Skip to main content

Weekly Review - stocks follow sentiment down

Markets declined this week on bad jobs numbers, bad retail numbers, bad auto sales numbers and downbeat announcements from bellwethers Intel and Wal-Mart.

To add some detail, On Wednesday ADP released their December job loss results calculated according to their new methodology and the numbers were way worse than anyone expected, coming in at 693,000. The market fell hard that day and left investors prepared for the worst with respect to the BLS non-farm payrolls report which hit on Friday. In this case, December layoffs were in line at 524,000 while the unemployment hit 7.2%, somewhat above expectations. Markets spent Friday in the red and finished the last hour of the week falling further.

As for company announcements, Alcoa announced major layoffs and a suspension of capital investments, Intel surprised with the second projection of falling revenue within three months and even Wal-Mart reported unexpected weakness in same-store-sales.

Wal-Mart was not alone, as a substantial number of other retailers also reported poor December results and poor expectations for the coming months. To add icing to the cake, GM and Ford also reported sales down over 30%.

On the whole, major averages gave up roughly 4% but are still (just barely) above several important moving averages.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans over 7400 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following charts are based on daily data and present the state of some of our technical indicators.

This first chart presents the moving average analysis for the entire market and contrasts it with the performance of the S&P 500 SPDR (SPY). When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) there is an expectation that you will get a change in the trend of the S&P 500.

SPY versus the market - Moving Average Analysis, 1-9-2009
Even though markets fell this week, this chart implies that many stocks have not yet violated their 50-day moving average and indeed the number of stocks whose 20-day MAs is above their 50-day MA even increased a bit. Implication: positive thus far though another week of falling prices could turn this indicator negative

This next chart is based on Aroon Analysis and compares our trending statistics to the performance of SPY. We use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

SPY versus the market - Trend Analysis, 1-9-2009
In this case also, though markets weakened the number of stocks exhibiting postive trends has not collapsed. The number of stocks in down-trends fell slightly again. Implication: so far so good. As stated above, though, another bad week and we could see these indicators begin to turn around. One needs to keep in mind that these indicators will tend to lag the actual movement of stock prices and it takes a while for a decline to reverse the trend.

The next chart applies some standard technical indicators to the stocks in the S&P 500 and summarizes the result by sector.

S&P 500 Sector Analysis, 1-9-2009Of notable aspects this week, the chart shows positive action in Energy stocks even as oil prices gave up recent gains this week. Otherwise, the remaining sectors didn't undergo much change over the last week. The take-away for this chart is that there isn't really clear-cut leadership from any particular sector and improvements in the indicators appear to be stalling.

Below is the chart for SPY with a trend line added (the blue line angling upward from left to right). Adding the blue horizontal line to the chart forms a triangle. Since the last time I presented this chart SPY fell below this trend line after failing to move above the upper Bollinger Band and the 50-day moving average and then recovered to move above all these lines. This week, however, the market weakened and SPY has now fallen below the trend line, the horizontal line and the upper Bollinger Band. On the positive side, SPY managed to close above its 50-day MA and more or less right at its 20-day MA. Implication: if we don't get another quick recovery, this is near-term bearish

Chart of SPY, 01-09-2008

Conclusion --

So with major averages up roughly 20% from their November lows a poor week like we just experienced is not enough to set off major alarms in our indicators. Nevertheless, I get the impression that for many investors it is sinking in now that there is more negative news in store and that the eventual recovery is further out than hoped. There is a good chance this could provide further pressure on stock prices.

To add to the negative tone, it appears that the stimulus plan will be running into resistance from Republicans who have suddenly after eight years gotten frugal about spending taxpayer money. Then there is the concept of making tax cuts a big part of the package which many economists feel won't do anything to create jobs in the near term.

In the meantime while we wait for the stimulus package, we can chew on the following expansive list of economic reports this week: chain store sales, retail sales, the Fed Beige Book, weekly initial jobless claims, the Producer Price Index, the Empire State and Philly Fed manufacturing surveys, the Consumer Price Index, industrial production and consumer sentiment. There are a number of market-moving reports among this group and it could be volatile week in the markets as a result.

In summary, sentiment seems less positive and stocks are showing weakness. Layoffs are reaching a level that makes it difficult to maintain optimism and also makes appear that the economy will worsen before it gets better. Stocks may be cheap but it seems there is no hurry to jump in on the long side.

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional