Weekly Breadth Data, Week Ending December 25, 2015
In order to correct this anomaly between breadth (cause) and price (effect), breadth will need to quickly collapse from current levels to regain its leadership quality, or like we've seen so many times in the past, prices will provide a "reset" of their moving "too far, too fast" by rallying sharply in order to fill the vacuum created by this technical irregularity.
The fascinating thing about breadth dynamics is that it provides instructive insight that's hard to find elsewhere in this business.
As we suspected last weekend, the market opted to have one of those classic face ripping reset rallies to fill the "trend divergence" vacuum that was created by the sharp price declines going into quarterly futures and option expirations...settling with an average gain of 2.80% from the previous Friday close. The rally was also broad based in scope, with the small caps coming out on top as the leading group with gains of over 3%, while the Dow Industrials brought up the rear though still with a nice gain of 2.47%.
Looking over this week's array of charts and we see that last weeks good news continued to get better as the NYSE Bond CEF and NYSE Preferred advance/decline lines both closed out Thursday at new all time highs, while the NYSE Specialty CEF advance/decline line perceptively broke above its declining tops line going back to November 3rd. As all of the longer time followers know very well, when the interest rate sensitive issues that trade on the NYSE make higher cumulative highs, this promises us that equity prices will follow this leadership in the not too distant future. With that said, however, both the Investment Grade and Junk Bond advance/decline lines continue to be under intense downside pressure which is keeping us guessing as to what this might actually mean given our limited time in working with these two sectors and/or the timing of when equities will follow what the interest rate sensitive issues are indicating. Hopefully next week will provide the valuable clues that we're looking for in our continuing effort to find market clarity.
Other good news this week came from the Precious Metals and XAU advance/decline lines which both rocketed higher after providing us with two points of bullish divergence within a highly complex rising structure. Given that the timing of this renewed interest in the precious metals stocks is coming near the cyclically positive end December time period, along with the interest rate sensitive issues suggesting that the cost of debt is going to remain in and around current levels on a short term basis, this then allows us to take a more aggressive stance towards the metals complex, as a whole, as we move into 2016. Current short term SAR points for daily gold are at $1084.31, while the weekly SAR trigger comes in at $1134.37 for those who are working with a more conservative portfolio. Upside price targets remain at the 200 day EMA at $1139.17 which is just $5.00 above the weekly SAR trigger.
Looking overseas and we see that India's BSE advance/decline line continues to move sharply to the upside and is now less than 2180 net advancing issues from matching its high point of early January 2008. With prices on the BSE 500 index showing no signs of involvement as yet in this upward progress, this is another area of investment where a more aggressive stance could turn into nice rewards if we're patient. Using the BSE index that can be found under the symbol of $BSE as a guide, any daily close above the December 2nd intraday highs would be a trigger there to go long this market, with shares of INDA providing a good conservative vehicle to trade this market outside of the sub continent.
So with the BETS moving sharply higher to a -25 reading this week, the market now looks to be at a point where a more neutral approach is warranted as we move into the last week of the year. With breadth and volume momentum continuing to improve as measured by the MCO's, this now suggests that we're likely to have buoyant, but volatile price action into December's jobs report which is due on January 8th. Any continuation of last week's firm tone will push this timeline out to mid January. Because of this, any open short positions should have firm, tight stops at this time, with any move seen in the New York Composite advance/decline line above its double top highs of November a strong indication that an advancing price sequence to new all time price highs is likely to occur.
I wish you all the very best in the new year ahead...and thank you very much for your continued patronage!!
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Technical Watch's Weekly Breadth Data Review includes a weekend recap of hard to find breadth measurements from the New York Composite Index, the London exchange (FTSE), France's CAC Index, the Frankfurt exchange (DAX), the Sydney exchange (AORD), and India's Bombay exchange (BSE). Charts are provided with a market narrative by Dave Breslaw and are annotated for additional clarity and suggested positioning. Also included with this service are occasional special posts of longer term data charts to provide a comparable historical context of how internal action of the markets (money flow) can have a direct effect on the direction of price itself. This service works hand in hand with the Chatting the Market subscription service as it provides additional global money flow insights found nowhere else on the internet. More information on subscribing to either or both services can be found by clicking here.
