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Market Stage
(2/5/2010)
Yesterday, we wrote that 'Declining SBV oscillator readings are bearish and suggest higher odds for a further market slide.' Today, in a turbulent session, the major indexes first declined, then rallied and recovered to positive finishes.
60-day charts with a 20-period SBV are now showing advancing SBV oscillator readings; the following values were found at the end of today's session: Minus 47% on the Nasdaq 100; minus 72% on the S&P 500; minus 67% on the Dow. While the current SBV oscillator advance is too weak to be considered a strongly bullish signal, it is still a positive indicator for a potential recovery move on the indexes. Since SBV oscillator readings however remain at low, negative levels, it would be premature to talk about an imminent up-move. Still, as mentioned yesterday, the combination of a strong daily volume output and very low advance/decline readings suggests a possible recovery for the near future. Furthermore, today's strong bounce off the intraday bottom increases the odds for a recovery. We will continue to monitor this chart setting - a further advance in SBV oscillator readings would likely confirm increasing odds for a stronger recovery.
On 1.5-year charts with a 10-period SBV, we are seeing flat SBV oscillator readings on the S&P 500; SBV values are however advancing on the Dow and on the Nasdaq 100. This confirms that the Nasdaq 100 was less bearish over the last few trading sessions. Still, SBV oscillator readings remain at very low levels, suggesting the market is still weak and that we could see a further slide. On the other hand, the accumulation of bearish volume seen on this chart setting has become considerable, indicating that we might be close to the bottom of the current market correction.
Market Status
(2/5/2010)
Market Performance:
| Last | Change | Volume | A/D Ratio | | S&P 500 | 1,066.19 |  | 3.33 (0.31%) |
| 5,292,782 | 1.12 | | NASDAQ 100 | 1,746.12 | | | 13.13 (0.76%) |
| 1,079,447 | 1.63 | | DJI | 10,012.84 | | | 12.93 (0.13%) |
| 1,312,226 | 1.64 |
In the late stages of a dramatically volatile session, the broad market rebounded from an earlier, strong slide that had taken the Dow (temporarily) well below the 10,000-point level. Thanks to this late surge, the major indexes closed up for the day, as follows: The NASDAQ 100 gained 0.76%, the S&P 500 added 0.31%, the Dow finished up 0.13%. For the week, the NASDAQ 100 produced a gain of 0.29%, the S&P 500 lost 0.7%, and the Dow relinquished 0.51%.
Today's volume output on the S&P 500 was very heavy: 5,293 million shares were today, exceeding the index's average daily volume output over the past three months by 46%.
NASDAQ 100 - 2/5/2010.
1-day Intraday, Modulated Volume.
Volume Analysis:
9:30 - 14:00: The day started with a modest gap up opening on the Nasdaq 100 index. After an immediate pullback which lasted until 10:10, the index shot sharply higher for some 20 minutes. During this upswing, the index generated its first sizable output of bullish volume of the session (bullish volume is seen in green on the SBV oscillator pane); this led to the production of the day's second largest bullish volume spike. The appearance of this bullish volume surge was a signal that bullish momentum might be waning and that a downside reversal might occur. As you can see from a one-day chart of the index, the index gathered downside momentum and steadily lost ground, slipping to its session low (which was put in around 14:0). During the pullback, we noted a considerable buildup of bearish volume (seen in red on the SBV oscillator pane). Note the two pronounced bearish volume surges that peaked during this time: around mid-day, as well as shortly before the index turned up for its afternoon rally.
14:00 - 16:00: By 14:00, we had seen two large bearish volume surges (as discussed above), an indication that bearish momentum was not at risk of exhausting itself. Around 14:00, momentum then shifted in the bulls' favor, and a strong recovery rally ensued. This upswing was powerful and quickly carried the market from a strong loss to a modest gain, peaking by 15:35. In the latter stages of the rally, we saw the session's most pronounced bullish volume spike (peaking at 15:20) - an indication that the rally might soon peter out as the bull run was about to exhaust itself. As you can see, this bullish volume spike sapped upside momentum and led to range-bound trading over the remainder of the session/.
