Health of the Market
The charts will be updated by
every Saturday. When no change to text, [NC] will be used. Click
for favorite investment websites or go to
Charlottesville's The Center Investors' Forum.
Note: If the latest date does not
show, try reloading the page.
The indicators for the equity market show a down market
within a bull cycle in a bull trend and
in a bull market. (see definitions on Longer Term
page). The S&P 500 is -2.9% from its all-time high. It is +14.1%
year-to-date; and -0.76% last week. 59.6% of S&P
500 stocks were above their 200-day exponential moving averages,
down from 66.2% the week before. 50.0% of these stocks were
above their 50-day EMAs, down from 58.0% the week before. These numbers are not encouraging.
John Murphy of StockCharts.com asks "Why do we look at charts? -
They provide the most up-do-date information on the state of the stock
market. They may also be telling us something about the fundamental
reports we won't be getting until early next year. Charts track
forward-looking markets, while fundamental data is backward looking. It's
always safer to look out of the front window of your car while driving to
see where you're going. Not the back window that shows you where you've
[NC] A measure to determine if the price is too high relative to the underlying earnings is the Shiller price to earning ratio. This is the current price divided by the 10-year average of "real" (inflation-adjusted) earnings. This ratio corresponds quite well to the peaks of price as shown by charts on this site.
The market in the typical May is mixed. The charts for the third year of the presidential
cycle compared to all years show the third presidential year is the
best year of the four year cycle. The Power Zone,
the favorable time of the year, ended with the Health Sell Alert
that occurred Monday 5/13. It typically starts sometime in October and
ends sometime in May. See the Market Cycles page for more. A Bull
Cycle began with the signal on
2/15/2019. The long-term BullHeal System went to
a sell on 5/13/2019.
Also shown is the CRB Commodities Index, which
is a measure of inflation. This index is an unweighted geometric average
of prices across 17 commodities including energy, grains, industrials,
livestock, precious metals, and agriculturals. A rising dollar will hurt
[NC] Fundamental Capital’s Troy Bombardia has run the numbers on what happens to the S&P 500 when the 10-year “long” yield dives below the three-month rate:
In 1966, 1973, 2000 and 2006, an inverted yield curve indeed preceded a big stock market pullback (usually within a year or two).
Meanwhile in 1978, 1980 and 1989 it didn’t mean much.
[NC] The theory is that if small-cap stocks do better than
the large-caps, it indicates that the traders are willing to take on
more risk and the market will go up. The chart shows the relative
strength of the Russell 2000 IWM with respect to the S&P
500 SPY. The 10/30-day EMA crossovers are marked by a pole. The U.S.
Dollar is also shown. Note that when the dollar goes up, small cap
stocks generally do better than large cap stocks. This dollar relationship
works in bull markets, but not since late September 2018.
S&P 500 large-cap index dropped from the October double top.
It then created a (blue) channel. The drop from the bottom of the
channel turned out to be a bear market 20% move from the high. Now a
is occurring where the top of the blue channel seems to be offering
some support. The market was moving up from the oversold area, until
Friday when it dropped 0.58%.This action is normal -- it could continue
down, or it could resume the "bounce" off the support level in blue!! The small cap Russel index seems to be telling the story.
Russell 2000 small-cap index hit an all-time high on 8/31/18. A bear
market took over with a 27.3% drop from the high. The 28% surge from
the 12/24/2018 low is impressive, and broke above the
resistance of the early November high in early May -- but only for a few days. The small caps have been
lagging, which is not a good sign for a continuation of the market up
move. This index is below its 50 and 200-day MAs, and seems to be heading down.
technology-heavy Nasdaq composite index made a double top, and then
dropped on high volume to signal a bear market. It recovered to a new
all-time high. Friday 39.8% of Nasdaq stocks were above their 50-day
moving averages (down from 48.0% the Friday before). These
numbers are not encouraging and a further drop may occur as the Power
Zone has ended.
[NC] Below is the Russell 2000 small-cap index that tends to lead the overall market both up and down -- as the small-cap stocks are generally more risky than large cap stocks. This index is shown with high-low-close bars. It's 50 and 200-day simple moving averages are included. The 200-day moving average often acts as support or resistance to price movement as many traders watch it.
[NC] The Health Alert is based on the momentum of the small-cap Russell 2000 index, the Nasdaq breadth data, and the Nasdaq 52-week new highs and new lows. The thresholds are described below. The green buy and red sell 'alert' poles on the chart show when these alerts have occurred.
A Health Sell Alert occurred on Monday 5/13 when the 21-day RSI dropped below 49. The small cap stock index is used here as small-caps have tended to lead the market both down and up.
[NC] The second pane is the Relative Strength Indicator (RSI) for the Russell index, a measure of momentum of the market. This is the relative strength of the Russell 2000 itself -- it's not relative to any other index. Above 50 shows positive momentum over the last 21 days. The latest plot can be seen by clicking here. The green arrows indicate a positive change in momentum as the RSI crosses above 50; red arrows indicate downward momentum when the RSI crosses 49. The threshold of 49 is used to give a more definite indication of the start of a down-swing.
[NC] The third pane has two plots. The first is the Nasdaq McClellan Summation Index,
$NASI, (red) and it's 5-day exponential MA (blue). This is a running
sum of the difference of two moving averages of the number of
advancing issues minus the number of declining
issues. A 19-day and a 39-day exponential moving average (EMA)
are used. This shows whether a market move is broad based. As the trend
changes, the red index will cross the blue EMA and an arrow will
[NC] The second plot in the third pane is the Nasdaq
McClellan Oscillator, $NAMO. When it is above zero, the Summation Index
is moving up. When below zero the index is moving down. The zero
crossovers give an earlier signal then that discussed above. It will be
used in the future. There are many oscillator crossovers recently as the market has not been decisive.
[NC] John Mauldin, on 12/29/18, stated "I find it just as plausible that the balance sheet reduction is as responsible for the market volatility as the increased rates. If QE made the markets go up, especially in concert with the ECB, the Bank of England, and the Bank of Japan, then it’s no surprise if ending it makes the markets fall."
The source of the charts is located on the upper right of the chart. This page is for amusement only, and should not be taken as advice to buy or sell anything.