HeadlineCharts.blog.com

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

The chart above is in response to a really good point made by someone yesterday.  Yesterday's post mentioned the recent bullish chart breakouts of the INDU and TRAN.  The comment was that both indexes had similar breakouts to new highs last summer, just before the bottom fell out from under prices.

The difference, though, is that last summer the new lows were telegraphing that there was a serious problem developing under the covers in the market.  On July 18, the NYSE new lows spiked above 150!  That is bear market territory while at the same time these Dow indexes were at highs.  This was a very bearish negative divergence.

---

The current breakouts of the Dow Indexes look a whole lot better to me than the breakouts last summer. 

For one, these breakouts came after enormous, important tests of the lows where the percent of new lows spiked to unprecendented levels.  Huge spikes like this are usually associated with climax selling in which bottoms are formed.

More importantly, the bullish breakouts of the indexes occurred after the new lows had settled way down to levels that support an uptrend.  And I think this is the key and points out really well why I am so focused on new highs /new lows.

---

Last week I mentioned that the 2Y Treas rate was likely to break out above the level of Fed Funds indicating that the Fed is close (or done) lowering rates for now.   I usually pay more attention to the TBill rate, but Ken Tower focuses more on the 2Y and now I see why. 

---

I couldn't find a chart of my own that I wanted to use, so I just borrowed one from Danny Merkel author of Gold Stock Prophet.  If the US Dollar index breaks above the 50-day, I think the target is the 200-day, and that is quite a move.  Every article written lately includes lots of comments about the dollar, so I won't say any more.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

Mixed news today.  The SPX wasn't able to close above the important 1400 level, but underlying breadth of the market was decent with the NYSE new highs breaking above the 50-level and new lows way down in bull market territory.  And the SPX bullish percent continued to tick slowly higher in positive fashion.  Unfortunately, the NASDAQ new highs /new lows were still inverted on the NASDAQ, although the new lows weren't that bad at 59.

---

Good news showing up in the spreadsheet above.  Only gold shares shifted lower which is probably a positive for the market.  Computers, Cyclicals, Software, Industrial Equipment, Automobiles are economically sensitive groups that have broken out above their moving averages.  This is a very favorable development and confirms what was noted yesterday that both ECRI and Trim Tabs are detecting the early, tentative signs of a pickup in economic activity.  Savvy investors are moving back into the market in advance of this news hitting the newspapers.

---

 

IBD is 2-for-4 in their market calls over the last nine months.  They are the first to acknowledge that their method only works 70-80% of the time, and most of the failures happen during bear markets or major corrections.  The last one was a very good call.  They seem to have a very good feel for the market that goes beyond just the rules that they publish.  Investing when they give the all clear gives me added confidence that I'm reading the market correctly.

---

Talk about a confidence boost.  Having both the industrials and transports breaking out and leading the market is classic technical action.  Now we really need the SPX to close above the 1400 level.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

ECRI notes that their leading economic indicator has ticked up to an eleven week high, but is still well within recession territory.  This is consistent with what Trim Tabs is reporting.  It is finding the most up-to-date indicators of tax receipts and tax withholdings are showing the economy gaining some steam again. 

Also, the ECRI gauge of current  economic activity still hasn't dipped into negative territory which means that there is still a sliver of economic growth rather than contraction.  Q1 growth therefore should be around the .5% level.  (I'm no economist, I just try and interpret these reports from the people who are... and even that isn't easy).

The ECRI future inflation gauge remains contained but hasn't moved down much lately which is what you'd expect if the economy was contracting.  So this is another positive sign of growth.

This week the worrisome new lows improved, ticking lower on both exchanges until both are now at much better levels.  This development improved the market outlook and I took a position in a Technology ETF because tech looked like it was starting to make its move.  Of course, the bad response to Microsoft on Friday now puts some clouds back above this group.  All eyes are now on the S&P 500 to see if it breaks above 1400 to join the industrials and transports in bullish chart breakouts.  Based on the action in the SPX bullish percent, I suspect it will.

---

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.

The breakouts above the 50% level for the midcaps and the SPX are very bullish.  We need more than 50% of the stocks in the S&P 500 to be on bullish chart patterns in order to push above important resistance and lead the market.  Without the biggest and best companies moving higher, a rally is unlikely to succeed.  The break above 50% for the mid caps is also encouraging because it means the market strength is broadening out into the less financially powerful companies.

Gold, Materials, Agriculture stocks took a bullish percent dip.  Maybe in anticipation of a bounce in the US Dollar?  The Energy bullish percent is very overbought, so if the dollar does rally there could be a pullback coming in this group. 

