Only Positive Market Charts Allowed Today

Only Positive Market Charts Allowed Today

This might be the top of a bear market rally indicator, but I don’t care. No charts here indicate negativity.

This post was originally posted here. The writer, Kyith Ng is a veteran community member and blogger on InvestingNote, with a username known as @kyith and has close to 1,200 followers.

“There’s something very familiar about all this” – Biff Tannen pic.twitter.com/UQfuMEDq6t— J.C. Parets (@allstarcharts) August 15, 2022

There are a lot of price actions that look like they will break down but turn out to be mere consolidation. Would this time be similar as well?

UoM consumer sentiment 3-mo MA (LHS) and $SPX since 1960 (RHS) https://t.co/iMTRrvdaZz pic.twitter.com/NsmZASyQMH — Urban Carmel (@ukarlewitz) August 15, 2022

3-month consumer sentiment since 1960s and the corresponding price action on the S&P 500.

Every time $SPX has closed above its 50% retracement from a corrective/bear low since 1960s, THE BOTTOM, was in. 1 near retest in ’60s

Yes inflation existed, yes Fed existed, yes the FFR and real rates were significantly higher each prior time, so don’t…$SPY $NYA $QQQ pic.twitter.com/4ZIrqlY4cI— Seth Golden (@SethCL) August 13, 2022

Seth Golden provides the data of what happens after stocks as a basket corrected downwards but rebounded at least back to 50% of the fall.

Over 90% of S&P 500 members closed above their 50-day moving average last week.

Context matters. The signal occurred after a > 20% drawdown. pic.twitter.com/iYJ4qR3wDg— Dean Christians, CMT (@DeanChristians) August 16, 2022


Sentiment Trader shows us the historical return after the following sequence:

  1. A 20% drop
  2. 90% of the S&P 500 members close above their 50-day moving average

Short-term results are a bit mixed, but the returns can be astounding longer term. That is… if you ignore the Great Depression periods.

Strategas reviews how this general upward shift in stocks occurred during two more recent bears.

Update:
Since 1970 when % of stocks above 50DMA goes from a reading below 20% to above 90% w/in 50 days $SPX

✅ N = 18
✅ 12 month Positivity rate = 96%
✅ Avg. 12 month return = 22.6%
✅ 1976 only negative return

Here are Drawdowns since 1988 h/t @jonathanharrier $SPY $NYA pic.twitter.com/2qqLguPQMs— Seth Golden (@SethCL) August 16, 2022

Seth presented something slightly different:

  1. The percentage of S&P 500 stocks that are above their 50-day moving average goes below 20%
  2. Then the percentage of stocks that are above their 50-day moving average goes above 90%

And the cycle begins again…

The bulls have confirmed with multiple thrusts…

ps. I understand the chart is a little full on… but it’s worth trying to understand it! if you have got a question… ask away! $SPY $SPX $NYA #NYSE #stocks pic.twitter.com/6FjVNHGd3v— Grant Hawkridge (@granthawkridge) August 20, 2022


Grant Hawkridge show us a similar percentage of stocks above the 50-day moving average, but instead of S&P 500, this is the broader stocks listed on the NYSE. He also showed us the negative thrust as well. I think this chart probably shows how noisy it can be to decipher how the market would go purely based on one signal. There are a lot periods you would sell out early, purely based on these signals.

New high for the SPX A-D line is a bullish leading indicator
Suttmeier BofA pic.twitter.com/WTsw4m2YjP— Mike Zaccardi, CFA, CMT (@MikeZaccardi) August 16, 2022

New high on the Advance and Decline line, but that was five days ago.

Evidence for a new bull market in stocks is rapidly piling up.

My latest on @MarketWatchhttps://t.co/82I7A46Nj6 pic.twitter.com/KQSygWA9Zk— Willie Delwiche, CMT, CFA (@WillieDelwiche) August 18, 2022

Given signal metrics might not work all the time. Usually, it may be better to reflect upon a broad range to get a sense of whether the market structure is improving or not so much out of the woods yet. If we review them this way, there are more positive signs.

The greatest BEAR MARKET ever? $SPX $SPY $NDX $COMPQ h/t @BergMilton pic.twitter.com/zhJJMQPclZ— Seth Golden (@SethCL) August 19, 2022

Many questioned whether this upward move was a resumption or a bear market rally. The data shows that if this is a bear market rally, what we just had would be the most significant bear market rally after their drawdowns. We are not saying this cannot be the most significant but if it is this time it will be unprecedented.

Yes…

Back in 2020 once the 50% Fib retracement was achieved, markets did consolidate for a good month or so before finding the next leg of the rally.

(1 dip below 50% retracement also)$SPY $SPX $NYA $QQQ pic.twitter.com/CtXdgIXX8f— Seth Golden (@SethCL) August 19, 2022

A review of similar retracement during the COVID period.

Your average midterm year tends to bottom on Aug 14, with the median bottom on Sept 4.

One year off those lows, stocks are up more than 30% on average.

Bottom line, midterm years are usually aggravating and troublesome (check), but the future can indeed be bright. pic.twitter.com/XGxy7BAN5M— Ryan Detrick, CMT (@RyanDetrick) August 19, 2022

Momentum thrusts without breadth thrusts can point to exhaustion.

But when seen with breadth thrusts, they’ve led to rallies that haven’t looked back. https://t.co/A08FYFoaZf pic.twitter.com/x9oAUQ7xKz— Willie Delwiche, CMT, CFA (@WillieDelwiche) August 19, 2022


A breadth thrust is a sudden shift in the number of stocks that are declining and advancing within a short period. The number of stocks that advance usually has to outnumber those that are declining by two or two and a half times over a short five to ten-day period.

It is a fancy way of saying the rate of change.

In this chart, Willie showed up not about breadth thrusts but a sudden shift in 40-day momentum (momentum thrust). This does generate a few signals over the past 42 years. But if we overlay the momentum change with periods with breadth thrust, we realize that they may filter out some of the signals generated during bear market rallies.

S&P 500 being up 15% or more in 40 days tends to lead to more gains.

Strength begets strength. https://t.co/8bNZHOzmyM pic.twitter.com/4dsvepTmzv— Willie Delwiche, CMT, CFA (@WillieDelwiche) August 17, 2022

Here are the subsequent returns followed by this momentum thrusts.

This chart builds upon the previous by showing the average return whether we overlay with breadth thrust on the momentum indicator or not.

The post Only Positive Market Charts Allowed Today appeared first on Investment Moats.

Once again, this article is a guest post and was originally posted on kyith‘s profile on InvestingNote. 


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