This is an excerpt from yesterday's DecisionPoint Alert [with updated comments & charts]. If you'd like to subscribe to DecisionPoint.com's DP Alert, click here! You can also join our free newsletter list here!
One of my favorite indicators is the 10-DMA of the High-Low Differential, which is on our ST New Highs/New Lows chart. This chart is available to all DecisionPoint.com members in the "DecisionPoint Alert ChartList" with annotations. [If you are an Extra member of StockCharts, you can find the charts (minus annotations) in the free DecisionPoint Market Indicator ChartPack.] New Highs continued to expand for the fourth day in a row [on Thursday]. I noticed that we have a defined bottom on the H-L Differential; these indicator bottoms are generally right on the money. Tops on this indicator are fairly good determinants of a downturn as well. We've watched negative divergences in play before, but, with Thursday's reading, I'm seeing a confirmation as readings are rising.
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Climactic Market Indicators: New Highs are rising, as I noted in my opening, and are reaching heights that suggest short-term strength and a rally continuation. Breadth readings weren't climactic [yesterday nor] today. [We saw negative breadth readings, but nothing climactic. I also find it positive that volume contracted on today's decline.] The VIX has gotten above the moving average on the inverted scale, which also suggests short-term strength. [A note of caution is that we are seeing the Bollinger Bands squeezing. We saw this in July and again in November right before the corrections.]
Short-Term Market Indicators: The STOs are breaking out of their declining trends. Oscillation above the zero line is bullish, suggesting internal strength. I'm relieved to see the %stocks above their 20/50-EMAs is improving. This tells me that we could be seeing the beginning of broader participation. [However, Carl wrote today in his "DP Weekly Wrap" that negative divergences are still in play, so be alert!]
CONCLUSION: I talked to my friend and fellow analyst Mary Ellen McGonagle (MEM Investment Research) about the drop off at the end of the close [on Wednesday] - she told me it had more to do with missiles and not a crisis of confidence. She remains very bullish. Yesterday's market action, along with the reversal on some of our indicators, has me more bullish. [Carl isn't convinced just yet and made some great points in today's Weekly Wrap (DP subscribers: MUST READ). The market remains overbought and, while some of our indicators are turning in the right direction, our intermediate-term indicators are not ideal. My final comment is that overbought conditions can persist, but the ice could get thin.]
Technical Analysis is a windsock, not a crystal ball.
Happy Charting! - Erin
Erin Swenlin will be presenting at the The MoneyShow Las Vegas May 11-13, 2020! You'll have an opportunity to meet Erin and discuss the latest DecisionPoint news and Diamond Scans. The conference is free to attend or view online!
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