Stock Market Early Morning Insights – February 26th, 2016

Stock Market Early Morning Insights – The SPX attained the 1950 level near the close of the trading day to complete a sloppy W formation on the daily chart. Some traders are calling this a reverse head and shoulders, but have to use a lot of imagination to see that formation.

The volume yesterday on all major market indexes was below average, and this is surprising to me on a push through resistance in the SPX. The NASDAQ composite’s volume was 21% below its 50 day moving average volume, and my equal dollar weighted chart of the SPX in the body of this report shows the volume 20.7% below its 50 moving average volume as the index pushed up through resistance. This indicates that market participation is still limited. Additionally, the NASDAQ composite only had 1.51 to 1 advancers over decliners. The NYSE did better at 2.84 to 1. The real activity was in the large-cap stocks in the DJI and the SP 500. The DJI was 30 to 0, and the SP 500 6.59 advancers over decliners.

The beaten down Financial sector led the way yesterday, and the strongest group within the Financial sector was the REIT’s which have been one of the strongest groups since the bottom was established two weeks ago. The strength of the defensive stocks is surprising to me if this is a sustainable market rally.

The Top 50 GIR contains 5 Packaged Food stocks, 3 Utility Networks and 5 REIT’s, all which I consider to be defensive stocks. I have mentioned the Airline stocks as the leaders for the past several days, and again yesterday, these stocks dominated the Top 50 GIR with 6 stocks making the cut. The Airlines group is up 27.8% from the bottom with Hawaiian Holdings up 40% over the last 12 days. The leader was Republic Airways, up 100% during the 12-day period, but it is only a $3.44 stock.

Apparel Footwear was strong again yesterday garnering 8% of the stocks in groups moving to the upside. REITs and Precious Metal and Mining stocks dominated the $1 to $15 stocks to the upside. Precious metals continue to hold their gains which also seems to be another anomaly. If this is a strong rally based upon strong economic fundamentals rather than just a place for money to flow, I would think that gold and precious metals would give back some of the recent gains, but that is not the case yet. Homebuilders also had a good day, up 1.8% in the ITB ETF. Semiconductors were also strong.

Stock index futures are up again today, but are well off of their overnight highs. European stocks are strong today, and the overnight futures followed their lead. Crude light futures are up 1.51% as I write this, and the daily chart shows another attempt to break out to a higher high to establish a trend higher. That has not yet happened.

The E-mini S&P futures are trading at 1959 as I write this, but are 10 points off of the overnight high of 1968.75. The 30-year treasury bond futures are down nearly 3/4 of a point which is a large move in the bond market where each tick of .01 is worth $31.25 for a single contract.

The bias for stocks in the short and medium term is up. Stock futures are rallying as I write this on a stronger than expected GDP number. Oil futures are currently up past resistance on the daily chart.

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