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Thursday, February 9, 2012

Signs Of Weakness? Not Here

One of the problems with chart interpretation is that is is just that, interpretation. There are no set of "rules", so the same chart can produce many different interpretations. In all the ways I have looked at the chart for the last couple of weeks, there is one thing in common: the market shows no signs whatsoever of a pending trend change. There are signs it is slowing down, particularly in stochastics, and it is overbought by RSI, but MACD is still climbing, if much slower than before. O'Neil pays no attention to momentum indicators, probably for good reason, and depends almost entirely on price and volume patterns. by that standard, there is almost zero possibility of a reversal of trend anytime in the near future. We are porbably due for a pullback soon, but it should be very small. Normally a trend change is signalled by distribution days, and as I count, we have none.

If the SPX shows ever so subtle signs of slowing down, the Nasdaq 100 shows none. MACD is still in an up trend, stochastics are at 97 and rising, and volume is also rising on up days. By any projection method I use, we are nowhere near topping out here.

At least the NYSE composite shows a little weakness (very little, actually). I used to post a chart of the Nasdaq composite with a price relative line to the NYSE composite. When it was rising (the Nasdaq out performing), the market was in an up trend, and when the NYSE outperformed it was in a down trend. I don't have to put that line here, it is pretty obvious which one is stronger now.

Ironically, the percentage of stocks on the NYSE above the 50dma has been stronger than the same indicator on the Nasdaq for some time now. I expected this to turn down, and it has. that does not necessarily mean upcoming market weakness; it could be just that on several stocks the rising 50dma has finally caught up with price. This is still well above 75, and I wouldn't sweat it unless it starts heading toward 55. 
The Nasdaq is showing about the same thing, but it does look slightly weaker. Again, this is so far from any bearish territory that it isn't worth losing sleep over for at least two weeks, probably longer.

You probably saw the news today about the foreclosure fraud settlement, which no doubt has helped fuel this rally. I never thought rewarding failure and punishing success could be so profitable.

I will have the new highs update shortly.

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