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US Stock Service
Daily Hotline
 
20 October 2014    By John Gray
Market Action
  • A very turbulent week ended with strong gains Friday. The major averages gained about 1% but that still left them negative over the five sessions which included a sharp increase in volatility, with some very large swings. Friday's buying centered on NYSE shares with broad rebounds from energy stocks after crude prices recovered from a drop below $80.
  • Intraday highs failed to hold Friday with some indexes running into technical resistance levels. The advance decline breadth was mixed and volume fell compared to Thursday. However volume was still well above recent depressed levels and the number of new NYSE stock highs beat new lows by better than 2X1. That was a dramatic rebound from Wednesday when the 600 NYSE lows were the most in over three-years. New buy signals dominated the daily breakouts and the weekly high selling climax count added another signal for a bottom.
  • Index charts had further advances Friday and many more indicator charts reversed up. That action is now nearly universal amongst the short term oscillators to confirm the market direction as now up. It also expanded to some medium term indicator charts to add some conviction that this should be more than just a limited oversold rebound. It doesn't mean an immediate return to highs and the path upward is rarely without interruptions. 
Market Drivers
  • There was an early positive tone Friday from Europe after an ECB official said the bank would start more stimulus efforts in a few days. The Bank of England said rates could 'stay low longer than previously thought'. Some continental stock markets showed rallies above 3%.
  • Domestically housing starts for September showed a larger than forecast increase and the annual pace just topped 1-million units. The Commerce Dept reported consumer confidence also well above expectations as falling crude prices are hard to miss at the gas pump.
  • Some large firms reported strong quarterly results, including GE, Honeywell and Morgan Stanley. That is the real fuel for a rising market so that early good news needs to continue.
Technical Outlook
  • Friday had more oscillating indicator chart upturns along with other signs suggesting that a trading bottom is at hand or very close. They included more than 600 selling climaxes and the stock breakout shifted to data favoring the buy side. That signals traders are now focusing on accumulation and putting recently raised cash back to work. The recent quick wide trading swings lowered many buy stops which are now getting hit. The sector bell curve shows many depressed areas which increases the recovery potential.
Portfolios
  • Large Caps 80% invested, Mid Caps 70% and Small Caps 70%.
  • Bear Portfolio is 0% short.
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
32.8% (+10.40%)
Bull Confirmed
NYSE %10 Week Moving Average
21.31% (+2.37)
Bull Alert
II Short Term Sector Sum
-39.00     (n/c)
Bearish
New P&F Signals: US Breakouts
  Close 1-Day Change
Bulls 30 -9
Bears 5 -20
NYSE Bullish % Indicator
38.21% (+0.63%)
Bear Confirmed
NYSE %30 Week Moving Average
28.01% (+2.75)
Bull Alert
II Long Term Composite Indicator
-129.00     (+24.50)
Bullish
  • The bullish short term composite moved higher.
  • The NYSE and S&P 500 % 10-wk MA charts reversed up.
  • Three of four on-balance-volume charts turned up.
  • Stock buy signals again exceeded new sells by a wide margin.

 

  • The NYSE % 30-wk MA reversed up along with the same S&P 500 chart.
    Medium term charts were steady, without further declines.
  • New 52-wk stock highs outnumbered new lows on the NYSE. That shows a dramatic shift from Wednesday.
  • Over 600 stocks had selling climaxes.
  • The Long Term Composite reversed up from prior lows.

 

Index Trends
  Close Volume 1-Day Change P&F Signals Support
  Signal Trend Start Date Trend Reversal  
DJ Industrials 16,380.4 131.7m +263.17 +1.6% Bear Up 10 Oct 2014 17,100.00 15340.7
S&P 500 Index 1,886.76 796.4m +24.00 +1.3% Bear Up 25 Sep 2014 1,970.00 1737.92/1814.36
NASDAQ Comp. 4,258.44 702.2m +41.05 +1.0% Bear Up 25 Sep 2014 4,300.00 3946.03
NASDAQ 100 3,815.47 273.3m +50.19 +1.3% Bear Up 1 Oct 2014 4,060.00 3489.6
S&P Midcap 400 1,322.12 170.9m +11.06 +0.8% Bull Up 17 Oct 2014 1,265.00  
Russell 2000 Index 1,082.33 375.4m -3.48 -0.3% Bull Up 16 Oct 2014 1,040.00  
Closing prices through Friday October 17, 2014

Chart Activity - Broad Index Moves 


Most averages ended Friday solidly higher. That magnified their gains from the intraday week lows on Wednesday but nearly all indexes were still down over the five sessions. The exception was the Russell 2000, which fell slightly Friday but still showed a strong 2.75% gain for the week.

