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It's been about a month since I last looked at the market breadth indicators in detail. So I thought with the market pulling back and the erratic media proclaiming doom one day and that everything's fine the next, that I should see what the market breadth is saying.
The NYSE Bullish Percent Index is in a column of Os in the middle of the range, so a fairly neutral field position - 57.41% of stocks are now on P&F buy signals. So it's suggests a slight bullish bias in the market on a percentage basis. However, on a directional basis the failure at the downtrend line and move back to a column of Os suggests that the market has the ball currently and that I should be in a protective mode with a more risk off strategy and tighter stop losses.
NYSE Percent of Stocks Above 200 Day Moving Average ($NYA200R)
The Percent of Stocks Above 200 Day Moving Average ($NYA200R) is in a column of Os. 26.65% of stocks are above their 200 day moving average currently, which is 14% less than the high in October. It has fallen back below the 30% level after making two lower highs in November so far and is close to giving a sell signal - but hasn't yet. So this is suggesting caution still in the short term.
NYSE Percent of Stocks Above 50 Day Moving Average ($NYA50R)
The Percent of Stocks above their 50 Day Moving Average ($NYA50R) has topped out and is pulling back, with 59.36% of stocks now above their 50 day MA. This moves from overbought to oversold much more frequently than the 200 day chart, but currently it is negative in the mid range. So is again suggesting caution.
SPY/TLT ratio
The SPY/TLT ratio has stayed on a buy signal since October. However, the last column of Xs made a lower high and it is very close to giving a new sell signal. So is also suggesting caution currently.
All in all the breadth charts suggest to me that we are still not out of the bearish phase yet, but that there has been some improvement in the NYA50R an Bullish Percent Index so it could be a more neutral phase between bull and bear, although it seems to be leaning back towards bear at the moment.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
I like to keep an eye on the Treasuries charts as they have a good inverse relationship with the stock market. So I've updated my stage analysis of the US 30 year Treasuries and included the 10 year US Treasuries charts as well.
On the US 30 Year Treasuries weekly chart, price pulled back to the 30 week MA four weeks ago and has had a good bounce since. However, it is yet to make a new high, volume has been below average and relative performance vs the S&P 500 is weakening, so I'm considering it in late Stage 2B at the moment as the moving average is still trending higher.
On the daily chart it is much weaker and has moved into Stage 3 with price trying to break back above the trendline, but so far failing. It's in a Stage 3 range so it could go either way with a break above 147 or break below 135. However, if it fails to make a new high soon then I'd favour it managing to break below 135.
The US 10 Year Treasuries are showing the same pattern so I'd be looking for a break below 127 if it can't make a new high soon.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
I stumbled upon an interesting chart today, and thought I'd mark it up as I think it shows a lot of promise for a long term sell. The EURGBP chart has formed a large stage 3 top over the last 3 years or so after a huge Stage 2 run up of around 3000 points in 2007 and 2008.
The price broke down last year to give a Stage 3 low point below the 30 month moving average. This gave a pivot point for a 5 year trendline, which held over the last year until it was breached in September. Price has bounced around that trendline for the last 3 months, but it looks like the sell side is winning as it's not been able to get back above the trendline this November and was sharply rejected when it tested it again this week.
Volume on forex isn't the same as stocks, so I can't use the crucial volume part of the method faithfully on this chart. So I use my backup of cumulative volume at the bottom with a moving average to determine the conviction of the move. Which seems strongly negative as cumulative volume is near the low, but price hasn't fully broken yet - so there is a negative divergence.
The 30 month moving average has turned down for the last 3 months and the weekly chart has moved in early Stage 4A. So I'm looking to sell this with an initial swing target at 81, but hopefully it will eventually take that out as well and continue lower. But as I'm using a monthly chart for this, it could take a very long time to play out. So it's could be a long term sell and hold for me.
