actr
23.09.2003, 13:11
Nationalist Weekly Market Commentary
--------------------------------------------------------------------------------
Profiting from the NASDAQ mania.
For the week of 09/22/2003
Here is a link to an excellent article which makes the fairly obvious point that in order to hold short rates at one percent the Fed must crow about the risks of deflation. To fail to convince markets you are worried about deflation would be to provoke a very fierce reaction in the bonds and the dollar.
Another excellent article makes the point that the U.S. and China have a very stable marriage indeed. China gets to build its economy and employ its people, while the U.S. gets to slow the drop in living standards for its working middle class by surpressing inflation of goods prices, while de-coupling prices of assets owned by its elites from the movement in the the general price level, so it can greatly increase their wealth - a process funded by loans from China at stunningly low interest rates.
Indeed the U.S. is headed the way of Argentina - a fifty year descent from a first world to third world status. Now, you might ask, why would anyone want to precipitate a long term decline into third world status?
The answer is clear. While the Argentine experience may have kept the wage earner in poverty, it was heaven for the speculating classes. Inflation kept the peasants peacefully toiling on the economic treadmill of decline because of the money illusion of rising wages, while the fluctuations in the currency and local stock and bond markets were orders of magnitude larger than in the more stable U.S. The Argentine elites became very rich just by borrowing in the local currency and buying and selling things priced in dollars.
What the speculating classes in the U.S. really want is to find a way to decouple financial asset prices from the general inflation level that applies to goods prices and wages in the main street economy. They want financial assets to appreciate far more, and far more rapidly, than general price levels.
The problem our elites face is that the working middle class in the U.S. is too large and a smidge to literate to be pacifed by inflating wages if goods prices are rising more rapidly. Thus, China must export goods to depress goods prices, even as it lends the proceeds from sale of those exports back to the U.S. financial elites at ridiculously low interest rates.
In the long run, of course, our elites want the middle class to disappear entirely, and to follow the Latin American model in which the elites form "parties of permanent revolution" and openly appeal to the racial animus of the core population toward those sharing the European descent of these elites. A core population that is so debased that it cannot react to what is plainly in front of its eyes, is a valuable asset indeed.
As a step in the Latin American direction, the U.S. elites are exporting middle class jobs as fast as possible to Asia. At the same time, these elites relentlessly propagandize that core population to breed with populations having average IQ's of 80 and 90, a recipe that is guaranteed to produce a decline in average living standards to third world levels, a more tractable population that is easier to deceive, and increased asset price volatility, the mothers milk of the speculating elites.
The script and the moves of the players are so clear it is a wonder that anyone could miss its message.
The bifurcated economy in which the middle class has its wage and consumption pricing and where the speculating elites have powerfully volatile bubble markets in financial assets has already arrived. It is here to stay.
The only question is whether the elites can manage the process of middle class decline so as to avoid rebellion.
Greenspan is doing a fantastic job so far, but fifty years on a tightrope is too much to ask. He or his successors will fail. And our elites will get far more volatility than they bargained for.
End of rant!
To the charts!
The Weekly Specials
This week I am adding a special chart which will be different each week.
http://home.ddc.net/ygg/inv/special.gif
This week I give you a rather stunning chart of the NDX and the positive volume index - which accumulates the percentage move up or down on those days when volume is greater than the day before, and ignores the rest. Note that this index rose steadily during the mania years, but at nothing like the rate it is now. Thus far we have very few high volume corrections, which were typical of the mania years. In fact, the market action you see in this chart tells you that the concensus is far more uniformly optimistic now than back during the bubble. There are no dissenters.
Indeed, the stocks most at risk of vaporizing, the municipal bond insurers ABK and MBI, and the mortage insurers, MTG, ORI, PMI, and RDN have been rallying powerfully and are at or near all time highs. Apparently, none of these stocks have rate risk or default risk. Throughout most of the rally from the Oct. 2002 bottom, the negative volume index has been falling, except that it has turned up in the past 4 weeks so that both are rising at the same time, a state which in the past has marked a rally which has became self sustaining. The psychology is much more powerfully bullish right now than ever before in recorded history - 1618 through 1620 included.
