Critical Technical Day Approaching

Both the price indexes and the NYSE A-D line did what they needed to do on Thurs. Nov. 20, 2014. The A-D ratio registered a +977 today, which was a good reading in relation to the magnitude of the price rises in the Dow and SPX. The daily and weekly charts of the A-D line did not resolve their technical problems, but they did take another step in that direction. A strong A-D line performance on Fri. Nov. 21, 2014 will nullify the weekly A-D  H & S pattern and eclipse the previous uptrend high of the daily A-D line.
The NYSE  McClellan Oscillator has made a nascent move up from the 0 area (-3), which a strong A-D day would turn into a full blown uptrend with rising bottoms starting at -65 and passing through -3. Incidentally this potential trend line would not be so steep as to be easily broken. Tomorrow could turn out to be a big technical day for the continuation and power of this uptrend.

Update of A-D Line & Historical Implications

The weekly NYSE A-D line still shows a head and shoulders pattern and the daily NYSE A-D line is tracing out a minor downward a-b-c pattern. The decline could easily terminate soon and the A-D uptrend could quickly resume, but the beginning stages of amplified declines look like the pattern currently manifesting. Or, of course, a moderate correction could occur over a period of a couple of weeks.

In Jan. 1999 the A-D ratio made a top but the SPX, Dow, and Nasdaq (price dominated by large-cap members) continued up until March 2000. So the large cap sector can continue much higher without support from the A-D line, but that does not usually occur until the later stages of a bull market. The risk is that any steep correction in the later phases of  the bull cycle can turn out to be the beginning of a primary bear market.

Since this bull market lost it's A-D and R2K leadership early in 2014, it has experienced much more volatile behavior than the steady rise of 2013, with net annual price gains appearing and disappearing repeatedly.

Dollar, Market Indexes & Indicators for Mon. Nov. 17, 2014

The weekly NYSE A-D line ($NYAD) looks as though it may be forming a head & shoulders top and may be starting to decline from that top. Link to the $NYAD chart:

http://stockcharts.com/freecharts/gallery.html?$NYAD

The US Dollar ($USD) on it's daily chart looks to be making a flat-top consolidation prior to embarking on a substantial new up leg. This chart pattern on the USD seems more reliable to me than a similar one being manifested on the S&P 500 ($SPX) because it is coming at a much earlier stage in it's bull market than the similar pattern does in US equities. Link to $USD chart:

http://stockcharts.com/freecharts/gallery.html?$USD

This bull market has given many deceptive bearish signals in an attempt to keep as few people as possible from riding it, but it must fairly soon act to nullify the bearish weekly $NYAD chart or that pattern may well drag us down into an Elliott Wave Primary IV correction. A wise investor will always want to avoid a Primary wave correction but it is all the more important to do so when it occurs late in a bull market (Primary IV vs. Primary II) because the decline could turn out to be the next primary bear market, and it will be difficult to persuade oneself to sell after the SPX has already declined 20% +.

I believe that the benefits of a strong national currency outweigh it's negatives, so I consider the $USD strength a long-term bullish force for the US stock market.

Value of QE Nov 9, 2014

I have not been able to find the exact figures but US banks have a very large amount of excess reserves in the Fed vaults. The point of QE is for the Fed to increase the amount of reserves it's member banks have so that, using fractional reserve banking ratios, they can provide abundant, low-cost credit to businesses and individuals, thereby increasing the money supply and stimulating economic activity, and thus growth. There is no point in increasing bank reserves further because they have not really used the reserves they already have for making business and consumer loans that much, so they still have more far more reserves than they need.
The reasons for this are deep but the net result has been that the velocity of money in the economy has remained very low. Therefore more QE would just be superfluous for any economic purpose. I guess the banks could just use additional reserves to buy more T-bonds and speculate in equities, as they have been doing. That's the reason QE has fueled the bull market in stocks, as well as bonds. Bonds, of course, have also benefited from low inflation.

