Saturday, February 28, 2009

Sad Looking February

Weekly charts of the DJIA Components
Click to enlarge

Monday, February 23, 2009

Rock 'n Roll

Enough already, taking the previous post into account (anything can happen) A news event could spur a 400 point up day Tuesday or Wednesday. We still need to expect a retest later on, but for now this looks done.

The McClellan Oscillator as of 2/23/09
Click to enlarge

Friday, February 20, 2009


Following up on yesterdays post, everything broke down today and the retest failed.
McClellan Oscillator and 10 % Index failure.
click to enlarge


The one mitigating factor which 'might' indicate the present low could turn out to be significant is the action of the 10% index in early January when it was well above the +500 threshold. It is possible this was nothing other than an effect of a high amplitude oscillation since the 10% index had been below -1000 in November. However it appears that the December period when the 10% Index stayed near zero for a couple of weeks would mitigate the idea that the readings over +500 were just an overshoot.

It is not clear yet how the markets are going to resolve this recent decline but the possibility does exist that the +700 reading on the 10% Index is statistically significant and indicates that market breadth has turned higher even though prices still languish at the lows. If this is the case then last weeks -621 reading on the 10% Index should be followed by an immediate strong rally starting Monday or Tuesday. Any price pullback or correction in the next 10 days should occur with the 10% Index staying above the -500 level.

FYI the 10% Index is an 10% exponential movinga average of the Advances- Declines.
Calculated as follows:
AD = Advancing-Declining Issues
10% Index(today) = 10% Index(yesterday)*0.9 + 0.1*AD

Update: I was asked about how todays McClllan Oscillator compares with 2003 bottoming period.

The MCO at the 2003 market low

Wednesday, February 18, 2009

Groping for a low?

There is not a whole lot to say here. The markets are oversold enough for a bounce or for a severe breakdown.

My best guess is that the price action will be choppy into the Friday option expiration. If this occurs with the market breadth holding up, the Advances-Declines staying above -2500 or so, we might have a successful retest that could last for a few months at least. If the market breadth breaks down then we are back at square one and will need to wait for another low at a later date before we can draw any conclusions.

The McClellan Oscillator for 2/18/09
Click to enlarge

Sunday, February 1, 2009

January Wrapup

January ended up on a sour note and it appears now that the weakness will carry over into the early part of February. The first chart is the SPX in multiple timeframes. All look like we can expect weakness for at least the next few days. In particular the 60 minute MACD is still strongly negative and needs at least a day to turn.

The SPX Weekly, Daily, 60 min and 10 min charts
Click to enlarge

The McClellan Oscillator reached into overbought territory and is now declining. While we are approaching the green trendline I doubt this will hold and we can expect the MCO to test the -200 level. This will create an oversold condition favorable for a reversal. The key factor is whether or not the 10% Index can manage to stay above the -500 level. Over the last week I have noticed that on declining days, the Advance-Decline numbers have remained a bit stronger than in the past. If this pattern holds in the next decline I would expect the 10% Index to stay above -500.

The McClellan Oscillator for 1-31-09
Click to enlarge

The HiLo Index is diverging from the price which is bullish. Given the recent market history, I don't see any way this can change. This makes the indicator a bit irrelevant for at least 10 more months. However the Percent of Stocks Above their Moving Averages (50 and 200 day) is giving us good information here. When the 50 Day Percent Index got into the upper overbought range, the market sold off. At the same time, the number of stocks above their 200 day average is sick and needs life support. The fact that the number of stocks above the 50 day average got up into the upper range indicates that we might see the 200 day Percent Above Index start to turn up reasonably soon.

HiLo Index and the Percent Above the 50 and 200 day averages.
Click to enlarge

Finally, here is a long term (all the available data) for the Percent Above Indicators for reference.

Historical view of Percent Avove
Click to enlarge

While I remain of the opinion that we can expect the SPX to test its 200 day moving average, the exact question is when. IF the markets can weather the upcoming decline, then I believe we will have established the correct conditions for a more sustained move higher. The key factor to watch is market breadth, if the Advance-Declines can hold up better than they have over the last 18 months, it will keep the 10% index above -500 and confirm a reversal. If not, we are back to square one.