Investors' Forum
We meet twice a month to discuss the stock and bond markets, and
investment strategies. All investors are welcome to come. There is no
money collected or invested by this group. We meet on the first and third
Fridays of each month from 10:00 to ~11:45 a.m. in the Board Room.
Call Don Whitford at 985-3964 or call (
) Bruce Saunders at 245-0605 to get more information and to join our
email meeting notification list. Our favorite investment websites can be
found by clicking on the underlined words above.
All charts will be updated here weekly
(usually Saturday) with comment by Bruce Saunders.
Health of the Market
The old four-month channel has been breached with a strong move
up on Friday. Even more important was the rise above the 50-day MA
and eight-month trendline show in yellow. It would have been nice if the
1.4% move on Friday was on high volume, but you can have certainty in the
stock market!

[No change to text] The
bond market has done well in 2009. Shown here is a total return chart of
the Fidelity Intermediate-Term Bond Fund (FTHRX). From the November 2008
low to the November 2009 high, the gain was 23.4%. The white
dots indicate reinvested distributions. The uptrend is
continuing.
[No change to text] The Russell 2000 Small-Cap
Index tends to lead the overall market both up and down as the small-cap
stocks are generally more risky than large cap stocks. This index is
shown in red on the chart below. It's 200-day exponential moving average
(EMA) is in light blue (top pane). This moving average often acts as
support and/or resistance to price movement as many people watch it. Trend
lines also act as support or resistance. The importance of these lines
increases with the number of times the price bounces off them.
The second pane below is the Relative Strength Indicator (RSI) for
the Russell Index, a measure of momentum of the market. This is the
relative strength of the Russell 2000 itself -- it's not relative to any
other index. Below 50 shows negative momentum over the last 14 days,
although between 47 and 53 is neutral. Currently the momentum is
strong in the positive direction. The RSI did go above 70
indicating an overbought market.

[No change] The third pane is the Nasdaq McClellan Summation Index (yellow)
and it's 200-day EMA (green). This is a running sum of the difference of
two moving averages of the number of advancing issues
minus the number of declining issues. A 19-day and a
39-day exponential moving average are used. This shows whether a market
move is broad based.
Dr. Alexander Elder in his book Trading for a Living says that the
New Highs minus New Lows Index is
"probably the best leading indicator of the stock market". This is shown
for the Nasdaq market in the bottom
pane. A 'buy alert' occurs if the Nasdaq Hi-Lo Index goes positive for
three consecutive days, or a 'sell alert' if the index goes negative for
three consecutive days. To see a
summation of these numbers, click here. On 10/18/07, this
indicator gave a 'sell alert'. There was a 'buy alert'
on 4/6/09. This index has reached a new high of 236 on
Friday. Another high reading of 230 occurred on 10/14/09 after a
7.5% rise, and it was followed by a 9.9% drop. Some retracement
of the Russel's 13.6% run-up since the 2/8/10 low should be expected
shortly.
Stock Market Cycles
The
5-day MA of the equity put/call volume ratio
is an indicator of market sentiment (fear & greed). On 1/11 this
indicator dropped to .518 (low fear - high greed) and
this Friday it was .596. Greed has increased this week. Tops
have formed recently when this ratio got to the
.540 level. The horizontal line on the StockCharts
plot, indicating that fear is high enough for a market
bottom to form, was changed on the chart from .95 to .85. This
is arbitrary and is based on recent history relating
to market bottoms. For
a review of the theory, click here. For a good video
tutorial, click here.
The top pane below shows the S&P 500. The red background indicates
when at least a 4% drop has occurred (after at least a 4% rise). The price
would stay in the top Bollinger Band in a nice rally. The price hit
the top BB. If it goes above this band, the rally will likely
reverse.

The lower pane shows the various weekly price oscillators (see the
color code on the chart). The dashed vertical lines show the
times when the 10- and 20-week oscillators move out of the
extreme area together. This occurred at the beginning of this
rally. The shorter two oscillators have reached the overbought
area. There is still time for this rally to continue before the
longer-term oscillators get into the overbought region.
Volume Study
[No change] The Nasdaq volume is being used here. Over half of
the issues traded on the NYSE are fixed income related, and that volume is
not relevant to our study. Also: The NYSE
has been losing market share to NASDAQ and newcomer BATS, but many may
still be surprised at the extent of the loss. In January 2007, the NYSE
traded roughly 55% of all NYSE-listed shares. A year later that percentage
was down to 40%. This past January it was down to 25%, and just recently
there have been a number of sessions in which the NYSE traded less than
20% of total share volume.
The top pane in the chart
below shows the Nasdaq Composite Index. The second pane is the
Nasdaq volume with a green 19-day EMA. The measure of a strong move is
strong volume. The verticle poles bracket the large increase in
volume. The Nasdaq went up 1.9% in those two days. Friday's 1.48% rise was
on lower volume. This lower volume may mean the rally will
continue. Often a big up day on high volume means a reversal.

