HeadlineCharts.blog.com

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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 |

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Tell me you aren't impressed by this.  Above is a chart showing the market timing signals issued by Ken Tower.  If you are interested in his comments, he is often interviewed by MarketWatch. 

As for HeadlineCharts, I am now net short the market, but ready to cover the shorts as the market probes for the lows.  As you know, not all indexes have had equal participation to the downside.  Market weakness is in the financials, particularly the regional banks, and the dow industrials.  The NASDAQ, tech and utility indexes have held up well along with commodities and commodity related stocks. 

I will be cautious about shorting the financials because the selling has already been so intense and the bottom for these stocks may be near... and maybe the dow industrials as well as it gets near its prior lows.  Regarding the indexes that remain healthy, the question is will they be drawn down too and test their prior lows, or is their strength a bull divergence where pullbacks are a buying opportunity?  When you figure it out, let me know.

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Well you have to like this chart too, if you are a bull.  The leading ECRI indicator stopped declining in March and started pushing higher in April.  It continues to look decent. 

In May, it looks like the lagging ECRI indicators started to follow the leaders higher.  Looks like the bullish worldwide growth, healthy businesses, low US interest rates and stimulus checks are offsetting the bearish impact of oil, housing and tapped out consumers. 

Also, the ECRI leading inflation indicator remains contained.

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There has been a lot of buzz about these Hindenburg signals via Robert McHugh, who is an excellent analyst but unfortunately has a very negative bias.  Some people don't think these signals are worthy, and I honestly have no idea.  I just think they are worth noting and adding to the pool of technical evidence.

I think there is some mis-communication in analyzing the signals because there are different ways to calculate them, but I think McHugh is fairly rigorous in applying strict rules.  Also, he admits that one Hindenburg doesn't mean much, but thinks a cluster of them is significant.

I do know for sure that a spike in new lows, particularly on the NYSE is important technical evidence.  I also know that getting these spikes at the top of rally is a lot more bearish then getting them after the market has been declining for some time... like now.  Sometimes getting this number of new NYSE new lows indicates a degree of capitulation building up in the decline, and that points to a bottom forming.  So you have to take the context of the spike in new lows into account when you studying them. 

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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 |

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ECRI Recession Watch



The ECRI leading economic index is clearly diverging from the coincident index.  But these are smoothed averages, and for the last three weeks the leading index has ticked lower, probably due to sky high oil and gasoline.  I think the economy was well on its way to a weak rebound on the back of strong exports, but probably has now stalled.  However, its too early to know for sure.  The ECRI future infation gauge remains contained despite the high energy costs.

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The bullish percents showed very little movement this week.  I'm not seeing much in these indicators except a market trapped between equally powerful bullish and bearish influences.  For now, the market is stuck in a range.

The CRB bp corrected down from the 70-level to the 50's, and I expect even lower numbers in the weeks ahead.  That will be the opportunity to fill out commodity ETF positions again.

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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 |

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'He [Buffett] said the presidency is not unlike running a business. "They say in the stock market, buy into a business that's doing so well an idiot could run it, because sooner or later, one will.  The US is sort of like that." ' [AP, May-22-2008]
 

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  ECRI Recession Watch:



If you base your major, life-altering, financial decisions on squiggly lines, then you'll love this new chart from ECRI.  While the general economy continues to sink, the leading indicators are showing signs of strength.  These are smoothed averages, and unfortunately, the weekly leading data has dropped two weeks in a row.  I'd say that the price of oil has cut off the slight rebound in the economy, and we are back to a no-growth situation. 

Trim Tabs keeps sending me their emails even though I think the trial is over.  Their data is terrific and the commentary is even better.  Yesterday's email was a bit odd though.  They ranted a bit about the possibility of oil price manipulation.  They are recommending that governments of oil consuming nations begin shorting oil futures to drive down the price.  These guys are insiders.  If they think prices are being manipulated, then there might be something to it.  But, as interesting as it is, I'm not seeing how any of it helps me with my investment decisions.

