investors intelligence
Generating first rate investment advice since 1947
Sample Research


Services:

Problems reading this report? Click here to read online. Click here for Website Briefing.
US Stock Service
Daily Hotline
 
2 September 2014    By John Gray
Market Action
  • Stocks coasted into the three-day weekend with modest gains Friday that reversed the small prior day losses. Internal breadth was strong and the desire to still own equities overcame fear of new conflict in Ukraine. Early concerns over slower consumer spending were countered by a strong reading for consumer confidence. Traders' spin had that signaling better data to come.
  • Interest rates remain low, with the 10-yr yield showing an August monthly decline that was the largest since January. Many traders see little alternative to investing in stocks as the Fed promises low rates will extend well into next year.
  • Index charts had a few new moves up to end a strong wee; The S&P 500 set its fourth record over the five sessions, and was up 3.8% for the entire month. That was its best monthly gain since February and the strongest August since 2000.The NASDAQ Comp also set records as the overall uptrend is clearly intact.
  • Indicator charts also posted modest further moves up that included status shifts that added more conviction that the rally isn't over. The short and medium term action has rebounded smartly from lows on 7-Aug but only now is approaching top areas. Gains should continue until prior highs are equaled and momentum typically slows as that occurs. The US market had two trading moves earlier this year. The main factor lacking for a major new bull move is the lack up new upside stock breakouts. Reversals up on the NYSE and NASDAQ bullish % charts will confirm that.
Market Drivers
  • Friday's news from Ukraine included Russian troops across the border. Their intentions were unknown and their areas of influence appeared to expand over the weekend. If that is true it may force new action by Europe which they remain very reluctant to take due to potential Russian trade retaliation. The stock market approach is to focus on US stocks with the least European exposure. The economic data from Europe is already near the danger zone, with grown now stagnant and some nations threatening to slip back into recessions.
  • Domestically the outlook is much better. Some better than expect earnings amongst tech shares and a strong reading on consumer sentiment helped rally shares Friday, with upper income groups the most optimistic. Falling gasoline prices was another positive factor. Today has another reading on industrial output.
Technical Outlook
  • Friday's rebounds and positive finish added some new strength to the already positive short and medium term indicator charts. The positions are only nearing prior top levels, allowing for stock gains. The rally appears to be slowing as prior highs are reached and some pause to consolidate would allow the medium term indicators to ‘catch-up'. Last week did see upside stock breakouts overwhelm new sell signals but the overall count of buys remained low. If that expands it will turn sector and broad area bullish % charts up and signal a broad new move higher. Until then the rally is a trading move, similar to the two prior up moves this year, and subject to another round of weakness after the MA charts return to highs.
Portfolios
  • No changes
 Indicators
Short Term Medium Term
II Short Term Composite Indicator
48.3% (+3.50%)
Bull Confirmed
NYSE %10 Week Moving Average
66.84% (+4.66)
Bull Confirmed
II Short Term Sector Sum
-20.50     (n/c)
Bearish
New P&F Signals: US Breakouts
Close 1-Day Change
Bulls 6 -3
Bears 5 -6
NYSE Bullish % Indicator
60.92% (+0.25%)
Bear Confirmed
NYSE %30 Week Moving Average
67.41% (+2.49)
Bear Correcton
II Long Term Composite Indicator
+104.00     (+13.00)
Bullish
  • The short term composite joined the primary % 10-wk MA charts with bull confirmed status. The NYSE 10-wk also advanced and both are still below prior top levels.

  • The daily NASDAQ high low ratio chart hit X 70%, just entering overbought territory.
  • The weekly NYSE cumulative advance decline line set a new high, moving above its July top.

