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mortiz

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Reply with quote  #1 
On Friday, May 25, 2007, both the NYSE AD McSum and Up-Down volume (UD) McSum posted strings of over 190 consecutive days where both McSums remained above zero.  The NASDAQ UD McSum joined the NYSE McSums this past Friday in posting 190 consecutive days above zero.

It turns out, extensive periods of time when both the NYSE AD and UD McSums remain above zero are rare.  Over the past three to four years this market has produced several rare events, and this is just another one.

The below table summarizes the other times over the past 67 years when both the NYSE AD and UD McSums remained above zero for over 190 consecutive days.  The NASDAQ has achieved this feat four times, 1978, 1979, 1983, and May 2004.  Since the NASDAQ AD McSum has not joined the UD McSum in remaining over zero for over 190 days, the table looks at other times over the past 30+ years when the NASDAQ UD McSum stayed above zero for over 190 days.



The forward looking returns following these events were referenced from the 190th consecutive day above zero, thus in all cases, the table contains the returns following the 190th consecutive day..

Since the table does not include draw-downs over the various time frames, let's take a look at some of the price charts of the SPX and NASDAQ composite leading up to, and following these strings of McSums remaining above zero.

For the NYSE, we'll start with the liquidity back drop before and after these events, as measured by the NYSE cumulative AD line (blue curve on the below chart).  The approximate time frames when both the NYSE AD and UD McSums reached the 190 consecutive days above zero threshold are circled on the AD line.  Since the 1950s, these events have been particularly rare, only occurring twice prior to the current achievement.

By referencing the returns table, one can see the returns in 1983 and 2004 were not stellar following the strong McSum events.  Notice both the 1983 and 2004 events occurred about nine months after very important bear market bottoms.  So perhaps, the first leg coming out of a bear market bottom required a longer time frame of price digestion than previous events in the 1940s and 1950s. 



To get better resolution of the price action before and after events where both the NYSE AD and UD McSums remained above zero for over 190 days, a few charts covering the relevant time frames will be presented.

First the events transpiring in the 1940s and 1950s.  The red curve is price (SPX) and the blue curve is the difference between the NYSE UD McSum and AD McSum.  When the blue curve is above zero, the UD McSum is higher in magnitude than the AD McSum, which is a configuration supportive of robust price gains.  Breadth is important and a great indication of money flow/liquidity, but volume strength is what moves price.

Despite the 1940s and 1950s being a period of strong liquidity, note the blue curve was above zero over most of the time frame, which drove prices relentlessly higher.



Next is the 1983 event of both NYSE AD and UD McSums remaining above zero for over 190 days.  Recall the great bull market of the 1980s and 1990s was initiated in August 1982, and the 1983 event occurred in May, 1983, very close to the end of the first leg.  Soon after this event, the SPX went on to consolidate for 18 months, digesting its price gains and building a foundation for the next leg of that powerful bull move.

You might notice the blue UD McSum minus AD McSum curve remained above zero for most of this time frame, despite the prolonged consolidation.  The AD McSum was much weaker than the UD McSum over the consolidation, with the AD McSum remaining negative much of those 18 months.



The last NYSE chart shows the price action leading up to, and following the January, 2004 UD and AD McSum string of days above zero.  As with the 1983 event, the 2004 occurrence was followed by an extended consolidation period.  Again, this consolidation followed a very robust first up leg following the 2003 price bottom. 

Will the current string of consecutive days of the NYSE McSums remaining above zero result in a similar prolonged consolidation period? I would not be shocked to see some level of consolidation in the coming weeks and months, but a big difference between the current string of McSum days above zero and the streaks in 1983 and 2004, is the current event has transpired in what is likely an Elliott Wave three (of some degree), which would be consistent with the action in the 1940s and 1950s.... we'll see.

Perhaps any Elliotticians reading this would chime in concerning the current wave status and that during the 40s and 50s.



For completeness, the next few charts cover the previous periods over the past 30+ years when the NASDAQ UD McSum remained above zero for more than 190 consecutive days.

First the events, time frames circled in blue, from 1976 through 1985.  During this time frame, nasty NASDAQ declines unfolded a few months following the UD McSum above zero strings. However, note the late 70s and early 80s were under the influence of a bear market.



Next are the NASDAQ UD McSum positive streaks between 1985 and 1993.  The bull market was well underway over this time frame, and most cases, sustained strength in the NASDAQ UD McSum was followed by significant price strength.



Last are the NASDAQ 1995 and 1999 UD McSum positive streak events.  In both cases, prices either ground upward (1995) or rocketed higher (1999).  The 1995 price levels are visually "stunted" due to the linear price scale, but if you look at a zoomed chart of the mid-90s, you will find prices reacted positively to the sustained strength in the UD McSum.



In summary, on-balance, sustained strings of McSum days above zero are very positive for prices going forward if the underlying market conditions are supportive, i.e. in a bull market that has gotten by its initial leg from the bear market lows.  A consolidation in prices would not be surprising within a couple of months, but along with many other signs of strength, the McSums' sustained strength over the past nine months is likely promising much higher prices over the next year or so.

FWIW

Randy
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fib_1618

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Reply with quote  #2 
Quote:
Will the current string of consecutive days of the NYSE McSums remaining above zero result in a similar prolonged consolidation period? I would not be shocked to see some level of consolidation in the coming weeks and months, but a big difference between the current string of McSum days above zero and the streaks in 1983 and 2004, is the current event has transpired in what is likely an Elliott Wave three (of some degree), which would be consistent with the action in the 1940s and 1950s.... we'll see.

Perhaps any Elliottician's reading this would chime in concerning the current wave status and that during the 40s and 50s.

First of all, an outstanding post Randy! Thanks so much in taking the time in putting it together.

This is probably as good a time as any to present what I consider the preferred longer term Elliott Wave count on the Dow that would compliment the current all time highs on the NYAD. Hopefully the chart is self explanatory to even the casual observer, and provides the needed clarity of the wave structure of the 1940's and 1950's within the context of this post.

Fib




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mortiz

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Reply with quote  #3 
Fib,

Thank you much for the kind words, and especially for posting the long term wave count consideration. I have a plane to hop on soon, but hope to have time tonight to add the long term NYSE cumulative AD line marked up with the more major wave counts to illustrate how the AD line fits in.

Hopefully other Elliotticians will weigh in as well.... 

Randy
 
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