Because of the potential of long term interest rate movements to produce a serious accident in the current environment, I am adding a second weekly special rate chart which will help you track the progress of the debt bubble.
http://home.ddc.net/ygg/inv/rate.gif
This week we find the Fannie Mae 30 year fixed mortgage rate falling back toward the 5.5% level below which we can expect the refi boom to echo. This looks like a simple A-B-C correction in the 10 year note and the mortgage. When it is over and the rates begin C or 3 up, we should have a major sell off in the financial stocks and the SPX.
Are we Trending?
The job of a technical analyst is to determine when a trend is about to change. The first step in that process is to determine if the NDX is trending. We have some excellent indicators for this and the first step in our analysis is to take a look at those indicators.
First we have the weekly chart of the NDX, with panels showing the weekly MACD, the -DI and +DI with ADX, the weekly chart of the NDX itself, and a 11 period RSI of the NDX.
http://home.ddc.net/ygg/inv/trend.gif
The weekly chart of the NDX is losing momentum despite the furious rally of the past 3 weeks, as the +DI falls below the ADX from above, and the MACD has less upward momentum than in the preceeding wave up, on a chart which looks like it is completing 5 waves up from the March lows. The NDX is still trending up, but it is a time for caution - a time to place short bets as down moves begin.
Next we have the same exact chart except that it uses daily data.
http://home.ddc.net/ygg/inv/trendd.gif
On the daily chart, we see the +DI below the ADX, even as the daily MACD clings to its moving average. It is time to start initiating shorts in the NDX/QQQ on downward crossovers of the 15 minute 20 period moving average, with tight stops.
Next we have the same daily chart for the S&P 500.
http://home.ddc.net/ygg/inv/sptrend.gif
Actually, the chart of the SPX looks somewhat less extended than the NDX, but it looks like we have 5 waves up from the August low completing. I would expect a short correction soon.
The above charts are from a nifty little software package that can be downloaded and licensed at AmiBroker. The best part of it is that data downloads are free.
Monetary Conditions
First a look at the monetary stimulus being provided by broad monetary growth M-3. This is the best and most timely proxy we have for total debt growth in the economy, and present economic growth is totally dependent on rapid debt growth.
The chart below shows the weekly Nasdaq 100 (NDX) in the bottom panel, the weekly M-3 in the middle panel and then the year-over-year growth rate (red) and 13 week growth rate (green) of M-3 annualized in the top panel.
http://home.ddc.net/ygg/inv/m3.gif
The chart of M3 is pregnant with all sorts of bearish possibilities this week, as the 13 week growth rate accellerates to the downside, and the year over year rate turns lower as well. It takes 2 to 3 months for a refi to close, and the refi bust should be showing up about now in M3. I think that the economy is slowing very rapidy right now and that the dollar and the bond have figured it out, but the stocks have not.
For another view, we turn to a chart of the St. Louis Adjusted Monetary Base, a narrow aggregate including only cash plus bank reserves, an aggregate that the Federal Reserve directly controls. The lower panel graphs the adjusted base, while the upper panel graphs the 13 week (green) and year over year (red) growth rates.
http://home.ddc.net/ygg/inv/base.gif
For all its fine yammer about "extraordinary measures," monetary base shows that the Fed was only jawboning the market with this deflation talk as there were no emergency injections like we had in the past. This week we get a big decline. Very interesting.
And finally, we have the measure of hot money, non-M2-M3, the series which really took off in the late 90's and defined the bubble.
http://home.ddc.net/ygg/inv/2m3.gif
Non-M2-M3 has been falling for two months, and this is exactly what we would expect to see at the beginning of a new recession.
Market Sentiment Indicators.
