Market Pulse
Author: Created: 3/10/2010 11:54 AM
Market Pulse
By Walter Murphy on 11/28/2011 6:23 AM
Stocks: Although the evidence suggests that a short term December rally is probable, the extent of that rally is less important than the likelihood that the next short term top will mark the end of the year-end rally. Based on the performance of the weekly Coppock oscillator, intermediate downtrends have averaged 15 weeks since 2000; a similar length has been evident since 2007. Given that the monthly oscillator currently has a bearish bias, 15 weeks seems to be a reasonable initial estimate. If correct, this would imply that the market will be under pressure for much of the first – and arguably into the second – quarter.

The Rest of the World: Short term momentum is oversold enough to indicate that most markets will be positioned to begin a short term rally in the next 4-6 days. However, that rally will likely mark the final phase of the post-October, year-end uptrend. Thus, a late December, early January peak should position world markets for a broad-based multi-month decline. Such a decline would put...
By Walter Murphy on 11/23/2011 12:55 PM
On Tuesday, the S&P 500 recorded its fifth straight loss (and six in seven sessions) with a decline of 0.4%. Declining stocks exceeded winners by 5:2 while the up/down volume ratio was bearish by a more robust 3:1 margin. Turnover was essentially unchanged from Monday’s level. The daily Coppock Curve has a bearish bias for all 24 S&P Industry groups and for all 30 DJIA stocks.

The S&P is at an important short term Fibonacci juncture. We previously mentioned that, if the index broke down though a 38.2% retracement at 1209, the risk would be for a challenge of 50%-61.8% support at 1184-1158. Interestingly enough, 1209 put up a fight and when it was finally breached the index moved rather quickly to the 1184 area, which has – at least for now – cooled off the selling pressure.

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By Walter Murphy on 11/22/2011 2:57 PM
Stocks: Last week was the S&P 500’s worst performance in nine weeks. It was broad-based as all 24 industry groups were lower for the week. While the decline was deep enough to invalidate the triangle continuation pattern that we had been monitoring, little damage was done to the medium term underpinnings and we continue to work with the idea that the fourth quarter rally still has upside potential.

The Rest of the World: Despite all the travails associated with the debt crisis in Europe, the STOXX Europe 600 fell by less than the MSCI All World Index last week. Indeed, the relative strength pattern bottomed in August. Our sense, however, is that further relative strength by Europe will be short-lived.

Interest Rates: The downtrend in 10-year yields that has been in force since late October is a short-term event within a larger intermediate rally. To a large degree this outlook is based on the fact that the September-October rally was impulsive, which positions it as the first phase of a larger uptrend.

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By Walter Murphy on 11/18/2011 1:37 PM
On Thursday, the S&P 500 fell 1.7% for the second straight day. While declining stocks exceeded winners by almost 13:2, the up/down volume ratio was bearish by an even more robust 14:1 margin. These pressures were confirmed by an 11% increase in turnover. The daily Coppock Curve has a bearish for 23 of the 24 S&P Industry groups and for 28 of the 30 DJIA stocks.

The above statistics were negative in their own right. However, the more important development was that the “500” cracked 1215 thereby invalidating the triangle formation that seemed to be unfolding since the October 27 high. We had suggested in previous comments that, if the triangle was the correct count, it would be a sign of strength. So today’s breach reins in the upside potential. However, it does not eliminate the potential for higher highs.

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By Walter Murphy on 11/17/2011 3:56 PM
On Wednesday, the S&P 500 fell 1.7%. Declining stocks exceeded winners by almost 5:1; the up/down volume ratio was bearish by a similar margin. This action qualifies as a legitimate distribution day as turnover increased by 15%. The daily Coppock Curve has a bearish for 23 of the 24 S&P Industry groups and for 23 of the 30 DJIA stocks.

In late September, early October we began talking about how the S&P was positioned for a year end rally. In that regard, October’s gains qualify as a solid first leg to a larger, still incomplete uptrend. In our view, the weight of the evidence still supports higher highs. The potential triangle that we have recently highlighted fits nicely with that outlook.