Index Trends
  Close Volume 1-Day Change P&F Signals Support
Signal Trend Start Date Trend Reversal
DJ Industrials 17,098.5 51.9m +18.88 +0.1% Bull Up 3 Apr 2014 16,300.00 16015.3/16312.7
S&P 500 Index 2,003.37 315.9m +6.63 +0.3% Bull Up 22 Apr 2014 1,900.00 1944.69/1904.78
NASDAQ Comp. 4,580.27 322.1m +22.58 +0.5% Bull Up 18 Aug 2014 4,320.00 4284.53
NASDAQ 100 4,082.56 112.9m +16.29 +0.4% Bull Up 13 Aug 2014 3,840.00 3751.69/3837.16
S&P Midcap 400 1,438.18 83.1m +7.97 +0.6% Bull Up 14 Aug 2014 1,370.00
Russell 2000 Index 1,174.35 196.0m +8.40 +0.7% Bull Up 15 Aug 2014 1,125.00
Closing prices through Friday August 29, 2014
Chart Activity - Broad Index Moves 


Stocks again swung intraday Friday, with morning lows on slower consumer spending and Russia-Ukraine tension followed by afternoon buying that caused session highs at the close. The S&P 500 and 100 and NASDAQ Comp and 100 showed moves larger than their Thursday losses to end at new highs. The modest Friday gains improved the already positive five-day action, with the fourth consecutive weekly advance. The Russell 2000 is still trying to catch up but remains the furthest from its highs. All index charts show bullish formations.

The chart activity was again limited. The NASDAQ Comp and 100 charts both set new 14½ year highs, well above their July tops and now straight up 12 and 11 boxes on their P&F charts. The AMEX Comp XAX moved up one-box. On Thursday its status improved with a low pole formation. It ended Friday just two-boxes below its high.  

Chart Activity - Sector Indexes 

The sector chart activity was also very slow for the second session. The Biotech BTK chart set another record and now shows 21-boxes straight up without a pause. The Semiconductor SOX chart reversed up above its last top, ending three-boxes below its high.

Chart Activity - Commodities 

Spot gold prices ended last week below $1290. There was still no movement on its chart. On 21-Aug the chart moved down to O $1280, just above the sell stop. Trading has narrowed between converging support and resistance and the existing high pole formation points to a move lower. The two gold index [XAU & HUI] charts moved higher Friday. Both turned up the prior day, moving away from their sell stops. The Precious Metals bullish % indicator remains positive.

Crude oil prices rallied $1.41, closing just below $96. That level was hit intraday, reversing the chart up to X $96. That ended an $8 vertical drop to O $93, just above the two lows that started 2014 trading. So far that support is holding. The energy indexes show positive divergences. The Oil Service OSX and Oil XOI hold trading buy signals and advanced to end last week.


 

Index Breadth

% 10 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 66.84 +4.66 Bull Confirmed 19 Aug 2014
Nasdaq Composite 60.46 +5.30 Bull Confirmed 18 Aug 2014
S&P 500 78.07 +4.03 Bull Confirmed 11 Aug 2014
Nasdaq 100 77.78 n/c Bull Confirmed 15 Aug 2014
Option Stocks 68.44 +4.59 Bull Confirmed 19 Aug 2014
% 30 Week Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 67.41 +2.49 Bear Correction 11 Aug 2014
Nasdaq Composite 58.13 +2.56 Bull Confirmed 11 Aug 2014
S&P 500 83.3 +2.01 Bull Confirmed 14 Aug 2014
Nasdaq 100 81.82 -1.01 Bull Confirmed 11 Aug 2014
Option Stocks 68.34 +2.13 Bear Correction 11 Aug 2014
Bullish % Close 1-Day Change P&F Trends
Signal Status Date Changed
NYSE 60.92 +0.25 Bear Confirmed 1 Aug 2014
Nasdaq Composite 54.88 -0.13 Bear Confirmed 1 Aug 2014
S&P 500 71.43 n/c Bear Alert 6 Aug 2014
Nasdaq 100 75.76 n/c Bull Confirmed 22 Aug 2014
Option Stocks 62.54 +0.06 Bear Alert 31 Jul 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:

The combination of modest index gains and strong advance decline data boosted most daily moving average breadth values. Most readings reversed the prior day declines leaving those charts steady and rising. There were a few new advances and overall positive status holds, allowing for more gains. All five short term % 10% MA charts show bull confirmed status. Two are overbought and another hit X 68% Wednesday, just missing overbought readings. On Friday the NYSE moved up to X 66% also nearing top territory. The NASDAQ Comp trails behind. Moving slowly as it contains the most stocks. The upturns 8-Aug from lows were the initial signals for a market rally. Momentum usually slows as tops levels are approached.

