Market Update 6/16/2009
Sorry for not posting much lately. I must say I’ve been extremely unhappy with my trading results as of late. One key thing to remember when trading is to make sure you’re focused and do your homework first. I’ve been so busy with my other work lately that I got lazy with my trading and became sloppy. Needless to say my trading account has suffered. I haven’t posted any of my recent trades because I knew at the time I wasn’t putting enough effort into them, which should’ve been a sign for me to stay out! But I digress, here is what I’m seeing in the markets.
To start I thought I’d point out some charts I came across while running some scans. The below chart is the McClellan Summation Index.
Stockcharts.com defines the McClellan Index as…
a popular market breadth indicator that is ultimately derived from the number of advancing and declining stocks in a given market. It is derived from the McClellan Oscillator by tracking its daily accumulation or “summation”. This provides a longer-term view of the McClellan concept. Many people regard it as an excellent indicator of the overall “health” of the market and the market’s current trend. It was developed by Sherman and Marian McClellan and first presented in their book, Patterns for Profit.
The McClellan Summation index generally oscillates between 0 and 2000 although it can move outside of this range during extreme or unusual market conditions. Historically, major market bottoms occur after the index falls below -1000. Readings above +1600 often indicate a major top is near. Top and bottom signals carry more significance if the index is also diverging from the associated market average. According to the McClellans, the beginning of a new bull market is signaled if the NYSE-based Summation index first moves below the -1200 level and then quickly rises above +2500.
As you can see below, the index is at historic extremes. The last time we reached these levels was following the early 2000 recession (the red line is the S&P 500).
The questions is, will this turn out to be the start of the next bull market or is this a worthless indicator in this type of market? Lets look at some more charts.
My favorite indicator is the Cummulative 4-Week New Hi-Low indicator from Worden Telechart. In April I said I thought the S&P would climb to 950 and this indicator would test the backside of the trendline. Well we’ve climbed to 950, but the indicator blew right through the trendline. I don’t thing that matters much although I do think we’ll see one more push in the S&P to test the trendline and possibly move even higher before we get a sizable move lower.
The next chart of the weekly S&P shows the index still looking bullish and sitting on some key support. The horizontal line (light blue) marks a key level of support/resistance over the last six months. There is also a 3-month trendline (pink) below us AND a rising 8-period moving average (gray). I’m leaning on two possible outcomes here, both ending in much lower prices. Only time will tell. Other than he few positions I have open I will wait to see how the market behaves at these levels before putting on any new trades.
Filed Under: Market Overview