Nov. 6 - Nov. 7, 2014 Markets & Contrary Opinion, Movie "Fury"

With both the DJIA and DJTA making new highs Nov. 5, the market gave us a Dow Theory bull confirmation signal. However, the NYSE A-D plurality at +548 was weak for a +101 point day on the DJIA. The R2K was up only .14%. On Nov. 6 the NYAD A-D  posted a weak +415 with the DJIA up +70 and the DJTA up 113. With the Dow Industrials and Transports again making joint new highs on Nov. 6, we have a second consecutive day of Dow Theory bull market confirmations. The NASDAQ looked stronger on Nov. 6, up 17.75 and threatening to make new highs. The R2K did better on Nov. 6 than on Nov. 5, with the R2K up .41%. The RS of R2K vs SPX, after rising above its 50-day MA, has made a short-term double top in the .5850 area.
So the large and mid-cap indexes have put in 2 solid up days without strong participation by the A-D line or R2K. I still don't think that type of market segmentation can continue indefinitely in this bull market, even though it has done so in past bull markets. We need to see much increased strength in the A-D line and the R2K for this uptrend to continue as an impulse wave rather than fizzling out and giving way to a corrective wave. The first link is to $RUT:$SPX (relative strength of Russell 2000 vs S&P 500) and the second one is to the NASDAQ:

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

http://stockcharts.com/freecharts/gallery.html?$COMPQ

Link to Fat Pitch article discussed below:

http://fat-pitch.blogspot.ca/2014/11/what-fund-flows-tell-us-about-current.html

The correct procedure is usually to take a position opposite to the majority, the famous contrary opinion approach. Is there a reason not to do that today? If there is one, it would be because the number of market participants is already much thinned out from what it was before the 2002 and 2008 bear markets reduced the percentage of public participation in the market. While the amount of money being invested is higher than ever, the number of people investing it is lower. So if we count all the middle class (and former middle class) people who are staying out of the equity markets, we could make an argument that such a phenomenon is itself an indication of widespread skepticism. The players who are left in the market are mostly the wealthy, the institutions, and the professional traders. So the bullishness that Fat Pitch is reporting might just be a measurement of what different segments of informed investors are thinking and doing. Of course, my argument could just be a rationalization for remaining bullish when I should just take the Fat Pitch documentation at face value.
If anyone has seen any recent data to contradict the above hypothesis, it would be enlightening to see such information.

By the way, I liked the movie Fury with the demurrer that the final scene of a single crippled tank and it's crew destroying half or more of a Waffen SS batallion assumed a great deal of combat ignorance on the part of the Germans. Audie Murphy's exploits in driving off a German company with a 50 caliber machine gun mounted on a half-track in NE France was a real life event that gives the Fury finale a hint of credibility. I also read that the German Army awarded a Romanian soldier the Iron Cross for an incredible exploit in fighting off a large Soviet force in the Ukraine, but I don't remember the exact details .


                                                                                                         

Possible Dow Theory Bull Market Confirmation on Wednesday, Nov. 5, 2014

If the Dow Transports close higher tomorrow, Wed. Nov. 5, 2014 and the Dow Industrials close 8 or more points higher, we will have simultaneous new highs in both Averages, the strongest kind of Dow Theory bull market confirmation.

Blog Posts on Elliott Wave Lives On: Oct 28-Oct. 31, 2014

George Schaeffer says:
October 28, 2014 at 6:47 pm:

The R2K ($RUT) was up 2.86% today compared to a rise of 1.19% in the $SPX. $RUT:$SPX (relative Strength of $RUT vs. $SPX) is showing signs of a nascent uptrend:

http://stockcharts.com/freecharts/gallery.html?s=%24RUT%3A%24SPX

The A-D line recorded a plurality of +2098 with the DJIA up 188 and the SPX up 23 1/2. The McClellan Oscillator rose to +80 and it’s derivative, the Summation Index, has climbed from a low of -635 to today’s -220. Today’s breadth performance was strong enough in relation to the rise in the large-cap price indexes to be considered part of what PN Haurlan and Dave Holt of the former Trade Levels service called a “kickoff impulse”. And I think “impulse” (as in “impulsive”), rather than corrective is the right way to describe the market action since the 1821 SPX low.

IAWT says:
October 30, 2014 at 4:05 pm:

"This not acting like a corrective wave at all in my opinion. It hasn’t from the start. It looks like a sub dividing kick off rally wave. Once again….oct 2011 deja vu. Down into Turkey day then rockets back on into February."

