Market Commentary – April 27, 2015
Below is a weekly chart of the New York Stock Exchange. The New York Stock Exchange (NYSE) is a broad based stock market index that tracks thousands of stocks and is a good indicator of how the overall stock market is performing.
I have numbered 6 items that I think are significant in regards to how the market is behaving currently.
1. The purple line at the 10300 level is the level the NYSE reached at the top of the market in October 2007 right before the major correction of 2008-09.
2. In February to April of 2014 the NYSE broke back above this level for the first time since 2007 and began to climb higher.
3. The NYSE rose over 8% by the summer of 2014 to the 11100 level and never got above that level through April of this year. It touched that level at least 5 times but was met with resistance each time.
4. The breakout level from April 2014 became a support level and the market has not closed any week below that level. So from late June 2014 to April 2015 the index has stayed within the green box that is pictured.
5. Even though the NYSE never broke above resistance inside the green box, since the low of October 2014 the lows of each week continue to close higher (see the red arrow). This provides upward pressure on the NYSE and helps increase the chance that it will eventually breakout. No guarantee that it will happen, but the chances increase statistically.
6. Within the last two weeks the NYSE price index has climbed above the 11100 level and closed out the week above the green box.
So the question is “Has this market broken out of its 9-10 month holding pattern, or is this a temporary spike”?
While this is certainly positive evidence that the market can go higher, it is not enough to make decisions with. Using this type of approach with several indexes’ (S&P 500, Dow Jones Industrials, Nasdaq, Russell 2000 Small Cap index) to see how those are behaving in the same time frame can provide us with more evidence. By taking the evidence from numerous metrics I can then accumulate this data to measure what the weight of the evidence is telling us and use the totality of that evidence to make more informed decisions.
For example, the chart below reflects how many of the stocks within the NYSE are priced above their 200 day moving average. At the time this snapshot was taken, over 64% of those stocks were above the 200 day MA.
1. During the fall of 2014 the number of stocks above the 200 day MA was trending downward.
2. Starting in January of 2015 the trend began to change and the NYSE stocks began to move above the 50% line and stay at that level.
3. Within the last two weeks the numbers of stocks above the 200 day MA cleared a resistance level and have managed to stay above that resistance.
Again, this adds to the weight of evidence that the markets are moving into another upward moving phase and it helps us in our decision making. Now we can take incremental steps in adding to our current positions or taking profits from current positions and creating new ones in sectors that are poised to outperform in the current environment.
I hope this was informative and helpful. If so, please feel free to pass it on to any family or friends that you think might also find it useful.
Please call or email with any questions. Thank you.
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