Charts of the Über-Indicator and its components

The Ü-I notched another gain on Friday. That makes six daily advances in a row.



The improvement in the Ü-I Friday can be attributed to a continued normalization of the Relative Volatility Index. The RVI is still above neutral (1.00) but the direction of the index is encouraging. Be aware, however, the RVI is rather sensitive, and one or two days of high volatility can push it right back up to panicky levels.



Below is the nine day moving average (geometric) of the Breadthalyzer. The daily swings in the Breadthalyzer can be infinitely volatile, so it is necessary to smooth out the daily fluctuations with a geometric mean. I use the 16 day geomean of the Breadthalyzer in my Ü-I calculation, but when analyzing the Breadthalyzer itself it's good to look at a variety of moving averages. The nine day below is fairly representative of the rebound in breadth within the S&P 500 index recently.



While it too has stabilized over the past several sessions, the S&P 500 Momentum Index remains in negative territory:



Summary: I have made it clear over the past week or so that I expect a rebound in the stock market. My indicators continue to lend credence to that view. However, the indicators are still, for the most part, in bearish territory. My positive outlook for the market is based on the relative improvement of the indicators coming out of the rather bearish turn the market took over the last several weeks. With that in mind, adopting a bullish stance on the market now may be jumping the gun. One might wait for the Ü-I to recapture a positive level (e.g. > 1.00) as confirmation that a meaningful advance is in store. Of course by then, who knows how much of a rally one will have missed out on.

But as you know, I am bearish over a longer-term horizon. Any rebound that develops this summer should be sold. The questions are when and from what level. Hopefully our indicators and intuitions can help us time the next selling opportunity.

Über-Indicator and notional volume -- Charts

The Ü-I climbed today, of course.



Volume on the S&P 500 was middle of the road.

7 Stars

Sorry for the cheeky title, but running through the list today, I noticed that seven stocks in the S&P 500 closed at 21 day highs today. Next I saw the same seven on the list of 65 day highs. And then they were on the 265 day high list.

I have never seen the same number of stocks on each of those lists on the same day before, let alone that number being seven.

DPS Dr. Pepper Snapple Group, Inc. NYSE Cons. Non-Cyclical Beverages (Non-Alcoholic) 37.780 38.340 37.570 38.170 3065627
MCK McKesson Corp. NYSE Healthcare Biotechnology & Drugs 68.960 70.080 68.620 70.070 2195367
NTAP Network Appliance, Inc. NASD Technology Computer Storage Devices 35.430 38.650 35.180 38.170 27567143
ORLY O'Reilly Automotive, Inc. NASD Services Retail (Specialty) 49.950 50.730 49.730 50.670 2002702
SNDK SanDisk Corp. NASD Technology Computer Storage Devices 44.890 46.880 44.560 46.850 15934709
TIE Titanium Metals Corp. NYSE Basic Materials Metal Mining 16.760 17.730 16.760 17.730 4848268
WPI Watson Pharmaceuticals NYSE Healthcare Biotechnology & Drugs 44.060 44.340 43.850 44.200 139273

If you add up all the daily closes for these seven issues together you get a chart that looks like this:



The combined point and figure price objective for the group is 383.5, about 25 percent above the basket's current rate of 305.

This is should be a good basket of leading shares to track as we assess the viability of the general rebound attempting to take shape.

Über-Indicator -- Chart

While the stock market struggles to gain traction (the S&P closed at a new low for the correction today) the Über-Indicator has actually moved higher each of the last four days. That could be an aberration, but the whole point of the indicator is for it to provide clues of shifting trends through divergences like we are now seeing.

I couldn't blame anyone for staying bearish right now, as long as no one blames me if they get caught short on the next surge higher. I see growing potential for another up-swing.

Mind you, I'm as bearish as anyone when it comes to the big picture, and I don't think this is a level to be buying stocks, or most other assets, from a value perspective. It is just at the moment I see breadth improving, volatility stabilizing, and downside momentum waning. And those three aspects of the market's structure are being reflected in the Ü-I chart at the top of this post. Yes, we have only seen a few days of this, but it's a start. If the indicators start to look dire again, I'll let you know as soon as I see it.

S&P 500 -- one more push?

Don't ask me why, but I keep eying 1262 on the S&P. From here that would give a nice seven waves on the market since the March 09 bottom and provide the setup for another protracted downturn.

