Monday, June 06, 2011

Indices Still in Their Ranges


- A week where the market tries to catch up with the 5 months of weaker economic data.
- Administration says the jobs report is just a bump on the road of recovery. Actually, jobs, already weak, are now just coming back into line with a double dipping economy.
- Indices closing in on bottom range support as individual leaders hold up just fine.
- Financial stocks suggest more financial woes ahead.
- Two big selloffs tip the balance toward the sellers, but even so the indices are still in their ranges.
- Focus is on the bottom of the range this week. A bounce from here? A further selloff and then a bounce? No bounce? There are only so many possibilities, right?


No, Virginia, the weak ADP survey had not built in enough downside for the jobs report.

The sellers in fact did not use up all of their ammo on the Wednesday collapse. There was not enough selling that day to absorb a second bad jobs report for the week. When the paltry 54,000 jobs and 9.1% unemployment in May hit the tape there was instantaneous futures selling. It did not get much better after the open either. Stocks managed to climb out of the early gap into the noon hour, but never scared positive numbers or even the flat line before they rolled over and closed near session lows with NASDAQ and SP500 just starting to tickle important support.

NASDAQ -1.46%; SP500 -0.97%; DJ30 -0.79%; SP600 -1.56%; SOX -1.85%

The week saw two big downside sessions after a sharp upside move to start the week. Those two sessions washed away the entirety of the prior week's gains. The trigger appeared to be the realization following the ADP report that the economy was in real trouble.

Five months of ignoring steadily, and of late, rapidly eroding economic data suddenly flashed before investors' eyes. The scales fell away and they saw the housing market in a double dip, manufacturing falling towards flat and even negative growth, consumer sentiment diving back to recession levels, weekly jobless claims sporting 400K+ gains the past two months, and yes, monthly jobs reports starting to follow the economic trend back down. It is as if they tried to get all of the selling they missed out on when they ignored the data decline done this past week.

Of course, the selling stated long before this week. Stocks broke to a new rally high in late April, tested, broke upside again, but failed. No worries. They set up an ABCD consolidation and started higher with a good bounce. Just as they got going, that first downside selloff gapped into the picture on 5/23. Nonplussed, the indices rebounded right back up through Tuesday . . . only to get buzz-sawed Wednesday on the ADP report. In short, stocks were already managing to snatch defeat from the jaws of victory, not once, not twice, not three times, but now count them at four times in just 5 weeks.

Even with the quartet of failures capped by Fridays' gap lower, the indices are still rather easily inside their ranges. NASDAQ and SP500 are closer, but they still have significant breathing room between the Friday close and good support near the trading range lows. Moreover, looking at many leadership stocks, they are holding up very nicely given the Wednesday to Friday overall market plunge.

Some sectors, e.g. small energy stocks and various healthcare sectors, are holding up very well, actually looking good and ready to bounce. Defensive yes, but growth areas as well and those can make us money. We have naturally migrated our holdings toward those areas and thus Friday our positions overall held up very well.

There is still the matter of the indices holding their trading ranges, and that is the focus next week. The sellers are making their play, pushing the indices toward the bottom of their ranges. The buyers now will show their commitment or lack thereof as the indices test the lower support of their ranges.


Dollar: 1.4637 versus 1.4493 Euro. The reversal of the dollar that started two weeks back looks like a lock as the bounce to test the rollover has failed. The dollar cracked below the November 2010 low, undercutting the Wednesday low. No ABCD pattern likely here. The weak US economic data and the Administration's desire for a gutted dollar to fuel its export economy is, well, gutting the dollar. Now a test of the May lows looks very likely as the next important point for the greenback.

Bonds: 2.99% versus 3.03% versus 10 year US Treasury. Surged on the jobs data and closed higher, but off its session highs. Indeed the 10 year closed at 2.94% just three sessions back. Back above the 200 day SMA but struggling the past three weeks at this level. One of the bond drivers, the severely weakening US economic situation, is now widely known and indeed this past week many pundits, traders, etc. on the financial stations were trumpeting the weakness. Thus now the story is known. Bonds may struggle a bit more here but overall I don't see anything changing the picture that brought them this far.

Gold: $1,542.30, +9.60. Gold won back what it lost Thursday. Gold continues to hold its gains though it capped its move this week Wednesday through Thursday. Nothing appears to be technically wrong with its advance.

Oil: $100.31, -0.09. The struggle continues but after a sharp Tuesday gain and an equally sharp Wednesday loss, oil recovered Thursday and Friday from deep intraday lows. It looks weak overall but the intraday action shows support here as well. Perhaps this week it will make its next more definitive move.