George Schaeffer says:
October 30, 2014 at 6:05 pm:

I agree with IWAT and have posted that the rally since Oct. 15 has looked like a motive wave more than a corrective wave because of the strong "kickoff impulse" characteristics it has displayed. This description is founded on the broad and deep market participation that has characterized it. With the McClellan Summation Index having risen to -90 from -635, we see objective evidence of a persistently strong A-D line. The chart pattern of the relative strength of  R2K vs. SPX still looks like the early stages of an uptrend. It needs to surpass it's preceding high of .5858 to confirm that it's recent rally is more than just a corrective uptick.Again here is the chart of $RUT:$SPX:

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

The evidence in support of this rally being a corrective wave is Tony's OEW work and the V-shaped pattern the rally has traced out. Impulse upwaves tend to have a broader bottoming pattern and corrective upwaves are more likely to be V-shaped. The market was strong but somewhat mixed today with the DJ Transports down 84 while the DJ Industrials were up 221.
If the rally were to continue showing this kind of incomplete participation by market segments, I would consider that to be support for the corrective B wave thesis.
However the DJTA had posted a new high on Tuesday while the DJIA had lagged considerably. The strength of the Industrials this week, and especially today, combined with the weakness of the Transports over the last 2 days will create a better opportunity for a joint closing by both the DJIA and DJTA at new highs. This would represent a Dow Theory bull market confirmation and would also be bullish for the intermediate term trend, coming as it might only 2 -3  weeks after the low point of a sharp correction.

I should add that my agreement with IWAT does not include this part of his post:

"Once again….oct 2011 deja vu. Down into Turkey day then rockets back on into February."

I don't expect a decline into Thanksgiving from today's close. After making new highs, we might expect a kind of consolidation before the rally resumes. The day before Turkey Day is often a good up-day.

George Schaeffer says:
October 31, 2014 at 3:14 am

The correction down to the 1821 low did not look nearly deep or long enough to me to be a P4, but it did look to be about the right magnitude for an M4. I believe that the surpassing of the SPX 2019 high will occur by Fri., Nov 7.  If that occurs with good A-D line strength and wide price index participation, that will be strong enough proof for me that we have completed M4 of P3 and are now in M5 of P3. Tony's OEW group will probably figure out a wave pattern that describes recent price action in those terms.

Technical Points for the $SPX on Oct. 20, 2014

The $SPX is coming up from below against 2 vital resistance points: it's 200-day SMA and the 1905 low of Aug 7. For those few on this site who may not know this:  Once a low point which has been downside support is broken, it becomes resistance when the price of the item moves back up towards it from below. So if the $SPX can rise above these former low points, it will have made an excellent technical accomplishment. The 200 day SMA was not a previous low point per se, but it did provide technical support for the $SPX for a long time period. So the principle described above works the same way for it as for the 1905 former low.
Additionally,  Richard Russell's PTI stopped going down right at it's 89 day MA on the day when Major Wave A  of Primary Wave 4 probably made it's low. Russell's Dow Theory Letters has used the 89 day MA as the dividing line between bull and bear markets for decades, and it seldom if ever has given a wrong signal. It seems to be an exception to the principle of indicators losing their validity after too much exposure.

Link to $SPX chart on Stockcharts.com:  http://stockcharts.com/freecharts/gallery.html?s=%24SPX

                                                                                                   

Mystery Indicator & Monday Oct 13 2014 A-D Action

The Mystery indicator is starting to move down for all the Price Indexes, but not yet in proportion to the degree of the price declines. I am at the point of concluding that it is of no use in predicting intermediate-term corrections (do not mean intermediate Elliott waves). Maybe it is accurate in predicting or tracking the primary (long term) direction of the various price indexes, or maybe it's numerous detractors are correct in believing it is a just plain useless indicator. I am therefore discontinuing my commentary on it until the bull market is over; then I will try to see how well it matched market price action over the course of the entire bull market.
The small-cap R2K was down only .38% today and the A-D line posted a -1116 on a day when the $SPX recorded a -31.39 and the DJIA a -223.  On a day like today, the R2K could easily have put in a  -2.5%  day and the A-D line could easily have displayed -2000+ declines over advances. Inasmuch as the latter two indexes had previously been the market leaders, maybe this is a sign of Major Wave A decelerating, and hopefully  approaching conclusion.
The RS of the R2K vs SPX made another potential bottom and incipient turnaround today, but we shall have to see if it becomes an uptrend. Here is the link to the chart:

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

Dow 167 Point Rally Sept. 26, 2014

On Thurs. Sept 25 the DJIA was down 264 points and the $SPX 32 points. On a Big Down day like that, one might have expected the NYSE A-D line ($NYAD) to show a reading of -2500 or lower. But it only posted a plurality of -2034. On Friday, when the Dow rallied 167 points, the $NYAD line plurality was +1416, much better than the +550 that it recorded on Wednesday Sept 24, when the DJIA rose 154 points. The $NYAD's derivative indicator, the McClellan Oscillator (filter of the  $NYAD) moved up from -79 to -43.
Just as a weakening A-D line portended a sharp market sell-off, a strengthening A-D line will confirm a resumption of the uptrend. Such a relationship is usually the case, but toward the end of bull markets the large cap stocks can continue up strongly without support from the A-D line. The Jan. 1999 - Mar.2000 period was a classic example of this. So far in this bull market, the A-D has led the market up, and the $SPX has not been able to mount a sustained rally without accompanying strength in the $NYAD. That pattern shows no evidence of changing now. For the $SPX uptrend to strengthen,challenge and surpass the $SPX 2019 high, Friday's improving A-D action must continue, and preferably accelerate.   The fact the the A-D line became resurgent right at the bottom of the 1973 Objective Elliott Wave pivot range (at 1966) seems like significant support for the idea that 1966 was a Minor 2 bottom and that a Minor 3 rally is now commencing in earnest.
While there is a correlation between the A-D line and the $RUT, it seems to exist mainly in one direction. Which is to say that for the $RUT to make new highs, it is necessary for the A-D line to do likewise; however the A-D line can ascend to new heights without the $RUT following suit. Tony Caldero and various Objective Elliott Wave posters have commented that the $RUT seems technically broken. For the rest of Primary III I expect that the R2K will at best prove to be only a short-term trading vehicle, and a stressful  one at that. Links to Stockcharts given below:

$NYAD:   http://stockcharts.com/freecharts/gallery.html?$NYAD
McClellan Oscillator:   http://stockcharts.com/h-sc/ui?s=$NYA&p=D&yr=3&mn=0&dy=0&id=p83733137120
Russell 2000 Index ($RUT):   http://stockcharts.com/freecharts/gallery.html?$RUT
RS of $RUT to $SPX:    http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX
 

$NYAD, NYMO, NYSI & $RUT Sept 22, 2014

Obviously the $NYAD is really doing poorly and the relative strength of the $RUT vs $SPX is falling below its support,  nullifying what had been a potential base building process:

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

The $NYAD seems to be heading down for support at 101,400. If that is the case, it implies some extended down side action for the R2K and to a lesser extent, the market as a whole (and the $SPX):

http://stockcharts.com/freecharts/gallery.html?%24NYAD

The NY McClellan Oscillator could be trying to make a short-term double bottom around -60; if it does so that point would connect with the Aug 1 low of -90 to create a rising trendline. If the NYMO stays above that potential uptrend line, it would pull up the Summation Index as well. If the A-D line continues to decline sharply, the NYMO will fall below the -60 level and pull down the Summation Index below the 0 line. The Summation Index measures the persistence of the A-D line in a particular direction. A rising SI almost always means the market is rising and is an especially good omen for the R2K.

Will Rally Extend Before Larger Correction?