Medium-term:

With only a one minor further advance Friday the % 30-wk MA chart also show upward direction with only two currently overbought. The S&P 500 and NASDAQ 100 charts are both back at their top areas. The NYSE must move to the mid-70%'s to achieve that. The NASDAQ Comp chart peaked at X 68% in Jul, just missing overbought readings that were shown prior to Mar.

Long-term:

The daily stock breakout ratio ended barely positive Friday, with just six new buy signals and five new sells. That near flat reading left two broad area bullish % values unchanged with small mixed differences for the other three. None of the charts moved. The rising NASDAQ 100 chart is overbought and above its July peak for a high since Jan-14. That hints that the other bullish % many also turn back up. The NYSE needs X 64% to reverse up from a double-bottom low at O 58%. The NASDAQ Comp would reverse up at X 58%.

Current outlook:

The near month long rally is losing momentum as the primary averages returned to their highs. The primary daily moving average breadth indicators are still below prior tops levels so there are chances the rally could continue. The short term % 10-wk MA charts are all bull confirmed with only the two with the fewest constituents at overbought top levels. The medium term % 30-wk MAs followed the short term charts with rebounds of their own that are also approaching highs. A week ago the NASDAQ 100 bullish % chart reversed up, which could presage similar action on the bullish %s with more stocks. However we still haven't had the large numbers of new stock buy signals that would convince us a major new bull move was underway, and not just a trading rally.

 


 

Indicators

Close Change Chart Direction Chart Status Chart Action
Short term Composite Indicator 48.3 +3.50 Rising Bullish HIgher
NYSE High-Low Index 91.8 +1.70 Rising Bullish None
Nasdaq High-Low Index 71.45 +2.36 Rising Bullish Higher
NYSE On Balance Volume (by DJIA) 281,366 +617.00 Rising Bullish None
NYSE On Balance Volume (by breadth) 543,005 +617.00 Rising Neutral Higher
Nasdaq on Balance Volume by Composite 500.86 +1.31 Rising Bullish None
Nasdaq on Balance Volume by Breadth 40.5 +1.32 Rising Bullish None
NYSE Cumulative Advance/Decline 411,883 +1273.00 Rising Bullish None
NYSE Money Flow Index 48,925.4 (weekly) Rising Bullish None

  • Late buying improved an already positive session Friday, with better than two stocks up for each decline along with the index gains. Indicator readings rebounded from Thursday's losses, with  again limited chart activity that left bullish status intact. Most oscillating charts have still not achieved prior top levels allowing for more gains.
  • The daily short term composite chart advanced two boxes, moving through the buy stop for bull confirmed status. That fulfills the forecast of the low pole formation rally from a 21-month low. The P&F breakout suggests the composite chart could now rally to prior tops. Other short term indicators are much closer to their own previous highs.
  • The medium term daily NASDAQ high low chart X 70% to enter overbought territory. It usually continues higher. The NYSE chart is already at its top region at X 90% and higher.
  • The daily NYSE breadth on-balance-volume chart had the only movement in this area. It equaled its high so any new gain will break its last top for a bullish shift.
  • The daily medium term daily NYSE cumulatie avdvance decline line chart was steady at is all-time high. The weekly NYSE cum A-D line did set a new record, moving above its July high.



 

 

Industry Bullish %s and Sector Sum
Daily Industry Groups Bullish %s: Friday pre-holiday weekend slow trading was clear by the low total of only 11 stock breakouts. Six were buy signals and five were sells so at least the ratio was positive. The few signals meant little activity amongst the 46 broad area industry groups bullish %s, with only one chart reversal up. It was not a significant shift. There was no change to the sector sum value or chart. It held its 11-July short term bearish status shift and high pole formation but could now shift positive any day.  It remains long term bullish until a P&F sell signal but that is now projected from the high pole.

The sector sum value was -20.5. It needs -17.0 to turn back up. The chart reversed down 8-Jul, ending the rally from the 27-May chart reversal to -19.0. On 30-May it hit the long term buy stop at -16.0. On 22-Apr the P&F chart reversed up from a 30-month low at -25.5. The last lower reading was in Oct-2011 at -44.0.

