No Sell Signal for Equities...Yet!

• The line of least resistance for global and US equities looks to be an upward one.
• The overstretched short-term condition argues against taking undue risks.
• Bond rally is showing signs of tiredness.
• The commodity correction may be over.

(Click here for the video version of this article)

First, I would like to warmly welcome our former Pring Infomovie Report subscribers to StockCharts.com! I know you will find the resources on this site to be second to none. For the benefit of existing StockCharts members, I would like to explain what you will find in my Market Roundup. Generally, I will cover equities, bonds, the dollar, precious metals and commodity indexes from a short-term perspective. However, if there is something I feel is intriguing and would be of interest to you, I will pop in a chart and commentary. To get you started on a good, solid footing, I’m including several longer-term charts in this issue. That is going to extend the commentary a bit this week, but I think it’s worth it in order to put the short-term picture in context. The longer-term indicators are covered in detail in my monthly Intermarket Review published at pring.com – well, let’s get started with equities!

US Equities

Long-term Technical Picture:
There are, of course, many ways of analyzing long-term trends. I try to simplify things by plotting the price over a long-term smoothed oscillator. I use the KST, which is on the StockCharts system andexplained here. It’s certainly not a perfect indicator, but does add a unique point of view. I use it in conjunction with 12-month MA crossovers, again not perfect, but reasonably consistent. Trendlines are an invaluable tool in this approach.

We have been in a bull market since 2009 and it’s getting pretty long in the tooth compared to the average bull market length. Looking at the KST, you could say that we have really had two bull trends since 2009 with this wave up into 2011, a decline and then another wave up since then. Either way, the KST is overextended and flattening out. The price itself is above its 12-month MA and this 2009/14 up trendline, and would require a decisive monthly close below it to rupture the bull market. Putting it all together, the trend is up but getting overextended. I don’t think the risk/reward at these levels is particularly inviting for most stocks. Typically, at the end of a cycle you find earnings driven equities do well and technically, it looks to me, that many resource-based sectors are positioned to out-perform the market.

Short-term Technical Picture:

The S&P has recently been moving sideways while the A/D line has been rallying. It’s difficult to argue with such a positive situation, so I won’t.

However, this market does not come without risk and we can see this from the Global Net New High indicator in Chart 3. You can read about it here, but by and large, reversals followed by a signal line crossover have been reasonably reliable in the past (dashed arrows indicate failures.) Right now, this series is overextended and has started to roll over to the downside. A sell signal has not yet been given, but this weakfish action suggests that any extension to the rally may be short lived. I think the key daily close level lies at this line and the previous minor low at around $57. Until then, enjoy the ride.

US Credit Market

Long-term Technical Picture:

Here is the same exercise for the 10-year yield, which I have plotted inversely to correspond with price moves. Right now it’s a technical conundrum because the price is below it 12-month MA but still below the extended up trendline. The KST looks like it is trying to reverse to the upside but since it is below its 9-month MA, we have to label this indicator as being in the bearish camp. Note the arrows which show KST MA crossovers have been reasonably accurate. Whenever you see a dashed arrow in these reports it indicates that the indicator in question has failed. In this instance, there are two of them in the 20 years covered by the chart.  Overall, I look at bonds as being neutral bearish, the bullish long-term commodity picture, which we will look at later, supports this view.

Short-term Technical Picture:

This chart shows that the price of 10-year bonds has broken to the upside but it is doing it at a time when my Bond Net New High Indicator is overstretched. Of course, it’s still rising and therefore bullish, but the arrows show that when it reverses from a high level there is a strong possibility of a price decline. It’s a real test because the long-term picture is fuzzy. If a new bull market has begun, then the price will shrug off the overbought reading and move higher. On the other hand, bear markets are extremely sensitive to overstretched oscillator levels, which means that if the April rally is a counter cyclical one it is probably getting close to termination. I would look for a violation of the red up trendline to confirm.

StockCharts Tip: Remember you can see live versions of any of these charts by just clicking on them.

The Dollar Index

Long-term Technical Picture:

Most of the time I’ll be looking at the Dollar Index, but when something really important happens in the cross rates I’ll look at them as well. Right now the Index is classified as bearish since the KST is declining and the Index is below its 12-month MA. The arrows show previous KST buy and sell signals. Of course, it’s really been in a trading range for the last couple of years or so, as flagged by the dashed green and solid red lines; the lower line is around 79.  The really big news is that a break above the solid green line would complete a huge base. While I am classifying the Index as being in a bearish trend, that’s a wishy-washy opinion, based on the indecisive price action, and could easily change.

Short-term Technical Picture:

The Index looks a tad more bullish on the daily charts. That’s because it experienced a false signal to the downside and the KST has just gone bullish. Of course, a break below 79 would turn it bearish again, but a rally above the 200-day MA at 80.50 would also result in a violation of the green down trendline and be quite positive. This is one of those situations where it’s probably better to wait for the market to decide before making any major decisions.

Precious Metals

Long-term Technical Picture:

This section is headed Precious Metals, but most of the time, I focus on the price of gold itself. Here you can see the limitations of the KST when the trend is particularly strong as it was between 2001 and 2011. Three red dashed arrows point up false negatives.  The price violated its secular up trendline in early 2013. It’s a pretty steep one, but nonetheless casts a shadow over the current situation. Right now, the trend is, strictly speaking, a bearish one since the price is not yet decisively above its 12-month MA and the KST is below its average. However, the KST is hooking up and it would not take much of a push to result in the completion of a small base and a positive 12-month MA cross. I am optimistic that this will happen, but the big trendline break I cited may well mean any bull market is limited to a test of the old highs.

Short-term Technical Picture:

As we saw from the longer-term charts gold is trying to form a base. Right now, the Gold Trust ETF, the GLD,  is just above key support at the red trendline around $122.50. Resistance lies at the two green down trendlines, the more important of which is the solid one at $132.50. The rising KST in the bottom panel suggests a red line violation will be avoided and a test of the green trendlines is just about to get underway. If they are bettered on the upside, we could be much more confident that a bull market is underway.

Commodities

Long-term Technical Picture:

The CRB Composite has just crossed above its 12-month MA and broken above this green trendline. Also, the KST is positive, so a primary bull market is signaled. Previous KST signals that developed in conjunction with trendline violations in the Index resulted in good price moves. The two trendline breaks and MA crossover sets the scene for a positive commodity environment.

Short-term Technical Picture:

A few weeks ago the Dow Jones UBS Commodity ETN, the DJP, violated its 2014 up trendline and the net new high indicator in the lower window peaked out from an overbought condition. This suggested a correction under the context of a primary bull market and that’s what happened. Now the indicator has tentatively re-crossed back above its signal line, and that should mean a rally to new highs. Confirmation would come from a move above the small green down trendline at around $40.

- Martin Pring