Short Term (lasts a few hours to a few days): Yesterday, we speculated that 'a key swing low might be almost at hand, likely just a little below current levels' and that we might see 'growing odds for a (perhaps vigorous) recovery attempt - likely within the next one to two sessions'. In today's highly volatile session, we saw a stronger than anticipated intraday dip followed by a rally to green closes on the major indexes.
From a volume analysis perspective, little has changed in our outlook since yesterday's report: Although the major indexes output a fair amount of bullish volume late in today's intraday recovery rally (see the Volume Analysis section above; view one-day charts), overall a sizable surplus of bearish volume can be seen on higher timeframe charts (such as 30-day charts of the major indexes). We believe that the market will remain quite volatile over the short-term, and see a small chance for a dip back down toward today's lows. All in all, we however see greater odds that the market will make a further recovery. On balance, we thus anticipate further volatile trading with an ultimate up-side bias over the short-term.
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Trend reversal
Large Institutional Money creates significant Surges in Market Volume when it enters and when it exits. Index values will always react to Buying Volume or Selling Volume surges, sometimes immediately, sometimes after a delay, and the greater the magnitude of a surge or Surge, the stronger the ensuing Reversal.
Financial Press Overview:
Most noteworthy about recent trading action is the return of volatility. While savvy traders find this productive, long-term investors perhaps care more for a slow-and-steady approach. While recent intraday action has been truly volatile, the weekly picture is not as dramatic (e.g., the S&P 500 is down less than a percent this week). Over the course of the last three weeks, the market has however lost quite a bit of ground and wiped out many weeks of earlier gains very quickly. According to market analysts, recent volatility can be attributed to European (sovereign) debt problems in countries such as Portugal, Spain, and Greece. This has boosted the US dollar and has resulted in commodity and (some) equity weakness. Interestingly, today's 170-point rebound rally off the session low on the Dow was associated with a pullback in the dollar.
Today's key economic report, the January jobs report (US government non-farm payrolls data) was released by the Labor Department and indicated a loss of 20,000 nonfarm jobs lost in January (consensus expectations: a gain of 15,000 jobs). At the same time, the unemployment rate slid slightly, declining from ten to 9.7%.
The Federal Reserve announced today that in December consumer borrowing was down for a record 11th consecutive month. However, whereas a drop in borrowing of $9 billion had been expected by analysts, the actual decline came in at only $1.8 billion. Because of this large difference, economists believe consumer spending might increase, helping to boost the economy. Ironically, for years economists were worried about low savings rates in the US. Now, consumers are being told they are saving too much and that this is detrimental to the economy.
Key economic data for the week starting February 8, 2010. Numbers shown are consensus estimates (market anticipates this value) and prior value.| Tuesday: |  | 10:00 AM WHOLESALE INVENTORIES M/M (Dec): 0.5% / 1.5% |
| Wednesday: | | 8:30 AM GOODS & SERVICES TRADE BALANCE (Dec): -$35.5B / -$36.4B
2:00 PM TREASURY BUDGET (Jan): -$70.0B / -$63.5B |
| Thursday: | | 8:30 AM CONTINUING CLAIMS Jan-30: n.a. / 4602K
INITIAL CLAIMS Feb-6: n.a. / 480K
RETAIL SALES M/M (Jan): 0.3% / -0.3%
RETAIL SALES (X-AUTOS) M/M (Jan): 0.4% / -0.2%
10:00 AM BUSINESS INVENTORIES M/M (Dec): 0.4% / 0.4% |
| Friday: | | 8:30 AM MICHIGAN CONSUMER SENTIMENT (Feb P): 74.8 / 74.4 |
Disclaimer: Individual
traders are responsible for making their own trades based on
our Market Outlook. |
