Health of the Market  (3/2/2019)

The charts will be updated by   every Saturday. When no change to text, [NC] will be used. Click for favorite investment websites or go to Charlottesville's The Center Investors' Forum. Note: To get tabs to other pages, Javascript (not Java) must be enabled for this site. If the latest date does not show, try reloading the page.



The indicators for the equity market show an up market within a bull cycle in a bear trend and in a bear market. (see definitions on Longer Term page). The S&P 500 is down 4.3% since the September 2018 record high; +11.8% year-to-date; and +0.4% last week. 67.2% of S&P 500 stocks were above their 200-day exponential moving averages, down from 70.4% the week before. 85.2% of these stocks were above their 50-day EMAs, down from 86.0% the week before. The market stays very overbought. Folks don't want to be left behind and their buying is pushing the market higher. The market is at a strong resistance level now.

The table below shows what percentage of the stocks in each sector are above their 200-day moving averages. This is based on the stocks in the SPDR sector funds. This shows that five sectors are doing better than the S&P 500 index stocks. Energy stocks are lagging way behind. [Table from Arthur Hill of StockCharts.com]


[NoChange]  John Murphy of StockCharts.com asks "Why do we look at charts? - They provide the most up-do-date information on the state of the stock market. They may also be telling us something about the fundamental reports we won't be getting until early next year. Charts track forward-looking markets, while fundamental data is backward looking. It's always safer to look out of the front window of your car while driving to see where you're going. Not the back window that shows you where you've already been."

[NC]  A Health Buy Alert occurred on Thursday 1/10 (see chart below). This is based on small-cap action. A VIX Buy Alert, based on large-cap action, also occurred on Thursday 1/10 (see Status page).

[NC]  A measure to determine if the price is too high relative to the underlying earnings is the Shiller price to earning ratio. This is the current price divided by the 10-year average of "real" (inflation-adjusted) earnings. This ratio corresponds quite well to the peaks of price as shown by charts on this site.

[NC]  The market in the typical March is great. The charts for the third year of the presidential cycle compared to all years show the third presidential year is the best year of the four year cycle. The Power Zone, the favorable time of the year, typically starts sometime in October, but this year it started late on 1/10/2019 -- when the first Health Buy Alert occurred during the typical period of power. A Bull Cycle began with the signal on 2/15/2019. The long-term BullHeal System went to a buy on 1/10/2019.



[NC]  Since late March 2018, with a few dips, the dollar ($USD) increased in value with respect to a basket of other currencies as long-term interest rates were hovering around highs. The 10-year Treasury rate rose to a peak on 10/5/2018 and again on 11/8 closing at 3.23% both times. The speed of the increase, 0.3% in a month, spooked the stock market. This was up from around 2.4% at the start of 2018. The 10-year Treasury rate ($TNX /10) and $USD are shown in a 5-year chart with weekly closing prices.

[NC]  The driving force between currencies is the relationship between global interest rates. The 10-Year Treasury yield remains higher than other developed-country yields. The rising dollar has a negative influence on the U.S. market, especially large cap multinationals as business overseas is more expensive. 

[NC]  Also shown is the CRB Commodities Index, which is a measure of inflation. This index is an unweighted geometric average of prices across 17 commodities including energy, grains, industrials, livestock, precious metals, and agriculturals. A rising dollar will hurt commodity prices.

[NC]  Ed Yardeni in the 2/9 Barron's stated that, based on his 40 years of experience, he has never found that supply-versus-demand analysis helped much in forecasting bond yields.  It's always been about actual inflation, expected inflation, and how the Fed was likely to respond to both.

[NC]  The money supply has an influence on the stock market as shown in the chart below, provided by Gordon Harms.



[NC]  The international bond market is provided by the WSJ. See the Income tab for a chart of U.S. Treasury yields.

[NC]  The stock markets in other countries are quite well correlated to the U.S. market. To participate in these markets, the U.S. dollar can be hedged out. Click to check out the country hedged ETFs and the un-hedged ETFs. Note that BSE SENSEX is an India index, CAC 40 is France, FTSE 100 is a UK index, Nikkei 225 is Japan, Hang Seng is Hong Kong, DAXK is Germany, and Shanghai is, of course, Shanghai.

[NC]  Sector investing via exchange traded funds (ETFs) is popular. The traders rotate between sectors. To see how some popular sector ETFs are doing, click here for the Candle Glance of two-month charts.


[NC]  The theory is that if small-cap stocks do better than the large-caps, it indicates that the traders are willing to take on more risk and the market will go up. The chart shows the relative strength of the Russell 2000 IWM with respect to the S&P 500 SPY. The 10/30-day EMA crossovers are marked by a pole. The U.S. Dollar is also shown. Note that when the dollar goes up, small cap stocks generally do better than large cap stocks. This dollar relationship works in bull markets, but not since late September 2018.

Cap vs USD

[NC]  The S&P 500 large-cap index dropped from the October double top. It then created a (blue) channel. The drop from the bottom of the channel turned out to be a bear market 20% move from the high. It has corrected dramatically from the 12/24/18 low and testing of that low does not look likely. The move above the resistance of the bottom of the channel was impressive and some consolidation has occurred. The latest up move penetrated the 200-day MA, but a correction to this upswing is likely, given that the market is very overbought. A breakout above the early November high, which is the top of the channel, would indicate that the bear market is over -- if the other two indexes below concurred. The money flow index shown way below indicates that this up surge is very strong.

