Saturday, March 9, 2013

How Much Do Bonds Lead Equities

Last week, SPX rose all 5 days. It has, in fact, risen the last 6 days in a row. Bonds, which had outperformed SPX through February, were slaughtered, closing at their lows for 2013 on Friday. $TLT closed in its lower zone on the weekly chart and on its lower Bollinger Band on its daily chart. Many pundits think this signals the all-clear for SPX.

Yields rise (bond prices fall) when investors believe the economy is rebounding. 10 year yields rose 200 basis points between 2003 and 2006, during which time SPX rose 80%. On this basis, the fall in $TLT is a plus.

But US 10 year yields are just 2.05%. The UK, whose economy has stagnated in the past two years, has the exact same yield. Putting it in perspective, the bond market is hardly ascribing any growth to the US economy.

Moreover, bond prices have an asymmetrical relationship to SPX: rising bond prices (falling yields) are often a warning for equities, but a drop is not necessarily benign.

See the chart below; the width of the yellow shading is the time between the bond price low (blue line) and equity price high (black line). A wide yellow band means that there was a few weeks lead time between bond prices starting to rise and SPX starting to fall; a narrow band means that there was next to no time lead time. 

In the past three years, sometimes bonds have given a few week lead time warning to SPX; several times there was no lead time warning at all. In 2011, $TLT hit a new low in early February; SPX dropped 7% over the next month.

Friday, March 8, 2013

Does Prior Resistance From 2007 Matter Anymore?

$SPX is now within a few points of its prior tops in 2000 and 2007. Will this matter?

Probably. Look at how RUT, COMPQ and SPXEW reacted and then look at the charts for SPX and INDU.

In any case, the next few weeks will provide the answer.

Placing the Current Rally In 10 Year Perspective

The chart below looks at rallies in SPX over the past 10 years that have lasted more than 3 months and have risen more than 5% (it's a zig zag chart; every change in direction requires a >5% move). Every correction (red shaded areas) is also at least 5%, and we've made the width of the shading equal to 3 months.
  1. The current rally has now risen 16% (chart has not been updated since Wednesday) over nearly 4 months.  
  2. This places the current rally now 1 percentage point shy of the average gain and 2 percentage points shy of the gain from the rally that kicked-off 2012. 
  3. Time-wise, the current advance is of average length (although some have been twice as long). It is longer than the one from early 2012.
  4. Most of the corrections have been 1-2 months in length before a 5% bounce.
Net, the current rally is hitting the average for length of time and gain. Bear in mind as well that today, with SPX's high at 1551, it is within 0.2%-1.5% of the expected resistance area (1555-1575) on the monthly charts. Read further here

Thursday, March 7, 2013

How 2013 Is A Dead Ringer For 2011

2011 started strong and ended up dead flat. This was a surprise because it was up nearly 7% through February. Investors were bullish, and the trend was higher.

After February, SPX only rose 1.9% higher (May) during the rest of the year. For 5 months (March-July), SPX traded sideways in a 10% band. Risk was therefore 5x reward during this period. In August, SPX plunged 20% (risk 10x reward). The October 2011 low, with its accompanying washout in sentiment, set up the 12% rise in SPX during 2012.

It is worth pointing how similar the current set up now, in 2013, is to early 2011. The end result may turn out differently, but the similarities are at least noteworthy.

Wednesday, March 6, 2013

In The Aftermath Of Long Winning Streaks in SPX

In writing Thursday's post on the similarities between 2013 and 2011, I came across these analogues. In the past 20 years, SPX has risen 7 weeks in a row three times (2007, 2011 and 2013) and 8 weeks in a row three times (1997, 1998 and 2004).

In the charts below, the green arrow is the year leading into the strong winning streak. The yellow box is the period that immediately followed.

Tuesday, March 5, 2013

What Lies Ahead (or Above) For SPX

With the DJIA making an all-time high today, what lies ahead for SPX?

Monthly: The first chart is a 16 year monthly view of SPX. The green band is ~10% wide with a top at 1555, less than 1% from where SPX is today.

SPX first rose to 1553 in March 2000 (first green arrow). Note that traded in a ~10% range the next 8 months. Interestingly, seven years later, SPX rose to nearly the exact same level, reaching 1555 in July 2007 (second green arrow). And, just like in 2000, SPX once again traded in that ~10% range for 8 months. This is an area, in other words, with a lot of trading activity and, apparently, strong resistance at the top of the range.  Only one month after reaching 1555 in 2007, SPX lost 12% (red arrow).

