Is it safe to stay invested in stocks right now?

December 9, 20212 Comments

Quick one today folks. I am filming the TA course this week and probably into next week. Time crunched is an understatement for my life right now. So–lets get right to the topic of the day, which is to look at the long and mid termed technical profiles of our two favorite indices (TSX and SPX). Is it safe to stay invested in stocks right now? We can try to draw some conclusions after looking at the charts.

TSX & SPX long termed view with ROC (60 month)

I note in the “momentum indicators” section of my upcoming technical analysis course that there are 3 timeframe sensitivities when it comes to momentum indicators. These are – long termed big picture indicators, mid termed (6 month to a year) indicators, and shorter termed very whippy (days to weeks) indicators. One of the super long termed momentum indicators I cover is the Rate of Change indicator. Its a simple indicator that compares the current price to its price (in this case) 60 months ago. Every month you get a new plot point with that comparison. Typically, momentum indicators are plotted with shorter lookbacks, but I use this one to give me the macro view. As you will note on the SPX chart below, the ROC tends to peak sharply at market highs, which lead into corrections. The ROC  applied against the SPX on a monthly chart is high but is not peaking…..yet.

Here’s the TSX with the same ROC indicator. Note that ROC is flat right now, no sign of peaking.

TSX & SPX mid termed view

Now lets take a look at these indices from a mid termed point of view. We’ll look at weekly charts with the 50 day (10 week) and 200 day (40 week) moving averages, along with price momentum oscillators RSI and MACD. Trend is up as indicated by higher highs and lows on the chart, and by the 40 week SMA. Note the 10 week SMA is also supporting the market – although it can be whippy. Momentum is a mixed message–RSI is sideways, while MACD is diverging negatively. Negative divergence by MACD is often a leading indicator for a pending correction. We need to keep an eye on that. Trend trumps indicators though.

We also look at Accumulation/Distribution (cumulative moneyflow) at the bottom of the chart and the Chalkin Moneyflow (CMF) momentum oscillator at the top. Moneyflow maintains its long termed uptrend via the cumulative line, but it is losing its momentum as seen in the CMF at the top.

 

Here’s the TSX with the same array of indicators. Pretty much the same picture, with a small deviance in that the 10 week SMA is not holding the market up. No big deal – its more important that the market shows higher highs and lows and stays over the 200 day/ 40 week SMA. Note that I chopped the price level scale off of the chart when I clipped it–my bad…but you get the picture. Bullish trend, waning momentum.

 

Conclusion

Trend trumps all. Right now, the market is going up, and the moving averages support it. Seasonality is good here too. Still, we need to keep an eye on that MACD divergence. If we see trend start to fail, the MACD adds the evidence that such a failure (lower low) on the price chart is the real McCoy.

 

What about oil stocks?

That’s a question I’ve been getting a lot lately. I address the question on this video. It should answer anyone’s questions regarding “should I continue to own energy stocks?”

2 Comments

  • Keith: I couldn’t find a place to comment on your latest video, so, I hope you don’t mind if I ask you here. On your last video you talked about a possible opportunity about the Russell 2000 and specifically IWM the ETF. It has breached the 210 mrk as we speak at 12:00pm Monday. Would, as you say, wait 3 days before deciding what to do, or, because of the broad market decline, do you throw this out?

    Reply
    • Tom–always, always, always (did I say always?) wait at least 3 days to confirm a breakdown of support or a breakout through resistance. My course is coming out in mid January. You should take it. You will find it of great value, as I dedicated the largest part of the program to buying and selling strategies

      Reply

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