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Trend table status

Trend

SP-500

R2000

COMPX

Primary

?+ 6/30/20

?- 3/31/20

Up 5/29/20

Intermediate

? 6/5/20

? 6/5/20

Up 6/5/20

Sub-Intermediate

? 6/24/20

? 6/24/20

?+ 7/1/20

Short term

? 6/11/20

? 6/11/20

? 6/11/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Monday, April 30, 2012

Earnings - read the fine print

Today's USA Today paper had some coverage of earnings.  Near the bottom of  the front page they have a box with the caption "The doubters were wrong" and a statement that earnings growth of reported companies is 6.7%.  Analysts were expecting near 0 growth for the quarter.  The main story is in the B section.  The article starts out with all the good statistics.  It says more then half the S%P 500 companies have reported now.  It states 81% beat estimates.  It goes on to talk about a few other good things.  However, here is the 3rd paragraph from the bottom.

"There are, though, more troubling signs.  Without Apple and financials, the S&P 500's growth would be 0%, Butters says."

It seems to me the doubters did not really get it wrong.  Financial earnings are notoriously hard to predict and Apple had a blow out quarter well beyond any expectations.  Hmm, everybody else lumped together really are giving us 0% earnings growth.  Most of the major financials have now reported so it is quite possible that 6.7% growth being touted now may slip some as the rest of the companies report.  I would bet that most people saw the first page and never read the article.  I would also bet that most people that looked at the article did not read the entire thing.  Technically what the newspaper said is true, but it certainly is trying to paint a rosier picture then is actually happening.  Back in 2008 and early 2009 the huge losses in the financial companies made the overall earnings picture look much worse then it actually was.  I think this helped drive the market lower then it probably should have been.  We may have the opposite situation going on now.  If Apple and the financial companies are making things look much better then they really are, the current rally may not be lasting.  I guess time will tell.

Bob

Economically sensitive charts

I thought I would show some weekly charts of some of the more economically sensitive indexes.  I will start out with SPX so we can compare what is going on.


We ended last week with a white price bar, but it was a bullish engulfing candlestick.  The trend was still neutral, but that was bullish price action.  We will see if the market can capitalize and keep moving up. The index is comfortably above last year's high.  Next up is the transports.


The weekly high close this year was back in Feb.  That was well below last year's high.  Price has been clearly sideways since then.  It has held support of the18 SMA, but it has not been able to launch to the upside yet.  A look at the last few weeks show candlestick tails in both directions and the closes are actually tightening up.  This looks like price is coiling up for the next big move, but is awaiting a catalyst to decide which direction.  Lets check on the cyclical index.


This index is in worse shape then the transports for sure.  It has been trying to hold support at the 18 SMA, but it is really struggling to do so.  Notice how much below last year's high this index is.  I think this is a reflection of the weaker global economy then we had last year.  This index is on life support, but so far it is hanging in there.  Next up is the SOX.


This index looks very similar to the cyclical index in the last chart.  It is well below last year's high and is clearly on life support as well.

We have some pretty significant divergences between these indexes and SPX.  It seems unlikely to me that SPX will just keep going up without help.  These other indexes need to get in gear to provide support for an up move.  That can still happen, none of them are beyond repair yet.  However, I think they need to perk up very soon or they will fail.

Bob

SPX update 4/30

April is now in the rear view mirror, what now.  The last two years the old adage sell in May and go away has been the thing to do.  Will that repeat or will it be different this time?  I don't know the answer to that question yet. We are in a short term rally, it remains to be seen how long it lasts.  Here is the latest 195 minute chart.



The low today was 1394 which was fairly close to my green support line around 1393.  The market spent all day scraping along the low that was made in the first 30 minutes and bounced going into the close.  That keeps the short term uptrend in place for now. 

Bob

Test chart

I got a request to change the chart to make it easier to read.  Here is a new look.  I changed the background to black, and the 18 SMA to a lighter blue.  I removed the session separator lines as it seemed to make the chart too busy on 195 minutes.  Let me know what you think. 



Bob

Friday, April 27, 2012

India

This is an interesting setup for a coming move.  Check out the chart of the Bombay index.


We clearly have a contracting volatility pattern with both higher lows and lower highs.  This is going to break out one way or the other and should lead to a good move.  There are 2x funds INDL (long) and INDZ (short)
that could be used to play the move.  The pattern in those ETFs is slightly different in that INDZ has drifted up while INDL has drifted down.  Like both ETFs are anticipating a break out in their direction.  Therefore, I don't think they should be used to analyze the break out.  The index itself should be used.  If you do not have this index in your data feed you can look at it on Yahoo with this link.
http://finance.yahoo.com/q/bc?s=^BSESN&t=6m&l=on&z=l&q=l&c=

Bob

Market status system weekly update

Market status system  Explanation at bottom.

Month         
-----         
Green - 6   
White - 4   
Red   - 0   
 
Week          
----          
Green - 3  
White - 5  
Red   - 2  

Day           
---           
Green - 10  
White - 0  
Red   - 0  

Notes:
The weekly charts shifted a little towards bullish, but are still neutral.  The prior resistance at 1393 should now be support if tested.  I think it would be pretty bearish if we break that.  Here is the weekly SPX chart.



On a weekly basis we never closed below the key 1370 level.  Now we just wait and see if we make new highs and keep going or not. 

Bob


Explanation:

I have color coded the price bars in green (up), white (neutral),
red (down) to represent the short term price movement.  I have
put together 9 items that have led SPX at times in the past.
With SPX included there are 10 total items.  The idea is to use
daily for short term movement, weekly for intermediate and monthly
for long term.

SPX update

The market pushed a little higher today, but lost momentum going into the close.  After 4 days up in a row we may see a bit of a pullback Monday morning.  Today's high came at an interesting level.  Check out the chart.


As you can see from the Fibonacci retracement lines on the chart that SPX stopped at the .786 retrace level.
That and the .618 are the only levels I care about.  When markets make a lower high or higher low they often do it right near the .786 level.  I have seen it called a crown or gatekeeper pattern.  Since we stopped there, we have to watch for that over the next few days.  If we end up going back through my green line at 1393, I think we will keep going.  Until we close above today's high keep a close eye on things, just in case.

Bob

Thursday, April 26, 2012

SPX out of the box

SPX climbed up out of the box today.  Now we need to see if it can stay there.  Here is a look at the chart.



SPX has moved up into the middle of the trading range from back in March.  It looks like we have cleared a major hurdle today, but there still could be some overhead resistance up here.   One concern I have is the QQQ chart.



As you can see QQQ did not surpass key resistance yet.  This has been the strongest index and quite often leads SPX.  Since it is showing relative weakness here this bears watching.

Old resistance of SPX 1393 should now be support.  We could easily go back and test that level before resuming the rally.  If we break that the bears might take control.  I think the key level is yesterday's low.  With the big gap up it is better to use the SPY low of 138.53.  A break below that should send us back to the recent lows.

One concern for bulls should be the overall economic data.  UPS gave a major warning about global shipments slowing down.  We have also seen the FED regional surveys all coming in lower then expected recently.  The weekly initial claims have been creeping up the last few weeks as well.  The market has ignored all this for now, but sometimes it changes its mind. 

Bob

Wednesday, April 25, 2012

SPX update

The big gap up this morning took us up through the down trend line.  However, as you can see in the 195 minute chart below we are still in the box.


The last two strong up days were followed by down moves.  It remains to be seen if it is going to be different this time or not.  Today is kind of hard to figure out what it means.  Check out the 30 min SPY chart.


SPY tested the upper and lower price of the first 30 min. bar, but could not stay outside in either direction.
The bulls won the day, but not in a convincing fashion.  Now check out the SPY daily chart.


The first thing to notice is today did enough to turn the price bar green.  If we get some follow through the
short term trend would be up.  However, the linear regression channel is pretty sharply down.  The bears could return and send the market back down.  Check out the volume bars.  In the green circled area the biggest bars are clearly green.  There were no red bars bigger then the biggest green bar and several green bars bigger then most of the red bars.  Now look at the pattern since mid Feb.  The red bars are clearly dominant, especially since April started.  The market has been under distribution for a while.  If this market is going to break out and move higher that pattern will have to change.  There was no sign of that today as the last green bar was small just like all the others recently.

Bob


Tuesday, April 24, 2012

SPX update

Here is the latest 195 minute chart.  Things are starting to get clearer with levels to react to.