Volume. Modestly higher on NASDAQ (2.7%, 1.98B), lower on NYSE (-5%, 905M). Overall elevated volume on the week starting Tuesday with end of the month high volume, then lower trade as the indices faded Wednesday through Friday. Some distribution certainly, but not a blowout downside.

Breadth. Downside breadth definitely sports more teeth than the upside of late. Friday decliners led advancers -3.6:1 on NASDAQ and -2.2:1 on NYSE. Downside breadth ramped up and easily outmuscled anything the upside could show, even on the strong Tuesday upside break.


SP500. Opened lower and sold most of the session as a lunchtime bounce that came nowhere near breaking positive failed and left SP500 near session lows. That also leaves SP500 just 6 points off the key February and April intraday lows. That obviously is the next focus for the index as it bounced off that level early and came back down. Key level this week. A sharp selloff brought it to this level and a relief bounce is often the response. AFTER that relief bounce, or indeed how the relief bounce performs, tells the next chapter in this current 5 week selloff.

NASDAQ. A gap down to last week's lows more or less held, with a rebound back almost to flat on the intraday high that rolled back over to add some intraday flavor. Similar to SP500, NASDAQ is sitting just over its February and April intraday lows (2706 versus a 2733 close). Stocks such as AAPL and GOOG held up just fine so NASDAQ is finding some support near those lows. A further test, a bounce from here, a test and a bounce; they are all possible scenarios after NASDAQ suffered sharp downside moves Friday, Tuesday, and before that the prior Monday. Big sharp moves to the downside overcoming the upside sharp moves. This test is obviously a very key one.

SP600. -1.56%. SP600 flopped as well, but it also held in the middle of its trading range where it held last week, mid-April, and mid-March. The small caps have a well-defined trading range and it is now at the higher tier low in its two-tier range spanning 5 months.

SOX. -1.85%. Semiconductors took a dive again, gapping lower and selling. Holding just over last week's lows in the bottom half of its range. Very quiet and a pretty steady low for SOX at this level from last week, mid-April and the December 2010 high.


Small Energy. Down on the week but testing, holding up very nicely. NR, CRR, ATPG, WTI are examples of solid stocks in solid position even after this big overall selloff.

Drugs/Biotech. Another leading sector that not only held up on the week but in some cases actually broke higher. Defensive but that is fine as these move well and don't act like defensive stocks. DEPO, ENDP, EXAS, HS, INHX, MELI, ONXX, PRGO, VRX.

Technology. Already mentioned AAPL but you have to like the higher low at the 50 day EMA inside the range; love those higher lows at this key support. GOOG was down but still holding up nicely with that higher MACD. Not all big names look great. CSCO hit a new low. INTC sold through its 50 day EMA but there is still hope for it. If you look smaller you fare better overall. FARO, EGOV (software), NTGR (not that small) show strength.

Retail. Apparel stores, department stores, once the rally leaders, are struggling and need work. ANN, JWN, COST. Restaurants are struggling as well, e.g. PFCB, DRI. Others are holding up with decent tests: YUM, BWLD, PNRA. Suffice it to say that retail is now mixed.

Metals. After a tough Wednesday that stalled the move higher off the range lows these stocks stopped the bleed on Thursday and then Friday some good high volume moves upside: AKS jumped back while FCX has started to bounce again.

Financial. Two weeks ago they bounced, last week they sold. JPM back below the 200 day SMA after trying to hold. Bigger picture JPM is in a big umbrella top. WFC remains in the pit, trying to hold the November 2010 low.

Overall financials look terrible. They are another indicator that tells you the economy is in the tank again. Getting free money and a guaranteed return and their stock patterns suggest another crisis coming. Not encouraging.


Jobs report following the economy lower.

Jobs are typically a lagging indicator, following the economy higher and lower. Thus when the White House's economist Austan Goolsee said the weak May jobs report was just a 'bump' in the 'road to recovery,' I had to speak up.

It is easy to say the trend has been improvement. In defending his assertion Goolsbee again went to the Bush well, reminding everyone that at one point we were losing 750K jobs a month, cats were sleeping with dogs (what movie is THAT from?), and only the coming of Obama saved us all.

He is right; things were bad. Thing is, they have not got much better. Yes there was improvement but this is the weakest recovery in history outside of the Great Depression. It might be the weakest if Obama continues his policies and if Treasury Secretary little Timmy Geithner gets his way, i.e. raising $1T in taxes and borrowing another $2.4T over the next year, bringing his boss' borrowing to $9T in three years. Holy crap.

