Thursday, July 24, 2014
It now looks like the Lindsay projections for a July top are off the mark. As with most forecasting methods Lindsay's allows one to stretch projections out a bit and even distort them to fit your own preconceptions. But this is generally a fruitless effort so for the moment I'd say that Lindsay does not have much to say about the prospects of a bull market top in this general vicinity.
The same remarks apply to my various interpretations of the three peaks and a domed house formation. While some are still viable the steady creep upwards in this market is not characteristic of the 3PDH formation so for the moment I am not putting much if any weight on that analysis.
As you can see in the top two charts the Dow and the S&P 500 remain well above their 50 day moving averages (green lines) and above their 200 day moving averages (red lines). The Dow has yet to move above its mid-July high even as the S&P has done so. The NYSE advance-decline line also shows a minor bearish divergence from the S&P price action. But minor divergences such as these are fairly common and without more evidence I have to stay on the bullish side of the market.
Only a drop in both the Dow and in the S&P below their respective 50 day moving averages would turn me bearish, and even then I would only be looking for a drop to their respective 200 day moving averages or a little below.
The bottom two charts suggest that the upswing from the July 18 low has a fair amount further to travel. You can see that the 10 day moving average of the NYSE advancing issues reached oversold levels comparable to those at the February 5 low. That low was followed by a 240 point rally in the S&P. A similar rally from 1940 would put this average at 2180 although I think this is a tad optimistic. But a move up comparable to the 175 point rally from the April 14 low, a swing which would carry to 2110, is well within the realm of possibility.
The bottom chart shows the 5 day moving average of the CBOE equity put-call ratio. You can see that it reached a low (bearish) level just before the July 3 top and has since been rising. I don't think there will be any danger of an extended decline in the averages at least until this put-call ratio drops close to its late June levels.