When gauging the weekly market breadth, it is important to include a
view outside of the United States. The Global Dow is reviewed to see if
it is moving in the same direction as the Dow, NYSE, Nasdaq and SPY
indexes. I take a weekly view and see if it is above or below its 30
week moving average, and to see if it is moving in the same direction as the US Markets. As of this post, the Global Dow continues to struggle. It has been below its 30 week moving average for months, and, the moving average line is sloping down. Both are bear signals.
Links:
This was a short week on the stock market with the Christmas holiday. The indicators are showing some small improvements, however, it is just a nudge and is not necessarily a positive sign. The market needs to play its hand for a couple of more weeks before we will get any real sense of direction.
Major Indexes Above their 30 Week Moving Averages
Dow and the NYSE A-D line both positive for the week
NYSE close touched just below the 200 day moving average.
NYSE 52 week Highs are still lower than the 52 week Lows. This shows continued weakness in the market.
NYSE 52 Week High Low vs. Dow are converging in the upward direction.
Global Dow (GDOW) remains well below its 30 week moving average.
Dow price to dividend ratio remains extremely overvalued.
Building on the post about the NYSE 52 Week Highs/Lows indicator, I will explain why it’s
helpful to gauge it against the Dow’s closing numbers each week. This is
a simple but effective tool. If the NYSE 52 Week H-L is divergent from
the direction of the Dow then we can see signs of a possible change
coming.
This year this gauge flashed a strong indication in the spring. This
is where we start to see back to back weeks of negative divergence on
the NYSE 52 week H-L even though the Dow was experiencing gains. News at
this time was also positive.
I like to create my own charts. See below for an example of the Dow
moving higher (green line on top chart) vs. the NYSE 52 week high-low
trending lower (red line on bottom chart).
If we examine the current chart from last Friday (Dec 17, 2015) we can see that both the Dow and the NYSE 52 week highs and lows are in negative territory. The Dow is below its 30 week moving average and the NYSE 52 week Hi Low Differential shows the index has more new lows than highs for the last 3 weeks. When the two indicators flash a negative sign, that is worth paying attention to as well. We are in bear land for now.
Even though the market reacted positively to this week's Fed announcement to raise rates, it quickly reversed back into negative trend territory.
If we look at my chart plotting the weekly indicator it's easier to see the overall trend. We've only had two weeks above the 50% line. The next two weeks are holiday weeks and some of the market activity will be mutual fund 'window dressing', so we will wait through December to see what January brings.
The NYSE 52 week new highs vs. new lows data is helpful is seeing how stocks
are measuring up on a weekly basis. This indicator should not be used by
itself, but it is a helpful tool to see if there is a trend. Weeks of
above or below zero (0) indicate a shift. On this chart, you can see if
began to break down in June and just recently peaked up over the line
for the first time in 15 weeks.
Barron’s has great source data if you want to chart it yourself.
For this indicator, we look to see if the NYSE Advance-Decline (A-D)
is above or below its 200 day moving average. The divergence between the
advances and declines is plotted on a chart, and the 200 day moving
average is also plotted. Here is what we are looking for:
- Crossing the 200 MA line (above or below) is the most important signal
- The longer the period before the 200 MA line is crossed, the more meaningful the move.
- Most significant moves are made when there is a change in direction
from a long-term pattern. Hovering around zero (0) is not significant.
- Bearish signal: A switch from a long-term positive (above the 200 MA) to below the line
- In a Bull Market, the gauge will reach its peak before the Dow (DJIA) reaches its peak.
Let’s take a look at the indicator. If you look at the chart below from Stockcharts.com,
the peak for the NYSE A-D was in April. The Dow peaked a month later in
May. The interesting thing to note now is that the A-D line has just
touched its 200 day ma line. Let’s see if it can break through.
Data Sources:
The 4th Indicator is a comparison of the movement of the DOW (DJIA) to
the Advance-Decline line of the NYSE. The NYSE A-D line measures the
number of stocks advancing versus declining on a weekly basis. We are
looking to see if the Dow and the NYSE A-D are moving in convergence or
divergence. When the DOW goes up but the NYSE A-D line goes down, it is
an indication that investors are moving into safer stocks (DOW) as the
DOW tends to have blue-chip companies.
Here is Barron's chart plotting the NYSE against the DOW. I added the red boxes to show where the DOW moved up while the NYSE AD moved down, ominous signs!
You can follow Barron's chart at this link.
You can see the breakdown signal that occurred in August prior to the latest market correction. We will need to wait and see if we are about to go back down again for a period of time.
