Sentiment
In order to measure market sentiment we are going to use the commitments of traders reports. Market sentiment is a useful basis from which to form a contrary opinion. In terms of market sentiment, the non-commercial traders were net long 34,826 contracts of the Dow Jones industrial average x $5 contracts trading at the Chicago Board of Trade. Last week, the non-commercial traders were net long roughly 25,000 contracts. The prior week, the non-commercial traders were net long roughly 29,000 contracts of the Dow Jones industrial average x $5 contracts. The week before that, net longs stood at 25,758 contracts. July 24, 2012, non-commercial net longs were 7,559. On July 17, 2012, non-commercial net longs stood at 13,440. Clearly, we have seen a sentiment shift to bullish. Non-commercial net longs grew from 7,559 on July 24, 2012 to roughly 34,000 on August 28, 2012. Sentiment is confirming the bullish trend, however, there is a negative divergence between sentiment and price.
Financial Markets and Business Cycle
The economy is expanding and that is bullish for equity prices. General business conditions are good. We have seen revenue growth and earnings growth over the past few years. However, the pace of growth has slowed, particularly the pace of sales growth. We could be nearing an inflection point in general business conditions.
Three Important Trend
There are several trends operating at one time in financial markets. The main trends technical analysts study are the primary, intermediate and minor trends. The primary trend typically last between 9 months and roughly 2 years. Intermediate trends typically last between 4 week and 9 months. And minor trends last less than 4 weeks.
Primary Trend
The Nasdaq-100 is currently in a primary uptrend that started in May 2009. As such, we continue to see higher highs and higher lows. The Nasdaq-100 is trading above the rising 200-day simple moving average. The market is higher than it was 12 months ago and the difference is increasing.
Intermediate Trend
The Nasdaq-100 is currently in an intermediate uptrend, at best, or sideways consolidation period, at worst. The wave off of the April high to the June low is considered an intermediate down trend. The move off of the June low to now is considered an intermediate up trend. We will have to see if this intermediate swing carries prices past the April high. I am expecting an intermediate top, that means we could see a price pattern form in the weeks to come. In other words, we could see a rectangle, head & shoulders top, double top, etc... form. Trend lines suggests the market is bullish. The Nasdaq is trading above the rising 50-day simple moving average. Further, the Bollinger bands are suggesting prices will rise. The market is higher than it was 12 weeks ago and the difference is increasing.
Minor Trend
The Nasdaq-100 minor trend is probably towards lower prices as a minor high may have formed August 21, 2012. The minor trends are making higher highs and higher lows. The market is trading at the rising 20-day simple moving average. In terms of the rate of change, the Nasdaq-100 is higher than it was 12 days ago and the difference is shrinking. Also, the market is higher than it was 25 day ago and the difference is shrinking.
Longer Cycle
There is order to financial markets. Typically at the beginning of a bull move investors buy bond, then equities, then commodities. Bonds are the first to be sold, then, as interest rates rise, equities are sold. Finally commodities are sold. Currently, bonds are rising, after selling off, which suggests that equities will follow.
Dow Theory
Equity markets remain in a bull market as defined by Charles Dow in Dow Theory. The problem remains, the transportation average isn't confirming the industrial average. If goods are being produced they should be being transported. The lack of confirmation of the transportation average suggests weakness in the economy and the potential for a Dow Theory bear market.
Conclusion: Bullish
Stop Loss Level: The protective stop loss level is $2,575: That level represents the worst case loss level and trades may be exited prior to the market reaching that level.
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.
In order to measure market sentiment we are going to use the commitments of traders reports. Market sentiment is a useful basis from which to form a contrary opinion. In terms of market sentiment, the non-commercial traders were net long 34,826 contracts of the Dow Jones industrial average x $5 contracts trading at the Chicago Board of Trade. Last week, the non-commercial traders were net long roughly 25,000 contracts. The prior week, the non-commercial traders were net long roughly 29,000 contracts of the Dow Jones industrial average x $5 contracts. The week before that, net longs stood at 25,758 contracts. July 24, 2012, non-commercial net longs were 7,559. On July 17, 2012, non-commercial net longs stood at 13,440. Clearly, we have seen a sentiment shift to bullish. Non-commercial net longs grew from 7,559 on July 24, 2012 to roughly 34,000 on August 28, 2012. Sentiment is confirming the bullish trend, however, there is a negative divergence between sentiment and price.
Financial Markets and Business Cycle
The economy is expanding and that is bullish for equity prices. General business conditions are good. We have seen revenue growth and earnings growth over the past few years. However, the pace of growth has slowed, particularly the pace of sales growth. We could be nearing an inflection point in general business conditions.
Three Important Trend
There are several trends operating at one time in financial markets. The main trends technical analysts study are the primary, intermediate and minor trends. The primary trend typically last between 9 months and roughly 2 years. Intermediate trends typically last between 4 week and 9 months. And minor trends last less than 4 weeks.
Primary Trend
The Nasdaq-100 is currently in a primary uptrend that started in May 2009. As such, we continue to see higher highs and higher lows. The Nasdaq-100 is trading above the rising 200-day simple moving average. The market is higher than it was 12 months ago and the difference is increasing.
Intermediate Trend
The Nasdaq-100 is currently in an intermediate uptrend, at best, or sideways consolidation period, at worst. The wave off of the April high to the June low is considered an intermediate down trend. The move off of the June low to now is considered an intermediate up trend. We will have to see if this intermediate swing carries prices past the April high. I am expecting an intermediate top, that means we could see a price pattern form in the weeks to come. In other words, we could see a rectangle, head & shoulders top, double top, etc... form. Trend lines suggests the market is bullish. The Nasdaq is trading above the rising 50-day simple moving average. Further, the Bollinger bands are suggesting prices will rise. The market is higher than it was 12 weeks ago and the difference is increasing.
Minor Trend
The Nasdaq-100 minor trend is probably towards lower prices as a minor high may have formed August 21, 2012. The minor trends are making higher highs and higher lows. The market is trading at the rising 20-day simple moving average. In terms of the rate of change, the Nasdaq-100 is higher than it was 12 days ago and the difference is shrinking. Also, the market is higher than it was 25 day ago and the difference is shrinking.
Longer Cycle
There is order to financial markets. Typically at the beginning of a bull move investors buy bond, then equities, then commodities. Bonds are the first to be sold, then, as interest rates rise, equities are sold. Finally commodities are sold. Currently, bonds are rising, after selling off, which suggests that equities will follow.
Dow Theory
Equity markets remain in a bull market as defined by Charles Dow in Dow Theory. The problem remains, the transportation average isn't confirming the industrial average. If goods are being produced they should be being transported. The lack of confirmation of the transportation average suggests weakness in the economy and the potential for a Dow Theory bear market.
Conclusion: Bullish
Stop Loss Level: The protective stop loss level is $2,575: That level represents the worst case loss level and trades may be exited prior to the market reaching that level.
Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.