More positive news for the market is that the financials are maintaining above 50%.  The group is retaining its strength and maybe the stocks aren't just in an oversold bouce. 

The wall street Brokers are also starting to respond with a shift to a bullish column of X's.  The market usually needs this group to participate. 

I'm still working on the commodity bullish percent indicator, but isn't ready just yet.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

The surveys of the individuals and bloggers are starting to show a lot of volatility.  Two weeks ago they were in the blue, then back to the green, and now in the blue again.  This is a sign of uncertainty about what is happening in the market.  No doubt they are inspired by the gradual base-building in the market, but scared by the gloomy newspaper headlines.  Or maybe they are just scared by the newsletters they receive.   The writers are still a pessimistic bunch, and this works in favor of stocks.  These writers still have their readers in cash on the sidelines waiting for the next opportunity to buy.  Although the individual and bloggers sentiment isn't as favorable as it was, the newsletters are still quite gloomy and this works in favor of higher stock prices in the weeks ahead.

---

Thanks to Market Harmonics for these free charts.  The percent of bulls is just now starting to cross above the percent of bears.  This is a bullish event as money starts to flow into stocks while stock prices are still at very favorable levels.

---

Brent is reporting that the insiders have stepped up their selling to a level that is no longer as favorable for stocks.  Is the highly favorable window starting to close for buying stocks at depressed prices?  I'm new to insider sentiment so I will leave it up to Brent and Investor's Intelligence to interpret.  II tends to looks at the 8-week trend of insider activity to smooth out the extremes.  Here is what they say.

     "The 2008 insider data remains positive with only a slight slow down in their recent buying in reaction to the market advance. That is to be expected but if it continues it will end the positive signals we have taken from their action this year. In general the insiders remain optimistic for more market gains and the slight increase in their sales is not close to the heavy selling that marked the last quarter of 2007." [April-25-2008]

---

This chart continues to favor stocks.  A break above 1400 for the SPX would be quite favorable.  The SPX would then join the industrials and transports in breakouts above important technical levels adding important evidence that the market is regaining its health.

While this Bob Brinker 60-day moving is moving down from such a high level, you would generally expect stock prices to be moving higher.  In the past, this indicator has worked really well as an intermediate term indicator, but it did fail us miserably in the fall of 2007.  Brinker prefers to use it as a longer term indicator, showing that the market remains in a primary uptrend despite the gigantic selloff since last summer.  Bottom line: this indicator is quite favorable for higher stock prices in the weeks ahead.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

Someone posted a link yesterday for Marty Chanard's free daily newsletter.  Marty is bearish on the market and I assume it was a comment that I should rethink my market outlook.  I'm a huge fan of Marty Chenard, and I read the free portion of his newsletter everyday.   I learn a lot from reading it.  Maybe we can take a look at this over the weekend.  I always appreciate the comments and emails.



I thought we would have another commodity correction this week, but it didn't happen.  More new highs for the commodities and the commodity related equity index.  Uranium continues to tumble, but the nuclear energy related stocks look like they are bottoming.  Lumber also looks like it may have bottomed out.

I'm working on developing a bullish percent indicator using the charts of 29 commodities.  I hope to start including it in the Saturday post.  It is currently at the 55% level.

---

This is a favorable looking chart of the Fidelity Select Forest /Paper mutual fund.  I should mention though, that this chart looks a whole lot better than the $DJUSPP Dow Jones Paper Index which is falling off a cliff.

---

I've only started following this chart over the last few months as I made some small investments in the COW ETF.  I've noticed that as the price of grain increases, livestock prices have fallen, and visa versa.  Grain has corrected a bit and now it looks like livestock prices want to join the commodity party and break out to higher prices.  Who would have thought a few years back that we'd now be buying cattle and hog futures.

---

Doesn't look like there is much attention at the moment being paid to uranium and nuclear energy stocks.  After being very popular a few years back, this group is now forgotten.  I bought positions in both the commodity and the stocks several weeks ago and will be waiting patiently to see if these ever perk up again.  Some of the stocks have been absolutely killed in the market correction, such as USU.  I prefer the ETF in order to spread the risk.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

Ken Tower downgraded the near term trend to neutral yesterday, and today expressed added concern about the rest of the year based on the housing crisis and the lack of access to equity loans.  Trim Tabs on the other hand continues to see a behind-the-headlines pick up in the economy based on tax withholdings, job demand, indications that housing is bottoming, and huge sums of cash on the sidelines in money market funds.

HeadlineCharts remains neutral on the market.  On the plus side, prices remain above key support and moving averages, interest rates are gradually rising from extreme lows and sentiment is very favorable from a contrarian point of view.  The negative is that the market still seems to be forming a base rather than starting a new uptrend based on the level of new lows. 

---

These indicators are good news for the market.  The bullish percent for the financials remains above the important 50% level and appears to have finally stabilized, at least for now.  The S&P 500 is evenly divided between stocks trending higher and those trending lower.  The balance needs to tip in favor of a majority in an uptrend in order to move this index higher, but for now I think this level is favorable.

Yesterday it was mentioned that energy and commodity related stocks were probably ready for a pause, and that we should watch for some strength in tech and industrials.  I should have mentioned that the industrials have been strong for a while, but now tech may be making its move from very favorable field position.  This is a very good development because tech shares tend to respond only when there is an uptick in the economy.

---

Last week the market broke above the 20-week mid point of the bollinger which was a very favorable development.  Now we need to see that it can retest and hold above the mid point, and then again close the week in the upper half of the bollinger.  If that happens it would be fair to label the next price target as the upper band currently near 1480. 

---

I just love this chart based on Connie Brown's use to the RSI support levels.  Based on this chart, it looks like stocks have been in a bull market since 1980 or so, and that the 2000 dotcom bust was just a correction of a wildly overbought market. 

The 50-month average and the uptrend line have been significant support a number of times, but the real picture is shown in the RSI level right around 45.  Based on the RSI, the 2000 price decline was a serious bear market, but the current financial crisis is similar to the 1987 crash and looks more like a severe correction within the long term uptrend.

It doesn't really matter how you label the past price declines.  It is just important to note that the market found support right where it needed to if the long term uptrend is still intact based on two based on several basic technical indicators... a momentum oscillator, a moving average and a trend line.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

The new highs /new lows were not good again today meaning to me that the market is really still within its low, consolidation basing pattern.  That may be a very good sign for future gains as the wider the base, the bigger the move.  But in the near term it means there is churning, instead of an uptrend.

The interest rate picture has improved.  The TBill rate is still very low, but showing just enough strength to indicate that the capital preservation mood is lifting.  The 2-Year is showing better action and is now looking like it will even pass above the Fed Funds rate. 

This could be very good for stocks down the road, but it could mean the Fed is done easing and that could cause stock market jitters.  It may also lift the US Dollar and would put a lid on commodities for a while.  The market leadership has lately been entirely from areas somehow tied to higher commodity prices.  So if commodities are under a dark cloud for a while, it will impact the stocks as well, and new leadership will need to emerge in order for the entire market to be lifted higher. 

And what group will that be?  I have my doubts about the financials or discretionary stocks establishing any real leadership.  So that really only leaves Tech and Industrials.  Those will be the two groups to watch.

---

More evidence in the chart above that the credit crisis continues to ease.  Corporate bonds are regaining relative strength in the market as the highly overpriced 10-Year Treasuries come down to earth.

---

30-Year Treasury Bonds gave a point and figure sell signal a few weeks back.  This chart shows the same information only from the point of view of a bottom developing in rates.  Notice the higher low for the MACD and the W bottom formation developing.  Maybe I am just seeing what I want to see, but if these rates continue to gradually move higher, then it is very bullish for stocks.  Based on this chart, so far so good.

---

Back to the point I was making earlier about the potential for the US Dollar to rise.  I think this chart was originally from John Murphy, and it was a long time ago.  The point is that if the 10Y rate is rising, the US Dollar should follow it higher.

Some people are loving this weak US Dollar because of the demand it generates for our products and assets.  I can't sort it out, but I can look ahead and say that commodities and commodity stocks are likely to correct for a while if the US Dollar follows the 10Y rate higher.  That means betting the farm on commodities and inflation isn't a good idea.

If gold, energy and agriculture stocks and commodities continue to correct, I'll probably hold on to what I currently own and just continue to slowly average into those groups.  While that's happening, and if the market cooperates, I'll keep my eye out for signs of new leadership if I decide to add leverage to my accounts.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

I forgot to include this spreadsheet on Friday.  I am cautious about stocks at the moment but still haven't sold any holdings.  The NASDAQ new highs /new lows are still inverted which means to me the market is still in a trading range and bottoming out.  So I'm holding on to what I own but not committing new funds to stocks.

Ken Tower has the opposite view.  He sees a strong short-term uptrend, but is increasingly cautious on the longer-term.  And IBD hasn't blinked since turning bullish on March 21, but continue to warn not to jump in too quickly or recklessly.

