http://www.financialsense.com/images/titles/banner_editorials.gifhttp://www.financialsense.com/editorials/gue/EGue.jpg Elliott H. GueEditor, The Energy LetterGuest Contributorhttp://www.financialsense.com/editorials/gue/energyletter.gif ARCHIVED ARTICLES
03/14/2008Oil Bull Market Uncovers Two New Opportunities
02/02/2008The Value Commodities
01/11/2008Where's the Gas?
12/29/2007Think Big
12/15/2007Dividends on the Cheap
12/02/2007Oil's Going to $70
11/18/2007The Great Coal Grab
10/15/2007Looking Refined
09/29/2007The Home Stretch
09/14/2007Liquid Energy
08/23/2007Drilling Down: A Buying Opportunity
07/27/2007Coal Earnings
07/13/2007The Trouble with Refining
06/29/2007Tilting At Windmills
06/15/2007Washington's Gift of Coal
06/14/2007Uranium Boom Part 2
06/11/2007King Coal
06/01/2007Vive La France
04/27/2007A Tale of Two Crudes
04/13/2007Lowering the Bar
04/09/2007Uranium Stocks About to Gap Higher
03/30/2007All Hat, No Cattle
03/05/2007Non-OPEC's No-Show
02/25/2007Rags-to-Riches
02/16/2007Getting Creative
02/02/2007No Easy Way
01/12/2007Slippery Start For Oil
12/29/2006Production Means Investment
12/15/2006A Holiday Gift
12/07/2006Going Platinum
12/02/2006Signs of Strength
11/15/2006The Next Big Investment
11/10/2006Growing Profits
10/30/2006$100 Uranium Before 2010
10/14/2006NIMBY
09/15/2006The Diesel Dilemma
08/31/2006Growing Fuel
08/04/2006Nuclear Power And the Environment
07/06/2006The Key to Stock Market Success!
06/22/2006Hold 'Em or Fold 'Em?
06/10/2006The Gas/Oil Disconnect
05/26/2006Don't Forget the Nuclear Option
05/09/2006Hidden Profit Sectors of Energy Bull Market
05/06/2006Protecting Those Gains
04/21/2006Sticking to the Services
04/07/2006The Crude Story
04/03/2006Riding the Rails
03/24/2006Speculation or Reality?
03/23/2006The Other Yellow Metal
03/03/2006Commodity Pricing and Risk
02/22/2006Food for Thought
02/18/2006The Good, The Bad, The Ugly
02/03/2006Services & Alternatives
01/20/2006The Great Gas Shortage
01/13/2006The Best Energy Investments of 2006
01/06/2006Oil Reserves and Reservations
12/23/2005No Panaceas
12/12/2005The Saudi Miracle
12/09/2005The BTU Gap
11/28/2005Politics, Energy and Infrastructure
11/18/2005The Next Big Income Investment
BIOGRAPHY
Elliott H. Gue is editor of The Energy Letter, a bi-weekly e-letter as well as editor of The Energy Strategist, a premium bi-weekly newsletter on the energy markets. Mr. Gue is also associate editor for Personal Finance, where he contributes his knowledge of the energy markets.
Mr. Gue has a Master’s of Finance degree from the University of London and a Bachelor of Science degree in Economics and Management from the University of London, graduating in the top 3 percent of his class. Mr. Gue was the first American student to ever complete a full degree at that university.
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http://www.financialsense.com/images/titles/banner_editorials.gifhttp://www.financialsense.com/editorials/hodges/images/hodges.jpg Michael W. HodgesAuthor, Grandfather Economic ReportGuest Contributorhttp://www.financialsense.com/editorials/hodges/images/darts.gif ARCHIVED ARTICLES
10/09/2007Federal Government Spending Report Update 2007
09/24/2007The U.S. Dollar's Two-Step: A Long-Term View
04/17/2007Foreign Trade & International Debt Report, Update 2007
04/02/2007The Bottom Line: A Debt Summary, Update 2007
03/15/2007America's Total Debt Report - Update 2007
03/06/2007Economic Productivity Report
11/16/2006Family Income Report
06/20/2006Federal Government Spending Report Update 2006
06/08/2006Foreign Trade & International Debt Report, Update 2006
04/20/2006The Bottom Line: A Debt Summary, Update 2006
04/06/2006America's Total Debt Report - Update 2006
01/06/2006Inflation - Who Says It's Dead?
12/18/2005Grandfather Economic Health Care Report
12/09/2005Federal Government Spending Report
06/19/2005The Bottom Line: A Debt Summary
04/12/2005Foreign Trade & International Debt Report, Update 2005
04/02/2005Social Security Report
03/13/2005America's Total Debt Report - Update 2005 - $40 Trillion and Soaring
11/20/2004Financial Terrorism Against Seniors
04/04/2004Economic Energy Report
03/17/2004Bottom Line Debt Summary Table
02/14/2004International Trade Report ~ 2004 Update
June 2003 International Trade Report: A Summary of International Trade & Debt
May 2003 The US Dollar and Its Loss in Foreign Exchange Value
April 2003 America's Total Debt Report
BIOGRAPHY
Over the years, Jim Puplava and Financial Sense Online have been indebted to Mr. Hodges for his untiring research and inspired graphics which visually tell the story of the downward spiral of our economy and our nation's great wealth. We invite you to read all chapters of Michael Hodges' Grandfather Economic Report, which include picture presentations on serious issues facing our nation. Once you do, you're hooked. Following is a summary editorial of one of the most recent updated chapters. All links in the article lead directly to individual pages in his site.
Grandfather Economic Report, was inspired by "the beautiful, trusting eyes of my infant grandchildren and by my admiration, respect and gratitude for Nobel Laureate Economist Dr. Milton Friedman."
Michael's passion is to present a web site with a collection of easy-to-understand picture/reports to increase awareness of certain threats to the economic future and freedom of families and their children, compared to the past.
These reports include topics on family income, debt, savings, government spending, education quality, social security, regulations, taxes, inflation, energy, foreign trade and exchange, voter turnout, trust, national security, and health care.
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http://www.financialsense.com/images/titles/banner_editorials.gifhttp://www.financialsense.com/economy/northern/kasriel/images/PaulKasriel.jpg Northern TrustPaul L Kasriel
Sr. Vice President & Director of Economic Research
The Northern Trust CompanyGuest Contributorhttp://www.financialsense.com/economy/northern/kasriel/images/ntlogo.gif MONTHLY ARCHIVED ARTICLES
09/15/2008Time for FOMC Hawks to Eat Crow
04/18/2008Japanese consumer confidence flickers
03/13/2008Why Did the Fed Raise Rates in October 1931?
02/04/2008Recession Now – Putting Our Forecast Where Our Mouth Has Been
DAILY ARCHIVED ARTICLES
12/10/2008The Credit Rating on a Benevolent Counterfeiter’s Debt – Infinity A?
07/17/2008Retail Sales – What a Difference a Deflator Makes
06/27/2008Current Growth in Money and Credit Aggregates Not Fueling Inflation
06/23/2008Another Blow to Household Cash Flow
04/29/2008$536 Billion Worth of Household Assets Evaporated in February?
04/28/2008The Fed Is Shedding Treasuries at an Annualized Rate of $601 Billion
04/07/2008Did Greenspan Have to Cut the Fed Funds Rate as Much?
04/03/2008Ring-Fence the Bad Assets – Re-Arranging the Deck Chairs on the Titanic?
03/27/2008A Profits Recession
03/26/2008The Bell Curve of Doom? – The Case-Shiller Home Price Index
03/24/2008It’s So Over for Household Spending
03/20/2008Wall St. Rallies on Philly Fed Reading
03/17/2008There Should Be a Quid Pro Quo between the Fed and Financial Institutions
02/22/2008Is This Your Daddy’s Stagflation?
02/11/2008Alm's for the Poor?
01/25/2008Week in Review: Central Bank Policies
12/19/2007Gross Financial Investments vs. Net Financial Investments
12/17/2007I Have a Lot of Problems With You People!
11/19/2007The Energizer Bunny Is In Dire Need of a Battery Re-Charge
10/15/2007No Recession in Sight: If You Are Nearsighted
09/17/2007Growth Recession Now, The Real Deal Tomorrow?
09/12/2007Is Mishkin Mishuga About Asymmetric Monetary Policy Responses?
08/29/2007The Result of 35 Years of a Paper Global Monetary System
08/24/2007There's No Such Thing as a Free Bailout
08/13/2007Wall Street and Main Street are Joined at the Hip
08/07/2007Growth in Domestic Private Final Demand: It's Falling - Can it Get Up?
07/24/2007Wealth Effect or Borrowing/Asset Sales Effect?
07/10/2007Second Quarter Rebound, Third Quarter Relapse, Fourth Quarter Rate Cut?
06/05/2007The More The Fed Delays Cutting, the More We Cut - Our GDP Forecast
05/30/2007Gene Epstein's Great American Savings (SIC) Myth
05/25/2007Waiting for Godot and Predicted Supply-Side Results
05/14/2007The Rest of the World is Going to Rejuvenate the U.S. Economy?
04/22/2007LEI and KWRI - It's Different This Time?
04/13/2007Yes, the FOMC Is Predominantly Concerned About Inflation, But...
04/10/2007When the Facts Change, I Change My Model...
03/22/2007Recession Imminent? Both the LEI and KRWI Are Flashing Warning
03/16/2007The Inverted Yield Curve: Is it Really Different this Time?
03/13/2007Three Quarters of Below: Potential Growth and Counting
02/07/2007The Fed Probably Thinks It Is on Hold for All of 2007
01/09/2007Want to Improve Your Economic Forecasting?
12/15/2006Festivus Flow-of-Funds Stocking Stuffers
12/12/2006Goods-Producing Sectors Are Where The Action Is
12/08/2006What has the Fed Usually Done in this Situation?
12/05/2006The "Carry" Trade in U.S. Housing Looks to be Over
BIOGRAPHY
Paul L. Kasriel is senior vice president and director of economic research at Northern Trust. His economic analysis and financial market commentaries, written in his straightforward and often non-consensus style, have won a loyal following in the financial community.
Mr. Kasriel has been named the 2006 Recipient of the Lawrence R. Klein Award / Blue Chip Forecast Accuracy for 2002 through 2005. Read More
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http://www.financialsense.com/images/titles/banner_editorials.gifhttp://www.financialsense.com/editorials/lee/johnlee.jpg John LeePortfolio Manager, Mau CapitalGuest ContributorARCHIVED ARTICLES
02/10/2009The (Zimbabwean) Dollar - The Point of No Return
01/20/2009John Lee's Calls On Gold And Various Markets For 2009
12/19/2008Revisit of the tight-bound relationship between gold and oil
11/26/2008How John Lee Would Clean Up the Financial Mess
11/05/2008The Deflation Debate: Why this time is different
09/18/2008Gold up to $893, Finally the Wait is Over
08/26/2008Eagle Rationing: Where there’s Smoke, there’s Fire
08/22/2008Freddie's Loss is Gold's Gain
08/19/2008Heightened Risk in the Global Marketplace by David Cai
08/12/2008Bear Comparison: Today's Junior Resource Sector vs 2001's Nasdaq
08/07/2008Is this a Bottom for the US Dollar? by David Cai
07/21/2008Primer in Mining Equity Investment
07/08/2008Bernanke's Indecision on interest rate opens the door for Resource Juniors
06/20/2008Not all metals are created equal, Part 1
05/23/2008The Case for USD 1,300/oz Gold
05/12/2008Now it's May, Do We Sell (Gold Shares) and Walk Away?
05/05/2008Money, Inflation, Deflation and Gold
04/21/2008US Subprime Bottom
04/09/2008The start of a run for gold
03/27/2008Silver versus Gold, with silver updates
02/29/2008Like beauty, the value of gold and the dollar are in the eye of the beholder
02/08/2008Response to Subprime Article by Nobel Prize Winner Joseph Stiglitz
01/24/2008Update on World’s binge on American debt
12/19/20072008 Fundamental and Technical Review for Gold and Gold stocks
11/14/2007Subprime Mortgages Lead to Subprime Currency
10/24/2007Gold and RMB: Last Shoe to Drop the Dollar
10/05/2007Depression, Debt Implosion, Gold, and Prosperity
BIOGRAPHY
John Lee, CFA is a portfolio manager at Mau Capital Management. He is a CFA charter holder and has degrees in Economics and Engineering from Rice University. He previously studied under Mr. James Turk, a renowned authority on the gold market, and is specialized in investing in junior gold and resource companies. Mr. Lee's articles are frequently cited at major resource websites and a esteemed speaker at several major resource conferences.
