Technical Analysis
Published by Raymond James & Associates
P. Arthur Huprich, CMT, (727) 567-2494, [email protected]
July 6, 2012
Technical Analysis Weekly - Fatigue Setting In
Friday Morning 07/06
Initial Support: S&P 500 (1367.58): 1363 to 1355 (very short-term), ~1325 (trendline off June low) and 1313 to 1309 (late June low)
While an inability to sell off sharply in the midst of an overbought condition, like now, is a sign of underlying demand (buying
interest), an inability to rally in the midst of good news similar to yesterday (“equities couldn’t gain much traction on the economic
numbers (ADP payroll report) or on supportive central bank actions,” per Chief Economist Dr. Scott Brown), is a sign of investor
fatigue. Consistent with this scenario, the DJIA swung from down almost 90 points to up almost 20 points and finally closed down
47 points. The NASDAQ outperformed, closing pretty much flat. The stock market’s internal readings were mixed as volume
readings were more negative than not, net declining issues equated to -366 (not bad), and there were 259 new 52-week highs.
I want to follow up on my comments yesterday relative to the extreme bearishness being exhibited by Wall Street strategists,
according to data compiled by Bank of America/Merrill Lynch. Here are some comments found on the website Pragmatic Capitalism:
“Given the contrarian nature of this indicator, we are encouraged by Wall Street’s lack of optimism (this writer’s emphasis) and the
fact that strategists are recommending that investors significantly underweight equities versus a traditional long-term average
benchmark weighting of 60-65%.”
Consistent with the observations above (overbought and investor fatigue within the context of bearishness by Wall Street
strategists), I reiterate that scale buying fundamentally and technical attractive opportunities makes sense. In extending this
thought process, the energy sector, and more specifically the coal sector, has been hammered on a year-to-date basis. However,
inside the coal complex, Strong Buy-rated Alliance Resource Partners L.P. (ARLP/$59.94/yield = 6.84%/beta = 0.70) has recorded
three consecutive days of positive price action that was accompanied by above average volume readings, meaning the stock is being
accumulated. Additionally, it marginally closed above a previous price peak, completing a low-level base breakout. Buy a junior
position here, more on a low volume pullback (50-day average = 99,700 shares), and please use support accordingly.
Please read domestic and foreign disclosure/risk information beginning on page 6 and Analyst Certification on page 6.
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Raymond James
Technical Analysis
Chart courtesy of Thomson Reuters.
Thursday Morning 07/05
A new macro report titled, “Gleanings” was produced last Tuesday, 7/3/12. The report incorporates a number of different disciplines
and was authored by Chief Investment Strategist Jeffrey Saut, Chief Economist Scott Brown, Ph.D., and myself. Please let me know if
you didn’t receive it and I will forward it.
Here are the newsletter advisory sentiment figures and a paraphrase of their comments, as released by Investors Intelligence:
Markets were choppy last week but the strong Friday surge meant they extended the prior sharp recovery from recent June
2012 lows. With the further advance this week, charts are breaking above prior tops - bullish. Advisors certainly noted the
action and the majority of changes were toward the bulls. The BULLS increased to 42.5%. The BEARS were little changed at
24.5%. Another big decline, down to 33%, occurred for the CORRECTION camp.
Since we are discussing sentiment, the following was brought to my attention (thank you) by an astute financial advisor:
For a group notorious for its irrational exuberance at the very worst times, Wall Street strategists have taken a decidedly
bearish tack as of late. In fact, their current consensus allocation to stocks versus bonds and other asset classes makes the
group the most bearish since 1997, according to data compiled by Bank of America/Merrill Lynch.
This average equity allocation at 49.3 percent is “the first time below 50 in nearly 15 years, suggesting that sell side
strategists are now more bearish on equities than they were at any point during the collapse of the tech bubble or the
recent financial crisis,” wrote Savita Subramanian, chief U.S. equity and quant strategist for the firm. … This is actually a
great contrarian indicator, because if clients have heeded this bearish advice, all the sellers would be out of the market.
