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] 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
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.
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.
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.
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
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
[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
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
[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
[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
[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 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