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Chart Repair

160520spxbp

The rally out of the February lows has repaired a lot of charts. If you look at the bullish percent index (BPSPX) the last rally brought the percent of bullish point and figure charts in the S&P 500 Index (SPX) to nearly 80%. That level is higher than BPSPX achieved during all of 2015. This is an encouraging sign for the market as a whole because it gives BPSPX plenty of room to consolidate before getting below the 60% level. Long time readers know that I use readings below the 60% level to indicate increased risk (big market declines occur when breadth is already weak). So as long as BPSPX stays above 60% this indicator will remain bullish. Another indication of chart repair comes from the percent of stocks in SPX that are above their 200 day moving average. This indicator is back to the 2015 level again. It has also improved substantially from the levels of the August 2015 to November 2015 rally (which had price peaking above the

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Not Much Change

160513MarketHealth

This week had little effect on my core market health indicators. They mostly deteriorated, but in a small way. One significant change this week came from my measures of market quality. They are approaching oversold territory. The last time this happened was in early February just before the market began the current rally. Don’t take that as a prediction, just an observation. The short story is we wait another week to see if the dip continues or ends.

 
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Still Waiting for Resolution of Long Term Trend

160506MarketHealth

Another week passes and we’re still waiting for a resolution of the long term trend. Is it up or is it down? I don’t know. Dow Theory is still calling the long term trend down. My core market health indicators are mildly positive. That leaves us modestly long in the core portfolios. My market risk indicator isn’t even close to warning so the volatility hedged portfolio remains 100% long. Quite a difference from three reliable methods that use disparate inputs. This is just one more example of the market giving mixed messages. The conclusion is, we’re left waiting for more information in hopes that the different strategies pick the same direction and we get a good trend to ride… either up or down.

 
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Mixed Messages

160429spxPnF

The market is exhibiting behavior that we often see during times of indecision. Price is swinging in a large range and at the same time intermediate and long term indicators are giving mixed messages. Take a look at how compressed the the Y axis is on a point and figure chart for the S&P 500 Index (SPX). This clearly shows the sideways range of the past two years along with with multiple changes in the short to intermediate term trend (over the past year). The current trend is up and will stay that way as long as SPX stays above 2020… which coincidentally is about where the 200 day moving average is. The next set of mixed messages comes from a weekly chart of SPX. Weekly RSI is trying to turn down near normal bear market peak levels, while at the same time MACD is moving above levels associated with bear markets. Monthly momentum and MACD are mostly exhibiting bear market behavior. MACD is a little stronger than we normally

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Measures of Trend Positive

160422MarketHealth

Over the past week all of my core market health indicators improved. Most notably are my measures of trend, which went positive. Measures of market strength almost made it into the green, but missed it by a fraction. I suspect that category will be positive next week (even with a bit of consolidation in the market). With measures of trend moving from negative to positive it changes the core portfolio allocations as follows: Long / Cash portfolio: 60% long and 40% cash Long / Short Hedged portfolio: 80% long high beta stocks or ETFs and 20% short the S&P 500 Index Volatility Hedged portfolio: 100% long (since 3/4/16) The chart below shows allocations changes over the past year. Green lines represent adding long exposure, yellow represents reducing exposure or adding a SPX short as a hedge, red lines represent aggressive hedging with volatility. It’s been a rocky road where we get aggressively hedged in a steep decline then the market makes a low shortly after without accelerating to the downside.

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Dow Theory Non-Confirmation

Published on April 15, 2016 by in Dow Theory, Featured
160415DowTheory

Yesterday the Dow Jones Industrial Average (DJIA) closed above its last secondary high point, however the Dow Jones Transportation Average (DJTA) is still about 4% away from its last secondary high. This creates a non-confirmation where one index is making new highs while the other is lagging. When a non-confirmation occurs it puts the current trend in doubt… kinda. As I’ve said before, most non-confirmations just don’t matter. They’re normal conditions during any trend so we have to wait for both averages to agree before drawing any conclusions. Until then the long term trend is still considered bearish. But, it’s time to start watching the transports closely. If they can surpass their last high it will indicate that a new bull market has begun (or that the bear call in February was a whip saw or false signal). Along with the non-confirmation that is inherently bullish my core market health indicators are improving rapidly. The measures of market trend and strength are improving quickly enough that one or both categories

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Dow Theory Update

Published on April 13, 2016 by in Dow Theory
160413DowTheory

The Dow Jones Industrial Average (DJIA) closed about 10 points below its last secondary high point today. The transports (DJTA) are still about 4% away from their last secondary high. If both indexes can close above those levels in the coming weeks the bear will be dead. If the bear market is going to continue I’d guess we’ll see a non-confirmation of the bear that looks something like DJIA closing above 17,918, but not reaching new highs. While at the same time DJTA won’t be able to make it above 8302. Keep an eye on DJIA and DJTA over the next few weeks because they’ll give clues to the long term trend. Another chart I’ve been watching is the S&P 500 Index (SPX) daily. It’s rallied back to its downtrend line. If it can close above that level for a few days then I suspect that we’re going on to new all time highs. Looking at a weekly chart of SPX, one could argue that we’re merely painting a bull

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Watch the Dip

160408DowTheory

It’s been almost eleven months since the Dow Jones Industrial Average (DJIA) has made a new high. It’s been over fifteen months since the Dow Jones Transportation Average (DJTA) has made a new high. But, DJIA is only about 5% away from its highs. This makes it difficult for many people to determine if we’re in a bull or a bear market. According to Dow Theory, we’re in a bear, but getting close to levels that would turn the bear to a bull. When that occurs it’s time to watch the dip. All we have to do is watch to see if the downtrend resumes in force or if we get a small consolidation that rallies and breaks above the last secondary highs in DJIA and DJTA. A break higher will turn the bear to a bull. While we wait for a resolution, the core portfolios are moderately hedged or have a small exposure to the market. The volatility hedged portfolio, that is much more aggressive than the core portfolios,

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Roll Over or Rally Hard?

Published on April 6, 2016 by in Market Comments
160406spxRSI

Several weekly and monthly indicators for the S&P 500 Index (SPX) are getting to levels that generally mark the top of bear market rallies. We’re sitting right at the point where the market will likely roll over or start an extremely sharp rally. First look at the weekly chart for SPX. RSI is just below 60. This level if broken to the upside will be a good sign that we’re headed for a rally. If it turns down from here the bear market should resume. MACD is also right below zero, the level that usually constrains price during bear markets. On the monthly chart for SPX momentum is back to the 100 level. If it can break through it will be another sign that the market is going to move higher. MACD on the monthly chart is trying to turn up. If it can turn up it will add weight to the rally argument. Another chart that indicates we’re at an inflection point comes from Trade Followers Twitter sentiment. It

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Not Much Change

160401MarketHealth

Another week with not a lot of change in my core indicators. The core portfolios remain modestly long. The volatility hedged portfolio is 100% long (since 3/14/16). My recent posts have been short because I’ve been on the coast vacationing. One observation from the trip. The beach just isn’t what it used to be.

 
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