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Technical Market Indicators
Dow Theory, W.D. Gann, MetaStock, system tester, indicator builder, custom formulas, momentum, overbought, oversold, buy, sell, signals, top, bottom, Bull, Bear, consolidation, sentiment, contrary opinion
December 9, 2019
Stock Market: remains sensitive to unpredictable U.S.-China trade deal talks.
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The October-November stock market rally stalled in December. The S&P 500 index lost 2.66% over 3 trading days, declining on 12/3/2019 to its lowest price since 11/6/2019 on reports of a possible delay in U.S.-China trade deal talks--but it recovered most of that loss on reports of progress in talks.
Technically, the S&P 500 index got overbought in November at more than 3.5% above its 50-day Simple Moving Average (SMA), the upper envelope in the chart above. An overbought condition like that can be followed by a downside shakeout to 3.5% below its 50-day SMA, the lower envelope shown.
RSI and MACD price momentum indicators got overbought in November, then broke down in December. Momentum doesn't rise forever--it oscillates.
Stock market swings often exhibit similarity. The S&P 500 index rose 10.45% over 55 calendar days from 10/3/2019 to 11/27/2019. That is a fairly close match to the 10.99% rally over 53 calendar days from 6/3/2019 to 7/26/2019, which was followed by a 6.80% downside correction.
Although the Dow Jones Industrial Average rose to a higher high 11/27/2019, the Dow Jones Transportation Average did not. Such a Dow Theory non-confirmation often indicates a split market. It means that the stock market is not in gear, with its key parts not pulling together in the same direction.
Stock market sentiment has been showing an extremely high degree of overbought bullish optimism, suggesting a significant probability of a price pull-back.
The bulls continue to hope that a trade deal between the U.S. and China will improve business confidence and reverse the global decline in economic growth. The details of any trade deal appear highly uncertain, since the two sides have fundamentally conflicting interests.
Despite continuing talk about a U.S.-China trade deal, the China Large-Cap ETF (FXI) has been notably weak since 11/7/2019. On 12/3/2019, FXI closed at its lowest closing price in 7 weeks, since 10/10/2019, suggesting doubts about reaching a workable trade deal. Even after a 3-day recovery attempt last week, FXI price remains systematically bearish, below its 50-day and 200-day Simple Moving Averages (SMAs), and the 50-day SMA remains below the 200-day SMA.
Historically, stock market seasonal tendencies have been moderately bullish for the second week of December. Keep in mind that seasonal tendencies easily can be overwhelmed by news headlines as well as technical factors.
The S&P 500 remains systematically bullish for the long term, because price remains above both the rising 50-day and the rising 200-day Simple Moving Averages (SMA), and the 50-day SMA remains above the 200-day SMA. Keep in mind that trend following using moving averages always lags at price turning points.
Easy monetary policies of the global central banks have been and remain bullish for the financial markets.
Long-term U.S. stock sector rotation now shows more of a mix of Defensive and Cyclical sectors, indicating increasing investor uncertainty about long-term economic prospects. The following best-performing sectors are demonstrating the greatest trend strength: Technology, Financial, Utilities, Consumer Staples, and Real Estate.
The following sectors are relatively weak for the long term: Energy, Consumer Discretionary, Materials, Health Care, and Communication Services. With the exception of Health Care, which normally is Defensive, these Cyclical sectors tend to rise and fall in anticipation of the ups and downs of the general business and economic cycle.
Foreign (EFA) and Emerging (EEM) stock markets have underperformed U.S. stock indexes since global stock markets peaked together on 1/26/2018. Nevertheless, both are systematically bullish, because prices are above rising 50-day and 200-day Simple Moving Averages (SMAs), and the 50-day SMAs are above the 200-day SMAs. Foreign markets are important because they have led the U.S. stock market at important price turning points in recent years.
The U.S. Dollar ETF (UUP) closed below its declining 50-day SMA, so UUP is systematically neutral. UUP has whipsawed up and down, crossing its 50-day SMA several times since price peaked on 10/1/2019, suggesting a choppy, medium-term consolidation phase.
Gold (GLD), Gold Miners (GDX), and Silver (SLV) are below their declining 50-day SMAs, so they remain systematically neutral. These ETFs peaked on 9/4/2019, and their medium-term correction/consolidation phase continues.
Copper (JJCTF) price remains systematically neutral for the short term, above its rising 50-day SMA but below its declining 200-day SMA. The price of Copper is sensitive to prospects for global economic growth.
Oil (USO) remains systematically neutral, above its 50-day SMA and 200-day SMA, but with the 50-day SMA below the 200-day SMA. USO has been consolidating in a wide trading range between 7.67 and 16.27 since bottoming on 2/11/2016.
U.S. Treasury bonds (TLT) price whipsawed below its declining 50-day SMAs last week, thereby turning systematically neutral again. TLT price peaked at 148.90 on 8/28/2019, and its medium-term correction/consolidation phase continues.
U.S. Treasury notes (IEF and SHY) prices closed below their declining 50-day SMAs but above their rising 200-day SMAs, so they are systematically neutral for the medium term. Their medium-term correction/consolidation phase has continued after prices peaked more than 3 months ago, from 8/28/2019 to 9/3/2019.
$VIX Volatility Index fell to an overbought 13.62 on Friday, down from 17.99 on Tuesday 12/3/2019. $VIX Volatility Index fell to 11.42 on 11/26/2019, which was the most extreme overbought level since 4/17/2019, which was followed a -7.63% downside price correction 9 trading days later.
The AAII investor sentiment survey shows some moderation in bullish complacency, now with 31.72% Bullish, 39.16% Neutral, and 29.13% Bearish. The Bullish plus Neutral percentage exceeded 76% in November, which was among the highest levels of overbought bullish complacency in 13 years.
The Equity Put/Call Ratio is overbought at 0.53. It fell to 0.47 in November, which was one of the most extreme overbought levels in history. Options speculators typically react to the price action: when stock prices go up they trade more calls, and when stock prices go down they trade more puts. The Art of Contrary Thinking would suggest becoming more bullish as this P/C ratio rises toward extremely high levels and more bearish as it falls to extremely low levels.
The CNN Money Fear & Greed Index, now at 70, indicates overbought greed. It jumped to an extremely overbought 91 in November, its highest level in more than 2 years. For details, see http://money.cnn.com/data/fear-and-greed/
Corporate insiders (officers, directors, and major stockholders) have been selling stocks of their own companies at the fastest pace in two decades. This suggests that the 2019 stock market is the most overbought since the dotcom bubble top in year 2000, and that the long bull market in equities is reaching its final stages, according to Smart Insider.
It may be a good time to recall what happened the last 3 times the S&P 500 index rose to a new high.
1. On 9/21/2018, the S&P 500 index made a new intraday high at 2940.91, but 96 days later it had fallen to 2346.58, down 20.21%.
2. On 5/1/2019, the S&P 500 index made a new intraday high at 2954.13, but 33 days later it had fallen to 2728.81, down 7.63%.
3. On 7/26/2019, the S&P 500 index made a new intraday high at 3027.98, but just 10 days later it had fallen to 2822.12, down 6.80%.
The full report offers clear and unbiased guidance on the following each week:
Global stock markets
The Defensive stock sectors
The Health Care sector
The Cyclical sectors
The Technology sector
The Financials sector
U.S. bonds and notes
Commodities (Oil, Metals, Agriculture)
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