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All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Below is the graph of the weekly sentinment surveys.  Of course, these surveys were probably taken before yesterday's big drop so I'm not sure how useful they are today.  It will be really interesting next week to see how the sentiment changes.  Also, last weekend I posted the monthly short interest figure for the NYSE which remains at a high level.  So you might want to scroll down to see that post.

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It has registered in the bullish extreme for a number of months now.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better used as an indication of the current short-term trend, with the idea that investments in futures should be in line with the trend.  So this survey has to be viewed separately from the others.  For additional information and more thorough analysis about market sentiment, I recommend blogs by ZenTrader and Brent Leonard.

There is very little I can add to what happened Tuesday that is in addition to what you already know.  The carnage is being posted to blogs all over the place and the bad news is well known.  So I might as well point out the shreds of not-so-bad news.

The NASDAQ broke the up trend line and is below the 50-day moving average, but it found support right at the lower band of the trading range it was in from Nov to Jan. 

The mid caps didn't break below the 50-day.  This is the area of relative strength, not that I am advocating any kind of investment.  But it is important to at least try and see what is going on.

The OBV and the bullish percents, along with the rounded topping pattern, were hinting at the weakness in this index.  No surprise then that this fell off a cliff today and there is nothing much to catch it below.

The energy weighted AMEX is above shelf support, the up trend and the 50-day.  Also, notice how these indexes that held up better today have much better looking OBV.

Be sure to read the comment to this post by the author of VIX&More.  I sent him a note asking for his thoughts on this big spike.  He offers some interesting points about big spikes in the VIX which I will follow-up on in the future.

The huge increase in puts means that the correction is well underway and people are hedging, but paying a premium to do it.  The best opportunities may be when this ratio is near or above the prior peaks, as long as the overall bull market is still intact.

I like this longer-term picture better because it shows so clearly how the peaks have been opportunities in a bull market. 

A lower low in the monthly VIX in Jan, and then a higher high this month.   Last summer was a higher high in the VIX as well.  The trend in the VIX may be reversing, but I'm not sure what that means for the equity market.

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.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

You have probably heard about the big drop in Asian share prices.  So now it is really important to keep an eye on the health of the US equity market.  One area of concern are the financials which is the largest sector and has a lot of influence over the direction of the market.  In the chart of the ETF below you see what looks like a topping pattern of a struggling trend with a lot of unusual price volatility.  A close below about 36.25 would confirm the weakness.  The weak OBV is hinting at the underlying price weakness as well.

I don't like to invest against the trend and I like to see a strong broker/dealer group confirming the trend.  Broker/dealers are a very important industry within the financials sector, and, unfortunately, right now this group looks weak. 

One way to monitor whether the weakness overseas and in the financials is leading the market lower is to monitor the new highs/new lows of the NYSE and NASDAQ.  At the moment these breadth figures continue to look healthy, but that could change rapidly so I would monitor these numbers everyday after the close.

The chart below of the yield curve is a reminder of a big question mark about the economy and therefore the market.

A couple people recently asked me if I had a sense of where long-term rates were headed.  The answers is that I don't, so I will defer to the standard signals shown on the charts.  The chart below shows a potential intermediate-term shift in 10-year prices to an uptrend with a break above the red, down resistance line.  This implies the trend in long-rates is lower for now.  With the selloff in Asia, I wonder if that implies a flight to safety and perhaps money flowing into US 10-year notes.

Looking at this chart of rates below, there can't be too much question about the current overall trend in rates.  Every duration is below the moving average and moving lower.  I'm going to assume the trend is lower while rates are below these moving averages.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Below is one of the first charts I put up on this site last fall.  I didn't change any of the text.  I wish I had paid attention to my own chart.  Small caps took a well deserved break last year and are back in the driver's seat again.  I believe this is indicating some underlying economic strength.

Last week's post started by saying I would be watching this chart because indications were that it was going to break out.  Actually, I thought it might need some short-term consolidation because the market was short-term overbought.  I still think it is short-term overbought and we may see a restest to the break out point this week, but a break above the high of Jan-16 would certainly be favorable for the market.

Below is the short-term intermarket chart.  Bond prices retested their short-term break out point and look to be continuing the up trend.  Commodities certainly had a strong week confirming their short-term trend higher.  The dollar sagged a bit more confirming its failure at resistance since the beginning of the year.  And equities are in a relentless uptrend but with slowing momentum that everyone is watching.  Bottom line: bonds are supporting the overall market as rates move lower, commodities are supporting commodity-related stocks, the dollar is supporting commodities and probably supporting small caps as its points to a limit on short-term rates, and equities are confirming its own trend with higher highs and higher lows.

The NASDAQ has been performing well lately, but shown in the chart below this strength is so far well within a down trend. The NASDAQ has a lot to prove before it becomes a market leader.  At the moment, it looks like the NYSE and AMEX are taking a breather in favor of an oversold NASDAQ.