The red line is the 4/10 low.  That was a very over sold condition and when that type of low breaks it usually means a cascade down.  The green line is possible resistance at the last swing high.  Until SPX clears that line we are still technically in a trading range.  The light blue line is marking the down trend and would be the first bullish sign if broken.  In between the red and green lines, anything can happen.  The futures are up a good bit tonight on AAPL earnings.  That down trend line might come into play early in the morning.  I suspect a lot of traders will be watching the reaction of AAPL after the open. 

Bob

China

China is often proclaimed to be the engine of growth for the global economy.  There is lots of chatter on the financial channels, but there seems to be two widely different view points.  Some of the talking heads are very bullish on China.  They site immense government reserves.  There are a few people that expect a hard landing in China.  They usually site a real estate bubble.  Let see what the charts say.  I always like to start out with the monthly chart to get perspective on the big picture.


This is the China ETF FXI.  What an odd chart.  The parabolic move up into 2007, looks kind of like a bubble.  The crash in 2008 wiped out the entire accelerated move up.  After the initial surge up in 2009, FXI traded sideways until breaking down last fall.  The economic growth was strong throughout that sideways price pattern.  Why didn't FXI keep going up like most markets around the world did?  The usual cause is valuations.  I think they were way too high back in 2007.  It takes some time to work off a wildly over valued market.  Price is currently below its 18 SMA and price bars are white.  This makes the overall chart neutral/bearish.  There is certainly no clear sign that FXI is ready to fly up.  What about the weekly chart?


We have pretty much the same condition here.  Price is neutral/bearish on this chart as well.  It will be easier for these charts to turn fully bearish then it would be for them to turn fully bullish.  That leaves us with no clear sign the slow down in China is coming to an end.  There is some risk that it gets worse, but no clear sign that will be the case either.  Many talking heads expect Chinese growth in the second half of the year to pick up.  Maybe they will be right, and maybe not.

Bob

Monday, April 23, 2012

SPX 195 minute update and VIX

The big gap down took SPX well below the uptrend channel lower trend line this morning.  Check out the chart.


SPX also closed below the key 1370 level, but not by much.  We got very close to the 4/10 low before the slow grind up started.  There was clearly no panic selling today.  It is also clear there are still dip buyers in this area.  The market is trying to hold support here.  We have had plenty of big gaps in both directions.  I think staying nimble is the best way to go.  Volatility appears to be picking up and so is the downside risk.  Check out the VIX chart below.


It looks like the VIX is trying to turn up on this weekly chart.  This bears watching, but at this point it is unclear if this is just a short term blip or the real deal.

Bob

Friday, April 20, 2012

Market status system weekly update

Market status system  Explanation at bottom.

Month          
-----          
Green - 6    
White - 4    
Red   - 0    
  
Week           
----           
Green - 0   
White - 7   
Red   - 3   

Day            
---            
Green - 2   
White - 5   
Red   - 3   

Notes:
The weekly charts are still neutral/bearish.  SPX is still
holding above the key 1370 level.  Price has coiled up
this week.  I think a resolution on whether to resume the
rally or break down below the 1370 level could happen next
week. 

Bob


Explanation:

I have color coded the price bars in green (up), white (neutral),
red (down) to represent the short term price movement.  I have
put together 9 items that have led SPX at times in the past. 
With SPX included there are 10 total items.  The idea is to use
daily for short term movement, weekly for intermediate and monthly
for long term.

SPX update

Let start with the weekly SPX chart.


SPX tested the 6 SMA from the bottom and ended the week a little below the mid point of last week's down bar.  It won't take much to turn the price bar red next week of we don't rally.

Lets look at the 195 minute chart.


We did bounce as I mentioned we might last night.  However, it was pretty feeble and SPX rolled back over
before the day was over.  It won't take much to turn these price bars red.

How about the 130 minute chart just for fun.


Here the price bars have turned back to red.  The market closed very near the low of the day setting up a possible gap down on Mon.  This rally consisted of only 1 green bar before rolling over again.  That was much shorter then the last two bounces.  Is that a sign sellers are getting more aggressive?

One more chart I want to show is the NDX 100 daily.


This index has clearly been a big winner this year.  It often leads the rest of the market so it pays to keep a close eye on it.  It is resting on its 50 DMA, will it find support or not?  I guess we will find out next week.

This was option expiration week and that can skew things a bit.  The market is close to starting another leg down, but it is still inside the up trending price channel shown on the 195 minute chart.  Next week is likely to be interesting.

