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The big news since the last post on this topic is the decline in the dollar below important support, and the breakout of the Euro above resistance.  The impact has rippled into the commodities.

In addition to the strength in the Euro, the Pound is poised to break out significantly to new highs above important resistance.  This would be a major move for the British Pound.  The Japanese Yen found support recently at a lower uptrend support line and is breaking above the 39-week moving average.  This is significant considering the low rates in that country.  The Yen could represent a significant long-term value if Japanese rates continue to slowly rise over the years ahead.

Commodities have clearly been stronger than the headline CRB and energy prices have revealed.  Most commodities have remained in strong long-term uptrends.  As mentioned by John Murphy in a recent article, the heavy energy component of the CRB index has weighed it down due the recent weak energy prices.  But the more commodity-balanced older CRB index, now called CCI, has remained very strong and is now breaking to new highs.

Oil broke below a significant uptrend-line earlier this year, but found both shelf support and support at a longer-term uptrend-line that has continued to hold nicely.  With the weakness in the US Dollar there has been a corresponding tick higher in Oil prices.  Gasoline has a similar story to Oil in that it dropped significantly but held at shelf support, and now prices are starting to move higher.

The standout area of commodity weakness has been Copper which is considered the most important industrial metal because it is so significant for economic development.  In fact, it is often used as a proxy to guage the level of economic strength.  Copper recently broke below the 39-week moving average, but so far has held at shelf support.  Because Copper prices moved so far and so fast over the past few years, it isn't too surprising that it is now consolidating at a high level.  But if prices break below the current support, there are no other support levels close below and prices could move down by quite a bit.

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All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS | AFTER THE CLOSE

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Sentiment analysis is an important component when following the markets, and is considered a “contrary” indicator.  Contrary because if too many people are bearish then there aren't enough sellers left, the balance tips to buyers, and the market starts to advance.  If too many people are bullish, most funds are already invested, the balance tips to sellers and the market weakens.  One way to determine if investors are bearish or bullish is by taking surveys and tracking at what levels these polls indicate investors are at the extremes of bearish or bullish sentiment.

 

The figure above shows four polls and their current sentiment levels.  Keep in mind, sentiment analysis is not a science and only provides very general information.  Sentiment is not a signal to take action, but is a warning about the current state of the markets.  There have been many occasions when bullishness reached high levels well before the market started to weaken.

 

The surveys show that since the lows in mid-June, advisors and investors have become more and more bullish along with the rising stock market.  The following is a summary of the survey status over the past week:

 

• The II survey is now in a general level of extreme bullishness which is an unfavorable sign for the market.
• The AAII survey has ticked down and in the lower area of the neutral range, favorable for the market.  
• The Market Vane survey is unchanged but at a level of extreme optimism (this poll has a different range than the prior two) which is unfavorable for the market. 
• The Birinyi blogger poll is new so there is not much history to judge bearish and bullish levels, but it is down to a level of extreme skepticism which is a favorable indicator for the equity markets.

Bottom Line: The II and Market Vane surveys clearly reflect a strong market that has rallied for over 5 months and is now at a level of risk of a correction.  A jump higher in the AAII and Birinyi surveys in the weeks ahead would indicate bullish capitulation and would be an important signal that price declines may be significant.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS | AFTER THE CLOSE

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The last two weeks have been bullish for Treasuries of all durations, especially longer-term.  As a result, yields have been pushed lower.  The lower yields, and the prospect of higher yields abroad, have pushed the dollar lower and below important short-term support.  If the dollar continues to show weakness, at some point it is expected that Treasuries will begin to sell off, pushing yields higher.  That is unless the lower yields are anticipating a significant slowdown in the economy.

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All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS | AFTER THE CLOSE 

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Sector strength has clearly rotated out of the large caps which were the former leaders of the market, and into the smaller caps sectors which were the former laggards of the market.  The rotation confirms the strength of the market rally beginning mid June since it shows all sectors participating.  It also reflects the perception that the smaller caps represent the better value on a short-term basis.  Generally, the rotation would be indicating that the underlying strength of the economy is stronger than previously perceived since the smaller caps are more sensitive to economic conditions.  However, the rotation may be due to the lack of other investment opportunities as mentioned below.

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Strength in the 30-year bonds, and weakness in commodities and the dollar clearly reflect weaker economic conditions, at least relative to other economies around the world.  Strength in equities may be reflecting the lack of opportunites in the other major categories of investment.