Indeed, things have become so bad over the past 5 months that the jobs reports that were getting moderately better but still stunk overall given where the country is in this 'recovery,' are now turning soft again. Five months of steadily declining data in ALL areas is now showing up in weaker jobs.

The key that everyone has forgotten: the leading indicator of jobs, the weekly jobless claims, moved back above 400K seven weeks back and have steadily climbed. They are screaming a relapse or double dip in the jobs numbers. Things are bad all over again.


VIX: 17.95; -0.14
VXN: 18.9; +0.19
VXO: 18.06; -0.14

Put/Call Ratio (CBOE): 1.24; +0.17. Three consecutive days over 1.0 on top of two days the prior selloff. Getting closer to the point where there is enough pessimism to bounce the market. Timing is everything: this is occurring just as the indices sell close to the bottom of their trading ranges.

Bulls versus Bears:

This is a reading of the number of bullish investment advisors versus bearish advisors. The reason you look at this is that it gives you an idea of how bullish investors are. If they are too bullish then everyone is in the market and it is heading for a top: if everyone wants to be in the market, then all the money is in and there is no more new cash to drive it higher. On the other side of the spectrum if there are a lot of bears then there is a lot of cash on the sideline, and as the market rallies it drags that cash in as the bears give in. That cash provides the market the fuel to move higher. If bears are low it is the same as a lot of bulls: everyone is in and the market does not have the cash to drive it higher.

Bulls: 45.2% versus 43.0%. Go figure; bulls rising as the market sells. Back up to its level three weeks back. Would like to see it drop hard and this coming week that likely occurs. Well below the 5 year high at 62.0. Fading back from the level considered bearish, i.e. where so many are in the market and believe it is going up that the ammunition to send it higher runs low. This is where you start to be careful and watch for breakdowns, but there is also a lot of liquidity being pushed into the market and that can continue the move despite excess bullishness. The crossover level at 29% bulls is long gone, but it did its job. The high on the last leg was 56.0% after starting at 35.6% on the low in February, the lowest it has been since July 2009 . . . until this last leg. 35% is the threshold level suggesting bullishness. Again, to be seriously bearish it needs to get up to the 60% to 65% level.

Bears: 20.4% versus 19.4%. Rising as it should even if bulls are moving up on a weak market. Still out of sync with the bulls but heading in the right direction, surpassing the 18.5% registered a month back. Down from 23.1% to start April, but making their way back. Fell like a stone on that decline, moving below the April 2010 low. 28.3% in September 2010. The 37.7% peak at the height of the crossover is well in the rearview mirror but bears remain well below the 35% level, above which is considered bullish for the market overall. Hit 18.7% on the low in April. Hit a high of 27.8% level on the prior leg in February. For reference, cracking above the 35% threshold considered bullish. Hit a high on the prior run at 47.2%. For more reference, bearishness hit a 5 year high at 54.4% the last week of October 2008. The move over 50 took bearish sentiment to its highest level since 1995. Extreme negative sentiment. Prior levels for comparison: Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). That was a huge turn, unlike any seen in recent history.


Stats: -40.53 points (-1.46%) to close at 2732.78
Volume: 1.981B (+2.72%)

Up Volume: 273.29M (-776.71M)
Down Volume: 1.62B (+788.37M)

A/D and Hi/Lo: Decliners led 3.59 to 1
Previous Session: Advancers led 1.02 to 1

New Highs: 35 (+4)
New Lows: 82 (+10)





Stats: -12.78 points (-0.97%) to close at 1300.16
NYSE Volume: 905M (-5.14%)

Up Volume: 737.14M (-1.053B)
Down Volume: 2.86B (+830M)

A/D and Hi/Lo: Decliners led 2.22 to 1
Previous Session: Decliners led 1.14 to 1

New Highs: 57 (-12)
New Lows: 65 (+14)




Stats: -97.29 points (-0.79%) to close at 12151.26
Volume DJ30: 157M shares Friday versus 156M shares Thursday.



The next chapter, more or less, starts Monday. Stocks spent May and the first week of June selling, or more appropriately, failing in breakouts. A pair of big downside sessions stalled the last two upside moves and suddenly the indices are down the last five weeks. Down for over a month but still holding their trading ranges.

Now the indices are near the trading range lows. There is no question the sellers took charge. The next big issue is whether they are strong enough to push the indices through support. Will there be a bounce, a further selloff and bounce, no bounce at all?

