Weekly Technical Commentary by Art Huprich
"Short-Term, I Am a Market Optimist who Takes his Raincoat to Work Every Day"
Friday Morning 07/23
( It is just as important how the market reacts to earnings and guidance than just the numbers themselves, short-term.
Coming on the heels of Tuesday’s short-term bullish “key outside reversal day” and aided by 1) news that the Eurozone reported stronger-than-expected economic growth and 2) the latest round of earnings reports, Wall Street enjoyed another sharp rally yesterday. The DJIA gained almost 202 points or 2%; the NASDAQ rallied just over 58 points or 2.68%. Small cap indices rallied well over 3%. On the NYSE, volume contracted to 1.17 billion shares but advancing volume accounted for 90% of total volume. Thus, while all the “volume bears” will be shouting, what volume that did occur, was bullishly inclined in my opinion. New 52-week highs expanded to 177. The Oversold-Overbought oscillator closed at +5.9, the seventh consecutive day of being “overbought.” It is impressive, again from a short-term perspective, when the stock market fails to negatively respond to a persistently overbought condition.
Consistent with yesterday’s tape action, the DJIA is exhibiting a short-term bullish “Flag” pattern. This chart formation is classified as a continuation pattern, as opposed to a reversal pattern. The pattern will be completed by a move through 10400 by the DJIA and would imply higher prices of between 400 and 800 points.
Following my comments in yesterday’s report concerning the bullish near-term action in Copper (“a downtrend line was recently violated as was a previous price peak”), a member of a professional organization that I am part of, pointed out the correlation between Copper and stock movement.
I looked into this relationship, which is shown below, and concluded that “since the beginning of the year Copper has been a leading indicator as to directional changes by the S&P 500.”
In light of a classic short-term battle between the bulls and bears over the past week or so, in light of the fact that a number of stock market indices have violated downtrend lines drawn off April and May peaks and the observation shown above concerning Copper, I would expect the current rally to continue to probe higher, short-term.
Two completely opposite ways for proactive accounts to use the observations above, is to buy Autonation (AN/$22.54) and implement a stop loss of $18 and / or AT&T Inc. [(T/$25.51/ Market Perform); 6.59% yield] and implement a stop-loss of $23.
Autonation (AN) – big base breakout
(a column of X’s represents a period of rising prices; a column of “O’s” is when prices are declining)
Charts courtesy of Thomson Reuters/Dorsey Wright & Associates.
Thursday Morning 07/22
As impressive as the stock market’s tape action was Tuesday, it was equally disappointing yesterday as the bulls failed to extend Tuesday’s bullish near-term upside “reversal.” Stock market indices opened favorably yesterday, but as the S&P 500 rallied into resistance, defined by its declining 50-day moving average (currently at 1086 and followed by additional selling pressure at 1100), trading got sloppy. Stocks then “headed south like a migrating goose” after Fed Chairman Bernanke said that the outlook for the economy remains "unusually uncertain." On the NYSE volume expanded to 1.2 billion shares. There were 1038 net declining issues. New 52-week highs (145) expanded. The Index Put-Call Ratio closed at 236%, which, from a contrarian perspective, is bullish as it implies a lot of put option buying.
Two winners yesterday were the fixed income market (expected) and Copper. Speaking of Copper, a downtrend line was recently violated as was a “previous price peak” (resistance), and it looks higher on a near-term basis. Please call Closed-End Funds Research for details concerning various exchange-traded fund ideas in this complex.
Within the context of the stock market’s current intermediate-term downtrend, one proactive suggestion is to cover up the name of what you hold and look at the chart. This allows you to make an unbiased, objective assessment of the stock, not the company. Then, you can make an educated decision, including doing nothing, tightening stops, applying some hedging techniques, reducing, selling, etc.
On a near-term basis, following Tuesday’s bullish short-term reversal and yesterday’s Index Put-Call readings and despite yesterday’s ugly tape action, “if at first you don’t succeed (on the upside), try, try again.”
Shown below is a chart of the NASDAQ, including a down trendline, a pattern of “lower rally peaks and lower troughs,” and a declining 50-day moving average (DMA). Closes above those levels would be a reassuring sign for the current short-term rally.
Chart courtesy of Thomson Reuters
Wednesday Morning 07/21
According to Investor’s Intelligence, here are the BULL – BEAR newsletter advisory sentiment figures: “The BULLS moved up to 35.6% after falling to 32.6% last week. That prior reading showed the fewest bulls since March 27, 2009, when they numbered 31.0%. It was also the first time the BULLS were outnumbered by the BEARS since April 3, 2009. Recall it was only 11-weeks ago that we counted the BULLS at 56.0%, showing lots of optimism just as the averages were achieving their April highs. The BEARS inched up a little to 35.6% from 34.8% the previous two weeks. Readings for the BEARS around 35% are typical of correction bottoms while bear markets often see their number above 45%.”
On a short-term basis, a “positive” or bullish “key outside reversal day” is defined as a trading session when at first, the intraday low is below the previous day’s intraday low. In the same session, this is followed by an intraday rally during which the intraday high is above the previous day’s intraday high. Finally at session end, the closing price is above the previous day’s intraday high and clearly up for the day. A number of stock market indices recorded such action yesterday, including the DJIA and S&P 500; they closed higher by 75.53 points and 12.23 points respectively. Even more impressive yesterday was the NASDAQ’s 24 point gain, as it also recorded a bullish “key outside reversal day,” plus the index overcame the fact that its opening level was below the previous day’s intraday low.
On the NYSE, volume remains dismal at 1.12 billion shares, yet it expanded from Monday’s reading. There were signs of internal strength, defined by intraday breadth readings, starting early in the session, and by the close, 1,905 net advancing issues - an excellent reading. New 52-week highs (128) continue to expand and despite how it feels, this implies that “stocks” are breaking out to the upside. The Oversold Overbought oscillator remains stubbornly overbought at +7.9. Please recall that a market that wants to go higher on a short-term basis is one that gets overbought and stays overbought.
Within the context of the pattern of “lower rally peaks and lower troughs,” there is a lot going on within the S&P 500’s short-term chart configurations. Besides yesterday’s bullish short-term action and looming over hanging resistance (declining 50-day moving average and down trend line), a bullish pattern of accumulation (inverse head and shoulders) may be developing.
As a result, until there is some resolve of either getting over resistance and or completing the potential pattern of accumulation, as shown on the chart below, risk management, selectivity, flexibility, and patience are recommended trading and investing tactics.
Chart courtesy of Thomson Reuters.
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