Volume Is Key

Posted onAuthorGSRTrades

GSRTrades Weekly Market Report

Market Bias
Seller’s Edge

Where We Are

The major indexes were little changed at the end of the week.

What stands out was the heavy-duty selling, or distribution, that accompanied a sharp move down Thursday, erasing gains made earlier in the week.

The Longs were saved by Friday’s late-afternoon rally made on even heavier volume.

It’s this kind of turnaround that often accompanies a larger market rebound.

But it may be premature to call a bottom.

We’re holding our Sell Bias for the week-to-week time-frame we trade in.

Ultimately, we may see the 40-week moving averages on the major indexes tested, which in the case of the S&P 500 would be a out 1,025 – let’s say 1,000.

Volume is key in our analysis.

We’re on the lookout for a follow-through-day where one of the major indexes rallies about 2% on heavy volume. Ideally, this would come four days after Friday’s potential low, or Thursday.

The reason we wait a few days is to discern the buying from short covering that may take place. Real buying power would be a sign that institutions are still sponsoring the bull.

Ideally, sell-volume will also dry up before shifting our bias.

Leadership from top-stocks would be another sign of the market bouncing back.

Up until this recent sell-off leadership has come from tech kings like Google, Inc. (GOOG) and Apple, Inc. (AAPL), which in the past few weeks have been hit by institutional grade sellers.

We’ve been happy holding Apple as a short, though we have covered some there, as we have from some of our other short positions.

Leadership, if it returns, could come from Apple and Google again. But corrections are known for clearing the slate for new ones.

Last week’s breakout from top-earner Pegasystems, Inc. (PEGA) is also being watched. Its success could be telling of more like it to come.

Pegasystems was a rare growth stock for this is environment, meeting all of our strict fundamentalrequirements while setting up in a sound technical base.

Without leadership taking us higher we begin to look for leadership taking us lower. If that happens we’ll be in a more dominant bear leg.

Technically Speaking

MAJOR INDEX BIAS & PERFORMANCE FOR WEEK
BIAS
Index
Chg.
%
Action
+
DJIA
-55 -0.55% Trading between major MA’s
+
Nasdaq
-6 -0.29% Trading between major MA’s
+
S&P 500
-44 -0.72% Trading between major MA’s
+
Russ. 2K
 -9 -1.5% Trading between major MA’s
or = Above or Below 40-week exponential moving average. + = 50-day SMA is above the 200-day MA

FOUR-WEEK VOLUME INDICATOR BIAS
Accumulation
Distribution
BIAS
 Index
Major
Minor
Major
Minor
DJIA
3 0 6 0
Nasdaq
2 0 8 0
S&P 500
3 0 6 0
Russ. 2K
 2 0 6 0
Accumulation: index up with more volume than previous day. Distribution: index down with more volume than previous day. Major: > 60-day average, Minor: <.

SECTOR BIAS & PERFORMANCE FOR WEEK
BIAS Sector % Action
U.S. Dollar, $DXC

+1.3% Rallies above 40-wk EMA
Gold & Silver Miners, $XAU

+4.3% Finds resistance at 40-wk EMA
Commodities, $DJAIG

-1.9% Closes below 40-wk EMA
+
 Consumers, $CMR -1.5% Sells off below 50-day SMA
+
 Cyclicals, $CYC -1.0% Sells off below 50-day SMA
+
 Technology, $DJUSTC

+0.9% Trades between major MA’s
+
 Semiconductors, $SOX +1.3% Trades between major MA’s
+
 Software, $GSO -1.3% Trades between major MA’s
+
 Telecoms, $XTC -0.5% Trades between major MA’s
+
 Banks, $BKX -3.7% Finds support at 50-day SMA
+
 Broker Dealers, $XBD -1.0% Finds support at 40-wk EMA
+
 Retail, $RLX -1.2% Trades between major MA’s
+
 Healthcare, $HCX -1.7% Slips under 50-day SMA
+
 Biotechnology, $BKX +0.3% Pulls back after 52-wk high
+
 Pharmaceutical, $DRG -1.8% Slips under 50-day SMA
+
 REITs, $DJR

-0.4% Slips under 50-day SMA
+
 Homebuilders, $DJUSHB +0.5% Holds above major MA’s
+
 Transportation, $TRAN -1.9% Sells off below 50-day SMA
+
 Airlines, $XAL

+0.1% Slips under 50-day SMA
+
 Defense, $DFX -1.3% Sells off below 50-day SMA
+
 Energy Index, $IXE -0.2% Sells off below 50-day SMA
or = Above or Below 40-week exponential moving average. + = 50-day MA is above the 200-day MA

News To Watch This Week

Earnings:

  • MONDAY: Electronic Arts (ERTS)
  • TUESDAY: Baidu (BIDU), Cognizant Technology Solutions (CTSH), Pulte Homes Inc. (PHM), The Coca-Cola Company (KO), Walt Disney (DIS), Warner Music Group (WMG)
  • WEDNESDAY: Dean Foods (DF)
  • THURSDAY: Buffalo Wild Wings, Inc. (BWLD), Cephalon, Inc. (CEPH), Chipotle Mexican Grill, Inc. (CMG), Marriott International (MAR), Panera Bread (PNRA), Philip Morris International (PM)
  • FRIDAY: Ingersoll-Rand Co. Ltd. (IR)

Economic:

  • MONDAY: none
  • TUESDAY: Wholesale Inventories
  • WEDNESDAY: Trade Balance, Crude Inventories, Treasury Budget
  • THURSDAY: Continuing Claims, Initial Claims, Retail Sales, Business Inventories
  • FRIDAY: Mich Sentiment

The Word On The Street

  • PIMCO’s El Erian: Retreat in stocks will worsen as economy slumps. (He’s been saying this since last summer.)
  • Nouriel Roubini: Stock market will be “flat,” or almost unchanged, through the end of the year
  • TrimTabs Investment Research: We have speculated that the Federal Reserve or the U.S. Treasury could be allowing a “buyer” to accumulate stock index futures to boost stock prices. Perhaps the “buyer” has stopped buying.
  • Securities and Exchange Commission: Will consider short-selling curbs in coming weeks as well as ways to improve market surveillance.
  • Baltic Dry Index: This leading indicator which measures changes in the cost to ship goods by sea is down more than 40% from a short-term peak last fall. It’s second major swing down after falling 50% from a peak last spring. Though at roughly 2,700 it’s well off its low of roughly 700 in 2008.

This Week’s Word On Discipline

“ Self-command is the main discipline.” — Ralph Waldo Emerson

This Market Report is our broad analysis that is the foundation for our Growth Stock Report, which highlights trading opportunities in individual stocks.