This is no way a criticism of the Thanksgiving dinner my sister fed me yesterday where the dinner and dessert were fantastic, but comments regarding the historically bullish tendency the markets tend to show on either side of the Thanksgiving holiday.
While bulls got fat on Wednesday on what could be considered the main course of the Thanksgiving meal, today's action was lackluster as if bulls simply didn't leave much room for dessert as stocks traded marginally lower.
With the markets now closed for the trade-shortened Friday after Thanksgiving, the major market averages all finished lower with the Dow Industrials (INDU) lower by 36 points (-0.4%), S&P 500 (SPX.X) down 2.6 points (-0.28%), NASDAQ Composite (COMPX) falling 9 points (-0.61), NASDAQ-100 Index (NDX.X) off 9.7 points (-0.86%) and the smaller cap Russell 2000 Index (RUT.X) down 3.8 points (-0.94%).
Sector action ended mixed to lower with today's sector losers being Semiconductor (SOX.X) 373 -2.16%, Disk Drive (DDX.X) 80.92 -1.65%, Combined Telecom (IXTCX) 120.48 -1.27%, S&P Banks (BIX.X) 288 -1.16% and Airlines (XAL.X) 43.00 -1.12%.
Offsetting some of the 1% declines noted above were the Forest & Paper (FPP.X) 302.5 +2.15%, Oil Service (OSX.X) 88.34 +1.97%, broader cyclicals (CYC.X) 477 +1.42% and Fiber Optic (FOP.X) 58.6 +1.08%.
Treasuries saw buyers from he early morning and that perhaps gave stocks little chance for any type of "duplication" to Wednesday's performance when bonds sold of sharply and helped fuel stock's rise. The 5, 10 and 30-year maturities all found buyers today with the benchmark 10-year YIELD ($TNX.X) edging lower to 4.215%, but finding technical YIELD support today at last week's YIELD resistance of 4.19%. On a short-term basis, equity bulls would like to see the benchmark bond's YIELD rise above 4.28% YIELD level to signal further upside for equities, especially with the bullish % levels higher in the major indexes.
In Wednesday's Index Trader Wrap at OptionInvestor.com, I forgot to include the weekly sector/index changes that we've started benchmarking from a Wednesday to Wednesday close. We used to cover this each weekend, but with Leigh Stevens now helping out with the weekend index wraps, we wanted to still give trader/investors the "bigger picture" of the major market indexes and sectors to look for certain trends that may be taking place and where capital may be flowing into or out of on a week to week basis, as this action can sometimes become a multi-week trend.
Weekly Sector/Index Changes
As you can see, from Wednesday's close, the bulls had a good week and the economic data while better than economists had forecasted got equities moving higher, also got the bond market's attention with the 10-year YILED moving back higher for a second consecutive week.
Russell 2000 Index (RUT.X) 406.35 -0.94% on today's session was last weeks relative out performer to the upside. It was more than a month ago that we thought the RUT.X would be somewhat of a "value" trade for bulls as the smaller caps had lagged a rebound off the bottom by the larger caps, but their longer-term relative strength might have them playing some "catch up" as the group wasn't as heavily shorted and at that time hadn't really been a benefactor of short-covering. As this week's economic data was a little stronger-than expected, the smaller caps when tend to trade more with bullish selling or bullish buying (not really bearish selling or buying from short-covering) hints that bulls are looking toward some type of longer-term economic strength.
I've also highlighted the SPX and OEX "so far Q4" column for the OEX and SPX. While there is 100% duplication in the OEX index when compared to the broader S&P 500 Index (SPX.X) those little disparities we've noted in the past have added up to slight underperformance in the SPX. This could be an observation that the larger of larger caps in the OEX have been garnering the more buying as time has passed. We'll keep an eye on this relationship in coming weeks if the smaller cap Russell-2000 begins to show more marked out performance.
The retailers are my "favorite" sector in the past two weeks for bulls to be trading for more favorable risk/reward trades and using the scenario of the holiday shopping season as further catalyst. I use the Retail HOLDRS (AMEX:RTH) $76.19 -0.27% in the above spreadsheet instead of the S&P Retail Index (RLX.X) 291.87 -0.51% only because subscribers can look at FREE point and figure charts at www.stockcharts.com and they don't have a p/f chart of the RLX.X. However, it is notable that both are almost identical from a technical basis. Three stocks I follow and have classified in recent commentary as "strongest" to "weakest" that represent the "head, mid-section and tail of the snake/inchworm" have Kohls (NYSE:KSS) $68.71 -1.93% at the head, with Wal-Mart (NYSE:WMT) $53.90 -1.7% the mid-section, and Home Depot (NYSE:HD) $26.32 +0.88%. If you think in terms of how an "inchworm" moves, then today's action in these stocks has the tail edging up, and the head/mid-section pulling back. For the "inchworm" which might be considered the entire retail sector to move forward, the inchowrms tail must anchor in place, create some traction and then the head and mid-portion to inch further higher. With consumer confidence showing some improvement last week, I'm looking for the "inchworm" to become more of a "foot worm" into the end of the year and holiday shopping season.
I've also highlighted in green the areas of our weekly spreadsheet that we group the more "cyclical" or deep rooted economically sensitive sectors. As noted in OI's market monitor by Kent Barton earlier this week and later by myself in regards to the $5 box scale of the Morgan Stanley Cyclical Index (CYC.X) 477.68 +1.42%, bulls wanted to see a clean break of downward bearish resistance at 465. That took place on Wednesday and got some follow through today. These technicals were a bullish sign longer-term, but some meaningful supply now exists to the 505 level. I'm not expecting this group to "rocket" higher from here, but looks to be an attractive group for select names on pullbacks. Cyclical subgroups are the Forest&Paper Products sectors (FPP.X) 302.50 +2.15%, which had an very bullish week, chemicals, non-ferrous metals like Alcoa (NYSE:AA) $25.50 +0.31% and Alcan (NYSE:AL) $31.82 -0.44%, which would tend to rise on thoughts of increased economic activity at the industrial level.
Energy sectors like Oil Service (OSX.X) and the Oil Index (OIX.X) are going to be impacted by geopolitical events for the foreseeable future. However, for the U.S. economy, that's where the Natural Gas Index (XNG.X) comes into play as it relates to the market's perception of economic growth as imports of natural gas are limited to our friend from the north in Canada and south in Mexico. The U.S. itself has the ability to produce large amounts of natural gas from its mid-continent regions. So my thoughts here is that the natural gas index is the energy sector which helps "eliminate" the volatility of Oil and Oil Service with the Middle-east geopolitical uncertainty. While the XNG.X trades BELOW trend on it point and figure chart, the recent triple-top buy signal at 132 and bullish catapult from November 19th give hint or higher price assumptions for the commodity itself. Natural gas is a cleaner burning fuel at the industrial level, but also tends to see price increases with the onset of winter in North America.
With the major indexes Dow, SPX, OEX and NDX bullish % charts now more overbought or nearing overbought (above 70%) traders will have a focused eye on the bond markets as risk for equity traders shift toward the bulls carrying greater risk. While these levels of risk advise caution, it may well be the BOND market that has to make the decision on longer-term bullishness. Is the near- term higher risk in equities enough to worry about as it relates to the LONGER-term? The key will be any type of "sharp rate of change" in Treasury YIELDS.
I'm expecting some type of pullback in equities over the next month, if not some type of consolidation at a minimum. However, as bears continue to feel some pressure from higher equity prices, it could be a signal from the bond market in further selling that continues to push longer-term bears to cover positions as the bottom line of their accounts begin to shrink.