1. I think, the sector that leads on the upswing is expected to lead on the downswing. ( For example, Florida, Arizona, San Diego and Las Vegas were leaders in the housing boom. They were also leaders in the downswing, way before other places caught the housing flu. )
In that light, how does this chart be explained?
$HGX:$SPX ratio:
2003:
http://stockcharts.com/c-sc/sc?s=$HGX:$SPX&p=D&st=2002-01-13&en=2004-04-30&i=t55827142733&r=6319&.png
Now:
http://stockcharts.com/c-sc/sc?s=$HGX:$SPX&p=D&yr=2&mn=0&dy=0&i=t63992182620&r=513&.png
2. One of IYB's four faithful friends is monetary conditions.
Money was abundant then, rare now.
$TNX:$IRX ratio (When above 1, there is more money. When below 1, there is less money).
2003:
http://stockcharts.com/c-sc/sc?s=$TNX:$IRX&p=D&st=2002-01-13&en=2004-04-30&i=t63499589354&r=2622&.png
Now:
http://stockcharts.com/c-sc/sc?s=$TNX:$IRX&p=D&yr=2&mn=0&dy=0&i=t00530346784&r=8881&.png
3. $NDX:$SPX (growth versus defensive sectors of large caps)
2003:
http://stockcharts.com/c-sc/sc?s=$NDX:$SPX&p=D&st=2002-01-13&en=2004-04-30&i=t46354032725&r=6306&.png
Now (on downtrend since money started to be rare):
http://stockcharts.com/c-sc/sc?s=$NDX:$SPX&p=D&yr=2&mn=0&dy=0&i=t58215550115&r=540&.png
4. Internal momentum (notice the horizontal line and the absolute values of NASI peaks):
2003:
NASI made three higher lows.
http://stockcharts.com/c-sc/sc?s=$NASI&p=D&st=2002-01-13&en=2004-04-30&i=t25849913624&r=2693&.png
Now:
Made lower lows last two time.
http://stockcharts.com/c-sc/sc?s=$NASI&p=D&yr=2&mn=0&dy=0&i=t19709766227&r=452&.png
5. Oil price (increasing amount of money=higher oil price, decreasing money=lower oil price):
http://stockcharts.c...078&r=6725&.png
http://stockcharts.c...080&r=8731&.png
6. $RUO:$RLV (russel growth/russell value, another growth versus defensive sectors of small caps)
http://stockcharts.com/c-sc/sc?s=$RUO:$RLV&p=D&st=2002-01-13&en=2004-04-30&i=t00304674253&r=4524&.png
http://stockcharts.com/c-sc/sc?s=$RUO:$RLV&p=D&yr=2&mn=0&dy=0&i=t43631514989&r=2505&.png
7. VXN (maybe a smart money sentiment gauge, although I would like explanation of the above 6 than this one):
2003: Clear downtrend
http://stockcharts.com/c-sc/sc?s=$VXN&p=D&st=2002-01-13&en=2004-04-30&i=t99401884495&r=7390&.png
Now: uptrend from January 2006 (same time, when money started to disappear)
http://stockcharts.com/c-sc/sc?s=$VXN&p=D&yr=2&mn=0&dy=0&i=t70243862505&r=887&.png
In technical analysis, we are trying to figure out how much money is coming to the market (institutions and big players), based on where the money is flowing. My explanation of the above curves is the following. In 2003, the money flow started to increase in Wall street, and they allocated the extra cash into the growth sectors, some of which became leaders of this upswing. From late last year, money flow to the Wall street started to slow down (but not disappear). Therefore, the institutions became more defensive, and allocated less and less to growth sector. If the trend continues, eventually money will start to disappear from the institutions, and then we have a bear market.
It is interesting to note that the buzzword on the street in 2003 was deflation (shortage of money). In 2003, Bernanke gave his helicopter speech. Now the buzzword is 'global liquidity'. Data from the markets show exactly the opposite.
Edited by greenie, 13 January 2007 - 11:22 PM.