The first chart you see above this post is a daily chart showing the number of issues traded on the New York Stock Exchange which advance in price (black line) and the 10 day moving average of this number (wiggly red line). The second chart above this post is a longer term chart which shows the daily count of the number of issues in the S&P 500 index that are trading above their 200 day moving averages. This second chart goes back to the start of 2003.
You can see that the number of SPX issues trading above their 200 day moving averages has dropped to the lowest level seen in the bull market thus far. Since the S&P 500 itself is above each of its corresponding reaction lows I interpret this as telling us that another buying opportunity in a bull market is at hand.
The chart of the advancing issues number provides convincing evidence that yesterday's panic low probably ended the drop from the July 16 high. Notice that while all the major averages made new reaction lows yesterday, the daily count of the number of advancing issues did not nor did the 10 day moving average make a new low. I think this is a strong bullish divergence. The implication is that a move to new bull market highs has started.
7 comments:
The best risk management rule I know is "If it can happen, it will happen". The trouble with standard deviation is it just measures STANDARD deviations. The market is never "normal"; it just oscillates from one extreme to the other. Chaos and complexity aren't black swans, they are permanent features of the markets. Volatility is analogous to energy in that it can hide as potential energy but it is ALWAYS present. Curious how these "once in a 100,000 years" storms occur every few years and blow away anyone who hasn't battened down the hatches. Usually after just a long enough gap in time for some to say volatility is "permanently" contained!
With all do respect Carl we MAY be at a turning point, which would be difficult to predict especially the way you seem to do your analysis.
I say MAY be at a turning point because it depends on how much liquidity the Fed supplies. If they supply a lot then you will surely be correct and we will see new highs. If the Fed supplies just enough liquidity for the "real economy" and allow real estate to decline (as it should IMO) then equities are likely to continue to decline in an orderly fashion. Yes there will be rallies, but new highs are dependent on the Fed. Personally I hope the Fed does not supply that musch liquidity because the gains will be all inflationary gains not real (constant dollar) gains.
Carl, I am awestruck. Tracking the probability of future probabilities based on market movement (and not event noise) did indeed predict the move up and the reason is irrelevant. Thanks.
Hi, Carl
I am quite bullish on the market at the junction, however, the credit mess is real, just not sure how much market has price into it right now.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aohw_oAugi7A&refer=home
http://www.latimes.com/business/la-fi-countrywide17aug17,0,1835165.story?coll=la-home-center
Will this coming restest hold. I start to doubt about this. LTCM is just one time event. But this sub-prime is much large. The leverage nature of hedge fund force them to sell a lot good assets in order to meet margin as the bad assets is so illiquity.
Also could you give an update on China, seems the reaction in the past 3 days > 200 is out of character during the up climing phase.
By the way, could you not post this mail as I don't want cause un-necessary scare among the readers after reading the two posts.
Thanks again
JH
CARL
i agree with you about the bulish divergences on the 10 day adv decline chart . where i disagree
is that we have begun a new bull mkt. this will be proven out right or wrong either by te end of the month or mid sept . 1514 is about it in the spx . from there we should see a decline back to 1390
1374 . overall we are in a very complex corrective pattern that will probably not end untill early feb or march next year .between now and early october we should see anarrowing wedge pattern develop with a thrust down probably ending in late oct early nov . this entire leg from july to november should be an a b c decline and will be labeled ( A )
while many of the bigger stocks
may have bottomed there is still
many others tha are in need of further declines . in te broader context we are entering a bear mkt and yet in with in te indexes we are in a longer term complex corective pattern which stil has many months of sideways action
to finish up . the dow should come down to 12200-12180 at a minimum
and 11500 is maximum as i see it .
in this leg that should end by
feb march yet most likely oct 26 to nov 3rd .this can be labeled
( A ) of a 5 touch point narrowning wedge which will end in mid 2008 , or you can call it
point 16 ( nov to feb ) in which case we will see points 16 17 18 19 20 complete over the course of the next several months .
if you look at the number of stocks making new 20 day lows 65 day lows 100 day lows and 52 wek lows on the nyse , you will see that this past week wash a major sell off into thursday . to add to this we had 3 days of 94 to 97 percent downdays in a row . normally this is a bottom and we ten head to new highs yet in the context of the larger pattern
we should make new lows again and cyclically we have a bearish cycle into march 2008 and we have a
shorter term bearish cycle into
oct 26 th . to add to this
historically wen the fed cuts rates the stock market falls .
so i dont not think you are correct at tis moment .
ill go one further . look at the
1929 or 1987 or 1966 declines .
in terms of time we are following the mold almost exact in terms
of price and pattern and time .
if you wanted to go even further
look at the 1932 to 1966 bull mkt in terms of time and compare it to 2002 to today . this to makes the case of this present bounce as coming on time , and yet the decline gong forward is still due
in wich case we would extend much lower into next yr . ill end with this . take a look at realestate
to majo bear mkts weather it be the nasdaq 2000-2002 or 1929-1932
in the dow. while it is my beleif the worst is now over in realestate the selling season is now over as most dont like to move after school starts . so we will not see any imporvement in the realestate data untill next year .
which by the way if you compare it in terms of time would end its bear mkt in march 2008 .
they keep talking about housing being bad yet in truth housing inventories have been very slightly declining . this implies the housing mkt is bottoming or already as bottomed yet we will not have data to ack it up to add confidance untill next year .
so no matter how i look at this market or from any angle my conclusion is we are in a complex
corrective pattern in which many of the smaller stocks will head lower and yet the indexes will
come down further into oct 26th
but between now and early october will be range bound in a narrowing symetrical triangle with in a more complex a b c decline which is also with in a longer term complex symetrical triangle . my work
is based on my research with cycles which im very anal with
next it is my understanding of a larger 3 peaks domed house pattern as well as elliot wave thoery along with fibonaccii time and price relationships . and everything all combined still
says from a longer term veiw
we are in a much larger degree
of this corrective pattern and in
implies much more time to complete
nuff for now well see how this plays out over the next 7 months
Carl,
Since the Thursday low of stocks above the 200 day ma is the lowest since the 2002-2003 lows why is it not probable price will follow and take out the 2004 low?
Great site BTW
A lot of your work is on the S&P 500. A lot of people do that.
But look at the Wilshire 5000. This is essentially the whole market and it seems to have broken down already
http://stockcharts.com/charts/gallery.html?$WLSH
This seems to be people seeking safety in the large caps S&P 500 and I would expect them to break down next.
I have no idea how low we go, but I'm wondering if a careful look at the Wilshire 5000 might change your point of view.
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