So does volume. Granted, volume in absolute terms has been low. But on-balance volume (OBV) has been constructive. Indeed, as the nearby chart shows, NYSE OBV is at new 2009-2011 highs. This suggests underlying accumulation. In the sense that volume often leads price, this accumulation bodes well for higher highs...
By Walter Murphy on 11/14/2011 4:01 PM
Stocks: There is no doubt that sentiment is deteriorating, but that does not mean, as some commentators suggest, that sentiment is not a positive. We have regularly pointed out that sentiment is a trend following indicator that often has to be analyzed much like momentum. So in the context of an intermediate year end rally, some deterioration is to be expected. Moreover, even when sentiment does reach an extreme, we will often see some indecision, which allows for a sentiment divergence. That obviously has not happened yet. So while sentiment is not as constructive as it was in September and October, it is not an impediment for further progress by the year end rally.

Rest of the World: The weekly Coppock Curve is still constructive for a great majority of the global markets and the global Bullish Percent Index is still solidly positive. This suggests that the underlying uptrend from the early October low is still intact and that last week’s pressures were essentially short term in nature.

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By Walter Murphy on 11/10/2011 3:33 PM
On Wednesday, the S&P 500 suffered its biggest loss since mid August with a decline of 3.7%. Declining stocks overwhelmed winners by 36:1 while the up/down volume ratio was bearish by an even more robust 61:1 margin. The resulting 90% down day (the third in eight sessions) was exacerbated by a 19% increase in turnover. Not surprisingly, the daily Coppock Curve is bearish: all 24 S&P Industry groups are under pressure as are 28 of the 30 DJIA stocks.

Today’s blog was originally going to be about Italy, but the sharp sell-off requires that we stay closer to home. First things first: today’s decline has not impacted our view that the intermediate fourth quarter rally has further to go. The post October trend is still intact on our primary P&F chart. Moreover, the weekly Coppock has a bullish bias for all 24 S&P industry groups. The rally is structurally counter trend, but that is to be expected.

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By Walter Murphy on 11/9/2011 5:29 PM
On Tuesday, the S&P 500 posted its fourth gain in five days with a rally of 1.2%. Advancing stocks exceeded losers by almost 4:1 while the up/down volume ratio was bullish by a more robust 5:1 margin. Turnover increased by 14%. The daily Coppock Curve has a bullish bias for 15 of the 24 S&P Industry groups and for 16 of the 30 DJIA stocks.

The bottom line is that the rally from the November 1 low is an uninterrupted uptrend. Since this is within the larger fourth quarter rally, the risk is that the short term trend is signaling the resumption of the intermediate trend. Since the weight of the technical evidence suggests higher highs in the weeks ahead, surprises could – should – be to the upside.

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By Walter Murphy on 11/7/2011 1:35 PM
Stocks: While seasonality, sentiment, cycles, and momentum indicate that this fourth quarter rally has further to go, there is no doubt in our mind that it is a counter-trend event. There were four pullbacks during the October 4-28 rally and each of the final three overlapped the correction that preceded it. That is an Elliott Wave 101 indication that the overall rally is a structurally corrective/counter-trend event. Therefore, it is a bear market rally.

The Rest of the World: The Bullish Percent Index (BPI) is solidly positive at 83% and has been above 50% for four months. However, it is likely that this “bullish bias” is the result of improvement in the intermediate trends, not the longer term trends. We say that because the majority of the indexes that we examined were at least 10% below their 52-week high and the monthly Coppock Curves is deteriorating for 36 of the 37 non-US markets in our universe (the exception was Ireland). At the same time, the weekly oscillator is bullish for 36 of the 37 markets...
By Walter Murphy on 11/3/2011 2:47 PM
On Wednesday, the S&P 500 broke a sharp two-day decline with a rally of 1.6%. As a result, the index has actually been up for four of the past six days. Advancing stocks overwhelmed winners by 8:1; the up/down volume ratio was also bullish by a similar 8:1 margin. However, turnover fell by 28%, which takes some of the air out of the day’s gains. Moreover, the daily Coppock Curve still has a bearish bias for all 24 S&P industry groups and for 29 of the 30 DJIA stocks.

Our inclination is to view today’s rally as an interruption, not a reversal. As mentioned in yesterday’s blog, the sharp sell-offs of recent days failed to achieve a minimum 38.2% retracement. In addition, the overbought daily Coppock is positioned to remain under pressure into the middle of the month and the decline from the October 27 high is easily counted as a five-wave pattern on the hourly chart. All of this suggests that the 10/27-11/1 decline was the first leg of a larger short term correction.

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Market Pulse
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