Thursday, July 14, 2016

Tom McClellan: NYSE vs Haurlan Index | Not A Price Top (Yet)

Haurlan Index - A reliable “Not A Price Top” Indicator. Source: Tom McClellan
Tom McClellan (Jul 13, 2016) -  If you want to have a recipe for a sustainable bull market, the best ingredient to start with is “gobs of breadth”. Strong A-D data is a sign of plentiful liquidity. The stock market can encounter other types of problems, but if liquidity is strong then investors can get past momentary worries about Brexit, earnings, valuations, etc. I like to say that there are really only 2 fundamentals that matter for the overall stock market:
1) How much money is there? and
2) How badly does that money want to be invested?

Source: Tom McClellan

For the first one, we look at things like what the Fed is doing with QE, and what the A-D Line says about liquidity actually hitting the stock market. For the second, we use sentiment indicators of various stripes. In the wake of the June 23 Brexit vote, there were 2 hard down days, and then a long string of up days for the overall market, and with very strong breadth numbers. That brought us a new all-time high for the NYSE’s A-D Line, and a high reading for the indicator in this week’s chart [...] The 10% Trend of daily A-D can only get up to a really high level like this when there is a big surge of positive breadth like what we have just seen lately. And as the vertical lines in the chart show, a really high peak in this indicator seldom coincides with the final price high for the move. That’s the key insight. When this indicator zooms up to very high levels, it can serve as a reliable “Not A Price Top” indicator.  So there is your headline: Not A Price Top (yet).

The Annual-, Presidential- and Decennial Patterns of the DJIA have major highs in mid August and early September (also HERE).
Nautilus Research (Jul 12, 2016)
LPL Research (Jul 12, 2016) - After a new high [in the S&P 500) was made, the returns going out a year
were better than the average return. In fact, going out six months and a full year shows very strong
returns, up 7.3% and 14.0%, respectively, on average. A year later, the S&P 500 has been higher 12 out
of 13 times, with only the May 2007 new high lower a year later.