The McClellan Oscillator has remained positive during this pullback and thus the Summation Index has continued to post positive gaps. If the McOs does not decline further and then the A-D line posts some +1000 to +1500 days, there would be support in the SI for a 9 wave minute 3 of minor 3 of intermediate 3 of major 5 (Elliot waves). Any further weakness from here would nullify that possibility and confirm Tony Caldero's preferred scenario of an $SPX decline to the 1929  pivot, with my $RUT projection being 1143 (based upon my Mon, June 9 post).

 http://stockcharts.com/h-sc/ui?s=$NYA&p=D&yr=3&mn=0&dy=0&id=p83733137120

A-D Line, McClellan Oscillator, & Summation Index June 6, 2014

    The A-D line posted two consecutive very strong days: +1731 on June 5 and +1473 on June 6. This resulted in the McClellan Oscillator rising to 35.72  with the Summation Index breaking above it’s high-level base when it cleared 850 and with it now moving up towards it’s early March high of 1050. The SI has moved up in a series of fits and starts but has created a definite uptrend. We'll see if it has enough power in it to reach the March high without making a short term correction first.         
    In the meantime we can look at the relative strength chart of the $RUT vs. $SPX.  Here is a link to the chart of $RUT : $SPX for June 9: 

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

   It has broken above it’s downtrend line and might come down to back test it on any correction. I am thinking the RS ratio would have to move higher before it did fall back to the downtrend line, however. I am not a paying member of Stockcharts so I cannot draw in a trendline. You’ll have to use a soft straight edge on your monitor screen. That means the $RUT price would be about .5950 to .5930 x whatever the $SPX is at the time it touched it’s downtrend line from above.

   To have forecasting value, you would have to estimate what the $SPX might be when the RS ratio hit the .5950 – .5930 range (I am talking about a short-term correction here). But that would be an easier task than estimating the more volatile $RUT price. The $SPX closed at 1928 on the day it broke above the down trend line. By watching the $SPX as the RS retraces to the downtrendline (say at .5940), we might estimate to within a couple of points where the $SPX would touch it, and using the RS ratio value, calculate where that would be for the $RUT.

Using the above method and guessing that the $SPX would be around 1924 when the RS approached it's previous down trend line from above, the $RUT value would be about .5940 * 1924 = 1142.86.  

Thursday, June 5 2014 Technical Action in the $RUT (R2K)

As I wrote on Wednesday’s OEW blog, the R2K needed to break above it’s 50-day MA. The 200-day MA and the 50-day MA were almost creating a symmetrical triangle in the apex of which the R2K was squeezed. The R2K ($RUT) punched decisively through the upper bound of this “triangle” (the 50-day MA) as well as through the downtrend line that Jedi showed us. Here is a chart of Thursday’s action:

http://stockcharts.com/freecharts/gallery.html?$RUT

Here is a chart of the R2K RS to the $SPX for Thurs. It made a nice upthrust out of it’s base but still has a lot of resistance points to get through, including it’s own 50-day MA.

http://stockcharts.com/freecharts/gallery.html?%24RUT%3A%24SPX

The NYSE A-D line turned in a nice +1731 plurality today, confirming the strength in the $RUT.

A-D Line & Derivative Indicators May 12

The rising NYSE Summation Index scenario is viable again. After a false start caused by the NYSE McClellan Oscillator falling below 0, the NYSI posted a nice point to point interval of +16.46 on Monday, May 12 resulting in an Index value of +827.45.  A +1797 day on the  NYSE  A-D line moved the McOs from negative territory up to a +16.46 reading Monday. The R2K posted a strong +2.39% reading, providing hope that it may have begun an uptrend. The NYSE High-Low line recorded a daily +326, a number which could possibly double if we continue to have strong up days in close succession. The NASDAQ McOs rose to +12.86 on the strength of a NASDAQ A-D plurality of +1593. The NASDAQ Summation index is well below zero at -470.47, reflecting an extended period of negative McOS readings. The Summation Index is a cumulative graph of daily McClellan Oscillator values for a specified index.
    Both the A-D line and the High-Low line for the NYSE made new highs today and even the NASDAQ High-Low line is not very far below it's all-time peak. But the A-D lines for the respective indexes must manifest continued strength for these promising trends to continue. I tend to believe that this time is the real deal, but time will tell.
 

April 25 McClellan Oscillator, $RUT, & Summation Index

Thanks to Radrian for the great $RUT update. It looks as though my hoped-for scenario of strong A-D performance lifting the $RUT and the whole market higher has been nullified and must start over almost from scratch. The NY McOs fell to -3 today, thus causing the NYSI to post a negative gap and begin rolling over. If we are lucky, the McOs will hold in the 0 area and move up into positive territory again soon. In the big picture that would cause the NYSI downward turn to end up just being a shallow dip creating a higher low. I am far from confident that that will happen, but maybe my fear is a good contrary indicator.

