Tuesday, April 28, 2009

Sum Perspective

The McClellan Oscillator is overbought and so are a number of other indicators. However, this looks like one of those times where 'overbought' is indicating an impulsive move higher. Sharp corrections can occur at any time but in my view, the markets will continue to climb this huge wall of worry.

The monthly S&P 500 Index with the MCO and SUM Index
Note the Bollinger Bands on the SPX Chart are 5 year (60 months)
Click to expand

Added May 6th 2009 -- from a response to a query:

I played around with BB's on a couple of the acdvance-decline oscillators, but more to see how the increasing number of issues traded was affecting the numbers. Most oscillators are used with a signal line which I think makes the additional use of the BB's unnecessary.

I posted the chart of the MCO-SUM above last week. I was curious about when the Summation Index was "too high" and how the number of issues traded affected this. Also I had felt that the true "zero" line of the Summation Index was closer to 1000 than zero, the long average on the chart confirms this.

With the SUM, turning down from one of the spike peaks means a couple of things, First the MCO has gone below zero -- but even this has more than one ramification because this can occur with both the 10% and 5% Indexes still being positive, indicating that the advance decline line is still trending up. When the SUM index is very negative, and the 10% index is below -500 like it was earlier in the year, its turning up affects only the stronger than market stocks (the ones that go up) and other issues will continue to slide to new lows.

So in the chart above, I marked the penetrations of the upper BB, these do not usually mark tops in the market, they may mark short term reversal points. What they do indicate is high momentum to the upside and usually any correction is followed by a continuation of the move.

Given the market volatility over the last year, I expect the Summation Index to continue higher -- at least to the 5000 level and potentially to all time highs above 6000. My reasoning for this is that the recent crash was extended in time and took the SPX from its upper BB to below the lower BB. The move from -4130 to +4345 (yesterday) occurred as the SPX recovered from below the 5 year BB to a point just inside the BB. Trading this far below the BB is bearish and I suspect that the SPX will fail initially at roughly SPX 1000 - and decline towards the BB again. I still want to see a decline with the 10% Index staying above the -500 level, this would provide the opportunity. None the less, getting the SPX to the 1000 level will take some time and this will I think will drive the SUM Index to the 6000 level. Should this occur, it again will setup a condition where the SUM index is indicating the move higher is not finished.

All of this is very bullish.

Wednesday, April 15, 2009

Summation Index

The NYSE McClellan Summation index is poised to make new recovery highs by the end of the week. To add a bit of bull-bear perspective on this indicator, here's a wider chart

The NYSE Summation Index
Looks high? could go higher.
Click to enlarge

A bit more cautionary is the 50 day Bullish Percent Index (The percentage of NYSE Issues above their 50 day moving averages) This has reached previous peak levels but since the 200 Day Index is still below 25%, it seems likely to me that the 50 day may just dawdle above the 50% level foe awhile. Time will tell.

The NYSE Bullish Percent Index
Click to enlarge

Sunday, April 5, 2009

SPX Cycles for 4/3/09

The markets continue to grind higher but are overbought enough so we should expect a sharp one or two day correction at any time. I do not think the correction will be nasty and deep like last January, more of a scare to ease out the nervous longs and trap the overly aggressive shorts.

The 10% Index component of the MCO again went above the +500 positive threshold. It did this in January and the nastiness of the following correction surprised me. However, I don't think this will be the case now, primarily because the 200 day Bullish Percent Index has finally moved up off the floor where it has been flatlined since October - thats nearly a full six months and about as bearish as it gets.

The fact that this 200 day Bullish Percent indicator has turned up means that
a. the 200 day averages have declined down closer to the recent price levels and
b. that the recent price movement has turned up enough for some stocks to finally move above their 200 day averages.

In the worst periods of this bear market, 95% of the NYSE stocks were below their 200 day moving averages. This is extraordinarily bearish behavior which seldom ever occurs and I seriously doubt if we will see this happen again anytime soon.

Finally, I have updated the cycle chart for the SPX. During the worst part of the recent decline, the short term cycle amplitudes were so high they overwhelmed the longer term periods making it hard to see and set the cycle intervals. Things have settled down a bit now so I updated the chart. (note TD = trading days)
55 TD & 27.5 TD (1/2 span) - This is the most consistent trading cycle going back a few years
71 TD & 30.5 TD (1/2 span) - Again reasonably consistent over the last few years
20.33 TD - Short term trading period - a slightly elastic mix of 8-9-10 TD short term cycles adding up to something between 18-21 TD and averaging out around 20 TD's

On days with a vertical cycle bar/line I look for a trend change or an acceleration of the move. Works sometimes, sometimes not. Right now it's worth paying close attention, a lot of things are adding up to indicate jerky action in the next few days.

The McClellan Oscillator for the week ending 4/03/09
Click to enlarge

The NYSE Bullish Percent Indexes
Click to enlarge

The SPX daily chart with cycles
Click to enlarge

The SPX daily chart with more stuff
Click to enlarge