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Steady Advance Persists
by Carl Swenlin
May 1, 2009
I have been referring to the slow, steady advance of the last few weeks as a "correction". To be more specific, it is a "running correction", which means that prices have moved higher as indicators have chopped sideways and lower. This is evident on the chart below which shows the CVI and STVO (two short-term volume indicators). The CVI has been oscillating above the zero line in an ever-narrowing range for almost two months. The STVO is almost become a flat line. This kind of indicator activity is very unusual, and the impression I get when I look at the charts is that it is not likely to last much longer.
Looking at the medium-term breadth and volume indicators below, I am concerned that the overbought conditions are so extreme and the indicators have just barely topped. This condition must be cleared, but it doesn't necessarily need to be cleared by a big price decline. Looking to the left side of the chart, you can see two instances where overbought conditions were cleared as the market moved higher. I believe we will see a similar resolution this time.
Bottom Line: We are in a long-term bear market, but we also have a medium-term buy signal, which means that bull market rules apply at the present time. Market action has been persistently positive since the March price low, and overbought conditions are most likely to clear in a non-destructive way.
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MECHANICAL MODELS
We rely on our mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure.
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Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
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2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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