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mortiz

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Reply with quote  #1 
Thus far, from the August price lows, most of the popular indices' internals have yet to achieve new highs which are typically followed by new highs in the index's price.  A couple exceptions are the NDX, whose $weighted volume line has broken to new highs, and the Dow, whose internals are unequivocally voting for new price highs.

Last week, the Dow cumulative AD line reached its highest level in 20 years... which is the extent of my data base (the new high is likely a multi-decade high).  Note the Dow AD line is currently leading price.



The Dow $weighted up-down volume ($UD) line is also making new multi-year highs.... again leading price.



There was evidence prior to the mid-summer 2007 price decline that once the health restoring correction was completed, the Dow and other indices would resume their upward climb to new highs.  The Dow AD McSum achieved its highest level since at least 1989 in May of 2007, certainly qualifying as a long term initiation thrust.



The Dow $UD volume McSum, an initiation thrust here as well in May 2007, which is typically followed by new price highs once the price gains accompanying the thrust are corrected.



The Dow climax indicator (CLX) McSum... promising higher price highs back in May 2007 when it reached initiation thrust levels.



The McSum initiation thrusts in the spring of 2007 were not limited to the higher cap issues.  The next chart is the daily price change times volume ($PCV) McSum for every issue traded on the NYSE.  The NYSE common stocks carry the most weight for this indicator since the commons make up the vast majority of NYSE volume.

The NYSE $PCV McSum is ratio adjusted to compensate for increasing volume and components' higher daily price changes as the bull market continued.  Note the NYSE composite $PCV McSum achieved a higher magnitude initiation thrust than the thrust from the 2003 lows.... promising much higher price highs in the longer term.



The NDX is exhibiting similar action in many of its internals indicators, but I've run out of time for now to get into those charts.

In summary, internals have led prices higher time and time again over the years, and I would fully expect the same pattern to hold in the current market climate.  Not only look for new price highs in the coming weeks/months, but much higher price highs.

FWIW

Randy

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Reply with quote  #2 
Randy, excellent work as usual. i always look forward to your posts.
your breadth studies are in alignment with the cycle work i do, not just new highs, but much higher highs.
i'm always astounded that so many ignore the valuable information that can be extracted from the internal market stats. thanks for another "x ray" into the health of the markets.
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mortiz

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Reply with quote  #3 

Aire,

Thanks for the feedback and your regular cycles updates (usually on another "channel").... your analysis is an integral component of many folks' trading and investment decisions including mine,

Although the blue chips (NDX and the Dow) internals having been pounding the table new price highs are in the making, not all is fully healthy in internals-ville.  One of my favorite measures of the health of liquidity is one of the simplest indicators, the AD line.  AD lines for all of the various indices do a yoeman's job of illustrating the amount of liquidity available, and the willingness of investors/traders to commit that same liquidity to equities.

Although ample liquidity is apparently being committed to the bluest chip issues, there is apparently not sufficient resources, or at least the willingness to commit those resources to all equity cap sizes.

As an illustration, first is a zoomed in look at the RUT AD line over the past 20 months or so.  Although the RUT price recently broke out of a multi-week trading range, the RUT AD line remains trapped in a trading range unable to attract sufficient and sustained resources to float the majority of the RUT components higher. 


With all the credit related doom and gloom running rampant, it is understandable the smallest companies are not yet attracting willing resources... investors and traders are at least for now committing to the larger cap equities.  Compare the Russell 1000 large/mid cap AD line over the past several weeks with the Russell 2000 (RUT) small cap AD line action.

Note while the Russell 1000 index (RUI) was chopping around in a triangle, the RUI AD line was posting higher lows and higher highs, and price inevitably followed.  So widespread positive money flow is being enjoyed by the largest cap stocks... a selective tendency for quality in the early stages of the next leg up for prices.



It appears if the smaller cap stocks are perceived to be of the higher quality nature, they too are joining in attracting money back into the market.  The next AD line is that of the S&P 1500 which is a composite of the S&P 500, S&P 400 (mid cap), and S&P 600 (small cap).  The Standard and Poors company has higher "standards" for the companies who are members of their marquis indices, and these issues have been attracting money on balance.




So in the early stages of the new longer term upward point cycles, the generals and higher ranking offices are definitely leading the charge.  It will be of interest to continue monitoring the broad based small cap universe to determine if they too will begin attracting liquidity as the larger cap and other higher quality issues have been able to.

Plenty of money can be made in trading just the higher cap indices, but for the overall health of the market in the longer term, we would like to see the small caps begin participating in a more broad based manner than they have this far.

Randy

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doc

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Reply with quote  #4 

Randy,

Excellent work as usual. Pretty exciting times we are in here.
One minor point. Besides the higher standard of the SP600 compared with the R2K, there may be one other reason for the difference in the AD lines.
R2K has the financial  sector as its heaviest weighted sector: http://www.russell.com/indexes/characteristics_fact_sheets/US/Russell_2000_Index.asp

SP600 has industrials and info tech as the highest weighted sectors with financials essentially tied for third place with the cons disc sector:
http://www2.standardandpoors.com/spf/pdf/index/600factsheet.pdf


The recent weakness in the financial arena may have weighed down the Russell 2000 more than the SP600. Just a minor point to consider.

Best,

Doc

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