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II Insight 


 April 2010

Global leaders in Technical Analysis since 1947

   
    
Welcome to the April edition of II Insight.
 
For April, our chart of the month is actually not a chart but a newspaper cutting. That snippet was a classic text book example of gauging market sentiment via main stream media.
 
We cover Oil again as it spurts to new recovery highs, lifting many of the energy ETFs which are overdue a rally following months of sideways trading.
 
Also we evaluate the performance of technology and how its P&F relative chart can be used to call a general market top. Likewise, later on we consider one of our volume indicators and its ability to call market turns ahead of time.
 
Happy trading
 
Tarquin Coe, Market Technician
    
    
    
Chart Newspaper cutting of the Month
 
Market sentiment can be measured in a number of ways and our weekly Advisors Sentiment Survey  is the most main stream and reliable example. However, sentiment can also be gauged on a daily basis through standard media and with that in mind we are this month highlighting a newspaper cutting instead of a chart.
 
Material in the press generally reflects and is agreeable with the views and opinions and of the public (they don't like to read, let alone pay for, something they disagree with). The headline from the New York Times on March 29th “Stocks Soar, But Many Ask Why” was a classic example of this and we highlighted it in the Coe Report.
 
Wall Street is often said to climb a wall of worry. Headlines contribute to the thought process of the market analyst and in this case it reinforced the belief that the crowd remains bearish on equities. Totally the opposite of the public's sentiment at market tops, such as was apparent at the turn of the millennium.
 
In the Coe Report, the last 34 closed portfolio trades have all been winners. If you have never subscribed to the service then email our subscriptions manager, Sarah, to organize a free trial. We will not ask for any payment information. Sarah can be reached at sbarnes@stockcube.com.
 

Indexes - Technology
 
The NASDAQ 100 (NDX) continues to break to new highs against the S&P 500.  This tech index is now at its best relative level since the tech bubble was deflating in 2001.
 
Leadership by tech provides strong supporting evidence towards the bullish case. Investors should only consider turning defensive if this relative P&F chart were to reverse, as was the case at the end of last year. This chart forewarned of the January downturn by the general market when it reversed in late December.
 
Point and Figure charts have been central to analysis at Investors Intelligence since the 1950's. Veterans Mike Burke and John Gray have amassed 77 years experience between them of P&F chart reading and they analyze developments daily in the P&F based US Hotlines.
 
We also highlight investment opportunities amongst the global major market indices in the International Equity Index Hotline. 
 
 
 

 
Commodities – Crude Oil
 
The final days of March saw the Crude Oil (CL1) chart make its move with a break out to new recovery highs, something we called for in last month's report.
 
As stated then, we anticipate a visit to $90. That level is a cluster target formed between the 50% retracement level at $89.83 and a region of resistance from a late 2007 consolidation.  Given the brute force of the breakout, we expect that target zone to be tested in the first half of the month. Momentum conditions are on the side of the bulls with 21-day RSI only just pushing through 60; overbought conditions of last October are a long way off.
 
 
Commodity ETFs are covered each week in the ETF Review by Tarquin Coe. In the portfolio for that service we are long oil through the Powershares DB Oil Fund (DBO) and also the energy sector through the iShares S&P Global Energy Index (IXC) and the Dynamic Energy Exploration (PXE) fund. Both these sector funds are now showing renewed outperformance. The energy dog is Natural Gas and we have been short the Natural Gas Fund (UNG) since December-18th (a +30% gain).
 

 
Have you visited the www.fullermoney.com website?  Our sister service, Fullermoney, is one of the world's most highly regarded research services covering global strategy and investment trends.
 
Produced by David Fuller and Eoin Treacy from the London office, Fullermoney analyses major markets – stocks, bonds, currencies, and commodities, from both a technical, behavioural and fundamental economic perspective.  More importantly, Fullermoney nurtures a collegial atmosphere where David and Eoin impart their views - the collective of subscribers can also find a voice if they wish. Fullermoney's theme – Empowerment Through Knowledge encapsulates the strategists' aim to equip subscribers with the tools necessary for investment success.
 
Here are a few recent comments from subscribers, but you can read more subscriber views here:
 
So many market commentators are egotistical dramatists. The thoughtful, honest approach you and Eoin share is a great contrast that I appreciate. Thanks."                                       T.D. 17/03/2010
 
"Dear David & Eoin, Thanks for the great job you are both doing in leading readers through the current correction."                                                                                                         J.F. 10/02/2010
 
"Fullermoney is an investment necessity and well worth the price."                           D.S. 08/01/2010
 
Monthly subscriptions to Fullermoney are £50, and the annual service costs £500 – you can read more about the service, and subscribe, here.  And you can also sign up to receive the abbreviated Comment of the Day, delivered to your inbox each, FREE.  Just click here.
 
 

Investors Intelligence Proprietary Indicators – NYSE Volume

Investors Intelligence has utilized volume indicators for decades. One of the broadest volume indicators we compile is the NYSE on balance volume (OBV). This indicator plots the cumulative total of NYSE volume using the day's breadth reading (positive or negative), to either add or subtract a day's volume.
Many investors and media pundits seem to be backing their belief that the current rally is nothing but a bear market sucker rally by citing weak volume.  Yes there are some days when volume is below average but the big picture shows that their claims couldn't be any further from the truth.  The chart below depicts the NYSE OBV chart breaking out to new all time highs! This volume break out confirms the new recovery highs by the indexes and is no way indicative of a market that is about to collapse.
So how can this indicator be used to clue a market top? Well, the recent market high in October 2007 provides the perfect case study. With that top the OBV exhibited a bearish divergence relative to the S&P 500. The OBV peaked  in July 2007, where as the S&P 500 topped out three months later. That is the kind of warning sign we look for but as it stands now, conditions remain bullish.
 
 
Volume indicators are presented and analyzed daily in the US Hotlines.          
    
    
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US Sentiment holds the key
The Advisors Sentiment Survey continues to provide advance warning of major market turning points.  
The analysis and data regularly feature in the international financial press as a key indicator of market reversion.
Examples of these articles can be found on Barrons, NY Times, and Investor's Business Daily.
Read what CNBC said about the biggest switch in sentiment for 7 years.
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Historic Advisors’ Sentiment data since 1963 is also available; please contact us for further details.

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