Last Week, Three Charts Failed To Break To The Upside. Where Do We Go From Here?

• What's Happening with Last Week's Three Featured Charts
• Short-Term Oscillators
• Longer-Term Indicators are Mostly Bullish

Last week, I wrote that the short-term technical picture looked positive, but that I was watching three charts which would confirm a significant extension to the bull market in the event that they experienced upside breakouts. This week, I'll reverse the process by examining what happened to those three charts and then re-examining the current short-term position.

What's Happening with Last Week's Three Featured Charts

Chart 1 features the bullish percent for the NASDAQ. I was particularly interested in the 2018-19 green downtrend line, since a breakout would indicate that the number of NASDAQ stocks in positive trends would expand. That would presumably be sufficient to power the NASDAQ higher as well. The signal was never given, and the indicator is now in a declining trend just shy of its 20-day MA. Obviously, there is no signal there at the moment.

Chart 1

Our second chart featured a ratio between the SPDR Technology (XLK) and the SPDR Consumer Staples (XLP). The idea here was that a rising ratio reflected growing confidence, with traders flocking to higher-risk technology over the more defensive staples. The green-shaded areas indicate that a positive trend in this relationship is also bullish for the S&P. Consequently, I was looking for a break above the upper green trend line, rather than one below the red 2016-19 uptrend line. That break never came; now, the indicator is testing its 40-week MA and uptrend line, which are pretty well at the same level. Whenever you see a trend line and a reliable moving average in the same vicinity, they reinforce each other as a support/resistance zone (in this case, support). Consequently, a downside penetration would not be a good sign.

Chart 2

Our third indicator was effectively an international bond spread, where the price of the iShares International High Yield Bond ETF is compared to the Barclays International Treasury fund (_HYXU/_BWX). Since the Dow Jones World Index itself was very close to an upside break like the ratio, I was looking for a joint upside move. Instead, what we saw was an attempt at new highs by the Index and a false upside breakout by the ratio. Now, its short-term KST has begun to roll over. The chart has now moved from being a potentially bullish one to reflecting a relationship that is questionable.

Chart 3

One of the charts we pointed to as forming a bullish background featured the NYSE A/D and Common Stock A/D Lines. These too have corrected, but are not even close to triggering a bearish signal, as the series of rising peaks and troughs for both series is intact. Indeed, the A/D Line itself (in the bottom window) actually touched a marginal new high this week.

Chart 4

So far, then, none of the charts being monitored have yet broken to the upside, thereby confirming what was an improving short-term technical position. The question naturally arises as to the current position of some of those short-term oscillators themselves.

Short-Term Oscillators

My conclusion is that the oscillators are offering a mixed picture. For example, the CBOE Put/Call ratio, when expressed as a 30-day MA, has only just given a buy signal by reversing from the overstretched green horizontal line. Previous reversals have usually resulted in a nice rally. The principal exceptions developed during the 2007-08 bear market and the 2018 mini-bear. Even in those situations, such action was still followed by a 4-week rally or trading range.

Chart 5

The 10-day EMA of the McClellan Volume Oscillator has been in a corrective mode for some time and is now at a fairly neutral reading. Since the trend is down and has not reached an oversold reading, it's quite possible that the late September correction will extend. This kind of action is also typical of many near-term oscillators, such as the 14-day RSI.

Chart 6

Longer-Term Indicators are Mostly Bullish

By way of contrast, the consensus of longer-term indicators that monitor primary trends, as featured in my monthly Intermarket Review,are still positive. One such series is the Coppock Curve, which, as you can see from the final chart, has started to reverse to the upside. Given its historically accurate track record, that's a positive overall sign. We have had some great reasons for the market to sell-off, such as the Saudi oil disruption and accelerated impeachment proceedings, but the market has chosen, at least so far, not to respond. From a contrarian point of view, that's bullish.While we could see further corrective activity, that wall of worry should enable stocks to eventually move higher by the end of the year.

Chart 7

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.