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http://www.financialsense.com/images/titles/banner_editorials.gifhttp://www.financialsense.com/editorials/kleinman/kleinman.jpg George KleinmanEditor, Commodities TrendsGuest Contributor
http://www.financialsense.com/editorials/kleinman/logo.jpg ARCHIVED ARTICLES
04/28/2008Can You Profit from the Rice Shortage?
04/15/2008Rising Inflation Pushes Commodities Higher
03/18/2008Market Turmoil Affecting Commodity Prices
01/22/2008The End of an Era
12/26/2007Best and Worst Commodity Performers
12/11/2007An Astonishing Rise in Oil Volatility
11/27/2007Crossing 100
11/12/2007Measuring "Cheap"
10/16/2007Scenarios and Outcomes
10/01/2007Soy Secret
08/20/2007What to Do Next, Part 2
08/07/2007What to Do Next: 5 Financial Alternatives (in stocks)
07/23/2007Future Corn Fuel
06/25/2007Dow Tipping Over
06/23/2007Secrets of Successful Trading in Commodities and Financial Futures
06/11/2007Coping With Volatility
05/26/2007The Golden Key
05/14/2007The $500 Million Cotton Bust
04/30/2007Trend
04/02/2007Panic Leads to Opportunity
03/06/2007Powerful Trading Tool
02/20/2007The Commodity Opportunity Roundup
02/06/2007It's Never Easy
01/22/2007The Big Picture
01/08/2007Collapse or Correction? (And My Lessons for 2007)
12/26/2006Spread Trading
12/11/2006A Diabolical Story
11/26/2006A Bigger Bull?
11/13/2006Gold: Putting It Into Perspective
10/30/2006Chocolate Money
10/16/2006Grain Fortunes
10/03/2006Soy Secret
09/18/2006Commodity Bust = Buying Opportunity?
09/06/2006Alternative Market Observations
08/21/2006Fortunes in the Making
08/07/2006The Trend Is Your Friend
07/24/2006When the Markets Make No Sense
07/10/2006Profiting From Higher Interest Rates
06/26/2006Cheap Enough?
06/13/2006Wheat Profit Opportunity
05/26/2006Powerful Indicator
05/15/2006Correction in the Cards (But Not A Top)
05/12/2006Grand Slam Trade of the Year
05/01/2006The Big Picture & One Path to Profits
04/18/2006A Tale of Three Markets
04/03/2006How to Play Yellow Gold
03/20/2006Profit Clues
03/06/2006The Next Gold Will Be Yellow
02/21/2006How to Succeed in the Stock Market
02/06/2006Different Now
01/23/2006What's Going On? Something Big is Brewing
01/17/2006Commodity Profits 2006 Redux
01/09/2006Gold 'N' Wheat
12/27/2005Commodity Profits 2006
12/14/2005Golden Opportunity Or Golden Trap?
BIOGRAPHY
George Kleinman is the President of Commodity Resource Corp. (CRC), a futures advisory and trading firm that assists individual speculative traders as well as institutional and corporate hedgers. In 2005, George launched his new e-mail advisory service for individual investors, Futures Market Forecaster. He has been trading full time since 1977, and has been an Exchange member for over 25 years, and is the author of 3 books on commodity futures trading (published by the Financial Times). Bio continued.
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http://www.decisionpoint.com/images/freepgicon_spot.gif http://www.decisionpoint.com/images/arrow_back.gif Back to Chart Spotlight Menu http://www.decisionpoint.com/images/spacer.gif http://www.decisionpoint.com/images/spacer.gif 2006 ASSESSMENT 1/6/2006
2006 Assessment
by Carl Swenlin I am often asked to make an annual forecast, and I frequently oblige, but this year I'd like to take a different approach. Rather than making a "forecast," let's make an assessment of some significant factors that will be affecting market progress in 2006. First is the 4-Year Cycle. On the S&P 500 chart below I have drawn vertical lines through the actual 4-Year Cycle troughs, as well as a few places where price troughs should have occurred but didn't. For the most part we can say that significant price lows occur every four years about 85% of the time. Take note that the log scale causes recent price movement to be greatly under emphasized, and significant declines/lows in 1987, 1990, 1994, and 1998 appear as mere blips. http://www.decisionpoint.com/ChartSpotliteFiles/060106_2006out01.gif
The next 4-Year Cycle price low is due in October of this year. Subordinate cycles suggest that the low may arrive a few months on either side of that projection, and there is no guarantee that the decline will play out in a straight line. For now we should be looking for some above average difficulty between now and the end of the year. Fundamentals also present problems for the market. The next chart shows the index of S&P 500 earnings and a presentation of the P/E ratio based upon prior peak earnings, a methodology developed by John Hussman (hussman.com). As you can see, over the long term earnings have trended higher in relation to a trend line that rises at an average of about 6% a year, and the current earnings peak is very close to that trend line. This has been the situation for the last two years, and could account for the market's slow progress during that time. http://www.decisionpoint.com/ChartSpotliteFiles/060106_2006out02.gif
Currently, the P/E has remains at a level where, except for the bubble years of 1998-2002, the market at best had trouble making forward progress, and at worst experienced major declines. This will be a significant drag on the market until the P/E can correct back toward the area of 15, which represents fair value. A correction to undervalue (10) could also happen, but that is a rare occurrence and not necessary to set up favorable conditions. CONCLUSION: Normal cyclical expectations and high valuations present significant obstacles for the market this year, and the bull/bear cycle suggests that a significant decline will occur between now and the end of the year. That said, I should point out that Decision Point's timing models for the broad market remain on buy signals, and the trend is up. The odds favor a decline this year, but the top isn't in place yet.
[ 本帖最后由 hefeiddd 于 2009-4-2 10:42 编辑 ]
Undermining Gold
by Carl Swenlin While mining gold has become very profitable, there are many signs that future prices are being undermined. For example, our first chart shows total assets and cash flow for Rydex Precious Metals Fund. While assets have risen along with price, cash flow (the bottom panel on the chart) reflects that money has actually been flowing out of precious metal stocks. This means that the rally has very thin support. SIDEBAR: We are seeing similar divergences across a wide range of Rydex index and sector funds. http://www.decisionpoint.com/ChartSpotliteFiles/060119_gold02.gif
Our next chart of the gold ETF shows that a similar technical divergence is affecting the price of gold as well. Note how the December and January OBV (on-balance volume) peaks were about equal and failed to confirm recent highs. Also, OBV during the last two weeks' rally has been virtually flat -- again failing to confirm the price advance, and implying that distribution is taking place. http://www.decisionpoint.com/ChartSpotliteFiles/060119_gold03.gif
Finally, sentiment for gold is becoming very bullish, as demonstrated by our last chart which shows the premium/discount being paid for Central Fund of Canada (CEF), a closed-end fund that owns gold and silver. Closed-end funds trade like stocks and can trade at a premium or discount to the actual net asset value (NAV) of the fund's assets. Currently, in their rush to own gold, investors are willing to pay nearly 10% more than the fund's assets are actually worth. http://www.decisionpoint.com/ChartSpotliteFiles/060119_gold01.gif
Conclusion: Both gold and gold stocks are overbought and showing signs of internal weakness. Bullish sentiment is becoming excessive. All this evidence implies that a correction us due. It could be a short-term event lasting a few weeks, or it may stretch out over several months, and the amount of the correction could be quite jarring; however, I have no reason to conclude that the bull market in gold is over. It is time to guard stops and be patient until the technical problems have cleared, and another buying opportunity presents itself.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
02/02/06 - Correction Phase Beginning
Correction Phase Beginning
by Carl Swenlin With the market having formed numerous tantalizing tops since the end of November, perhaps the title of this article should say that a correction phase is finally beginning. And, considering all those previous false starts, why am I so sure that this time is the real thing? Well, I'm pretty sure that a medium-term correction is in progress because the PMM Percent Buy Index (PBI) has turned down and crossed down through its 32-EMA. The PMM (Price Momentum Model) PBI is an important indicator that reveals the degree of bullish participation and whether that participation is getting stronger or weaker. http://www.decisionpoint.com/ChartSpotliteFiles/060203_correction1.gif
On the chart I have marked the current PBI top as well as three prior significant tops, which were also followed by 32-EMA downside crossovers. All three tops initiated a correction lasting from three to six months. There is no guarantee that the same thing will happen this time, but the similarity between the tops gives me a high degree of confidence in my conclusion. The next chart shows our IT Breadth and Volume Momentum Oscillators (ITBM and ITVM), and you can see how the market's internal strength peaked about two months ago, and these indicators gave a similar early warning for the other three corrections. http://www.decisionpoint.com/ChartSpotliteFiles/060203_correction2.gif
The ITBM and ITVM show that the current market condition is neutral (the indicators are near the zero line), but it is likely that they will be spending a few months working below the zero line as the market begins to correct in earnest. There is no way to tell if the correction will be sideways or sharply down, but we are due for a cyclical bear market, and the 4-Year Cycle is pointing toward a major price low in October, so odds are in favor of a significant price decline.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
02/17/06 - Short-Term Overbought
Short-Term Overbought
by Carl Swenlin In my February 2 article I stated my belief that a medium-term correction is in progress because the PMM Percent Buy Index (PBI) has turned down and crossed down through its 32-EMA. The chart below shows this condition still exists, and I have not changed my mind at this point. http://www.decisionpoint.com/ChartSpotliteFiles/060217_overbought1.gif
Some readers pointed out that a similar occurrence in 2003 did not have serious negative effect on prices. I agree, and I should have mentioned this in the article. There is, however, a big difference in the 2003 PBI top and those that occurred afterwards. That 2003 top occurred after a huge upward thrust of the PBI from deeply oversold levels that signaled the beginning of the bull market. The PBI has not been that deeply oversold since. This week the market has rallied, once again challenging recent highs and straining the credibility of any bearish outlook, but in doing so it has become quite overbought in the short-term, while also approaching overhead resistance. The overbought condition can be seen on the chart of our OBV Indicator Set* below. The Climactic Volume Indicator (CVI) has reached the top of its normal range, and the ST Volume Oscillator (STVO) is not far behind. These are short-term indicators. http://www.decisionpoint.com/ChartSpotliteFiles/060217_overbought2.gif
The internal problem with the rally can be seen on the Volume Trend Oscillator (VTO), which is a medium-term indicator. Note how the rallies in April and October were launched from deeply oversold levels on the VTO, whereas the current rally launched after the VTO had only dropped to neutral levels. The same problem exists on the charts of many other medium-term indicators. While the rally may continue, its pedigree is pretty weak, and indications are that it has run out of steam short-term. While we can use indicators to evaluate market conditions and anticipate problems and opportunities, we still rely on mechanical models to determine what our market posture should be. The following table shows the status of our primary medium-term models for the major indexes and spider sectors as of the close on February 16. ************ DECISION POINT MARKET POSTURE ********** Days Index 02/16 PointsPercentIndex Posture Date Elap@Start Close P/L P/L------------------- ------- -------- ---- ------- ---------------------S&P 500 BUY 11/04/051041220.141289.38 +69.24 +5.7%Dow BUY 11/07/05101 10586.23 11120.68+534.45 +5.0%Nasdaq 100 Neutral 02/13/06 31645.831688.61 .... ....S&P 100 BUY 11/07/05101 563.30 585.79 +22.49 +4.0%S&P Equal Wt (RSP) BUY 11/04/05104 160.84 174.15 +13.31 +8.3%S&P 400 MidCap BUY 11/07/05101 715.78 774.73 +58.95 +8.2%S&P 600 SmlCap BUY 11/10/05 98 347.03 377.02 +29.99 +8.6%Wilshire 5000 BUY 11/09/05 99 12227.02 12987.59+760.57 +6.2%Consumer Disc (XLY) BUY 11/01/05107 31.67 33.71 +2.04 +6.4%Consumer Stpl (XLP) Neutral 02/07/06 9 23.18 23.62 .... ....Energy (XLE) BUY 11/16/05 92 47.68 51.46 +3.78 +7.9%Financial (XLF) BUY 11/02/05106 30.11 32.37 +2.26 +7.5%Health Care (XLV) BUY 11/10/05 98 30.57 32.50 +1.93 +6.3%Industrial (XLI) BUY 11/07/05101 29.91 32.37 +2.46 +8.2%Materials (XLB) BUY 10/31/05108 27.26 31.27 +4.01 +14.7%Technology (XLK) BUY 11/07/05101 20.75 21.85 +1.10 +5.3%Utilities (XLU) BUY 12/16/05 62 32.60 31.76 -0.84 -2.6%As you can see, there are very few cracks in the wall so far -- only the Nasdaq 100 and Consumer Staples have dipped sufficiently to cancel their buy signals. For all the indexes shown, long-term conditions are still too bullish to permit sell signals. If the buy signals fail, the market posture will change to neutral.
