NYSE COMPOSITE INDEX TESTS OVERHEAD RESISTANCE -- IT'S ALSO IN A LONG-TERM SUPPORT ZONE -- NYSE BULLISH PERCENT INDEX GIVES P&F BUY SIGNAL -- % OF NYSE STOCKS ABOVE MOVING AVERAGES MAY BE BOTTOMING -- UAL AND DELTA BOOST INDUSTRIAL SPDR
NYSE COMPOSITE INDEX TESTS RESISTANCE... Stocks had their best week of the year. While that's encouraging, they'll have to do a lot more to signal that the global correction/bear market has run its course. I'm focusing on the NYSE Composite Index (NYA) today because it's a broader measure of the U.S. market. [The NYSE has lost 20% from last year's high which qualifies as a bear market]. The daily bars in Chart 1 show the NYA moving up to challenge its February 1 high and its 50-day moving average after the previous week's successful test of its January low. As is the case with all U.S. stock indexes, a decisive close above both of those initial chart barriers is needed to turn its short-term trend higher. That would increase the odds that a more important base is being formed. Its 14-day RSI (top of chart) is trying to climb over its 50-line, while its daily MACD lines (below chart) have turned positive. That, however, doesn't tell us much about its longer-term trend. Chart 2 does.
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Chart 1
NYSE COMPOSITE TESTS MAJOR SUPPORT ... The weekly bars of the NYSE Composite Index in Chart 2 are similar to other charts I've shown recently. It shows the NYSE having retraced exactly 50% of its 2011/2015 rally, and sitting just above potential support formed at the 2011 peak near 8750. That puts it in a potential support zone. In addition, its 14-week RSI (not shown here) is in oversold territory. I'm focusing today on the "weekly" MACD lines because they're also very important. The weekly MACD lines on top of Chart 2 started to turn down during 2014 and gave a very early warning that the market rally was starting to weaken. A negative divergence formed in mid-2015 when the MACD lines failed to confirm the market's new high (see red arrow). Several writers on this site (including myself) pointed out that dangerous discrepancy at the time. But that was then. The MACD lines are still negative, but have reached a potential support zone at their 2011 low. It's also encouraging that their histogram bars have started to level off. [MACD histogram bars plot the difference between the two lines]. A levelling off of the histogram bars is an early sign that the MACD lines may be close to a bottom. But the two weekly lines have to actually turn positive themselves to signal that the stock market may be bottoming as well.
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Chart 2
NYSE BULLISH PERCENT INDEX TURNS UP... One of the widely watched gauges of market direction is the NYSE Bullish Percent Index ($BPNYA). That index measures the percent of NYSE stocks that are in point & figure uptrends. Chart 3 shows a point & figure version of that index. [P&F charts show alternating columns of Xs and Os. X columns show rising prices, while O columns show falling prices]. Readings over 70% are overbought, while readings below 30% are oversold. The index reached an oversold low of 24% during January. The chart also shows the BPNYA in a potential support zone formed during the 2011 selloff. Here's the good news. The last X column has risen to 36% and has exceeded the previous X column at 32%. That constitutes a p&f buy signal. [A P&F buy signal occurs when a rising X column exceeds a previous X column]. That's an encouraging sign.
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Chart 3
PERCENT OF STOCKS ABOVE MOVING AVERAGE LINES IMPROVES... Two other measures of market direction are the percent of NYSE stocks above their moving average lines. They too are starting to show improvement. The blue line in Chart 4 plots the percent of NYSE stocks above their 50-day average. That line reached oversold territory below 20% last August and again this January. It has risen during February to 38% which is the highest level this year. The red line in Chart 5 plots the percent of NYSE stocks above their 200-day average. It too is starting to rebound from oversold territory below 20% for the second time. It needs a decisive close above its early Febuary peak at 23% to turn its short-term trend higher. The blue line has already done that. The position of both lines suggests a stock market that is attempting to form a bottom.
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Chart 4
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Chart 5
AIRLINES HELP BOOST INDUSTRIAL SPDR... Another positive sign for the market is that money has started to flow into more economically-sensitive sectors like cyclicals, technology, and industrials. In fact, they were the three strongest sectors over the past week. Chart 6 shows the Industrials Sector SPDR (XLI) already trading at the highest level in six weeks and having cleared its 50-day average. Even more telling is the big jump in the XLI/S&P 500 relative strength ratio on top of Chart 6. The biggest contributor to the XLI this past week was the 48% jump in ADT Corp. Three airlines were right behind it -- UAL (11%), Delta (8%) and Southwest (8%). Chart 7 shows United Continental Holdings (UAL) turning in a strong week. Its relative strength line (above chart) is rising as well. Chart 8 shows a stronger chart pattern for Delta Air Lines (DAL) which cleared its 200-day line. The ability of Delta to stay above last summer's low, together with a rising relative strength line, make it the stronger of the two airlines. A couple of my recent messages have mentioned that new buying in transportation stocks is an encouraging sign for the market.
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Chart 6
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Chart 7
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Chart 8
POINT & FIGURE VIEW OF DOW AND SPX... Since we've already mentioned point & figure charts, it seems appropriate to conclude today's message with a P&F look at two major stock indexes. The nice thing about P&F charts is that they're more precise than bar or candlestick charts, and their buy and sell signals are much clearer. Chart 9 shows a P&F version of the Dow Industrials. Each box is worth 50 points. The chart shows the Dow backing off slightly from a test of its February high at 16500. The Dow would have to reach 16550 to give a short-term P&F buy signal. A stronger signal would also require it to clear its falling 45 degree trendline. Chart 10 shows the S&P 500 needing to reach 1950 to exceed the previous X column formed in January. That would also exceed the falling red resistance line. Although P&F charts are based on intra-day prices, I prefer to see prices actually close beyond a resistance point for a signal to occur. Bear in mind these potential breakouts are only short-term in nature. But that's how bottoms usually start.
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Chart 9
