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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.




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