Thursday, October 24, 2013

still going (up) - some Lindsay comments too

Here are five charts which I believe give a pretty good reading on the current trend in the US stock market.

The top three show my three trend indicators: the Dow, the S&P 500, and the daily advance-decline line for issues traded on the New York Stock Exchange. As you can see all three are trading above their rising 200 day moving averages and above their 50 day moving averages. I plan to stay bullish on the short term market trend unless and until two of these three indicators fall below their respective 50 day moving averages. In the meantime I think the S&P 500 has a good shot at reaching 1800 or higher.

The Dow has been the weakest of the stock market averages. This is worrisome because the Dow consists of the biggest (if not the most profitable) companies in the US. The fact that the Dow is still below its September top shows that these big companies are laggards relative to the universe of US stocks. As a rule this behavior has long term bearish indications and suggests that the move up from the October 9 low may well prove to be the final leg up in this 57 month bull market.

That said there is reason to think that the Dow will reach new all-time highs before this bull market ends.You can see that this average made three tops at about the same level in May, August, and September of 2013. At the October low the Dow had dipped just a bit underneath its August 28 low point. This identifies this series of three tops as a (minor) example of George Lindsay's three peaks and a domed house formation. It is a minor example because the first and third tops were separated only by 4 months instead of the 6-10 months Lindsay insisted upon for a major formation. Minor formations tend to be more irregular than major formations and there are fewer timing guidelines for the top of the associated domed house. Nonetheless the top of the domed house which follows the three peaks is always above the highest of the three peaks. This means that the Dow is headed for all time highs before the top of the domed house is seen. After that top the Dow is then likely to drop to or below the lowest of the lows which separate the three peaks.

The fourth chart down from the top shows the 10 day oscillator of the daily number of advancing issues on the New York Stock Exchange. Your can see that this indicator has recently recorded the highest reading of 2013 and this at a new bull market high. I have observed that the first such high oscillator reading which occurs after an oversold reading and at a new bull market high in the averages is generally followed by at least a month more of rising prices and sometimes by 3-4 months of further rally. So this implication gives the Dow plenty of time to make new bull market highs as implied by the 3pdh formation.

The bottom chart shows the 20 day moving average of the daily number of new highs of the New York Stock Exchange. You can see that this oscillator is still well below the high it reached in May of 2013 and that the subsequent new highs in the S&P were not accompanied by new highs in this oscillator. This is a bearish divergence but it has only longer term consequences, much like the under-performance of the Dow. It too suggests that this rally will prove to be the last leg of the bull market which started from the March 2009 low points in the averages.


Deej said...

Thank you Carl. Do you still think usdjpy will hit 107 and then 135 even though we are close to a top in spx?

Kelly Blaine said...

Tracking unfilled gaps from 3/2009 lows thru TOPS.

AAPL had 25% unfilled gaps before it imploded.
NFLX has 31%, and I think it has just made its top.
GOOG stands at 27% today.

DIA stands at 25% today. This is unprecedented for an index. Even the FED induced rally after the 9/11 tragedy the DIA had a mere 10% unfilled gaps. My personal opinion is that the next bear market will be far greater than anything in the markets history.

Bill said...

You are probably right Carl, specially if it is true that the Fed will start tapering in March. We have a new Fed chairman combined with tapering, plus all the technical analysis you did. Based on this the market tops in either January of February. With that said if the Fed stays dovish and does not taper in March the rally will keep going in my opinion.

janet said...

Hi Carl, do you still live in Morton Grove, Ill.?? I want to send you a donation. Also, it would be very nice if you could add a financial such as Visa to your daily line-up. I would greatly appreciate your expertise on it as it is becoming a market leader and you have no financial in your daily line-up. thanks, Janet P.S.It took 4 tries to post this.

John Doe said...

More on Lindsay:

Carl Futia said...

Yes, Janet, I do.