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Made It by That Much
The S&P 500 closed above its downtrend line by around a point. I would be happier if there had been some volume, but there wasn't any to speak of. Nevertheless, until proven otherwise, let's assume the February 24 Summary Index buy signal is about to take off again. The Index turned up yesterday, a day early, and now stands at 15.15, up from 15.10 on Friday. If there are no further changes, it will be at 16 next week, and if there are positive changes I can certainly see it going above the 17 trigger level. Basically, we need more volume to support a decent rally from here. Three indicators moved from neutral to positive and one moved from neutral to negative. There now 3 negative, 13 neutral and 13 positive indicators and the Summary Index is back on the upside. If we can get an increase in volume and a continuation of the rally, I will add the last 15 plus percent to the position in S&P 500 ETF (SPY) in the Discretionary Technical Portfolio. We already have 100% of the Technical Trading Model Portfolio in SPY.
A really close look at the next chart will reveal that the S&P just peeked above its downtrend line that joins the previous highs made in January and March. To be a bit more convincing, a close above the last high, 895.79 on March 21, would be welcome. That's just 10 points above yesterday's close. In the meantime, the Summary Index is now rising again and stands above its downtrend line as well. A bit of volume will really help.
The S&P Price/Volume Chart has made no discernible pattern. But it clearly stands above its recent highs and will move in the clockwise direction if the volume increases.
The NASDAQ Price/Volume Chart looks the same, but it has not yet made it above the recent highs.
The Dow Price/Volume Chart matches the S&P very closely.
The long term Dow Price/Volume Chart also must rally on increasing volume to generate a buy signal.
The Smart Money Indicator (dark green) improved modestly yesterday, by 29 points. There was an opening rally of 24 points, but the close was stronger at 53 points. More importantly, the opening volume was lower than Friday and the closing volume was greater. This caused a slightly bigger improvement to the Volume-Enhanced Version.
The percentage of new highs on the NYSE never dropped below 25%, so there was no buy signal generated. It has been supportive, but no signal. Now that it is above 75%, the only way to get a buy signal is for the indicator to drop below 25% first. It certainly fits in with the generally lethargic rally that we have managed to get started.
The daily CBOE Volatility Index (VIX) made a new low yesterday when it fell to 26.47. The 20 day moving average, on which our buy and sell signals are based, is much higher that it was at previous daily lows, so there is still a lot of room for the rally to travel before the VIX gives a sell signal.
Yesterday was an 86% positive day for up volume as a percent of the up volume plus the down volume. The the percent of points changed was well over 90%. We can add this indicator to the bullish camp for the present.
Today was a very big day for the 200-day average of the S&P 500. It is now above the trendline as it was a couple of weeks ago, for the first time in over a year. This is not meaningful unless the 200-day moving average turns up, which may happen in a few days if we can stay at this level or above. To add icing to the cake, my S&P Rate of Change indicator has moved well above its trendline for the third time in over a year, and this time it has traveled the furthest above the trend. These are important positive, long term indicators.
Here is an enlargement of the above chart so you can see how tentative was the penetration above the 200-day moving average. As I mentioned, the moving average is still falling.
Trend Charts for Individual Stocks There were no stocks among the NASDAQ 100 that were either overbought or oversold, so I thought I would take the time to describe a research project I'm working on. The following is a description of a method for categorizing stocks according to their moving averages. It is basic research and I include it for the few among you who might have interest. Moving averages are little or no value when a stock in in a trading range. It must be in a trend for them to gain usefulness. Now that you know how to calculate the trending/no trending indicator line, let's turn our attention to moving averages. Most of the individual moving averages that I use can be seen in the chart below. Looking at the right side of the chart, the current date, the lowest one, in green, is a 50-day moving average. The highest line, in pink, is a 3-day moving average. The definition of an overbought Boomerang Stock, is one which has all 10 of its moving averages arranged such that the shortest average is on top and the longest average is at the bottom. An oversold Boomerang Stock is defined in precisely the opposite way -- its shortest average is on the bottom and its longest average is on top. If you look back on the chart to last July, you will see an illustration of that arrangement.
When the market has been falling, and we surmise that there is a high probability that it will rally, we look at stocks that are oversold and when their shortest moving average, the one on the bottom, moves above the next to the shortest, we buy it. On the other hand, we sell an overbought stock when its shortest moving average, which is now on top, drops below the next shortest average. The space in the middle of the lines results from the omission of a few moving averages of intermediate term length, and the size of that space is a reflection of the degree of overextension. The sum of the overextension for all stocks in an average is charted on the Boomerang charts as the power. When the total space is at its maximum, we expect to see the most violent market reversals. Using this system, it is a simple matter to define the present situation of a stock by the relationships between its moving averages. For example, a stock that is overextended to the upside will have its moving averages in perfect alignment, with each one higher than the next. I assign a number to that situation as follows: If a short average is higher than the next longer average, it gets a value of 2. If it is lower than the adjacent moving average it receives the number 1. Therefore, an oversold stock has the number 1111111111 and an overbought stock has the value of 2222222222. An upside Boomerang stock receives a value of 2111111111, and a downside Boomerang stock is assigned the number 1222222222. In each case the single number references the fact that the shortest moving average is not aligned with the others. It suggests a reversal All of the permutations are found when you study enough stocks. For example, a crossover of an oversold stock, like Lowes in late February, will have a value of 2222211111, and so on. I am in the process of studying the most productive patterns to use in different market situations. The research requires a lot of data collection and will take some time before it bears fruit, if it ever does bear fruit. I'll keep you informed from time to time. Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. You can send him your questions and comments via e-mail at Fred@MarketMonograph.com. E-mail sent to Fred may be edited for clarity and brevity and published on this web site, and may include your name unless you request anonymity or specify not for publication. The charts and commentary represent what Fred thinks about the market and what he is thinking of doing for his own account and for accounts he manages at the time of writing. Fred, his clients, or his family may have positions or may make trades in securities mentioned in these commentaries. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information. Copyright © 2001, 2002, 2003, 2004, 2005 and 2006 Fred Goodman and Trend Macrolytics LLC. All rights reserved.Fred@MarketMonograph.com 
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