Yen Thoughts

On a local train today I saw this advertisement saying "mina no FX" meaning "everyone's FX" with a cartoony looking woman, presumably a depiction of the ever-famous FX-swindling Japanese housewife. With angel wings and all.

This got me to wondering more about the Yen's big picture. After a little playing around with the daily and weekly charts for $XJY, the weekly chart below jumped out at me. Admittedly it is too busy. I have highlighted 3 advances which all have retraced 60% +/- 2-3 percent. You/I can interpret the action from Sept to March as a big head and shoulders and the pop after the "crash" earlier in the month as a test of that. This week did not exceed the pop from the "crash". While the MACD and assorted MAs look threatening for anyone doubting the Yen, I wonder if we could see it reverse and head to an overall 60-2% retrace of the whole move from $XJY 80 to 116. That would make the dollar 105-6 yen. That does not seem so outlandish. The alternative is a test of the $XJY highs and a $1 being 84-5 yen...BOJs worst nightmare, again.

Use the pics below as you meditate $XJY at 116 or 94-95.

Über-Indicator -- Chart

Here is a chart of the (new) Ü-I since 4/23/10:

AUD Index

Here is a chart of the Australian Dollar versus an equally weighted basket of the six other major currencies (USD, EUR, CHF, JPY, CAD, GBP):



Some recently asked me if I was still bullish on AUD (it was one of my top picks in early 2009).

Nope.

Someone else just emailed me wondering why AUD hasn't dropped more versus USD, what with all the bad stuff happening in the world.

I am not really sure what the hold up is, but I do think that AUD/USD will sell off sharply at some point (this year, I would imagine). Right now European currencies are taking the heat, but before long the wishful thinking of the inflationists will start to be recognized for what it is, and plays like AUD which have been co-opted by the inflationist block will sell off.

The Geo-Index -- Weekly Chart

The Geo-Index is my latest creation. Calculated weekly, it is based on the geometric average of the following six stock market indexes: S&P, FTSE, DAX, TSX, Nikkei, and the All Ordinaries. Think of it as an index of indicies.

There are several 'global' indexes to measure the value of equities worldwide, but they are all based in a single currency, dollars usually. The other day I decided I wanted a "currency neutral" global index, so I made up this Geo-Index.

Those moving averages are pretty neat looking, aren't they?

Index Data and Observations

Closing values for Thursday, May 13, 2010:

(Previous day's quotes are in parentheses.)


S&P 500 Über-Indicator:

.6697 (.6701)



Trend & Value 50:

1054.20 (1064.14)


China Small Cap ADR 25:

849.13 (854.80)


Precious Metals Complex:

5297 (5372)


Commodity ETFs:

2020 (2035)


BRIC Basic Materials:

959.02 (972.36)


Penny Banks:

1250.84 (1276.97)


Foreign Blend:

7114 (7202)


General Liquidity:

1019.81 (1025.20)



S&P 500 Momentum Composite:

2.87 (7.46)


S&P 500 Breadthalyzer:

.069 (4.85)


S&P 500 Relative Volatility:

3.04 (4.89)


S&P 500 Notional Volume:

$111,269,156,097 ($122,379,510,496)


S&P 500 Notional Advance:

-$1,372,386,676 ($1,317,466,462)



---

A down day for sure. Unless you are a fan of worthless U.S. Dollars, as the currency presses once again on my resistance zone. I had down 84.73, I think, on the Dollar Index, and we are somewhat above 85 now for the second occasion in recent memory. a further push for the dollar now would certainly indicate an acceleration in the time line of the inevitable contraction.

Nobody likes a contraction. But without them babies would never be born.

But a denial for the dollar to the upside right now would target about 80.5 on the retracement and signal a more extended consolidation, as I had in mind -- at least up until today.

The stock markets look shaky in terms of the daily charts. However, volume came in low today, so in a sense, today could be seen as a wash or negation of yesterday. Nothing more, nothing less.

Numerology inspires me to look for one more top higher in the S&P at 1262 before the sky comes tumbling down. But numerology can be put to better use while blogging than in the act of portfolio management. And besides, such a target doesn't preclude another down-wave in the nearish future.

In the event that this whole thing turns into a rout, as in a broad-based liquidity contraction, the first place I will be looking for bargains is in the U.K. I wouldn't buy into anything British just yet, it's too early I think, but I like the style of the new Government so far. I have panned Britain plenty over the years, but I sense at least a temporary turnaround in the works. At least the potential is there now, when it wasn't before.

