The Closing Print live trading and financial blog during market hours.

We step back and analyze the markets on a regular basis. We look at intraday, daily and long term cycles, so that we may navigate the troubled waters of finance. If you are adept and do your homework, you will reap the rewards over time.

In this edition of Bull or Bear, we examine the current cycle.

First we will analyze the NYSE Composite daily from a bullish perspective. This index represents 2000 stocks, a broad view of the equity market. Up volume, represented as green, continues to see higher values on bullish moves. In addition, the McClellan Oscillator is positive and  trending higher. Price, breadth and volume all say the trend can continue. From a bearish perspective, we should anticipate dips back to the rising moving averages.

NYA

Analyzing the S&P500 primary sectors, yields additional information. Money flow is positive and bullish. Energy is lagging. Money flow in that sector is trending above zero. Energy is the only sector below its 20sma. From a bullish perspective, sector performance provides a tailwind to current price action.
Sectors-02-10-2017

Dow Theory states that markets must confirm. Charles Dow pointed to Industrials and Transports primarily. As the Industrial sector produces goods, the transports provide the mechanism for completing the cycle. This logic seems simple enough.

Below is a weekly chart of the S&P500 Industrial Sector SPDR. SOTEMA is bullish with price easing higher from an 8 week consolidation. From a bullish perspective the trend is up. There is no overhead supply to overwhelm the current demand. From a bearish perspective, RSI is overbought and price could retreat to the 9ema.

XLI-02-10-2017

Reiterating Dow Theory, we see Transports flagging above its weekly 9ema. There is no overhead supply. Pressure is building as the moving averages (SOTEMA) are sloping upward. From a bearish perspective, RSI is overbought. That said RSI also tells a story of sustained demand. The relative strength index has the potential to remain elevated, since RSI is a bound indicator.

IYT-02-10-2017

Finally, lets examine the long term trend. Below is a weekly chart of the S$P500, with Elder Impulse enabled. We can debate exactly when price broke out of its 2 year (+/-) consolidation. Two pivot highs are noted, 2134.72 and 2193.81. The S&P500 broke above the latter highs in November, shortly after the election.

From a bullish perspective, both the 50 and 200sma weekly are trending higher. The UST SPX “Bond Stock Ratio” is trending lower, with occasional waves, as the index trades through secondary cycles inside the primary trend. We do point to the obvious similarities with late 2012, where the 65sma dipped lower. The blue shaded areas reference these two time periods. From a bearish perspective, we will see periods of “mean reversion” as we saw September through November of 2012. We are currently in the trough of an extreme move away from the 65sma, so we are close to an inflection point.

UST SPX

The question is, when will we experience a secondary wave within the primary trend? The first caution signal would likely show up as a change in sentiment reflected in the majority of sectors outlined above. Remember all of them are experiencing positive money flow.

As a first alert, watch for a red Elder Stick on the “Bond Stock Ratio” chart above. Also look for the Nasdaq, Russell 2K, INDU and NYSE composite indices to confirm.

Happy Fry-Day – Vinny



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