Are you bullish or bearish? Short term or long term?
What we hope to present herein, shall be an objective view of breadth. We’ll use the S&P500 and the NYSE Composite with Occam’s Razor in mind. Basically stated, “Entities should not be multiplied unnecessarily.”
I like the simpler form, “Keep things simple!” Einstein is attributed as saying, “Everything should be made as simple as possible, but not simpler.”
How do we go about making things simple, as it relates to our bias?
We will cover a few charts and use breadth as our benchmark. Are more stocks advancing or can we determine if more stocks are declining?
The chart below presents the McClellan Oscillator (NYMO) in the cumulative form, as the green line behind price. From February through April, cumulative was rising fast, indicating more stocks were advancing. In July the indicator peaked, while price moved sideways digesting its gains. In previous discussions we thought this could be a sign of distribution.
Things to note if you have a bearish bias. 1) Price has yet to regain the 20ema and can be viewed as resistance. 2) price action is producing lower highs. 3) price has yet to reclaim VBP resistance levels overhead (blocks as well.
Things to note if you have a bullish bias 1) Price needs to regain the 20ema if we are to continue higher. 2) NYMO appears to be turning. 3) stochastic and RSI are trending higher. 4) MACD histogram indicated bearish momentum is dissipating, indicating bullish momentum might take hold.
Here is the same chart with candles removed. NYMO is presented in oscillator form in this example. Note 1) NYMO bottomed last week and shows a bullish trend. 2) previous peaks in the indicator suggest the trend could continue.
If we measure new highs minus new lows and plot a histogram, we get the chart below. NYHL has been above zero line and bullish since March. We see spikes higher over the past few weeks. The moving average is turning up again. Also note NYAD in the lower panel is rising with price.
Switching to the NYSE Composite, we see price action supported at VBP between 10410 and 10590. Price is back above VBP, printing a close just below the 20ema. Stochastic and RSI are rising. The HiLo indicator, which highlights when 52 week highs are expanding, as compared to 52 week lows. This 10 period moving average is turning.
Finally, we present the SP500 versus the SH, Proshares Short S&P500. When used one atop the other, this chart serves as an indicator. Converging lines are bullish, whereas diverging line are bearish on this time frame. At the present time, this indicator is more bullish than bearish.
When viewed as a whole, the trend appears seeking direction, though camouflaged by noise. Breadth continues to develop more bullish tones than bearish. A caveat remains however, as price needs to regain the moving averages and those same moving averages need to change their juxtaposition. More specifically, to remain bullish we need to see the 9ema above the 20ema.
Expect back and fill whether we are moving higher or lower.
This simple analysis leaves us with our answer. Prices are trending higher with back and fill along the way. Breadth is improving. That said, we are proceeding with caution. Until price gets back above the 9e/20e/50ma no one is winning.
Happy Trading – Vinny
Disclaimer: Do your Own Research
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
Investment Warnings
We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up;
Investors may not get back the amount they invested – losing one’s shirt is a real risk; past performance is not a guide to future performance.