Nearly every index chart moved higher Friday. The DJ I peak above 16,400 advanced both its long [100 pts/box] and short term [50 pts] charts. Each needs X 16,500 for new low pole formations.  The S&P 500 and 100 P&F charts also ended just below those bullish formation shifts and the NYSE Comp showed that greater than 50% retracement of its last vertical decline. The NASDAQ Comp held a high pole from the prior day and it ended just below a P&F breakout. The S&P Mid-Cap joined the Russell 2000, Value Line Comp and S&P Small-Cap with trading buy signals. The short term direction should now be up and falling resistance trendlines will come into play shortly.


Chart Activity - Sector Indexes 

The DJ T activity slowed with a mere 120 intraday range. The bullish chart moved up to X 8150, with its downtrend line overhead at X 8350. The S&P 500 Transport chart improved with a new low pole and Energy charts rallied for the second day. New S&P upturns were Consumer Discretionary, Health Care, Industrials, Materials and Info-Tech. Other gains included the Biotech BTK, Drug DRG, MS High Tech MSH and Semiconductor SOX charts. The latter then closed weak enough to reverse down.  

Chart Activity - Commodities

Spot gold ended the week flat. The chart held its Wednesday advance to X $1240. It is rebounding from O $1190, a low last seen at its end of 2013 bottom. A new floor may be signaled but $1260 is needed for a positive low pole formations. Both gold index [XAU & HUI] charts had new reversals down. Each shows basing action and close buy stops. The Precious Metals bullish % had a bear confirmed status shift on 30-Sep and is now deeply oversold.

The crude oil high Friday was $84.45, up sharply from Thursday's session at $79.78. The chart turned up to X$84, ending a 14-box drop to O $80. That was a low since Jun-12 when it ended at O 78. The upturn says to end downside trades. The energy indexes had that action Thursday after drops of at least 16-boxes. Our comment was ‘that points to trading bounce at least'.



 

Index Breadth
% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 21.31 +2.37 Bull Alert 17 Oct 2014
Nasdaq Composite 29.09 -0.88 Bull Alert 15 Oct 2014
S&P 500 20.12 +6.84 Bull Alert 17 Oct 2014
Nasdaq 100 16.16 +7.07 Bull Alert 17 Oct 2014
Option Stocks 19.53 +2.96 Bear Confirmed 9 Oct 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 28.01 +2.75 Bull Alert 17 Oct 2014
Nasdaq Composite 31.33 -0.48 Bear Confirmed 25 Sep 2014
S&P 500 36.62 +6.64 Bull Alert 17 Oct 2014
Nasdaq 100 36.36 +5.05 Bull Alert 17 Oct 2014
Option Stocks 27.81 +3.65 Bear Confirmed 9 Oct 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 38.21 +0.63 Bear Confirmed 1 Aug 2014
Nasdaq Composite 39.08 +0.55 Bear Confirmed 1 Aug 2014
S&P 500 39.64 +0.20 Bear Confirmed 2 Oct 2014
Nasdaq 100 35.35 +2.02 Bear Confirmed 2 Oct 2014
Option Stocks 35.83 +0.19 Bear Confirmed 23 Sep 2014

Breadth Indicators oscillate between overbought highs, at 70% and above, and oversold lows, at 30% or lower.
The % 10-week moving average is short term, % 30-week moving average intermediate, and the bullish %s are longer term.

Short-term:

Solid index gains and strong NYSE advance-decline data rallied most daily moving average breadth values although more NASDAQ stocks down than up meant those readings fell. There were three more reversals up amongst short term % 10-wk MA charts that followed the NASDAQ upturn from Wednesday. All four show their initial positive status after reversals up from oversold multiyear lows. They will strengthen to bull confirmed with P&F buy signals, which are close after down and up base forming action. The NASDAQ Comp triple-top buy stop is X 32% and the NYSE 10-wk would shift to bull confirmed at X 26%.

Medium-term:

Three of the slower moving % 30-wk MA charts also reversed up. Thursday's close showed all five at oversold lows since late 2011. Their upturns confirm a short term rally is underway.

Long-term:

New stock buy signals outnumbered new sells for the second session. Three in-a-row will confirm the market momentum has shifted up. The buy-sell ratio was also strong. Higher readings were shown for every broad area bullish %. None of the charts moved but if the new trends persists upturns on these slow moving indicators will be the final confirmation that the market trend is again up.

