1 st December Technical Analysis

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Todd Wheeler
5 years ago
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1 1 st December Technical Analysis Market Breadth: It s been three weeks since we did a proprietary report on market breadth. When we last looked the sp500 was at 1760 having bounced and was close to scoring a new breakout higher high price. The market breadth was weak with an around the mean score or put another way; a non confirmation of price. Three weeks later what do we see? Price has achieved the breakout producing a new high at 1814 on Friday, intraday. But market breadth has not followed and has struggled to get above the mean score which is continuation of the non confirmation of price that we have seen now for some time. Dow30 wise. Do things do better in the mega caps?

The nas100 initially looks similar to the sp500 from a market breadth perspective but actually the non confirmation is far worse.

2 And the answer, fortunately for bulls is yes. Things do look healthier here. We have confirmation of the price moves. It s not perfect but it s a good enough score not to raise concerns for the large caps which reflects some improvement recently from the Ems and the world economy/china. Nas100? The nas100 initially looks similar to the sp500 from a market breadth perspective but actually the non confirmation is far worse. The correlation between price and market breadth has broken down here badly. We have price marching onward. It s a near parabolic move this now whereas market breadth is struggling around the mean. This is a large non confirmation from the large cap tech stocks. They are over bought and very vulnerable to a correction.

caps. This makes sense from market breadth and price. Looking towards Europe?

3 NYSE? The very broad NYSE is showing another non confirmation though her price work is also weaker. The US economy is struggling domestically so both the Russell2000 and NYSE are struggling relative to the large caps. This makes sense from market breadth and price. Looking towards Europe? We know the stoxx600 average pe ratio to existing earnings is down at 13 or so vs the 19 or so for the sp500. Many see value in Euro stocks and sectors still. The DAX?

Of all the indexes, in terms of market breadth the DAX is showing a confirmation. She has momentum and confirms on market breadth. She is overbought but technically is looking good on the medium term.

4 Of all the indexes, in terms of market breadth the DAX is showing a confirmation. She has momentum and confirms on market breadth. She is overbought but technically is looking good on the medium term. It s a positive set of tech for the dax and as 35% of the Euro zone GDP possibly for Europe on this basis. The CAC40? The CAC40 is struggling currently within a long narrow distribution. Her market breadth is non showing much signs of a pending breakout though there are recent signs of higher highs and higher lows and given the usual correlation to the DAX (which as above is performing beautifully) the CaC40 mean reversion catch up and breakout of the recent range looks likely here so long as correlating instrument tail winds remain in place. (YE trading entry prospect here). PUT CALL RATIO Sentiment Contrarian Signal :

The chart is pretty self explanatory. We are in contrarian territory. Participants are not hedging here and now. They are all in for the Santa rally.

5 The chart is pretty self explanatory. We are in contrarian territory. Participants are not hedging here and now. They are all in for the Santa rally. Seasonally (seasonal report from Barcap on VIP), Dec is a wonderful period for equities. Many headwinds are not visible. Leverage is high. Everyone wants new highs here and capital is flowing freely to enable this to occur. The problem when we get to these extreme levels of put call ratios is that if, from data or geopolitical or policy, we get an unexpected negative event the market might take a big knock. Participants would likely have to hedge a little and the result could be a disappointing YE if this negative event did occur. Allocations wise, when no one is on the other side its probably a wise thing to take that trade. Im not suggesting an all in short here by any means but I am suggesting some near term option puts on the market may be a very prudent move as instability can spike quickly as everyone is one side of the boat. Volatility:

6 The chart pretty much speaks for itself here. The 2013 rally has run as a continuation of the 5yr bull run in equities. Conclusion This 2013 rally has run against the marco economic data, against corporate earnings and in spite of many technical indicators. We are reaching yet another volatility extreme contrarian signal. If the date or other tech were better we could relax but putting it all together it s non a very healthy picture here, dow and dax aside. This report should be read alongside the Yardeni report and price work on market internals ie sector work.

Monthly Investment Compass Charting The Course Of The Markets

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