Here’s the Deal:
Too much of a good thing: The PRS Rankings on
the SPY as of Wednesday’s close are 63 at 12-months, 69 at
6-months, and 68 at three months. On a 3-month basis, the SPY
(effectively the S&P 500) has out performed 68% of all stocks
over the past three months, 69% at the six month interval, and
63% on a 12-month basis. This is great news for S&P 500 index
fund holders, but what does it say about the future?
Those of you that have been reading my work
over the years know I prefer sticking with a normalized
potential outcome. Phrased another way, I don’t like the “it’s
different this time” approach. So, to bring that back to a
collective point, the 3-month PRS Rank of 68 matches its four
year high of 68 in June 04, not a good time to be buying an S&P
500 index fund. The last time the 6-month PRS Rank was 69 was
in December 1999, Yikes! And the 12-month PRS Rank of 63 is
just below the recent high of 65 reached on May 21, and these
readings are the highest they have been since June 2000, yikes
again.
The best relative performance period for the
SPY was from late 1998 through about April 1999 when all three
metrics pushed to notably higher levels. In early 1999, the S&P
500 was out performing just about everything.
The chart below shows the SPY with its 6-month
PRS Rank on a monthly time scale over the past 12 years.
It is important to note that the high PRS
Ranks do not mean the market is going to move lower. The high
Relative performance of the SPY is cyclical. The currently
strong relative performance of the SPY is likely to be followed
by a period of weaker relative performance. From a broad market
perspective, odds favor smaller cap stocks garnering greater
attention as we move forward, and it is because of this thought
that we are paying close attention to the action of the Russell
2000 right now.
For the record, the DIA presents almost exactly the same way.
Coming into Thursday we were looking for some
additional corrective action, especially with the mega
quarterly expiration on Friday.
The Dow more or less followed expectations with 13,750
containing a modest pullback. Support remains 13,750 – 13,800
for now, but if it cracks on Friday watch for that 13,620 area
to act like a magnet. We are looking for some expiration
related strength while aware of the potential for some
additional corrective action.
If the Dow falls below 13,600 it will not look
good for the bulls.
Thursday’s claims were better than expected
and the Leading Indicators were worst than expected. But the
one that really counted, which was somewhat lost due to the
Bernanke dog and pony show, the Philly Fed came in at 10.9 vs.
expectation of 5. That is up from ZERO in August. It kind of
makes you wonder if the “Data Dependent” Fed is wishing it had
these numbers in hand Tuesday morning.
No data on Friday, just quarterly options
expiration. It is always a wild card, but I won’t be surprised
if it is a rather quiet day. Most of the expiration excitement
was probably hashed out between Tuesday afternoon and Wednesday
morning.
Here’re the Details:
The Dow was up 6 at 13,813 and fell a very
constrained 81.13 points to 13,741. It was down 74 at the time
and closed at 13,766 down 48. It was the narrowest daily range
since July 17. The internals reflect a shade more weakness than
the all mighty Dow would have us believe.
The HUI really surged on Thursday, up over
4%: The HUI bettered its 2006 high of 401 reaching 402 and
settling just below it at 400.99. Wow! We have some lofty
targets for the HUI and we are confident they will be reached
in time. At the rate the HUI is going, it won’t be too much
time.
Watch the 390 area as support for any sort of consolidation
that may develop.
The TYX jumped a lot higher on Thursday:
Dollar weakness, gold strength, oil strength, heck, all
commodities are strong; pick a reason for the massive move in
bonds that has sent the rate on the 30-year skyrocketing
higher. At the end of the day the move lower was extended and
now it is reversing. All the excuses do is make it move faster
and further.
I thought we might see a little consolidation at the down trend
line, but there would be none of that. When trends change
direction, they clearly change direction. And there is no
doubting this one, especially with Thursday’s authoritative
thrust above the now broken down trend line, wow!
S&P 500 moved within expectations: The
SPX dipped a little below 1520, but essentially it is holding
the line. If it cracks Friday then watch that Fibonacci line at
1505, like 13,620 it could act like a magnet, especially on
quarterly expiration day.
The potential is there for some additional pullback and we have
to keep in mind that we are sitting on top of a huge 60+ point
3-day move. That said: Friday is expiration and after almost
two days of corrective action the rally should be ready to
continue towards the upside Fibonacci targets zone, 1550.