SPX went on to make a new higher high 3 months later in October 2007 at 1576 (blue line).  Based on the past trading history, we should expect resistance in the 1555-76 area and be prepared for the potential for a wide, volatile trading range.

Sunday, March 3, 2013

A Breath Warning From SPXA50R

There are a number of good ways at looking at breadth. One is discussed below. It is the percentage of the S&P 500 trading above its 50 day moving average (dma). On Stock Charts, the symbol for this is SPXA50R.

The concept is simple: rising prices on SPX should be accompanied by a greater number of companies trading above their 50-dma. In the current uptrend, more than 90% of the SPX were trading above their 50-dma in late January. There was no divergence between breath and price.

Since then, SPX has made new highs while the number of companies above their 50-dma has fallen to 74%. This is a negative divergence.

Sometimes, price and breath peak together; at other times, breadth leads and gives a warning about the deteriorating underlying quality of the advance.

In the chart below, we have plotted a smoothed SPXA50R (red line) against SPX (blue line) since 2007. The divergence between breath and price can last 1 month (in rare cases, 2 months) but the result is the same, with a decline in SPX of 5-10% to follow (some were more).

In the present case, SPXA50R (as calculated; see notes below) has been declining for 3 weeks. The time for a corresponding move in SPX is within the next few weeks, but typically earlier.

Weekly Market Summary

Last week we noted: (1) SPX had broken down through its 2013 trend line; (2) defensives were outperforming cyclicals; (3) ex-US indices, currencies and commodities were breaking much lower; (4) treasuries appeared to have broken above their downtrend; and (5) breath was signaling distribution. 

The bottom line last week was this: strong uptrends do not typically end abruptly and we would expect, based on past performance, for the indices to make at least one higher high. But, the risk/reward is becoming much less attractive. 

The full text and chart is here.

Which bring us to this week:
  1. As expected, SPX made a higher high on a closing weekly basis. 
  2. But, risk was 2.1% downside versus a return of 0.5% upside and a net gain of 0.1%. Risk, in other words, was 4x larger than return. That's poor.
  3. Trend:
    • All the US indices and sectors made lower lows this week. All made lower highs as well, except DJIA.  
    • Ex-US indices continue to decline under their 50-dmas. The euro, aussie, oil and copper ended the week on new lows. These are serious divergences with US indices.
    • Treasuries confirmed last week's break above their down trend. TLT is now back in its upper trading zone. Treasuries are acting in concert with ex-US indices, commodities and currencies. The correlations are all working, excepting US indices.
  4. Breath deteriorated further with a second 90% down day this week and no offsetting 90% up day. 
  5. Volatility exploded 34% higher on Monday: 
    • The historical implication within the next few days are for higher prices in the indices, which we have now seen. 
    • Over the next one to four months, the historical tendency is for downside to SPX, with a typical pullback of more than 5%. Think of this as one measure of risk going forward. Read more herehere and here

Saturday, March 2, 2013

Ex-US Indices, Commodities and Treasuries Divergence With SPX in February

We have previously noted the importance of cyclical sectors leading the advance (here) and the correlation of US indices with equities in the rest of the world (here).

The advance in January was supported by cyclical sectors as well as key commodity groups and ex-US indices (first chart).

The choppier advance in February was supported by neither cyclicals, nor commodities nor ex-US indices (second chart). These divergences do not typically persist. The outlier is clearly the US indices; the others are all in agreement and supported by the decline in treasury yields.

Charts below.

Friday, March 1, 2013

FY13 EPS: Growth Expected Where There Has Been None

With 97% of 4Q12 earnings in the book, S&P has FY12 EPS at $97, a 0.5% increase over FY11. For FY13, consensus bottom-up is $112 and top-down is $108. That works out to 11-15% annual growth. Their data is here.

To make matters more interesting, FY13 is not getting off to a good start: Factset reports that 77% of the companies issuing 1Q13 guidance, issued negative guidance, the highest rate of negative guidance since they started tracking in 2006. More to the point, 1Q13 EPS is expected to come in 0.4% lower.

In the first chart below, the 11-15% growth in FY13 EPS all comes after 1Q. What is impressive is EPS will have not grown at all in the prior 7 quarters.

