Health of the Market
The charts will be updated by
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] Some say the stock market is overvalued.
This table shows fundamental data for the S&P 500 and its
sectors. This from the Real Investment Report by Lance Roberts. The
Price/Earnings Ratio shown is the trailing twelve-month ratio. The
Adjusted Price Earnings Ratio) is calculated over 10 years
and has been a better predictor of the stock market valuation. An
article on this can be found here.
[NC] "Bear markets
come when we have a recession" stated Brad McMillan, chief investment
officer at Commonwealth Financial Network. "That means focusing on news
related to earnings, interest rate decisions and the health of Main Street
The indicators for the longer
term equity market show a strong up
market. On Friday all major indexes hit
record highs, and 77.0% of S&P 500 stocks were above their
200-day exponential moving averages, up from 74.0% the week
before. 73.0% of these stocks are above their 50-day
EMAs, up from 70.2% the week before.
The market in the typical month of July
is usually good until the second half, and during the first
year of the Presidential Cycle positive for the whole month. The
charts for the first year of the
presidential cycle compared to all years show this.
We are no longer 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 SELL on
A Health Buy Alert
occurred on Wednesday 5/24 after a week on a sell alert. This is based on
small-cap action. A VIX Buy Alert, based on
large-cap action, occurred on Wednesday 5/24, based on a new method to
determine this. The insiders went
extremely bearish (data from last Wednesday). The equity market tends
to move on margin debt. See chart here.
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
[NC] Since December of 2016, the dollar
($USD) has dropped as long-term rates have gone down. The driving
force between currencies is the relationship between global interest
rates. The 10-Year Treasury yield remains higher than
other developed-country yields. The problem is that the difference
between them is narrowing. The 10-year Treasury yield ($TNX /10) is
shown with the price of oil ($WTIC). The 2017 low on the
yield of the benchmark U.S. 10-year Treasury note was on June 26
when it was 2.135%.
[NC] The international bond
market is provided
by the WSJ. See the Income tab for a chart of U.S. Treasury
[NC] The 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 vs the S&P 500 SPY. The
20/50-day EMA crossovers are marked by a pole. Watch
this video to see how small caps may impact the market in
The S&P 500 large-cap index, represented by the SPY
exchange-traded fund (ETF) in the chart, had been in a 1.9%
range for the seven weeks, and then it broke out to a
record high based on Janet Yellen's implication that the easy money
policy will continue. The ETF is up 5.6% in the five
months since 2/14/2017 shown below. It is up 10.5%
year-to-date. The Dow Jones Industrials is up 5.1% during the five
The Russell 2000 small-cap index, represented by
the IWM ETF in the chart, is up 2.7% during the
time shown. It broke through the resistance of its
previous highs. The strong support zone in purple has
been holding since December 2016 and the index is above its
50-day MA. This consolidation should be a base for another
The technology-heavy Nasdaq composite index is represented
by its 100 largest stocks in QQQ. The traders (trading
programs) are now buying tech stocks and selling financials --
although not so much last week. The QQQ is up 12.1%
since 2/14/2017 as shown.
[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
goes near 80 might be good time to lock in
[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 Wednesday 5/24, only a week after the sell alert caused by the
2.7% drop on Wednesday 5/17. This buy alert is shown by
the green pole. The small cap stocks tend to lead the market.
They did pretty well in June, but they are not typically
favored in July.
[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 four 1/4 point rate increases, the last
two in March and June of 2017. Now there is an expectation
of another this year. 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