Our first chart is the Association of Individual Investors Survey with the NDX in the bottom panel. This survey is taken on-line by members of the association and is more volatile than the Market Vane and the Investors Intellegence surveys, below, and gives too many sell signals. However it does give excellent intermediate term buy signals.
http://home.ddc.net/ygg/inv/aaii.gif
This chart does a much better job of marking lows than it does highs, and as you can see, we are nowhere close to a low. Note that the red sell signal marks the volume and momentum peaks of this rally, but not the price peak. Of course, price is what makes our trading accounts go up, but volume and momentum peaks warn you that the trend is getting tired.
Next we have a chart with the Market Vane survey of investment professionals in the top panel and the SPX in the bottom. This serves as a contrary indicator.
http://home.ddc.net/ygg/inv/mktvane.gif
I was sorely tempted to place another sell signal on the chart this week, but once again, I decided to wait. Note that the Investors Intelligence chart continues to show bullish sentiment well in excess of that which prevailed at the March 2000 top.
Below you will see a chart of AMG inflows with a 13 week moving average and a 5 week moving average of the data in the top panel. Because the software cannot accept negative numbers, 10 billion is actually the zero line for inflows. In the bottom panel, you will see a weekly chart of the NDX.
http://home.ddc.net/ygg/inv/infl.gif
Institutional investors love to distribute into high inflows, which is what they appear to be doing right now. However, this is a lagging chart and as such, it warns of a danger of a turn whenever it is high and stops rising. However it will not start to fall until well into the decline, which is what makes it possible for the institutions and hedge funds to distribute stock to the little guys.
Gold
Below is a daily chart of gold with some proprietary volatility alerts and with the open interest on all Comex contracts in the upper panel.
http://home.ddc.net/ygg/inv/goldoi.gif
Open interest has reached what I consider to be danger levels, and while I have not yet marked a sell signal on the weekly chart, I did sell my long gold stock positions. I expect a short but violent correction. However, note that the dollar has resumed its downward correction. As I write this, the currencies and gold are rallying against the dollar and for sound fundamental reasons. We go higher in gold. I should note for the record that we have passed the 380 mark at which Prechter was supposed to reassess. Perhaps he will turn bullish once gold breaks 2000.
Because the information content of the Comex gold commercials has been so low during this bull move, I am substituting the open interest ratio of the small gold traders in a new chart with the weekly nearby Comex gold future in the top panel, and the ratio of longs divided by shorts of the gold small traders in the bottom panel. Below one is net short while above one is net long.
http://home.ddc.net/ygg/inv/goldc.gif
No New data this week.
The Weekly Volume Indicators.
We switch to the most important chart, which is the weekly trading signal and then several charts which tend to confirm the message of that signal.
The chart below shows the DAILY NDX in the lower panel, the 8 day stochastic oscillator in the middle panel, and the accumulation/ distribution index in the top panel. We get our weekly signals by following the 8 day stochastic oscillator in the middle panel. A sell signal is given when the fast line of the stochastic oscillator heads down while above the 80 line, and a buy when it heads up while below the 20 line. A buy signal is in green, a sell in blue, and a counter trend sell signal (which should be ignored by longer term traders) will be in purple, while a counter trend buy is in blue. A trend sell signal occurs when the accumulation/ distribution indicator is lower than at the previous STO high, and a trend buy occurs when higher than at the previous STO low. Note that the trend marker (< or >) will change with the first trend signal failure. In any case, signals apply to the following day, and will not be moved once placed.
http://home.ddc.net/ygg/inv/ndxv.gif
Accumulation remains above its 13dma. Thus, this current correction is a buying opportunity until proven otherwise. Note the chart line and the momentum loss.
The next chart displays the NDX in the bottom panel and a chart of the NASDAQ advancing volume in the top panel, with a 34dma in yellow and a 13dma in purple. Rallies require a rising trend of advancing volume. A falling trend in advancing volume will usually accompany a downtrend in the NDX. But the chief virtue of this chart is that the trend of advancing volume typically turns before the NDX changes trend, thus providing us with the holy grail of technical analysis - advance warning.
http://home.ddc.net/ygg/inv/nazvol.gif
The 34dma of advancing volume has been rising for the past three months, and the 5dma is now above it. The trend in volume is positive.