Relatedly, year over year GDP growth this week was reported to be just 0.1% higher in the US; in Europe, it was 0.9% lower and the continent is officially in recession. Recall that half the earnings for $SPX is from overseas.

Despite this, SPX companies expect more than 3% growth in revenues. Which means that the growth in earnings is primarily margin expansion. But, as GS explains, margins have actually contracted four quarters in a row (second chart). Consensus nonetheless expects margins to expand to their highest ever.

Charts below.

Thursday, February 28, 2013

What To Expect in March and April

The strongest 6 months of the calendar run from November through April. November through January is traditionally the strongest 3 month stretch of the year.

February is the weak link in the 6 month chain. Seasonal strength returns in March and April. 

In the first chart (from SentimenTrader), you can see that March and April are up 65% of the time on average for 1 to 2.6% gains each month. 

The second chart (from David Stendahl) shows March and April are strong whether viewed over the past 5, 10 or 15 years. Adding granularity, March seems to start weak and then rip from mid-month onwards.

The potential fly in the ointment is that in post-election years, March is weak (see third chart). As Stock Trader's Almanac says: "In post-election years, March ranks 5th worst for DJIA, S&P 500 and Russell 2000. NASDAQ is 4th worst. In 10 post-election years since 1973, NASDAQ has advanced just four times in March."

Getting too granular or literal on seasonality is not a great investing approach in the absence of other confirming factors. That said, April is typically solid, and if March presents a nice dip, seasonality is a tailwind on the long side (see fourth chart). 

Charts below.

Wednesday, February 27, 2013

What Monday's Jump in VIX Means For SPX

On Monday, VIX jumped to 19, an increase of 34% in one day and 55% over the prior week. What does this imply for SPX?

We have previously noted that VIX was, like today, in a period where it was sub 20 between 2003-07. Overall during this time, returns for SPX were mostly very good. However, VIX would occasionally jump 50-80% higher and $SPX would decline more than 5% over the next 1-4 months. We are potentially repeating this pattern now.

In the first chart below, we have updated the chart from 2003-07. The bottom panel shows VIX moves of greater that 30%, of which there were 9. In the top panel are corresponding moves in SPX. The percentage drop in SPX is noted in the text.

In the second chart, we have done the same analysis from 1992-97, also a period of low volatility. The conclusions are the same, with corresponding pullbacks of 5-10%.

Tuesday, February 26, 2013

Sellers Are In Control

This is a follow on to last week's post on the first major distribution day (MDD) since November (read it here). Recall that a MDD occurs when down volume is more than 90% of total volume on the NYSE.

At the time, we postulated that (1) an MDD the day after a new high in $SPX portends further downside, and (2) that a cluster of MDDs would indicate sellers are in control and lower prices will prevail. Sure enough, yesterday a second MDD hit the market that knocked out all the gains in the indices from over the past month.

Today, all 4 US indices and 6 of 6 cyclical SPX sectors are below their 20-dma. Watch the slope of those averages; the rest of the world has led the US markets, and their averages are now down sloping (see first chart, below). The US appears to be in the process of resynchronizing with those markets (second chart).

For at least the short term, sellers are in control of the market, and will remain so until one or both of the following transpire:
  1. US indices and a majority of the 6 cyclical sectors on the SPX regain their upward sloping 13-ema (or 20-dma), showing that the trend remains higher and is being led by economically sensitive stocks.
  2. Breadth swings forcefully in favor of bulls. In the third chart below, you can see that in the past, following a cluster of MDDs (red bars, bottom panel), the rebound only took hold when up volume exceeded 90% - a major accumulation day (MAD; middle panel with the green bars). Strong positive breath pushes a large number of stocks higher. With some follow through, $NYMO will also turn positive and $NYSI will regain its positive slope. An intervening distribution day obviously puts the ball back with the sellers (see May-June 2010).
Again, for the time being, sellers remain in control. Charts below.

Monday, February 25, 2013

Bullish Sentiment Declines Ahead of Price

Last week, $SPX made an uptrend high (1530). During the past few weeks, bullish sentiment as measured by AAII, II and NAAIM, has declined from their early February peaks. Many pundits have pointed to the declining number of bulls as a sign of further upside in price. Is it?

Historically, the answer is no. Bullish sentiment tends to peak ahead of price and then decline, making a negative divergence. Thus, the recent decline in bullish sentiment is consistent with the later stages of an uptrend. Bullish sentiment typically peaks when AAII is over 50%, II is over 35% and NAAIM is over 80%. AAII and NAAIM have recently exceeded those levels; II came close (32%).