Nothing we don't already know shown below, but it is just that it shows it so well.  Large cap relative weakness, mid cap relative strength and small cap looking good. 

For February, materials and utilities are the big winners.  Utilities are so overbought based on the bullish percent it is hard to imagine there is a lot of opportunity, but you can't fight it.  Materials strength reflects the commodity strength and economic strength.

Strength in SOX is also a confirmation of economic strength, but also oversold conditions as it is attracting money as one of the few areas of opportunity left in the market.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Looks like some of the bears got the message and tried to get back on the right side of the market.  Short interest declined in February consistent with a strong market that is hitting new highs.  So now the trend of short interest is headed in the right direction but it remains at a high level.

Some of the shorts are betting the market will decline and they'll profit from it.  Others are hedging their current positions and protecting their profits against potential downside.  High levels of short interest provides fuel for rallies because as prices rise these shorts will need to cover creating even more buying. 

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Last week's bullish percents are above, and this week's are below.

Red is a column of O's in a downtrend, blue is a column of X's in an uptrend.  Below 30% is oversold, and above 70% is overbought.  Yellow is a shift down, green is up. | INDEX |

A little weakness is showing in the Dow Industrials bullish percent with a shift from the way overbought level above 90% to the 80% level.  Of course, there are only 30 stocks in this index.  A chart of the Dow follows.  The chart looks to be sagging but still positive and volume remains decent.  But the index is underperforming the broader market and is probably at least entering a period of consolidation after such a long run to higher highs.

The bullish percent of the technology sector moved higher, finally, probably due to the initial break out of the SOX late in the week.  A chart of the Tech SPDR follows, and it looks a lot like, you guessed it, the NASDAQ which is heavily weighted with technology companies.  This sector has room to move higher as investors look for the few remaining areas to put their money in an overbought, high risk, but relentless market.

In the category of industries, the bullish percents gold miners and industrial metal producers moved higher as the gold bullish percent finally shifted back to a column of X's to follow the yellow metal higher.  A chart of the GLD miners ETF follows showing a very nice break above the July high supported by decent volume.  The volume could be better but is confirming the highs.  This ETF is also showing signs of starting to outperform the broader equity index, and is breaking out of a nicely developed 9-month high consolidation base.

Final note, the weekend blogs I like to check out are Declan Fallond's weekly review of Stockchart's public list, and TraderMike's links to interesting market related stuff.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

The NYSE looks healthy based on prices hitting new highs, but the OBV peaked out in December.  This is not the index receiving a lot of new investment money at the moment.

The NASDAQ finally joined the new-high party, and the OBV has followed along.  Volume is confirming the price highs and this looks healthy, or at least better than the NYSE at the moment.

This is by far the chart of the week.  The SOX finally breaking this down trend line.  Now it just needs to break above the near term resistance set in November and December.  With the SOX participating in the rally, and funds flowing from the NYSE to the NASDAQ, the market may be able to extend.  But don't forget how overbought the market is... there is a lot of risk as well.

More confirmation of the price highs from the percent of stocks above the 200-day moving average.  This index is now near the prior high of last spring, but as you can see from last spring, it can stay at this level for a while.

Below are the new highs, new lows.  The ratio is very favorable.  On the NYSE, a 20-day moving average of 265 highs vs 12, and on the NASDAQ, a 20-day moving average of 148 to 29.  This is the major chart to watch to view the underlying market health, and right now it continues to look healthy.

This buy/write index is showing perhaps a little weakness in the Dow, but again the NASDAQ is looking fine and leading the others.

Sorry, the charts are out of order here.  Another way of viewing new highs, new lows.  You see last April, the new lows started to rise significantly in advance of the eventual market sell off.  A similar pattern may develop with this cycle as well but no indication of it yet.

More evidence that money is flowing into the NASDAQ.  Probably because there is so much more room for the NASDAQ to advance from here.  62% of NASDAQ stocks on a P&F buy signal is not yet overbought.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

The graph below shows a continued slow shift of commodities from their corrections under the moving average to a positive status as they break above the moving average.  The Dow Jones Gold Miners index and the Goldman Sachs Industrial Metals index both shifted above the moving average, and the strength of all these commodities is looking convincing.

The shift higher of gold miners means that the equities are finally starting to participate and follow the price of gold and silver which has been acting well.  Keep in mind, the XAU index still has considerable overhead resistance and still needs to break out before the all clear for this group is signaled.  The gold miners bullish percent still hasn't reversed to a column of X's, but if it does that will be another positive sign for the group.

Gold has broken above the retrace high of last July, and the sideways chart pattern since the peak in May is looking positive.  The XAU index has an overhead gap and a number of previous highs above the current price, but its sideways consolidation looks favorable as well.  The GOLD:XAU ratio does not look favorable yet as gold continues to lead and it is leadership by the XAU that will be convincing for investors of the gold and silver mining stocks.

