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Chinks in the Armor

We have had the wind in our sails since December 19 when the NYSE Bullish Percent reversed back to a column of X’s and offense.  Now we are starting to see some signs of demand starting to dry up.  I want to remind you that these technical indicators are not predictive in nature.  They are risk management tools.  We still have the main coaches, the NYSE Bullish Percent and the OTC Bullish Percent, on offense.  The Dow Jones Industrial Average and the S&P 500 remain on point and figure buy signals.

What is starting to change is the percent of stocks trading above their 50 day moving average.  In November we had 22% of the NYSE stocks trading above their 50 day moving average.  When we have less than 30% of these stocks trading above their 50 day moving average it suggests a low risk market.  When we have over 70% of the NYSE stocks trading above their 50 day moving average, we say the market has high risk.  We hit a level of 90% bullish in January.  This indicator has subsequently reversed down and at this point, we have 73.45% of the NYSE stock exchange stocks trading above their 50 day moving average.  This reversed down on February 4 and we have not been able to make any new forward progress for this indicator.  The rubber band has been stretched too far and now it is relaxing back to a more normal risk level.

This is a good time to do a review of your positions, your risk tolerance, and your buying power.   If you have stocks that have not participated in the rally that started in December, you should consider “weeding the garden” so you can create cash to have buying power should we get a pull back.  No predictions, just observations.

Here is a chart I found interesting.  It is the S&P 500 and it shows the resistance that has been set at the 1500 level.

 

Here is another chart showing the money flows into the S&P 500. (click image)

Standard & Poor’s 500 Index more than doubled from the March 2009 lows even though money flowed out of stock funds most of the time. (Data source: Investment Company Institute)  In January, equity funds took in $19.6 billion. This was the largest inflow since ICI started tracking the data six years ago. During the prior 4 year rally, outflows exceeded $435 billion.

Here are the indicators this week.

NYSE BULLISH PERCENT:  The main coach for NYSE stocks remains on offense this week.  We have 75.20% of the NYSE stocks on buy signals.  No sign of a change at this time but from this higher risk level, it is appropriate to review your strategy for the future.

NYSE % ABOVE 10 WEEK MOVING AVERAGE:  This short term indicator was referenced above.  It remains in a column of O’s and we have been declining since February 4.  The current risk level is 73.45%.  A move below 70% would be a short term sell signal.

OTC BULLISH PERCENT:  The main coach for OTC stocks also remains on offense.  We have 56.75% of the OTC stocks on buy signals.  There is a smaller percent of OTC stocks on buy signals versus the NYSE stocks.  The last time we had 70% of the OTC stocks on buy signals was January 2004.  Offense.

OTC % ABOVE 10 WEEK MOVING AVERAGE:  This short term indicator moved into a column of O’s on February 15.  It broke the 70% level this week to close at 64.83%.  This short term sell signal gives credence to reviewing your strategy.  Defense.

DOW JONES CORPORATE BOND INDEX:  This indicator remains at the same levels as last week.  The long term chart remains on a buy signal but we are in a column of O’s.  The short term chart is on a point and figure sell signal so we suggest caution with regard to corporate bonds as we look for further confirmation of the longer term picture.

RELATIVE STRENGTH:  The relative strength rankings remain the same:  Domestic Equity, International Equity, Fixed Income, Foreign Currency, Cash and Commodity.  We continue to see money flow out of precious metals which is impacting the Commodity sector.

Call or email me any questions.

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