Bob

Interesting ECRI article

I read an interesting article discussing the interconnectedness of the global economy off the ECRI web site today.  If you are a long term investor you might find this interesting. 
http://www.businesscycle.com/pdf/ECRI_TheYoYoYears.pdf


Bob

Thursday, April 19, 2012

SPX holding above 1370

SPX tested the key 1370 level again today, but bounced into the close.  Check out the daily chart below.


The price bars are still neutral.  Price was rejected at the 18 SMA and ended today slightly below the 50 SMA.  There was a considerable increase in volume today.  So far people have been selling into strength, but not in a panic yet.  If we break 1370, I would expect the sellers to get more aggressive.  Until that happens there is still a chance the market recovers.  Check out the 195 minute chart below.


The last few days price has formed an upward sloping trend channel.  The lower trend line was pretty close to the key 1370 level today.  Since we are still in the channel, SPX could easily bounce again.  Notice the difference in price behavior after this sell off as opposed to the early March sell off.  Clearly there are more sellers around this time.  We will see if the dip buyers have enough ammo to hold the bears off again or not.

Bob

SPY 60 min update


SPY briefly broke out the bottom of yesterday's range, but rebounded to break out the top.  It looked like the bulls might take control.  However, the bulls did not come to the party as they have been all year.  It is looking like the bears are in control in the short term.


Bob

Wednesday, April 18, 2012

SPY 60 min

The SPY 60 min chart was pretty interesting today.  Take a peak at how the closes of all the bars were relatively close together.  The candlesticks have tails in both directions.  We clearly have support and resistance pretty close together.  The break out of this pattern should be a good move.  The news has been driving the market lately, so that may determine which way this ends up breaking.


Bob

Industrial metals

It is often said that copper has a PHD in economics because it is so widely used.  However, commodities can sometimes have specific supply/demand issues that can cause short term price fluctuations beyond the economic reasons.  The JJM ETF represents all industrial metals together, not just copper.  This should be very representative of the global economy.  Check out the monthly chart below.



JJM is clearly below its 18 SMA and has been there long enough for the 6 SMA to have crossed below it as well.  Recently price has broken the lows of the last two months.  This ETF is clearly not giving us any indication the global economy is picking up.  Back in 2009, JJM turned up strongly in March confirming the big stock market rally.  It also turned up strongly in July 2010 and followed through on the upside in Sept. confirming the move up in stocks that fall.  JJM turned up strongly in Jan., but failed to follow through.  This time it is not confirming the big rally we have seen in the U.S. stock market.  There is a disconnect that was not present from 2009-2011. 

Bob

Tuesday, April 17, 2012

Current SPX chart

The chart below is a weekly chart of SPX.  The price bars are colored based on my short term trend formula (green up, red down, white neutral, blue is price outside 2 standard deviation Bollinger band).  My short term moving averages are the 6 SMA in yellow, and 18 SMA in blue.  SPX has dropped below its 6 SMA, but is still above its 18 SMA.  For the first time this year, price is neutral.  Last year's high of 1370 has been support for the last few days, and we got a good bounce off of it today.  Should 1370 eventually fail, the 18 SMA in the 1346 area would be my next key support level. 



On the daily chart below, we are coming into possible resistance.  The lower red line was derived from the area of prior support in the yellow circle.  That prior support could now be resistance.  I see we peaked
above the line slightly today.  The upper red line is derived from the 4/9 gap down.  Getting to that line would be a full gap fill.  The market has now alleviated the short term over sold condition we had on the 4/10 blue bar.  We are experiencing pretty big gaps in both directions the last couple of weeks.  That is more characteristic of a correction then an uptrend.  It might be wise to stay nimble right now.


Bob

Monday, April 16, 2012

McClellan Oscillator

The McClellan oscillator is a good tool to monitor the advancing and declining number of stocks on a daily basis.  Breadth is the lifeblood of the market and gives a lot of information about the conviction of market participants.  Before I get to the current situation, I want to show some charts from the past.

The first chart is from late 2010.  The market rallied quite strongly.  The McClellan oscillator is in the bottom panel.  As you can see in the area circled, the oscillator spent most of the time above the 0 line.  This is normal behavior.


The next chart is from the spring of 2010.  Early on in this rally the oscillator was very strong as it was above the green line (100 threshold).  Toward the end of the rally the oscillator flipped back and forth from positive to negative quite a bit.  This happens very often as the up move gets tired.


