|
My work is throwing off some serious
warnings. Attached are screen shots of my NYSE and NASDAQ breadth models. The
most serious divergences are in the new Hi-Lo model (upper right) where we have
a 5 month series of lower highs even as price has been rallying. I give A/D
volume (lower right) a lot more weight than A/D issues (lower left). NYSE
A/D volume broke out above previous pivots highs (green horizontal line) on
10/31 and NASDAQ 11/2 nicely confirming the rally. Subsequently we
have had lower highs even as price has posted
higher highs.
Turning to risk measures, I keep an eye on
the spreads between treasury and corporate and treasury and high yield. Widening
spreads are giving warning of a negative change in investor willingness to take
on risk. Confirming this is the behavior of VIX which broke out of the declining
channel on 10/7. While this rally has brought a nice decline in
VIX (investors willing to accept more risk) the decline has not come close
to the lows established in July. Maintaining and expanding P/E's depends upon
investors being willing to accept increasing levels of risk. There is now a
significant divergence giving us warning that investors are less willing to
accept risk.
Lastly, I include a weekly chart of the
NYSE which shows a very clear rising wedge pattern. Rising (and falling) wedge
patterns are generally terminal to the trend. W/O 10/7 gave the first warning
when the shorter (blue) lower trendline was broken and confirmed on 10/14 when
the longer (gray) lower trendline was broken. We would generally expect a retest
of the trendlines. We have gotten that test with price rallying back into the
longer wedge on 11/4. A failure which fails can be a very good reversal
signal so the question at hand is this rally back into the wedge a sign of
a new bull leg? The internals discussed above suggest that it is
not.
Earl
SPONSORED LINKS
YAHOO! GROUPS LINKS
| 
