Weekly Market Trading Report: Litmus Test Time for Stocks

Market Bias

BUYER’S CAUTION

Our research draws its market bias from a combo of Fundamental and Technical evidence. Economic and earning trends are matched against our analysis of price and volume charts, giving us an indication of how friendly or unfriendly the market is behaving.

This is active trading, not investing. Our holding periods can last a day to months. The idea here is to keep it simple. The goal is to accumulate as many trading profits as possible.

Where We Are

Pullback time for stocks means we get a better sense of what’s strong and what’s not.

Our current Buyer’s Caution bias stems from recent, dominant selling on the major indexes, as measured by the Accumulation ad Distribution table below.

Volume tends to precede price action, which is exactly what happened before this week’s sell-off.

Looking ahead, we see the 50-day and 200-day moving averages in play as potential price-support for the majority of sectors.

It’s summertime, not a traditionally friendly time for buyers. How well the indexes hold up in these zones will be very telling.

An easing of sell-volume in coming sessions would be a sign of a less potent Bear, while heavy selling would signal a warning.

The question that begs an answer is how durable is the market’s recent run up from March?

The attractive advances across the market looks very similar to the beginnings of past bull markets. Hefty buy-volume has been an encouraging sign of institutional sponsorship here.

Off that base, we wonder whether the market will give us a W, V or U –shaped bottom. No that’s not West Virginia University we’re spelling.

A W-bottom would mean another round of selling to spook Bulls. Markets are pretty good at that.

A V-bottom would mean further rapid advance across the broader market.

And a U-bottom would mean some consolidation in here.

But of course the “funny money rally” scenario would certainly crush all hopes of economic recovery should a trend of new lows set in over the coming months.

Our strategy is to take what the market gives us on a weekly basis and adjust our positions accordingly.

Looking at the Sector Performance table below (click to enlarge) shows the banks still have yet to recover. Unfortunately wherever the banks ultimately trend has been where the market goes.

This is certainly something to watch as a potential Leader to drag the market down, again.

Technically Speaking (click on charts to enlarge)

Charts courtesy of Stockcharts.com

MAJOR INDEX PERFORMANCE
Bias	Index	Change	Wk. %	Action
	DJIA	-259.53	-2.49%	Pulls back to its 40-wk EMA
+	Nasdaq	-31.33	-1.69%	Consolidates above 50-day and 200-day MAs
	S&P 500	-24.98	-2.64%	Consolidates above 50-day and 200-day MAs
	R2K	-14.11	-2.68%	Consolidates above 50-day and 200-day MAs
*Arrows denote sector’s position above or below its 40-week exponential moving average.

FOUR WEEK VOLUME TRENDS
		Accumulation		Distribution
		Major	Minor	Major	Minor
	DJIA	0	2	0	4
	Nasdaq	6	2	1	2
	S&P 500	2	3	0	3
Accumulation = Day when index rises and volume is higher than day before. Distribution = Day when market falls with volume higher than day before. This is how we measure institutional interest

SECTOR PERFORMANCE
40wk	Index	Wk. %	Action
	U.S. Dollar Index ($DXC)	+0.10%	Consolidates above June low
+	Gold & Silver Miners Index ($XAU)	-2.40%	Pulls back to 50-DMA
+	Consumer Index ($CMR)	-1.43%	Pulls back to 50 and 200 DMAs
+	Cyclical Index ($CYC)	-6.20%	Pulls back to 50 and 200 DMAs
+	Technology Index ($DJUSTC)	-1.22%	Consolidates above major MAs
+	Semiconductor ($SOX)	-3.76%	Pulls back to 50 and 200 DMAs
+	Software Index ($GSO)	-3.02%	Consolidates above major MAs
+	Telecom Index ($XTC)	-4.59%	Pulls back to 50 DMA
	Banking Index ($BKX)	-3.37%	Pulls back to 50 DMA
+	Broker Dealer Index ($XBD)	-5.00%	Pulls back to 50 DMA
+	Retail Index ($RLX)	-6.48%	Pulls back to 50 DMA
	Healthcare Index ($HCX)	+2.10%	Regains 200 SMA
	Biotechnology Index ($BKX)	-0.64%	Consolidates off 200 DMA
	Pharmaceutical Index ($DRG)	+1.03%	Regains 200 DMA
	REIT Index ($DJR)	-6.48%	Pulls back to 50 DMA
+	Homebuilders ($DJUSHB)	-1.81%	Sells further below major DMAs
	Transportation Index ($TRAN)	-4.21%	Pulls back to 50 DMA
	Airline Index ($XAL)	0.00%	Consoliates under 50 DMA
	Defense Index ($DFX)	-4.38%	Pulls back to 50 DMA
	Energy Index ($IXE)	-7.43%	Pulls back to 50 DMA
*Arrows denote sector’s position above or below its 40-week exponential moving average (EMA.) + denotes 50-day moving average (DMA) is above 200 DMA.

What We’re Looking For This Week

Key earnings releases:

• MONDAY: Walgreen (WAG)
• TUESDAY: Commercial Metals Company (CMC), Jabil Circuit, Inc. (JBL), Oracle (ORCL), The Kroger Co. (KR)
• WEDNESDAY: Bed Bath & Beyond Inc. (BBBY), CKE Restaurants (CKR), Darden Restaurants (DRI), Monsanto Company (MON), Nike (NKE), Paychex (PAYX), Red Hat, Inc. (RHT)
• THURSDAY: ConAgra Foods (CAG), Lennar Corporation (LEN), Micron Technology (MU), Palm, Inc. (PALM)
• FRIDAY: KB Home (KBH)

On the economic front we have potential market movers with:

• MONDAY: none
• TUESDAY: Existing Home Sales
• WEDNESDAY: Durable Orders, New Home Sales, Crude Inventories, FOMC Rate Decision
• THURSDAY: Initial Claims, Q1 GDP – Final
• FRIDAY: Personal Income, Personal Spending, PCE Core, Mich Sentiment-Rev

This Week’s Word On Discipline

“With self-discipline most anything is possible.” — Theodore Roosevelt

Comments

[Old Trader:]

I think just about everybody but the most incurable optimists have ruled out a "V" shaped recovery. Amongst the "W" crowd, the debate is just where along the "W" we may be, and have been hearing much more about the potential of "L", rather then "U".

Jun 21 08:11 PM