Now lets take a look at early 1998.  Once again the oscillator was staying in positive territory almost continuously through the up move.  When the oscillator went negative in April, the market traded sideways to lower like normal.


Here we have a chart of a consolidation before another move up.  This chart from 1999 shows the oscillator spending time in negative territory while price was going sideways.  This looks like a profit taking stage. Price held strong and eventually moved up again.


The next chart is from 1995.  Once again the oscillator was negative during sideways price action and the market blasted off eventually.



Now for the current situation.  Check out the chart from this year.


The first part of the rally from late last year was very strong.  The oscillator spent quite a bit of time above the 100 threshold.  However, something happened in early Feb.  The oscillator went negative and has stayed there almost continuously ever since.  If the market had gone sideways or down it would be understandable.
However, the market went up over 5% during this period.  Looking back to 1965, I cannot find anything even remotely like this.  I believe the major indexes were taken higher by a few big cap/high priced stocks while most of the market was left behind.  This is a common occurrence at both tops and bottoms.  The market thins out in the direction of the trend as the trend exhausts itself.   This is an unprecedented chart pattern.  It will be interesting to see how it plays out.

Bob

Friday, April 13, 2012

Market status system update

Market status system  Explanation at bottom.

Month          
-----          
Green - 6    
White - 4    
Red   - 0    
  
Week           
----           
Green - 0   
White - 6   
Red   - 4   

Day            
---            
Green - 1   
White - 4   
Red   - 5   

Notes:
The weekly charts turned to neutral/bearish this week.  No green
weeks left. I got a bunch of market internal indicators flashing
sell signals this week for the first time this year.  SPX ended
the week right at the key 1370 level..  That was last year's high
and a place we consolidated below for a couple of weeks in late
Feb.  The market could find support here.  However, we already
closed below it the other day.  Another close down there could be
all she wrote.

Bob

Explanation:

I have color coded the price bars in green (up), white (neutral),
red (down) to represent the short term price movement.  I have
put together 9 items that have led SPX at times in the past. 
With SPX included there are 10 total items.  The idea is to use
daily for short term movement, weekly for intermediate and monthly
for long term.

The economy

I keep hearing people on TV telling me how great the economy is doing.  They usually point to the housing and employment data when making their case.  Now I am not an economist, but I have done a little reading about economic data over the years.  The first thing I figured out is the commonly available data is completely useless for forecasting.  This is why most economists, including the FED, are often way off.  The ECRI has their own proprietary data that allows them to forecast much more accurately.  They are the only economists I will listen to.  The second thing I figured out is that seasonal adjustments can really cause big distortions in the data.  We just had one of the warmest winters in decades coming after two pretty cold winters.  Of all the data most affected by weather in the winter it is probably housing and employment.  It was warm enough for people to work outside and look at houses all winter long.  Can we trust the data at all?  The Q4 GDP had a huge inventory build.  So far this year the inventory data keeps surprising to the upside.  This means inventories are still building faster then expected.  Not all inventory builds lead to recessions, but all recessions start out with an inventory build.  The ECRI forecast a recession in the U.S. last fall and are still sticking with the call. What does the market think about the economy?  Lets take a look at the difference between now and last year with SPX in the 1370 area.  The chart below shows SPX and economically sensitive indexes all at the highs together.  We ended up with a 20% move down, but that was more about Europe and debt then the economy.







Fast forward to today.   Check out the difference now in the chart below.




Clearly the market has questions about the economy it did not have last year.  All three economically sensitive indexes have trend lines slanting down, not up.  The XLB has the steepest slope down.  The basic materials stocks are pretty much at the beginning of the economic food chain and they are in the worst shape.

Most people seem to agree that the emerging markets have been the engine of growth the last few years.  Lest see how they are doing now.




Hmm, last year EEM was at its highs along with SPX.  It looks like we have a little bit different picture today.  Take a peek back at the summer of 2010.  You can see EEM made a higher low in early July while SPX made a slightly lower low.  It was also showing relative strength through Aug. before SPX caught fire in Sept.  The global economy was starting to pick up again before the big rally late that year.  That clearly is not the case today. 

Bob

Thursday, April 12, 2012

ADX indicator

 I apologize for the size of these charts in advance.  I needed to show a lot of years to make it clear.  You can always double click on the image to make it bigger if you have trouble seeing them.
 
