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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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program.

Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

Employees and affiliates of Sowell Management may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or Sowell has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

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