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 buy stop on 30-May, ending the sell from 27-January. The NYSE bullish % has now rallied its needed three sessions.

 
Sector Bullish% P&F Chart Higher:

Sector
Bullish %
Comment
Europe  
60%
Reversed to bear correction.
               


 
Sector Sum Indicator:


Short term P&F chart status
 
Bearish
Value
    -20.5
Change yesterday
     0.0
Last reversal
8-Jul down to +1.0
Short term stop
     -17.0
Long Term P&F chart status
Bullish
Last long term signal
P&F chart Buy at -16.0 on 30-May
Long term P&F stop loss
Potential bearish at -23.0
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 UP -  # of rising groups
22
Trigger for bearish status   
19
Sector charts overbought
 5
Sectors charts oversold
0

 
 
 
 
 
 

Stock Action

The NYSE bullish % value was up 0.25% Friday, its ninth gains over the last 10 sessions. Its short term momentum is positive and will remain so until three consecutive lower readings. It closed at 60.92%, with its chart steady at O 58%. It holds bear confirmed status but also a low pole formation. The NASDAQ Comp bullish % ended at 54.88%, holding at O 52% on its chart. It also holds bear confirmed status with a low pole signal. Both charts avoided new lows in August to maintain the overall market uptrend.

Trading activity remained at well below average levels with 231 stocks moving on their P&F charts. The prior day had 189 changes. Volume fell 1.7% for the NYSE but gained 0.73% for the NASDAQ. The week has included some of the slowest sessions this year.

Industry Sectors:

 

The Oil Service bullish % gained 1.03% Friday, closing at 56.70%. The chart held at O 52% but is now just 1.3% away from a reversal up to X 58%. Crude oil had a large $1.41 rally that session, reversing up on its chart to gain ground for the first time in over a month. A reversal up for the Oil Service bullish % would resume the July rally and suggest a return to an overbought reading at X 70% at the minimum.

A new breakout for Exterran Holdings EXH contributed to the sector indicator gain. That firm produces equipment facilitating the transmission of natural gas. The buy signal occurred at $46, a new high just above three prior 2014 highs. An immediate reversal down would be a bearish signal. Others charts offer better risk/reward trades.


 

 

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.
    
Disclaimer
Recommend a friend! Tell your friends to mention your name when subscribing to Investors Intelligence, and get a months free access to a service of your choice! For more information, email support@investorsintelligence.com

Also available online at www.investorsintelligence.com. Unauthorized forwarding, copying or reproduction of this report will be treated as a breach of copyright. To subscribe, visit the website or contact Investors Intelligence on +44 (0)20 7352 4001 or email support@investorsintelligence.com.

This report has been produced and compiled by Investors Intelligence, a division of Stockcube Research Limited which is authorised and regulated by the Financial Conduct Authority. It is distributed by Stockcube and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time Stockcube and any of its officers or employees may, to the extent permitted by law, have a position or otherwise be interested in any transactions, in any investments (including derivatives) directly or indirectly the subject of this report. Also Stockcube may from time to time perform other services (including acting as adviser or manager) for any company mentioned in this report. The value of securities can go down as well as up, and you may not get back the full amount you originally invested. Derivatives in particular are high risk, high reward investment instruments and an investor may lose some or all of his/her original investment. If you make an investment in securities that are denominated in a currency other than that of GB Pounds you are warned that changes in rates of foreign exchange may have an adverse effect on the value, price or income of the investment. The investments referred to herein may not be suitable investments for all persons accessing these pages. You should carefully consider whether all or any of these are suitable investments for you and if in any doubt consult an independent adviser. This report is prepared solely for the information of clients of Stockcube who are expected to make their own investment decisions without reliance on this report. Neither Stockcube nor any officer of Stockcube accepts any liability whatsoever for any direct and consequential loss arising from use of this report or its contents. This report may not be reproduced, distributed or published by any recipient for any purpose without the prior express consent of Stockcube.

Copyright 2014 by Stockcube Research Ltd.





Subscribe here: