Monday, January 21, 2013

January 21, 2013 - long term strength, short term weakness

The bull market is showing good strength over the long term, but the short to intermediate term is not looking very good.

Here are two long term indicators that have reached new levels of strength for this bull and are breaking the pattern of  multiple divergences associated with bull market tops.


> NYHL - 52 week new highs - lows



> the percentage of S&P 500 stocks above their respective 50 day moving average.





This suggests the bull may enter an acceleration phase, a fact also supported by the strength in employment and housing. These may have reached their peaks for the recovery, but no bull ends before these indicators have weakened for a while.

Here is a a rate of change in the unemployment rate and a housing market index.










Meanwhile, shorter term indicators are not so good looking. Breadth, as expressed by the 13 day EMA of TRIN, is clearly diverging with the market.


This kind of divergence signals a  bigger correction with great precision, especially when the environment is favorable, as suggested by the record low VIX...


... or, by the slowing down pace of change in retail sales.






Usually. a more important correction comes after a significantt level of resistance is hit on the long term charts. Here is the monthly SPX.



The market has just broken above the previous highs, 1474 - a possible level. The next one to the upside is 1522 - a bit far, but not unreachable.

Which one is it? My guess is 1474, but it's only a guess. We'll get a first clue during the following days. The market has committed on the daily chart above the previous highs, so at least a small correction is in order. The market could tip its hand on this correction.

Here is the daily SPX.