Rydex Cash Flow Is Bearish
by Carl Swenlin The Rydex Cash Flow Ratio*, which is shown on the first chart below, reflected a fair amount of bullish sentiment and peaked around the end of November. Since then it has been sliding down toward the bearish side of the range in spite of the fact that prices have been moving higher. This is not normal -- prices normally drive the Ratio as money flow adjusts to price movement. My first conclusion was that over-anxious bears were placing their bets too early and driving prices higher with their short covering; however, a closer examination of the Ratio's components reveals that something quite different, and dangerous, is taking place. http://www.decisionpoint.com/ChartSpotliteFiles/060303_RydexCFRatio1.gif
The chart below shows the components of the Cash Flow Ratio. Note that, since November, bear plus money market funds cash flow has been flat to slightly rising, demonstrating clearly that the bears have been relatively patient. On the other hand, cash flow for bull plus sector funds has decreased dramatically. This means that money has been moving out of bullish funds even though prices have moved higher. This is almost always a bad sign. http://www.decisionpoint.com/ChartSpotliteFiles/060303_RydexCFRatio2.gif
To summarize, the Rydex Cash Flow Ratio divergence does not reflect premature bearishness, rather it shows that many people (smart money?) are quietly moving toward the exits. This is just one of a long list of divergences that can be observed on our indicator charts, and, even though the trend of the market is still up, increased caution is appropriate.
RYDEX CASH FLOW RATIO: The Rydex Cash Flow Ratio gives an improved view of sentiment extremes by using cumulative cash flow (CCFL) into Rydex mutual funds rather than using the totals of assets in those funds (which we use for the Rydex Asset Ratio). It is calculated by dividing Money Market plus Bear Funds CCFL by Bull Funds plus Sector Funds CCFL. To read more click here.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Investors Intelligence Sentiment Helps Bulls
by Carl Swenlin Last week I wrote an article entitled Rydex Cash Flow Is Bearish in which I pointed out the divergence between bull and sector fund cash flow, which was declining, and price, which was rising. This divergence still exists. Historically, such divergences result in price declines much more often than they do not, and I asserted that it was most likely that we would see a similar outcome from the current divergence. Nevertheless, a divergence has developed in the Investors Intelligence Advisor Sentiment poll that I have to interpret as bullish. Note on the chart below how the percentage of bulls has dropped, the percentage of bears has increased, and the Bull/Bear Ratio is at its lowest point since the August 2004 low, which marked the end of the longest and deepest correction of the current bull market. http://www.decisionpoint.com/ChartSpotliteFiles/060310_iisent.gif
What is wrong with this picture? While sentiment has grown increasingly bearish over the last several weeks, prices have continued to rise. This is very unusual because prices drive sentiment, not the other way around. For example, as prices rise, people become more bullish, and vice versa. So how do I explain the divergence? I can't. This isn't supposed to be happening, but it is. Could it be that people are getting smarter and are correctly anticipating an imminent price decline? That's not the way sentiment works. Maybe it is different this time, but it is safest to interpret indicators the usual way, not try to make them fit a forecast. The bottom line is that current Investors Intelligence bearish sentiment readings are bullish for the market. Based solely upon this, I would expect prices to move higher until sentiment becomes more bullish, or at least more neutral. This is in conflict with a whole lot of other indicators (and expectations), including Rydex cash flow, but indicators are seldom unanimous. To clarify, I do not mean to imply that this sentiment reading overrides everything else, just that it makes me very nervous about being bearish. There is too much of a consensus in favor of a negative outcome, a situation that is more likely to result in a rally rather than a decline. That is not a forecast, just a heads up for those of you who are dying to be short.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Market Is Short-Term Overbought and at Resistance
by Carl Swenlin Last week I wrote an article entitled Investors Intelligence Sentiment Helps Bulls in which I pointed out that sentiment had become very bearish, and that the market was more likely to rally than decline. Since then the market has enjoyed a short rally, but sentiment continues to be steadfastly bearish, a persistent positive for the market; however, the market has become short-term overbought and it has run into long-term resistance. The bottom two panels on the first chart show the breadth and volume versions of the Swenlin Trading Oscillator (STO) -- short-term indicators. As you can see, both indicators have reached the overbought side of their range. This condition needs to be relieved, but this could happen without a price decline -- as you can see in May and July of last year the indicators dropped toward zero while prices continued higher. Could this happen again this time? Let's look at a longer time frame. http://www.decisionpoint.com/ChartSpotliteFiles/060317_ob1.gif
The chart below shows our intermediate-term indicators -- the PMO (Price Momentum Oscillator), as well as the ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators. They are all in the neutral zone, and have a long way to go before they reach overbought levels, so there is plenty of room internally for prices to move higher. By the same token, there is also plenty of room for them to move lower, but they are not currently acting as if they want to go in that direction. http://www.decisionpoint.com/ChartSpotliteFiles/060317_ob2.gif
Finally, let's look at the price index. We can see that it has been hugging the top of the rising trend channel for nearly four months, and it has just squeaked above the line of resistance. This is not a decisive breakout, but it is another manifestation of the persistent bullishness that prices have been displaying for quite a while. Bottom Line: Our mechanical timing model has been bullish since November 4, 2005. Short-term indicators are overbought and problematic, but medium-term indicators, as well as sentiment, allow for a continued advance in prices for at least a few more weeks.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Market Trend Is Still Up, But . . .
by Carl Swenlin The overall trend of the market is still up, but there are very few new opportunities surfacing. Taking a look at our primary mechanical timing models below, we can see that nearly all of the broad market and sector indexes are on profitable buy signals, but most of the signals are relatively old and do not offer ideal conditions to put new money to work. Days Index 03/31 PointsPercentIndex Posture Date Elap@Start Close P/L P/L------------------- ------- -------- --------------------------------S&P 500 BUY 11/04/051471220.141294.83 +74.69 +6.1%Dow BUY 11/07/05144 10586.23 11109.32+523.09 +4.9%Nasdaq 100 Neutral 02/13/06 461645.831703.66 .... ....S&P 100 BUY 11/07/05144 563.30 587.75 +24.45 +4.3%S&P Equal Wt (RSP) BUY 11/04/05147 160.84 176.40 +15.56 +9.7%S&P 400 MidCap BUY 11/07/05144 715.78 792.11 +76.33 +10.7%S&P 600 SmlCap BUY 11/10/05141 347.03 394.83 +47.80 +13.8%Wilshire 5000 BUY 11/09/05142 12227.02 13155.42+928.40 +7.6%Consumer Disc (XLY) BUY 11/01/05150 31.66 33.76 +2.10 +6.6%Consumer Stpl (XLP) BUY 03/01/06 30 23.53 23.69 +0.16 +0.7%Energy (XLE) BUY 03/29/06 2 54.56 55.17 +0.61 +1.1%Financial (XLF) BUY 11/02/05149 29.95 32.54 +2.59 +8.6%Health Care (XLV) BUY 11/10/05141 30.47 32.16 +1.69 +5.5%Industrial (XLI) BUY 11/07/05144 29.80 33.81 +4.01 +13.5%Materials (XLB) BUY 10/31/05151 27.13 32.66 +5.53 +20.4%Technology (XLK) BUY 11/07/05144 20.75 22.27 +1.52 +7.3%Utilities (XLU) Neutral 03/24/06 7 31.55 31.06 .... ....Another problem is that, while the signals are showing a profit, in many cases (like the S&P 500) the profit is rather narrow for the age of the signal, and much of it would be lost if the trend were to change. (It takes about 3% to 4% to generate a signal change.) Nevertheless, I am pleased with how the models have been performing under the circumstances. The problems reflected by the timing models is also evident in the following chart of the S&P 500. We can see that the trend has been up since the price low in late October; however, the index has been stalled by the resistance at the top of the shallow rising trend channel, which could continue to impede progress for some time to come. And, even in the context of the rising trend channel, prices are due to correct back to at least the bottom of the channel, and that is not a situation that invites renewed risk taking. http://www.decisionpoint.com/ChartSpotliteFiles/060331_trend1.gif
While prime opportunities may be few, there are two worth considering. First, the S&P Energy Sector has generated a new buy signal after a short correction. Note that it is bouncing up off the bottom of a rising trend channel. http://www.decisionpoint.com/ChartSpotliteFiles/060331_trend2.gif
Also Interesting is the Nasdaq 100 Index. It still failed to pass all the screens necessary to generate a new buy signal, but it is very close to doing so. It too is bouncing off the bottom of a rising trend channel. http://www.decisionpoint.com/ChartSpotliteFiles/060331_trend3.gif
While both charts are promising, they represent the modest opportunities found after a correction in an established rising trend. They are not likely to result in the kind of gains we see from deeply oversold bear market lows. It is especially interesting that the Nasdaq 100 is looking positive at this time. It could provide the required push to keep the broader market rising for a while longer. I must emphasize, these are not recommendations, and the timing signals are not infallible.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Energy Advance Not Supported by Cash Flow
by Carl Swenlin One way we can gauge sentiment regarding a particular market or sector index is by watching asset levels and/or cumulative net cash flow in and out of the related Rydex mutual fund. In general, cash flows should rise and fall along with prices. When divergences occur, price movement should be questioned. For example, a large price move accompanied by a small increase in cash flow indicates there is probably not broad support behind the price move and that the rally could fail. Or, a sharp decline that does not result in proportional cash outflows probably indicates too much optimism and the likelihood of an additional decline sufficient to cause capitulation. In the case of Rydex Energy Fund we can observe that, as we would expect, money flowed out of the fund when prices declined from the January top. After the correction was completed, prices once more advanced toward the January high; however, this price advance was not confirmed by money flowing back into the fund. In fact, assets and cash flow have remained flat during the price advance. http://www.decisionpoint.com/ChartSpotliteFiles/060414_energy.gif
How can the fund's price advance if money is not pushing the move? Remember, the fund's price is actually its NAV, which is the net asset value of the securities owned by the fund. The value of these securities will change as a result of their being traded in the market. The fact that fund asset levels and cash flow do not confirm price changes indicates that volume associated with the move is drying up. In the case of Energy Fund, we can assume that the advance is not likely to be sustained. At DecisionPoint.com we track assets and cash flow on all 47 Rydex funds. They are invaluable sentiment indicators.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
New Nasdaq 100 Equal Weight Index ETF
by Carl Swenlin This week the new Nasdaq 100 Equal Weight Index ETF (QQEW) began trading on the Nasdaq. I have been a long-time and enthusiastic advocate of equal weighted indexes because they truly allow you to spread your risk equally among all the stocks in the index, and I am very pleased to see this newest trading vehicle become available. Let's take a moment to explain what an equal weighted index is. Most market/sector indexes are weighted by capitalization, which means that the largest cap stocks exert the most influence on the index. For example, I once examined the S&P 500 Index and found that the top 50 stocks (ranked by market cap) actually represented about 70% of the entire S&P 500. What this means is that the remaining 450 stocks have very limited influence on the index. For several years Decision Point has been calculating unweighted indexes for the S&P 500 and Nasdaq 100 Indexes. Equal weighted or unweighted, the basic methodology is the same -- the index changes are calculated as the average percentage change for every stock in the index. In the case of the Nasdaq 100, add up the percentage change of all 100 stocks in the index and divide by 100. Since each stock in the index is supposed to carry equal weight, positions must be re-balanced periodically so that they are remain equal. With Decision Point's unweighted indexes we assume daily re-balancing, but as a practical matter, the S&P 500 and Nasdaq 100 Equal Weight Indexes are re-balanced quarterly. Surprisingly, there has not been a significant difference in the results of daily or quarterly re-balancing. Below is a chart of the new Nasdaq 100 Equal Weight Index compared with the traditional Nasdaq 100. The bottom panel is a ratio chart that shows the relative strength of new index to the old. When the ratio is rising, QQEW is performing better than the NDX, and vice versa http://www.decisionpoint.com/ChartSpotliteFiles/060428_QQEW.gif
But wait! If QQEW just began trading, where did all the historical data come from? We created historical data for QQEW by adjusting the data from our Nasdaq 100 Unweighted Index. Obviously, we cannot claim that is an accurate representation of historical data for QQEW, but my attitude is that it is way better than nothing, and it is probably closer than we think to what reality would have been. With this estimate of prior performance, we are able to get a technical perspective much more quickly than if we had to wait for sufficient data to drive the indicators and models. In the end I prefer equal-weighted indexes because they perform much better than their cap-weighted alternatives. For example, the Nasdaq 100 advanced 114% from the October 2002 bear market low to the recent highs. During the same period our unweighted Nasdaq 100 Index advanced 178%. The secret behind this superior performance has to do with the fact that the smaller-cap stocks in an index usually perform better than the large-cap stocks; however, one should always be aware of the changing relative strength between the unweighted index and its cap-weighted version. Bear markets usually cause small-cap stocks to under perform large-cap stocks, so equal weight indexes may be more dangerous than the cap-weighted alternatives.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Good and Bad News About the Dollar
by Carl Swenlin On March 17 our trend model turned from bullish to neutral on the US dollar, and since then the technical picture has continued to deteriorate. Prices have dropped precipitously from near 90 to near 85, and the weekly 17-EMA has crossed down through the 43-EMA, a long-term sell signal. (The weekly moving average crossover is not "official" until the end of the week, so the sell signal could be erased if there is a sharp rally on Friday.) The weekly moving average crossover is a big deal, because, as you can see on the chart below, it doesn't happen very often. http://www.decisionpoint.com/ChartSpotliteFiles/060505_USD-1.gif
While price action and internals are negative, there is the possibility that a bullish reverse head and shoulders is forming. There is a clear left shoulder and head, and the support line at 85 could facilitate the formation of a right shoulder. If the dollar can rally off the support at 85, we would want it to rally up through the neckline drawn at 93 in order to execute the pattern. There is no guarantee that this will happen, but it is a possibility. The next chart is a long-term view of the dollar using a monthly chart (each bar equals one month), and it shows another set of positives and negatives. Starting with the negatives, the monthly PMO has topped, and the 6-EMA has crossed down through the 10-EMA. Both are long-term sell signals. On the positive side, we can see that there is very strong long-term support between 78 and 80. If the reverse head and shoulders pattern fails to execute, it could be that the current decline will lead to a double bottom on the support around 80 in preparation for a strong upside trend reversal. http://www.decisionpoint.com/ChartSpotliteFiles/060505_USD-2.gif
Bottom Line: We are currently neutral on the dollar, and the technical condition of the index is negative; however, support zones at 85 and 80 could provide a solid basis for a long-term bottom. Sentiment shows the lowest percentage of bulls since late-2004, so a short-term bounce is likely very soon.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Oversold Bounce Is Due, But Decline Probably Not Over
by Carl Swenlin During the last two weeks the market has experienced a much needed (and long anticipated) decline, and now it is due a bounce out of a short-term oversold condition; however, the decline could continue for a few more months. On our first chart below we can see that the CVI (Climactic Volume Indicator) and the STVO (Short-Term Volume Oscillator) have reached deeply oversold levels and have turned up. This is a pretty good indication that a short rally could be starting. http://www.decisionpoint.com/ChartSpotliteFiles/060519_oversold-1.gif
Also, note the rising trend line I have drawn on the chart. For several months it has acted as support as the market worked its way higher. Unfortunately, that line has been decisively penetrated, and it will now function as overhead resistance. My guess is that any rally will not exceed 1300 on the S&P 500. The next chart shows three of our primary medium-term indicators -- one each for price, breadth, and volume. The ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators have become modestly oversold, but the PMO (Price Momentum Oscillator) has only just passed through the zero line and is nowhere near the level where other declines have ended. Also, the violation of the shoer-term rising trend line suggests that the decline will continue at least to the bottom of the medium-term rising trend channel. http://www.decisionpoint.com/ChartSpotliteFiles/060519_oversold-2.gif
The best-case scenario is that the decline will end once the PMO, ITBM, and ITVM turn up from oversold levels, which might only take a few more weeks; however I want to call your attention to the March-August 2004 correction. Note that indicators (and the market) made three oversold bounces before the correction was finally over. Bottom Line: An oversold bounce can be expected, but there is plenty of room (and need) for a continued decline longer-term. Our primary timing model for the S&P 500 switched from buy to neutral on Friday, so I am inclined to believe we are in for some rough sailing over the next several months.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Finally! An ETF for Gold Stocks
by Carl Swenlin This week the Market Vectors Gold Miners ETF (GDX) began trading on the AMEX. traders and investors have been waiting many years for this ETF because it is the first ETF to focus on gold mining stocks. Heretofore, mutual funds were the only practical way to invest in a basket of gold stocks, but most will agree that ETFs are better vehicles because they can be traded intraday, and they can be sold short. I expect that GDX will become very popular very quickly, while at the same time gold stock mutual funds will lose a lot of business. GDX is designed to track the AMEX Gold Miners Index ($GDM), the chart of which looks very similar to the well-known XAU (Philadelphia Gold Mining Index), but I think the GDM is a better index because it contains over two-and-a-half times as many stocks as the XAU and, therefore, has a heavier weighting toward small-cap stocks. This means that most of the time it can perform stronger with less volatility. For example, during the rally from the October 2005 low to the May 2006 high GDM was up 84% compared to only 70% for the XAU, and the GDM pullbacks were less severe. (Note: Smaller-cap stocks normally perform better in bull markets.) Even though GDX has only been trading for four days, you will note on the chart below that we are showing data prior to that time. At DecisionPoint.com it is our custom, whenever possible, to create historical data for new securities by adjusting data from the derivative index. In this case it we have used adjusted GDM data, and we think the chart gives a relatively accurate theoretical picture of how GDX would have traded. For we technicians this simulated data provides a context for trading the security without having to wait for live data to accumulate. http://www.decisionpoint.com/ChartSpotliteFiles/060526_gdx-1.gif
Before I conclude, I should probably make a quick analysis of the chart. A lot of people think the gold rally is over, and they could be right, but at this point the chart only shows a short-term correction in the context of a rising trend. Also, the PMO (Price Momentum Oscillator) has moved back to the level where two previous corrections found support, and the price index seems to be forming a small double bottom. The conditions are good for a short rally at the very least. It is my opinion that the introduction of the gold ETFs over a year ago had quite a bit to do with the sharp rally gold experienced during that time. By the same token, it is also possible that the debut of GDX could attract a lot of money to gold stocks, causing at least one more run at new highs. Nothing here should be construed as a recommendation to buy or sell this security, but I am a big fan of ETFs, and I am delighted that this new product is available.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Finally! An ETF for Gold Stocks
by Carl Swenlin This week the Market Vectors Gold Miners ETF (GDX) began trading on the AMEX. traders and investors have been waiting many years for this ETF because it is the first ETF to focus on gold mining stocks. Heretofore, mutual funds were the only practical way to invest in a basket of gold stocks, but most will agree that ETFs are better vehicles because they can be traded intraday, and they can be sold short. I expect that GDX will become very popular very quickly, while at the same time gold stock mutual funds will lose a lot of business. GDX is designed to track the AMEX Gold Miners Index ($GDM), the chart of which looks very similar to the well-known XAU (Philadelphia Gold Mining Index), but I think the GDM is a better index because it contains over two-and-a-half times as many stocks as the XAU and, therefore, has a heavier weighting toward small-cap stocks. This means that most of the time it can perform stronger with less volatility. For example, during the rally from the October 2005 low to the May 2006 high GDM was up 84% compared to only 70% for the XAU, and the GDM pullbacks were less severe. (Note: Smaller-cap stocks normally perform better in bull markets.) Even though GDX has only been trading for four days, you will note on the chart below that we are showing data prior to that time. At DecisionPoint.com it is our custom, whenever possible, to create historical data for new securities by adjusting data from the derivative index. In this case it we have used adjusted GDM data, and we think the chart gives a relatively accurate theoretical picture of how GDX would have traded. For we technicians this simulated data provides a context for trading the security without having to wait for live data to accumulate. http://www.decisionpoint.com/ChartSpotliteFiles/060526_gdx-1.gif
Before I conclude, I should probably make a quick analysis of the chart. A lot of people think the gold rally is over, and they could be right, but at this point the chart only shows a short-term correction in the context of a rising trend. Also, the PMO (Price Momentum Oscillator) has moved back to the level where two previous corrections found support, and the price index seems to be forming a small double bottom. The conditions are good for a short rally at the very least. It is my opinion that the introduction of the gold ETFs over a year ago had quite a bit to do with the sharp rally gold experienced during that time. By the same token, it is also possible that the debut of GDX could attract a lot of money to gold stocks, causing at least one more run at new highs. Nothing here should be construed as a recommendation to buy or sell this security, but I am a big fan of ETFs, and I am delighted that this new product is available.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Bears Have Hardly Budged
by Carl Swenlin Despite a massive rally on Thursday, the Rydex Cash Flow Ratio reflects that very few bears have given up. The Rydex Cash Flow Ratio, an exclusive DecisionPoint.com indicator, gives an improved view of sentiment extremes by using cumulative cash flow (CCFL) into Rydex mutual funds rather than using the totals of assets in those funds (which we use for the Rydex Asset Ratio). It is calculated by dividing Money Market plus Bear Funds CCFL by Bull Funds plus Sector Funds CCFL. While the Ratio is not necessarily representative of the entire stock market (it only involves money in Rydex mutual funds), it has proven to be a reliable sentiment indicator. Our first chart shows that the Ratio is at the low end of its range, meaning that bearish sentiment is at an extreme level. Note that Thursday's rally only effected a small up tick on the Ratio, so very few bears have been shaken loose. This is bullish for the stock market because short-covering bears are like rocket fuel for rallies. http://www.decisionpoint.com/ChartSpotliteFiles/060616_ryratio-1.gif
Our second chart shows how the recent rally was in fact a bounce off the bottom of a rising trend channel. That means the support, so far, has held, and that is also bullish. Additionally, most of our medium-term indicators are oversold, providing a good foundation for an extended rally. http://www.decisionpoint.com/ChartSpotliteFiles/060616_ryratio-2.gif
Bottom Line: Our primary mechanical timing model remains neutral, and it will take continued constructive market action to turn it back to bullish. An excess of bearish sentiment and generally oversold market conditions provide a good setup for a rally; however, I must emphasize that oversold conditions are very dangerous if the bull market is transitioning to a bear market. For planning purposes, I will assume that the rally will continue, but my market posture will remain neutral pending a buy signal on our timing model.
Bulls Are Still In Control
by Carl Swenlin I am hearing loud assertions from both extremes -- that we have entered a bear market, and the opposing view, that we have begun another major bull market up leg. In my opinion, neither view is correct; however, the bulls are still clearly in control. Looking at our first chart we can see that the S&P 500 has decisively broken up through the top of the declining trend channel that has defined the recent correction. Equally important, key timing model components are on the verge of generating a new buy signal. Specifically, the PMO (Price Momentum Oscillator) has recently crossed up through its green moving average line, and the Percent Buy Index (PBI) is about to do the same. Once the buy signal is generated, my market posture for stocks would change from neutral to bullish. (Editor's Note: Complete descriptions of the Thrust/Trend timing model and its components are available on the DecisionPoint.com website in the Glossary section.) Another positive factor is that the S&P 500 has remained inside the rising trend channel that has dominated the pattern for about 30 months (see the second chart below). The price index will have to drop down through the bottom of this channel before we can claim that a bear market is in progress. As for the "major bull market up leg" theory, there is no evidence that the current rally is destined to do any better than the other rallies in the 2004-2006 time frame, all of which were contained by the top of the rising trend channel. Not that it can't happen, but the recent correction did not create the kind of deeply oversold conditions that usually precede major bull market up legs. http://www.decisionpoint.com/ChartSpotliteFiles/060630_bullbear-1.gif
Our second chart is a monthly bar chart of the S&P 500. It offers some small hope to the bears in that the monthly PMO has topped and has been falling for two months. This sign of long-term internal weakness is by no means conclusive, but it does raise some doubt as to whether the rally can be sustained. http://www.decisionpoint.com/ChartSpotliteFiles/060630_bullbear-2.gif
Bottom Line: Medium-term oversold conditions and extreme bearish sentiment have turned the market upward before any serious technical damage was done by the correction. Our market posture remains neutral (as of Thursday's close) but our primary timing model is close to generating a buy signal. At this point my assumption is that the rally will continue, but that it only has modest potential.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Split Market
by Carl Swenlin While both the S&P 500 and Nasdaq 100 are showing the effects of the current correction, there are significant differences in the technical picture on both charts. With the S&P 500 we might ask, "Where's the bear?" The 50-EMA of price is still above the 200-EMA, and most important, price still remains within the nearly three-year rising trend channel. The most negative thing about price action is that this correction is currently making a second retest of the rising trend line, something that didn't happen on the three previous bull market corrections. Unless things change for the worse, I'd have to say that the S&P 500 remains in a bull market. Things look a lot worse for the Nasdaq 100 Index. The 50-EMA is below the 200-EMA, and the price index has dropped down through the bottom of the rising trend channel that has defined the last few years of the bull market. I have no hesitation saying that this index has entered a bear market. This is not good because it tends to lead the broader market. http://www.decisionpoint.com/ChartSpotliteFiles/060714_bullbear-1.gif
http://www.decisionpoint.com/ChartSpotliteFiles/060714_bullbear-2.gif
One thing that may be considered positive on both charts is that the Percent Buy Index (circled) is oversold, but, as you can see, oversold conditions do not always result in price rallies. While the Nasdaq 100 has been oversold for over a month, prices have continued to deteriorate. During that same period, the S&P 500 has held its own, but, again, the oversold condition has only brought a failed rally and second retest of support.
Technical Picture Is Mostly Bullish
by Carl Swenlin The decline from the May top, and the subsequent sideways chopping have been hard on investors' nerves as they try to decide how things will eventually resolve; however, even though the rising trend line has been challenged twice in the last few months, the technical picture has been steadily improving. Also, sentiment indicators have been persistently and strongly pessimistic -- some even worse than at the 2002 bear market lows -- and this is bullish for the market. The first chart shows the components of our Thrust/Trend Model, our primary timing tool. (A full discussion of this model can be found in the Glossary section of the DecisionPoint.com website.) The first thing we can see is the bullish double bottom that was formed as the price index was challenging the bottom of the rising trend channel. What remains to be seen is a decisive break above the middle peak of the "W", but the price pattern is positive nevertheless. Until recently the model has been in neutral because the Percent Buy Index (PBI) has been below its 32-EMA, but, as you can see, the PBI has also formed a double bottom and has recently broken above its 32-EMA, switching the model to a buy signal. Also, the PBI, like most of our other medium-term indicators, is rising out of oversold conditions. The chart looks very positive. http://www.decisionpoint.com/ChartSpotliteFiles/060804_PBI-1.gif
The model shown is for the S&P 500 Index, which gives us our positioning for the broad market, but we also apply the model to other market and sector indexes. As you can see in the table below, buy signals are being generated across a wide range of indexes and sectors. Decision Point's Primary Timing SignalsAugust 3, 2006 Days Index 08/03 PointsPercentIndex Posture Date Elap@Start Close P/L P/L------------------- ------- -------- --------------------------------S&P 500 BUY 07/28/06 61278.551280.27 +1.72 +0.1%Dow BUY 07/28/06 6 11219.70 11242.59 +22.89 +0.2%Nasdaq 100 Neutral 05/12/06 831635.811510.60 .... ....NDX Equal Wt (QQEW) Neutral 05/18/06 77 18.70 17.23 .... ....S&P 100 BUY 08/02/06 1 589.52 589.55 +0.03 +0.0%S&P Equal Wt (RSP) BUY 07/28/06 6 42.28 42.52 +0.24 +0.6%Wilshire 5000 Neutral 07/13/06 21 12497.97 12826.15 .... ....Consumer Disc (XLY) Neutral 05/25/06 70 33.24 32.24 .... ....Consumer Stpl (XLP) BUY 04/27/06 98 23.74 24.67 +0.93 +3.9%Energy (XLE) BUY 06/28/06 36 54.07 58.84 +4.77 +8.8%Financial (XLF) BUY 07/28/06 6 32.55 33.04 +0.49 +1.5%Health Care (XLV) BUY 07/03/06 31 30.24 32.09 +1.85 +6.1%Industrial (XLI) Neutral 06/08/06 56 33.10 31.89 .... ....Materials (XLB) BUY 08/03/06 0 31.14 31.14 * Changed Today *Technology (XLK) BUY 07/31/06 3 19.83 19.76 -0.07 -0.4%Utilities (XLU) BUY 05/31/06 64 31.31 34.23 +2.92 +9.3%This table is updated daily in the Decision Point Alert Daily Report. No matter how positive things may look, there is always something to worry about. For me it is that we are overdue for a bear market, and we are also due for a price trough associated with the 4-Year Cycle. As you can see by the chart below, the 4-Year Cycle is pretty reliable in attracting price lows, and based on the history shown on the chart, there is about an 80% chance that prices will be lower later this year (and about a 20% chance that they won't). http://www.decisionpoint.com/ChartSpotliteFiles/060804_PBI-2.gif
Also, it is not easy to see on the chart, but the monthly PMO has topped and has been falling for three months. Bottom Line: Actions taken by the Fed next week could torpedo my conclusions, but the most objective evidence we have shows that the market is configured for another advance, and this is backed up by the more subjective pessimism reflected in most sentiment indicators. On the other hand, if the models have been tricked by the market, they will normally turn neutral with only minor loses; however, stops should be used to guard against negative price action that is too rapid for the models' reaction time.
Nasdaq 100: Turning Bullish, but Short-Term Overbought
by Carl Swenlin The Nasdaq 100 Index has declined farther than the broader indexes, and it has been slower in turning around; however, this week the index has turned the corner, and appears ready for a continued advance. The only problem is that it has become short-term overbought. To demonstrate, let's look at the first chart which presents our On-Balance Volume (OBV) Indicator Set. The Climactic Volume Indicator (CVI) measures extreme OBV movement within the context of a short-term OBV envelope for each stock in the index. The Short-Term Volume Oscillator (STVO) is a 5-day moving average of the CVI. The Volume Trend Oscillator (VTO) summarizes rising and falling OBV trends. These charts tell us if the index is overbought or oversold based upon volume in three different time frames. The first obvious feature is the price breakout above the three-month declining tops line, which signals that the trend is turning upward. Next we can see that the CVI and STVO have both hit their highest level in a year. While this is evidence of the short-term overbought condition, it also implies that an initiation climax has occurred, an event that signals the beginning of a rally. http://www.decisionpoint.com/ChartSpotliteFiles/060818_OB-1.gif
While the short-term overbought condition tells us to expect some pull back and/or consolidation, the second chart presents a positive intermediate-term picture. It displays our three primary intermediate-term indicators for price, breadth, and volume. As you can see, while the price index was making a series of new lows, the three indicators were either flat or trending upward, forming positive divergences. Also, you will note that all three indicators have been moving up from very oversold levels, and they have a long way to go before they become overbought. http://www.decisionpoint.com/ChartSpotliteFiles/060818_OB-2.gif
Finally, most sentiment indicators we follow continue to reflect strong pessimism, which is bullish for the market. Bottom Line: Currently, the indicators show us that the trend is turning up. Short-term conditions call for a "pause to refresh," but, once a short correction/consolidation is complete, intermediate-term conditions allow for the rally to continue for at least a few more weeks. Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
Rydex Ratio Implies Prices Will Go Higher
by Carl Swenlin After the decline that lasted from the beginning of May to mid-June, a second bottom was made in July, from which the current rally emerged. Both the bottoming process and the rally have been rough and tedious, causing a lot of anxiety among market participants, and resulting in strong, persistent bearish sentiment. This is clearly visible on our first chart of Rydex Cash Flow analysis. The first panel below the S&P 500 chart shows cumulative cash flow (CCFL) for bull plus sector funds. Note how the indicator has been running flat for the duration of the July/August rally, a reflection of caution. On the other hand, the next panel down shows that CCFL for bear funds has been increasing for most of that period and shows that the bears are nearly as committed now as they were at the June price low. http://www.decisionpoint.com/ChartSpotliteFiles/060901_RyRatio-1.gif
Our next chart is of the Rydex Cash Flow Ratio*, which summarizes the elements of the first chart into a single indicator. Again, we see that the Ratio has stayed near the bearish extremes of the three-year range, even as prices approach new highs. This brings to mind the psychological term "cognitive dissonance", which is the pain we experience when our belief is in conflict with reality. Surely the bears must be feeling some pain. http://www.decisionpoint.com/ChartSpotliteFiles/060901_RyRatio-2.gif
Bottom Line: If the rally had been stronger and smoother, it would probably been sufficient to shake out the bears and attract the bulls, shifting sentiment to the bullish side of the range. As it is, I think we must assume that prices will move higher until sentiment turns more bullish. Such an adjustment could occur within a few weeks.
Market Overbought but Sentiment Still Favors Bulls
by Carl Swenlin The S&P 500 Index is approaching new 52-week highs, but there is short-term overhead resistance immediately ahead, and our primary medium-term indicators are becoming modestly overbought. Does this spell trouble for the bulls? Probably not. Overbought conditions are not necessarily a problem in a bull market, and there are still way too many bears for an important top. Our first chart shows the S&P 500 Index with our three primary medium-term indicators (oscillators) -- one each for price, breadth, and volume. As you can see they are approaching the overbought side of their range, but they are far short of being at their extreme limits, and they still allow for higher prices before they make a final top. Another thing to remember is that oscillators oscillate within a fixed horizontal range, prices normally do not. This means that, even though the oscillators top and begin to trend down, prices don't necessarily have to follow. In fact, you can see a few instances on the chart where prices continued higher even after the oscillators topped. http://www.decisionpoint.com/ChartSpotliteFiles/060915_itbm-1.gif
Our next chart is of the Rydex Cash Flow Ratio*, which I featured in an article two weeks ago. Note that the Ratio remains oversold (reflecting strong bearish sentiment), in spite of the fact that prices have continued higher. The condition of the Ratio is caused by a combination of aggressive buying of bear funds and timid acquisition of bull funds. This situation is extremely unusual, and I believe it must be relieved before we can expect a significant price decline. Relief will come when the bears give up and the bulls become more aggressive, ultimately causing the Ratio to move back up toward the top its trading range. http://www.decisionpoint.com/ChartSpotliteFiles/060915_itbm-2.gif
Bottom Line: The significant aspect of the market being overbought is that it is probably not a good time to be adding new long positions. Also, more caution is appropriate while the overbought condition is being worked off. Otherwise, I think the Rydex Cash Flow Ratio strongly suggests that prices will move higher, even after internals begin to correct downward. In other words, I think that people need to become more bullish before the rally will end. Technical analysis is a windsock, not a crystal ball. Be prepared to
Market Hits Overhead Resistance
by Carl Swenlin The structure that has dominated the price pattern for nearly three years is a rising trend channel, which I have drawn on the S&P 500 chart below. As you can see, the price index has once more encountered the top of that channel, and that resistance will probably prevent any significant price advance until overbought conditions have been allowed to correct. That is not to say that a major price reversal is imminent. It is certainly possible, but it is also possible that prices will dribble along the bottom of the overhead trend line for several months as happened prior to the summer price lows. There are two things that argue for a major price decline. First, is the seasonal weakness that the market traditionally experiences in October, and the other is the 4-Year Cycle lows, also expected in October. http://www.decisionpoint.com/ChartSpotliteFiles/061006_trend-1.gif
On the other hand, investor sentiment continues to remain at strongly bearish levels. Note on the Rydex Cash Flow Ratio chart below that the bears have scarcely budged from the bearish side of the three-year range, in spite of the fact that prices have moved steadily higher. http://www.decisionpoint.com/ChartSpotliteFiles/061006_trend-2.gif
Bottom Line: It seems reasonable to expect some weakness over the next several weeks, but I will remain bullish until our mechanical model says otherwise. Even though cyclical and seasonal pressures present problems, I think that sentiment is the trump card. It is hard for me to imagine a major decline beginning when there are so many bears out there. Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
Windsock Versus Crystal Ball
by Carl Swenlin For several months these articles have included a reminder that "Technical analysis is a windsock, not a crystal ball." To clarify, a windsock is used to ascertain the current wind direction and intensity. A crystal ball is used to predict the future. As a practical matter, if we make decisions in response to known market conditions, we are operating in a mode that will allow us to adjust our stance as conditions change. Conversely, if we position ourselves based upon a prediction about the future, we are stuck with defending that prediction until it comes true or sticking with it until we lose enough that we are forced to capitulate. Market action during the period from May 2006 to the present serves as a prime example of how the crystal ball can get cracked. During the decline from the May top it was broadly accepted that the bull market top was finally in place and that a major decline was beginning. The rally out of the summer lows was viewed as a short-term technical bounce in the context of a longer-term decline. The bears held fast. As prices approached the level of the May top, hope was born that a bearish double top was forming. The bears held fast . . . until the last three weeks of rally left the bears with little on which to hang their hats. http://www.decisionpoint.com/ChartSpotliteFiles/061020_OB-1.gif
That is not to say that the bears did not have convincing arguments -- I certainly agreed with most of them -- but I have become more of a "windsock" kind of guy, and find there is less stress when I rely on our mechanical Thrust/Trend Model to help me align with current market conditions. The Model turned neutral during the decline from the May top, but it turned bullish again as the market rallied off the July lows. The table below shows how it has performed with the 16 indexes to which it is applied: DECISION POINT'S THRUST/TREND MODEL* STATUS Days Index 10/19 PointsPercentIndex Posture Date Elap@Start Close P/L P/L------------------- ------- -------- --------------------------------S&P 500 BUY 07/28/06 831278.551366.96 +88.41 +6.9%Dow BUY 07/28/06 83 11219.70 12011.73+792.03 +7.1%Nasdaq 100 BUY 08/10/06 701496.281706.37+210.09 +14.0%NDX Equal Wt (QQEW) BUY 08/10/06 70 17.17 19.35 +2.18 +12.7%S&P 100 BUY 08/02/06 78 589.52 634.27 +44.75 +7.6%S&P Equal Wt (RSP) BUY 07/28/06 83 42.28 45.70 +3.42 +8.1%Wilshire 5000 BUY 08/16/06 64 12959.02 13721.81+762.79 +5.9%Consumer Disc (XLY) BUY 08/14/06 66 32.12 36.48 +4.36 +13.6%Consumer Stpl (XLP) BUY 04/27/06175 23.64 25.45 +1.81 +7.7%Energy (XLE) BUY 10/16/06 3 55.25 55.42 +0.17 +0.3%Financial (XLF) BUY 07/28/06 83 32.55 35.17 +2.62 +8.0%Health Care (XLV) BUY 07/03/06108 30.30 33.60 +3.30 +10.9%Industrial (XLI) BUY 09/05/06 44 32.55 34.43 +1.88 +5.8%Materials (XLB) BUY 08/03/06 77 31.33 32.86 +1.53 +4.9%Technology (XLK) BUY 07/31/06 80 19.80 22.62 +2.82 +14.2%Utilities (XLU) BUY 05/31/06141 31.33 35.39 +4.06 +13.0%* Thrust/Trend Model documentation can be found in the Glossary section of the DecisionPoint.com website.These are decent results, and we should be able to capture some of the profits if the market turns down at this point, but I don't want to leave the impression that there is any sure thing here. The Model has been marginally profitable for the last few years as market chopped higher in a fairly narrow range. And if the bears had been right more recently, the Model would have been whipsawed for some small losses. But that would not have been as distressing as hoping for a bearish outcome all the way from the July lows to the recent highs. Checking current market conditions, the next chart shows the percentage of stocks in the S&P 500 Index that are above their 20-, 50-, and 200-EMAs, and it shows that the market is currently overbought in all three time frames. That doesn't mean that there will be a decline -- the market was similarly overbought about a year ago, yet prices continued to rise for several months. Nevertheless, the market is vulnerable under these conditions and is it not a good time to add to positions. http://www.decisionpoint.com/ChartSpotliteFiles/061020_OB-2.gif
Bottom Line: Whether the current up trend continues or ends, we are fortunate that the Model got us in early. When the market finally turns, we can be reasonably confident that the Model will take us out and preserve some of the gains in the process. Keep in mind that Model signals do not predict what is going to happen, they merely point us in the direction the market seems to be going at the time.
