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 |
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.
