Folks, the Bulls have a strong advantage over the Bears going into trading next week.
The Dow, Nasdaq, S&P 500, and Russell 2000 all have strong uptrend ratings for the first time in months. All the major indices have done a breakout above their previous October 2011 highs. The S&P 500 has confirmed the Resurrection Cross of the 50 day moving average crossing above the 200 day moving average.
Even the notorious January options expiration Friday experienced only a shallow pullback revealing just how strong the Bulls are right now.
We even have the Nasdaq and the Russell 2000 beginning to re-assert themselves as leaders in this strong uptrend. I’ve been talking to you about the absence of such leadership coming from the Nasdaq and the Russell 2000 for weeks now. That is starting to change which is very bullish for this market.
Let’s look under the hood at the market internals and see if they support the Bulls on top thesis for trading next week as well as if they reveal to us what institutional traders are doing.
The TICK closed at 835. This suggests institutional traders were in the market buying across entire sectors last week, really keeping market makers busy. If you’re a new subscriber, the TICK records buys as +1 and sells as -1. In a perfect world, market makers match up a buy with a sell (because in order to have a buyer you need to have a seller and vice versa for shorting) and the TICK reads 0 as each cancel each other out. But when you have buying across entire sectors in a short period of time, market makers are temporarily unable to match up a sell order with every buy order. The theory is that it’s primarily institutional traders that cause these imbalances because of the vast greater amounts of money they trade with when compared to amateur traders. Normal retail trading puts the tick between -600 and +600, more conservative analysts say between -800 and +800. This week’s 835 close on the TICK is bullish because it suggests institutional traders were in this market buying this week.
Now since we see institutional traders in this market buying this week, let’s look at what sectors performed the best. This will let us see what sectors institutional traders are buying. The best performing sectors this week were:
#1 = Energy +2.28%
#2 = Technology +2.17%
#3 = Consumer Discr. +1.81%
#4 = Financials +1.58%
#5 = S&P 500 +1.53%
The percentage of stocks on the New York Stock Exchange that are trading above their 50 day moving averages has climbed to 83%. That’s bullish. The percentage of stocks trading above their 200 day moving averages has climbed to 58%. Folks, that’s the first time we’ve had a bullish reading this high in 7 months. This to is bullish.
Looking at the Nasdaq Advance Decline Volume chart, we have a breakout on the volume and a strong bullish bias.
The VIX continues to have a strong downtrend rating. This is very bullish for this market folks. It means that PUT buying and PUT hedging continues to occur in lesser amounts.
Using Financials and Home Builders as market internal indicators, because the recession we are in was predicted by the plunge in these two markets, both have uptrend ratings.
All of our market internal indicators due support the thesis that the Bulls have a strong advantage over the Bears going into trading next week.
Now, let’s look at other markets of interest to subscribers.
On our It’s All About The Oil Dummy chart, you’ll see that oil and the S&P 500 diverged from each other last week. Folks, something has to give, either the S&P 500 has to fall back down to oil, or oil has to rise up to the S&P 500. The greater probability has to do to oil rising up to catch up to the S&P 500. The reason we have to give the greater probability to an oil rising scenario is because of the strong uptrend rating on the S&P 500. Also, if we look at the chart of DBO, we could be forming a Bullish Head and Shoulders pattern. If oil closes above $104, it will close the right shoulder and we could see the next leg up.
Gold has a weak uptrend rating. It’s not keeping up with the rest of the major indices. That can be evidenced by the fact that the major indices have all cleared their November highs while gold is no where near to clearing that mark.
Silver had a huge day on Friday and now has a weak uptrend rating. The Stock Trader’s Almanac talks about how silver tends to outperform gold at this time of year.
Fundamental analysis reports that moved markets last week were: Wednesday’s PPI and Industrial Production reports, and Thursday’s CPI and Housing Starts.
The PPI report revealed that, at the producer level in December, inflation was tugged down by gasoline and food costs but the core was warmer than expected. Producer prices edged down 0.1 percent after rebounding 0.3 percent the prior month. The latest number posted lower than market expectations for no change.
The Industrial Production report showed that industrial production in December posted a healthy gain but the manufacturing component was even more robust. Overall industrial production rebounded 0.4 percent after dipping 0.3 percent in November. The latest number came in slightly lower than the consensus forecast for a 0.5 percent jump. By major components, manufacturing made a 0.9 percent comeback, following a 0.4 percent drop in November. The market median forecast for the manufacturing component was for a 0.5 percent gain. Econoday has added this component to its consensus forecasts. In December, utilities fell 2.7 percent while mining output expanded 0.3 percent.
The CPI report showed consumer price inflation was nonexistent in December at the headline and core levels. The consumer price index in December was unchanged for the second month in a row with lower energy costs playing a key role. The December figure was lower than market expectations for a 0.1 percent rise. Excluding food and energy, the CPI decelerated to a modest 0.1 percent increase after gaining 0.2 percent in November. Market expectations were for a 0.1 percent rise.
The Housing Starts report revealed that new residential construction slipped in December but remains somewhat healthy after the jump the prior month. Permits are encouraging. Starts declined 4.1 percent, after surging 9.1 percent in November. December’s annualized pace of 0.657 million fell short of market expectations for 0.678 million units and is up 24.9 percent on a year-ago basis. The dip in the latest month was led by a 20.4 percent drop in the multifamily component, following a 23.0 percent boost in November. The single-family component advanced 4.4 percent after rising 3.0 percent the month before.
Fundamental analysis reports with the greatest probability of moving markets next week are:
Wed – Jan 25, 2012 = FOMC Meeting Announcement
Thu – Jan 26, 2012 = Durable Goods Orders
Fri – Jan 27, 2012 = GDP