Market Indicators and Sentiment
Let's Recap the Market Indicators and Sentiment Update
A market indicator, like a technical indicator, is a series of data points derived from a formula. The formula for market indicators, though, is applied to the price data for, not just one security, but for multiple securities within the market,. Price data can come from open, high, low or close points for the securities, their volume, or both. This data is entered into the indicator formula and the data point is produced.
A market indicator, unlike a technical indicator, is not charted above or below the chart. The market indicator itself is charted and, therefore, each has its own ticker symbol. A given market indicator will have a separate ticker symbol for each different market it's applied to, for example, the $BPNYA and $BPCOMPQ track the Bullish Percent Index for the New York Stock Exchange and the NASDAQ respectively.
The Bullish Percent Index (BPI) is a popular market breadth indicator calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Bullish Percent levels that are above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%. It is also a very effective indicator of major market bottoms.
It is important to note that the Bullish Percent Index is not something that can be applied to a single stock, but rather, an index that is calculated for a group of stocks.
Introduction to Market Indicators and Sentiment Charts
Importance: Market Indicators and Sentiment Charts can tell us where the market is likely go, so understanding them is of prime importance. They are key charts that reveal the answers to why the market has been acting the way that it has.
$BPCOMPQ & $BPNYA (Bullish Percent Index Charts)
The Bullish Percent Index (BPI) is a market breadth indicator calculated by dividing the number of stocks currently trading with Point and Figure buy signals in a given exchange, industry, etc., by the total number of stocks in that group (Market Breadth is defined as the fraction of the overall market that is participating in the market's up or down move at any given time).
Bullish Percent levels above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%.
It is a very effective indicator of major market bottoms and a less effective indicator of tops.
On January 22, 2008, both the NASDAQ and the NYSE Bullish Percent indicators hit historic lows. Think of a pendulum swinging to the extreme end of its arc, poised to swing back, sweeping shorts and puts from the market! The only other time the pendulum has been so positioned was in 1998, just before it swung back and carried the market into the Dot.com bubble.
We have bounced and rallied more than 6% off the lows. We may retest, as happened in 1998, but will not make new lows. A parabolic rally will then tack on about 800 Nasdaq points in the next 2 to 4 months. The $BPCOMPQ lows are fuel for the rally.
The $NAHL (Nasdaq New Highs-New Lows)
A market breadth indicator measuring exactly what is says. On January 22, 2008 it hit -937. Last time is went lower than this was October 8, 1998. Familiar date? Oh, yeah...just before NASDAQ took off for the stratosphere.
The $NAHLR (Nasdaq New High/Low Ratio)
A market breadth indicator measuring the ratio of New Highs to New Lows rather than the quantity. Okay, on this one, I just want to point out that we have taken out the internals from where we were back in March and the indicator hasn't seen new highs since February of 2007. On January 22, 2008 it touched .01 on the daily chart. And when was the last time it went that low? Correct. On October 8, 1998 it went below .005 and registered 0 on the indicator.
What I am about to tell you is so important that I want you to write it down! The Nasdaq New Lows on, you guessed it, January 22, made 52-week highs at 946 on the chart. That not only took out 52-week highs...it took out the highs from all the way back to the 1561 registered by $NALOW on October 8, 1998, just prior to the massive NASDAQ reversal to the Bubble highs!!!
$NAMO (Nasdaq McClellan Oscillator)
Once again, a market breadth indicator measured by subtracting a 39 day EMA of advancing issues minus declining issues from a 19 day EMA of advancing issues minus declining issues. Every time $NAMO has hit -80 or lower, we have had massive bull runs. This bottomed in July of last year and, despite all the recent volatility, has moved into positive territory.
This is an indicator showing S& P 500 stocks above their 200 day moving average. It is at 74, the lowest level since March 12, 2003, the date the S&P bottomed out and started the massive 5 year bull run just interrupted by the recent correction.
$CPC (CBOE Options Total Put/Call Ratio)
The Put/Call ratio, in January, tied the all time record high level of 1.53 made back in August, 2007. There is a huge short interest on the SPY (S&P 500 Spdrs), as well as in the overall market. These enormous short interests in the market will supercharge the rally once it takes off.
