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.