Next, we have the same chart as above, but with declining volume instead of advancing volume. This is the chart to watch in a market advance, because a you will almost always see a rising trend in declining volume before the market turns. In other words it is a chart that gives us advance warning.
http://home.ddc.net/ygg/inv/nazdvol.gif
Although the 34 dma of Nasdaq down volume has been falling, the 5dma indicates an increasing probability of a trend change.
Breadth Indicators.
The first chart has the NDX in the bottom panel and the NASDAQ new highs minus new lows in the top panel.
http://home.ddc.net/ygg/inv/naznhnl.gif
A bullish chart, as net new highs make higher highs. The chart turns bearish on a break of 50 by the daily data. You can check this chart daily by looking at NASDAQ New Highs, New Lows From StockCharts.com which updates in the evening.
The next chart shows the new 52 week highs, minus the new 52 week lows for the 100 stocks within the NDX.
http://stockcharts.com/gallery?$NAHL
http://home.ddc.net/ygg/inv/ndxnhnl.gif
This chart is actually negative, as the 5 dma failed to make a higher high on this most recent rally peak.
The next chart has the NDX in the bottom panel and the chart of the NASDAQ advancing issues minus declining issues in the top panel, with a 5 day moving average of the data in yellow and a 34 dma in red. Stochastic oscillator upturns when this 34 dma is moving up produce the best upside price gains, while Stochastic downturns while the 34 dma is trending down produce the best downside price moves.
http://home.ddc.net/ygg/inv/nazbrdt.gif
The 34 dma has been trending down since the early June mometum and volume peak, indicating a breadth peak as well. However, the 34dma is still above the zero line and has been trending up for the past 6 weeks. See NASDAQ MacClellan oscillator.
Interpretation of Weekly Signal Charts
I am shorting Fannnie Mae and JP Morgan on downward crosses of the 20 period moving average on the 15 minute chart, and reversing on crosses up, until a real downturn begins, at which point I will hold em.
--------------------------------------------------------------------------------
Profiting from the NASDAQ mania.
For the week of 09/22/2003
Here is a link to an excellent article which makes the fairly obvious point that in order to hold short rates at one percent the Fed must crow about the risks of deflation. To fail to convince markets you are worried about deflation would be to provoke a very fierce reaction in the bonds and the dollar.
Another excellent article makes the point that the U.S. and China have a very stable marriage indeed. China gets to build its economy and employ its people, while the U.S. gets to slow the drop in living standards for its working middle class by surpressing inflation of goods prices, while de-coupling prices of assets owned by its elites from the movement in the the general price level, so it can greatly increase their wealth - a process funded by loans from China at stunningly low interest rates.
Indeed the U.S. is headed the way of Argentina - a fifty year descent from a first world to third world status. Now, you might ask, why would anyone want to precipitate a long term decline into third world status?
The answer is clear. While the Argentine experience may have kept the wage earner in poverty, it was heaven for the speculating classes. Inflation kept the peasants peacefully toiling on the economic treadmill of decline because of the money illusion of rising wages, while the fluctuations in the currency and local stock and bond markets were orders of magnitude larger than in the more stable U.S. The Argentine elites became very rich just by borrowing in the local currency and buying and selling things priced in dollars.
What the speculating classes in the U.S. really want is to find a way to decouple financial asset prices from the general inflation level that applies to goods prices and wages in the main street economy. They want financial assets to appreciate far more, and far more rapidly, than general price levels.
The problem our elites face is that the working middle class in the U.S. is too large and a smidge to literate to be pacifed by inflating wages if goods prices are rising more rapidly. Thus, China must export goods to depress goods prices, even as it lends the proceeds from sale of those exports back to the U.S. financial elites at ridiculously low interest rates.
In the long run, of course, our elites want the middle class to disappear entirely, and to follow the Latin American model in which the elites form "parties of permanent revolution" and openly appeal to the racial animus of the core population toward those sharing the European descent of these elites. A core population that is so debased that it cannot react to what is plainly in front of its eyes, is a valuable asset indeed.