Below is a chart of the Dow Jones US Gold miners discussed at the top of the post, and this shows the new break above the moving average.  The chart shows a recent higher low and a test of the 100 level which was resistance a number of times going back to 2004 and 2005.  A break above here would be a nice development.

Below is a long-term look at the price of gold which bottomed when the Fed started lowering interest rates but never reversed course when the Fed changed directions. This chart is important because it shows that gold is in an huge long-term bull market but also that current prices are extended from a long-term point of view.  Gold prices could drop to just above $500 and still be above the lower support line and within the uptrend.  So gold investors need to know there is some risk here despite the favorable near-term outlook.

Speaking of risks, the price of gasoline is starting to show signs of life again as it tests the underside of the moving average. The favorable seasonable period is approaching and the price is responding.   

One last chart, and it is a good one.  This is a very nice looking break out of a very interesting sub-industry with lots of future ahead. 

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

The newsletter writers, individual investors and bloggers are in the neutral range which is generally a level that is favorable to the stock market. 

The newsletter writers were extremely bullish early in the year and that was a major warning that the market had become extended.  I am most familiar with the newsletter survey which generally peaks and then moves lower prior to a peak in the market, and that is what appears to be happening with this cycle.  So at the current level it is short-term supportive of the market, but because it has already peaked for this cycle, it is also a caution signal about the market. 

The second chart is taken from a blog site named Market Harmonics that I reached via the blog site The Sentimentals.  This chart illustrates the highs and lows of the newsletter survey and how it peaks prior to the market peak.  Because the survey peaks can be so early, it shows that this type of sentiment survey is to be used to understand the background that the market is operating in, but not as an indication that the trend of the market itself has changed. 

Regarding Market Vane, this is a survey of futures commodity advisors and is used by futures traders.  It has registered in the bullish extreme for a number of months now.  I had been using it with the same contrarian viewpoint that the others are used regarding the intermediate cycle. That is, if the bullishness is too extreme, then it indicates a potential top approaching in the market but not an immediate indication of a change in trend.  However, the publisher states that it is better used as an indication of the current short-term trend, with the idea that investments in futures should be in line with the trend.  So this survey has to be viewed separately from the others.  I will let readers make up their own minds on this survery.

For additional information and more thorough analysis about market sentiment, I recommend blogs by ZenTrader and Brent Leonard.

It is a good idea to check in with the VIX at least once a week to get a feel for where it stands in relation to the stock market.  I'm not an expert on the VIX, but my view is that it needs to be generally moving lower as the market moves higher in order to confirm the market.  But if it moves too low it indicates a trend towards complacency which is ultimately bearish for the market.  On the other hand, small spikes higher in the VIX can be short-term buying opportunities in an uptrend, but that is until the VIX moves above recent retested upper levels which may indicate a correction is unfolding.  So the current level and trend of the VIX looks about right to me in order to say that it is acting favorably in relation to the stock market.  For a much more expert and thorough analysis, check out a really interesting blog site that has terrific discussion of the VIX and related topics called VIX and More.

The 60-day moving average of put/calls seems to be following a pattern similar to the one shown in the prior market peaks.  The index has reached a low shown by the lower trend line, and has started to curl higher in advance of a peak in the market.  This appears to be another general warning signal about the intermediate cycle and that it may be nearing a top.  It is a bit confusing however that the level of short interest, shown in the next chart, is at extreme high which is bullish for the market, while this put/call ratio is at a low level.  I will let the readers decide for themselves

The most recent figures on short interest are as January 19, 2007. 

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.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |

Long-term rates started working against rate-sensitive stocks in late 2005, and, as a result, they consolidated for 10-months.  A nice break out occurred in July of 2006 along with a peak and strong decline in rates at the same time. Then long-term rates appeared to bottom again in December and the rate-sensitive stocks started to falter a bit.  It isn't clear to me where long-term rates are going from here, but when the direction of rates is clear it should help indicate whether to be in or out of the rate-sensitive stocks. 

The yield curve is starting to extend higher again.  I'm not sure to what extent the yield curve hurts or helps the economy based on dismissive comments by the ECRI.  I would think though that if it extends above the former peak in December, there will be a lot of nervousness and discussion about it.

The US Dollar had a bad week corresponding with news that the Q4 GDP may be revised downward by a large percentage.  This would lesson upward presssure on short-term rates which has the effect of pushing down the US Dollar.  This news came out at the same time as news that European and Japanese rates may be rising which puts additional downward pressure on the dollar.  The USD index failed just below the former up trend line and the 40-week moving average.

The P&F chart of 10-year Treasury Note prices shows that since a low in January prices have moved a bit higher, but so far prices are retracing to the red down trend line.  We'll have to assume that prices are headed lower, and rates higher, until this down trend line is broken.

All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |