1-21-18 Market Commentary

 

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Market Breadth: With this past week’s market advance, our Bull/Bear Point and Figure Ratio at 1.60 fell from 1.94, last week, remaining within bullish territory. The total count of securities in bullish or bearish patterns increased fractionally to 3474. The count of bearish stocks increased 13%, while the count of stocks in bullish patterns decreased 7%. The Sand 2 Pirls P&F Market Breadth Summary Chart shows us a market now twenty-one 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) rose 58 points for the sixth advance in fourteen weeks. At a positive 380.66 points, it  has risen above the February 2017 and May 2016 highs, continues above the July 2017 high and below all four remaining tops in the last 30 months, and continues above all five bottoms below -100 in the last 30 months. 

Volume Analysis: In this week’s volume analysis, the NASDAQ Composite Index ended in neither Accumulation nor Distribution mode with average daily volume higher than the prior week. In the last two weeks the NASDAQ had three (3) Accumulation days and one (1) Distribution day. (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 also, the NASDAQ ended in neither Accumulation nor Distribution mode on higher average daily volume.

Momentum: The CCI(20) daily in a Woodie’s Up trend is now at +125.48, down from +154.17 last week. At Friday 12/29 close, the CCI(20) daily was within the +/- 50 range presenting a ZLR (Zero Line Reject) pivot and Long entry signal at Tuesday 1/2 close. We will follow the results of this trade simulation in next week’s commentary and plan to exit when the CCI(20) daily falls 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 ninety weeks ago, while the Daily CCI(20) began a Woodie’s up trend ninety weeks ago.
The CCI(20) weekly at +174.49, is u from +169.48 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 four of the bottom five are negative. Summary: S&P Retail, KBW Bank, Brokers, and some Tech on top; REITs on the bottom. Bullish: S&P Retail and Computer Hardware continue in the top five. Oil Services and Oil have left the top five. Bearish: REITs continues in the bottom five.
Focus this week: From www.zerohedge.comBofA: “This Is The Magic Number That Will Burst The Stock Bubble”“. The following are some key points and charts.

  • …the one dominant sentiment in the market right now is irrational euphoria, also known as “buying panic”, as demonstrated in the following Bank of America chart, which shows that in the past 4 weeks, a record $58 billion has flown into stocks.

But while it is accepted by virtually everyone that markets are now in the irrational, melt-up, “blow off top” phase, and even the WSJ writes “‘Melt-Up’ Rally Propels Dow Above 26000 as Fear Turns to Greed“, the truth is that nobody knows how long this phase can last.
 

  • Bank of America’s Michael Hartnett has come up with not one, but three distinct indicators to keep an eye on, which – when triggered – would suggest that the days of the market bubble are finally numbered.
    • First – credit, which as the chart below shows is already rolling over:

    As Hartnett explains, “credit is “glue” keeping cross-asset bull market together but flows rolling over and price action looking fatigued.” This to Bank of America is “the clear bear catalyst for us.

     

  • Second, “the wings of Icarus”: this is the “sundry” category which dumps all possible fat-tail risks together, including the risk of economic overheating.

     

    US macro surveys

    Here the euphoria is obvious: Jan/Feb investor conviction in fresh upside to stocks driven by: 1. low interest rates (implied Fed, ECB, BoJ tightening next 3 years 80bps, 73bps, 10bps), & 2. high corporate earnings (US macro surveys consistent with 5-6% US real GDP growth…

     

  • Third, and appropriately, “Three Is The Magic Number

    Finallty,for those curious what others on the street believe will finally pop the bubble, BofA’s CIO writes that client marketing feedback suggests the correction will occur only once real GDP forecasts >3%, wage inflation >3%, 10-year Treasury yields >3% & SPX >3000.
     

–Donald Pirl www.s2pmarketsignal.com


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