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.

          Stock Market Technical Review for July 18

   This post begins with my comment on Tony Caldero's Thurs., July 18, 2013 Update on his Objective Elliott Wave (OEW) site. He offered 2 alternative Elliott wave counts and I am presenting my critique of  his first wave count. I then continue with non-Elliott wave market analysis.

   The main issue I see with Tony's first count is that 1685-1672 is too small to be a legitimate minor corrective wave 4. The fact that it does satisfy the theory of alternation in that minor wave 2 was deep and thus minor wave 4 could be flat is the main factor that could give that interpretation reasonable credibility.
    We did have new highs by the DJI, DJT, Wilshire 5000, Russell 2000, S&P Midcap 400, Value Line, and XLF. The Nasdaq barely made a new high, and the related XLK declined a little bit. The NYSE A-D line had a moderately strong day (+1104) but failed to equal it's old high. The Nasdaq A-D line made a new high by a wide margin.  So it looks to me as though a few large-cap Techs are the main weak link in the market. I was especially impressed by the new high in the XLF (Financial ETF) and the strong performance of the DJU (+.90%) in the face of the recent surge in 10-year rates.
    The previous bear market was all about weakness in the financial sector, and that remains, IMHO, the critical sector for the market and the economy. Weakness in technology and other cyclicals just indicates the underlying fragility of business activity, which will give the Fed all the more reason to postpone tapering of QE3.
    It definitely would be reassuring  to see the NYSE A-D line equal and then exceed it's previous high slightly above 78, 000. If it moves up to the vicinity if it's old high and then consolidates, it would be etching out a potential inverted head and shoulders (cup and handle) bottom, which is a quite bullish pattern. The NYSE New Highs-New Lows line, which had been consolidating recently, has moved up to new highs while the Nasdaq NH-NL line has been almost unhesitating in it's upward climb to new highs, including July 18.