Trim Tabs keeps a very close eye on tax receipts and payroll withholdings with the idea that the real driver of higher stock prices is liquidity and employment.  This past week they noted a serious drop in withholdings but they suspect some sort of government collection problem.  However, they also note a drop in employment ads, weak company buybacks, and no cash takeovers which leaves them neutral on the market and in cash until they can sort out what is going on. 

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Enough about Trim Tabs.  As for HeadlineCharts, there is a cash cushion of 10% that will likely be deployed in the best areas of the market if the pullback is substantial enough and the breadth indicators behave.  Right now, natural gas and coal seem like the best place to be if the price is right. 

Ken Tower has read this market perfectly.  He went bullish at just the right time, went neutral a month later but remained invested until this past Monday when he issued a sell and took profits and hedged.  Now he is looking for a normal pullback to the lows of the trading range.  He doesn't see this current selloff as serious but remains cautious about the longer term since he thinks the credit crisis needs a lot more time to unwind than most people think.

I forgot to pick up IBD today so I'm not sure if they have changed their market outlook.  If you know, please send me a note.

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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 IBD index took a big hit this week signaling that even the best stocks are under pressure.  However, most major indexes remain above the important 50% level despite some serious selling. 

Financials were the worst hit by the selling, but they also remain above 50%.  I don't expect that to last, and before this correction is over I would expect financials to at least touch the 30-40% range.  The test will be to see if the financials can remain above the 30% level as a sign of underlying strength and a bullish signal on the general market.

There was a shift back to the defensive groups this week, utilities, healthcare, staples, and as you can see these groups suffered no damage in the bullish percents.  I took a position in healthcare this week because it looks like this group may have bottomed out for now. 

I'm loving the strength in timber-related stocks.  This group was very oversold and I took a large position as a value bet.  Nukes and Uranium are perking up with the record prices in oil.  I've owned these for a while and plan to lock them away in the portfolio for a long time.  However, I'm also noting a need to be cautious in this group as the disaster in China reminds.  There were some headlines that the government was trying to make sure there were no radioactive leaks... if there were, would we be told the truth?

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As mentioned, keep this chart on the radar.  We need to see a higher low in this indicator to continue to believe in this bull market.

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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 |

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The ECRI future economic growth index had a slight decline this week, but the smoothed trend is off the lows and pointed higher even though it is at a weak level that is similar to levels in past recessions. 

The ECRI future inflation gauge ticked lower as well.  It is within the area that indicates reasonable levels of inflation ahead.  I'm sure you are laughing at that, but honest that is where it stands.  I think the commodity inflation is being offset by very powerful defationary forces such as inexpensive labor producing finished goods, lower home prices around the world and low rates in the US, Canada and Japan. 

Trim Tabs was shaken out of their very bullish stance on the market down to a very cautious level a couple weeks ago.   Now they are seeing a rebound and are back to a fully invested but unleveraged position.  Not sure how much longer I'll have Trim Tabs reports.

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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.

Not a single shift lower for the bullish percents, with the market broadening out very bullishly and plenty of stocks still at buy levels.  It is very bullish my opinion to now see all the major indexes following the market higher such as the small caps, NASDAQ, AMEX and Wilshire 5000.  Granted the leaders are now overbought and can't continue to support the market, so these other groups will have to carry the load of pushing the market higher, and that seems to be happening impressively.

The Canadian Stock index is making its move.  The index was down along with a pullback in the Canadian Dollar due to aggressive rate reductions that generally matched the USA.  Now both the Canadian equities and the dollar appear to be gathering strength.  Canada's rebounding strength along with the fact that it is a huge commodity producer inspired me to take a long term position in EWC.

Another intriguing foreign market is Japan.  I'm beginning to hear more bullish comments about a rebound there, but I haven't yet looked into it and don't have a position.  Japan's foreign commodity dependence is a concern though.