Index Data

Closing values for Wednesday, May 12, 2010:

(Tuesday's values are in parentheses.)


S&P 500 Über-Indicator:

.6701 (.5423)



Trend & Value 50:

1064.14 (1051.75)


China Small Cap ADR 25:

854.80 (824.61)


Precious Metals Complex:

5372 (5345)


Commodity ETFs:

2035 (2018)


BRIC Basic Materials:

972.36 (962.45)


Penny Banks:

1276.97 (1250.51)


Foreign Blend:

7202 (7081)


General Liquidity:

1025.20 (1018.84)



S&P 500 Momentum Composite:

7.46 (2.03)


S&P 500 Breadthalyzer:

4.85 (9.01)


S&P 500 Relative Volatility:

4.89 (9.44)


S&P 500 Notional Volume:

$122,379,510,496 ($132,259,964,672)


S&P 500 Notional Advance:

$1,317,466,462 ($1,015,549,767)



---

you know where you are?

you in the Jungle, baby
you gonna die!

Chart -- China Small Cap ADR 25 Index

The chart goes back to later October 2009, when I started tracking the index. I guess now I'll have extend the index backwards more to see where the next support levels might be. I'll try to do that if I get some extra time.

Index Data

Closing values for Friday, May 7, 2010:

(Thursday's values are in parentheses.)


S&P 500 Über-Indicator:

.404 (.431)



Trend & Value 50:

1017.40 (1028.75)


China Small Cap ADR 25:

779.60 (799.30)


Precious Metals Complex:

5055 (5098)


Commodity ETFs:

1982 (1978)


BRIC Basic Materials:

911.66 (912.87)


Penny Banks:

1155.07 (1188.20)


Foreign Blend:

6435 (6258)


General Liquidity:

994.19 (993.33)



S&P 500 Momentum Composite:

-13.35 (-8.81)


S&P 500 Breadthalyzer:

.042 (.024)


S&P 500 Relative Volatility:

15.34 (21.15)


S&P 500 Notional Volume:

$210,059,586,835 ($213,837,480,944)


S&P 500 Notional Advance:

-$3,676,431,699 (-$6,501,362,893)



---

Heraclitus in the Library

Nature loves to hide

With furtive eyes beneath Her hood

She glances from the side

Begging to be understood

Eurodollar versus Fed Funds

just noticed that the June Eurodollar contract has started to fall off recently while June Fed Funds futures have remained pretty stable. here is the ratio between the two contracts:



credit spreads are still pretty tight, but if that ratio keeps dropping at the current trajectory, TARP 2.0 will be hitting the president's desk before you know it.

US Dollar Index -- approaching resistance

The US dollar has had a nice run, and I am super certain that this is just the beginning of a new "Strong Dollar" era (I hear that giggling in the back!) but in the short-term the Dollar Index is approaching the intermediate target I presented two months ago. below is the text of the March 5, 2010 letter in full (typos and all, but charts omitted).

