Sunday, December 23, 2012

A Game Plan For The Bulls & Bears

In December and January, a lot of correlations in inter-market relationships get out of whack (perhaps due to end of year shuffling by global banks), so it's difficult to use my favorite tools to determine where the market is heading in these months (such as the Euro/Yen indicator). With that said, the charts below, offer the best clues to where the market is heading. The first chart is the S&P500 and its Price Oscillator (indicator below price), and the Price Oscillator Unchanged Line (in red). When the S&P500 closes below the red line, the market gets really ugly (note past history in the chart), and it causes the Price Oscillator to turn down (bearish). Friday's scary gap down was not strong enough to do any damage, as the Price Oscillator Unchanged Line provided support for price. In other words, this chart says the bulls are in charge, even with Friday's gap down! More details on the Price Oscillator Unchanged Line can be found on last weeks post.

Price Oscillator Unchanged Line and SP500

The Summation Index promised us higher highs back in October, and this week it fulfilled the promise, as the New York Stock Exchange closed at a 52 week high. As of right now, it is close to confirming the continuation of the uptrend by reaching +500 (it must stay above +500 convincingly for the uptrend to continue). Currently, it might be susceptible to falling over, as other examples (in rectangles) in the chart show. I am using a 3 line break chart below, so any red printed candle sticks within the next few weeks would be very alarming for the bulls. To summarize the bulls need very impressive breadth numbers (that way it will pull the $NYMO up higher) for a while, and the bears need to do the opposite. In terms of math, I think it is a much easier task for the bears to bring down the market (considering the Summation Index continues to be very accurate) rather than the bulls to continue this trend, but time will tell. More details can be found on the chart.

NYSI Summation Index NYSE