Directional changes seem to be more important than magnitude indicators these days. It is not the first time, nor will it be the last. The advance over the last two weeks started with a seemingly meek reversal. Volume was low and breadth was not that impressive when the stock market advanced on February 4th and 6th. The little reversal, however, had some serious legs as QQQ surged 7%, IWM advanced 6.3% and SPY gained 5.78%. Why? Because the bigger trend was up and this short-term bullish reversal had the wind at its back. The chart below shows the S&P 1500 AD Line ($SUPADP) with AD Percent in the bottom window. Even though AD Percent did not exceed +70%, the AD Line breakout held and the indicator continued to a new high. Yes, I would like to have seen +75% on the breakout, but +64% was not actually bearish. It was just deemed insufficient at the time (my bad). A positive number, however, still shows a bullish bias. The only argument is over degree. Stocks remain in short-term uptrends that are getting a little frothy. Small-caps outperformed on Monday and this is positive. However, Treasuries also rose and this could be negative for stocks. It could be a volatile day for Treasuries because housing starts and building permits are scheduled for today, as are FOMC minutes.
**This chart analysis is for educational purposes only, and should not
be construed as a recommendation to buy, sell or sell-short said securities**
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Key Reports and Events (all times Eastern):
Wed - Feb 19 - 07:00 - MBA Mortgage Index
Wed - Feb 19 - 08:30 - Housing Starts/Building Permits
Wed - Feb 19 - 08:30 - Producer Price Index (PPI)
Wed - Feb 19 - 14:00 - FOMC Minutes
Thu - Feb 20 - 08:30 - Initial Jobless Claims
Thu - Feb 20 - 08:30 - Consumer Price Index (CPI)
Thu - Feb 20 - 10:00 - Philadelphia Fed
Thu - Feb 20 - 10:00 - Leading Economic Indicators
Thu - Feb 20 - 10:30 - Natural Gas Inventories
Thu - Feb 20 - 11:00 - Crude Oil Inventories
Fri - Feb 21 - 10:00 - Existing Home Sales
Charts of Interest: Tuesday and Thursday
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.
