Marty Chenard wrote an interesting article on December 30, Safe Haven | Which Index is the Most Important to Watch?. He looks at the major indices to consider their characteristics and why he, like many analysts, focuses more on the NYSE (often called NYA, with chart symbol $NYA) and its advance/decline (breadth) data than those of other indices like the Dow Jones Industrials and the Nasdaq. Here's a quote of what he says about that:
- The NYA (NYSE) stock exchange has a huge variety of a couple of thousand stocks, and it also recognized for where the "program trading" occurs. (According to the New York Stock Exchange, program trading accounts for about 30% to 46.4% of the trading volume on the NYSE every day.You'll want to read his article there and see his charts. But here's what I'd like to say about this. The NYAD (NYSE advance/decline is a LOT higher than the NAAD and AMAD (advance/decline in Nasdaq and in the Amex (American Stock Exchange), respectively). So not only is the volume traded higher in the NYSE, but the relative movement of advancing volume is much higher in the NYSE. This looks bullish, at least for now. Of course it doesn't guarantee there won't ever be another market drop, and it may well crest out for a top or interim top. Once it does, the relatively paltry advance/decline picture in the Nasdaq and American Stock exchange may be warning that they're closer to their lows and may help drag the markets lower than expected. Then the next question is, when?So, the NYA or NYSE index is the index where the big money plays and executes large transactions or "basket of stocks" transactions.
The DJI and the NASDAQ 100 are more specialized and focused compared to the NYA. The NYA has more diversity and big players.
Since Institutional Investors are more likely to be initiating program trades and large size transactions, it makes sense to track the "core holdings" held by Institutional Investors ... since that would tell you what Institutions are doing relative to "most of their invested money".
And ... since they are responsible for over half of the daily volume in the stock market, it makes sense to watch and follow them for the market's direction ... which is why we post such a large variety of data and charts on our paid subscriber site.
In addition to a lineup of advance/decline charts below, I've added two McClellan oscillator + summation index charts (for NYA and Nasdaq) and the TRIN. Terry Laundry with his T Theory uses his own combination of advance/decline plus oscillator data in his work. He's been projecting the rally to continue, basically through August and more recently showing a T projecting to top in May, 2010. And we've seen now with Raymond Merriman's weekly preview comments that he's talking about similar timing for the rally to crest top out this year. But he made comments about the equities markets possibly having made a(n interim) high at the end of December, or perhaps getting ready to do that during January. Then after weakness into March, the rally resuming into May or perhaps longer into that August time frame.
Mike Burk's weekly update also looks at breadth data (including advance/decline and new highs) and indicators. I think what he's saying is consistent, at least with the ideas of higher into the next week or so, then weakness around the corner. You'll want to read it: Safe Haven | Technical Market Report (1/2), at http://www.safehaven.com/article-15381.htm
Let me add some other points about time. Tony Caldaro points out that the wave A down comprised a 5-month wave a down, a b-wave up, then a 10-month wave c down into the March 2009 lows. So the move up from then parses into his 3-wave major wave a up, then b down, then 6-month wave b down assuming it finishes in January. I'm good with that, if that's the way the market plays it. But notice that January completes 10 months total - a time equal to the wave c component of the big wave A down. Perhaps the market may have a 2-month drop from January to March, then another 5-month move up to August (same time mount as the 5-month, initial wave a drop that started the big wave A down). That symmetry of 17 months for the wave B up equal to that for wave A down, with the rally finishing in August, is the time symmetry Terry Laundry has said is possible in his T Theory analysis. It will be quite interesting if the rally can make it all the way to August for a total 17-month symmetry that includes a 5-and-10 month sequence down and then 10-and-5 month sequence up. Maybe it would even complete with the final C down having a similar time relationship. Maybe 17 months down (from August into January, 2012), or 8.5 months down (from August into May/June 2011).
But I'll also add that I recognize the possibility of a bearish pattern if the market tops out this month and reverses down on higher volume. I'm not convinced the market would do that as a big-picture trend reversal just yet, because it might dampen the possibility of a larger supercycle fifth wave still ahead in the future. But it's another reason why we'll be playing an expected drop from a January high by being short then - just in case! As well as for a good tradable swing down into March.
