What bull market?

Distance From 52-Week High Across NASDAQ StocksWith about 30 minutes until Wall Street’s closing bell rings the Dow is up triple digits and thisclose to notching its first record close since July 16.  The S&P 500 is trading right around 2000 and within a fraction of a percentage point of its own historic high. Yet a whopping 47% of stocks that make up the tech-heavy Nasdaq Composite Index are sitting 20% or more below their 52-week highs. Plus, last week the small-cap Russell 2000 Index moved under both its 50-day (intermediate trend) and 200-day (long-term trend) simple moving averages.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. ♦

Surprisingly strong showing

The market faced a number of headwinds in May – seasonality (“sell in May and go away”), the Presidential Election Cycle (now in its second year where since 1934 the average decline has been 21%) and an aging bull market (more than 5 years old; not many have lasted as long). Traders couldn’t be blamed for thinking that the extremist takeover of Iraq, one of the world’s largest oil producers, which started about three weeks ago might be a catalyst for a market correction. However, instead of rushing for the exit doors investors continued to pour money into US equities in June, especially the stock of small- and mid-cap companies. The market averages we track gained between 5.2% for the Russell 2000 and 0.7% for the Dow Industrial Average. My newsletter runs timing models for the benchmarks charted above – all remained on buy signals throughout June.

♦ Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog. 

Markets by relative strength

I posted this same ranking about 10 days ago. Japan continues to lead the momentum ranking, while Gold maintains its place dead last. US market averages, in general, moved up.  Bonds, with their low volatility, usually don’t rank high on momentum listings, but the positioning can be helpful in determining which group of bond funds is stronger at the moment. Here’s my ranking as of the May 7 close:

                             Markets by Relative Strength

1.  Japanese equities                                               10.  International equities
2.  Nasdaq 100 index                                              11.  Dow Industrial Average
3.  Nasdaq Composite index                                  12.  Asian equities
4.  S&P 400 index                                                    13.  US high yield bond
5.  Russell 2000 index                                            14.  Latin American equities
6.  European equities                                              15.  US municipal bond
7.  US equities                                                           16.  International bond
8.  Wilshire 5000 index                                          17.  US bond
9.  S&P 500 index                                                    18.  Gold

Each day that Wall Street is open for business I monitor benchmarks for 18 different markets to gauge relative strength. The results help me to identify regions of the world or categories of US stocks currently exhibiting positive momentum. The ranking is derived by applying a proprietary formula which incorporates performance over a variety of time periods, with more weight given to recent price activity. This is just one of many filters I use in determining newsletter model portfolio and managed account client recommendations.

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