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Monday, August 31, 2020

Strong Bull Market Indications (according to Martin Pring) 8/31

 Let us start with the monthly chart.

This is quite the megaphone or expanded volatility pattern.  There is nothing like this in the last 100 years.  I am having trouble picturing this chart as a launching point to a big bull market.  Martin Pring has a different idea.  Here is a chart and some text from his very good article Strong Bull Market Indications

The beginning of a powerful long-term bull market is often heralded with short or medium-term oscillators reaching an exceptionally high level. Chart 1 compares the S&P to its 20-week ROC and shows that three of the last four bull markets were signaled by the ROC reaching an extraordinary high level. Mid-July saw this indicator reach a post-1946 record. It's not the only example of a strong initial thrust, as I could have used several other breadth and price momentum series that transmit a similar message. In the three previous examples featured in the chart, it would clearly have paid to downplay the inevitable short-term correction, but instead to focus on the bigger trend.


The bottom line: expect the bull market to continue big time, but don't be surprised if a seasonal correction comes first.

Mr. Pring has a good point about the current thrust.  It shows a lot of strength.  Similar strength has started prior bull markets.  This may be dangerous, but I am going to say it is different this time.  All three prior signals came after many  months of downward price action.  The subsequent strength was smart money piling in while individual investors were largely still afraid to get back in the market.  Our current situation is much different.  We had a short, sharp sell off which greatly excited individual investors who piled into stocks like there was no tomorrow.  I believe the old adage (individual investors buy the least at the bottom and the most at the top applies) here.  Check out another chart from the article.

This chart shows a long running negative divergence of the common stock adv/dec line.  A big enough divergence to signal a very significant top.  There is actually a long term divergence from the high earlier in the year, and a short term divergence over the last few weeks.  Only 4 of the last 13 trading days saw positive breadth as the SPX kept climbing higher.  Very odd!

This next chart shows an amazing amount of optimism in the market.  Even more than in 2000!


A stunning chart amidst all the current unknowns, which are many.

The bull pressure chart shows all three time frames barely positive.  The long term lines (bottom panel) did not get up to the green line which was the minimum threshold reached at the initiation of the last two bull markets (2003, 2009).  That is as far back as my data goes.  Based on this data, I cannot say we have launched a new bull market.  

The size of the spring sell off happened in the shortest time in history for such a big move.  The retrace back to new highs in SPX happened in the shortest time ever from a sell off that large.  I see a lot of volatility.  I don't see a clear sign the market is breaking out and heading higher.  It looks like a significant top could be forming.  We need to stay vigilant just in case we are riding a bucking bronco.




Wednesday, August 19, 2020

A little tired 8/19

SPX finally made a  new closing high yesterday, mission accomplished.  Today SPX tested a bit higher early in the day before selling off late after the FED minutes came out at 2 PM.  I do not know why that sent stocks lower.  What I do know is breadth and volume are showing this last leg up in the market is weak internally.

There are a lot of open gaps left below.  I can't imagine this market rocketing higher without closing something down there.  There wasn't much enthusiasm to buy the highs today.  We will have to see if the bulls get more ambitious over the next couple of days.

The red count crossed above the green line today showing internal weakness.


Both the short term bull pressure lines (top panel) and the long term lines (bottom panel) have negative crossovers.  This chart clearly indicates the market has been under distribution for the last several weeks.  It is very rare to see a negative cross on the long term lines with SPX at an all time high.  At the Oct. 2018 high the lines were barely positive.  Price action tends to be sideways or down after a cross at the high.  In the past, it took a 5% or more pullback or a strongly positive event to reignite the bulls.  If the market continues higher from here, I would expect the first pullback would come back to around this level.  

The sentiment data is a bit interesting.  Let us look at the NAAIM survey (active money managers).  This survey is based on actual positioning, not on the outlook for the market.

The money managers are the most long they have been in the last two years.  Doesn't that strike you as odd in the middle of a recession?  Generally, upward progress is slow to come by in this condition, but the market usually moves higher over the short term.  What is really odd to me is my bull pressure indicator.  It usually shows a lot of strength when this survey is heavily long.  I am not seeing that this time.  It looks like the market is under distribution, but the active money managers are not the reason.  The data shows individual investors are buying stocks right and left, they are not the reason.    Is it so called smart money doing the selling?  If that is the case we could have serious trouble ahead.  Stay tuned.

Thanks for the cartoon sunny!

Peace and good health to all.



Wednesday, August 5, 2020

Last downside gap closed 8/5

Mission accomplished!  SPX managed to close the 2/24 gap down today.  Now what?

SPX pulled back a little bit when it hit the edge of this downside gap back in July.  I don't know if it was enough to alleviate the usual selling when a gap of this magnitude is closed or not.  We will have to see what transpires in the days ahead.  The only remaining objective would be to forge a new high in SPX.  Time will tell if that happens.

Neither the red/green count nor the short term indicator is in an overbought condition yet.  There is more room to run if the market wants to. 

I don't think SPX would get much past the old high should it get there on this go around.  Overall, the market is pretty thin now and in need of a pullback.  I guess we continue to play along with the bulls until we get a reason not to.  We just have to watch to see if there is some kind of negative reaction after closing that big downside gap.



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