Friday Recap; the week ahead

Expecting a pullback to 1195-1193 this week, raise cash!

As Friday early trade began the futures were headed lower until the payroll data was released at 8:30. Then the Labor Department reported that Nonfarm Payrolls rose in the month of October by 151,000. This was well above the consensus estimates for an increase of 55,000. The private sector (the household survey) showed gains of 159,000 jobs, which was again well above the estimates for 62,000K. September payrolls were revised higher to -41K from -95K. September Private Payrolls revised higher to +107K from +64K. The nation’s Unemployment Rate held steady at 9.6%, which was in line with expectations for a reading of 9.6%. And now the bad jobs news: There was a big jump in the duration of unemployed; but this market is enjoying bad news right now (Bad news is good news, more money printing) and rallying on it.

The Friday session began without a significant gap. Bulls moved in and worked the tape steadily higher for 90 minutes to put the high of the day on the chart at 10:55 am. Sellers were able to take the tape down to almost seven points below the high a few times throughout the day but were unable to hold it down as the index regained almost six points in the final 20 minutes.

The dollar was up almost 1% the market dipped a bit and then the dip was bought as is the case in the bull phase of this secular bear. 

Checking our Market Leaders shows us mixed results. But the interesting thing to take note of is the action of the Financial Sector (XLF). The XLF is simply on fire and carrying the SPX higher. We have mentioned several times over the last month to be alert for the XLF playing catch-up and how this could refuel the rally. 



The SPX gained 42.59 points during the week. The four week RSI of the four indices (SPX, Dow, NASDAQ, and Russell 200) is 94. Pullbacks often occur as this RSI reaches 80.

For the SPX, there were 422 components advancing and 63 declining. Total tick for the week was 654,000. The number of components with their 5 DMA above their 20 DMA increased during the week from a ratio of 2.61 to one to 3.6 to one.

On the NYSE, the advance/decline line increased greatly during the week and the 10 DMA of Net Advancing jumped from 133 to 468.

This week had the largest weekly increase since the week of July 6^th and was the second largest increase of 2010. Looking back at past SPX data, weeks such as this happen a couple times per yet, at market short-term bottoms. Examples of such weeks other than bounces off of bottoms are difficult to find. The irony is that there were only eight ticks greater than 1000 during the week while there were 26 ticks more extreme than -1000. This divergence continues to suggest that institutional traders are taking advantage of the rally for distribution. 


Friday was just a day typical day after a huge run up day (in a bull phase); strong consolidation of the Thursday gains. We are seeing positive breadth with a strong advancing volume ratio. The number of bull to bears is extremely high, and stocks above 20dma is over 80% (usually a sell-off occurs at this point)



I am convinced that the market begins a pullback this week.  The technical indicators are all lining up and are at historically high levels (but they have been high all along, and if I am seeing it then everyone sees it and I think thats why we don't break down when we should have. There will come an even that no one sees coming that will take us out. There will be a significant draw down like 1999-2000 but I dont know when. So I am not shorting but I am aware and raised some cash last week.