-----

Trend & Value
March 5, 2010

The forex market is a riot these days. A riot as in really funny, I mean. But before long, actual rioting will start to spread, and the World (Ex-North America of course!) will devolve into a Mad-Max Trilogy type spiraling institutional collapse, except in this case the 'juice' in shortage won't be petroleum (plenty to go around), but rather Credit and its corollary – Trust. Now in the Olden Days, when a piddling country got into an external debt problem the bankers with money on the line arranged for a military force to be sent in to set things straight. Call me crazy for presenting it this way, but something analogous to this is in the cards in Europe. And Greece (or any other country) isn't going to get out of this currency union by just dropping the euro and reverting to drachmas or whatever. The bond holders aren't just going to stand by and let the unit of account all the debt is denominated in magically change. Not only would the direct losses be intolerable, but the underlying liquidity structure of the Continent's banking system would collapse. Even if there is some mechanism written into the rules to allow for such a currency reversion, and I haven't looked into it yet, I don't think it will hold up in court. For one thing, most of this debt was likely originated in euros, not the previous national currency. A quick search of the net informs me that the average maturity of Greek debt, for example, was only 7.8 years (as of 2009). So it would appear that at least a fair majority of the debt was never denominated in drachmas to begin with. So in my mind it is doubtful that an exit from the euro is feasible for Greece, or any other country with a debt-load. But the bailouts that are in the works should do the trick, right? Actually these are just replacing the pressure from external creditors with pressure from the internal population. I have no special insight into Greece, never even been there, but everywhere else I've been in Europe I've noticed that the sense of entitlement runs rather strong. If people get the sense their access to free shit is threatened, they'll get violent. Hence the reference to rioting at the beginning of this piece. Any number of these esteemed social democracies could collapse over a holiday weekend. At that point, do the 'business interests' bring in a strong man? Or does a supra-EU force need to be brought in to restore order? (And make sure those debt payments continue – which brings us back to the scenario alluded to above.)
Then you can ponder what kind of shenanigans a crackpot country like Turkey, or perhaps Russia, is liable to pull once Europe starts to destabilize....
Many, if not most, of you are rolling your eyes at me, right? None of this is very likely, you say. Well, think what you want, but I can assure you that something will happen (always does) and the odds are that that something isn't going to be pretty.
Let's look at a few charts of the US Dollar Index, because I think I've found the next price target for the index.
The index has stalled out the past few weeks. Just taking a little break. Meanwhile, the medium-term moving averages are turning higher and a solid looking web of averages is forming in the 77s. So if momentum really breaks down, we'll look for support around 78 or 77.5. But really, I'm doubtful this is going to roll over too hard, if at all. Maybe some more sideways consolidation, with a dip towards 79. But a dip like that is going to get bought, if it even comes. I'm pretty sure the dollar's going higher again before too long. Let's move to a weekly chart.
Notice we are butting up to the same resistance above 81 that was encountered last June. That's fine. Typical even. I am now looking to just under 85 as the next target on a break above 81.50. May calculator is giving me 84.73 as the precise number, but I am seeing 85ish as what you might call a 'concealed resistance' point. It's not completely hidden, but it's not going to be obvious to very many people. 84.73 is just the Middle Ratio retracement (68.2 per cent) of the decline from 89.62 to 74.23,
but I like it because that's right where the failed consolidation last spring broke down, and also a few of the weekly candles hit the level before that.
Always good to look at the long-term picture too, so below I include a monthly chart.
See how many times the dollar index found temporary support at about 85 over the years? Next to ~80 it looks like the most important former support level. Plus, that 88 week moving average is right there now.
So just as ~85 was temporary support in the past, my guess is that it will prove to be temporary resistance here soon. We'll move higher than that after another consolidation, but it's the best next resistance point I can see right now.
As for the other markets... I like Treasurys (as reiterated in the last report). I'm skeptical about the US stock market, but we are already seeing new highs for the small- and mid-cap indexes, and I'm not seeing much indication of an immediate down-turn in the S&P 500 either. If you want to short the market, you could try selling into strength here, but I'm not sure where exactly these indexes are going to stop. I'm looking into it, but so far nothing has come to me. I mention the possibility of some double tops at the beginning of the week, maybe it'll be the S&P or the Dow that double tops? Dunno, but something to keep in mind.
I am much more bearish on commodities, commodity related stocks, and international stock indexes/ETFs, but this stuff too could trade sideways or anemically higher who knows how long. The China Story has kinda faded from the news the last few weeks hasn't it? Can't wait for that riot to start up again.
Have a good weekend,
Kyle

... I liked writing that newsletter, dammit. Too bad I didn't do what it takes to make it a viable business..

Index Data

Closing values for Wednesday, May 5, 2010:

(The previous day's values are in parentheses.)


S&P 500 Über-Indicator:

.85 (.88)



Trend & Value 50:

1060.90 (1070.26)


China Small Cap ADR 25:

846.63 (865.91)


Precious Metals Complex:

4998 (5027)


Commodity ETFs:

2024 (2072)


BRIC Basic Materials:

959.53 (974.08)


Penny Banks:

1235.65 (1240.67)


Foreign Blend:

6673 (6827)


General Liquidity:

1012.86 (1025.04)



S&P 500 Momentum Composite:

7.55 (11.66)


S&P 500 Breadthalyzer:

7.25 (.05)


S&P 500 Relative Volatility:

1.94 (1.72)


S&P 500 Notional Volume:

$142,212,849,688 ($147,135,186,685)


S&P 500 Notional Advance:

$860,442,411 (-$2,328,800,817)



---

Index Data and Observations

Closing values for Tuesday, May 4, 2010:

(Didn't get time to post yesterday's values but they are in parentheses below.)