These ideas fit with what we can see with Fibonacci, and with the technical projections of Andre Gratian as well as the Objective Elliott Wave assessment of Tony Caldaro. (All the analysts mentioned here, except Chenard, have their site listed at right)(doesn't mean we don't respect Chenard's work though, and Safe Haven where he, Andre Gratian, Mike Burk, Tim Wood, and others post, is in the list.). Fibonacci says the markets are at risk of being topped out, since the bellwether S&P 500 (SPX) just moved over its 50% retrace level (1122) recently, and dropped back under it late Thursday afternoon. That could be a technical sell, or just a fake signal. So, what about other technical indicators?
The McClellan oscillators just made a nasty drop on both the NYMO and NAMO charts, below. As they're just poking under the zero line, that's another form of technical sell signal. So we'd better keep going to size up where the equities markets are heading from here. The summation index in both has moved above moving average support, so the longer-term doesn't look in jeopardy at this point. So for now, we can see again that the markets can be signaling at least a short-term top. But as with the Fibonacci, it's at least theoretically possible for the markets to cancel the signal and rebound. And the advance/decline data show that's possible.
There's another place to look, and that's the TRIN (chart at bottom). It's given a series of buy signals recently, and once again it's so high that now it's brought even its longer-term moving averages (MA's) above the 1.20 level that's considered an oversold signal for equities. I know - how can they be oversold when they just hit new highs last week?! Maybe one explanation is the disparity between the NYAD's advance which has been a higher rise over the past few weeks than equities indices have enjoyed. Especially the past week, when downside plays seemed to yield plenty for daytraders and the movement was far from a smoothly trending rise to new highs. Whatever the reason, it stands as important sign for swing traders that the equities markets are not ripe for a swing trade short at this moment. Of course, it can become more oversold; but it doesn't have to. So the TRIN is saying it's actually a good time to look for swing trade longs, at least for short-term or near-term swings.
In order for the TRIN to give a classic swing trade sell signal, we want to see its 10-day moving average under .80. That's the overbought signal preferred by its inventor, Richard Arms (as you can also learn from Stockcharts.com's Chart School, in list at right too). So we don't have an unequivocal sell signal for the markets yet. The better swing trade strategy now may be to look for a buying opportunity soon, and then get ready for a more serious sell setup later toward the middle of this month.
If the sell setup that's likely to come during the next couple of weeks does indeed deliver a bigger break to the downside lasting some weeks, it'll be a swing trade that's worth the wait. By that time, bears should be giving up and bullish sentiment should be reaching a real extreme. Then a drop should gain more momentum.
Just as a swing trade buy that may set up in March, may be a great buying opportunity that'll be worth the wait too. Because once there's a good drop, a great many bears will come back to argue that the markets will be heading to new lows (which I think some are already going to be arguing now, from the Fibonacci levels test). And maybe a drop into March will look extreme. But assuming that it doesn't retest the March lows (and we'll develop targets, perhaps about 950 or 850, will see), then equities may indeed spike with the next big move up, to an extreme that astonishes many. One reason I say this is, combining Tony Caldaro's thought that this is a large Elliott Wave "flat" B wave, with Terry Laundry's (and Ray Merriman's) thoughts about equities reaching a high in May or thereafter (up to August). In traditional Elliott Wave, a flat's B wave often retraces at least 90% of the A wave drop. I think it's safe to say that people will be extremely surprised if the SPX goes up to 1485+, with the DJI clocking 13,800+!
But after that B wave finishes topping - be ready for a vicious C wave drop that will make the A wave drop seem like the rehearsal that, in retrospect, it will have been. Whenever that C wave down gets in motion, the Nasdaq and Amex advance/decline are more likely to sink to lows lower than seen with the A wave drop - if that happens, it will exacerbate the downside momentum into 2011.
Sounds strange? But such extremes are possible. Even with the fundamental backdrop, especially if monetary policies continue pumping and the government ("last buyer") gets heavily involved and/or pressures many small investors in (mandatory investments, perhaps?). Or maybe it will be sufficient if a rise after March that exceeds the highs of December/January, triggers massive short-covering, and sweeps in new excessive speculation. So I'm encouraging readers at least to be open to these seemingly extreme possibilities. All of this is to provide a look at what probably lies ahead near-term, and then how it may play out the rest of 2010. We'll adjust if necessary of course. But unless the technical situation changes, this is what we'll consider our probable road map going into this new year.
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