The Bull-Bear Case For Equities

Posted on May 8, 2013 by Andrew Thrasher — 1 Comment ↓

Whenever I look at the market I try to view it from both sets of eyes – those of the bulls and the bears. For the better part of 2013 we’ve seen momentum and breadth drop, raising a yellow flag for the equity market. With the break above 1600 on the S&P 500 ($SPX) breadth has come back and started rising again along with some of the ‘risk on’ metrics. The cyclical sectors have picked up their performance as noted by J .C. over at All Star Charts,with defensive sectors like healthcare and staples giving up some of their relative gains. The bulls had their fair share of battles to fight to get the intermarket view of stocks to improve, and it appears they have done their job. Below is a chart showing the breakout in three breadth indicators: advancing minus declining issues, the Summation index, and the percentage of stocks above their 50-day moving average.

Turning to the bear side, we are extended to the upside. Yesterday’s price action took us completely outside the upper Keltner Band. The Keltner Bands overlay is similar to Bollinger Bands, except it uses volatility (Average True Range) to determine the distance between the bands. The S&P 500 ($SPX) has broken above the upper band three previous times so far this year, the first time was ignored, and the second caused equities to momentary dip before continued to advance. A rise above the upper band just lets us know that the market is due for a breather or some type of consolidation, it doesn’t mean we are about to enter a bear market. In my piece for TraderPlanet I noticed the level of resistance created by Andrews’ Pitchfork, which we last came in contact with in April. While yesterday’s close took us above the Keltner Band, it also knocked us into the Andrews’ Pitchfork resistance (not shown).

When weighing the above views of the market, I have a feeling the breadth is more important for the longer-term trend of the market, while the bearish case is more concerning for short-term trading. I’ll be watching to see if we have some type of consolidation while the buyers reload and keep breadth advancing and price moving higher.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Can Buyers Keep The Stock Party Going?

Posted on May 6, 2013 by Andrew Thrasher — 1 Comment ↓

I hope you all had a good weekend. I had my first professional BBQ competition of the year, and while it rained most of the time we had a good time and were pleased with the results.

The equity market has not been laying off the gas pedal lately and we find ourselves back at a level of possible resistance. On April 12th I tweeted about this level of resistance, which held up for a quick 55+ point drop in the S&P 500 ($SPX) before the up trend continued. This is the topic of my TraderPlanet piece for this week.

Here’s a blurb:

The S&P 500 has been enjoying a nice uptrend for the last six months, with small healthy pullbacks.

There are various ways for us to monitor trend, I recently wrote on my blog about simple trend lines and support levels – discussing that technical analysis doesn’t have to be difficult.

A great tool for monitoring support and resistance in a trending market is Andrews’ Pitchfork. This tool looks at the channel of a trend, built around three price points that create the ‘pitchfork.’

Now go read the rest.

Source: Can Buyers Keep The Stock Party Going? (TraderPlanet)

Stocks and Bonds Appear to Be Best Friends

Posted on May 2, 2013 by Andrew Thrasher — 1 Comment ↓

It’s interesting the way different markets relate to one another. Typically Treasury bonds aren’t the best friends of stocks, moving in opposite directions most of the time. There have of course been periods of time where the two have worked out their differences and advanced or declined with one another. When this happens we begin to notice a divergence that takes place between yield and equities. Since mid-March yields have been falling while stocks continue to head higher. Bonds are often considered the ‘smarter asset’ compared to stocks and when yield isn’t mirroring the move in risky asset classes it typically raises a red flag for stocks. However, this hasn’t been the case so far this year.

Even though stocks have been hitting new highs, it has been bond prices that have been the outperformer over the last couple of months. One note regarding this couple is the momentum between the relationship of the S&P 500 ($SPX) and 30-Year Treasury Bonds seems to be waning. The RSI indicator is just about down right depressing as it makes lower highs. This type of momentum divergence has been present during just about every intermediate equity top. But none of this matters until price confirms. While it’s concerning to see the S&P overshadowed by bonds during this rally, it only becomes important when the Mr. Market says so.

Yields continue to fall and the correlation between bonds and stocks continue to rise. Over the last 10 years the 60-day correlation between the S&P 500 ($SPX) and 30-year bonds has only been this high nine previous times. So what does this all mean? It means investors have not been shifting out of bonds and the ‘Great Rotation’ is not necessary underway. Whether you chose to blame Bernanke, Japan, or your Uncle Bubba – stocks and bonds are now best friends. It’s unlikely this courtship will last forever, normally it’s the bond boys that win out, we’ll see if this time is any different.