The Past Week: Stocks Closed Out Lower Despite Friday’s Rally!
The Stock Market Extends Monthly Winning Streak as Bernanke Inspires the Bulls!
by Ian Harvey
September 03, 2012
Stocks finished higher in volatile trading on the final day of the month, after Fed Chairman Bernanke reiterated his promise that the central bank stands ready to act and following some encouraging European headlines.
All three major averages also logged their first August gains since 2009.
Fed Chairman Ben Bernanke gave stocks a lift Friday when he left the door open for more quantitative easing in his annual speech at the Fed’s Jackson Hole symposium.
In a Jackson Hole, Wyo., speech, the Fed chairman said the central bank would act because the economy has been slow to recover from the Great Recession of 2008-09. And, he added, "it is important to achieve further progress, particularly in the labor market." Bernanke's vow cheered Wall Street, which was in a buoyant mood anyway because of hopes that leaders in Europe are closing in on their own plan to stabilize financial markets on the continent.
That helped support a rally that had started with news that the Spanish government approved banking reform as the debt-ridden nation looks to accelerate the cleanup of the troubled sector.
Draghi said a month ago that the ECB would buy Spanish and Italian debt and the markets are anticipating more details around that plan Thursday.
European shares finished higher in the past week, reversing a three-day decline, amid optimism the ECB will announce a new program of bond buying next week.
With the stock markets solid rally on Friday the stocks ended August with their seventh gain in eight months and 10th gain in the last 11 months. However, the averages did fall for the second straight week.
• The Dow Jones Industrial Average (DJI) was down 67 points at 13,090. The Dow was up 0.6 percent for the month of August, and is now up 5.6 percent in the past three months.
• The Standard & Poor's 500 Index (SPX) regained the 1400 level Friday, but was off 0.3 percent for the past week at 1406. It is up nearly 2 percent for the month and 7.4 percent in the last three months, for a year-to-date gain of 11.9 percent.
• The Nasdaq Composite Index (COMP) was down 0.1% for the week but rose 4.3 percent in August to 3066, carried by a nearly 5 percent gain in tech stocks, the market’s best performers. For the year the Nasdaq up 17.7%.
The CBOE Market Volatility Index (VIX), widely considered the best gauge of fear in the market, ended its four-session rise, and inched 0.4 point, or 2%, lower on Friday. On the week, the market's fear gauge surged 15.1%, but buckled 7.7% in August.
TOP OPTIONS TRADES SINCE JUNE 01, 2012
|HLF July 47.50 Calls||53%||APPL Aug 650 Calls||67%|
|DLTR Aug 110 Calls||32%||UIS Oct 17 Calls||79%|
|HSY Aug 70 Calls||56%||TSO Nov 25 Calls||54%|
|NKE Oct 92.50 Calls||49%||HLF July 47.50 Calls (again)||38%|
|FB Aug 25.00 Puts||500%||DISH Sept 30.00 Calls||100%|
|APPL Jan 13 650.00 Calls||71%||CSTR Oct 42.50 Puts||400%|
|LNKD Aug 92.50 Puts||30%||LNKD Aug 100.00 Calls||250%|
|SLV Nov 30.00 Calls||114%||JCP Nov 25.00 Calls||67%|
The October crude oil contract rebounded sharply Friday, up $1.73 per barrel to close the week higher. It appears that the support in the $94 area has held, with next resistance at $98.29.
Clearly, a close above the $100 level could cause prices to move sharply higher. Increased concern over the possibility of an attack on Iran by Israel has been impacting prices.
After a very poor second quarter, crude oil prices are almost back to unchanged for the year. This is a dramatic improvement from the late June lows, when crude was down 19%.
The national average retail price of gasoline hit $3.829 a gallon, up from $3.826, according to AAA's Daily Fuel Gauge Report. Seven states -- Hawaii, California, Illinois, Michigan, Connecticut, Washington and Oregon -- reported the average price was above $4 a gallon.
Hurricane Isaac pushed energy prices higher for the week.
The SPDR Gold Trust (GLD) gained another $2 on Friday, and has now closed well above the 38.2% 'Fibonacci Retracement’ resistance at $162.64. The 50% retracement resistance stands at $167.07.
The continuation pattern has now been completed. For the year, GLD is now up well over 7%, after dropping into negative territory in May.
Gold jumped $30.50 to $1,687.60 an ounce and finished up 0.9% for the week. There was talk Friday that the metal could hit $1,900 by year-end. One reason for the jump was Bernanke's speech. But the hopes for some sort of deal in Europe also contributed.
