THE MARKET:
Not a lot happened Friday in the market. Basically flat, narrow breadth, low volume, holding support after a good move. Mostly some position squaring ahead of the weekend. That had a lot complaining once more about the lack of follow through after the Wednesday surge. We heard about resistance levels in the way, the Fed, oil prices; basically anything that could be thought of to complain about.
We were very pleased to hear this talk. It shows a lot of pessimism about the current bounce that has shown solid indications of change. SP500 held the up trendline, showed high volume back and forth trade, bottomed and rallied on strong volume, and then gave a strong, market-wide follow through Wednesday. The calmer action Thursday and Friday was just a breather, giving up little ground. Yes there is resistance here and yes it could turn the market back down, but after the strong rebound and follow through it has yet to show the sellers have returned.
We have seen many occasions in the market when a good move is met with cynicism. Not that it is an apples to apples comparison, but back in early 2003 the market consolidated the move off of the October 2002 low, pulling back on light trade with leaders setting back up for another move higher. This pessimism appears unwarranted, and to us it appears to be a contrarian indicator and is helping set up the next move higher in this rally.
The timing in the market is a bit atypical from the 'sell in May then go away' saying you often hear. Of course, last May was the bottom of one of the 2004 down legs with SP500 rallying 70 points before peaking and slipping into a late summer dive that set the bottom and the rally into the end of the year. In that respect the action is very similar to a year that was atypical in itself.
MARKET SENTIMENT
Bulls versus Bears: Bulls slid a bit lower last week, falling to 43.5% from 44%. This is the low point for the year, the lowest since the 40% hit in August 2004. Bears rose to 30.4% from 29.7%. That puts bears right at the level hit in August 2004. That August date is important because that is when NASDAQ, SP500, SP600 - - basically the whole market - - bottomed and rallied to the end of the year.
VIX: 14.05; +0.07
VXN: 17.58; -0.54
VXO: 13.3; -0.04
Put/Call Ratio (CBOE): 1.07; -0.06. The ratio remained strong on a very modest pullback in the market. As with the other indications of pessimism we saw and heard Friday, that is a positive for a continued rally.
NASDAQ
A modest gain on very low, below average volume. Cleared the late April peak, but still below some key levels.
Stats: +5.55 points (+0.28%) to close at 1967.35
Volume: 1.549B (-12.57%). Volume was the lowest of the week and that is why NASDAQ had no real chance of sustaining the gap higher. Not as great of price/volume action as SP500, but hardly damaging to the move that is underway.
Up Volume: 967M (+48M)
Down Volume: 553M (-268M)
A/D and Hi/Lo: Advancers led 1.1 to 1. Very modest breadth, matching the price move.
Previous Session: Advancers led 1.03 to 1
New Highs: 46 (-11)
New Lows: 85 (+6)
The Chart: The Chart: investmenthouse.com^ixq.html
Gapped higher on the jobs data but could not hold the move. The opening move took it to the next resistance at the bottom of the late March/early April consolidation (1974). It faded back to the high or the 'hump' in the recent short double bottom. It held and rebounded into the close, right in the middle of the range. Showed some life at the hump, a good sign. Still has plenty of resistance ahead, including the 50 day EMA (1983) and the 200 day SMA (1992), but resistance is made to be broken on strong moves. It will have to be a strong move to clear that resistance as there are several layers of ice right at one level. A run to the 2050 level on this move puts it at the next resistance if it clears the 200 day, and that would be a good point for it to turn back to set the bottom for a test that sets the real bottom.
NASDAQ 100 showed the same action, tapping at the March/April range bottom and still well below the 50 day EMA (1466) and 200 day SMA (1482). As with NASDAQ, this is a formidable level to break through.
SOX was just fine Friday, rising off the doji above the 18 day EMA (393.72) and closing near its session high. Still well down in its base and well below the 200 day SMA (407) and price resistance at 410; it too has a lot of work to do. A move to 410 to 420 will be a good run on this bounce.
SP500/NYSE
A second tap toward the 50 day SMA and resistance at 1175 stalled on low volume, but still in very good shape.
Stats: -0.75 points (-0.06%) to close at 1171.35
NYSE Volume: 1.368B (-15.11%). Very low volume Friday as SP500 stalled out below the 50 day SMA. Another low volume session of consolidation after the reversal session and then the follow through on Wednesday.
Up Volume: 811M (-58M)
Down Volume: 826M (-268M). Dead heat.
A/D and Hi/Lo: Decliners led 1.07 to 1. A dead heat as well. Very good, quiet action.
Previous Session: Advancers led 1.13 to 1
New Highs: 78 (-4)
New Lows: 35 (+15)
The Chart: investmenthouse.com^spx.html
Tapped toward the 50 day EMA (1180) once more but then faded again to close below that level, 1175 price resistance, and the 50 day EMA (1173). This is some of the resistance that that the television pundits were moaning about Friday afternoon. Everyone knows it is there, but resistance or support levels don't mean a lot when a strong move is underway. This has yet to show it is really a strong move, but the follow through gives it some legs. It will have to stretch them to make a break through these layers of ice. It may take another day or two to move laterally and work this lateral move out. This resistance is causing a pause to regroup, but this move has a lot going for it: short double bottom at the August 2003/August 2004 up trendline, strong volume reversal off the low, follow through Wednesday. Now we wait for the next break higher through the 50 day SMA.
SP600 posted a modest 0.3% gain as it too basically moves laterally at the late April high after its own double bottom base off of the 200 day SMA (306.80). It probably takes another couple of days moving laterally over 310 and the 18 day EMA at the same level, then it takes on the 50 day EMA (315.51) up to 320, a range of price resistance (50 day SMA at 319.39.
DJ30
The blue chips got a boost from GE, well at least from the affirmation of its year. GE itself went nowhere. HON was up, however, ostensibly on rumors of yet another takeover by UTX. It banged into the 50 day EMA (10,401) again on the high and failed; volume was hardly enough to prop up the move. The 50 day EMA, the bottom of the March/April range,
and the 200 day SMA (10,380) all team up at this level. A couple more days of lateral movement gets the pessimism even higher and sets up the run at all of that resistance. A break above 10,546 (highs in recent trading range), would be a significant move.
Stats: +5.02 points (+0.05%) to close at 10345.4
Volume: 230 million shares Friday versus 236 million shares Thursday.
The chart: investmenthouse.com^dji.html |
