$SPX SPENDS THE DAY BREAKING THROUGH TO NEW ALL TIME HIGHS -- $INDU ONLY 75 POINTS FROM PREVIOUS HIGHS -- THE RUSSELL 2000 ($RUT) STALLS AT 50 DMA -- THE NYSE ADVANCE DECLINE LINE HIT NEW HIGHS TODAY AS WELL
$SPX SPENDS THE DAY BREAKING THROUGH TO NEW ALL TIME HIGHS... While the S&P500 ($SPX) worked through to all time highs today as shown on Chart 1, there was a continuous drumbeat towards the 2000 level for the $SPX. The market peaked out at 1994, which was 3 points higher than the previous intraday high. It closed at 1992 which is now the highest close. This is an update of the July 24th Market Message chart as it shows the central trend lines for the 3-year run from the 2011 lows. With the new highs, we are now able to move our support up to the early August lows around 1900. This would probably coincide with the uptrend line in green should the market start to pull back. We can see the broad consolidation of 2.1% through most of July.
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Chart 1
$INDU ONLY 75 POINTS FROM PREVIOUS HIGHS ... The Dow Jones Industrial Average ($INDU) pushed the intraday high within 75 points of the all time high on Chart 2. 25 of 30 Dow stocks were higher at the close, with no major losses.
The Nasdaq Composite ($COMPQ) -not shown- surged to new highs in the last hour of the day. For a second day, the $COMPQ and Russell 2000 ($RUT) were weaker than the large cap dominated $INDU and $SPX in percentage terms. This same behavior was evident in March when the growth stocks rolled over, so growth investors should watch their stocks closely for signs of weakness.
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Chart 2
THE RUSSELL 2000 ($RUT) STALLS AT 50 DMA... The Russell 2000 ($RUT)has spent three days on Chart 3 trying to break above the 50 DMA. We saw similar behavior in late May when the Russell took 9 days to break through and climbed well above the 50 DMA. This is an important inflection point for the $RUT. The 200 DMA is almost flat on the $RUT which suggests the major upward trend has moved to horizontal. Weakness so close to the flat 200 DMA and 50 DMA would be a wider signal of caution. The Russell is back to the middle of the trading range started last October.
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Chart 3
THE NYSE ADVANCE DECLINE LINE HIT NEW HIGHS TODAY AS WELL... A closely watched indicator by technicians is the NYSE Advance-Decline line ($NYAD) shown in Chart 4. It continually adds the net number of advancers compared to decliners cumulatively every day and has been bullish and right for a couple of years now. As the market makes new highs, some major tops are usually preceded by divergences in the $NYAD indicator. This new high reading is bullish. It is important to note that this divergence does not have to precede major market tops, but historically it has.
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Chart 4
Here is how the same $NYAD on chart 5 and how the divergence looked in 2007 as an example.
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Chart 5
THE BULLISH PERCENT INDEXES TELL A DIFFERENT STORY... I like to look at breadth through multiple reference methods and the Bullish Percent Indexes are extremely valuable for that. We'll look at 4 major Bullish Percent charts below. In general, they are taking longer to rise off the lows and are also stuck below historically difficult levels.
The NYSE Composite Bullish Percent Index ($BPNYA) has only rebounded a few percent while the market has been rallying for 2 weeks. The Bullish percent index tells us how many stocks are on a buy signal. It takes a while for a stock to swing from a sell signal to a buy signal so time factor is important. However, the red line indicates how much of a bounce occurred at the February low after the same periods of time. It had bounced from 59 to 65. Now we have only bounced 1.5%. A few big up days could change all that, but it is a slower bounce for sure.
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Chart 6
The same situation exists on the S&P 500 Bullish Percent Index ($BPSPX) shown on Chart 7. The February bounce had a 11% bounce and the May rally had a 5% bounce after 2 weeks. Currently, we only have a 2% bounce. The $BPSPX is usually the last one to break down because of the size and breadth of the companies involved.
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Chart 7
THE NASDAQ RELATED BULLISH PERCENT INDEXES ARE SLOWER ON THIS RALLY ... The Nasdaq 100 ($NDX) shows a dramatically weaker picture at 66% on Chart 8. There was a 15% rise, another 15 % rise in April and currently a 3% rise in the number of stocks on a Bullish Buy Signal. You can see this by looking to the right on the scale. Two other things are interesting. The divergence at the January � March period was significant to the weakness in the momentum stocks. I have kept the slope of the lines the same as I copied them to the current time frame. You can see we have the same divergence building again, but from much lower levels. Our July high in the Bullish Percent was 76% which is 10% less stocks on a buy signal than earlier in the year. Now struggling down in the 66% area is very concerning. This needs to improve soon. This is a clear sign of narrowing breadth. With Apple being so strong and such a big dominant stock in the $NDX group, it can mask this low level of participation as the biggest stock (AAPL) is up 38% this year alone! Obviously AAPL is also in the $COMPQ and the $SPX.