Volatility
[No change] The Volatility
Index (VIX) shows the market's expectation of 30-day volatility. It is
constructed using the implied volatilities of a wide range of S&P 500
index options. This volatility is meant to be forward looking and is
calculated from both calls and puts. The VIX is a widely used measure of
market risk and is often referred to as the "investor fear gauge".
This is from Investopedia.com.
Larry McMillan thinks that as more investors learn that VIX futures and
options are effective portfolio hedges, the effectiveness of this
indicator as a speculator fear/greed index may decrease.
[No change] The volatility (red) normally makes a low at
short-term market tops, or spikes to a high at market bottoms. VIX is
not as good at indicating market tops. The top pane shows the VIX
(20.02) coming down. This may mean that the current rally will continue
for a while. The lower pane shows the VIX relative to it's
200-day SMA. It could go lower before the market rally ends.
Stocks above 50-day Moving Average
This chart shows the number of Nasdaq stocks that are above their
50-day moving averages. As of Friday 64% of Nasdaq stocks
were above their 50-day MA. Click
here to get the latest. This could go higher before this rally
ends.
On-Balance Volume
Last week the positive divergence between the Nasdaq On-Balance Volume
(red) and the Nasdaq composite price (green) was stated to be a good
thing. This did predict the continuation of the rally. The
significance of OBV can be found here.

Bull Market

[No change to text] The S&P
500 weekly chart gives a good perspective on the market. A weekly
chart should be used to determine the market trend. Within the
secular bear market, a cyclical bull market started in mid-March
2009.
The S&P drop from its 1/19 peak to its 2/8 low was
8.1%. That's not really a full correction of the 30.8% run-up from the
July 2009 low. However, the retracement the last four weeks
was impressive, and the bulls are in control.
The technical
indicators below give a feeling for the strength of the current move
and whether there are signs of a turn. Most of the indicators
show a strong market. Low volume is the one
negative.
- Price Trend of S&P 500 - UP
- Above/below 50-day SMA: UP
- Weekly RSI(14) Confirmation - above 50: UP
- Weekly MACD Histogram Confirmation
- negative: DOWN
- Higher Highs and higher Lows? No, DOWN
- Moving Averages (simple daily averages)
- UP in BULL
- Bull: 50 SMA above 200 - YES
- Bear: 50 SMA below 200
- UP: Both SMAs moving up - YES
- DOWN: Both SMAs moving down
- MIXED: averages not moving together
- Market Leadership - UP
- Small caps generally lead large caps - UP
- Technicals (NDX) tend to lead the general market (S&P 500)
- UP
- Growth stocks lead value stocks
(large-cap) - DOWN
- Volume of Nasdaq (price trend when volume rises) - MAYBE
UP
- McClellan Summation of Advances & Declines of
Nasdaq (slope) - UP
- Highs and Lows of Nasdaq - UP
- New Highs - 39-day EMA moving UP
- New Lows - UP if less than 70 for three days, UP
- Highs minus Lows - UP
- Consensus of the above
- Moving UP in a BULL market.
Comparison to Past
[No change] This a chart
shows the bear market that started during the 1937-38 recession. The
first correction went up 46.45% before dropping 10.35%. Then a rise of
21.68%.
[No change] Our market today seems to be following
this chart. The total Dow rally from the March low is 54.1% (81.8%
for the Russell), not far from the +59.76% move shown on this chart.
[No
change] The first correction, similar to the +46.45% in 1938,
was from the March 9, 2009 low to the June high, the Dow rallied
34.4% (the Russell 2000 was up 53.5%). Since then there has been
a drop of -7.4% (-9.9% for the Russell) to the July lows. This
compares to the chart Dow drop of -10.35%.
[No change] The rally from the July 10 low to
the January 19 high was 31.7% for the Dow (35.0% for the
Russell). This compares to the chart Dow rally of +21.68% that took place
in 1938. The next drop of -21.72% ended in late spring of 1939.
The first chart and the cycle chart were
generated from AmiBroker
software. Most of the other charts use FastRube
software with FastTrack
data. This page is for amusement only, and should not be
taken as advice to buy or sell anything.
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