12-17-17 Market Commentary


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Market Breadth: With this past week’s market fractional advance, our Bull/Bear Point and Figure Ratio at 1.32 was virtually unchanged from 1.34 last week, remaining within bullish territory. The total count of securities in bullish or bearish patterns increased 1% to 3114. The count of bearish stocks increased 2%, while the count of stocks in bullish patterns increased fractionally. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now sixteen weeks in bullish territory. Paid subscribers have access to the OpenOffice Calc data from which the chart is generated.

The well known market breadth indicator, the NASDAQ McClellan Summation Index (NASI) fell 49 points for the seventh decline in nine weeks. At a positive 88.21 points, it  continues below all seven tops in the last 30 months, and continues above all five bottoms in the last 30 months. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in Accumulation mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had three (3) Accumulation days and three (3) Distribution days. (Accumulation days are counted when the index closes up on higher volume than the prior day while Distribution days occur when the index closes down on volume higher than the prior market day.) Last week, the NASDAQ ended in neither Accumulation nor Distribution mode on lower average daily volume.

Momentum: The CCI(20) daily in a Woodie’s Up trend is now at +136.85, up from +53.4 last week. At Wednesday 12/6 close, the CCI(20) daily was within the +/- 50 range for a ZLR (Zero Line Reject) pivot and Long entry signal at Thursday 12/7 close. We will continue to follow this trade simulation in next week’s commentary. Our trade exit occurs when the CCI(20) close drops below +100.
In Woodie’s CCI trading system, six consecutive bars above or below zero are required for a change of trend. The Weekly CCI(20) of the NASDAQ Composite Index began a Woodie’s up trend eighty-five weeks ago, while the Daily CCI(20) began a Woodie’s up trend fourteen weeks ago.
The CCI(20) weekly at 123.887, up from +108.27 last week after forming a ZLR (Zero Line Reject) Long entry signal for Tuesday 9/5 open. Our rule is to stay in the trade until the CCI(20) drops below +100. We will continue to follow the result of this trade simulation in next week’s commentary.
Industry Rotation the last two weeks: All of the top five industries are  positive and all of the bottom five are negative. Summary: Some Tech and Gold & Silver on top; Oil Services on the bottom. Bullish: Comp Tech, Disk Drives, Computer Hardware, and Semis PHLX have entered the top five, with all except Computer Hardware leaving the bottom five. Oil Services has left the top five and entered the bottom five.  Bearish: KBW Bank and Brokers have left the top five. Gold & Silver PHLX has left the bottom five and entered the top five.
Focus this week: From www.ffwiley.com/blogNever Mind Tea Leaves, Here’s a Strong Signal from the Economic Dashboard” by Daniel Nevins. The following are some key points and a chart.

  • most forecasters expect the economy to expand through next year, believing that the Fed and the yield curve aren’t yet restrictive enough to trigger a recession.
  • The idea is that the economy tends to turn over when investors lose money, borrowers find it hard to obtain financing, business earnings weaken, and banks struggle with a flat or inverted yield curve.
  • Asset gains have been stellar over the past four quarters, far above the flat or declining performance that nearly always precedes business cycle peaks.
  • Of all the “rules” in economics, the rule that asset prices lead the business cycle is as reliable as any, and they’re a long way from recessionary as of this writing. In fact, if Q4’s gains match the average gains over the past four quarters, real asset gains for 2017 will reach 25% of personal income. That’s three months of personal income from asset gains alone—hardly an environment where households stop spending and the economy slips into recession.
  • But eventually, monetary tightening will have greater effects, and the outsized asset gains of recent years will become more burden than boon.
  • …we’ll just couple our bullish economic view for H1 2018 with a chart we first shared last week:

  • Although the chart includes only seven business cycles to keep it readable, the full history shows asset gains, adjusted for inflation, jumping above those of any other cycle since the Fed began recording gains in 1947. It paints a bigger picture behind the “virtuous” loop that’s currently fueling the economy and thus far impervious to the Fed’s snail-pace tightening.

–Donald Pirl www.s2pmarketsignal.com

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