Besides moneystream, ADX is another useful indicator for determining secular bull or bear markets.  This indicator is a mathematical expression of trend strength.  In the middle panel of the chart below, you can see the indicator consists of 3 lines.  The green line is essentially buying power, the red line is selling power, and the blue line is the strength of the trend.  If the green line is above the red line, the blue line is measuring the strength of the uptrend.  When the red line is on top, the blue line is showing the strength of the down trend.

The Dow sold off into 1942 as WW2 was raging.  The blue line started rising sharply in 1940 indicating the down trend was getting stronger.  The rally that started in 1942 was very strong.  A previous post showed how moneystream reacted positively on that rally.  The blue line turned up strongly in 1943 indicating the uptrend was getting stronger.  By the time the Dow peaked in 1946 the blue line was quite high.  It was well above the last peak made in the down move in 1942.  That was a powerful move up.  This was a good sign the market was transitioning out of secular bear to secular bull.  During the subsequent pullback into 1949, the blue line dropped.  This indicated the down trend was not strong this time.  That was further evidence the secular bear market was ending.  Points A-F on the chart show the blue line consistently going up on up moves and down on down moves.  This is normal secular bull market behavior.



Now we will see how the ADX behaves when the market transitions back to secular bear.  Point A in the chart below shows the blue line going up while the market went down.  This was the first warning sign the secular bull could be over.  The rally off the 1966 low shows the blue line dropping as the Dow retested its 1966 high.  This was another warning sign for the market.  Points B-D show the blue line going up consistently on the down moves in the Dow.  The hallmark of a secular bear market.  Notice the sell off in 1981 and 1982 has the blue line flat.  This was the first down move in over a decade that did not show a strong trend.  This was the first sign that the secular bear market might be coming to an end.  The rally off the 1982 low left absolutely no doubt about that as the blue line rose sharply.  That was a strong rally and the secular bull market was off and running.


The pattern in the 80s and 90s was typical of a secular bull market.  Notice at point A in the next chart how the blue line dropped during the crash of 87.  Even though the moneystream showed considerable damage, as I showed in a previous post, the downtrend was not strong.  The up move in the early 90s did not have much trend strength as the blue line was very subdued.  However, it never picked up on any down moves either. There was no sign the secular bull was ending.  In the late 90s, the market took off and so did the blue line indicating the trend was again very strong. Notice that after point B in 1996, the blue line started drifting down.  Even though the market was still rallying furiously, the trend was not as strong.  I find this rather odd behavior when you look at how fast the market was going up.  In hindsight, I guess that was a bit of a warning sign.


The bear market that started in 2000 was a strong downtrend.  Notice how the blue line rose sharply into point C in the chart above.  When combined with the damage in the moneystream indicator in the bottom panel, it clearly shows the secular bull market was in trouble.  The market recovered with the Dow actually making a new high into the top of 2007.  SPX only managed to test its 2000 high, and the NASDAQ was nowhere near its old high.  The secular bear was having an affect that few people noticed.  The blue line moved up some in 2007, but  notice the peak was still well below the peak at point C.  The last down move was still a stronger move.  If the market had continued up and the blue line gotten stronger, or had it dropped during a pullback in the market, it could have been a positive sign for the end of the secular bear market.  However, that did not happen.  The ADX did not give any clear sign the secular bear was ending.  At point D we can see the move down from 2007 was another very strong downtrend.  That move reinforced that we were still in a secular bear market.  The moneystream in the bottom panel was really crushed on the monthly charts, just like it was in the quarterly charts I showed in a previous post.  That brings us up to the current situation.  As you can see the blue line has been falling this entire rally.  It is now at historically low levels, indicating this up move is not a strong uptrend yet.  The moneystream has barely recovered at all.  There clearly is no sign the secular bear market is over yet.

These charts show that the combination of moneystream and ADX are very powerful in determining what the market is doing in the big picture.  We can see that the market goes through cycles where buy and hold investing works and cycles where it doesn't.  It is also clear we are still in one of those cycles where it doesn't.  I believe there is still considerable downside risk in today's market.   The moneystream indicator is downright scary.

That wraps up the big picture analysis of where we are at now.  From here on out I will be discussing current things I see going on in the markets.

