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
There was little change in my core market health indicators over the past week. They bounced around a bit, but no big moves. My measures of market strength are very close to going positive, but couldn’t make it this week. As a result, no changes to the core portfolio allocations.
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
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.
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.