Stock Market Early Morning Insights – March 2, 2016

The most surprising thing to me about yesterday’s rally was the lack of volume in many individual equities. In the top 100 stocks in the major market indexes, only 26% had volume greater than their 50 day moving average volume, and 74% did not attain their 50 day moving average volume. Two of the largest volume stocks in the indexes traded down yesterday on heavy volume.

The volume gainers were not much better in the S&P 100 coming in at 27.45% above average, and 72.55% below average. The NASDAQ 100 fared better coming in at 36.79% above average volume, but 63.21% were below average. What surprises me is that on a day when the NASDAQ 100 was up 3.2%, and the NASDAQ composite was up 2.9% along with the Philadelphia Semiconductor index, that these moves were not supported by extremely heavy volume across the board.

Maybe this means nothing, because I don’t have a comparison from the past, just this one-day snapshot, but is suggests to me that a lot of the stocks participated in the rally yesterday moved higher due to short covering rather than buyers with conviction. 

Markets are heavily manipulated because nobody makes or loses money unless markets move, so the talk of stimulus in China and Europe, and a potential delay in raising interest rates in the US lit the fire under the market. Once the move started, there was no stopping it yesterday as indexes closed at or near their daily highs. During the last five minutes of trading in the S&P E-mini futures, I saw over 50,000 contracts trade in one minute going into the close. I assume this is short covering from large players who did not want to hold positions overnight.

The strength was in the beaten-down Biotechnology sector, the big cap tech stocks, and the Financial sector. Some of the commentary I saw after the market closed was that the rally was due to rising oil prices, but oil futures closed about where they began the day and formed a Doji. This morning, crude light futures are down 1.25% as I write this, and the daily futures contract has yet failed to break past resistance from last week. The dollar index and gold are both up this morning and 30-year treasury bonds futures are currently flat.

Was yesterday the beginning of a massive rally to the upside? Several commentators think so, but the lack of volume and many of the stocks in the indexes made the short covering rally suspect in my opinion. Stock index futures are all slightly negative this morning, but several reports including the ADP employment report, the EIA petroleum status report, and the Beige Book are all going to be released today and could be market drivers. The EIA petroleum status report will probably affect the market the most. If you have thinkorswim, click on the Market Watch tab, select events, and you will see all the reports which are due each day. News drives markets in the short term, so you need to be aware of releases and the time of the releases.

In the GIR top 50, Semiconductors Devices and Airlines were among the leading stocks in groups. We have seen this for a couple of weeks and it goes to show how valuable the top 50 GIR is. There were also several other groups that did well, but that information is in the graphic in the body of this report. If you run the GIR report, you’ll get an error message this morning that a group cannot be found. Just overwrite the current GIR report and run it again. An industry group has been eliminated, but the industry groups are only for reference in the report and do not affect the results.

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