Indicator Review: What A Difference A Week Makes

Good Monday morning and welcome back. What a difference a week makes, right? Last week, we were talking about the fact that stocks were in a clearly defined, intermediate-term downtrend and looking at how low the market indices could go. But after the surprise election result, the focus has turned to the “Trump Trades,” increased economic growth, and higher inflation down the road. As a result, the new leadership pushed the DJIA to a new all-time and the rest of the major indices back into the middle of their respective trading ranges.

But enough of my subjective analysis. As we do each week, let’s review our major stock market indicators in order to get a disciplined, unemotional take of what “is” happening in the market. Note that I’ve decided to move the discussion of the current chart action to a new report, which will be entitled “Technical Talk” and be updated each week.

The State of the Trend

We start with a look at the “state of the trend” from our objective indicator panel. These indicators are designed to give us a feel for the overall health of the current short- and intermediate-term trend models.

Executive Summary:

  • The short-term trend has flipped from down to up
  • The intermediate-term trend can be upgraded from moderately negative to neutral
  • The short-term channel system is positive while the intermediate-term system remains negative
  • There has been no change to the long-term trend model – still positive
  • The cycle composite suggests that tax-selling season is upon us and points to slightly lower prices for the next two weeks
  • The “mode” of the market has been upgraded to “mean reverting” from “trending lower”
  • It is positive that the DJIA stepped lively to a fresh all-time high on the back of the banks

The State of Internal Momentum

Now we turn to the momentum indicators…

Executive Summary:

  • Due to the surge seen post-election in the “Trump Trade” areas (banks, biotech, healthcare, defense, infrastructure, etc.) the momentum board has done a quick U-Turn and is now in pretty good shape
  • Both short- and intermediate-term trend & breadth models flipped to positive this week
  • The industry health model wasn’t terribly impressed and only saw a modest uptick on the week (the rotation out of tech into the “Trump Trade” areas is likely to blame
  • The volume relationship models saw improvement this week thanks to the blast in certain areas and we should note that the short-term model is on the brink of turning green
  • The historical return is well above the long-term mean
  • The improvement in the internals removes a major bullet point from the bear argument
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