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Category: Chart of the Week

Why Recent Selling Climax is Good News for Bulls in Short-Term

The chart from chartcraft.com below shows that stocks comprising the NYSE composite have been in the midst of a selling climax. That historically indicates that they are set for a rebound, at least in the short-term. Why? Selling climaxes occur when stocks make a 12-month low but then close the week with a gain. That indicates the stocks are being accumulated and buyers are out numbering sellers, driving prices higher. Conversely buying climaxes occur when stocks reach a 12-month high but close the week lower, indicating the stocks are headed down.

How do we know this is important news for investors? Chartcraft.com says its studies indicate buyers into a selling climax and sellers into a buying climax are right 80% of the time after four months of time. In other words, odds are the recent selling climax should be good news for bulls in the short-term.

Why Stock Market Could Move Higher for Remainder of 2018

Although important technical and economic factors make us extremely cautious about the equity markets longer term, we’re looking at some shorter-term indicators that tell us the markets could experience profitable upward bounces during the rest of 2018. For one thing, as illustrated by the second chart below, most public companies can once again buy back their own stock after emerging from blackout periods that suspend buybacks before quarterly earnings announcements. Indeed, the fact they couldn’t buy during September and October may have exacerbated the recent sharp market declines.

Another positive is that the Ned Davis short-term sentiment indicator is at only 20% bullish, the lowest level of the year. That means there’s a huge amount of bearish sentiment out there. And that’s positive news from a contrarian point of view since historically investors are wrong about market direction.

More good news for the remainder of 2018 is that a lot of mutual funds and the like subject to the 1940 investment company are done with the tax selling of the last two months that helped depress the markets. So that adds even more liquidity for upward market momentum this year as these investment companies initiate buying programs to maximize annual returns after flat to downward performance for the first 10 months of the year.

Why Stock Market Could Move Higher for Remainder of 2018

Why Stock Market Could Move Higher for Remainder of 2018
Why Stock Market Could Move Higher for Remainder of 2018

 

 

 

 

 

 

 

 

 

 

 

 

Why The Market’s Extremely High P/E Is Worrisome

Market multiples such as price/earnings can’t help us predict when market up and down swings will occur. However, they are important diagnostic tools that tell us how expensive or cheap the market is, compared with the past, including times when major market swings often were preceded by extreme P/E levels.

Below is the Crestmont PE ( a proprietary P/E calculation). It shows a very overvalued market place with one of the highest P/Es in
the history of the stock market. These macro concerns keep us cautious.

Why The Market’s Extremely High P/E Is Worrisome. This Stock Market Chart depicts the S&P Composite from 1871 to present.
Why The Market’s Extremely High P/E Is Worrisome. See the details in this Stock Market Chart.

Areas of Fear to Use as a Contrarian

Jason, from Sentimentrader.com, created what I thought was very savvy. Trying to find
areas of fear to use as a contrarian. Below are the times that CNBC created a special report
“market turmoil” segment that has basically set the bottom several times for the next few months there-after.
Good chance we can get a bounce into year end with short term sentiment also very over-sold.
( please also see https://www.lmtr.com/category/sentiment-updates/ )

Areas of Fear to Use as a Contrarian
Areas of Fear to Use as a Contrarian

 

The NYSE Bullish Percent Index Has Been Warning of U.S. Stock Market Instability

The NYSE Bullish Percent Index chart from Investors Intelligence is a much better way to look at the health and direction of the stock market than indexes such the S&P 500 or the Dow Jones Industrials since it is gives equal weight to all of the stocks on the NYSE based on whether each are overbought or oversold. The S&P 500 indexes, on the other hand, are heavily weighted toward the largest cap stocks which dominate the price direction of indexes.

The NYSE Index, which has been a staple of market timers for over 100 years, has diverged from the heavily weighted indexes. The divergence suggests that the average stock, compared with the largest cap stocks, have not been participating in the bull market. Meaning: The average stocks is in bear market territory.

Asian markets are now in bear territory with many other markets around the world doing poorly. The US correction is a catch up move, but is not yet in an intermediate term oversold position. Typically the NYSE bullish percent need to be close to 20, as in 2015. We currently are at 50 down from a lofty 70.

Chart of the Week The NYSE Bullish Per Cent Index Has Been Warning of U.S. Stock Market Instability
Chart of the Week The NYSE Bullish Per Cent Index Has Been Warning of U.S. Stock Market Instability
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