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.
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
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,
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
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.
Over the past week my core market health indicators bounced around, but were mostly down. None of them moved enough to change any portfolio allocations. Enjoy the holiday weekend everyone!
As most of you know, I believe the market is currently in a long term down trend. However, I’m starting to see things that put the bear market in doubt… which should be a really good sign that we’re still in a down trend — because bear market rallies create enough doubt to suck people in. Back to the point, take a look at the chart below. It is a point and figure chart of the S&P 500 Index (SPX). This chart shows an intermediate or short term up trend within the confines of a longer term downtrend. But a closer look at the short scale indicates a long term sideways range. It will take a break of the range to add clarity to the pattern. A daily chart of SPX has a fairly clear downtrend channel. This indicates a new bear market is underway. We have to consider the current rally as a bear market rally until the upper bound of the trend channel is broken. If that channel