Health of the Market
The charts will be updated by
Saturday. When no change to text, [NC] will be used.
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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
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
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]
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."
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
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
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.
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.
late March 2018, with a few dips, the dollar ($USD)
value with respect to a basket of other currencies as long-term
interest rates were hovering around highs. The
10-year Treasury rate rose to a peak on 10/5/2018 and again on 11/8 closing
at 3.23% both times.
The speed of the
increase, 0.3% in a month, spooked the stock market. This was up from
around 2.4% at the start of 2018. The 10-year
Treasury rate ($TNX
/10) and $USD are shown in a 5-year
chart with weekly closing prices.
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] The money supply has an influence on the stock market as shown in the chart below, provided by Gordon Harms.
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 international bond market is provided
by the WSJ. See the Income tab for a chart of U.S.
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.
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
better than large cap stocks. This dollar relationship works in bull
markets, but not since late September 2018.
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
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.
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
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.
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
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
Bollinger Bands below. The bands are two standard deviations above
& below a 20-day simple moving average. When the price goes
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
hits the oversold level at 20 (green dashed pole not on chart),
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
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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
[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
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.
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
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
[NC] John Mauldin, on
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."
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