Indicators Still Mixed As The Market Reaches All-Time Highs

• Coppock Curve on a buy and sell?
• Record high indicator signals a bull market
• 6/180 PPO right on the cusp of a bull market signal
• Short-term overbought condition argues for a pause
• Commodities breaking to the upside
• Interest rates waffling

During the last couple of months I have been focusing on several indicators that can help us determine whether last February’s low was "the low" or whether the intervening bounce is a normal bear market rally. I have to admit that, while recognizing the rally, my analysis slanted to the bearish side because that’s the way the indicators were mostly positioned. Now some of them are beginning to point in a northerly direction and others are poised to do so. The situation is complicated by the fact that short-term indicators are pointing to the need for the digestion of recent gains, so the longer-term technical position may take some more time until it is more decisively resolved. I’ll start by taking a look at the longer-term indicators and then talk about the extended short-term condition.

Coppock Curve on a buy and sell?

The Coppock Curve is a favorite amongst technicians because of its historical accuracy. It is calculated by adding a 14-month to an 11-month ROC and smoothing the result with a 10-month weighted MA. Chart 1 shows the NYSE Composite ($NYA) compared to its curve. Buy signals are triggered when the indicator falls below zero and then turns up. As you can see, it is currently below zero, but has gone pretty flat. Remember this is a monthly chart, so the April 21 plot is not a done deal, as we will have to wait for next Friday’s close. I am showing it as an example of a very conflicting technical picture. Complicating the matter is the fact that the Coppock for the Dow ($INDU) itself, using incomplete April data again, has actually gone bullish, so you could say the Coppock is on a buy and a sell, it just depends on which average you use and whether it's the end-of-the-month or not!

Chart 1

Chart 2

Record high indicator signals a bull market

One of the other indicators I have been following is the record high numbers for the NYSE ($RHNYA)  in Chart 3. You may recall that two conditions are necessary for a bull signal. First, we need to see a drop in the (black) 10-day EMA to the 20% dashed oversold line. That indicates an unusually oversold market and reflects a pessimistic attitude amongst investors. The second condition requires the indicator to signal that investor sentiment has swung to the bullish side, and that involves a move above the 60 level. Previous buy signals have been flagged with the vertical green lines and, with the exception of the fall of 1973 experience, all have been followed by nice rallies. That indicator is now at 83%, well above the 60 benchmark and its fall of 1973 high. This series is now indisputably bullish. There is another way of interpreting the same data, and that has gone positive as well. Chart 4 compares the 65-week EMA to a 65-week, slower moving simple MA. Buy signals are generated when the EMA falls to its green oversold zone, bounces and subsequently crosses above its SMA counterpart. Again the green lines flag bullish crossovers. This technique has also gone bullish.

Chart 3

Chart 4

6/180 PPO right on the cusp of a bull market signal

Another reliable indicator I have been following is a PPO using 6/180 weekly parameters. Major buy signals develop after it drops below the dashed blue warning line and re-crosses decisively back above it. In the last couple of weeks, the indicator has moved back to the line but has not quite gone through it. That’s an important distinction because the four vertical dashed red lines show that a reversal from this level has often developed at the top of a bear market rally. The indicator is close but not yet receiving any cigars.

Chart 5

Even though the S&P is trading above its 12-month MA and, as shown in Chart 5 its 200-day MA, the fact remains that it is caught, like most of the other averages, in a 2-year trading range. Normally it’s a good idea to respect long-term MA crossovers but in this case, the trading range has resulted in numerous false signals as you can see from the red ellipses. In this kind of situation, it’s the resolution of the trading range rather than MA crossovers that count.

Note that the KST in the lower panel, is still somewhat overbought and declining. That fact, combined with the overhead resistance flagged by the green horizontal line, suggests that prices may be vulnerable to profit taking.

Chart 6

Chart 7 hints at the same thing since the MACD for the NYSE Composite is also in an overbought condition but still rising.  Note that the PVO in the second window seems to be emerging from an oversold condition. That, of course only says that volume is likely to expand. It tells us nothing about the direction of prices. That information is provided by the overstretched MACD, which suggests the odds favor a move to the downside. If that proves to be the case the implied trend of expanding activity would likely compound the problem. Finally, note that the NYSE has run into resistance at the red trendline.

Chart 7

Commodities breaking to the upside

The CRB Composite Index ($CRB) has succeeded in breaking out from an inverse head and shoulders pattern, a move which is supported by a bullish short-term KST. This is obviously a very positive development for commodity prices and will remain so, unless the breakout turns out to be a whipsaw and the Index drops below its 50-day MA and red up trendline. I am treating this breakout as a valid one and am not betting on a false move, but it’s always a good idea to be prepared, as the prices of most commodity indexes are not yet convincingly proven to be in a primary bull market.

Chart 8

Interest rates are waffling

Chart 9 shows that the 2-year Yield has once again bounced off its lower channel line. Since the dominant intermediate and long-term KSTs are still declining a drop below the line is likely. However, that short-term series looks as though it might be about to hook to the upside. If so, that would probably delay any downside breakout.

Chart 9

Moving along to the five-year series, we can see that it is range bound for the fourth year. Once again there is an offset with a bullish short-term KST and a bearish long-term one. The next level of resistance lies at the previous high and 200-day MA at 1.477%.

Chart 10

Yields at the 30-year level have also avoided a downside breakout, by rallying above the small green down trendline and triggering a short-term KST buy signal. That suggests that the 30-year yield will continue to head north for a while, despite the negative influences coming from the intermediate and long-term KSTs.

Chart 11

Good luck and good charting,
Martin J. Pring

The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Group or its affiliates.