The stock market is showing a few signs of being a bit ahead of itself according to some of my favorite sentiment studies. And yes, a correction could occur in Q2 or Q3—see my blog on this subject at https://www.valuetrend.ca/?p=2654
Yet the technical internals of the market are still fine. Trend is up, seasonals are in their bullish phase, and golly-gee, the US banks – which are market health indicators by themselves – are reporting decent numbers.
Market breath, which can be a key leading indicator of a significant correction, is trending up. Above is a chart of the % of stocks above their 50 day MA’s on the S&P 500 (black line), along with the % of stocks over their 200 day MA’s (red/black line). As you will note, beyond a slight downtick (along with the broader markets) over the past month by the 50 day indicator – there is no significant sign of market breadth slowing down.
The chart above (freestockcharts.com) shows the cumulative Advance/Decline on top, with a 40 week (200 day) MA. The red line is the S&P 500. This measurement of breadth, like the % over MA’s chart at the top of the page, implies little deterioration in market internals at this time. It may be interesting to note that the top chart showed deterioration of breadth in late October to early December of last year. The A/D line (above) is a weekly chart, so the detail is harder to see. But looking closely, you can still see there was no A/D deterioration in November last year. Thus, they didn’t confirm each other. The lesson being, use more than one indicator when viewing breadth to determine market health.
Market breadth is one of the factors that use in calculating my “Bear-O-Meter” market health indicator. I last posted the results of the Bear-O-Meter on December 16th: https://www.valuetrend.ca/?p=2621
If you’d like to learn more about utilizing indicators such as breath, sentiment, trend/phase identification, and other technical tools, be sure to stop by at one of the following workshops:
Oakville public library: Thursday January 30th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways
Orangeville public library: Tuesday February 4th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways
As always, please post your comments below – and be sure to forward this blog to others who may find it of interest.