As a step in the Latin American direction, the U.S. elites are exporting middle class jobs as fast as possible to Asia. At the same time, these elites relentlessly propagandize that core population to breed with populations having average IQ's of 80 and 90, a recipe that is guaranteed to produce a decline in average living standards to third world levels, a more tractable population that is easier to deceive, and increased asset price volatility, the mothers milk of the speculating elites.
The script and the moves of the players are so clear it is a wonder that anyone could miss its message.
The bifurcated economy in which the middle class has its wage and consumption pricing and where the speculating elites have powerfully volatile bubble markets in financial assets has already arrived. It is here to stay.
The only question is whether the elites can manage the process of middle class decline so as to avoid rebellion.
Greenspan is doing a fantastic job so far, but fifty years on a tightrope is too much to ask. He or his successors will fail. And our elites will get far more volatility than they bargained for.
End of rant!
To the charts!
The Weekly Specials
This week I am adding a special chart which will be different each week.
http://home.ddc.net/ygg/inv/special.gif
This week I give you a rather stunning chart of the NDX and the positive volume index - which accumulates the percentage move up or down on those days when volume is greater than the day before, and ignores the rest. Note that this index rose steadily during the mania years, but at nothing like the rate it is now. Thus far we have very few high volume corrections, which were typical of the mania years. In fact, the market action you see in this chart tells you that the concensus is far more uniformly optimistic now than back during the bubble. There are no dissenters.
Indeed, the stocks most at risk of vaporizing, the municipal bond insurers ABK and MBI, and the mortage insurers, MTG, ORI, PMI, and RDN have been rallying powerfully and are at or near all time highs. Apparently, none of these stocks have rate risk or default risk. Throughout most of the rally from the Oct. 2002 bottom, the negative volume index has been falling, except that it has turned up in the past 4 weeks so that both are rising at the same time, a state which in the past has marked a rally which has became self sustaining. The psychology is much more powerfully bullish right now than ever before in recorded history - 1618 through 1620 included.
Because of the potential of long term interest rate movements to produce a serious accident in the current environment, I am adding a second weekly special rate chart which will help you track the progress of the debt bubble.
http://home.ddc.net/ygg/inv/rate.gif
This week we find the Fannie Mae 30 year fixed mortgage rate falling back toward the 5.5% level below which we can expect the refi boom to echo. This looks like a simple A-B-C correction in the 10 year note and the mortgage. When it is over and the rates begin C or 3 up, we should have a major sell off in the financial stocks and the SPX.
Are we Trending?
The job of a technical analyst is to determine when a trend is about to change. The first step in that process is to determine if the NDX is trending. We have some excellent indicators for this and the first step in our analysis is to take a look at those indicators.
First we have the weekly chart of the NDX, with panels showing the weekly MACD, the -DI and +DI with ADX, the weekly chart of the NDX itself, and a 11 period RSI of the NDX.
http://home.ddc.net/ygg/inv/trend.gif
The weekly chart of the NDX is losing momentum despite the furious rally of the past 3 weeks, as the +DI falls below the ADX from above, and the MACD has less upward momentum than in the preceeding wave up, on a chart which looks like it is completing 5 waves up from the March lows. The NDX is still trending up, but it is a time for caution - a time to place short bets as down moves begin.
Next we have the same exact chart except that it uses daily data.
http://home.ddc.net/ygg/inv/trendd.gif
On the daily chart, we see the +DI below the ADX, even as the daily MACD clings to its moving average. It is time to start initiating shorts in the NDX/QQQ on downward crossovers of the 15 minute 20 period moving average, with tight stops.
Next we have the same daily chart for the S&P 500.
http://home.ddc.net/ygg/inv/sptrend.gif
Actually, the chart of the SPX looks somewhat less extended than the NDX, but it looks like we have 5 waves up from the August low completing. I would expect a short correction soon.