April 22, 2014 $RUT, A-D Line, & Summation Index

It  seems to me that the $RUTovercame tough resistance in the region of 1110-1130 where it's action was very choppy and is now moving steadily higher, as evidenced by closing on it's high of the day. We'll see if the choppiness resumes when it hits the resistance areas Radrian discussed above (1147-1166). If it can ascend in a steady manner through that potentially turbulent zone, that would be a huge plus and a sign that most bears on this index did their selling around the 1120 (+-10) area.
We got the excellent day Tuesday April 22, 2014 with the A-D line up 1431 and the Russell 2k up 1.16% that I said we needed in yesterday's post  It looks like the larger caps were the ones that faded out near the close today. R2k Rel Strength line has made a U-shaped bottom and turned up. I didn't see any choppiness in R2k today so the 1147-1165 resistance area  hasn't been tough so far. I will discuss the McOs and Sum Index when those numbers are calculated by Decision Point, but you can refer back to my post of yesterday to see the basis of my argument.
  Jedi (poster on Tony Caldero site) and Tony have been making the point that the R2k usually tops out before the $SPX etc and of course that is true. I would add the A-D line to that category as well. That is the very reason  I have been focusing on the $RUT in the first place (as well as the fact that I have a large long position in a small cap mutual fund). But where Radrian brought us to in his analysis of the R2k was a discussion of how the index behaved at various  potential resistance areas to determine whether the $RUT had indeed topped out for the duration or not.  It certainly is entitled to top out at any time, given it's long run as a leading index.
    I have been closely observing it's behavior at the various resistance levels pointed out by Radrian, as I discussed in my earlier post. Doing the follow up that I promised in that post, the McClellan Oscillator closed today at 37.30 and that produced a nice-sized upside gap (distance between points) on the Summation Index, which has clearly started an uptrend which has a look similar to what the early stage a of strong breadth impulse might display. Whether the SI can continue to produce large upside gaps is dependent on the McOs's source indicator, the A-D line having large positive daily pluralities. If all that happens, the R2k should not have much trouble sailing through overhead  resistance.  And if the $RUT develops a strong uptrend, it is almost inconceivable that the large-cap indexes will not make new highs.
 This entire bull market has essentially moved up on unimpressive volume and that is actually an indication that this market is still in the control of high-powered smart money and may not be as far along in it's time progression as is generally believed. I will leave it to the EW and OEW experts to parse out the wave structures if my bullish scenario continues to develop as I hope it will.

April 21, 2014 $RUT, A-D Line, & Summation Index

   If the market falls, it will surely take the $RUT with it. But I am more optimistic than Radrian (analyst of $RUT on Tony Caldero OEW site) about the R2k because in an only moderately strong market on Monday the R2k closed on it's high of the day. It seems to me that it overcame tough resistance in the region of 1110-1130 where it's action was very choppy and is now moving steadily higher, as evidenced by closing on it's high of the day. We'll see if the choppiness resumes when it hits the resistance areas Radrian discussed above (1147-1166). If it can ascend in a steady manner through that potentially turbulent zone, that would be a huge plus and a sign that most bears on this index did their selling around the 1120 (+-10) area.
   The A-D line (closely related to the R2k) made a new high Monday; the McClellan Oscillator (McOs), a kind of filter or ema of  the A-D line, has risen above 0 and looks as though it wants to move higher. The Summation Index (SI), calculated by adding the daily McOs numbers, is now showing the beginning of an uptrend with larger gaps between it's points. It has not yet produced what Gene Morgan of the old "Charting the Market" TV show called "breakaway gaps", but it is only one strong breadth day, like the one we had on April 16, from doing so. Another hopeful sign is that the Sentiment Trader's long-term Index remained at the 50 area for the last two Fridays, meaning that bullish sentiment for the long term direction of the market was neutral. This indicator is most useful when viewed as a "contrary opinion" indicator. The less bullish it's reading, the further from the top the market is.