If It's Trick Or Treat In The Equity Market, I'll Take The Treat

• Trick or Treat for Global Equities?
• Several Reliable US Short-Term Indicators Turning Bullish

During my many decades in this business, I have never heard of a recession so well-advertised as the one we are witnessing currently. It's a fact that financial market events that are widely expected rarely take place; someone who knows a train is on the way is almost certain to get off the tracks ahead of time. So it goes in the financial markets. If you think a recession is coming, you sell. Why stay around for the carnage? From a contrarian point of view, the fact that the market has held up so well is very bullish. More to the point, positive market action is starting to be reflected in the charts.

Trick or Treat for Global Equities?

Chart 1 could look pretty scary if the MSCI World ETF (ACWI) were to break below the $70 level, as that would complete a nasty-looking potential head-and-shoulders top. That $70 zone takes on added importance as the 200-day MA is in the same area. Right now, the average is completely covered by the trend line, indicating a very formidable support barrier. In order to obtain some indication of how significant a particular MA timespan might be, it's a good idea to visually review its support/resistance qualities in the past. In this instance, the 200-day period has been pretty impressive, as you can see from the numerous small blue arrows. The $70 area is therefore a must-hold one. However, current technical evidence suggests that it is unlikely to be breached. One reason I say that is the oversold nature of my Global A/D Line price oscillator. The chart shows that, when it has reached an overstretched level in the past and reversed to the upside, some form of rally has usually followed. Currently, it is declining, so we can't yet say that another buy signal has been triggered. However, we can see some green shoots from the US market, which is where global upside leadership is currently coming from.

Chart 1

Several Reliable US Short-Term Indicators Turning Bullish

The global equity scene could look ominous in the event that the potential head-and-shoulder is completed. However, the NASDAQ, in an opposite way, looks potentially promising. First, whereas the ACWI has experienced a series of sideways lows this year, the NASDAQ has traced out higher ones. This has resulted in a series of rising peaks and troughs, as flagged by the green and red arrows. Most important of all is the fact that the bullish percent maxed out in January of 2018 and has been contained below the green downtrend line ever since. Now, I recognize that it's still below the line and its 20-day MA. However, if it can rally above the 54/55 area, that would violate the line, thereby suggesting the potential for a really nice advance.

Chart 2

Chart 3 suggests that will happen, as the McClellan volume oscillator, in the form of its 10- and 20-day EMAs, has just triggered a buy signal. Previous signals have been flagged by the green arrows. Only one signal, accompanied by the dashed arrow, failed to trigger a rally. Given the  consistent track record of this indicator, it seems likely that the Index will move higher and help power the bullish percent above that green trend line.

Chart 3

Chart 4 shows a similarly bullish indicator for the NYSE.

Chart 4

Calculating a 10-day MA of the VIX, inverting it and waiting for an upside 15-day MA crossover from a position below the blue horizontal line has provided several reliable buy signals since 2016. A new one was freshly minted last week, adding further evidence that the market is likely to move higher.

Chart 5

Chart 6 features my Bottom Fisher. This indicator calculates when a universe of S&P industry groups is starting to show some internal strength. It is only useful for buy signals, which are triggered when the indicator falls to the oversold level and subsequently reverses to the upside. This type of activity does not happen that often, but it usually flags an important bottom. Because the January 2018 drop was so brief and precipitous, that signal was late, but in 2016 and 2019 it was spot on. The indicator is not yet bullish because it is still declining. However, it has clearly reached the kind of level that, with only a small push higher, could easily result in an upside reversal.

Chart 6

Finally, when the price volume oscillator (PVO) reaches a peak and reverses to the downside, it indicates that volume has reached an inflection point. If that happens after a rally, then it should be treated as a buying climax and we should expect to see a consolidation or downside reversal follow. The green arrows on Chart 6, however, feature selling climaxes, an event that is more typically followed by an advance. We saw a selling climax a couple of weeks ago, which is a positive sign.

Chart 7

The decline in volume since the selling climax has taken place as prices have undergone a consolidation. Chart 8, featuring the DJIA, shows activity in histogram format. My conclusion from this data is that, if volume can now start to pick up on the upside, it would take advantage of the oversold condition powering a rally, which would take prices back to the old highs and beyond.

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 Groupof Walnut Creek or its affiliates.