What a difference a day makes on Volume…

Yesterday’s volume was the lowest non-holiday related volume so far this year. Although we keep pushing above the 1130 level on the S&P we still haven’t been able to break out with strength, The  financials XLF  are keeping the lid on the market, while the Tech stock performed we.

Today technology was weak from the start of the day, lead by TXN INTC and STX, as well as commodities that started the day weak on the back of Asian concerns for growth prospects, AKS AA.

Today’s volume was much higher for the SPY due to the volatility increase we got after the 2.15pm FOMC announcement. The announcement resulted in shorts having to cover positions, since we traded above the pre-2.15pm levels for the rest of the day – yet we stayed below yesterday’s close, leaving us within a tight trading range.

For tomorrow we continue to have a similar trading range in the SPY 113 area is resistance and 111 is the support levels, as for volume we did good today because of the FOMC meeting, but I’m not so sure we will get the volume tomorrow since we are in August after all.

$SPY and the Death Cross

The Death Cross is a crossover resulting from a security’s long-term moving average breaking above its short-term moving average or support level. As long-term indicators carry more weight, this trend indicates a bear market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new resistance level in the rising market. Well…here we are and we shall see if this definition holds true because today we hit the 200 dma.

Earnings Season has started

Light volume up day at the start of the earnings season (SPY didn’t  even trade 150mm shares).Technically plenty of stocks are starting to test the next level of resistance, either the 50day or the 200 day MA — most of which are still sloping down. Could the failed Head and Shoulder be the bottom for now of these markets? that is what we are testing out for the next few weeks, earnings will play a big part in answering that question. For the most part analysts and companies have lowered expectations for the 2Q, as can be seen by the beat in AA and CSX last night. My expectation is that companies might beat 2Q earnings expectations but will remain caution about the 3Q – seems like the right thing to do with the unemployment levels still very high – any upbeat 3Q guidance will be taken as a positive surprise by the markets..

Portugal was downgraded this morning, yet the impact doesn’t seem to be as negative as other downgrades, for one S&P kept a stable outlook for the next 12months. Also Greece was able to issue some 6month bonds at below the 5% level, a decent reentry into the funding markets.

Recent upgrades for the semiconductors is helping the Nasdaq gain some relative strength ($BRCM breaking out nicely), what we need now are the financials to start kicking in some positive sentiments – $JPM, $BAC and $C all report later this week. These two sectors will be the focus of my attention today ($SMH and $XLF).

Where is the Volume?

The only part missing from the market making new highs is the fact that we don’t seem to have real volume behind the volume. If you look at the SPY over the course of the last few months, you can see that the markets have gone down on higher volume (a usual sign of distribution) vs. day that the markets are up (for instance the SPY traded 142mm shares, vs. the avg volume in the last few months of almost 200mm shares). Granted the fact that only the Dow Jones has made a 52 week high today may be the reason for the lower volume in the SPY and NASDAQ; tomorrow we need to see all three markets take out the 52 week highs, ideally on higher volume, other wise we may start to see the classic set up for a sell divergence in the markets.

 

 

The one sector that lead the way higher in September, the financials, they need to start performing better for this rally to stick. Earning seasons is coming to an end, so plenty of number crunching has taken place with the analysts; the only sector left to report is the retail sector. For the most part analysts have not lowered their expectations going forward… so the only variable still missing from this rally is the volume… I’ll be looking for that tomorrow and the rest of the week.

Reading the tape

We have been mentioning for the last couple of weeks how the markets have been making 52week highs as more and more stocks make 52weeks high as well. What we have been noticing is the start of possible distribution at these levels. In at least two days recently when the markets have started in strong positive territory, they have finished negative for the day. That is usually an indication of distribution, but before we start locking up our DOW 10,000 caps we need to get some confirmation that we have indeed broken the uptrend that we started in March of this year. One indicator I am looking at is the relationship between the XLF (financial ETF) and the SPY (S&P ETF); during the late September break in the XLF, it pierced the 50day MA and the same time that the SPY was testing its 50da MA.

This time around the XLF is once again testing its 50day MA while the SPY is only testing its 20day MA, what will be important is monitor this relationship to see if the financial sector confirms the break of the 50day MA and if that leads the SPY lower. For now we need to read the tape and be prepared for anything.