The above charts are from a nifty little software package that can be downloaded and licensed at AmiBroker. The best part of it is that data downloads are free.
Monetary Conditions
First a look at the monetary stimulus being provided by broad monetary growth M-3. This is the best and most timely proxy we have for total debt growth in the economy, and present economic growth is totally dependent on rapid debt growth.
The chart below shows the weekly Nasdaq 100 (NDX) in the bottom panel, the weekly M-3 in the middle panel and then the year-over-year growth rate (red) and 13 week growth rate (green) of M-3 annualized in the top panel.
http://home.ddc.net/ygg/inv/m3.gif
The chart of M3 is pregnant with all sorts of bearish possibilities this week, as the 13 week growth rate accellerates to the downside, and the year over year rate turns lower as well. It takes 2 to 3 months for a refi to close, and the refi bust should be showing up about now in M3. I think that the economy is slowing very rapidy right now and that the dollar and the bond have figured it out, but the stocks have not.
For another view, we turn to a chart of the St. Louis Adjusted Monetary Base, a narrow aggregate including only cash plus bank reserves, an aggregate that the Federal Reserve directly controls. The lower panel graphs the adjusted base, while the upper panel graphs the 13 week (green) and year over year (red) growth rates.
http://home.ddc.net/ygg/inv/base.gif
For all its fine yammer about "extraordinary measures," monetary base shows that the Fed was only jawboning the market with this deflation talk as there were no emergency injections like we had in the past. This week we get a big decline. Very interesting.
And finally, we have the measure of hot money, non-M2-M3, the series which really took off in the late 90's and defined the bubble.
http://home.ddc.net/ygg/inv/2m3.gif
Non-M2-M3 has been falling for two months, and this is exactly what we would expect to see at the beginning of a new recession.
Market Sentiment Indicators.
Our first chart is the Association of Individual Investors Survey with the NDX in the bottom panel. This survey is taken on-line by members of the association and is more volatile than the Market Vane and the Investors Intellegence surveys, below, and gives too many sell signals. However it does give excellent intermediate term buy signals.
http://home.ddc.net/ygg/inv/aaii.gif
This chart does a much better job of marking lows than it does highs, and as you can see, we are nowhere close to a low. Note that the red sell signal marks the volume and momentum peaks of this rally, but not the price peak. Of course, price is what makes our trading accounts go up, but volume and momentum peaks warn you that the trend is getting tired.
Next we have a chart with the Market Vane survey of investment professionals in the top panel and the SPX in the bottom. This serves as a contrary indicator.
http://home.ddc.net/ygg/inv/mktvane.gif
I was sorely tempted to place another sell signal on the chart this week, but once again, I decided to wait. Note that the Investors Intelligence chart continues to show bullish sentiment well in excess of that which prevailed at the March 2000 top.
Below you will see a chart of AMG inflows with a 13 week moving average and a 5 week moving average of the data in the top panel. Because the software cannot accept negative numbers, 10 billion is actually the zero line for inflows. In the bottom panel, you will see a weekly chart of the NDX.
http://home.ddc.net/ygg/inv/infl.gif
Institutional investors love to distribute into high inflows, which is what they appear to be doing right now. However, this is a lagging chart and as such, it warns of a danger of a turn whenever it is high and stops rising. However it will not start to fall until well into the decline, which is what makes it possible for the institutions and hedge funds to distribute stock to the little guys.
Gold
Below is a daily chart of gold with some proprietary volatility alerts and with the open interest on all Comex contracts in the upper panel.
http://home.ddc.net/ygg/inv/goldoi.gif
Open interest has reached what I consider to be danger levels, and while I have not yet marked a sell signal on the weekly chart, I did sell my long gold stock positions. I expect a short but violent correction. However, note that the dollar has resumed its downward correction. As I write this, the currencies and gold are rallying against the dollar and for sound fundamental reasons. We go higher in gold. I should note for the record that we have passed the 380 mark at which Prechter was supposed to reassess. Perhaps he will turn bullish once gold breaks 2000.
