While catching up on the weekend chart work, figured the action over the past couple of weeks warrants a look at the internals of the Russell 3000 (RUA), the NYA (NYSE common stocks), and some NDX indicators that aren't discussed much.
The RUA provides a broad base of all-cap size stocks, from all exchanges, and they are all common stocks. First the RUA AD MCO, for the past three months, the RUA AD MCO has been bound in a well-defined channel from -75 at the negative extreme to +30 on the positive side. It has formed a triple bottom, with all forays into positive territory limited to simple structures. Needless to say, this type of action has run its McSum (not shown in this post) from just under +800 to -650, about 150 points from its April bottom.
There may be a bit more downside price work in the short term for RUA, but the AD MCO is likely setting the table for a breakout to the upside, with the probablility of a downside AD MCO break being very low.
The RUA UD volume MCO is not as neatly compact in its behavior as its AD brethern. It has a close resemblence to the RUT UD volume MCO illustrated in another thread, but the RUT volume only comprises about 25% of the total Russell 3000 volume, so the 1000 large caps in the RUA index are mimicking the UD volume behavior of the RUT components.
I am suspecting the -82 posting from October 12th, will prove to be the momentum low for RUA volume, serving as the pivot point for potential divergences with price going forward.
Several weeks ago, the topic of TRIN came up in the TW chat room, and questions surfaced concerning the behavior of TRIN for large component indices such as RUA and NYA.
Below is a chart of the vanilla TRIN (the Arm's index, black curve) along with one of the Eliades TRIN versions (blue curve). By visually matching the Arm's index with the RUA price action (red curve) one can quickly conclude the lack of signal generation by the Arm's index when used with RUA component breadth and volume. I have found the erratic behavior of the Arms index present in the NYA and the ISI (S&P 1500) as well.
In contrast, observe the nice signals generated by the Eliades TRIN variant, the most recent being an extremely high 1.69 in mid-October.
These next few charts look at the breadth, volume, and unweighted price behavior of the NYA components.
First is the cumulative AD line for US-only companies included in the NYA basket of 2060 issues (360 of them foreign country issues). Note the warning sign of the US-only common AD line at the early September price top of the unweighted NYA price. The divergence was even more pronounced against the weighted NYA.
It is probably too early to definitively call the recent action in the US-only AD line a divergence with price, but this AD line variant did not test its previous low as did the unweighted price index. The US-only common AD line has spent more time below its 1% trend (199 day EMA) over the past two weeks since the 2003 bottom. The longer the AD line remains below its 1% trend, the more likely the EMA line will offer stiffer resistance.
Next the US only component common stock AD MCO. This AD MCO variant is exhibiting more strength than the NYSE composite (all issues) AD MCO and the total common stock AD MCO, and is currently at the zero line. The superior relative strength lately of the US components of the NYA is likely sending a signal the meat of the decline is behind us.
Next is the NYA common stock AD McSum. Note this variant, at least for today, has held at the April lows, whereas the composite NYSE AD McSum has broken its April lows. However, with the "all-common" AD MCO at -11, any close below zero on Monday will drive the all-common AD McSum below its April low. If the April low is broken, it is imperative the March 2003 low of -906 hold for the long term health of the market.
The NYA $ weighted UD volume MCO remains below zero, but has posted an encouraging short term divergence with the unweighted NYA index. The zero line proved to be formidable resistance in its previous assault into postive territory, but at -13, it will not take a huge up day in the near term to speed past zero.
The NYA $ weighted UD volume McSum is currently just holding on the support lines drawn across the McSum lows from May 2004. It would be preferable for the trendline to hold, but the critical line in the sand is the May 2004 reading of -494.
The unweighted NYA index plotted against the traditional weighted NYA index is showing a divergence. The unweighted index is holding at its October 13th lows thus far, while the weighted version's support did not hold. Typically, since the 2003 bull began, such divergences between the weighted and unweighted index versions have gone in favor of the unweighted index.
The NDX component $ weighted UD volume MCO has been conducting some constructive work of late by not only taking out its zero line, but remaining above the zero line, bouncing off its former resistance line, and may be starting to form a complex pattern above its zero line. Note how the support trendline from the late December 2004 low has contained numerous assaults against it.
This chart is a 34 day rate-of-change (ROC) indicator of the NDX $ weighted UD volume McSum. This indicator bottomed and began turning up on October 6th, and held above its low several days prior to the recent NDX price low. The indicator has flattened out the past couple of days, hopefully not forming a hook or ledge.
Next is the NDX $ weighted UD volume 5% and 10% trends smoothed with a 5 day MA. The black 10% trend curve has risen above its 5% trend as verified by a previous chart showing the $ weighted UD volume MCO in positive territory. To get a real rally underway, both % trends must break through the orange resistance line, as well as its zero line. With the daily 10% at -58 and the 5% at -72, both have a ways to go for successfully traversing those hurdles.
Although there is some promising bullish potential in the indicators addressed, price, supported by its internal components, will need to get rolling to the upside in not too distant future. More widespread internal positive divergences with price would provide the icing on the cake to declare the correction over. Therefore, we may see some more price deterioration, but it is likely the worst of the price damage is behind us.