Anyone who follows market internals is aware of the missing confirmation of new price highs by the various internals indicators, particularly cumulative breadth and volume tools.
There is one money flow tool that has been, in most cases, confirming those indices achieving new recovery price highs, the cumulative $ weighted Up-Down Volume Line ($UD line).
The first $UD line example is the S&P Mid Cap 400 basket of stocks (MID). MID made a new recovery price high on Thursday, November 17th. The MID component $UD line began warning of new price highs on the way with its breakout on November 2nd.
The S&P Small Cap 600 (SML) $UD line has already whipsawed once across its new highs line, and once again above its previous high. The SML price is still about seven points from breaking its early August high, and its $UD line is predicting SML will make a new high. For a valid signal, the SML $UD line must remain above the dashed red line and not fall below the line for more than a day or two.
The broader based small cap Russell 2000 index (RUT) needs a bit more than 16 points to break its all-time high achieved in early August. The RUT $UD line behavior is a mirror of the SML $UD line in predicting new all-time RUT price highs. Again, the RUT $UD line must not give much ground below its former resistance, in time or magnitude.
The large cap S&P 500 (SPX) price finally made a new closing recovery high Friday, November 18th. The SPX component $UD line gave one day's notice the new price high may be in the works by breaking its $UD line's previous high mark. Here again, a couple of days in new high territory does not guarantee the index is off to 1300, but it is encouraging the SPX $UD line has confirmed the price breakout.
The NYSE composite weighted index of common stocks, NYA, is still below its September 2005 high, but its component $UD line has broken to new highs. The traditional weighted NYA price index is a bit less than 0.4% below its all time high.
The $UD line in the chart is plotted against the unweighted NYA index, which is 1.6% below its all-time high. The October decline was far tougher on the unweighted NYA index than the traditional weighted NYA. The unweighted NYA suffered a 7.3% decline while the weighted NYA lost 5.6%. Therefore, the unweighted NYA index has more ground to make up than its weighted cousin.
Like most of the other indice's $UD lines, the NYA $UD line's breakout still needs to prove this isn't a fluke by hanging tough in any near term correction. By remaining above its all time high for several days, the NYA $UD line's recent breakout will gain stronger validity.
The next $UD line is that of the NDX components, and provides the usual fly in ointment by not yet confirming the recent NDX price breakout. The only solace in the non-confirmation of the NDX price, is its $UD line's batting average of predicting price moves is mixed; note the NDX $UD line will make new highs without the NDX price following suit, and will break support while price will not. For reliable NDX $UD analysis, it is best to focus on its McClellan related indicators.
Somewhat off-topic, but one NDX related sentiment tool is suggesting more price upside in the intermediate term. The below chart is a composite, NAV adjusted asset flow indicator for the Rydex technology, telecom, electronics, and internet sector funds.
Despite the new NDX recovery highs, note the degree Rydex traders are ignoring the four primary tech related index funds. One could point out the tech hot money is focused on the leveraged Rydex NDX funds, but it tough to deny the current lack of interest in these funds. Until money begins flowing profusely into these funds, it is a reasonable bet the NDX will continue to trudge higher.
In summary, the $UD indicators for many indices are perhaps stealthily providing signals money is indeed flowing into the components of these indices, confirmation that is not showing up in many of the more traditional volume and breadth indicators. I feel the odds are good the lack of confirmation of many traditional internals indicators are serving as the wall of worry for the market. Those of us who study the McClellan indicators and tools such as the $UD data, recognize there is strength beneath the surface, as measured by these internals tools.
The caveat now is for the market to be stubborn in giving up much of its recent gains, particularly in its money flow related indicators.