Because the information content of the Comex gold commercials has been so low during this bull move, I am substituting the open interest ratio of the small gold traders in a new chart with the weekly nearby Comex gold future in the top panel, and the ratio of longs divided by shorts of the gold small traders in the bottom panel. Below one is net short while above one is net long.
http://home.ddc.net/ygg/inv/goldc.gif
No New data this week.
The Weekly Volume Indicators.
We switch to the most important chart, which is the weekly trading signal and then several charts which tend to confirm the message of that signal.
The chart below shows the DAILY NDX in the lower panel, the 8 day stochastic oscillator in the middle panel, and the accumulation/ distribution index in the top panel. We get our weekly signals by following the 8 day stochastic oscillator in the middle panel. A sell signal is given when the fast line of the stochastic oscillator heads down while above the 80 line, and a buy when it heads up while below the 20 line. A buy signal is in green, a sell in blue, and a counter trend sell signal (which should be ignored by longer term traders) will be in purple, while a counter trend buy is in blue. A trend sell signal occurs when the accumulation/ distribution indicator is lower than at the previous STO high, and a trend buy occurs when higher than at the previous STO low. Note that the trend marker (< or >) will change with the first trend signal failure. In any case, signals apply to the following day, and will not be moved once placed.
http://home.ddc.net/ygg/inv/ndxv.gif
Accumulation remains above its 13dma. Thus, this current correction is a buying opportunity until proven otherwise. Note the chart line and the momentum loss.
The next chart displays the NDX in the bottom panel and a chart of the NASDAQ advancing volume in the top panel, with a 34dma in yellow and a 13dma in purple. Rallies require a rising trend of advancing volume. A falling trend in advancing volume will usually accompany a downtrend in the NDX. But the chief virtue of this chart is that the trend of advancing volume typically turns before the NDX changes trend, thus providing us with the holy grail of technical analysis - advance warning.
http://home.ddc.net/ygg/inv/nazvol.gif
The 34dma of advancing volume has been rising for the past three months, and the 5dma is now above it. The trend in volume is positive.
Next, we have the same chart as above, but with declining volume instead of advancing volume. This is the chart to watch in a market advance, because a you will almost always see a rising trend in declining volume before the market turns. In other words it is a chart that gives us advance warning.
http://home.ddc.net/ygg/inv/nazdvol.gif
Although the 34 dma of Nasdaq down volume has been falling, the 5dma indicates an increasing probability of a trend change.
Breadth Indicators.
The first chart has the NDX in the bottom panel and the NASDAQ new highs minus new lows in the top panel.
http://home.ddc.net/ygg/inv/naznhnl.gif
A bullish chart, as net new highs make higher highs. The chart turns bearish on a break of 50 by the daily data. You can check this chart daily by looking at NASDAQ New Highs, New Lows From StockCharts.com which updates in the evening.
The next chart shows the new 52 week highs, minus the new 52 week lows for the 100 stocks within the NDX.
http://stockcharts.com/gallery?$NAHL
http://home.ddc.net/ygg/inv/ndxnhnl.gif
This chart is actually negative, as the 5 dma failed to make a higher high on this most recent rally peak.
The next chart has the NDX in the bottom panel and the chart of the NASDAQ advancing issues minus declining issues in the top panel, with a 5 day moving average of the data in yellow and a 34 dma in red. Stochastic oscillator upturns when this 34 dma is moving up produce the best upside price gains, while Stochastic downturns while the 34 dma is trending down produce the best downside price moves.
http://home.ddc.net/ygg/inv/nazbrdt.gif
The 34 dma has been trending down since the early June mometum and volume peak, indicating a breadth peak as well. However, the 34dma is still above the zero line and has been trending up for the past 6 weeks. See NASDAQ MacClellan oscillator.
Interpretation of Weekly Signal Charts
I am shorting Fannnie Mae and JP Morgan on downward crosses of the 20 period moving average on the 15 minute chart, and reversing on crosses up, until a real downturn begins, at which point I will hold em.