The high quality, high growth IBD stocks are over 80% P&F bull signals which I take as a strong confirmation of the trend in equities rather than an overbought and ready for a correction signal.  I'm not buying this group though, and prefer to stick with funds and ETFs along with a longer term buy and hold strategy.

It is nice to see the alt energy group and pollution control groups finally headed higher.  They've remained at a low bullish percent level despite their relation to the price of oil.  Perhaps it was a contrarian signal for higher oil prices that people weren't yet buying alt energy.  Nuclear stocks are starting to strengthen a bit again.

The defense group is one of my favorite long term secular industries and it has gathered strength again.

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I got shaken out of my intermediate term holdings too early based on some spikes in the new lows.  Now the new lows have settled down, the new highs are strengthening and the bullish percents are confirming so I'm back to bullish with money deployed again.  My major concern is the overhead resistance of the 200-day for the SPX, and the gap resistance overhead for the NASDAQ.  Also, although the NASDAQ has improved, the new highs and new lows are still inverted which doesn't usually occur in an uptrend.

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As I mentioned, this group is showing some strength.  I like the bullish divergence, the W pattern, the down trendline break and the break above the first level of resistance.   I keep reading about large numbers of nuclear plants being built or planned around the world, plus I'm sure the existing plants all need upgrades after years of neglect.  These stocks had big runups, then huge selloffs.  So they are not without volatility, meaning a dollar cost strategy for me.

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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 |

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When money flows into the 10Y, while new lows are increasing, you have to get cautious on the market.  The NAS new lows are too high to support an uptrend and are likely signalling a pullback.  The NYSE new lows are much healthier so the signals are still mixed.

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It has been so much fun tracking these advisors.  I signed up for Band's trial subscription, and then he sent me a note saying I wasn't a subscriber so I couldn't use the site.  I think he got confused.  His bull market call on Mar-27 is looking good so far.  He likes to buy high quality stocks when risk is low like when markets hit significant lows during recessions.  About this he says, "history whispers in our ear", meaning in the past recessions lows were the time to buy, not after the recessions were over.

I was shaken out of my intermediate term holdings and into 10% cash on Monday.  The new lows and high oil prices did the trick.  I think the market cares about oil prices when there is a short-term profit to protect, and ignores oil when there is a lot of cash in accounts.

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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.

I was expecting to see lot's of yellow, instead I see lot's of green.  Ken Tower suggested a number of times the pullback in the commodity-inflation groups were a buying opportunity, and it turns out he was right, at least short-term.  The CRB bullish percent turned up as well so the broad commodity trend is with the stocks.  I like watching the IBD bullish percent after adding it to the list last fall.  I like the market better when it holds near its highs when the broad market is churning.

Below are the industry components.

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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 |

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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.

There was excellent upward movement in the bullish percents this week confirming higher prices and bullishly broadening out the number of stocks participating in the rally.  All the yellow is related to the commodity-inflation area that is correcting. 

The IBD bullish percent has been updated to include the latest components of the index, and I figure it needs to be reset twice a year or so to bring it up-to-date. 

The agriculture bullish percent is also new and it consists of the stocks in the MOO ETF that trade on the US stock exchanges.

Also added is the commodity bullish percent for the components of the CRB.  I had wanted to use a broader range of commodities but it is hard to get good P&F charts so I'll settle for the CRB components for now.  There is a little more strength in this bullish percent at the moment than I expected.  Here are the components.

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I'm cautious on the market because the new highs /new lows refuse to fully cooperate and confirm this uptrend.  The new lows on the NYSE are really good, but the new lows on the NASDAQ just refuse to settle down.  They were 65 last Friday which isn't enough to ring alarms but slightly higher than expected for an uptrend.  Ken Tower is also cautious on the market primarily for same reason.

