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This week Technical Watch will be adding a new breadth chart to its array: the Investment Grade Bond advance/decline line with its comparison to PIMCO's Corporate Bond Fund. This chart will be in the 6th position and will bring the total areas of investment that we'll cover each week to 15. It is our hope that with this new addition that we'll provide the most well rounded analysis available anywhere in business. Please also note that the "High Yield" data will now be referred to as "Junk Bond".
BETS moving from neutral to a solid sell signal in just one week, along with many of the major market averages (such as the New York Composite Index) failing to move above their 200 day EMA's over the last 2 weeks, and many of the breadth and volume MCO's breaking below their late September low points, it now appears that we're not only heading lower, but a full on challenge of the August price lows is now highly probable. Because of this, a full defensive posture is now warranted. Well, this may be the worst call ever made at Technical Watch on a week to week basis...let's see if we can do better. In what turned out to be a terrific week for the bulls, the major market indices were up by an average of 3.16% from last Friday's close with the advance fairly well balanced from large caps to mid caps to small caps to even the secondary market. Looking at this weeks chart array and we see that though we saw a sharp rally in prices across a wide front, the NYSE Composite, NYSE Common Only and NYSE Specialty CEF advance/decline lines lagged this same advance. This would indicate that a reset will be needed next week to correct this breadth to price relationship. Looking at the interest rate sensitive issues and we see that this group was cautiously positive overall with the NYSE REIT advance/decline line showing solid money flow moving into this basket of stocks. The addition of the Investment Grade Bond advance/decline line presents us with something that wasn't quite expected as its showing greater weakness than that of the Junk Bond advance/decline line. One would think that any contraction in liquidity would affect those investments that would have a higher degree of risk from default, but here we're not seeing this consistency. So what does it mean? Why is it that high grade bonds are weaker than those given junk status? Could it mean that the FED is not going to raise rates and corporate bonds are signaling poorer earnings to pay off their debt moving forward? Could it mean that investors are seeking out the highest return they can in spite of the investment having higher degree of risk? This is an interesting dichotomy...one of which we'll have to watch over the next couple of weeks to months as to any information that we're given to answer this question (and if the someone has an idea, please feel free to post your thoughts as a reply to this review). Over in Europe, both the FTSE and DAX advance/decline lines had a good week with Germany's cumulative line actually moving to its highest levels in 4 months with the backdrop of terrorist activity just to their west. France's CAC advance/decline line also showed a firm week as well with Wednesday having the only day of negative breadth plurality. One might think that the European market's resiliency was an important statement to those who want to change their ways of life by the use of terror tactics. But on a technical basis, the DAX breadth MCSUM was already at a +858 before Friday's attack in Paris, so any price declines would normally be absorbed anyway. However, with the FTSE breadth MCSUM closing Friday at a +8, there seems to be the bit of a tug-o-war going on right now between the growth and value issues. With Europe's monetary policy continuing to be highly accommodative, we should continue to look for greater buoyancy overall in Europe over the next several months - even more so if the US Dollar becomes more expensive due to the higher costs of capital and tighter controls here in the United States. We'll see how it goes. So with the BETS only gaining 5 points last week to a -60, the market environment remains highly hostile to investment in spite of solid price gains made last week. Looking at the breadth and volume MCO's that we review in the chat sessions, however, we do continue to see some bullish promise, but at the same time, several MCO's have only made it their zero lines providing near term bearish divergences. Although the MCO zero line would suggest that we have balance between buyers and sellers on a short term trending basis, and that one side is about to take control of the action, the lack of any backing and filling to help support a future advancing price sequence is still needed before we can assuredly say that the September-November period provided a longer term bottoming process in the major market averages. Because of this, let's then continue to take a defensive posture toward the markets into next week, and remain so against the intraday price highs that we saw on November 2nd are taken out...from which an neutral stance would then become appropriate. Tough market to trade right now...let's see if we can "break this horse" to be a more tamed animal as we move forward. Wishing everyone a great Thanksgiving holiday! US Equity Markets : US Interest Rates : US Real Estate : Precious Metals: Australia: England: France: Germany: India: __________________ Dave's LinkedIn Profile Technical Watch Twitter Page Technical Watch Facebook Page "As for it being different this time, it is different every time. The question is in what way, and to what extent" - Tom McClellan "An economist is someone who sees something happen, and then wonders if it would work in theory" - Ronald Reagan "What we see depends mainly on what we look for" - John Lubbock "The eye sees only what the mind is ready to comprehend" - Henri Bergson “Answers are easy; it’s asking the right questions which is hard” - Dr. Who - 1977 "You know the very powerful and the very stupid have one thing in common - they don't alter their views to fit the facts, they alter the facts to fit their views (which can be uncomfortable if you happen to be one of the facts that needs altering)" - Dr. Who - 1977