The later stages of an uptrend are difficult. The trend is higher but becomes rounded as some investors become cautious ahead of others. Bottoms tend to be capitulative, with sentiment and price in sync.

Here are the charts:

Sunday, February 24, 2013

Weekly Market Summary

The weekly market summary allows us to track the market's narrative as it changes. The story so far has been a 4 month uptrend, recently capped by a 7 week streak of higher closes. Uptrends do not typically end abruptly with that type of strength.

At the end of January, some of the secondary indicators started to move from 'tailwind' to 'headwind'. Sentiment (measured several ways) became exceedingly bullish. Then, macro data started to disappoint versus expectations. Both of these often lead price.

In the past two weeks, three new headwinds developed. First: actual $SPX earnings implied flat growth in FY13 versus expectations of growth of 10%. Second: markets outside the US, in both $EEM and Europe, declined and closed under their 20-dma. Third: breadth in US markets narrowed as price rose, creating a bearish negative divergence.

Which brings us to key changes this week:
  1. Trend: This is the most important factor in the summary and for the 13th week out of the past 14, a majority of US indices/sectors closed >13 ema. However, the trend is weakening. You can see two trend downgrades on the summary chart below.
    • $SPX, our focus, closed under its 2013 trend line this week. 
    • Moreover, half of the 6 cyclical sectors closed <13 ema. In February, defensive sectors are leading the market, a bad sign. 
    • Cyclicals appear to following ex-US markets, which continue to weaken further. This week, $DAX, $HSI, $SSEC and $EEM, together with $6A, $6E, oil and copper, all closed < 50-dma. All of these correlate well with US indices. 
    • Bonds, which have based during the past month, closed near a monthly high and > 13 ema; something to watch this week.
  2. Breadth: This is the second most important factor and we have noted that $NYSI has been slowly declining. This week, however, a day after a new high in indices, the market experienced its first 90% down day since November; a major distribution day (MDD). When these occur at new highs, selling momentum normally carries over.  Read further here.
The bottom-line is this: US indices and sectors are, for the most part, still trending upwards and, again, strong uptrends like this do not typically end abruptly. We would expect, based on past performance, for the indices to make at least one higher high. If you like patterns, think of a 'head' or 'right shoulder'; if you prefer waves, think of a 5th of 5 wave uptrend. But the trend is weakening and most of the other factors are now headwinds to further appreciation.  

As a result, the risk/reward is becoming much less attractive. You could swing and hit the ball, but it will be low and outside, not a fat pitch.

The next area of resistance, from the 2007 peak, is 2% away (reward). Meanwhile, a 38% retracement and the 50-dma are 3% below (risk). In January 2011, $SPX rose 7 weeks in a row and then experienced a MDD, just like this week. Over the next year, upside was a further 5% (reward) while downside was 12% lower (risk). 

This week, among other things, look for whether cyclicals and ex-US markets change behavior or continue to underperform. Also, a second MDD would be a major watch out that sellers are taking control. Finally, watch whether Mr Bond can move above its recent base. All of this while the sequester approaches.

Wednesday, February 20, 2013

What Today's Major Distribution Day Means for $SPX

Down volume on the NYSE was over 90% of total volume today, an event known as a major distribution day (MDD). This is a measure of breadth; recall in the weekly market summary that breadth is second after trend in importance, so a MDD is of significance.

Today's MDD was the first since the mid-November low in $SPX. A few points:
  1. Yesterday, SPX formed a new high. Today, all those gains were given back on trading dominated by sellers. This, in the past, has been a bad combination. See the first chart below (red arrows). Selling momentum typically carries over into the following period. 
  2. Today's set up is eerily similar to April 2010 and February 2011. See the first two red arrows on the first chart: a long, grinding uptrend capped by a MDD. April 2010 double topped within a week; February 2011 began a multi-month topping process. Either one of these is a possibility.
  3. Not all MDD's are the same. After a downtrend, an MDD can mark the point of capitulation. See the second chart below (green arrows). This was the case at both the June and November lows in 2012. 
  4. Some MDDs are rogue and some come in clusters. See the red rectangles at the bottom of chart three. It should not be a big surprise that a cluster of MDDs will lead to a substantial decline in $SPX. We have to be on watch now for another day like today.
  5. Finally, today is day one of major selling in 2013, and its coming after a 7 week uptrend. Long uptrends like that, in the past, have not ended without at least a second attempt at the recent highs. Read further here and here

Tuesday, February 19, 2013

Friday-Monday Effect During $SPX Trends

There is a good correlation between up trending markets and a positive close on Fridays. Since the start of May through today, down weeks almost always end with a down Friday. The reverse is also true: up weeks end with an up Friday about 75% of the time. In the chart below you can easily see the correlation.