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All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS | AFTER THE CLOSE 

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          Red is a column of O's in a downtrend, blue is a column of X's in an uptrend.  Items below 30% are deeply oversold, and items above 70% are heavily overbought.  Highlight yellow is a move up, grey is a move down. | INDEX |

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All of the important major indexes being tracked are now above the bullish 50% line which shows excellent market participation and internal strength.  The Bullish Percents have solidly confirmed the current market rally, but the current high levels indicate that investors need to be cautious.  The Bullish Percents indicate a very strong, broad-based market strength, but also a heightened level of risk of a short-term market correction. 

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NASDAQ AFTER THE CLOSE

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10-Year rates shown above are still holding the support line (barely) implying that the intermediate uptrend in long rates is intact.  This will be an important chart to watch in the next few weeks because the long-term trend shown below is also still intact as rates remain below the long-term resistance line.  One of the two trends will be broken in the coming weeks.

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All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS |

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COMPQ prices moved slightly higher today consistent with Friday's candlestick continuation indicator.  It appears we will have at least a couple days of sideways movement before the next push higher.  It was the same story with most other major indexes, some of which declined, but all experienced low total volume indicating consolidation.  The COMPQ P&F chart (10-pt box, 3-box reversal) looks extended after a very bullish catapult top breakout.  The internals were decent for a consolidation day, with up/down volume, net new high/lows, bullish percent all above average.  The advance/decline was a bit weak and the put/call ratio remains at a low level indicating investor confidence which is bearish.  The MACD histogram is narrowing which is starting to work against prices.   The VIX is at a very low level, particularly in relation to its 10-day moving average, and this also works against prices.  On the other hand, the SOX index moved higher today with a short-term break out and looks to now be in a solid uptrend which will be supportive of the Nasdaq.  The various longer-term indicators such as Investor Sentiment, the Summation Index, Bullish Percent, Percent Above the 200-day, etc., are all near prior peaks and this is indicating that an intermediate top may form soon.

Bottom line:  The market is in a well-defined up trend although it is pausing now for a while before it makes its next push higher.  Longer-term, the various market indicators are showing that the end may be getting closer for this intermediate cycle rally that began mid June.

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All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS |

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NASDAQ AFTER THE CLOSE

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The big story of the past week was the drop in the CRB mostly due to a significant drop in oil prices, and the corresponding jump in equity prices.  This occurred while the dollar and long bonds remained steady.  The drop in energy was interpreted as a positive as the equity market continued to shift leadership from energy shares (which led the market from 2004 to the spring of this year) to the prior laggards, technology and consumer discretionary. 

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Nasdaq, the Small caps and the Mid caps were the winners over the past two weeks, while the large caps showed relative weakness.  This reflects continued rotation from the big gainers to the lagging areas of the rally that started in mid June.  The rotation is a sign of strength in the market as it shows confidence in the more economically vulnerable companies, and because it confirms the broad-based strength of the rally.

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All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS |

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COMPQ prices didn’t move much again today consistent with yesterdays candlestick indicator.  It appears we will have at least a couple days of sideway consolidation before the next push higher.  It was the same story with most indexes except the INDU which hit new highs on strong volume, and the MID which had a red hanging man (at the top of a range this can be a sign of a trend reversal).  Together with yesterdays small and mid cap weakness, it appears there is the potential that the small caps could be experiencing the first signs of developing a pivot top, but it isn’t clear yet what the impact is on the intermediate trend.  The COMPQ internals were neutral to weak, consistent with a consolidation after a nice run up in prices.  The OBV and MACD are still supportive of prices, but the RSI indicator is clearly overbought and signaling that at least a consolidation will be occurring.  The SOX index is holding above support, the McClellan Oscillator ticked down which are both positives for the market.  However, the big negative is five-day trend of the put/call ratio down to very low levels, and Wednesdays II Sentiment report of extremely high levels of advisors sentiment. These indicators show a very bullish and complacent investing public and this quite bearish for the market. 
 
Bottom line:  The market is in a well-defined up trend although it may now be ready to pause for a while before it makes its next push higher.  Longer-term, the various market indicators are near prior peaks indicating that the end may be getting closer for this intermediate cycle rally that began mid June.

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All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS |

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NASDAQ AFTER THE CLOSE

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Red is a column of O's in a downtrend, blue is a column of X's in an uptrend.  Items below 30% are deeply oversold, and items above 70% are heavily overbought. | INDEX |

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The Bullish Percents have solidly confirmed the current market rally, but the current high levels indicate that investors need to be cautious.  The high levels in these Bullish Percents indicate a very strong, broad-based market strength, but also a heightened level of risk of a short-term market correction.  All of the important major indexes being tracked are now above the bullish 50% line which shows excellent market participation and internal strength.

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All charts and comments are intended for educational and discussion purposes only. No investment recommendations are being offered. | ABOUT | CHARTS |