Silver jumped 99.6 cents to $31.442 an ounce.
Copper added a penny to $3.457 a pound.
Bonds have rebounded after a sharp slide from late July until the middle of August. TLT was up 9% on July 25, but by August 16 was just barely in positive territory.
Company News and Earnings in the Past Week
• Facebook (FB) tumbled to a new all-time low after BMO Capital Markets and BofA Merrill Lynch cut their price targets on the social-networking giant to $15 from $25, and to $12 from $23, respectively. Shares have plunged more than 50 percent since its market debut in May. Game publisher Zynga (ZNGA), which gets most of its revenue from Facebook, also dropped.
• JPMorgan (JPM) said it plans to reduce some services to clients and cut ties with others as the banking giant looks to lower clearing and settlement risks, according to the Wall Street Journal.
• Among earnings, Splunk (SPLK) surged after the data analytics software maker posted quarterly results and outlook that topped expectations.
• Meanwhile, Zumiez (ZUMZ) plunged after the apparel retailer forecast current-quarter profit below estimates.
Economic News in the Past Week
The economic news in the past week was a bit more encouraging, especially for the housing market, as well as consumer sentiment.
Consumer sentiment rose to a three-month high and factory orders posted the biggest gain in one year. Meanwhile, manufacturing activity in the Midwest was slightly lower than expected in August.
The NYSE Composite in the Past Week
The longer-term daily chart of the NYSE Composite shows that it closed the week on the flat 20-day EMA. The 38.2% support is just below 7,800 which is about 2.6% below Friday’s close. The longer-term uptrend (line b) is at 7,540.
The NYSE Advance/Decline (A/D) line did make new highs in August, as it surpassed the March highs (line c). With Friday’s close, the A/D line is back above its WMA and is trying to hold the short-term uptrend (line d). The A/D line has longer-term support at line e.
Sentiment in the Past Week
As of August 30, 34.7% of individual investors according to AAII survey of individual investors are bullish, down from just under 42% last week. But 48.9% of the financial newsletter writers are bullish, which is uncomfortably high.
The National Association of Active Investment Managers (NAAIM) sentiment survey measures the overall equity exposure of active money managers who are either long or short the stock market. NAAIM member firms' responses are tallied weekly. This indicator can be used as a tool to measure crowd sentiment based upon active portfolio managers.
Rarely over the course of the past few years has the exposure of active managers in this survey been so euphoric. In fact, this past week's reading of 82.89 is the most elevated since April 20, 2011.
And even more interesting is the amount of time since NAAIM exposure was this elevated. As noted, the current reading is at a 17-month (or 69-week) high. This span is only surpassed by the period from Jan. 2, 2008 to Sept. 23, 2009, whereby, during the depths of the financial panic, we witnessed 21 months of readings below 80. This time around, however, the equity markets aren't bouncing from a decade-long trough. They are pressing towards multi-year highs.
Keep in mind that the average NAAIM number over the course of the survey (NAAIM was started on July 5, 2006) is 51.50. Again, this week's reading was 82.89.
Overall, when active managers have elevated exposure (NAAIM number is greater than 80, one signal per month) the returns for the S&P 500 Index (SPX) are below average, compared to at-any-time returns since 2006. Surprisingly though, one month -- or 21 days -- out, the returns post-signal are better than average.
Below is a graphical representation of the data going back to 2007…..
The Major ETFs in the Past Week
Stock investors found enough positives in the long-awaited comments from Fed Chairman Ben Bernanke last Friday to push stocks higher, as the major averages recouped most of the week’s losses.
For the month, the major averages were higher with the (Spyder Trust (ARCA: SPY) up 2.6%, the SPDR Diamond Trust (ARCA: DIA) up 1.1%, the PowerShares QQQ Trust (Nasdaq: QQQ) up 5.5%, and the iShares Russell 2000 Index (ARCA: IWM) gaining 5.3%.
However, it was a relatively flat for the past week in the stock market, as the indexes paused below recent highs. Three of the Exchange-Traded Funds (ETFs) recently made fresh 52-week highs, but have pulled off those levels. In order for the uptrend to continue, those levels will need to be exceeded. If they are not, the market bears may interpret the recent moves higher as a false breakout, and commence selling.
1. The Economy and Earnings in the Week Ahead – September 03, 2012
2. The Week Ahead in the Stock Market – September 03, 2012
3. The Major ETFs in the Week Ahead – September 03, 2012
4. A Surprise September Rally, August 31, 2012
5. Stock Market Bulls and the VIX Promoting Caution – September 03, 2012
6. Calibrating Stock Charts – September 03, 2012