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II Insight

14 February 2012

This month we begin with an overview of the markets from analyst Dr Jackson Wong in our UK office:


Financial markets have certainly got off to blistering start in 2012. The time-honoured January rally materialised in almost every stock markets around the world. To us, this is a powerful buy signal. We currently see the rally from the December lows to be a minor bull market - one that will probably last for months. Reasons for this bullish view include:

1) The rally is global. Risk-taking activities emerged in multiple markets, including the developed and developing markets. Such synchronicity suggests that the change in trend is genuine.

2) Investors are taking risks. For example, the small-caps are outperforming the large-caps. This is a sign of healthy risk appetite.

3) The rotation into defensives was severely overbought. Thus, the rotation out of these assets could take some time and reinforces the medium-term bullish picture.

4) Credit markets are less fearful. For example, the Europe-equivalent of the TED Spread (3-month EU LIBOR minus 3-month Euro yield) is falling (see right). This is promoting a rebound in bank stocks, usually a leading market indicator.  

5) This rally is supported by further monetary easing. For example, monetary easing is starting in the UK, US, and potentially China. The Bank of England recently announced an additional £50 billion in QE while the Fed has promised low interest rates until 2014. This will support asset prices.

Therefore, we would use setbacks to add long positions in equities, although from time to time some downside hedges should be owned.

Also in II Insight this month, Tarquin Coe takes a look at Gold and two of II's US breadth indicators - the NYSE % 10-week moving average (a short-term breadth indicator), and the NYSE Bullish % indicator (a medium to long term health measure of the US market).  Two valuable tools for market timing.

For those of you who subscribe to our services, we have also put together 10 ways to make the most of the charting tools on and get the maximum value out of your service.

The NYSE % 10-week moving average is a short-term breadth indicator; analyzed by us at Investors Intelligence since 1968. This breadth indicator measures the percentage of stocks in the NYSE trading above their own 10-week moving average. Typically in a year the indicator will only reach current levels (this week's high was 86.36%) a handful of times, after which equities would correct or consolidate.


Over the past two years there have been three overbought instances as per the current overbought condition. For example, in April 2010, the S&P 500 corrected 17%. In October 2010, the index went sideways. In October 2011 the index shed 10%. The corrections do not always follow immediately but certainly inside of a few weeks.


This indicator stresses short-term caution.


Our NYSE Bullish % indicator is another breadth indicator, but in this case it plots the medium to long-term health of the market.


The indicator illustrates the percentage of stocks in the NYSE with Point & Figure bull trends. The current reading is 72.63% and climbing. The figure is moving into overbought territory but until it prints a P&F three-box reversal and drops back beneath 66%, the outlook in the months ahead remains favorable.


The strategy which can be drawn from both indicators is that a correction, as seems likely from the NYSE 10-week MA indicator, would be buying opportunity. However, should the NYSE Bullish % P&F experience sufficient damage during a correction, with support at 66% being broken, then buying should be curbed and defensive measures would be called for until both indicators develop bottoms.


Both indicators are analyzed daily in the U.S. Hotlines.


The start of this month has seen the SPDR Gold Trust (GLD) fund reassert its primary uptrend. The P&F uptrend off the late 2008 low was tested successfully in late 2011. That low is now pivotal and a revisit to there would put the three year price uptrend under threat. In the meantime a breakout of the all-time high of $185.85 looks likely.
The P&F relative chart versus the S&P 500 is a chart we often consult to determine whether an asset is moving in the right relative direction. In the case of GLD, the relative trend is favorable. The yellow metal has been outperforming for the past five years.
We like gold and it often appears in a number of our portfolios, in its various forms. We cover gold shares in the U.S. Hotlines and we also analyze the asset itself in our Commodities hotline service.

10 good ways to make the most of the Investors Intelligence website


1)    Great charts! We are known for our P&F charting engines, but our charts can also be plotted in line, candle and bar format. Plots are fully customizable for scale and size, with a host of indicators and overlays. Just log in and go to Charts on the top navigation bar.


2)    Click-through by index or sector. Technical analysts practice lateral vision - they look at multiple stocks or instruments. IIs architecture allows users to select an index or sector group, select the  first stock in the group and then scroll through by clicking the 



3)    Relative plots and trends . One of the most powerful tools on the technical analysts workbench is the ability to monitor relative trend, IIs charting engine allows relative P&F plots to the benchmark index. Alternatively custom set-ups in bar or candle. Just click the Index Relative option.


4)    Stock vs stock? Compare two instruments stock vs stock, commodity vs commodity and more. Type in ticker to Relative chart box and select ratio, overlay and more.


5)   Signals?  We've got em! Go to Signals on the top navigation bar to view P&F breakouts, New Highs, New lows, KDRs and more. Tip: in momentum markets, monitoring the new price highs and new relative highs pays dividends.


6)    Breadth the full range of our indicators. P&F Breadth, MA-based breadth and more. View breadth indicators for indices, sector indices, commodity & currency groups etc. Select Indicators / Breadth


7)    Set up watch lists Users can set up multiple watch lists. Why not set up a stocks to buy on pullback or my portfolio? You can then quickly review or click through the charts.  You will find this tool under Portfolio.


8)    Set up alerts want to know when a stock falls below a set price, or posts a breakout? Use the   button.


9)    Technical Strength function. Quickly ranks groups of stocks by our P&F-based technical strength function. Choose instrument groups, and then click on column to rank top to bottom.


10)  Archive a full archive of past Hotlines and reports is available online. Simply click on the report in question you will then see an archive button on the top right corner. Click on this for extensive back-history




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This report has been produced and compiled by Investors Intelligence, a division of Chartcraft Inc, 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 Chartcraft 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 Chartcraft 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 US dollars 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 Chartcraft who are expected to make their own investment decisions without reliance on this report. Neither Chartcraft nor any officer of Chartcraft accepts any liability whatsoever for any direct and consequential loss arising from use of this report or its contents.

US Sentiment holds the key
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