Gold Is Coming Back
by Carl Swenlin Since gold peaked around $725 in May of this year, it has been going through the process of digesting the huge advance that took place a year prior to that peak. At first it was not clear whether or not the gold bull market was over, but, as you can see on the chart below, the initially violent correction transformed into a sideways consolidation in the shape of a triangle. This week, over five months from the May top, gold decisively broke up through the top of the triangle, giving a pretty clear signal that the correction is over. http://www.decisionpoint.com/ChartSpotliteFiles/061103_gold-1.gif
On the weekly chart below the breakout appears even more dramatic, and there is the added bonus that the weekly PMO (Price Momentum Oscillator) has bottomed. The picture is turning very positive. http://www.decisionpoint.com/ChartSpotliteFiles/061103_gold-2.gif
With interest in gold likely to increase dramatically as prices advance, now is probably a good time to introduce a new vehicle for owning gold -- Central Gold Trust (AMEX: GTU). GTU is a closed-end fund that owns gold bullion (only gold bullion), which is stored in a Canadian bank vault. The fund is run by the same folks that run Central Fund of Canada (CEF), which differs from GTU in that it owns both gold and silver. GTU began trading on the Toronto Exchange last year, but the chart below shows that it was thinly traded until it debuted on the AMEX in September where volume increased significantly. I think this will probably become one of the best vehicles available for owning and trading gold. It is my understanding that GTU qualifies for capital gains tax, which, for tax purposes, makes it superior to the gold ETFs and bullion. (GTU is a foreign trust that we are advised would be considered a Passive Foreign Investment Company (PFIC). An investor has to file a PFIC declaration form in the year of purchase to qualify it for future long term capital gains tax treatment (15% rate).) Do not take my word for it -- check with your tax professional. http://www.decisionpoint.com/ChartSpotliteFiles/061103_gold-3.gif
Bottom Line: Our trend model for gold turned bullish on 11/3/2006, and the chart picture looks very good. In my opinion, the correction in gold is over, and the next leg up is beginning. Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
4-Year Cycle Rules
by Carl Swenlin For quite a while I have been saying that the rally that began in July has been driven by persistent bearishness among investors. I still think this was a significant element, and it was encouraged by a strong belief that a major decline would be occurring in October in conjunction with the long-awaited 4-Year Cycle trough. Unfortunately for the bears, it appears that the 4-Year Cycle trough arrived early and without much fanfare (because the price decline into the cycle low was not very impressive). On our first chart we can see that the Cycle trough occurred after a mere 7.5% decline and appeared in the form of a double bottom in June and July. http://www.decisionpoint.com/ChartSpotliteFiles/061117_4yr-1.gif
While the Cycle low was easy enough to spot on a one-year daily chart, it shows up only as a small blip on the long-term monthly semi-log chart below. While it clearly fits into the nominal 4-year periodicity, the decline was not nearly as dramatic as many others in the past, and it is easy to see why many investors were fooled into waiting for a deeper decline in the traditional October time frame. http://www.decisionpoint.com/ChartSpotliteFiles/061117_4yr-2.gif
Assuming that my cycle assessment is correct (some will say that it isn't), and assuming that the new 4-Year Cycle unfolds in a "textbook" fashion (it very well may not), it is most likely that we have begun another up leg in the bull market that will last for a few years. While that is a distinct possibility, I personally will not count on it too heavily, because we can clearly see on the chart above that some cycles are far from typical.
Sentiment Not Bullish Enough for Top
by Carl Swenlin The Rydex Cash Flow Ratio is calculated by dividing the cash flow for bear plus money market funds by cash flow into bull funds. As the Ratio index moves between its trading range extremes, we can gage the amount of bullish or bearish sentiment in the stock market. See the chart below. In June the Ratio hit a level that signalled that an important price low had been hit, and, even though the S&P 500 has rallied about 14% since then, the Ratio only traveled about half the distance to the overbought side of its range (red line), indicating that investors still have not fully accepted the reality of the rally. http://www.decisionpoint.com/ChartSpotliteFiles/061201_rr-1.gif
At first it was the bears that had refused to give up, but the following chart shows that, while the bears have since retreated, the rally has failed to recruit a sufficient number of bulls to drive the Ratio to bullish extremes. http://www.decisionpoint.com/ChartSpotliteFiles/061201_rr-2.gif
The following table shows the results of our primary timing model as it is applied to a broad range of market indexes and sectors, and those results are unanimously and robustly bullish. Until those signals start switching to neutral (it is much too soon to get sell signals), I will not be concerned about the viability of the rising trend.
Crash Talk Is Premature
by Carl Swenlin I have heard that a number of people have been predicting a crash. I don't know what evidence they are citing, but my analysis of the price structure and internal indicators leads me to the conclusion that there is not a crash anywhere in sight. This does not preclude a crash triggered by an external event of which we can have no advance knowledge, but the visible deterioration that typically precedes a crash does not currently exist. To illustrate, we can look at charts (below) of the two most famous crashes of the last 80 years -- the Crash of 1929 and the Crash of 1987. There are two chart configurations that preceded these two major crashes. First, was the price action -- a major price top, followed by a lower top, followed by a break below the price low between the two tops. This kind of event doesn't always lead to a major crash, but it is always a sign of danger, and can be part of a market correction. The second element is internal deterioration visible in a breadth indicator. In the case of the two charts below we can see that, when the second price top formed, the ITBM Oscillator also topped, and it topped below the zero line as a result of an extended period of deterioration. Below zero indicator tops are another danger sign that should not be ignored. http://www.decisionpoint.com/ChartSpotliteFiles/061208_crash-1.gif
http://www.decisionpoint.com/ChartSpotliteFiles/061208_crash-2.gif
The next chart shows the current market status. The market is clearly overbought, but prices are making new highs, and the ITBM does not reflect any serious deterioration. The market is definitely due for a correction, but, other than the overbought condition, there is scant evidence that a correction, let alone a crash, is definitely about to occur. http://www.decisionpoint.com/ChartSpotliteFiles/061208_crash-3.gif
Bottom Line: History shows us that structural crashes do not materialize out of thin air. That is to say, if the market is making new highs, it will take several weeks or months after the final top to allow for sufficient deterioration before the bottom falls out. Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics
New Equal Weight ETFs Complement Sector Spiders
by Carl Swenlin In November, nine new equal weight sector ETFs began trading. They are sponsored by Rydex, and they are counterparts to the original nine Sector Spiders that are composed of the stocks in the S&P 500 Index. I have been a long-time and enthusiastic advocate of equal weighted indexes because they truly allow you to spread your risk equally among all the stocks in the index, and I am very pleased to see these newest trading vehicles become available. Let's take a moment to explain what an equal weighted index is. Most market/sector indexes are weighted by capitalization, which means that the largest cap stocks exert the most influence on the price movement of the index. For example, I once examined the S&P 500 Index and found that the top 50 stocks (ranked by market cap) actually represented about 70% of the entire S&P 500. What this means is that the remaining 450 stocks have very limited influence on the index. In the case of these new equal weighted sector ETFs, each stock in the sector is initially given an equal weight in the index, and re-balancing takes place on a quarterly basis. In addition to avoiding overexposure to the larger-cap stocks in the index, equal weight indexes usually perform better than their cap-weighted counterparts. This is because the smaller-cap stocks, which usually perform better than larger-cap stocks, have a heavier weight in the index. In the charts below I have arranged the nine sectors in alphabetical order. The regular Spiders are on the left, and the equal weight ETF versions are to their right for comparison. The PMO (Price Momentum Oscillator) is one way to measure relative strength -- higher numbers reflecting higher strength. I have circled the highest of the two PMOs in red. Note that eight of the nine equal weight ETFs are stronger than their cap-weighted Spider counterparts. I should note that we have constructed simulated data for several years prior to the time the new ETFs started trading in November. These data were adapted from back calculations of the sector indexes, and they should be a fairly accurate calculation of how the equal weight sector ETFs would have actually performed. This simulated data will allow us to make intelligent technical trading decisions without having to wait for actual data to accumulate. http://www.decisionpoint.com/ChartSpotliteFiles/061220_EW-1.gif
The new ETFs are currently very thinly traded, but this should change as soon as they have been "discovered".
