21 November 2012
Dear Insight readers
Welcome to the November edition of Investor's Intelligence free monthly newsletter.
Unfortunately general market technicals are not in great shape at present, so we are maintaining our bearish outlook from last month's report. In this report we provide a read on the NYSE Bullish %, an indicator we have been using to navigate bull and bear markets since 1955.
We also reprint an interesting quarterly chart of the S&P 500, further evidence that the medium-term is not bright. However, every sell-off creates a buying opportunity, so for the time being it is just a case of keeping cash on the sidelines, being patient and keeping an eye on the technical situation.
We wish all our readers and their families a wonderful Thanksgiving.
Technical Analyst, Investors Intelligence, New York office
Market internals are now breaking down at an accelerating pace. Worryingly, for investors, this deterioration appears to be only just beginning.
On the chart we have plotted the S&P 500 (green) with an overlay of the NYSE Bullish % (blue). This breadth indicator, the percentage of NYSE stocks in bull trends, is one of the best barometers of market health.
Breadth has some way to go before reaching the oversold level of June at 43% and a very long way to crash before the October low of 18% is visited. With the present reading of 53.81% the downside risk is disturbing.
On the chart also note the negative breadth divergence as the S&P 500 set its high for 2012. That implied diminishing participation. Typically when this level of divergence is apparent the market will break beneath the last major low, which in this case is the June low of 1266.74.
The Point and Figure chart for the indicator has also turned down. The last time it rolled over was April 10th. A month following that turn down, the Dow was up 500 points, providing a lucky escape for the more savvy investors. However, from that point the Dow shed 1200 points, down to its June low. Often the market outcome following this signal is delayed so the message is that any strength over the next few weeks should be seen as an opportunity to rotate defensively.
The indicator is updated daily and subscribers have full access to this and many other indicators on our website. A subscription to the US Daily Hotlines
, provides daily commentary on the NYSE Bullish % and many other indicators, along with website access.
Countdown to a top?
In the October issue of Insight we showed the potential bearish wedge on the S&P 500, a pattern which looks to be now activating. That month we also highlighted another interesting chart to our subscribers.
A chronological pattern is evident on the quarterly chart for the index. The excerpt below explains the pattern and was taken from the 10th
of October Coe Report
“Following the bear market low of 2009, the index went onto rally for 4 consecutive quarters. The index then paused the next quarter, then rose for 3 consecutive quarters. Paused again, then rose for 2 consecutive quarters. Paused again, and then rose last quarter. It's simple stuff but its message is clear -- a weakening uptrend and a possible countdown to a top.”
This is one of many bearish technical observations we have been highlighting since the highs of the year in mid-September.
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