[NC]  The Russell 2000 small-cap index hit an all-time high on 8/31/18. Since then there has been a drop way below its 200-day moving average. A bear market has taken over with a 27.3% drop from the high. The 25% surge from the 12/24 low is impressive, and it had to push through major resistance, including its 50-day moving average, to accomplish this. This index is way overbought, as is the whole market. A move back to the support levels shown is likely. A break of the resistance of the early November high (blue line) and 200-day MA would signal the return to a bull market, if the other indexes concurred.


The technology-heavy Nasdaq composite index made a double top, and then dropped on high volume to signal a bear market. Friday 80.1% of Nasdaq stocks were above their 50-day moving averages (down slightly from 80.8% the Friday before). The index is above its 200-day MA and at the resistance of the early November high (blue line).


[NC]  The S&P 500 exchange-traded fund closing price is shown with its Bollinger Bands below. The bands are two standard deviations above & below a 20-day simple moving average. When the price goes above or near the upper Bollinger Band a downswing in price is likely as the market is overbought. Similarly, when the price goes below the lower band, an upswing is likely.

[NC]  Also shown is the 21-day Money Flow Index. This is an oscillator that uses both price and volume to measure buying and selling pressure. A green pole is marked when the MFI moves above 50 indicating a good time to buy. If the MFI hits the oversold level at 20 (green dashed pole not on chart), it might be a better time to buy. A red dashed pole when the MFI comes down from around 80 might be good time to lock in some profit. A solid red pole when MFI goes below 50 indicates selling might protect from a further downswing.

Health Alert

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[NC]  Below is the Russell 2000 small-cap index that tends to lead the overall market both up and down -- as the small-cap stocks are generally more risky than large cap stocks. This index is shown with high-low-close bars. It's 50 and 200-day simple moving averages are included. The 200-day moving average often acts as support or resistance to price movement as many traders watch it.   

[NC]  The Health Alert is based on the momentum of the small-cap Russell 2000 index, the Nasdaq breadth data, and the Nasdaq 52-week new highs and new lows. The thresholds are described below.  The green buy and red sell 'alert' poles on the chart show when these alerts have occurred.

[NC]  A Health Buy Alert occurred on Thursday 1/10. The small cap stock index is used here as small-caps have tended to lead the market both down and up. A nice breakout occurred Friday 2/15. 

[NC]  The second pane is the Relative Strength Indicator (RSI) for the Russell index, a measure of momentum of the market. This is the relative strength of the Russell 2000 itself -- it's not relative to any other index. Above 50 shows positive momentum over the last 21 days. The latest plot can be seen by clicking here. The green arrows indicate a positive change in momentum as the RSI crosses above 50; red arrows indicate downward momentum when the RSI crosses 49. The threshold of 49 is used to give a more definite indication of the start of a down-swing.  

[NC]  The third pane is the Nasdaq McClellan Summation Index, $NASI, (red) and it's 5-day exponential MA (blue). This is a running sum of the difference of two moving averages of the number of advancing issues minus the number of declining issues. A 19-day and a 39-day exponential moving average (EMA) are used. This shows whether a market move is broad based. As the trend changes, the red index will cross the blue EMA and an arrow will be drawn. This indicator must be consistent with the RSI before an alert pole is drawn on the price chart. When this index is below the 5-day EMA, and a 'sell alert' has not occurred, this is a warning not to purchase new positions, but to HOLD those that were bought earlier on the 'buy alert'.

[NC]  Dr. Alexander Elder in his book Trading for a Living says that the 52-week New Highs minus New Lows Index is "probably the best leading indicator of the stock market". This display for the Nasdaq market shows the this index in pink. The 3-day MA of the NH-NL index is shown in blue. A green arrow is placed if the 3-day MA of the NH-NL index goes positive for three consecutive days, or a red arrow is placed if the MA goes negative for three consecutive days. To see a summation of the NH-NL numbers, click here. When a green buy arrow is put on the price chart, it indicates a Health 'buy alert', if the other indicators concur. The red sell arrows here are not used in the determination to place a sell pole on the price chart, due to the lag.

[NC]  The Health Alert acts as a confirmation and does not do well as a stand-alone signal for buying and selling. After a long trend, it works well to signal the end of the trend.

Long-Term Overview

[NC]  This chart gives an overview of the situation. The market had done well since the termination of the QE3 Fed bond buying, until the last half of 2015. The 10-year Treasury rates moved down as the Fed raised the over-night Federal Funds Rate in December 2015. There have been a total of nine 1/4 point rate increases, the last one in December of 2018. Now the Fed is being "patient" about future rate hikes. The Fed has been continuously reducing their inventory of bonds, which is quantitative tightening (not shown on chart). The Fed indicated that this too may be adjusted as time goes on. See more here. A chart of various Treasury yields since 1962 are shown on the Income tab.

[NC]  John Mauldin, on 12/29/18, stated "I find it just as plausible that the balance sheet reduction is as responsible for the market volatility as the increased rates. If QE made the markets go up, especially in concert with the ECB, the Bank of England, and the Bank of Japan, then it’s no surprise if ending it makes the markets fall."

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The source of the charts is located on the upper right of the chart. This page is for amusement only, and should not be taken as advice to buy or sell anything.