The Russell 2000 was a bit weaker than the
major indices: After a strong Wednesday, it was payback
time for the Russell. The big money just isn’t confident enough
to plunge into the smaller stocks at this juncture.
It wasn’t a bad day relatively speaking. The action of the
Russell is reflective of the entire market. Bottom line, if the
Russell is going to start out performing for real, then it has
to push through 825 – 830 resistance, quickly.
Holding above 2650 is constructive action. The
main thing is we have a big move and now the indices need to
consolidate without giving back too much of the “space.”
The 3-day trends had a chance to turn up
Thursday and failed to do so. Technically that isn’t so good,
but with a near 4% move higher in the bag, maybe we can let
this one slide.
All the 3-day trends can turn down or will remain down if
Thursday’s lows are broke on Friday. The Dow’s last 3-day trend
turn was an upturn on the 13th.
The top of the Dow’s 21-day 3.5% exponential trading band is
13,892 Thursday and is rising about 30 to 35 points per day. If
the Dow pushes higher on Friday, 13,920 should provide notable
resistance.
The Detailed Trend report, CLX Charts, Weekly Trend Signal
Count Charts, have been moved to a new location at this link.
This link now has a Chart of NYSE 8-day Buying and Selling
pressure, plus a few others.
Total breadth was -2088 and volume contracted
significantly. The good news is we have a contracting volume
consolidation. The bad news is breadth was a little weaker than
ideal, this is the point where the major indices are supposed
to consolidate while the buying spreads out into the broader
market. Prices consolidated, but there really wasn’t any buying
except in the most extended and aggressive stocks.
8-Day buying pressure spiked up to about 67 –
68% on Wednesday. Readings that high are typically followed by
a correction and then higher prices. The point being, it is
uncommon for a reading that high to mark an important top. This
indicator along with its history is in agreement with our
expectations for higher prices Friday, or at some point next
week should the corrective action continue through expiration.
If we see a healthy rally on Friday, keep an
eye out for some post options expiration weakness on Monday.
Jim Patterson
Most Obvious chart resistance levels:
()
Dow
13,490, 13,580, 13,630, 13700,
13,825, 14,021. 14,037
SPX
1467, 1478, 1489, 1496,
1504, 1517, 1526,
1535, 1547
NASD2558,
2575, 2595, 2600, 2622, 2649, 2664, 2680,
2700, 2735
NDX
1945,
1954, 1969, 1991, 2000, 2018, 2030, 2056,
2100
NYSE
9470, 9550, 9646, 9730,
9860, 9920 10,000, 10,250
RUT-2K
765, 778, 787, 794, 800, 813, 822, 832,
838, 842, 848, 854-856, 861, 876
Most obvious Chart Support levels:
Dow
13,750, 13,620, 13500, 13,356, 13,225, 13,050,
12,985
SPX
1520, 1502,
1489, 1475, 1451, 1444, 1428,
1418, 1400, 1363
NASD 2655, 2600, 2592,
2577, 2558, 2531, 2516, 2491, 2450, 2423, 2400
NDX 2025, 2000,
1989, 1976, 1954, 1923, 1896, 1860, 1838, 1810
NYSE 9850, 9700,
9600, 9525, 9456, 9385, 9220, 9186, 9025, 8925, 8800
RUT-2K
834, 828, 820, 810, 803, 794, 787-8, 782,
777, 775, 765, 760, 746, 736
Here’s where we are now:
NASD 100 Index (NDX) Trading System,
trade the QQQQ:
After about two days of corrective action,
look for the NDX to thrust on up to its July high, above 2060.
Long-term 3-peaks
and domed house pattern target, 1720.
-- >> Reaching 2060 voids this pattern.
S&P 500 (SPX) Trading
Expiration is a wildcard, but the overall
stage is set for higher prices. The SPX should rally from the
1518-1520 area, or if we see some additional downside action,
the look for support at 1505 to hold offering an attractive
entry point.
Tactical Stock Trading Powered by the PRS Stock report
BBD rec long 5/31 @ 25.39, stop 23, Target
29.5, closed at 26.59
WFR rec Long 8/22 @ 58.95, stop 54 closing, closed at 58.13
NVTL rec Long 9/5 @ 23.81, stop 22, closed at 23.52
Long-term Buy and Hold: AMD (12.94) closed at
13.35
**
PRS Open Actives making noise:
LAVA is looking very interesting sitting right
on its breakout level of $14.
Jim Patterson
Editor
Tactical Trading Outlook
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