Another effect is also taking place: Fridays and Mondays tend to alternate direction. Thus, over this period of time (n=42 weeks):
  1. When Friday is up (n=25), Monday is down 75% of the time.
  2. When Friday is down (n=17), Monday is up 65% of the time.
In an uptrend, beware of down Fridays. 

Even more so, in a downtrend, look for a strong close on Friday for a possible start to a reversal.

Monday, February 18, 2013

Impact of Weakening Global Macro on SPX

Part of the value in the Weekly Market Summary is to place different factors into perspective. Negative macro or sentiment are individual factors and not even the most important ones. Bear that in mind while reading on.

Macro developments in Europe and the rest of the world are worth noting, especially when weakness is creeping in while investor sentiment in the US is very bullish. A few points:
  1. Global equity markets tend in the same direction. So note, EEM has diverged since the start of January and Euro 350 since the start of February. Both are down 3-4% from their high while $SPX has moved up. Both are toying with their 50-dma while $SPX is 3.6% above. Germany's $DAX is now below its 50-dma. Charts here.
  2. This relationship makes sense. About 50% of $SPX earnings comes from outside the US. Europe's economy is about the same size as that of the US (both about 20% of the total). 
  3. Moreover, Eurozone and US production are correlated. They can decouple but those periods do not generally persist. See first chart below. The point is, Europe is not some sideshow for US investors.
  4. Half or more of OECD economies may now technically be in recession. See second chart. A recession is defined as either one or two consecutive quarters of economic contraction. The dip in the number of economies with positive growth is the first severe one since early 2008. 
Final point: this is coming at a time when S&P earnings has apparently declined the past two quarters (see here).  Factset has reduced 1Q13 earnings growth to negative 0.04% from 3%. 

Sunday, February 17, 2013

Pay Attention to Citi Economic Surprise Index

On January 25th, the Citi Economic Surprise Index (CESI) crossed through the zero line and became negative. To be sure, no single factor predicts all changes in equity prices. But, you want to pay attention to CESI, especially if other factors start to point in the same direction. According to JPM, the last 7 times that CESI went negative, over the next 3 months, the $SPX had average upside of just 1% versus an average downside of 8%. That's poor risk/return.

A few key points:
  1. In the past, a negative CESI has led a decline in $SPX. In the first chart below, the yellow areas are where CESI turned negative since 2007. $SPX (blue line) followed each time, losing 8-10% or more each time. There was a two month lag in mid-2011 where $SPX stalled before a large correction. 
  2. Part of this correlation relates to EPS revisions (second chart). JPM points out that when CESI heads lower, EPS estimates are typically revised lower. And vice versa. 
  3. Another part of this correlation relates to valuation. When CESI heads lower, PE ratios typically also contract, and vice versa. 
  4. A final component to this correlation is that bond yields move with macro expectations. When macro disappoints, yields head lower and bonds outperform equities (third and fourth charts). 
  5. When CESI is -90 or lower, macro expectations have often bottomed (fifth chart). 
Charts below the break

Saturday, February 16, 2013

Weekly Market Summary

Our overall market view remains positive, but with reservations. The trend is up: for the 12th week out of the last 13, a majority of indices/sectors closed >13ema. This week: all 4 US indices and 9 of 9 SPX sectors. TLT is still below all its MAs.

For the second week in a row, several ex-US markets have been <20-dma and diverging with US, including Euro 350, DAX, EEM and All World Ex-US. Euro and Aussie currencies are also weakening. $USD closed at its high for 2013. The US will resynchronize with the other markets.

Breadth is also in neutral for a second week in a row with NYMO oscillating at the zero line. NYHL continues to diverge, lower. Again, these divergences can persist for a month or so. But, unless corrected, these are likely to be late stage signals.

One change this week is a downgrade to Valuation. S&P data shows a second sequential decline in quarterly EPS growth. Overall 2012 growth may be just 2%. To be conservative, a lower forecast for 2013 is warranted, putting PEs near 15 and above average. 50% of SPX earnings are foreign, and Eurozone GDP growth is now negative; another headwind.