New NYSE Common Stock Only Indicators
by Carl Swenlin The purpose of this article is to introduce a new set of market indicators that DecisionPoint.com has recently released, indicators constructed from only common stocks listed on the NYSE. A little background, at its inception The NYSE Composite Index was composed of all the issues listed on the New York Stock Exchange. The approximately 3,500 components were cap-weighted by total shares outstanding, and the NYSE Composite was one of the dullest indexes in existence. In January 2003 this all changed in a major way. The composition of the index was changed to include only common stocks listed on the NYSE (approximately 2,050), and they are cap-weighted based on the float (the shares available for trading). The result has been that the new NYSE Composite is now one of the top performing broad market indexes. For example, during the rally that launched off the July 2005 lows, the NYSE Composite had gains second only to the Nasdaq 100 Index. When the NYSE Composite was reconstituted in January 2003, the NYSE failed to publish statistical breadth and volume data related to only the 2,050 components on the index. Rather, the NYSE and all media sources continued to publish data based all the 3,500 issues listed on the exchange, and most technicians (me included) continued to use these flawed data to construct indicators for the NYSE Composite. It was, after all, the only data available, but the resulting indicators had to be taken with a grain of salt. Let me explain why. The NYSE Composite components are only common stocks, whereas the approximately 1,500 issues excluded from the Index are mostly not common stocks and are primarily issues sensitive to interest rates. By using data from all NYSE issues listed, indicator results are being contaminated by 1,500 issues that are totally unrelated to the Composite Index, and that often behave as a group in a manner completely different from the 2,050 index components. As a consequence, market indicators generated from this questionable data must necessarily be considered somewhat unreliable. In late-2005 we decided to fix this problem. Since we track the list of NYSE Composite component stocks, we began collecting these Common Stock Only (CSO) data, and we developed a standard set of indicators based upon it. We also back-calculated the raw data and indicators back to January 2003. We have just released the new set of 10 indicators to our subscribers. If I may be allowed for a moment to be humility-challenged, the release of these indicators is a very big deal for many technical analysts. The scarcity of the raw data means that few services can offer these indicators, and some of these indicators are only available from DecisionPoint.com. Is there any real difference between the Common Stock Only (CSO) indicators and those based upon All NYSE Issues? Yes, there are many differences, ranging from subtle to significant. Let's look at New High New Low charts as an example. Obviously, the CSO highs and lows have a smaller range because there are fewer stocks involved, but one difference that really stands out is the huge down spike of All Issues New Lows in May 2004, whereas, the CSO version shows merely a slight down blip. http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-1.gif
http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-2.gif
The following are samples of other charts in the series. http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-3.gif
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http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-6.gif
http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-7.gif
http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-8.gif
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http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-10.gif
http://www.decisionpoint.com/ChartSpotliteFiles/070105_CSO-11.gif
Bottom Line: Whenever possible, market indicators should be constructed from data derived from the component stocks of the index to which the indicator is applied. In other words, the S&P 500 Advance-Decline Line should be constructed from the action of S&P 500 stocks. For too long NYSE Composite indicators have been corrupted by data from stocks that are not part of the NYSE Composite Index. It is with great pleasure that DecisionPoint.com has released a set of NYSE Composite indicators that are based on real NYSE Composite Index data.
Energy Sector Correction Almost Over
by Carl Swenlin Energy stocks as represented by the Energy Spider (XLE) have been moving in a more or less sideways direction since crude oil topped out in July and entered a bear market. I find it peculiar that energy stocks have consolidated at the same time that crude oil was crashing, but it does give us a clear sign of strength from that sector. Now I am seeing evidence that the correction in energy stocks is nearly over. First, on the chart below we can see that crude oil is very oversold and is probably ready for a bounce. I would not care to speculate whether or not the bear market is over, but a 42% decline certainly entitles crude oil to a reaction rally or at least a correction. Either way, this would benefit energy stocks. http://www.decisionpoint.com/ChartSpotliteFiles/070119_XLE-1.gif
On the next chart the evidence is even more compelling. The Percent of PMO Crossover Buy Signals shows that the XLE stocks are very oversold in the short-term, and this condition happens to coincide with a medium-term oversold condition reflected by the Percent Buy Index, an alignment that implies that the expected rally should have staying power. http://www.decisionpoint.com/ChartSpotliteFiles/070119_XLE-2.gif
Bottom Line: I am not suggesting that we try to pick a bottom here, but the conditions are favorable for a good rally in energy stocks once prices begin moving upward enough to trigger a buy signal. I should point out that timing model performance on this sector has been marginal because of the sideways chop of the last year or so.
Bond Timing
by Carl Swenlin Timer Digest has ranked Decision Point #1 Bond Timer for the 52-week period ending 1/26/2007. We were also ranked #3 Bond Timer for the year 2006, and #5 Bond Timer for the last five years. Since past performance does not guarantee future results, this information is not particularly useful, except to highlight that we have done something right in the last year or so. Perhaps it would be more accurate to say that the market has favored our methodology, because sometimes it does not. Rather than focusing on the capture of the elusive prize, I thought it would be useful to describe the methodology we are using. Nearly two years ago I stopped making discretionary calls for bonds (my best guess for market direction), and decided to use a mechanical model that I call the Trend Model, so named because it is driven strictly by trend-following tools, and relies only on the movement of the price index to generate decisions. The model uses crossovers of the 20-, 50-, and 200-EMAs (exponential moving averages) of price to generate buy, sell, and neutral signals. The relationship of the 50-EMA to the 200-EMA determines if the price index is in a long-term bull or bear market. For example, it the 50-EMA is above the 200-EMA, it is a bull market. Crossovers of the 20-EMA and 50-EMA actually generate the signals. If the 20-EMA crosses up through the 50-EMA, a buy signal is generated. When the 20-EMA crosses down through the 50-EMA a sell signal is generated if the 50-EMA is below the 200-EMA, otherwise the model switches to neutral. This is an important feature, because we don't want to be short in a bull market. The chart below shows important signals generated in the last year. As you can see, the Trend Model is an effective decision-making tool under favorable market conditions. http://www.decisionpoint.com/ChartSpotliteFiles/070202_bonds-1.gif
Then there are unfavorable market conditions. On the next chart we can see how the model gets chopped up when a price index decides to move sideways for an extended period of time. On a positive note, it is also clear why the model goes neutral instead of short during a bull market. http://www.decisionpoint.com/ChartSpotliteFiles/070202_bonds-2.gif
Bottom Line: Trend-following models can be very effective when prices move in one direction for extended periods, but whipsaw is always a problem. This is why money management is important. It is also important to apply a timing model across a broad range of price indexes with different price behavior (multiformity), rather than put all your money in a single index/position. Below is a recent snapshot of our primary timing model status. The indexes marked with an asterisk (*) have signals generated by the Trend Model. http://www.decisionpoint.com/ChartSpotliteFiles/070202_bonds-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
Cash Flow Shows Wall of Worry
by Carl Swenlin Are we there yet? Are we there yet? Are we there yet? Many market analysts are still looking for a major market top, but price action shows no signs of weakness, and the trend continues upward. Sentiment polls such as Investors Intelligence, AAII, and Consensus show strong bullish sentiment, which is a bearish sign; however, our Rydex Cash Flow analysis suggests that a wall of worry is firmly in place and is helping the market to move higher. On our Rydex Cash Flow Ratio chart below shows the ratio of bear fund plus money market cash flow divided by bull fund cash flow. When the Ratio moves to the top of its normal range it reflects extreme bullish sentiment, and readings near the bottom of the range show that investors are bearish. Currently, the Ratio is closer to the bottom of the range, and it has actually been moving lower over the last few months, even as prices have moved higher. While this configuration can warn of a price decline, it will not take much of a correction to put the Ratio down to a level from where new medium-term price advances are typically launched. http://www.decisionpoint.com/ChartSpotliteFiles/070216_rydex-1.gif
It is also worth noting that, in spite of a price advance of around 18% since last summer, investor response has been remarkably tepid, as demonstrated by the Ratio's failure to move to the top of its normal range. In my opinion this means that there are far too many people ignoring the trend in favor of their personal belief that a bear market is an absolute and immediate certainty -- a belief they have held for many, many months. I am reminded of an unforgettable line from James Dines: "Don't think. Look!" Bottom Line: The Rydex Cash Flow Ratio shows that investors have been extremely reluctant to accept the market advance from the summer lows. Until they do, the advance is likely to continue. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070216_rydex-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Cash Flow Shows Wall of Worry
by Carl Swenlin Are we there yet? Are we there yet? Are we there yet? Many market analysts are still looking for a major market top, but price action shows no signs of weakness, and the trend continues upward. Sentiment polls such as Investors Intelligence, AAII, and Consensus show strong bullish sentiment, which is a bearish sign; however, our Rydex Cash Flow analysis suggests that a wall of worry is firmly in place and is helping the market to move higher. On our Rydex Cash Flow Ratio chart below shows the ratio of bear fund plus money market cash flow divided by bull fund cash flow. When the Ratio moves to the top of its normal range it reflects extreme bullish sentiment, and readings near the bottom of the range show that investors are bearish. Currently, the Ratio is closer to the bottom of the range, and it has actually been moving lower over the last few months, even as prices have moved higher. While this configuration can warn of a price decline, it will not take much of a correction to put the Ratio down to a level from where new medium-term price advances are typically launched. http://www.decisionpoint.com/ChartSpotliteFiles/070216_rydex-1.gif
It is also worth noting that, in spite of a price advance of around 18% since last summer, investor response has been remarkably tepid, as demonstrated by the Ratio's failure to move to the top of its normal range. In my opinion this means that there are far too many people ignoring the trend in favor of their personal belief that a bear market is an absolute and immediate certainty -- a belief they have held for many, many months. I am reminded of an unforgettable line from James Dines: "Don't think. Look!" Bottom Line: The Rydex Cash Flow Ratio shows that investors have been extremely reluctant to accept the market advance from the summer lows. Until they do, the advance is likely to continue. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070216_rydex-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
A New Opinion On Rydex Cash Flow
by Carl Swenlin In my 2/16/2007 article, Cash Flow Shows Wall of Worry, I asserted that the dearth of bullish Rydex cash flow was a sign that the rally would probably continue because the bulls were still not committing in a big way. For the sake of variety I try not to repeat a topic too soon, but I received an unusual amount of mail about this, much of it asserting that ETFs and other products are siphoning bullish funds from Rydex and other mutual fund groups. The following letter makes the point very well. Hi Carl,While I don't disagree with your overall opinion about the market 'climbing a wall of worry', I do think you're missing the boat regarding what the Rydex data is telling us. If you look closely at the Rydex Asset Analysis Total Bull+Bear+Sector+MM chart you will notice that total assets have been diminishing since the beginning of '06. How could this be? Well I'll tell you. I've been trading Rydex funds for over 10yrs. It's a bears den. It does not make for a valid picture of overall market sentiment during bull markets.The reason total assets have been declining is because the funds/investors/etc.that use Rydex for bearish positioning are now bullish and allocating their assets outside of Rydex. A long time ago I realized that there is no better vehicle than Rydex to establish short positions. Where else (except other Rydex clones) can you establish a short position with a limited downside risk outside of the options markets? Thats why Rydex is the (smart) bears choice. There are however far more efficient vehicles to establish bull positions. During an extended bull market like we have right now, assets leave the Rydex funds in general. This is normal as Rydex is an expensive place to ride a long position. When (if) the market starts heading down for any extended period you will see money flow back into Rydex. The bears will be back.The total asset data doesn't tell us where these previous assets have gone, but I assure you its generally long. That means the data is still useful because its telling us there are very few bears in this market right now . . . a dangerous (if you're long) situation for sure. Bull markets can and do continue far longer and higher than most of us can guess or even stomach. Thats their nature to flummox the disbelievers into submission, and then they're done for awhile.I really appreciate your efforts to organize the Rydex data. I use it all the time. I do however respectfully disagree with the way you divine overall market sentiment from it. You are taking one slice of market participation (a bears den) and applying far too much importance to it, especially in an extended bull market.Respectfully,Tim HerbertDecisionPoint.com SubscriberI want to thank Tim Herbert for giving me much food for thought. I don't agree with all his points, but, after much thought and chart gazing, I believe he is correct that the migration of bull money from Rydex into ETFs and other instruments is now a significant factor, but it is a relatively recent one. In any case, it does make me have second thoughts about my conclusions in last week's article. Under this new concept, we are going to have to develop new techniques to analyze the Rydex data. This will not be the first time. As you can see by the chart below, the Ratio has had three distinctive phases and ranges. In the early days the range was very wide because there were fewer assets involved in calculating the ratio. During the bear market the range narrowed, and, when the bull market began, the range shifted lower and was more regular and stable than ever before. During the period between the beginning of 2003 to mid-2006 the Ratio was a superb measure of extremes in bullish and bearish sentiment. That it was not such a good top picker, is not a weakness that is limited to the Ratio. During bull markets, there are virtually no indicators/oscillators that can reliably identify price tops. http://www.decisionpoint.com/ChartSpotliteFiles/070223_rydex-1.gif
