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Improvement Across the Board

160729MarketHealth

Just a quick note this week. All of my core market health indicators improved this week, but we’re still waiting on measures of market quality and strength to move above zero before adding more exposure to the core portfolios. Have a good weekend everyone!

 
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More Improvement

160722MarketHealth

Over the past week my core market health indicators bounced around, but didn’t see significant improvement. However, I’m seeing other signs that the market can burst higher. First a weekly chart of the S&P 500 Index (SPX) has a clear break out of a bull flag with a successful retest (after a fake out). MACD confirmed the retest by not showing a bearish crossover. RSI on the weekly chart is also well above bear market levels. Next we have the Nasdaq 100 (NDX) compared against SPX. This ratio is breaking above its 20 week moving average. This condition usually results in a market that moves higher. Technology has been lagging since December 2015, but it appears that it is starting to lead again. If this condition persists it should fuel a good sized move higher in the general market. The only fly in the ointment is Dow Theory. The transports (DJTA) still haven’t broken above their last secondary high. If DJTA can get above 8110 it will signal that we’re

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Slow Improvement

160715MarketHealth

Over the past week all of my core market health indicators improved. None of them improved enough to change any portfolio allocations. One thing that is still concerning is that technology isn’t participating strongly in this rally. I’d like to see the ratio between NDX and SPX break above its 20 week moving average as a sign the rally has legs. Some consolidation here then a resumption of the rally that is led by financials and technology would be a very healthy sign of a big run ahead.

 
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Leadership Waning

160708BPSPX

Over the past couple of months, I’ve highlighted some encouraging signs that had accompanied price strength in the market. Unfortunately, most of those signs of strength haven’t persisted as the market is moving close to all time highs. First lets look at the Bullish Percent Index (BPSPX). It finally got above the 2015 highs in March and April of this year, but the subsequent consolidation in the market did serious damage to this indicator. It is still below 60% which is a big drag on the market (and adds the risk of a big decline). Basically, a lot of point and figure charts turned bearish during the last consolidation and haven’t righted themselves. Next is small caps stocks compared to big caps. They have lagged during the last rally. I like to see them lead as a sign of investors taking risk in their portfolios. Money flowed into mega cap stocks faster than big cap stocks during the last rally too. Another poor sign for a sustained rally. It looks

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That Was Quick

160701MarketHealth

Last week we got a market risk warning due to the surprise of the Brexit vote. This week, that warning has been cleared as market participants realize it will take a couple of years to sort out… so they can wait until then to panic. My core market health indicators, with the exception of trend, improved last week. The overall numbers are still soft, but positive enough to change the portfolio allocations to the following. Volatility Hedged portfolio: 100% long Long / Short Hedged portfolio: 80% long high beta stocks and 20% short the S&P 500 Index (or the ETF SH) Long / Cash portfolio: 60% long and 40% cash One thing of note that happened over the past few weeks is the Dow Jones Transportation Average (DJTA) created a new secondary high near 8110. The Dow Jones Industrial Average (DJIA) also created a new secondary high near 18100. DJIA is above November 2015 secondary high, but DJTA is below all of its recent secondary highs. As a result, Dow

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Market Risk Warning

160624MarketHealth

Just a quick note, my Market Risk Indicator is warning today. As a result, the portfolio allocations are now as follows: Volatility Hedged portfolio: 50% long and 50% hedged with mid term volatility (and ETF/ETN similar to VXZ) Long / Short Hedged portfolio: 50% long high beta stocks and 50% hedged with mid term volatility Long / Cash portfolio: 100% cash I suspect it will take a couple of weeks to see what the fallout of Brexit will be. Until the market has less risk the portfolios will remain hedged or in cash. FYI, the market risk warning takes precedence over my core market health indicators.

 
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Market Risk Rising

160617MarketHealth

This past week has seen a significant increase in my stock market risk indicator components. Currently, two of the four components are warning, however, three components warned at times during the week. The fourth component still has a bit of room before creating a market risk signal. With the market so close to all time highs it is odd behavior to see market participants so skittish. The behavior I’m seeing in the indicator components is similar to the action during the dip in mid June 2011. This isn’t a prediction of any decline to come, merely a heads up to let you know that a warning could come quickly if the market continues to fall. Risk is rising, but we don’t have a warning yet so there is no change to the Volatility Hedged portfolio. It remains 100% long. My core market health indicators are still suffering damage as the market dips. Most significantly, my measures of trend could go negative over the next few weeks if the market can’t

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Still Lacking Leadership

160610NDXvSPX

Here’s an updated (and cleaner) chart of the Nasdaq 100 index (NDX) / S&P 500 index (SPX) ratio. It has turned down from below its 20 week moving average. This is discouraging because I believe we won’t get a sustained rally above the all time highs in SPX unless we get some leadership from NDX. Over the past week, all of my market health indicator categories fell a bit, but not enough to make any portfolio allocation changes. The core portfolios have roughly 60% long exposure to the market. The Volatility Hedged portfolio is still 100% long.

 
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Leadership

160603spxew

One thing I like to see during market rallies is strong leadership from three areas of the market at the same time; big cap stocks, small cap stocks (RUT), and the Nasdaq 100 (NDX). For big cap leadership, I like to see broad participation from a majority of stocks in the S&P 500 index (SPX). One way to measure large cap breadth is from indicators like the Bullish Percent Index or percent of stocks above their 200 day moving average. A few weeks ago, I highlighted their recent strength. Another way to measures large cap breadth is by comparing mega cap stocks to large cap stocks. I do this by comparing the S&P 500 Equal Weight index (SPXEW) against SPX. Long time readers know that I use a dip below the 20 week moving average in the SPXEW v. SPX ratio as a warning sign that some chop is ahead (and possibly danger). When this occurs it signals that money is rotating out of big cap stocks and into mega

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What People Are Watching

Published on May 30, 2016 by in Market Comments
160530DailyBullFlag

Over the past couple of weeks I’ve seen a lot of blog posts and Twitter charts highlighting the bull flag on a S&P 500 Index (SPX) daily chart. This week the bull flag was broken to the upside. The flag itself is important, but is made more important by the notice of a lot of market participants. Remember, what makes technical analysis a powerful tool isn’t just the patterns themselves… it’s the number of people and the amount of money that act on the pattern. The chart I’ve been watching and believe is more significant is the weekly bull flag on SPX. Of course, no one is talking about it so it’s probably irrelevant. Anyway, what I’m seeing on this chart is a nice clean break above the weekly bull flag and then a successful retest of the upper trend line. This last chart is probably the most important. It represents price targets tweeted by traders for SPX. Most people are tweeting 2100 and 2110-2115. That doesn’t represent a lot

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