Another thing I like about this trade is that both the Euro and the Pound have around a +50% correlation with the S&P 500. So it's one of the few trades I can do that is not correlated to everything else, as it is just a relative strength play between the Euro and the Pound. Of which the chart says the Euro is weakening against the Pound after 5 years of Euro strength. So maybe I'll be able to afford a bit more on my next holiday to Europe.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
Attached is the latest US 30 Year Treasuries chart. It made a lower high two weeks ago and sold off a bit last week before bouncing at resistance on Friday. It's another transitional one. I personally rate it as 2B still until the short term trend line is broken. But as we've discovered the transitional stage is subjective, so it could also be classed as 3A and I believe the book recommends taking partial profits at this point and leaving the remaining stop under the most recent major low. So under 135 I think for that.
This is a very important chart imo, as US 30 Year Treasuries have a strong negative correlation with the S&P 500. So if the lower high holds, then it's good news for equities.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
After the Euro mess got a short term fix yesterday I decided to take a new long position in YUM.
YUM made a Stage 2 continuation breakout on the weekly chart this week to hit new all time highs. Relative performance is good versus it's industry and it's individual sector, and it is also outperforming the S&P 500 as well. Volume is only average, so looks like a good traders entry for the method imo.
I've got a number of other trades open at the moment. They are:
My risk is weighted to the long side at the moment and I'm a bit over leveraged for my liking. So I might try to trim some positions in the coming weeks to get back to a safer level.
My long Gold, short Silver relative strength trade is doing ok so far and I'm happy to leave it open for a while as I think if Gold does sell off that Silver will be hit harder.
The GBP/EUR trade has had a good start and moved into profit straight away. It's probably going to be a long term holding for me as I think the UK will outperform Europe in the next few years.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
50.41% of Stocks in the NYSE are currently on a P&F buy signal. The NYSE Bullish Percent Index (Head Coach) moved back to a column of Xs over the last few weeks signalling that it time to put the offensive team back on the field. However, as the field position is neutral there's no need to get carried away here. So I'm focusing on a few individual plays in the strongest and weakest sectors for my longs and shorts and staying slightly weighted to the long side in my portfolio.
NYSE Percent of Stocks Above 200 Day Moving Average ($NYA200R)
The Percent of Stocks Above 200 Day Moving Average ($NYA200R) has moved back below the 30 level, with only 28.5% of stocks above their 200 day moving averages. It is on a sell signal currently and in a column of Os so it needs to reverse above 34% to give a new buy signal currently.
NYSE Percent of Stocks Above 50 Day Moving Average ($NYA50R)
The Percent of Stocks above their 50 Day Moving Average ($NYA50R) has fallen back to 42.93%, but had a reversal on Friday into a column of Xs as 6% of stocks moved back above their 50 day moving average. Although a positive sign, it is a fairly weak one and isn't a buy signal.
SPY/TLT ratio
The SPY/TLT ratio is currently on a sell signal and reversed 6% into a column of Os last week. It has yet to make a lower low, but it is showing that 30 Year US Treasuries are outperforming the S&P 500 currently.
As Mike was kind enough to do a table tutorial, I thought I'd put it to use and do a summary table of the charts above.
NYSE Percent of Stocks Above 200 Day Moving Average
Sell
Os
$NYA50R
NYSE Percent of Stocks Above 50 Day Moving Average
Sell
Xs
SPY/TLT
S&P 500 / US 30 Year Treasuries
Sell
Os
As you can see from the table above it's a mixed bag at the moment in the breadth indicators, with a bias towards the sell side. So a time for caution still.
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
Below is the latest US 30 Year Treasuries chart which I believe is very important at the moment as it highlights the risk off trade. Price bounced off the trend line and and made a new weekly closing high and now looks set to test the September high this week. If it breaks out then the risk off trade would be back on and equities would likely sell off imo. One thing to note is that volume was fairly light on lasts weeks move higher though.
Below is the charts
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
The weekly chart for Gold has moved into Stage 3 now, with price finding support this week at the 3 year trend line. Volume has been leaving Gold as you can see in the cumulative volume, but price is near the bottom of the Stage 3 range so there’s a possibility of a bounce soon. Especially as there a number of factors supporting Gold in the 1550 to 1600 area.
To become long term Stage 4 I’d personally want to see a close below the 3 year trend line and a move below 1535. Here’s the chart
"Fate does not always let you fix the tuition fee. She delivers the educational wallop and presents her own bill" – Reminiscences of a Stock Operator.
