StockCharts Blogs - Don't Ignore This Chart!

Scanning the Aroon oscillator in the market carpet

Friday’s mailbag answered questions on the Aroon oscillator, which is a trend identification indicator. Basically, a strong uptrend exists when the oscillator is above +50 and a strong downtrend exists when the oscillator is below -50. Even with the market gains of the last few weeks, I was surprised to see so many negative readings in the Aroon oscillator. The sector averages are negative for finance, energy, consumer discretionary and materials sectors. 

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Nasdaq AD Line Is Lagging

With the surge over the last 1-2 weeks, the NY Composite and the Nasdaq are both trading back near their October highs. However, the Nasdaq AD Line remains well below its October high and shows some relative weakness. The NYSE AD Line is also below its October highs, but still looks strong as it surged back above 12000 last week.


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A Bollinger Band Contraction for Intel

Bollinger Bands have been contracting as Intel (INTC) consolidates over the last few weeks. The theory behind Bollinger Bands is that volatility contractions often give way to volatility expansions. Look for a range break to trigger the next directional signal.

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New Highs Outpacing New Lows

The predefined scan page provides a quick glimpse of underlying strength or weakness in the stock market. At the top of this page, new 52-week highs are comfortably outpacing new 52-week lows. Click the number (129 Nasdaq and 163 NYSE) to see a list of market leading stocks.

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Watching for Tech Leadership

The tech-laden NASDAQ 100 showed considerable relative strength prior to the market bottom in March 2009.  Should the NDX:SPX relative ratio break above 1.625, I believe it could lead to additional market strength.

-Tom Bowley

Join Tom and the Invested Central Team at www.investedcentral.com.  Invested Central is an education-first stock trading service that provides its members with their flagship product - the Daily Market Report, intraday stock and ETF alerts, and LIVE chats 4 times a week, among other features.

Waiting for the Breadth Thurst ($RHNYA)

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The Record High Percent Index is a market breadth indicator created by dividing the number of 52-week highs for a given market by the sum of the number of new highs and the number of new lows.

Record High Percent = New Highs / (New Highs + New Lows)

The values range between 0.0 and 1.0. A value of 0.0 means that there were no new highs on that day. A value of 1.0 means that there were no new lows on that day. A value of 0.5 means that the number of new highs and new lows were equal.

StockCharts.com computes and publishes three versions of the Record High Percent Index - one for the NYSE ($RHNYA), one for the Nasdaq ($RHCOMPQ), and one for the American Stock Exchange ($RHXAX).

The Record High Percent Index is the basis for another popular index called the Breadth Thrust Indicator. First developed by Martin Zweig, the Breadth Thrust Indicator is equal to the 10-day simple moving average of the Record High Percent Index.

According to Zweig, a "Breadth Thrust" occurs when the Breadth Thrust indicator rises from below 40% to above 61.5% within 10 trading days. The signal occurs when the given market is in the process of changing from an oversold condition to one of strength, but has not yet become overbought. Zweig goes on to say that this signal typically occurs before most bull markets.

"Breadth Thrusts" are rare but significant.  When the market is really ready to rally again, expect to see the red line on this chart to jump.

Chaikin Money Flow Study ($SPX)

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Often we get asked "What settings should I use on my indicators?  What's the best?" and our answer is the always infuriating "It depends."  The chart above shows why "It depends" is always going to be our answer.

I've added six different versions of the Chaikin Money Flow (CMF) indicator to this chart of the S&P 500.  Notice the different frequency with which the CMF lines cross the zero line and turn red.  The shorter the frequency, the more often (in general) the CMF turns red.

What's interesting on the chart above is all the whipsawing done by the 80-day CMF between July 08 and February 09 - and by tge 100-day CMF in March 09.  Very unusual.

Bullish Percent Sector Indices Moving Higher

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Bullish Percent indexes show the percentage of stocks in a given group that have a "Buy Signal" on their P&F chart.  Above are charts with the 11 different sector-based Bullish Percent Indexes that we calculate here at StockCharts.com (with the S&P 500 BPI thrown in for good measure).

All of the BPIs started moving higher at the start of the month however some appear to be running out of steam right now.  Financial stocks are leading right now with Energy stocks close behind.  Smart investors always know where these Bullish Percent Indexes are going - they are some of the best market sentiment indexes available anywhere.

What Did the VIX Know and When Did It Know It?

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The VIX is the Volatility Index published by the Chicago Board Options Exchange (CBOE).  It measures the "implied volatility" of a hypothetical SPX option created from a weighted average of several actual SPX options.  (For all the gory details, check out our ChartSchool article on the VIX.)  Typically, the VIX is interpreted as an "inverse" market indicator - i.e., down is bullish and up is bearish.  In the chart above, I've plotted the reciprocal of the VIX with the ratio symbol "$ONE:$VIX" (Note: $ONE is always equal to, you guessed it, one.)  That allows me to then compare it to a chart of the actual market.  Looking back at the past couple of years, you can see that the VIX did an uncanny job of indicating "trouble ahead" for stocks.  Just like when it started moving up before the market did in 2002, the VIX started moving down in 2007 and the market followed dramatically in 2008.  Definitely, don't ignore this chart!

McClellan Summation Index Struggling to Stay Positive

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The McClellan Summation Index is a great market indicator that recently set some all-time record lows back at the end of last year.  Since then, it has bounced back into positive territory, but over the past couple of days a new decline has begun.  While not unexpected, that is disappointing since "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."