Health of the Market  (3/25/2017)

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 Charlottesville Senior Center Investors' Forum. Note: To get tabs to other pages, Javascript (not Java) must be enabled for this site.

[NC]  Consumer confidence climbed to the highest level in more than 15 years. The index rose to 114.8 in February from 111.6 in January. Consumer spending accounts for 70% of U.S. economic activity. However, retail stocks are down. Leading economic indicators are continuing their rise as shown.

All the major indexes were down somewhat last week. The indicators for the longer term equity market show an up market. On Friday, 77.0% of S&P 500 stocks were above their 200-day exponential moving averages, down from 80.8% the week before. 55.6% of these stocks are above their 50-day EMAs, down from 70.8% the week before. 

[NC]  The market in the typical month of March is usually good, especially in the first half of the month. The charts for the first year of the presidential cycle compared to all years show this. 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 11/11/2016 after a sell on 4/28/2016. 

The Health Sell Alert of 3/8 is still in effect. This is based on small-cap action. A VIX Sell Alert, based on large-cap action, occurred on Wednesday 3/22. The insiders are slightly bullish (data from last Wednesday). The equity market tends to move on margin debt. See chart and read the latest here.

[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

Discretionary, Technology and Materials SPDRs are holding support. Staples and Utilities lead with new highs. Others are not looking so good.

There are head-winds for international markets due to higher U.S. interest rates and a stronger dollar -- and possible protectionism in the next administration. The U.S. dollar is up due to the interest rate increase, although this year, down are down somewhat. This is shown to the right with the 10-year Treasury yield ($TNX /10). The price of oil ($WTIC) is shown below that.

[NC]  The international bond market has been moving lower as the yields on many government bonds are moving up as shown by the WSJ. See the Income tab for a chart of U.S. Treasury yields.

[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. 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, traders are willing to take on more risk. This was the case since the February 2016 lows as shown below. After the election, the small-caps, which tend to be domestic companies not bothered by any trade barriers, were doing better again. However, since the start of 2017, small-caps have lagged large-caps, which is not a good sign for the market. Watch this video to see how small caps may impact the market in 2017. 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.

The S&P 500 large-cap index was down 1.4% last week, much of it on Tuesday when concern rose about auto loan delinquencies and the ability of Trump to repeal and replace the ACA. The trend is still up as the price is above the 50-day MA. This index is up 10.23% in the five months since 10/17/2016 shown. The Dow Jones Industrials is up 13.88% during that period. 

The Russell 2000 small-cap index shot up 10.2% during the week of the election. It is now up 11.94% in the five months shown. The Russell index dropped below its 50-day MA and hit strong support.

The technology-heavy Nasdaq composite index is consolidating. Technology is the strongest sector. This index is up 12.10% over the last five months.

[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 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. 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 severe downswing. A red dashed pole when the MFI goes near 80 might be good time to lock in profit. 

Health Alert

[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.

The Health Sell Alert of 3/8 is still in effect as shown by the red pole. The small cap stocks tend to lead the market and they are weaker than the large caps now.  

[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 even when the Fed raised the very short term Federal Funds Rate in December 2015. There had been much flight-to-safety buying causing the rates to drop. Now the expectation of another short-term Federal Funds Rate increase in December, and the expectations of higher inflation has pushed the 10-year rate up. 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 sell anything.