Relative to Tuesday’s tape action, stock market indices tallied unanimous gains with the DJIA and NASDAQ up 72 points and 25
points, respectively. NYSE volume was much lighter (465 million shares) due to it being an abbreviated pre-holiday session. Breadth
was solidly positive on the NYSE as advancers led decliners by nearly a 4-1 ratio. The total number of new 52-week highs on the NYSE
swelled again (296), solidly leading new 52-week lows (5). Consistent with this event, the NYSE Bullish Percent Index, based on
Point and Figure chart analysis, reversed upward, suggesting a more aggressive stance toward wealth accumulation, i.e. within the
context of managing risk, buy pullbacks. This tactic is further reinforced as the second half of election years have been up for the
S&P 500 81% of the time since 1928 (17 of 21 cases), according to Ned Davis Research.
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Raymond James
Technical Analysis
In light of the S&P 500 having closed above the 61.8% retracement level of the April to June decline, a further recovery toward 1395
to 1400 (upper-end of a trading channel coincides with a downtrend line), as shown below, should occur.
Chart courtesy of Thomson Reuters.
Advisors Sentiment Chart
Sentiment chart is provided by Investors Intelligence, a brand name of the Stockcube plc group.
Tuesday Morning 07/03
While the DJIA closed down almost 9 points yesterday, after trading down more than 80 points intraday, defensive areas of the stock
market (utilities, healthcare, staples) rallied and they were accompanied by good relative strength from the small and mid-cap
complex. NASDAQ also outperformed, gaining more than 16 points.
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Raymond James
Technical Analysis
NYSE volume (primary market) contracted sharply (731 million shares versus 1.09 billion) as it will be light the entire week, with the
possible exception of Friday due to the employment report. The traditional NYSE Advance-Decline Line (A-D line) exploded higher.
However, when viewed in context with the NYSE common-stock-only A-D Line and the S&P 500 A-D Line, the A-D line was likely
skewed due to the rally by the interest rate complex, as well as the action alluded to above concerning the small-cap universe.
Shown below is a chart of the Russell 2000 Index ($RUT/807.94). Here are a few observations:
1) The short-term configuration is bullish, as long as the pattern of “higher troughs and higher peaks” persists - the primary
trend remains neutral, defined by the March peak and June low.
2) The relative strength trend (blue – in the lower part of the chart) is increasing and is an early indication of “risk-on” activity.
It will be important for this trend to continue.
3) Having moved above the upper-end of a near-term trading channel, the $RUT is overbought. How the stock market reacts
to an overbought condition is an excellent guidepost as to its underlying strength. As it stands, I’d use weakness to
establish positions in technically and fundamentally sound stocks.
4) Initial resistance is closer to 825, 830. Initial support is just under 800 followed by 786 (6/19/12 close) and 760.
Chart courtesy of Thomson Reuters.
Monday Morning 07/02
I asked last Friday where Wall Street traders and investors were getting their cues from. While Friday’s tape action would point
towards Europe and this week’s tape likely dictated by Friday’s employment report, the beginning of a new quarter and thin holiday
trading, maybe the real driver is Wimbledon – back and forth, back and forth. Last Friday’s tape action, during which the DJIA gained
278 points or 2.2% and the NASDASQ gapped open and gained almost 86 points or 3%, capped off a volatile week and quarter. NYSE
volume expanded sharply as short covering and some good old-fashioned buying took hold. Advancing volume equated to 85% of
total volume and declining issues represented 85% of total issues traded. The traditional NYSE Advance – Decline Line followed
through nicely from last week’s topside breakout. New 52-week highs (251) expanded sharply and new lows (13) contracted -- both
bullish. For the week, the DJIA rose 1.9%, the S&P 500 gained nearly 2.0%, and the NASDAQ posted a 1.5% gain.
Consistent with this, the DJIA (12880.09) is exhibiting a bullish short-term pattern of “higher troughs” and closed at a new shortterm recovery high. While the DJIA has some small amount of selling pressure (resistance) in the area between 12900 and 12932,
not highlighted below, next target and the real area of resistance is up closer to 13,300.
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Raymond James
Technical Analysis
Charts courtesy of Thomson Reuters.
Technical Strategy Team: P. Arthur Huprich, CMT, (727) 567-2494, [email protected]; J. Michael Gibbs, (901) 5794346, [email protected]; David Hydrick, (901) 579-4812, [email protected]
The opinions offered in this piece should be considered a part of your overall decision-making process. These comments are published
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Raymond James
Technical Analysis
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Technical Analysis
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