S&P 500 Über-Indicator:

.88 (1.18)



Trend & Value 50:

1070.26 (1095.48)


China Small Cap ADR 25:

865.91 (916.89)


Precious Metals Complex:

5027 (5075)


Commodity ETFs:

2072 (2136)


BRIC Basic Materials:

974.08 (1026.62)


Penny Banks:

1240.67 (1256.88)


Foreign Blend:

6827 (7324)


General Liquidity:

1025.04 (1043.08)



S&P 500 Momentum Composite:

11.66 (26.4)


S&P 500 Breadthalyzer:

.05 (3.74)


S&P 500 Relative Volatility (New!*):

1.72 (.95)


S&P 500 Notional Volume:

$147,135,186,685 (113,814,411,227)


S&P 500 Notional Advance:

-$2,328,800,817 ($1,007,568,294)



---

The Über-Indicator dropped below 1.00, if you need another reason to be bearish. Oh, and that Chinese small cap index is right, and I mean right, at support dating back to the selloff in late October. Former China pumpers like Faber and Rogers have turned negative on the middle kingdom, so I'm curious who is going to be brave enough now to get on CNBC and tell the masses that China is da shit. Sans China, the only growth fable out there is the US, and if that's all the bulls got, then...

EFA:SPY Ratio

My insistance over the last many months that the US stock market would out-perform international counterparts turns out to have been not quite as misguided as some would have thought.

"because this is just too big to fail"

So they are saying this oil leak going to be worse than Katrina.



I guess if that is true, it's good luck everyone can blame it on a corporate entity. FEMA can breath easy, for now.

Index Data und der neue Über-Indicator

Yes folks, the Über-Indicator is back, and hopefully improved. See below for more info.

Closing values for Friday, April 30, 2010:

(The previous day's closes are in parentheses.)


S&P 500 Über-Indicator (New!*):

1.08 (1.39)



Trend & Value 50:

1081.71 (1094.28)


China Small Cap ADR 25:

909.41 (931.60)


Precious Metals Complex:

5104 (5065)


Commodity ETFs:

2130 (2118)


BRIC Basic Materials:

1040.36 (1048.28)


Penny Banks:

1273.25 (1327.54)


Foreign Blend:

7262 (7427)


General Liquidity:

1039.43 (1042.48)



S&P 500 Momentum Composite:

21.07 (31.90)


S&P 500 Breadthalyzer:

.04 (.73)


S&P 500 Relative Volatility (New!*):

1.12 (.82)


S&P 500 Notional Volume:

$149,021,146,295 (135,241,468,071)


S&P 500 Notional Advance:

-$3,569,323,068 ($466,324,809)



---

* The new Über-Indicator is an equation derived from the daily values of the following three indicators:

1) S&P 500 Momentum Composite Index

2) S&P 500 Breadthalyzer

3) S&P 500 Relative Volatility Index

My original Ü-I was an equation involving an earlier version of the Momentum Composite Index, the NYSE and NASDAQ Arms Indexes, and the VIX.

The major reasons for changing the Ü-I was that I wanted the indicator to be derived exclusively from the price and volume action of S&P 500 components themselves. For whatever reason, no-one publishes an Arms Index just for the S&P, so my initial idea was to create one for the benchmark itself. But while I was at that task I got the idea for the Breadthalyzer, which shares similarities to an Arms Index, but in my view is much more robust and useful.

The next step in formulating the new Ü-I was to find a way to measure volatility among all the S&P components. I decided not to use the VIX for a couple reasons: 1) The VIX is a measurement of perceived or expected volatility for the S&P as a whole, but I wanted something that measured actual volatility amongst the 500 stocks themselves, and 2) I wanted the Ü-I to have a theoretically neutral value, e.g. 1.00. Since to my knowledge there is no 'neutral' level for the VIX, I couldn't include it in the Ü-I calculation and have a neutral Ü-I reference level.

My alternative was to devise the S&P 500 Relative Volatility Index (RVI), which I will explain more about another time.

The Ü-I as now formulated is then a rather complicated equation that attempts to account for changes in the technical standing of all S&P components, price and volume breadth within the index, as well as volatility among the components.

My hope is that the Über-Indicator proves useful as we continue to monitor the S&P 500, but I guess time will tell.

The Balloon of Destiny

A lighter video from The Economist:



"Mergers and Acquisitions, which is better?"