Stocks may be overbought after big moves since late July, but we have yet to see signs of material selling pressure. In fact, we have yet to see even modest selling pressure. There are some pockets of weakness as homebuilders and big techs underperform the broader market. Nevertheless, the bulk of the evidence remains bullish. The worst we can say is that the overall market is overbought and ripe for a correction of some sort.
- AD Lines: Bullish. The Nasdaq AD Line surged to a new high this month. The NYSE AD Line also surged, but has yet to clear its May high.
- AD Volume Lines: Bullish. The NYSE and Nasdaq AD Volume Lines surged to new highs this month.
- Net New Highs: Bullish. Nasdaq Net New Highs surged to their highest levels of the year this month. NYSE Net New Highs surged back into positive territory, but did not surpass .20 (20%) and fell well short of the May levels.
- Bullish Percent Indices: Bullish. All nine BPIs are above 50%. The Materials BPI ($BPMATE) is the weakest at 60%.
- VIX/VXN: Bullish. The S&P 500 Volatility Index ($VIX) and the Nasdaq 100 Volatility Index ($VXN) plunged back below 15%. I will now set a big resistance zone based on the 2013 highs.
- Trend-Structure: Bullish. The major index ETFs moved to 52-week highs this month.
- SPY Momentum: Bullish. RSI broke below 40 in June, but surged back above 65 this week. MACD(5,35,5) is positive and the Aroon Oscillator is back above +50.
- Offensive Sector Performance: Bullish. The Consumer Discretionary SPDR (XLY) and the Finance SPDR (XLF) are leading the market higher and showing relative strength. The Industrials SPDR (XLI) is also performing well with a 52-week high this week. The Technology SPDR (XLK) is lagging and hitting resistance near its May high.
- Nasdaq Performance: Bullish. The $COMPQ:$NYC ratio has been rising since mid April, but hit an air pocket and fell sharply last week as techs suddenly underperformed. The ratio rebounded this week so I will set support at this week's low and remain positive on Nasdaq relative strength.
- Small-cap Performance: Bullish. The $RUT:$OEX ratio moved to a new 52-week high as small-caps led the market higher in July.
- Breadth charts (here) and intermarket charts (here) have been updated.
This commentary and charts-of-interest are designed to stimulate thinking. This analysis is
not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise).
We all need to think for ourselves when it comes to trading our own accounts. First, it is
the only way to really learn. Second, we are the only ones responsible for our decisions.
Think of these charts as food for further analysis. Before making a trade, it is important
to have a plan. Plan the trade and trade the plan. Among other things, this includes setting
a trigger level, a target area and a stop-loss level. It is also important to plan for three
possible price movements: advance, decline or sideways. Have a plan for all three scenarios
BEFORE making the trade. Consider possible holding times. And finally, look at overall market
conditions and sector/industry performance.
About the author:
Arthur Hill, CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London.
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