Current Outlook:

Friday's close showed four of five short term moving average breadth indicators with initial rallies from oversold and confirmed reversals on three of the % 30-wk MA charts. That adds conviction to the short term composite signal and the overall projection is for at least a trading rally. It may include a pullback this week but the general direction should be up. The rapid shift in stock breakouts is a strong sign of a new desire to own equities. Many sector indicators show very oversold readings with lots of recovery potential.


 

 


 

Indicators
  Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 32.8 +10.40 Rising Bullish Higher
NYSE High-Low Index 17.46 +3.61 Falling Bearish None
Nasdaq High-Low Index 13.66 +1.03 Falling Bearish Mome
NYSE On Balance Volume (by DJIA) 277,297 +1068.00 Rising Neutral Reversal Up
NYSE On Balance Volume (by breadth) 537,638 +1068.00 Rising Neutral Reversal Up
Nasdaq on Balance Volume by Composite 493.78 +2.21 Rising Neutral Reversal Up
Nasdaq on Balance Volume by Breadth 35.04 -2.22 Rising Neutral None
NYSE Cumulative Advance/Decline 400,161 +977.00 Falling Bearish None
NYSE Money Flow Index 41,125.3 (weekly) Falling Bearish None
  • The major averages ended near their highs Friday, up about 1%. The internal data also strengthened and volume remained above average. That caused other chart upturns for more evidence that a recovery rally is underway.
  • The daily short term composite chart jumped again, moving out of oversold territory. It holds a bull confirmed breakout from a broad base and should test resistance and recent tops below 50% at the minimum. New upturns on other oscillators added conviction.
  • Friday showed twice as many NYSE stock highs as lows (47 vs. 23), a major turnaround from Wednesday (20 vs. 617) which had the most lows this year. Higher values were shown for the two medium term daily high low ratio charts and the NYSE will reverse up if they repeat today. That will add another positive sign.
  • The NASDAQ breadth was negative but the other three values were positive for the second day, reversing up those daily on-balance-volume charts. All four show sell signals so the upturns alone only improves to neutral. Low pole signals are now close.
  • The weekly long-term composite chart (computed Friday morning from Thursday's closing formations) reversed up 3-boxes from O -160.0. That was a low level last seen in Aug-11 and the area of prior chart bottoms. The upturn is bullish and allows for a strong rally back to top levels last shown early Jul. The value was -129.0, up from -153.5.

 


 

 

 

Industry Bullish %s and Sector Sum
Daily Industry Groups Bullish %s: Friday's stock breakout data had 30 new buys and 5 new sells, the second positive reading and a much improved ratio from 39 and 25 on Thursday. Three straight positive sessions will confirm the momentum has shifted to the upside. The Friday data also halted the general declines amongst the 46 broad area industry groups bullish %s charts. Only 1 moved down and 1 also moved up. Positive values were shown and need to expand to cause new reversals up. Both Utility charts turned up last week. None of the new moves were significant status. The Bell Curve is skewed well to the left side of 50%. That is becoming attractive for longs.

The sum holds its 11-July short term bearish status shift. It now shows a long term P&F sell signal that fulfilled the forecast of the prior high pole formation. It is still above its April low at -25.0. The sector sum value held at -39.0. It needed -37.0 to reverse up from -40.0. The chart holds at historic low levels.

 



The sector sum short term status is determined by its chart direction, along with the direction of the groups' cumulative advance decline line and the last three day's direction on the NYSE bullish %. The sum chart reversed down 8-Jul and on 11-Jul the A-D line followed to complete the negative shift. The NYSE bullish % already had three down days. The sum chart hit its long term sell stop on 30-Sep, ending the buy from 30-May. That signal was already aborted by the last Jul high pole.


Sector Bullish% P&F Chart Higher:  
 
Sector
Bullish %
Comment
Utilities- Gas
50%
Holds bear correction.


Sector Bullish% P&F Chart Lower:  
 
Sector
Bullish %
Comment
Wall Street
34%
Holds bear confirmed.

 
Sector Sum Indicator:

                      
Short term P&F chart status
 
Bearish
Value
    -39.0
Change yesterday
    0.0
Last reversal
22-Sep down to -19.0
Short term stop
     -37.0
Long Term P&F chart status
Bearish
Last long term signal
P&F chart Sell at -23.0 on 30-Sep
Long term P&F stop loss
Potential bullish at -15.0
Last major resistance (& date)
+45.0 (Feb 12 highs)
Last major support (& date)
-46.5 (Sep 11 lows)
 

Sector P&F chart direction:
 
Total number of sectors
46
Last signal Down, # of rising groups
 3
Trigger for bullish  status   
 4
Sector charts overbought
0
Sectors charts oversold
18



 


 
Stock Action

The NYSE bullish % value was up 0.63%, its best gain in weeks. It was its second consecutive gain. Its short term momentum shifted negative after three falling sessions and will remain negative until there are three straight higher readings. It closed at 38.21%. The chart shows O 38%, a low since 2011. The NASDAQ Comp bullish % also shows a 3-year low at O 38%.