In the next chart we look at bull, bear, and total cash flow. On the Bull plus Sector panel you can see three cash flow peaks followed by cash flow declines that I have emphasized with sloping trend lines. What we are observing here is money going into bull funds, then being withdrawn during the topping process that takes up to several months. Is the withdrawal evidence of money moving into ETFs? That is not a reasonable assumption. Why would a person who is using Rydex bull/sector funds suddenly close profitable positions to open bullish ETF positions? The first real evidence we have of Rydex bull funds being abandoned for ETFs is the period following the June/July 2006 lows. Note the absence of an upward surge in bullish cash flow associated with the rally. Last week I concluded that this was evidence of a "wall of worry", and that the bulls had not yet accepted the rally. I now believe that conclusion was wrong, and that investors are shunning Rydex bull funds in favor of ETFs. I think this conclusion is borne out by the bottom panel on the chart which shows total cash flow beginning to trend downward. http://www.decisionpoint.com/ChartSpotliteFiles/070223_rydex-2.gif
Finally, notice how in the last few months bull cash flow is declining and bear cash flow is rising. This is a similar pattern to the three prior bull cash flow peaks, albeit much smaller. As in the previous cases, I think this shift is a precursor to a correction or consolidation. Bottom Line: The Rydex Cash Flow Ratio is probably being influenced by a significant lack of interest by investors in Rydex bull funds -- ETFs now being the vehicle of choice. This shift in emphasis will necessitate our being more cautious in our interpretation of the Ratio until we can see what kind of new pattern, if any, emerges. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070223_rydex-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Updated Crash Analysis
by Carl Swenlin In light of this week's sharp decline (mini-crash?), the most obvious subject for discussion in this week's article is to question whether or not we are on the verge of another major crash. In my 12/8/2006 article, Crash Talk Is Premature, I stated: ". . . my analysis of the price structure and internal indicators leads me to the conclusion that there is not a crash anywhere in sight. This does not preclude a crash triggered by an external event of which we can have no advance knowledge, but the visible deterioration that typically precedes a crash does not currently exist. "To illustrate, we can look at charts (below) of the two most famous crashes of the last 80 years -- the Crash of 1929 and the Crash of 1987. There are two chart configurations that preceded these two major crashes. First, was the price action -- a major price top, followed by a lower top, followed by a break below the price low between the two tops. This kind of event doesn't always lead to a major crash, but it is always a sign of danger, and can be part of a market correction. "The second element is internal deterioration visible in a breadth indicator. In the case of the two charts below we can see that, when the second price top formed, the ITBM Oscillator also topped, and it topped below the zero line as a result of an extended period of deterioration. Below zero indicator tops are another danger sign that should not be ignored." http://www.decisionpoint.com/ChartSpotliteFiles/070302_itbm-1a.gif
http://www.decisionpoint.com/ChartSpotliteFiles/070302_itbm-2a.gif
Now let's take a look at a current chart of the ITBM/ITVM Oscillators. We can see that prior to the mini-crash, the indicators were overbought and showing a negative divergence; however, we can also see numerous instances where negative divergences and overbought conditions did not lead immediate, serious declines. In other words, there was nothing on this chart that would hint at a crash. The most logical actions prior to the decline would have been to hold current longs and wait for better (oversold) conditions before opening new longs. The important point to be made here is that we currently do not have the kind of setup that preceded the 1929 and 1987 Crashes; and, while the recent decline was rather precipitous, the market has only declined about 4% from its recent highs. Having said that, it is unlikely that the correction is over, and continued negative action could indeed lead to a technical setup similar to the ones that formed prior to the Big Crashes. http://www.decisionpoint.com/ChartSpotliteFiles/070302_itbm-1.gif
One big positive that the market has going for it is the major support that can be seen on the next chart. The recent rally pushed the S&P 500 above the top of its long-term rising trend channel. Where the top of the channel used to be resistance, it is now support, and the remainder of the correction could be played out above the support line. http://www.decisionpoint.com/ChartSpotliteFiles/070302_itbm-2.gif
Bottom Line: We have gone seven months without a medium-term correction, and, while I am surprised at the violence with which it was initiated, I am not surprised that a correction has begun. I personally do not believe that we are setting up for a big crash or a bear market, but I will be guided by future market action. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070302_itbm-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Are We Bear Yet?
by Carl Swenlin One of my colleagues has been harassing me (in a friendly way) for not yet having declared myself a bear. The truth is that top picking is a treacherous business, and I have given it up in favor of letting trend models make my declarations for me. For example, I changed from bullish to neutral (medium-term) on stocks on March 6, and some readers have wondered why I didn't go all the way to bearish instead of just neutral. The reason is that my long-term trend model must be bearish at the time the medium-term mechanical model issues a sell signal in order for me to become medium-term bearish. My long-term trend model also defines, for me, whether the market is in a bull or bear mode over all. The long-term trend model is driven by the relationship of the 50- and 200-EMAs (exponential moving averages) of the price index. If the 50-EMA is above the 200-EMA, we are in a bull market, and we are in a bear market if the 50-EMA moves below the 200-EMA. In the chart below you can see that this model has performed brilliantly from late-2000 to the present. The downside crossover in October 2000 cleanly declared that a bear market was in progress, and the upside crossover in May 2003 confirmed that a bull market had begun. After that, there were four bull market corrections that caused the 50-EMA to approach the 200-EMA, but a downside crossover never happened, and the bull market, by this measure, remained in force. Now another correction is in progress, and it has caused the 50-EMA to turn down, but, as you can see, we are a long way from a downside crossover, assuming that no major crash occurs. Until proven otherwise, I think it is safest to assume that the recent decline is a bull market correction. This doesn't mean that we have our guard totally down. Our medium-term model has us out of the market, but the long-term model prevents us from becoming aggressive on the short side. http://www.decisionpoint.com/ChartSpotliteFiles/070316_LT-1.gif
While the long-term trend model has done well in the last six years, I should emphasize that it is not always this perfect, and it too slow to side step major crashes, like 1929 and 1987. For that we need more sensitive tools, focused in the medium-term. The long-term trend model is best used as a tool to objectively define bull and bear markets, so, for example, if someone asks me, "Is it a bear?", I can look at the chart, see that the 50-EMA is above the 200-EMA, and reply, "Not yet!" Bottom Line: It is useful to have an objective method to define bull and bear markets, and we use simple crossover signals generated by longer-term moving averages. I do not claim that this is the best method, but it is very effective for our purposes. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that I have added our long-term trend model to the list. http://www.decisionpoint.com/ChartSpotliteFiles/070316_LT-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Thrust/Trend Model Nears Buy Signal
by Carl Swenlin Our Thrust/Trend Model (T/TM) is so-named because it treats bottoms and tops differently -- tops tend to be rounded trend changes, and bottoms tend to be formed by sharp changes in direction accompanied by internal up thrusts. At price tops, T/TM changes from a buy to neutral (or sell) based upon a downside crossover of the 50-EMA in relation to the 200-EMA, evidence that a change in trend from up to down has occurred. (The T/TM for the S&P 500 is currently in neutral.) At bottoms the model uses a double screen -- the PMO (Price Momentum Oscillator) crossing up through its 10-EMA, and the Percent Buy Index (PBI) crossing up through its 32-EMA. While PMO crossovers alone are useful for short-term work, there are a lot of whipsaws, so we use the additional screen of the PBI crossover to slow the model down, making it more suitable for medium-term work. On the chart below we display all the components of the T/TM. Of particular interest now are the two thrust components -- the PMO and PBI. Note that the PMO upside crossover has already occurred (on the day of the giant one-day rally); however, while the PBI still remains below its 32-EMA, it has closed the gap. If the PBI does cross to the upside, the T/TM for the S&P 500 will switch to a buy signal, but my advice would be to not anticipate. Wait for it to happen. http://www.decisionpoint.com/ChartSpotliteFiles/070330_TTM-1.gif
Besides the normal need to maintain model discipline, one of the reasons for caution is that the PBI has still not dropped to the level of previous corrections. It is not absolutely necessary that it do this, but it would be a desirable sign that the correction had run a normal course and that a price bottom would not be suspect. I have drawn ellipses on the PBI in 2005 and 2006 to show the kind of PBI action we might expect. Another concern is that the PMO looks as if it is trying to turn down below the zero line. If this were to happen, it is extremely negative for the short-term, possibly longer. Bottom Line: We have had a number of positive events over the last few weeks, and the T/TM is close to generating a buy signal; however, there is reason to believe that the correction still has at least a few more weeks to go. Regardless of my personal opinion, we rely on the mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070330_TTM-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Cycle Orientation Is Bullish
by Carl Swenlin Back in November 2006 I speculated that the 4-Year Cycle trough had arrived in June/July 2006, and that the implication was bullish for stocks -- bullish because we normally expect an extended rally out of those cycle lows. At this point, I think that assessment is proving to be correct because there has been a substantial rally, and the recent correction low has failed to challenge the 2006 lows. In other words, the first leg of the current 4-Year Cycle has shown unusual strength, and it is reasonable to assume that there could be a few more good up legs before the bull market finally tops out. In a shorter-term context, we can also note that the March low also marks the cycle trough for the 9-Month Cycle that began last summer in conjunction with the 4-Year Cycle. I had expected the 9-Month Cycle trough to arrive this month (around April 16), but, since the S&P 500 has already exceeded its February high, I have to accept the March 14 low as being the cycle trough -- having arrived one month early. Another feature of that cycle is that the high price point in the cycle (the crest) is located on the extreme right side of the cycle arc. This is a bullish configuration. Assuming that we are beginning a new 9-Month Cycle, and assuming that the bullish configuration (right-hand cresting) persists, it will be about six months or more before the next important price top arrives. Regarding this estimate, I would pencil it in, rather than using chisel in stone. http://www.decisionpoint.com/ChartSpotliteFiles/070420_9mo-1.gif
A casual examination of the cycle chart will reveal that there really is no typical cycle configuration, and the spacing between troughs can be terribly inconsistent for the 9-Month Cycle and subordinate (shorter) cycles; however, cycle analysis does provide a certain context that can be applied to price movement, which can be useful to the intuitive side of the brain. Bottom Line: Cycle analysis is an imperfect tool, but current cycle orientation is more clear than usual, and it is bullish for stocks, probably for several months. Regardless of my personal opinion, we rely on the mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. http://www.decisionpoint.com/ChartSpotliteFiles/070420_9mo-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Market Is Bullish But Overbought
by Carl Swenlin The weekly chart of the S&P 500 Index below reveal that prices are behaving in a very bullish fashion. The index has broken above the gradually rising trend channel that prevailed from 2004. In March prices pulled back and successfully tested the support provided by the top of the channel. Since then the rally resumed, making new highs and apparently establishing an even steeper rising trend channel. Because prices have reached the top of the channel, we must consider that the market is overbought, and there are plenty of other indicators that will confirm this; however, there is no technical justification to turn bearish at this time. It is possible for prices to continue to rise just below the top of the channel, or another correction may take place, taking prices back to the bottom of the channel. Worse could happen, but I do not expect it. http://www.decisionpoint.com/ChartSpotliteFiles/070504_bull-1.gif
Bottom Line: Overbought conditions in bull markets may cause more caution than usual, but higher prices can occur, even as the overbought condition corrects. Regardless of my personal opinion, we rely on the mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have added the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes usually perform quite differently than their cap-weighted counterparts. http://www.decisionpoint.com/ChartSpotliteFiles/070504_bull-2.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Dollar Trying to Turn Up
by Carl Swenlin The U.S. Dollar is trying to turn up for the fourth time since it topped in 2004, but this bottom looks more promising than the prior three. While the long-term trend is down, this bottom is the third confirmation of the descending wedge formation, a technical configuration which normally resolves to the up side. This wedge is also a long-term formation, so the direction of a breakout has long-term implications. In the short-term we have a PMO (Price Momentum Oscillator) buy signal, generated when the PMO crosses up through its 10-EMA. Also, the price index has broken above the short-term declining trend line. Medium-term we have a positive divergence as the PMO has been making higher highs corresponding to lower price lows. http://www.decisionpoint.com/ChartSpotliteFiles/070518_usd-1.gif
On the long-term chart below we can see other positive signs. Most important is the long-term support zone between 78 and 80. There is no guarantee that the support will hold, but we have to view it as being in the plus column. Assuming that the support does hold, the bottom that will result will form a double bottom that spans over two years. Like the wedge formation, this will have very positive long-term implications. http://www.decisionpoint.com/ChartSpotliteFiles/070518_usd-2.gif
Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have added the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes usually do not perform the same as their cap-weighted counterparts. http://www.decisionpoint.com/ChartSpotliteFiles/070518_usd-3.gif
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.