Investor's Intelligence continues to report excellent underlying accumulation in the market based on their unique method of calculating selling climaxes.  Combine this indicator with their highly favorable Newsletter Writer's survey and equally favorable ratio of insider buys /sells, and they see a major market bottom forming pointing to price appreciation ahead.

---

 


The financials have been in a range for a month or so.  BAC had bad earnings today, and the index dropped but didn't show much underlying weakness.  Volume was very low on the decline and the bullish percent didn't drop.  So this is pretty good news for the market.

---

Energy has been leading the market, but maybe its getting ready to take a break.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

There were several reader comments this past week.  Stefan wanted to know where I get the bullish percents.  I use the standard bullish percents provided by StockCharts.com, and I have several that I created on my own using their stock scan feature... and plan to add more.  I prefer to create my own bullish percents so I have control over the stocks in the index.  I use outside sources for the big indexes and there are a number of good services.  The two that I have used in the past are Dorsey-Wright and Investor's Intelligence.

Danny asked if I think money flowing into stocks will depress commodity prices, and I think yes over the coming months.  Seems like the better bargain at the moment is probably equities, so eventually there will be profit-taking in commodities and that money will find its way to the corresponding commodity producers.

MMX commented that being cautious on the market but fully invested is a confusing contradiction.  I can't argue with that.  I probably should have said that I am confused at the moment and trying to figure out what to do with my current holdings.  I follow the new highs /new lows closely and the spike in the new lows this week wasn't supporting the idea of a new intermediate uptrend.  But the numbers turned postive for the first time on Friday, and now I am waiting a few more days to see if this positive development continues.  If any new money is deposited in my investment accounts, I'll leave it in cash until I'm clearer on the direction of equity prices.

---

ECRI is reporting an uptick in their leading economic indicator for two weeks in a row.  They note that the level is still well within recession territory, but I interpret this positively and sense that the economy is starting to perk up again.  Trim Tabs has been studying recent tax receipts and income withholding and they are projecting more strength in the economy than is apparent from the lagging government reports. 

The ECRI future inflation gauge is at low levels as well, but has started to tick up a bit.  A lot of inflation-watchers are probably laughing at this inflation gauge suggesting that inflation is well underway.   I'll leave this to the experts to debate, but it does seem like the best long-term investment opportunities at the moment are somehow tied to rising commodity prices.

---

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.

After such a strong finish to the week I thought we would see a much better response by the bullish percents.  I'm encouraged by the NYSE above the 50% level in a colunn of X's, but discouraged to see the SPX back below 50% in a column of O's.  And the financials are moving in the opposite direction of the market.  Even the IBD stocks pulled back a bit.  Maybe we are expecting too much too soon for the market, but it will be important to see these breadth indicators at least follow the market higher. If they remain at weak levels while the market advances then we have a negative divergence.

---

A lot of people seem to be following Dow Theory lately.  The debate now is whether Friday's breakout by the Industrials means the dow sell signal is over in favor of a buy signal, or maybe the dreaded neutral?  Here is the rule stated in today's MarketWatch column, "A buy signal is generated when both the Dow industrials and the Dow Jones Transportation Average reach significant new highs, while a sell signal is triggered when both averages reach significant new lows." [April-19-2008]  I'd like to see another weekly close above 12,750 before declaring that Dow Theory is favorable for higher prices.

---

---

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

---

I believe this was the first day this year where the NASDAQ new highs closed above 50, and where the number of new highs were greater than the number of new lows.  It wasn't by much, but it is a start and is helpful for the market going forward.  I turned cautious on the market early this week because of the unhealthy level of new lows, but I didn't sell any stock holdings and remain fully invested in stocks and commodities.  I'm not ready to switch back to bull yet.  Let's see how the market breadth numbers are early next week and then re-evaluate.

---

Looks like the bloggers and individuals have regained their skepticism towards the market.  They join the newsletter writers well into the zone of extremely low bull sentiment.  These readings continue to work strongly in favor of higher stock prices ahead from a contrarian point-of-view.

---

Great charts from Market Harmonics.    These charts show just how deep the skepticism is towards stock prices. 

---

The survey information below can be obtained for free via the following sites.  Investor's Intelligence is from Market Harmonics.  Individual Investors is from aaii.com.  Birinyi Bloggers is from Ticker Sense.  For additional information about market sentiment, I recommend Brent Leonard's market sentiment blog.

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.

Keep in mind, sentiment analysis is not a science and only provides very general information.  Sentiment is not a signal to take action, but provides background about the current state of the markets.  For instance, there have been many occasions when bullishness reached high levels well before the market started to weaken.

---