Wednesday Market Momentum Breadth Volume
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There are a lot of good charts out there in the blog world showing the basics of today's bullish breakout. I'm not sure I have a lot more to offer. The break above 1400 came after a steady uptick in the SPX bullish percent through the 50% level, which gave a fairly good advance signal that the break out was likely to happen.
To recap, we went bullish on Mar-24, but then got cautious on the market a couple weeks later when the new lows started to spike up to uncomfortable levels. We didn't do any selling because the new lows peaked out and the market seemed to be in a sideways trend rather than building up for another leg down.
Then late last week the bullish percent of the tech sector gave an excellent advance warning that it wanted to break out just ahead of the Microsoft earnings. We bought the ROM ETF which is the broad, leveraged way to play a tech rally, and then watched with disappointment while the ETF sank after Microsoft announced. This purchase occurred while we were still cautious on the market, but the bullish signal in this sector was too good to pass up.
I think you know the rest of the story. The market rallied on Monday only to fail at the close. Then the market sold off Tuesday, but rallied late in the day. The market broke out Wed with the Fed news, only to fail again.
Finally, the SPX has broken above very important resistance to confirm the INDU and TRAN breakouts, and it seems that after a lot of indecision, the market is giving a fairly good confirmation that the trend is higher... although it is hard to say how solid the trend is or how long it will last. It is a day-to-day situation.
The breakout of the SPX came on a day when there was huge sector rotation from late stage, inflation sensitive sectors energy and materials, to early stage, rate sensitive consumer and tech sectors. So the lousy breadth today makes some sense as the leaders formerly making new highs corrected, while the laggards are now rallying but aren't yet in position to register new highs or bullish P&F patterns. I guess the key is the consistently depressed level of new lows which is currently at a very bullish uptrend levels and has been for a while.
There was a comment yesterday critical of the IBD market calls. The comment is right that these are basically mechanical signals on the market, but when I read the commentary when the calls are made there seems to be some judgment as well. But it doesn't really matter because their ability to read the market is as good as anyone out there however it is done.
Also, the comment mentioned that IBD is 4-for-7 in their success ratio. I don't get that at all. I think success is measured by whether the rally succeeds in pushing the market higher. The inevitable correction should come at a price level higher than the follow through buy signal. So it seems to me there are two successes and two failures as shown. IBD's ability to read the market speaks for itself everyday, right there in newsprint and seems to me to be worth every penny people pay for it.
Ken Tower follows the VIX in a way very similar to the way I do. He just looks at the basics and let's other people do the difficult heavy analysis. But he mentioned something I hadn't thought of. He says that because the VIX broke down below its 200-day, it indicates to him that the current rally is unlikely to be just a short-term retrace of larger, bear market downtrend. This makes sense to me and I like it. We all know for sure though that the market tends to go up while the VIX declines, and the VIX continues to be in a steady downward trend that is helping push stocks higher. So we'll be watching to make sure the VIX remains below the shorter term moving averages as confirmation of the equity market trend. Ken likes to use the 10-day and 21-day moving averages to define the short term.
Thus, 4 out of 7 correct, which is actually better, percentage-wise, than 2 for 2.
And I do think it is important to understand that IBD uses relatively strict rules for making the calls. Other analysts you follow use much more subjective approaches - just good to make a mental note of the difference.
I enjoy your approach on this blog, using your own subjective analysis based on many sources of info and indicators blended together to reach a conclusion. Excellent work. (Comment this)