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
Charlottesville Senior Center Investors' Forum.
Java) must be enabled for this site.
There are basic investment rules all great investors follow:
- Sell positions that
simply are not working. If they are not working in a
strongly rising market, they will hurt you more when the market
falls. Investment Rule: Cut losers
- Trim winning positions
back to original portfolio weightings. This allows you to
harvest profits but remain invested in positions that are
working. Investment Rule: Let winners
- Retain cash raised
from sales for
opportunities to purchase investments later at a better
price. Investment Rule: Sell High, Buy
The indicators for the longer term equity
market show an up market within a bull
cycle. The S&P 500 hit another record high last Friday.
The momentum of the large-cap stocks is driving the market higher. 80.2%
of S&P 500 stocks were above their 200-day exponential moving
averages, down from 81.4% the week before. 78.6%
of these stocks are above their 50-day EMAs, down from
80.6% the week before.
[NC] Earnings drive the stock market, and the good GDP
numbers reflect this. The second revision of third quarter GDP came in at
[NC] The market in the typical month of December is usually very good,
after a drop around the second week. The charts for the first year of the presidential cycle compared
to all years show the Nasdaq lags behind the other markets. 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 Buy Alert
occurred on Tuesday 11/21. This is based on small-cap action.
A VIX Buy Alert, based on large-cap
action, occurred on Tuesday 11/21. The insiders were bullish (data
from last Wednesday). The insiders have jumped to bearish for one
or two days about seven times this year. Then its back to
bullish or neural.
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
[NC] Since December of 2016, the dollar
($USD) has decreased in value with respect to a basket of other currencies
as long-term interest rates have gone down. The 10-year Treasury
yield ($TNX /10) and the price of oil ($WTIC) is also shown in this 4-year
chart with weekly closing prices.
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 this year. 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 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, is still
strong. The ETF is up 10.4% in the five months
since 7/6/2017 shown below. The Dow Jones Industrials was up
13.5% during that time.
The Russell 2000 small-cap index, represented by
the IWM ETF in the chart, broke above the resistance
level shown on 11/21, and this level is now acting as support.
It is up 8.8% during the time shown. The purple
support zone has held since December 2016.
The technology-heavy Nasdaq composite index is represented
by its 100 largest stocks in QQQ. This ETF is up 13.5%
since 7/6/2017 as shown. 50.3% of Nasdaq stocks are now
above their 50-day moving averages.
[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 Tuesday 11/21. This buy alert is shown by the green
pole. The small cap stocks tend to lead the market.
[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