Yesterday during my webinar, I added a "chart spotlight" at the end of the program. It's a new feature that viewers had asked for since I generally go through a review of the major indexes (small and large), DP indicators and the "Big Four" as I call them, Dollar, Gold, Oil and Bonds, so this addition adds a new chart or two each time. I typically will run a scan to find possible candidates; however, this time it was presented to me through a technical alert. I reviewed the Consumer Staples SPDR (XLP) because I was alerted that it had just triggered a Long-Term Trend Model (LTTM) BUY signal.
At the close of the prior week, a breakout from a flag formation had us questioning if the market was too overbought for the breakout to lead to higher prices. My conclusion was that there was plenty of room to the upside before our indicators got uncomfortably overbought. Brilliant! Unfortunately, there was no followthrough on the breakout at all, and the market just dribbled sideways for a week. Our indicators still allow for more upside price movement, but that is no longer of immediate concern.
Carl Swenlin wrote back in a July 2014 an in-depth article about the Rydex Cashflow and Asset Ratios. His explanation of sentiment in relation to the Rydex Ratios is simple and well-stated so I won't rewrite it:
"Sentiment has traditionally been measured by taking polls of selected groups of investors, advisors, investing professionals, etc. There have been and still are problems associated with this methodology: (1) The polls are normally taken over a period of several days, during which time market movement and investor outlook can change radically; (2) The responses are strictly subjective, reflecting the emotional status of the person being polled, not necessarily his/her investment position. The Rydex Ratio makes it possible for us to analyze sentiment based upon what investors are actually doing with real money."
Two weeks ago I was looking for a price top. Strictly speaking, we got one, but the decline was short-lived (three days), and the low was the last low in a four-week flag formation. The new rally off that low was strong enough to fuel a breakout to new, all-time highs on Friday. My immediate concern is whether this breakout has good technicals behind it.
Today, the Nasdaq 100 rallied while the other indexes experienced declines. You'll note in the DecisionPoint Scoreboard Summary below that all of the major indexes are on short-term Price Momentum Oscillator (PMO) SELL signals that arrived in December. Meanwhile, the NDX received a new PMO BUY signal.
Last week S&P 500 preliminary earnings results for 2016 Q3 were in, and the market is still grossly overvalued. On the plus side, however, earnings turned up and are projected to move higher over the next year.
The iShares Commodity ETF (GSG) had a momentous BUY signal. Today, the 50-EMA crossed above the 200-EMA, reaching territory unseen since 2014. This crossover triggers a Long-Term Trend Model BUY signal that suggests GSG has entered a new bull market. A review of the charts reveals this new signal has arrived as GSG reaches a crossroad.
In the last few weeks the market has moved into a bullish pennant formation. In doing so it also violated the rising trend line on Thursday, but the trend line penetration has sideways, rather than sharply down, so I think the pennant carries more weight. Nevertheless, medium-term indicators are sufficiently overbought to cause me to start looking for a pause or a pullback.
I have a variety of StockCharts technical alerts set up. As a result, I receive emails whenever the entities in my alert ChartList receives new Trend Model signals and Price Momentum Oscillator (PMO) crossover signals. Today I received an alert that the Utilities SPDR (XLU) triggered a new Intermediate-Term Trend Model BUY signal. When I looked at the chart I realized that a new Long-Term Trend Model BUY signal had generated too.
Last week I wrote about the ongoing bull market -- the secular bull market, beginning in 2009, and, displayed on the chart, the cyclical bull that began in February of this year. But in spite of a broad market rally, individual sectors are not uniformly bullish. Of the ten sectors making up the S&P 500 Index, three of them (30%) are still experiencing bear markets.