Sentiment and macro expectations remain the headwinds as well.

Friday, February 15, 2013

Sector Rotation: Watch for Weakness in Financials and Discretionary

We look for patterns in the nine $SPX sectors every week as a tell for overall market direction. Yes, it's part of the Weekly Market Summary. For example, in autumn 2012, when $SPX fell for two months into November, the fact that financials and consumer discretionary had so strongly led the advance gave confidence that the market would continue higher.  And it has.

The charts below review how sectors performed on a relative basis through the past 10 years, a period that includes at least a cycle and a half. 2013 is off to a good start, but its been a mixed bag, with defensives up with cyclicals. As explained below, watch for weakness in consumer discretionary and financials combined with strength in utilities as a sign of a trend change. Not yet. 

Thursday, February 14, 2013

Exuberance in Junk The Past 3 Times Was Bad for $SPX

Further to our junk bond exuberance post on February 6, we wonder: what happened to $SPX the last three times junk bond prices traded at these levels (in 2004, 2005 and 2011)? The answer is: all three times, the advance in equities stalled and declined, the most dramatic being early 2011. Charts below the break.

Wednesday, February 13, 2013

Put-Call Moves Opposite To Indices

One of the "sentiment" measures in the Weekly Market Summary is the trend in the put-call ratios (CPC - total; CPCE - equity only; CPCI - index). Lawrence McMillan of the Option Strategist makes an interpretation each Friday. Read his weekly commentary here.

He uses a 21 period MA. You can also look for a pattern of highs and lows. To wit, when CPC is falling (less put protection, fear receding), $SPX typically rises. See the first chart:

Tuesday, February 12, 2013

Valuation and Macro Are Correlated - And Out of Sync

With the Citi Economic Surprise Index (CESI) going negative in late January, there is reason to be concerned about the forward PE valuation on $SPX.

The chart below is from February 2012 (last year). You can see that over the prior 5 years, there was a high correlation between CESI and valuation; when economic measures exceed expectations, multiples expand, and vice versa. This is what you would expect. (In this case, by the way, the $SPX rose 5.5% over the next 2 months; the blue line caught up with the red one).

Fund Managers' Current Asset Allocation - February

The latest BAML survey of global fund managers continues to show high levels of risk-on positioning with low levels of cash (3.8%) and the highest global exposure to banks since early 2007.
  1. “The continued high level of optimism is a concern and markets may be vulnerable to bad news, but valuation support suggests any correction should be short and shallow" says BAML
  2. Cash balances remain very low at 3.8% (same as January, vs 4.1% in December 2012). This is still lowest since February 2011. Typical range is 3.5-5%.
  3. Equity allocations - a net 51% are overweight global equities, same as January (and the highest since February 2011). It was 35% in December 2012.

Monday, February 11, 2013

$112 FY13 EPS Looks Like a Stretch

As companies continue to report, an unwelcomed truth has been uncovered. F13 EPS has been expected to top $112/share. This would represent 10% growth over FY12 EPS of $102.

There are two problems: first, FY12 will likely to be closer to $98-100. This is just 2-4% growth over FY11 ($96.4) - nowhere near 10% expected this year. Which brings us to the second problem: even if growth is again 2-4%, FY13 EPS will be $100 to $104.

Earnings expectations being 8% or more too high at a time when investor sentiment is at a bullish extreme is not a good combination.

Final point: 3Q12 EPS was lower than 2Q12, and 4Q12 is on pace to be lower than 3Q12. That's two consecutively lower EPS numbers. This has never happened outside of a recession.

BAML Bull/Bear Index at Bullish 99th Percentile

BAML's Bull & Bear Index of investor sentiment toward risk assets is at a more bullish level today than 99% of all readings since 2002. The current reading is 9.6 (out of 10). Since 2002 a "sell" signal of >8.0 was on average followed by a 12% peak-to-trough correction in global equities within three months.

Sunday, February 10, 2013

Duration of Sequential Up Weeks

In a follow up to the prior post on uptrends, Thomas Bulkowski has some useful statistics. Over the past 10 years, greater than 7 up weeks sequentially has a 2% probability of continuing; greater than 6 up weeks, a 5% probability; greater than 5 up weeks, an 8% probability; greater than 4 up weeks, a 16% probability.