BREADTH LINES HIT NEW HIGHS - BULLISH% STILL FAVORS THE BULLS - NASDAQ OUTPERFORMS NY COMPOSITE - QQQQ FORGES P&F BREAKOUT - SPY ESTABLISHES SUPPORT ON P&F CHART - HAPPY HOLIDAYS!
BREADTH LINES HIT NEW HIGHS... Link for todays video.The Nasdaq AD Volume Line and the NYSE AD Line hit new 52-week highs on Tuesday. New 52-week highs in these breadth stats are bullish for the market overall. Chart 1 shows the Nasdaq AD Volume Line exceeding its Sep-Oct highs with a steady advance since early November. Chart 2 shows the NYSE AD Line with an even stronger chart pattern. The indicator held its early October low in early November and raced to a new 52-week high two weeks ago. There is no sign of weakness here either.

Chart 1

Chart 2
From the two charts above, it is clear that small-caps and mid-caps are strong within the NYSE, while large-caps are strong within the Nasdaq. Heres why....The AD Line is a cumulative measure of Net Advances (advances less declines). A stock scores +1 when it is up for the day and -1 when it is down. Keep in mind that all stocks are treated equally, regardless of market cap or volume. With more small and mid-caps than large-caps, this means that small-caps and mid-caps dominate the AD Line. The AD Volume Line is a cumulative measure of Net Advancing Volume (advancing volume less declining volume). This means that stocks with the most volume carry the most weight. With large-caps dominating the most active list and trading volume, this means the AD Volume Line is a good measure of large-cap performance. It is worth noting that the Nasdaq AD Line is trading below its October low and showing weakness in small and mid-cap tech stocks. This is a concern, but strength elsewhere offsets weakness here. The NYSE AD Volume Line is near its Sep-Oct highs and not showing enough weakness to warrant concern. These two charts are shown below for reference.

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BULLISH PERCENT INDICES REMAIN ABOVE 50%... Even though many of the Bullish Percent Indices are trading below their 2009 highs, all remain above 50% and this favors the bulls. First, we need to define the Bullish Percent Index. This is simply the percentage of stocks within a particular group that are trading with Point & Figure buy signals. Second, we need to define bullish and bearish levels. Basically, the Bullish Percent Index favors the bulls when over 50% of the stocks are on Point & Figure buy signals. It just makes sense. If 51% are on buy signals and 49% on sell signals, the balance is slightly tilted towards the bulls. Like momentum oscillators, we can also set overbought and oversold levels for the Bullish Percent Indices. Typically, above 70% is considered overbought and below 30% is considered oversold. However, like momentum oscillators, the Bullish Percent Index can become overbought/oversold and remain overbought/oversold during strong trends. The table below comes from the bottom of the Market Summary page. Stockcharts.com computes the Bullish Percent Indices for 6 major stock indices and 10 S&P sectors (end of day - EOD).

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As we have seen in recent months, the underlying indices can advance as the Bullish Percent Indices decline from overbought levels. This is similar to RSI, a momentum oscillator, moving lower as the S&P 500 continues to move higher. Chart 6 shows the Nasdaq 100 Bullish% ($BPNDX) peaking above 90% in August-September and declining below 80% over the last few months. The three month trend is down, but the Nasdaq 100 Bullish% ($BPNDX) remains above 50%, well above 50%. There are still more stocks on P&F buy signals than sell signals and this explains the continued rise in the Nasdaq 100.

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Chart 7 shows the Financial Sector Bullish% ($BPFINA) peaking above 90% in September and declining below 70% in November. The Financials SPDR (XLF) also weakened over the last two months, but the Bullish Percent Index remains well above 50%. A move below 50% would signal serious selling pressure within the Financials SPDR.

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TECHS LEADING THE CHARGE... John Murphy noted the Nasdaq breakout on Monday and small-caps strength on Tuesday. Leadership from techs and small-caps is also visible on the Major US Market Averages Perfchart for December (chart 8). All of the major indices are up for the month, but the Nasdaq and the Russell 2000 are the clear leaders here. The Nasdaq is up just over 5% for the month, while the Russell 2000 is up a whopping 7.57%. Small-caps have gone from laggard to leader in just a few weeks.

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Chart 9 shows the price relative comparing the performance of the Nasdaq against the NY Composite. This indicator is simply a plot of the Nasdaq:NY Composite ratio. The ratio rises when the Nasdaq rises more than the NY Composite and the ratio falls when the Nasdaq falls more than the NY Composite. After a period of relative weakness in late July, the ratio flattened from August to November. This showed the Nasdaq trading in line with the NY Composite. The ratio started to surge in early December and broke above its Sep-Oct highs to start a period of outperformance (relative strength). For reference, chart 10 shows the same comparison for the Russell 2000 ($RUT) and the S&P 100 ($OEX).

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QQQQ P&F CHART BREAKOUTS... Chart 11 shows a 30-minute Point & Figure chart for the Nasdaq 100 ETF (QQQQ). Even though this is based on intraday data, the timeframe extends all the way back to mid October. There are a number of ways to use Point & Figure charts. First, one can simply look for the bullish and bearish signals with price objectives. This is shown at the top of every P&F chart. QQQQ forged a triple top breakout on December 21st and the preliminary price objective is around 48. Second, one can analyze the upward and downward trendlines. An upward trendline (blue) follows a series of higher lows, while a downward trendline (red) follows a series of lower highs. These give us an idea of the underlying trend. Upward trendlines slope up at 45 degrees. Downward trendlines slope down at 315 degrees, which is the flipside of a 45 degree angle.

Chart 11
SPY P&F CHART SUPPORT... Point & Figure charts are also good for identifying important support and resistance zones. Chart 12 shows a 30min P&F chart for SPY. Notice how the ETF bounced off the 107.5-108.5 support zone at least six times in the last seven weeks. The deepest dip occurred on the Friday after Thanksgiving, when the Dubai default rocked a thin market. Each bounce off this support level further reinforces its importance. Buying pressure came in at the 107.5-108.5 each time and pushed prices higher. A break below 107.5 would show the first significant increase in selling pressure - significant enough to overwhelm buying pressure in this zone. This is the area to watch in the coming weeks.

Chart 12
HAPPY HOLIDAYS FROM ALL OF US!...

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