Demand Remains in Place
We continue to see demand remain in place at this time and until that changes we anticipate higher stock prices. It is impossible to predict how long demand or supply will last. It is important to be reminded that the stock market is a leading indicator and not a lagging indicator so looking at current economic events is not particularly helpful for determining stock market direction.
I bought and started reading a new book. It is called “The Definitive Guide to Point and Figure” by Jeremy DePlessis. It is a great read. It does a nice job of covering the history of point and figure charting. Here are a couple of sentences that ring true: “The markets are driven by a constant fight between buyers and sellers. It is the interaction of market participants and how they feel about all the available information that drives the price. The important point to remember is that it’s the people that create the price; their fear and greed, their hope and prayers, and their opinions.” And you thought it was price to earnings or cash flows or earnings growth—all those things analysts look at.
Investor psychology also results in the round number phenomena. The Dow has hit the 14,000 round number level. We have been flirting with the 14,000 level for several days now. For us to make new progress on the Dow Jones Industrial Average, we will have to convincingly get above 14,000 to get a new trend. Why 14,000 is any different than 14,100 or any other number is not relevant. It is just how we think.
Here are the indicators this week.
NYSE BULLISH PERCENT: The main coach for NYSE stocks remains on offense. We now have 74.31% of the NYSE stocks on buy signals and there has been no change in demand. Offense but at high risk.
NYSE % ABOVE 10 WEEK MOVING AVERAGE: This short term indicator, after reaching 90%, has reversed in to a column of O’s at a level of 83.05%. This is a reason to pay attention but we would not register a short term sell signal until this breaks below 70% bullish. Caution but still on offense.
OTC BULLISH PERCENT: The main coach for OTC stocks remains on offense. The current risk level is at 55.46%. Offense.
OTC % ABOVE 10 WEEK MOVING AVERAGE: This short term indicator remains in a column of X’s at a risk level of 72.91%. Offense.
SECTOR DISTRIBUTION CHART: Click Image
As you can see, this chart has moved significantly to the right side. We have just one sector remaining in a column of O’s. It is Precious Metals at a risk level of 25%. All the other sectors are in a column of X’s with an average risk of 62.71%. There were 16 sectors that moved higher this past week. We will see if sector rotation will start from here.
DOW JONES CORPORATE BOND INDEX: I have commented on some of the changes we are seeing in the government bond market. We are now seeing some of the longer government bonds move higher in yield and lower in price. The Dow Jones Corporate Bond Index moved one box closer to giving a long term sell signal. Here is a look at the long term DJ Corp Chart. Should this give a sell signal, it would be appropriate to review longer term bond exposure to consider reducing risk. The trend has been for higher prices for several years.
RELATIVE STRENGTH: We have had no changes in the relative strength measures. Here is the order: Domestic Equity, International Equity, Fixed Income, Foreign Currency, Cash and Commodity. The low relative strength reading for Commodity is reflected in the Precious Metals sector where we are seeing low demand. We don’t have to know why but rather just accept what is.
Call or email me any questions on these indicators.
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