Trading activity held at average levels with 735 stocks moving on their P&F charts. There were 749 changes the prior session. Volume fell 11.8% for the NYSE and 13.7% for the NASDAQ.
 
 
Sector Action

The Buildings Bullish % value gained 2.2% on Friday. Although the chart is “bear confirmed”, a base should now attempt at current levels as per 2011. We would look to accumulate outperformers from the group.

Lennar Corp (LEN) and Lumbar Liquidators (LL) were the two buy signals on Friday. LL is close to activating a bottom underway since August. LEN is the better chart as it reasserts its long-term uptrend, dating back to 2011.

 

Glossary
Index Breadth
These indicators measure the breadth of trends within a particular index and are best known for their use as "contrary indicators" and valuable tools for market timing. They work on the principle that once virtually all members of a particular stock index are participating in the same market movement then there is a strong probability that this market movement will come to an end in the near future. This phenomenon of over-extended trend conditions is classified as being "overbought" or "oversold”. It is a good sign when both the stock market averages and the breadth are moving up in conjunction. When the averages are moving higher, but the breadth is declining, it is said that the “generals” are advancing, but the “soldiers” are retreating. This is a negative situation most of the time. It is a negative sign when both the market averages and breadth are moving down. In some markets, breadth is stronger than the averages. This means the average stock is doing better than the averages. This is a pretty good sign, but not as good as when both of them are doing well.

Industry Breadth
These indicators follow the same methodology to index breadth but measure the percentage of stocks within a particular sector or industry that hold bull trends. They are useful for identifying potential rotation between sectors i.e. reducing exposure to sectors where breadth is overbought and declining and increasing exposure to sectors where breadth is oversold and expanding.

Types of Breadth Indicator
The first breadth indicator, the NYSE Bullish %, was developed by Investors Intelligence in 1955, and measures the percentage of point & figure bull trends amongst NYSE constituents. Since then, we have developed indicators which measure bull trends or uptrends using different techniques. They are defined as follows:

Bullish % or % Bull Trends
– every point & figure stock chart has either a buy or a sell signal. This is a major advantage to technical analysis and is entirely mechanical. The bullish % is the number of stocks on “buy” signals compared to the total for the groups. When most stocks are on sell signals, the bullish % is low. It is a positive sign when the bull % begins to improve. It is negative when the bull % turns down from highs. We also consider whether the P&F chart is in an up or down column. If the bullish % is on a P&F buy signal and in an up column, it is long term and short term bullish. If the P&F chart is on a buy signal and in a down column, it is long term bullish, but short term bearish. If the P&F chart is on a sell signal and in a down column, it is long and short term bearish. If the P&F chart is on a sell signal and in an up column, it is long term bearish, but short term bullish.

% 10 Week Moving Averages
– this indicator reflects the percentage of individual shares in a group above their own 10 week moving average. The fewer the number of component stocks per sector or market, the more volatile the indicator. It uses overbought (70% & higher) and oversold (30% & lower) as target levels for rallies and declines. Reversals from overbought or oversold that break those levels are strong calls for action, with a stronger indication if a p&f signal is shown.

% 30 Week Moving Averages
– this indicator calculates the percentage of stocks in a given area that are above their own 30 week moving average. This gives an indication of medium to longer term overbought (above 68%) or oversold (below 32%) conditions, and always trails the % 10-wk MA in movement. Like the 10-week, the best action is when the indicator moves up from below 30% as this is a longer term sign that the market is ready to begin a sustainable advance. Conversely, the market becomes bearish when it moves down below 70%, signalling that the market is ready for a significant down move.

% Relative Strength
– this indicator measures the % of stocks with positive relative strength against the S&P500 index i.e. the number of shares that are in outperforming trends
 
US VOLUME INDICATORS
These indicators are constructed using the total number shares traded daily to compile a cumulative total that is plotted on a p&f chart. Each day’s direction (whether to add or subtract to that day’s volume) can be determined by any number of factors. We plot two charts each for the NYSE and NASDAQ. We plot one chart using the daily breath [up or down] as a determinate, and secondly we use the change in the DJIA and NASDAQ Composite (up or down at the close). The plotted OBV charts show p&f buy and sell signals and are used to confirm other indicators, adding weight when the signals match up.