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The new lows aren't cooperating on the NASDAQ, but it's the new highs that aren't cooperating on the NYSE.  It makes some sense.  Most new highs had been in the materials and energy groups, and now that they are correcting tech and consumer stocks are too far in the hole to register new highs.  Let's give this some time to see if the new leaders can start hitting new highs and improve these numbers.

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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 |

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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.

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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.

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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 |

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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.

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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.

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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.

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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.

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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 |

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ECRI continues to forecast a recession and low levels of inflation ahead.



It is gut-check time for the bulls as the market tests our ability to hang in.  Highlighted in light blue are the analysts making important market calls this week.  Richard Band was on Kudlow CNBC so I tuned in to hear him speak for the first time.  They made him wait forever and when he finally had a chance to speak he was interrupted by someone, and then never got another chance. 

Apparently Bob Brinker knows a lot more about technical analysis then he let's on.  He remarked in his recent newsletter that the retest of the lows was on significantly reduced volume indicating a drying up of selling pressure.  Spoken like a pro, which of course he is.

John Murphy isn't buying into any of the optimism and sees Friday's selloff as a failure at resistance.  He also notes that the recent bounce off the lows has been on low volume and has been a counter trend that was a Fibonnaci 38%.  He sees the first quarter of this year as part of a larger Elliott wave four down.

IBD was quite encouraged by the fact that Friday's decline was on low volume, particularly when GE's activity is stripped out of the totals.  They also note that for the most part leading stocks did now join in the market decline.

Before passing judgement on yesterday's decline and the health of the market, HeadlineCharts is waiting to see what happens early next week regarding the level of new lows and the rates associated with capital preservation such as TBills.  If NYSE new lows tick up too high, or the TBill rate declines significantly, it will be time to take some money out the market. 

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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.

I don't see a lot damage to the bullish percents from Friday's sell off, and IBD is right that the leading stocks did not retreat, as shown by the IBD bullish percent. 

I think if Murphy were right and the recent strength were a counter trend, we would have seen the NYSE new lows picking up at uncomfortable levels prior to Friday... as well as the bullish percents starting to decline starting early in the week.  Also, the lack of downside volume on Friday does not support the view that wave-5 down has begun.  Wave fives are not known for strong volume, but they should at least pick up in volume above the prior couple days.

Everyone's favorite areas of the market at the moment are energy and agriculture.  Energy is clearly overbought at the moment so its a bit late to put too much more money into this group right now.  Agriculture is probably a bit overbought as well.  I'm not real keen on the economically sensitive groups, chemicals, steels, metals if there is a recession underway or ahead.

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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 |

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ECRI has declared that a recession is a sure thing.  Their inflation gauge is contained indicating a low level of inflation ahead.  Their indicators look out 4-6 months or so.




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.

I'm seeing lot's of green which is encouraging for future prices.  The fact that the SPX, INDU, TRAN have broken above the 50% level is a favorable sign.  This is also still good field position for an intermediate rally to begin.  If this rally is for real, the bullish percents will eventually be skewed to the right and remain there while the market slowly advances.  However, that will represent a riskier time to buy.

A few weeks ago the commodity indexes all corrected lower by 10% or so,  and I thought it was time for the related stocks to take a back seat for awhile.  But now the market leaders are the same old commodity-related producers we've seen lead the market for a long time.  Energy, Material, Industrials. 

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If there is a recession someone forgot to mention it to investors pouring money into the leading industry groups.  Coal, steel, chemicals, metals...and computer hardware?  Are these the industries that lead in a recession?  How many companies buy new computers when they are facing a recession and a meaningful downturn in their business? 

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The idea for the chart came from reading Connie Brown.  She does quite a bit of work with the 14-period RSI and believes the support levels of the RSI are as important as the support levels in the price indexes.  This chart certainly shows a critical RSI support level for the long-term trend of the SPX.  Looks like we have just experienced a correction similar to the 1987 stock market crash, or the Volcker or Bush recessions.

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