The bulk of the evidence remains bullish, but recent weakness took its toll on SPY momentum as this indicator trio turned bearish. Momentum indicators are leading indicators and will be the first to turn. However, they are also the most prone to whipsaws and bad signals. Of note, the $COMPQ:$NYA ratio hit a new high as techs continue to lead the non-tech world. In addition, the $RUT:$OEX ratio hit a new high as small-caps continue to outpace large-caps. These two indicators suggest that the appetite for risk remains strong.
- AD Lines: Neutral. The Nasdaq AD Line pulled back in August, but remains well above its prior low and in an uptrend since November. The NYSE AD Line did not exceed its May high and remains range bound the last four months. The June low marks support.
- AD Volume Lines: Bullish. The Nasdaq AD Volume Line pulled back in August, but the pullback was shallow and the indicator remains in a clear uptrend. The NYSE AD Volume Line pulled back in August, but remains in an uptrend overall and well above the June low.
- Net New Highs: Neutral. Nasdaq Net New Highs dipped briefly into negative territory and then bounced back above 2.5% this week. NYSE Net New Highs dipped below -2% last week to turn bearish. A move above +2% is needed to put this indicator back on the bullish track.
- Bullish Percent Indices: Bullish. All nine sector Bullish Percent Indices are still above 50%.
- VIX/VXN: Bullish. The S&P 500 Volatility Index ($VIX) and the Nasdaq 100 Volatility Index ($VXN) surged off their 2013 lows, but remain in downtrends overall.
- Trend-Structure: Bullish. DIA, IWM, MDY, QQEW and SPY pulled back in August, but recorded 52-week highs at the beginning of the month and remain in uptrends overaall.
- SPY Momentum: Bearish. RSI dipped below 40 this week and hit its lowest level of the year (35.5). MACD(5,35,5) moved into negative territory and the Aroon Oscillator broke below -50.
- Offensive Sector Performance: Bullish. XLK, XLY, XLF and XLI recorded 52-week highs within the past month. They pulled back since these highs, but remain in uptrends overall.
- Nasdaq Performance: Bullish. The $COMPQ:$NYA ratio broke out in early May, hit a new high this week and remains in an uptrend as the Nasdaq outperforms the NY Composite.
- Small-cap Performance: Bullish. The $RUT:$OEX ratio stalled for a few weeks and then surged to a new high as small-caps continue to lead large-caps.
- Breadth Charts (here) and Inter-market 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.
Learn More
