Posts filed under “Technical Analysis”
Source: Chart courtesy of Carl Swenlin, Decision Point (annotations by Ritholtz)
One of the best ways to identify a market that is exhausted is to look for divergences between Breadth (i.e. the number of advancing equities versus the number of declining ones) and Price (i.e. new highs). That is a concept that Paul Desmond of Lowry Research has researched and written about many times over the years.
As the chart shows, markets saw major divergences in both 2000 and 2008, as stocks continued to make new highs in prices but failed to do so in the advance-decline line. Prices kept rising, but fewer and fewer issues were participating in the new highs.
Typically, this is reflective of a narrow market being dragged upward by a handful of mega-cap stocks.
That is not what we see today. Market breadth remains broad, with lots of equities participating in the rally. There is not any major divergence between the advance-decline line and equity prices. Hence, the breadth is confirming price, strongly suggesting that this current bull market rally is not over.
Timers and top-callers be warned: We may certainly have minor or intermediate corrections, but this remains a bull market.
Note: We will explore this issue in greater detail at some future date.
S&P 2300? Give It Four Years: Ritholtz Chart Source: BAML It took more than 13 years, but the S&P 500 managed to eclipse its 2007 highs of 1576 earlier this year. This move takes it out of a long term trading range, and according to the Technical Analysts at Bank of America Merrill Lynch,…Read More
What do you get when you cross an overbought market with too few bears? Often, that combination of complacency leads to a correction. So far, all it has produced is a lot of frustrated contrarian traders. Stephen Suttmeier, technical strategist at Merrill Lynch, put the situation into broader context in his monthly chart book…Read More
A hedge fund manager friend had mentioned a research report that had noted the Dow, FTSE and Nikkei were at neither all time nor 2013 highs. Those there indices sounded like it a bit of cherry picking to me. So rather than succumb to the usual confirmation bias, I decided to see what major indexes…Read More
Shiller’s cyclically adjusted price-earnings ratio click for ginormous chart Source: Bloomberg Robert J. Shiller, a co-winner of this year’s Nobel Prize in Economic Sciences says US stocks are expensive. They are the most expensive relative to earnings they have been in more than five years — since the lows follwoing the great collapse…Read More
A 90% up day is bullish & the stats support a year-end rally click for giant table Source Merrill Lynch BA On Thursday. we had a huge up day, with US markets gaining ~2%. Some folks credited the possibility of a debt ceiling deal, while others called it a low volume short covering…Read More
click for ginormous chart Source: Investech We are almost through September and despite its reputation for volatility, the month has seen strong upside and new bull market highs. The S&P500 lost “only” 4.6% in August, but based on the Sturm und Drang you are forgiven for assuming it was 3X that amount. As…Read More
You know I love these sorts of things: Dr. Ed Yardeni has a nice set of monster sentiment charts posted at his site. The link is Stock Market Indicators: Fundamental, Sentiment,. & Technical and its 20 pages of fun. courtesy of Yardeni Research, Inc. September 17, 2013.
Reading through the classic textbook, Technical Analysis of Stock Trends, last night I stumbled upon a stunning stat comparing the returns of a strategy using Dow Theory versus buy and hold. Using Dow Theory buy and sell signals would have turned an initial investment of $100 in 1897 into $492,597.38 by the end of 2010. …Read More
Shiller P/E Bottoms Coincide with Major Lows, Downtrend Breaks Precede Rallies Click for ginormous chart Source: Merrill Lynch Nice chart from Stephen Suttmeier & Co looking at how the Shiller P/E ratio compares to regular P/E at major lows, downtrend breaks, and before rallies: The good news is that secular trading ranges lead to…Read More