Exhausted

We have a chart depicting the diverging index of the NASDAQ. This index indicates the most exhausted uptrend for years. The formula is:

(Day Momentum * 40 Day Momentum)/Variance 40 Day Price Changes

Of course: everyone wants to buy for the projected year end by Goldman Sachs (S&P500 + 15%).

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the bullish percent index

The bullish percent index is one of our favorite instruments in order to gauge the trend. This indicator is based on the point and figure technique.
Point & Figure chart analysis has been popular for a very long time. Part of its original appeal was that it was very simple for someone to maintain a large collection of P&F charts back in the days before computers. In less than an hour, using just a pencil, a newspaper and some graph paper, P&F chartists were able to update and analyze 50 or more charts every day. When computers arrived, they made it much easier to create bar charts and P&F charts started to fade in popularity.
The NYSE Bullish Percent Index is calculated by reading either a buy or a sell signal from the point and figure chart of each of the 2800+ stocks on the NYSE each evening. The value of the index represents the percentage of stocks listed on the NYSE that signal a buy.

One can look to the bullish percent index of the index. As an example we take the S&P500.

But we can learn a lot more if we look to the different sectors making up an index. As is showed below:

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Behind the scenes

Folks, look out. Stocks are getting a beating in general. Look to the weekly chart of stocks in the S&P500 above their 50-day moving average. We are at 41.

Another view is offered by the bullish percent indices of the different sub segments of the S&P500. This index is based on the point and figure technique and you can see that energy stocks are really diving from a cliff. Also financials are moving lower.

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Is the Baltic Dry Index deceptive?

Attention folks: while Chinese imports of iron ore have been up 25% since the start of this year, Chinese steel production is only up 3%. What’s happening? Inventory build-up for sure.
So be careful for those who think that the Baltic Dry Index is an indicator of economic activity. Maybe it is but also maybe not.

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Technicals

Another picture. We are looking to the advance-decline volume of the NYSE, charted in a cumulative way. We observe how this indicator trended upward with the upward sloped market trend starting in March 2009. However, since May there is consolidation.
While equity market sentiment is getting more and more positive, other indicators are not following. This is one of them.

This consolidation is confirmed by the number of issues figuring above their 50-moving average. Still 88% have a positive trend. Of course this consolidation can continue a long time.

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The Coppock curve

From Bloomberg:

The gauge was named for E.S.C. Coppock, who introduced what he described as a “very-long-term buying guide” in an October 1962 story for Barron’s. Coppock, who died almost two decades ago, wrote that his indicator gave “a picture of the emotional factor” behind stock swings. He advised investors to buy shares in anticipation of “an important, sustained advance” when the guide started to increase from less than zero.

That kind of shift occurred last month, according to data compiled by Bloomberg. The guide climbed to -409.4 from April’s -417.2, the lowest reading since June 1938. Calculations based on the Dow Jones Industrial Average showed a similar reversal.

Coppock calculated the difference between an index’s value at the end of each month and its closes 11 months and 14 months earlier. He added these figures together and computed a 10-month average that gave greater weight to the latest numbers. The S&P 500 sent more accurate signals than the Dow in the postwar era, Bloomberg’s data show. U.S. stocks advanced 16 of 17 times in the first year after the broader index’s Coppock curve turned higher. The exception followed a December 2001 reversal. For the Dow, the success rate was 13 of 19.

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Correction

We were not used to it anymore, but they still exist indeed: corrections. We knew one was coming. Because exhaustion was going on as shown on this chart. The McClellan oscillator was already diverging for some time now.

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It's a long way to Tipperary...

How do I love this song written in 1912.

But a long way it is.

I have a friend who’s a bond dealer at D.
I spoke him this morning and he confirmed what is becoming clear the last couple of days in the market: the demand for good credits is booming.
It seems that credit markets are on their way back.
This theme is also reflected in the Credit Derivatives Swap markets where spreads are tightening. No, not all is lost. But it will take a long time.

Having said this, friends, I as you attention as the bull movement is overbought with the minute now.

All technical indicators are screaming now that the equity markets are overbought. Look to this indicator showing how many stocks of the S&P500 are humming above their 50-day moving average... Spooky

So, be careful out there

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Bull run - Part 3

Looking to another indicator, we see that the NASDAQ 100 Bullish Percent Index touches 77. Meaning 77 of the 100 components produce a buy signal based on the point-and-figure theory. That’s high. Toppish.
But it can take a while before things will roll over.

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Bull run - Part 2

The NASDAQ McClellan Summation index has risen very far, but nowhere we can see any sign of weakness.
So if you bet on a decline of this index – be very careful because timing will be very important as one rally is not equal to another.

Now let’s add another indicator: the MACD. Here we look to the NYSE McClellan Summation index. If the MACD rolls over, this indicator follows suit. And also precludes a trend in the index.

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Is the rally fading?

Yesterday we stated that the rally on the exchanges is nearing a top. Here are some pictures to illustrate this thought.We have:

1. the number of shares above their 50-day average

2. the bullish percent index on the NYSE

3. De McClellan summation index

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A top in the making?

Is a top in the making?
The answer is ‘yes’. We observe that major indices are overbought. Take indicators as stocks above their 50 day moving average or bullish percent indices: they are all trading in overbought territory.
Now, a top doesn’t mean necessarily a correction. Another possibility to work off this overbought condition is through consolidation and some sideways trading.
Professionals will try to bring indices further up through sector rotation.
Don’t forget: short interest is not declining for the moment, so rotation combined with earning reports will suit the bears so they can prepare another assault later on this quarter.

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This one was a beauty...

A few weeks back we showed you the bullish percent index from energy stocks within the S&P500. Our accompanying note was that more than likely a bottom was in the making. Yes, I hear one say, but all the shares went higher in the mean time.
However - this one was right on the mark

This index displays the percentage of oil stocks trading with bullish technical patterns. Oil stocks are overbought whenever the chart rises above 70, and the sector is oversold when the chart drops below 10.

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The market is still overbought

The New York Stock Exchange (or NYSE) Summation Index gives an indication about the breadth of The NYSE index.
It ‘s a momentum indicator.

We can add a moving average convergence/divergence indicator in order to look for buy and sell signals.
The signals are generated by crossovers of the MACD and the control line which is nothing else than a 9 period average on the difference between a 12 en 26 day average.

This summation index was developed by Sherman and Marian McClellan and is derived from the number of advancing and declining stocks in a given market. In fact it’s the daily accumulation of an oscillator based on this principle.

Apart from the original method used by the McClellans other versions exist. We use the following formula:

Summation index = 1000 + (10%trend – 5%trend) – [(10 x 10%trend) + (20 x 5%trend)] where
5%trend = 39-day exponential moving average of (advancers – decliners)
10%trend = 19-day exponential moving average of (advancers – decliners)

This market is not in a good shape and way overbought. So be careful in the comingweeks/months as this overbought condition can be reversed

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