In 1998 an expanding triangle developed in the NASDAQ cash index, although not in NASDAQ futures. The bottom of that triangle was hit at $BPCOMPQ -40, immediately preceding the explosion of the Dot.com bubble. Now, once again, we have an expanding triangle in the NASDAQ cash index, although not in NASDAQ futures. The bottom of it hit at $BPCOMPQ -60, on January 22, 2008. "Coincidence Batman?" "I think not Robin." The RST, itself a savage, fast moving pattern, will power even more of a pendulum swing, initiating the violent swing up. Pattern completion will take a couple of months. That's why our target is 3126.
The pricing in this market has thrown, not just the baby out with the bath water, it's thrown the baby out with the bathroom, the house foundation, the county, the state, and half the country! Armageddon, tornadoes in the gulf, and the Bird Flu have already been priced in.
The market will have the most wicked snap-back bounce imaginable. The catalyst will be continued lowered interest rates, continued Plunge Protection interventions, and additional government liquidity injections to "save the markets." What is happening is nothing short of the Greenspan manipulations that created the 1998 Dot.com bubble. The same mistakes are being repeated and the eventual outcome will be ugly.
These interventions in the U.S. markets will lead to the most violent rally I have ever seen or am ever likely to see in my lifetime. It will be a market move of unprecedented speed, faster than can possibly be imagined in your worst nightmare or wildest dream(depending on if you're short or long when it explodes). The sky is not the limit. Moon for target is aiming too low.
There is no recession. There will be no recession. Everything I see, from indicators, to market internals, to earnings, to stock set-ups makes me re-iterate every stock I have added to the long side.
Knowing where we're headed, I want to make a ton of money on the way up and then short the market when Ben leaves town and the chickens come home to roost. How about you?
Psychological Preparation & NASDAQ 3126
Has this market whipsawed, confused, frightened or frustrated you? At the end of October, 2007, I warned subscribers of the brutal correction to come. That gave them the opportunity to pare down portfolios and prepare psychologically for the downturn. The importance of that warning cannot be overemphasized, because something far worse than a cash drawdown is a pschological, a mental drawdown. Many investors, lacking such warning, have been driven from the market as the volatility of the last few months revealed their inability to cope, both mentally and financially, with the perceived unpredictability of the market.
Here at Trending123, we were warned of the downturn and now we're jumping in for the upturn. If the coming rally were a party, we're not a ½ can or a ½ sack of beer away from target. We've got cases and cases and cases of beer left to go. But if you're hoping to hang around for awhile and grab a beer later, be careful, because those cases will disappear rapidly as one of the most explosive rallies to ever occur rockets to target. If you're not fully invested, there is lots of room yet to invest. If you are invested, I hope it's in the sectors I've recommended. Confusion, fright, frustration, and the effects of whipsaw will soon be forgotten on the trip to NASDAQ 3126.
These are both measures of the implied volitility of a wide range of $NASDAQ options and S&P 500 options respectively. $VIX/$VXN has been called the "investor fear gauge" and has been used as a predictor of near-term market volatility. Unfortunately, the reliability of this indicator has lessened with time and technological impact. From August of 1998 through the end of 2002 the $VXN was range bound above 40, its peaks indicating panic and its valleys showing complacency. The $VXN no longer works like that. Technology, greatly increased hedging and increasing investor awareness have decreased its value as an indicator.
Indicators are most reliable when recording data without the data's (market players) conscious awareness of the process. When market players watch the $VXN and react to the indicator itself, the reliability of $VXN as an indicator of player reaction to the market is decreased. The indicator has become so popular and well known that when the market slides, investors watch the $VNX intently. By basing market decisions on $VXN, which, in turn, effects the indicator's reading, $VXN is rendered an unreliable gauge of fear. On the other hand, when the market goes up, most ignore the $VXN, allowing it to continue functioning reliably as an indicator of complacency. The same considerations apply to the $VIX.
The $VXN is has been range bound below the resistance levels it bottomed at in the late 90's and through 2002. The new range has developed due to new technology speeding up our reaction times so much that going back to the levels of the Dot.com years won't happen anytime soon. Our Neanderthal brain's emotional market misconceptions are priced in with computer assisted speed. The bottom line is that the $VXN has topped.
Subscribers View Entire Update With Charts And Voice (First Reported And Updated On 01/23/08)
