the past few days? A look at the chart of the NASDAQ 100 (NDX/1859.72) reveals the following: the NDX posted a reaction low on 2/25/10 at 1781 – important near-term support. The index then rallied in a straight line to 1862.64 on 3/2/10 – very near-term selling pressure. Since then it has been trading laterally, in a tight range. This picture is taking on the formation of a bullish “Flag continuation pattern.” These patterns can sometimes last for a few weeks, but the really strong ones don't go much beyond several days as the hunger from those who missed things grows as they see a little selling/profit-taking hitting the tape. A move above 1862.64 (aggressive accounts can use intraday prices, conservative accounts can use closing prices) by the NDX would complete the pattern and suggest a move towards the January highs (1897), minimum. Retailers and certain financials were among the top groups yesterday. Gold producers, HMOs, and energy-related were some of the weakest groups yesterday. Speaking of various groups, the Networking Index Fund (IGN/$27.59) should be bought by proactive accounts if it breaks out at $28.00, at which point a move beneath $26.15 should be used as a stop-loss point. Chart courtesy of Thomson Reuters Thursday Morning 03/04 While the small and mid capitalization stock market indices eked out marginal gains, their big cap brethren started strong but, for the second consecutive trading session, closed poorly. At its best, the DJIA was up 64 points pre-noon. However, by the close, the “senior index” lost nine points. The NASDAQ also gave up early gains (up 13 at best) and closed fractionally lower. The late afternoon sell-off was aided by President Obama talking about Healthcare reform again... On the NYSE, there were 270 net advancing issues and 292 new 52-week highs. Volume contracted to 936 million shares. In light of overhanging selling pressure (more below) and the past two days of “churning” (higher prices early in the session with a close near the lower end of the intraday range), I will be looking out for any near-term distribution days (high volume declines). A string of distribution days would hurt the chances for an upside extension of the rally that started on 2/5/10. Within the context of intermediate-term uptrends, while the small and mid-capitalization stock market indices [and a number of Advance - Decline Lines (please refer to yesterday’s report)] are in near-term “bull trends,” the large capitalization stock market indices (DJIA and S&P 500) are still confined to near-term trading range formations, as shown below, by the chart of the DJIA. Chart courtesy of Thomson Reuters Within the commodity complex but switching gears, a chart of Lumber is shown below. Lumber’s longer-term chart configuration is bullish and is trading above its rising 10-week and 40-week moving averages. There are two “thin” exchange-traded funds that track timber – please call Closed-End Fund Research for specifics. Chart courtesy of Thomson Reuters Wednesday Morning 03/03 Here are the most recent BULL - BEAR investment newsletter advisory sentiment figures and a paraphrase of a portion of the comments, published by Investors Intelligence: The markets continue their recovery from the lows of early February. Monday’s rally ended with the NASDAQ Composite and S&P 500 closing in positive territory for the year. This move has boosted the BULLS (42.1% versus 41.1%) for the third week in a row while the BEARS contracted (22.7% versus 23.3%). We now see the advisors getting more bullish. It will prove dangerous if this trend continues, but for now, the readings are comfortably beneath danger levels. Relative to yesterday, stock market indices edged higher, amid news India's economy grew last year and further speculation that the European Union will bail out Greece. At one point, the DJIA was up almost 54 points yet pulled back late in the session. At the final bell, the DJIA gained two points; the NASDAQ gained seven points and continues to outperform. The NASDAQ moved above its short-term downtrend line Monday (see 2/26/10 report). The S&P Small Cap 600 Index (SML) and Mid Cap 400 Index (MID) closed above their January high as each index is recording “higher troughs and higher peaks” – bullish. On the NYSE, volume expanded to 1.07 billion shares. There were 1,224 net advancing issues, an excellent reading. Interestingly, the NYSE Advance Decline Line (traditional figures), S&P 500, S&P 600 (small cap), and S&P 400 (mid-cap) Advance Decline Lines have all set new reactionary highs, indicating that the move up off the bullish 2/5/10 “reversal low” has been broadening out. This is bullish and encouraging because it implies “chart repair” and “participation.” “Participation” is also evident by the fact that there were 360 new 52-week highs yesterday, which is still below its early January reading of 523. Within the context of a bullish longer-term configuration, Gold participated to the upside yesterday as defined by the SPDR Gold Trust (GLD/$111.02). On a short-term basis, GLD recently broke above a downtrend line, which is bullish and extended that move yesterday. GLD looks higher and has near-term support at $106.60-106.00 followed by $104 and $102.28. Initial resistance is closer to $114 and a near-term price target is closer to $118. Chart courtesy of Thomson Reuters Monday Morning 03/01 In the spirit of recognizing “accomplishment” (and “fair recognition” on my part), my congratulations to Team Canada. As another “snow-icane” hit the Northeast again last Friday, following Thursday’s mini-reversal by the DJIA, from down sharply to closing near its intraday high, it was quiet on Wall Street Friday. Most stock market indices finished with small gains after a slew of mixed economic data. The DJIA and the NASDAQ each gained four points. The Dow Jones Transportation Average rallied 21 points and its relative strength trend versus the DJIA set a new reaction high. Market indices dipped on the week, but finished the month on the plus side. The NASDAQ jumped 4.2%, the S&P 500 gained 2.8% and the DJIA added 2.6% for the month of February. On the NYSE Friday, volume expanded to 1.24 billion shares. There were 591 net advancing issues, an excellent reading – more below. The Oversold Overbought Oscillator closed above plus 5.0 for the sixth consecutive day. My translation of this data is that within the context of stock market indices being confined to a short-term trading range pattern, sustained overbought readings that fail to produce a pullback are usually regarded as sign of a market that wants to go higher. Interestingly, while the traditional NYSE Advance Decline Line I track is only 33 net advancing issues from setting a new reactionary high (I think it happens), the NYSE Common-Stock-Only Advance Decline Line I follow isn’t nearly as close. However, the action of each A-D line is bullish, but even within a broad complex of stocks, selectivity still abounds. Patience and risk management is paramount. Chart courtesy of Thomson Reuters
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