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Stocks remained buoyant this week as the
market believes the Fed will remain accommodative in view of the latest drop
in U.S. unemployment numbers. It’s widely expected the Federal Reserve
will maintain its easy money policy when it meets on Wednesday.
The number of stocks making new 52-week
lows has remained under 40 for the last two weeks now and the major indices
are all above their rising 15-day moving averages. That shows that the market
has stabilized enough to allow rising short-term internal momentum to begin
to have a lifting effect on the market.
Elsewhere it was announced today that
According to the Federal Reserve, consumer credit increased by $14.2 billion
in October. This follows prior month's reading of a
$11.4 billion increase, and is higher than the $9.9 billion that had been
broadly expected among economists polled by Briefing.com. The increase in
consumer credit underscores the continued positive readings in our New
Economy Index (NEI), which indicates a positive overall holiday retail sales
season for December.
Much of the impetus behind the NYSE
market’s short-term strength is coming from the improvement in the
short-term internal momentum. Specifically, the short-term directional
indicator component of our internal momentum index (HILMO) is gradually
turning up. This particular indicator measures the rate of change in the NYSE
new 52-week highs and lows, which in turn reflects the incremental demand for
stocks. When this particular indicator is rising after being in decline for
several weeks, it implies the stock market’s short-term internal path
of least resistance is turning up.
There are several indicators which point
to the December-January bullish seasonality effect taking root. One such
indicator worth mentioning is the euro currency, which has regained its
footing after a brief excursion below its 15-day trend line last month. The
euro currency ETF (FXE) is now above its rising 15-day MA and is closing in
on a quarterly high. That’s a sign that in spite of the continued
headline fears surrounding the euro zone, investors aren’t inordinately
worried about the fallout in the near term. This in turn should help to
create a fairly stable environment for equities in the near term.
In recent years there has been a fairly
close relationship between the euro and the short-term direction of the U.S.
stock market with the euro currency leading the way in most cases. The most
recent example of this relationship was the peak in the euro ETF in late
February, which preceded the major peak in the S&P 500 by at least a
month. The following graph highlights this relationship and underscores the
tendency for strength in the euro to beget strength in U.S. equities.
The next example of a leading indicator
is the China 25 Index Fund ETF (FXI), which has also been a leading indicator
of sorts for the S&P in recent years. FXI made a new multi-month high
today and is feeding off strong internal momentum currents within its sector.
Another favorable indicator is the
recent strength in the NYSE Broker/Dealer Index (XBD). When this sector shows
leadership it typically bodes well for the broad market outlook. XBD has not
only recovered above its rising 15-day MA, it’s also closing in on a
fresh 3-month high and looks to soon test, if not overcome, its previous high
from September.
I would add to this observation the
recent improvement in the Bank Index (BKX), another important gauge of broad
market strength. Note the improvement in the 15-day moving average as well as
the positive MACD structure in the following chart.
Another bright spot on the immediate
horizon is the mid-cap stocks. Unlike the SPX chart, the technically
significant 30-day and 60-day moving averages for the S&P 400 Midcap
Index (MID) have both flattened out and are on the verge of turning up. The
MID is also above both moving averages as of this writing. Stock
Trader’s Almanac tells us that the small-cap and mid-cap stocks tend to
start outperforming beginning around the middle of December. This is
something we’ll be watching closely in the days ahead. If the NYSE
short-term internal momentum index turns up and gives us the anticipated buy
signal we’ll likely see the next tradable move in the mid-caps, which
has the best chart of any of the major indices.
On the investor psychology front the
latest AAII investor sentiment statistics showed a 1% increase in both the
bulls and bears from last week. The bullish percentage rose to 42% and the
bearish percentage rose to 35%. Granted there are more bulls than bears,
which from a contrarian perspective is sometimes troubling, but this is
actually a normal progression from an excessively bearish psychology last
month. Only when the percentage of bulls starts to approach 50% will we need
to be concerned.
Here are the newsletter advisory
sentiment figures from Investors Intelligence. The editors at Investors
Intelligence largely agree with my take on the AAII sentiment numbers:
“There was an increase for the BULLS to 43.6%, from 39.3 %. At present
the BULL count is not a danger sign, and could grow further before becoming a
concern. Showing their largest weekly change in almost four months, the BEARS
fell to 25.5%. With more BULLS and fewer BEARS, the SPREAD between them
jumped to 18.1%. The current increase is normal and not a problem until it
nears that almost 30% reading again.”
2014: America’s Date With Destiny
Take a journey into the future with me
as we discover what the future may unfold in the fateful period leading up to
– and following – the 120-year cycle bottom in late 2014.
Picking up where I left off in my
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narrative and explain how the 120-year Mega cycle influences the market, the
economy and other aspects of American life and culture. My latest book, 2014:
America’s Date With Destiny, examines the most vital issues facing
America and the global economy in the 2-3 years ahead.
Clif Droke
2014: America’s Date With Destiny
Take a journey into the future with me as we
discover what the future may unfold in the fateful period leading up to
– and following – the 120-year cycle bottom in late 2014.
Picking up where I left off in my previous
work, The Stock Market Cycles, I expand on the Kress cycle narrative and
explain how the 120-year Mega cycle influences the market, the economy and
other aspects of American life and culture. My latest book, 2014:
America’s Date With Destiny, examines the most vital issues facing America
and the global economy in the 2-3 years ahead.
The new book explains that the credit crisis
of 2008 was merely the prelude in an intensifying global credit storm. If the
basis for my prediction continue true to form – namely the long-term
Kress cycles – the worst part of the crisis lies ahead in the years
2013-2014. The book is now available for sale at:
http://www.clifdroke.com/books/destiny.html
Order today to receive your autographed copy and
a FREE 1-month trial subscription to the Gold & Silver Stock Report
newsletter. Published twice each week, the newsletter uses the method
described in this book for making profitable trades among the actively traded
gold mining shares.
Clif Droke
is the editor of Gold & Silver Stock Report, published each Tuesday and
Thursday. He is also the author of numerous books, including most recently,
“2014: America’s Date With Destiny.” For more information visit
www.clifdroke.com
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