Update on Market Internals
April 20, 2012
Of my proprietary mix of 6 different internal indicators on http://www.decisionpoint.com 3 are on sell, one remains on a buy, and 2 are on buys but are very close to sell signals. These are intermediate term signals. In other words they are flashing caution here. As I mentioned in my update on 4/9/12 many other internal indicators began to roll over as early as February.
The T2118 from TC-2000 rolled over in early February although the moving average didn’t officially roll over until early-March. Still no signs of a bottom yet.
The cumulative advance/decline line of the Russell 2000 also remains in a downtrend. This is bearish until the 15 day EMA begins to turn to the upside.
The cumulative 4 week new high/low hasn’t rolled over with authority yet but appears to be close.
As you can see the 15 day EMA of the T2106 rolled over in early February which was a sign that market internals began to deteriorate. That was basically the momentum peak of the rally off of the late-December lows. It has recently turned up from very oversold levels that often mark important market bottoms. Any reading here of -150 or lower for the 15 day EMA is very oversold. The recent turn to the upside is encouraging and this signal will be the first to bottom but since it is the most volatile I don’t trust it just yet. It can still get more oversold as it did in May 2010 or August 2011 but I have my doubts. I tend to think it may be in the process of bottoming. Just as this rolled over in early-February, 2 months before the market hit its peak, we may have already seen the bottom here. However, we could still be a while away from the low in price. When looking for a bottom I want to see the kind of action we saw in August/October 2011 and November/December 2011. Positive divergences in absolute readings as well as positive divergences in the 15 day EMA.
I’m still of the belief that the S&P 500 is likely headed down to 1300-1340. There are some big events coming up. There is an IMF meeting over the weekend. Then next Wednesday will be big as there will be an FOMC meeting and AAPL will report earnings after the market close on Tuesday.