According to MarketSmith analyics, the stock markets are in a confirmed uptrend. In this post we’ll add to indicators that we use to confirm stock market turns, so that we can be on the right side of the trade. These two metrics will give us signals at market tops and market bottoms.
The MarketSmith Home Screen also shows more stocks are being bought than sold at a 4:1 margin. This tells us breadth is improving.
Two Signals for Market Turns
Junk Bonds (JNK) and High Yield Corporate Bonds (HYG) also confirm turning points. The recent turn to bullish in the charts below tells us these risk averse participants are currently risk on, as they won’t come into the market and buy these assets if they think the indices are going to fall more than they have already.
Click charts to enlarge.
So where does this leave us?
We anticipate a dead cat bounce at this point, as geopolitical and economic risks (inflation, Fed tightening) suggest there is still risk the markets could move lower. Therefore, JNK and HYG will be monitored in addition to credit spreads for any shorterm term signals.
Here is one additional indicator: The BoA Yield Spread. A move higher is bearish for equities; it is still signaling caution. A move lower would be bullish.
In addition, if breadth is improving we can also check the McClellan Oscillators, NAMO for the Nasdaq and NYMO for the New York Stock Exhange. Hint: they are both in a bullish cycle that started almost three weeks ago Wednesday May 11. On that day NYMO was (-73) closing on Thursday at (+78). While a bit extreme, this indicator shows the rally was gaining strength as more stocks participated.