NYSE OBV (by DJIA):
Updated daily; cumulative total of NYSE volume using the DJIA Close (positive or negative) to determine whether to add or subtract that day’s volume.

NYSE & NASDAQ OBV (by breadth):
Updated daily; cumulative total of NYSE & NASDAQ volume using the day’s breadth reading (positive or negative) to determine whether to add or subtract that day’s volume.

NASDAQ OBV (by Composite):
Updated daily; cumulative total of NASDAQ volume using the day’s NASDAQ Composite close (positive or negative) to determine whether to add or subtract that day’s volume.

NYSE 10 day Up/Down Volume
: Updated daily; a 10-day moving average of NYSE upside volume divided by the total upside and downside volume.

NYSE Money-Flow:
Updated weekly; money moving into or out of stocks, based upon dollar value of shares traded on the upside and the downside, weighted to most recent action.
 
US HIGH/LOW INDICATORS
These ratios give daily comparisons of upside breadth and volume, compared to total “up and down” of each. They are plotted on a 1-point p&f chart that allows for faster movement. They do NOT achieve traditional overbought or oversold levels, and we observe reversals from prior top and bottom levels. The reversals from extremes are NOT tradable by themselves, but provide early clues of potential reversals areas. When they are confirmed by the Short Term Composite, there should be a tradable reaction.

NYSE, NASDAQ & ASE High Low:
Updated daily; a ratio of the number of NYSE, NASDAQ & ASE stocks showing new 52-week highs divided by the sum of the total new highs and new lows, smoothed using a 10-day moving average.
 
NYSE Weekly High Low: Updated weekly; a ratio of the number of NYSE stocks showing new 52-week highs in a Monday-Friday week, divided by the sum of the total new highs and new lows, smoothed using a 10-week moving average. Used for confirmation of the daily figure.
 
Bond High Low: Updated daily; a ratio of the number of NYSE Corporate Bonds showing new 52-week highs divided by the sum of the total new highs and new lows, smoothed using a 10-day moving average.

US ADVANCE/DECLINE INDICATORS
Each day, the number of declining stocks is subtracted from the number of advancing stocks for each exchange, with the result is added to the prior day’s total. This yields a running, cumulative total that we plot on p&f charts. A short term momentum signal is also derived by comparing the current figure and that show 10 sessions ago. Positive momentum is shown if it is above, negative momentum if it is below, BUT at least two consecutive sessions are needed in the opposite direction to indicate a shift.
 
NYSE 10 Day Adv/Dec: Updated daily; a ratio of the number of NYSE advancing stocks divided by the total advancing and declining, smoothed using a 10-day moving average.
 
NYSE & NASDAQ Cum Adv/Dec: Updated daily; the cumulative total of the number of advancing stocks less the number of declining NYSE & NASDAQ stocks. A short term momentum signal is derived by comparing the current figure with that shown 10 sessions ago.

INVESTORS INTELLIGENCE’S PROPRIETARY COMPOSITE INDICATORS
The II Short Term Composite Indicator: this is a proprietary indicator generated from scores awarded to 29 market indicators (unweighted) and is only concerned with the most recent action. The Indicator oscillates between values of 0 and 100 and provides the first indication of short term moves. Typically, it detects potential up moves from “oversold” readings and down moves from overbought readings. Confirmation from the NYSE % 10-wk indicates a broadly tradable move, otherwise it is for the very short term.

The II Sector Sum Indicator:
this is a proprietary indicator that scores the daily status of 45 Broad Industry Bullish % charts, each designated a possible value of -1 to +1. The ranking depends on chart status (+1 bull confirm or correction; +0.5 bull alert; 0 bull top; -0.5 bear alert; -1 bear confirm or correction). The sum is plotted on a 1-pt/box p&f chart. It generates early warnings of trend change from extreme readings. While on a buy or sell from extremes, reversals up or down will confirm short term potential moves in the opposite direction, already signalled by the short term composite.

The II Long Term Composite Indicator:
this is a proprietary indicator generated from the scores awarded to over forty indicators. These indicators have been selected across a wide range of disciplines covering index trends, breadth, sentiment, money-flow and financial/economic factors. The scores awarded to each indicator are weighted to create an indicator that generates signals at market extremes i.e. buy signals at market bottoms and sell signals at market tops. It became apparent to us that we needed to apply more emphasis on leading indicators and therefore weightings are dependent on each indicator’s predictive value rather than its trend following capability.
    
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