Saturday Bullish Percents
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 ECRI forwarding-looking economic index continues to tick lower and lower, but ECRI is still not calling a recession. The ECRI future inflation gauge also remains contained indicating future inflation at about the recent 2-3 year trend. I highly recommend a subscription to ECRI.
ECRI also publishes a future residential real estate gauge that continues to point lower. Their calculation of national average home prices is interesting though. It shows prices collapsing for the first time since the index was started in the early 70's. Although there have been serious corrections in the past, this is the only one in which there was a dramatic decline. Usually home prices decline gradually (and painfully) over a long period of time. A collapse sounds bad, but an article in business week mentioned that this rapid decline may be a good sign of purging of the excess quickly so that real estate doesn't remain a protracted drag on economic activity. BW mentioned that in the past sellers couldn't bring themselves to lower their asking price, and then ultimately sold for far less than they would have had they just met market price conditions when they originally wanted to sell. In this recent down cycle, sellers seems to be savvier about pricing appropriately.
Regarding blogs to read, I enjoyed reading Tim Knight's bearish outlook, but didn't agree with his assessment of where prices were headed over the past week. He was caught on the wrong side of the market and called this past week "craptastic". He included this quote, "All along, I've been saying "if we cross above this, it's bad", and "if we cross above that, it's bad." Well, this, that, and the other all have been crossed. This week came to a wretched end." Tim gets my sympathy. We've all had a few investing weeks like that. Usually the bears are very bright but have a gloom about them. However, Tim Knight has managed to be bearish, bright, interesting, upbeat and funny in his blog.
Now that I'm taking an interest in residential real estate, I thought I would check out this blog with an interesting name, biggerpockets. Also, I probably don't mention this enough, but thank you for reading HeadlineCharts and sending me your comments. It's a lot of fun playing this stock market game together.
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.
Above is my spreadsheet of the bullish percents. For the second week in a row I'm not finding much information in it about where the market is headed. All but a few of the major indexes are below the 50% line which indicates that this sideways trading range has a definite bearish bias. But the good news is there is enough strength remaining in the market to keep it alive and moving along in what may turn out to be a very healthy, multi-month consolidation. However, the recent market strength is not reflected in the bullish percents above, not yet anyway, so a year-end rally is likely to remain within the current range and ultimately result in another test of the lows of the range. Also note that some of the most important bullish percents such as the SPX are still below 50% and have not turned up which indicates underlying weakness.
The bullish percents of the banks and S&L's turned down again showing continued weakness for these stocks. Their bullish percents have turned up and down a couple times at this low level indicating that the selling isn't letting up. When the bank's bullish percent finally breaks out of this oversold low, it could be a very profitable signal. This is why we use bullish percents, because it helps us know when a price rise in an index such as banks is just a fakeout bounce with weak breadth and participation, versus a real break out with confirmation that we can buy into. Also, it may be that the market's trading range is not going to resolve itself until the financials have finally been sold by every pair of weak hands out there.
We can rely on ECRI to let us know if a recession in our future, but it's our job to determine if we're in a primary bull or bear market. The chart above is what Carl Swenllin is watching to make that call and so far it looks like his chart shows the bull trend is intact. I've added the RSI indicator above. If the moving average crosses below, combined with a breakdown of the RSI below support we likely have a bear market. However, you may notice there was one false signal in 1998 during the Asian currency crisis, so this chart isn't a guarantee.
