It's Steady As She Goes For Global And US Equities

• Many positive indicators
• Strong showing outside the US as well

The last time I focused on the US stock market I pointed out that I liked the fact that the market was shrugging off bad news in the form of numerous widely circulated articles calling for a correction. While not precluding such a possibility my feeling was that any extension to the correction was likely to be limited more to a trading range environment rather than a sell-off. Generally speaking, when traders are warned of a potential decline they usually take action, just as any sane person would get off a railroad track if they knew a train was on the way. The reason I bring all this up is that since then, the market has had several reasons to sell off but refused to do so. These include, two hurricanes, further North Korea provocations and domestic political uncertainty. In my book, a market that does not decline when it should, is usually in great technical shape. Recognizing that there will never be universal agreement, my read of the indicators right now, is that the majority are pointing north. It’s true, we still have the bulk of a seasonally weak September to navigate through. However, I do not see overbought conditions or serious negative divergences that would normally warn us of trouble, quite the reverse in fact.

Many positive indicators

Chart 1 compares the NYSE Composite with its A/D Line and a line consisting solely of common stocks traded on the exchange. Common stock A/D lines are often followed because they are less influenced by the large number of NYSE listed interest sensitive securities, such as preferred shares etc. In the current situation, there is no distinction between these two breadth indicators. Both are in a rising trend, having registered new bull market highs earlier in the week. That does not mean that the market is guaranteed to rise from here. In technical analysis there are no guarantees. However, such strong joint action certainly increases the probability that the market will work its way higher.

Chart 1

The same sound breadth structure can be observed from the relationship between the MSCI World Stock ETF, the ACWI, and my Global A/D Line, which both registered new highs this week. Moreover, the A/D Line PPO, using the 12 and 26 parameters, has just managed to cross above its moving average. I call this a “high risk” signal because it is being triggered from a moderately overstretched reading. At this point though, the trend of the price, A/D line and its momentum are all pointing north, and that’s what counts.

Chart 2

Chart 3 compares the NYSE Composite to a 10- and 20-day EMA of the NYSE Common Stock McClellan Volume Oscillator. These series have been rising strongly of late and are moderately overbought. That still leaves some unrealized upside potential until they do.

Chart 3

I have also highlighted last year’s broadening formation with a flat top. These patterns, when complimented with a breakout above the horizontal resistance trend line, are often followed by above average moves relative to their size.  Last December’s breakout was no exception.

Chart 4 shows the NYSE upside breakout, this time featuring closing prices. Note also that the PPO, using the 8/16 parameters has just violated  its 2016-17 down trend line, which further underpins the fact that the current rally is supported by strong upside momentum.

Chart 4

I always like to see new highs in an Index being confirmed by an expanding number of securities reaching new 52-week highs themselves. That’s because such action confirms a broadening in the advance.

Chart 5 is interesting in that the S&P has not quite reached a new high, yet the number of S&P components touching new highs is slightly greater than those at the August high. The new high numbers are certainly down from the June peak, but the fact that this indicator has already beaten the August number before the S&P itself is a subtle sign of broadening strength.

Chart 5

Chart 6 compares the Dow to my diffusion indicator monitoring a basket of Dow stocks in a positive trend.  This series has recently reversed to the upside and crossed above its MA. It is currently well below its red overbought line. It is not guaranteed to reach it of course, but it’s usually much more positive to be experiencing a low reading than an overstretched one.

Chart 6

Finally on Chart 7, on the US market, you can see that the daily KST has just triggered a momentum buy signal by crossing above its MA. More important is the fact that the Index itself recently completed a head and shoulders top by crossing below its red neckline. However, it quickly reversed direction, thereby indicating that the break was a false one. That was subsequently confirmed by the rally above the green down trend line, which marked the neckline of a small inverse head and shoulders. Confirmed downside whipsaws are usually followed by above average price moves, as traders who thought prices would break to the downside are forced to cover or reverse their positions. So far, the market seems to be on track for one of those positive situations.

Chart 7

Strong showing outside the US as well

Chart 8 looks at two indexes that monitor the rest of the world and do not include US equities. First, is the Vanguard FTSE All World ex US ETF (VEU) and the second is the MSCI Europe Australia Far East ETF, the EFA. They are constructed in a slightly different way but you can see that their broad trajectories are very similar. The important point is that they are currently in agreement, in that both series recently broke above 10-year consolidation patterns. After digesting some of the breakout gains, both series are now re-confirming their breakouts, thereby confirming their validity. Bearing in mind the secular nature of the consolidation patterns, this suggests that the advance in global equities has much further to run.

Chart 8

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 of Walnut Creek or its affiliates.