Bob

Wednesday, April 11, 2012

Moneystream 1990s

The rally into the market top of 2000 was classic euphoria.  The first quarter of the year saw record inflows into U.S. stock equity mutual funds.  Valuations were totally and completely over blown.  CNBC was on TV stations in sports bars and every other public place.  There was talk of the new paradigm, and that old valuation measures no longer applied.  It is different this time.  Sure, if you say so.  The chart below shows the pullback in early 2000 sent the moneystream back below its 22 MA.  The difference this time was the mid year rally failed to get support in the indicator.  When the market turned down again, a prolonged bear market took the indexes down considerably.  The NASDAQ was the most over valued index and therefore suffered the biggest decline.


The Dow actually held up the best of the major indexes.  As this next chart shows though, it was still pretty nasty.  There was a significant rally that started late in 2001 and lasted until the spring of 2002.  As you can see the moneystream never crossed its 22 MA and the market eventually sold off to new lows.


The rally in 2003 was a different matter entirely.  The next chart shows that by early 2004 the moneystream had made the cross.  The indicator lacked enthusiasm the next 2 years, but stayed above the 22 MA.  The market took off again in late 2006 and into mid 2007.  The moneystream picked up considerably on that rally, finally taking out the early 2004 peak.  However, even though the Dow got considerably above its 2000 high, the moneystream never did.  This was a bit of a negative divergence, but not enough to warn of what was to come.


Late in 2007 and early 2008 the market turned down sharply.  By early 2008, the moneystream crossed back below its 22 MA once again.  It was severe enough to take out the indicator's lows from 2004-06.  It was once again time to get cautious on the market.


By mid 2008 both the Dow and its moneystream had gone even lower and the bear market was off and running.  As the sell off continued, the moneystream was really crushed.  It eventually got well below its low of 2002.  On a quarterly basis, the Dow did not close below its 2002 low.  However, there was a temporary drop below that level in early 2009.  This looks like pretty serious trouble in the years ahead.  We know there was a massive rally from this low though, so lets see what happened.


As the chart below shows, the big rally has not been supported by moneystream.  In the sell off last year, the moneystream actually dropped below its 2009 low.  Now with the Dow above its 2011 high, the moneystream is at a lower high.  This is clearly different behavior then we saw in the late 60s and 70s.  It may be signaling more trouble ahead, but only time will tell.  I can say for sure that the market is definitely not in an all clear state.  The market gained over 100% since the 2009 low, but just look at that moneystream.  This looks an awful lot like the 73-74 bear market in reverse.  That 2 year bear market had a big decline, but the moneystream stayed strong throughout.  When the bear finally ended, the market rallied like crazy.  All market participants should be very cautious.


For many decades the moneystream indicator has been useful for big picture analysis.  It has been shown to have long range implications.  However, it can diverge from price for considerable periods of time.  Therefore, it is not a great market timing indicator on its own.  Next time I will show some monthly charts with an indicator that behaves very differently in secular bull and bear markets.  It can be used to help determine when the market is switching from one mode to the other.

Bob

Tuesday, April 10, 2012

Moneystream 1980s

As the chart below shows, the crash of 1987 took the moneystream below its 22 MA.  This was a serious penetration, but nothing bad happened to the economy in the process.  If I was looking at this in real time it would make me a bit cautious.  The key is what happens on the first real rally attempt after a crash.  In this case, the market was upward and onward.



As the chart below shows, the market and moneystream recovered over the next 2 years.  The moneystream was not particularly strong and the upward progress for the Dow was slow.  The drop in 1990 briefly took the moneystream below its 22 MA. Once again the market recovered to new highs.  The Dow continued its slow upward progress in the early 90s and so did the moneystream.  It was not until 1993 that the moneystream finally took out its 1987 high even though the Dow had done so in 1989.  By 1994 the moneystream was really gaining some enthusiasm.  You can see a big separation from its 22 MA.  This set the stage for the rip roaring market starting in 1995.





We can see in the chart below that the middle 90s saw a big move up in both the Dow and the moneystream.
The sell off in 1998 was around 20% and took moneystream marginally below its 22 MA again.  However, the rally in late 1998 and early 1999 took moneystream back up through its MA and to new highs along with the DOW.


So we have seen how the secular bull market in the 80s and 90s played out with the moneystream.  There were a few scary sell offs, but the market always recovered.  Even though the moneystream penetrated its 22 MA a few times, there was never any follow through on the down side.  Things were very different after 2000, but that will be the topic for next time.

Bob

Important

The information in this blog is provided for educational purposes only and is not to be construed as investment advice.