When Apple topped in December 2007 as shown on Chart 9, the $BPNDX was a very low 45%. You can see the $NDX had topped before that when the $BPNDX couldn't get back above 67 %.
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Chart 8
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Chart 9
Here is how the Nasdaq Composite Bullish Percent Index ($BPCOMPQ) currently looks on Chart 10. It has the least participation on a percentage basis at 56%. We have only bounced 2% higher. This would compare to the February surge to new highs with 9% of the stocks rising in one month. We are only two weeks in so we have some time to catch up but we are considerably slower on the rebound. Again the very low levels of participation in general are concerning. Just a few more than 50% are on buy signals. On the chart, I kept the Blue and Green trend lines the same length as they were back in February. You can see that we are already at the same sort of timeframe for the down and up move. The July pullback in the $BPCOMPQ went on for over a month so this rebound has been going on for less time. However, I did keep the slopes of the lines intact and you can see that the Bullish Percent is well short of the previous trend even though price has kept up.
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Chart 10
Just for reference Chart 11 takes us back to 2007. After a severe pullback down to 35%, the $BPCOMPQ had trouble when it rebounded substantially in terms of the number of stocks, but the overall final percentage was only 50%. That chart can be seen here. Interesting that it started a rally in August that also had a slow start. It spent a long time in May and June 2007 around the 55% level while the market moved up.
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Chart 11
$GOLD BREAKS DOWN BELOW THE JULY LOWS.... Gold ($GOLD) breaks to two-month lows in Thursday's trade on Chart 12. We have a major horizontal support and resistance area on the $GOLD chart shown in red. $GOLD pulled down to test that support level today. It is also the uptrend support line. This is a very important place for $GOLD to hold, especially with the strength of the $USD. $GOLD is still up $60 from the start of the year. Based on the $USD strength and the positive correlation of $GOLD to the Swiss Franc, there are a few clues that should line up if $GOLD is about to turn to the upside here. One being dollar weakness or at least strength in the Swiss currency in sympathy with GOLD, the next being a similar turn higher in silver and we would like to see the gold stocks start to outperform the metal again.
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Chart 12
Silver ($SILVER) also pulled back today on Chart 13. The price movement in $SILVER looks very contained with a continual drip lower and it did not have the big thrust down like Gold did today. While Silver is also at 2 month lows, it was a slow drip for $SILVER and a sudden thrust for $GOLD. $SILVER is in an area of horizontal support for the next $0.75 down.
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Chart 13
CAT AND DEERE - A VIEW ON CONSTRUCTION ... Caterpillar (CAT) and Deere & CO. (DE) both make construction equipment. With the bounce in homebuilders this week, I looked to see if any wider move was emerging. Caterpillar (CAT) is one of the Dow Jones Industrial Average ($INDU) component stocks. Caterpillar has surged recently on Chart 14 with the market rebound and the price on the $INDU tracks Caterpillar pretty well.
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Chart 14
Deere (DE) reported earnings this past week and said strong demand in Construction outweighed some of the weak demand in Agriculture. The Deere stock shown in Chart 15 has been swathed and is now trading under a major trend line. While horizontal support rests at $83, overhead resistance is piling up with the 200 DMA, the 50 DMA and now the long trend line as resistance.
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Chart 15
A close up view of the price action in DE for the last 4 months is less bullish. Chart 16 shows a 1 year view.
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Chart 16
$CRB CONTINUES ITS DOWNTREND... The Commodities Research Bureau Index ($CRB) on Chart 17 looks a lot like the Deere & Co. chart shown in Chart 16. I couldn't help but notice the similarity of the $CRB chart to Deere. This weakness in the Ag commodities is pulling both the $CRB and Deere (DE) down. The weakness in oil is obviously pulling on the $CRB, but I would not expect it to hurt Deere (DE) any more or less than Caterpillar (CAT). I am monitoring a change in the Ag commodities to see if Deere gets a bid with a turn in the Ag stocks. I would suggest the oil move is making the $CRB move down in a narrower channel than Deere.
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Chart 17
HEWLETT PACKARD (HPQ) HITS NEW 52 WEEK HIGHS... Finishing up on a bullish tone, Hewlett Packard (HPQ) has been migrating bottom left to top right since the start of QE as shown in Chart 18. On the back of earnings and expectations about new commercial 3D printers, HPQ was able to surge meaningfully above the June and July highs today. HPQ is a Dow Jones Industrials Average ($INDU) component.
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Chart 18
We continue to push toward new highs on all four of the main indexes. The $RUT is significantly weaker. AAPL can mask a lot of underlying damage as the $COMPQ, $SPX and $NDX all have AAPL as a component.. I think the Bullish Percent clues warrant close stops. If they go another week or two without making any gains, that would be very concerning. Till then, the market is making new highs. Let's focus on being in strong places.
Good trading,
Greg Schnell, CMT
