Index price advance on weak internals
The SPX took out the 1245.86 previous
rally high, closing at 1248.27 +0.4% on option
expiration Friday and +1.0% on the week. The SPY hit an intraday high of 125.75
vs. the previous rally high of 124.74 and closed at 125.13. The SPY is +7.6% low
to high in 26 days since the 10/13 116.98 low and is at our extended 3-month
volatility band. “They” continue to roll up the SPX in price (+2.1%) the past
two weeks on a smaller amount of big-cap stocks as the net advances minus
declines for the two weeks was just +988 and then only +125 last week as the SPX
hit new highs. This is also evidenced by the $NYX composite bullish percentage
of just 58% vs over 73% in August 2004 and a lower top of 69% on 09/12 following
the SPX 1243.13 09/09/05 secondary high. The same time frame percentage for the
SPX was 76% in August 2004, 70% in September and 61% on Friday, with the SPX at
new highs. The price-weighted Dow was just 53% on Friday and because it is a
price-weighted index, it is easy to mark up on a small number of the higher
priced stocks.
Longer-term bond yields have declined the past nine days and
gold has broken out to new highs with a 489.15 intraday high on Friday and
closing at 485.80. Both moves are synonymous with increased terrorist activity
and the France riots. The Fed has raised the three-month T-bill rate to almost
4% as the yield curve flattens Goldman Sachs Commodity Index (GCSI) continued
its decline from over 7600 in early September closing Friday at 6403 vs
the 200-day EMA of 6492. That decline is due primarily to the crude oil (WTIC)
decline of 21% to Friday’s 56.35 intraday low and close of 57.21. The 200-day
EMA is 57.87. The XLE had declined -18% from 54.65 (09/22) to 44.94 on
10/20, which was followed by a bounce off this 200-day EMA zone to 51.29,
closing Friday at 49.04. The energy stocks’ daily volatility remains a primary
source of daytrading profits, especially with the many RSTs that occur on a
regular basis, and I don’t see that changing any time soon regardless of what
crude does. The US Dollar Index has broken out of an inverse
head-and-shoulders pattern, that starts around 6/04 with the head down at 81.
Any continuation could take the the $US up to the $100 level, but first it must
get past the 200-day moving average which is around 95.
The strength in the dollar has been a big part of the
acceleration in the basic materials
(
XLB |
Quote |
Chart |
News |
PowerRating) and industrials
(
XLI |
Quote |
Chart |
News |
PowerRating) which
you can see in the weekly momentum composite chart below. I included the
momentum numbers from the 10/13/05 SPX 1168 low although not all sectors
bottomed on the 13th as there are always some divergences, but it gives you a
clear picture of the relative momentum through the 11/18 SPX close of 1248.
| $SPX | 1177C | 1235C | 1248C |
| Â | 1168L | 1236H | 1250H |
| Â | Â | Â | Â |
| Â | 10/13/05 | 11/11/05 | 11/18/05 |
| QQQQ | -29 | 43 | 45 |
| $SPX | -44 | 26 | 34 |
| $INDU | -40 | 27 | 37 |
| $COMPX | -38 | 35 | 35 |
| $NYA | -39 | 19 | 26 |
| IWM | -35 | 27 | (20) |
| MDY | -39 | 32 | 32 |
| XLF | -28 | 47 | (40) |
| XLK | -38 | 36 | 45 |
| XLB | -39 | 37 | 51 |
| XLY | -42 | 25 | 33 |
| XLP | -29 | 24 | (17) |
| XLI | -15 | 20 | 41 |
| XLV | -33 | -18 | 1 |
| XLU | -38 | -18 | 1 |
| XLE | -25 | 20 | 0 |
| SMH | -26 | 21 | 27 |
| RTH | -31 | 28 | (20) |
This momentum section is just 25% of my overall proprietary
composite which I use to determine high probability/investing opportunities for
institutional clients. The obvious week-to-week change in the total is the
acceleration of the XLB to 51 (extremely overbought), XLI to 41, and the XLF
declining to 40 from 47. The QQQQ remains extremely overbought while the XLK is
also extremely overbought as it jumped to 45, led by a +16.5% advance in MSFT
since 10/11, which is 12.26% of the index weight, Intel
(
INTC |
Quote |
Chart |
News |
PowerRating) +13% since
11/1 (7.3% index weight) and the continued uptrend of IBM and HPQ, now 90%Â
since 8/04. Also declining last week was the XLP (consumer staples) which is the
defensive stocks and the
(
IWM |
Quote |
Chart |
News |
PowerRating)Â (Russell 2000) which can be an early
sign of bull cycle determination as the big-cap stocks start to outperform the
small caps once again. Keep your eye on this ratio. The momentum chart is
an hourglass, so from a contrarian perspective there should be no confusion
about the risk level of initiating new long positions into the current price
strength with the negative divergence in breadth and the high levels of daily
NYSE lows. It is a short-side trading bias strategy for
Inner Circle members. Suffice to say, about 80% of individual stock movement
is due to the market, so stay with a diligent top-down approach: Market, Sector,
Stock, and you will make more intelligent trading decisions regardless of which
time period you are comfortable with.
Have a good trading day,
Kevin Haggerty
Â