Health of the Market
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every Saturday. When no change to text, [NC] will be used. Click for favorite investment websites or to go to the
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[NC] The year 2017 was quite spectacular. The Dow
Jones Industrial index was up 25%. The Nasdaq was even better at
+28%. The S&P 500 gained 19%. The U.S. dollar fell 7.5%, the
biggest annual drop since 2007. The new year had a fantastic January.
The theory goes that the move in January predicts the move for the entire
you are dollar cost averaging into stocks, looking for opportunities to
buy more stock on the cheap, or merely holding on to a position, you are
highly likely to get a bounce back from low prices, making such
opportunities perhaps better times to be confident about your holdings
long-term potential than when stock prices are high. As
it applies to the present, the recent, thus far, short-lived correction in
stocks has made expensive stocks a little less expensive. But a return to
new bout of over-enthusiasm for stocks, if it happens, would suggest that
investors might still want to wait for better buying
opportunities. --- Tom
The indicators for the
longer term equity market show mixed
signals within a bull cycle. The
market was very overbought, until the correction. Now it
recovering, but it is likely to retest the lows before going higher. The
S&P 500 dropped -10.2% below the record close three weeks
ago. Now it is down -5.0% from that record. 71.6% of S&P 500
stocks were above their 200-day exponential moving
averages, up from 58.4% the week before. 54.0%
of these stocks are above their 50-day EMAs, up from 18.4%
the week before. That is a good recovery!
[NC] Earnings drive the stock market, but the
price-to-earnings ratio can get too high. The third revision of
third quarter GDP came in at 3.16%. The advanced estimate for the forth
quarter is 2.6%.
[NC] The market in the typical month of February is usually fairly
good. The charts for the second year of the presidential
cycle compared to all years show the second presidential year has had
big swings. We are in the Power Zone, the favorable
time of the year. Access more data on the best six months here. A Bull Equity
Cycle was confirmed as of 3/18/2016. The
long-term BullHeal System
went to a buy on
9/27/2017. The equity market tends to move on margin
debt. See chart
A Health Sell Alert
occurred on Friday 2/2. This is based on small-cap action.
A VIX Sell Alert, based on large-cap
action, occurred on Tuesday 1/16. The insiders were bullish (data
from last Wednesday). The insiders have jumped to bearish for one
or two weeks about seven times in 2017. Then its back to
bullish or neural. This happened again this year.
[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.
December of 2016, the dollar ($USD) has decreased in value with respect to
a basket of other currencies as long-term interest rates have gone down.
Now the rates are going up, perhaps due to the concern about the
ballooning federal debt. Funding the debt will increase the supply of
Treasury notes. The dollar continues down as money flows to investments
in the increasing strength of the economies in Europe.
The 10-year Treasury yield ($TNX /10) and the price of oil ($WTIC) is
also shown in this 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. One of the
side-effects of a weak dollar is that it tends to drive global funds into
foreign markets which has been the case recently. The falling dollar,
however, has had positive influences on the U.S. market as well,
especially large cap multinationals that derive nearly half of their
revenues from foreign markets.
[NC] The international
bond market is provided
by the WSJ. See the Income tab for a chart of U.S. Treasury
[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, however,
this has not been productive as the dollar has been dropping. Click
to check out the country hedged ETFs and the un-hedged ETFs.
[NC] If the small-cap
stocks do better than the large-caps, it indicates that the
traders are willing to take on more risk. The chart shows the
relative strength of the Russell 2000 IWM with respect to the
S&P 500 SPY. The 20/50-day EMA crossovers are marked by a
The S&P 500 large-cap index, represented by the SPY
exchange-traded fund (ETF) in the chart, was very strong in the
first weeks of 2018 and closed at a record high Friday 1/26. On
Friday, the index closed down 5.0% from that high. The ETF
is up 9.2% in the five months since 9/12/2017 shown
below. The Dow Jones Industrials was up 13.8% during that
The Russell 2000 small-cap index, represented by
the IWM ETF in the chart, dropped to its 200-day MA and a
support level established last fall. It is up 8.3% during
the time shown. For an investment in small capitalization stocks
via an ETF, the S&P 600 Small-Cap fund IJR has been
doing better and is up 10.2%.
The technology-heavy Nasdaq composite index is represented
by its 100 largest stocks in QQQ. This ETF is up 12.8%
since 9/12/2017 as shown. 48.1% of Nasdaq stocks
are above their 50-day moving averages as shown in the chart on
the Status page. Friday's candlestick (2/9) is a hammer -- that often
hammers out a short-term low.
[NC] The S&P 500 is
shown with its Bollinger Bands below. 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
[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. It is similar to a
volume-weighted version of RSI. 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), it might be
a better time to buy. A solid red pole when MFI
goes below 50 indicates selling might protect from a
downswing. A red
dashed pole when the MFI comes down from around 80 might
be good time to lock in some profit.
[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.
A Health Sell Alert occurred on Friday
2/2. This sell alert is shown by the red pole. A Buy Alert
will occur when the 3-day MA of NewHighs-NewLows is positive for
three days (Friday was the first day). The small cap stocks tend to
lead the market both down and up.
[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
[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
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
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 even when the
Fed raised the over-night Federal Funds Rate in December 2015. There
have been five 1/4 point rate increases, the
last three in March, June and December of 2017. Now there
is an expectation of three more in 2018. See more here. A chart of various Treasurys yields
since 1962 are shown on the Income tab.
AmiBroker software with Yahoo
data is used for the charts with black background. The source of
the other 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