MARKET INDEXES BREAK MORE RESISTANCE BARRIERS -- SMALLER STOCKS SHOW RELATIVE STRENGTH -- BREADTH FIGURES ALSO SHOW IMPROVEMENT -- BUT DEFENSIVE STOCKS STILL SHOW MARKET LEADERSHIP -- TREASURIES SLIDE AS HIGH YIELD BONDS JUMP
S&P 500 HITS NEW OCTOBER HIGH ... The S&P 500 reflects continued improvement in the stock market's short-term trend. The daily bars in Chart 1 show the SPX climbing above its 50-day moving average (blue line) and chart resistance at its early October intra-day peak at 1977. Its 14-day RSI line (above chart) is still rising, and its daily MACD lines (below chart) have turned positive. Chart 2 shows the S&P 500 having given a point & figure buy signal, when the last column of rising X prices exceeded two previous X columns. At its October bottom, the SPX found support at its rising 45 degree support line (blue line). Not only did that keep the market's major trend up, but it's short term trend has now turned back up as well. The next test will be its September high.
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Chart 1
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Chart 2
SMALL AND MIDCAP STOCKS ALSO IMPROVE ... Improvement in smaller stocks is also helping the rally in large caps. Chart 3 shows the S&P 400 Mid Cap Index ($MID) climbing back above its 50- and 200-day moving averages. Chart 4 shows the Russell Small Cap index ($RUT) having rallied to its 200-day average, and a resistance line drawn over its July/September highs. A close above those barriers would be a positive development for small caps and the rest of the market. The RUT/SPX ratio (above chart) has also turned up. Since mid-October, small caps have risen twice as much as large caps (8% versus 4%). That shows renewed confidence in smaller and riskier stocks.
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Chart 3
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Chart 4
BREATH FIGURES IMPROVE ... My October 2 message showed the percent of NYSE stocks above their 50-day averages have fallen to oversold territory. The P&F version of that indicator in Chart 5 shows the $NYA50R having risen from 16% during October to its current reading at 52%. A P&F buy signal was given at 28. Chart 6 shows a P&F version of the percent of NYSE stocks trading over their 200-day averages. My October 2 message expressed the view that the $NYA200R needed to start rising to improve the market outlook. It has since risen to 53%. This more sensitive P&F chart (using a box value of 1%) has also given a couple of P&F buy signals.
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Chart 5
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Chart 6
NYSE BULLISH PERCENT INDEX ALSO TURNS UP ... That same message showed the NYSE Bullish Percent Index ($BPNYA) in a P&F downtrend. [The index measures the percent of NYSE stocks in P&F uptrends]. Chart 7 shows the $BPNYA having since risen from its October low at 40% to 48%. That improvement was enough to put it back into a rising X column. The bullish percent figures for all major stock indexes have also improved. The Bullish Percent Indexes at the bottom of the Market Summary page include the current figures for major market indexes, as well as market sectors. Although all sectors have shown improvement, the current alignment still shows a generally defensive mood. The groups with the highest Bullish Percent figures are utilities (83%), healthcare (71%), transports (70$), and consumer staples (69%). Three of those are defensive in nature. The three weakest are commodity related: materials (35%), energy (13%) and gold miners (6%). It would be nice to see more leadership in economically-sensitive stock groups.
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Chart 7
HIGH YIELD BONDS GAIN LOST GROUND... Chart 8 shows that Treasury bond prices have fallen since the panic spike from two weeks ago (when stocks bottomed). 20+Year Treasury Bond iShares (TLT) are now testing initial chart support along its late August peak. By contrast, Chart 9 shows Barclays HIgh Yield Bond SPDR (JNK) jumping sharply over the last two weeks. The JNK is testing overhead resistance near its early early October peak and its moving average lines. Junk bond buying is usually associated with more optimism and a stronger stock market.
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Chart 8
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Chart 9
COMMODITY WEAKNESS MAY KEEP FED IN A DOVISH MOOD... The recent slide in commodity prices has increased concerns among central bankers about the growing threat from deflation. Those concerns are more acute in Europe and Japan. The Fed, however, is concerned about the fact that U.S. inflation is well below its target level of 2%. I wouldn't be surprised if the Fed is looking at charts of commodities like copper and crude oil to see if they can discern any signs of a bottom. [I hope there's a chartist on its staff to help them do that]. Which brings us to Chart 10 which shows the Reuters/Jefferies CRB Index still testing major chart support along its 2012/2013 lows. The 14-week RSI line (below chart) shows it to be in the most oversold territory since spring 2012. Needless to say, any decisive drop below the 2012 low would be bearish for commodities and signal even lower inflation. That being the case, I suspect the Fed will adapt a more dovish tone at this week's meeting. I doubt if it will do anything that would push commodity prices even lower.