Typically after such a harsh selloff there is a reflex move that bounces stocks back up for at least a test. Whether it occurs from the Friday close or lower may not make a difference, but from my standpoint a further selloff that scares everyone and even undercuts that February and April intraday low and reverses is the best action. I really like those false breakdowns. In any event the indices are close to the bottom of the range, and it is incumbent upon us to be patient and let it show what it is going to do off of that level. It has been an important fulcrum during the past three months and that makes it important on this test as well.

So what do you do while waiting? Try as little as possible as long as your positions hold their relative positions, at least with respect to support if there is more selling. On an undercut of the old support watch for a recovery by the close. Even if there is a close below the lows there could also be a rebound after that, the old false breakdown. That is the part where you watch the test of the breakdown: does it stall, is there follow through to the downside? Too many people jump on the first break. Rarely is it just a day that makes the difference. The reaction to that day is often the move that tells the tale.

As noted in the Leadership section, there are many stocks that are still holding up very nicely, using the selling to work on pullbacks and/or bases. While the overall market doesn't look great and the pressure is downside, the indices are still in their ranges. If they hold and bounce whether breaking lower first or not, these more defensive plays can give us upside plays.

After the sharp selling there won't be many downside plays for now; they have to set up again after the bottom of the range is tested and yields a bounce, or a breakdown and a test of that break fails.

Overall the market is worrisome given the decline in economic data. That makes this test of the range one of the most important since the bottom of the bear market selling in March 2009.

With that, have a great weekend!

Support and Resistance

NASDAQ: Closed at 2732.78

2759 is the May low
2762 is the February low
The 50 day EMA at 2787
2796 is the February gap down point
2816 is the early April peak
2825 is the 2007 closing peak.
2841 is the February 2011 peak
2862 is the 2007 peak
2888 is the May 2011 peak
2956 from November 2000
3026 from October 2000 low
3042 is the May 2000 low

2723 to 2705 is the range of support at the bottom of the January to May trading range
2706 to 2705 is the April 2011 low and the February 2011 and consolidation low (bottom of the trading range)
2686 is the recent January 2011 closing low
2676 is the January 2010 low
2645-2650ish from December 2010 consolidation
The 200 day SMA at 2612
2603 is the March 2011 low
2580 is the November 2010 closing high
2569 is the November gap up point through the April 2010 peak

S&P 500: Closed at 1300.16
1313 from the August 2008 interim peak
1318.51 is the May low
1325-27 is the March 2008 closing low and the May 2006 peak.
The 50 day EMA at 1326
1332 is the early March peak
1340 is the early April 2011 peak
1344 is the February 2011 peak is being challenged again
1364 is the March 2007 low
1370 is the August 2007 low
1371 is the recent May 2011 peak

1295 to 1294 is the April 2011 low and the February 2011 consolidation low (bottom of the trading range)
1275 is the January 2010 low, early January 2011 peak
1255 is the late December 2010 consolidation range
1249 is the March 2011 low
The 200 day SMA at 1248
1235 is the mid-December 2010 consolidation low
1227 is the November 2010 peak
1220 is the April 2010 peak

Dow: Closed at 12,151.26
12,283 is the March 2011 peak
12,391 is the February 2011 peak
The 50 day EMA at 12,406
12,605 is the mid-May 2011 high
12,876 is the May high
13,058 from the May 2008 peak on that bounce in the selling

12,110 from the March 2007 closing low
12,094 is the April 2011 low
11,893 from March 2008 closing low
11,867 from the August 2009 high and peak on that bounce in the selling.
11,734 from 11-98 peak
The 200 day SMA at 11,639
11,555 is the March low
11,452 is the November 2010 peak

Economic Calendar

June 03 - Friday
Nonfarm Payrolls, May (08:30): 54K actual versus 169K expected, 232K prior (revised from 244K)
Nonfarm Private Payrolls, May (08:30): 83K actual versus 180K expected, 251K prior (revised from 268K)
Unemployment Rate, May (08:30): 9.1% actual versus 9.0% expected, 9.0% prior
Hourly Earnings, May (08:30): 0.3% actual versus 0.2% expected, 0.1% prior
Average Workweek, May (08:30): 34.4 actual versus 34.3 expected, 34.4 prior (revised from 34.3)

June 07 - Tuesday
Consumer Credit, April (15:00): $6.0B expected, $6.0B prior

June 08 - Wednesday
MBA Mortgage Index, 06/04 (07:00): -4.0% prior
Crude Inventories, 06/03 (10:30): 2878K prior

June 09 - Thursday
Initial Claims, 06/04 (08:30): 423K expected, 422K prior

By: Jon Johnson, Editor
Copyright 2011 | All Rights Reserved

Jon Johnson is the Editor of The Daily at

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