Archive for April, 2019

Here Is What The Indicators Say

Monday, April 1st, 2019

2019-03-31

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The graph above shows the percentage performance of the S&P 500 over the past year.   If you were someone that did not panic in the November/
December sell-off, and held onto your investments, you are up about 8% over the past 12 months.

However, I like to analyze various factors that go into the markets movements to give me a feel for where we are going and what the investment strategy should be to best address where it is going.  So, I thought I would share with you some of those factors and what they are telling me:

 Momentum

  • 7-Day Relative Strength Index (70/30): nearing over-bought levels and rising (67.92)
  • 14-Day Relative Strength Index (80/20): rising (63.95)
  • Volume-Weighted Relative Strength Index (80/20) – shown as MFI below: rising (65.63)

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Breadth

  • McClellan Oscillator (50/-50): rising out of negative territory (7.92)
  • McClellan Summation Index (500/-500): weakening but still overbought (874.59)

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Note:  The top green and red graph is the Summation Index

Investor Sentiment

  • VIX Volatility Index (12/22): low volatility (13.74) equating to investor over-confidence

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Trends

  • Moving Average Convergence/Divergence: positive trend but weakening, with black indicator line below red trend line
  • Price/Momentum Oscillator: positive trend but weakening, with black indicator line below red trend line

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Participation

  • Percentage of S&P 500 Stocks Above 50-Day Moving Average (70/30): over-bought (71.80)
  • Percentage of S&P 500 Stocks Above 200-Day Moving Average (70/30): Positive (58.60)

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Based upon the indicators above, I expect that we are nearing a top in the market and should be rolling over.  We may have some continued upside as the computerized trading systems try to break through the all-time high, but the resistance is strong overhead and the indicators are mostly pointing to a weakening market.  Figuring out the indicators is never just a black and white decision, there are always nuances to it, plus they are just indicators and not commandments.  However, by and large they provide information that is critical to staying on the profitable side of the stock market.

As a result, we have been raising cash and will likely continue to do so as the market rallies toward the all-time high (if it does).  Risk Management is a key part of active investment management, and right now the risk is to the downside.

–Mark