Sunday, June 30, 2013

Revisiting a Reliable Trend indicator

A market breadth indicator that has proven reliable to assess the market trend is the New York Stock Exchange Summation Index.  Developed by Sherman and Marian McClellan, the McClellan Summation Index is a breadth indicator derived from the McClellan Oscillator, which is a breadth indicator based on Net Advances (advancing issues less declining issues).

(Click here to enlarge)
b2ap3_thumbnail_NYSI062813.png

Baseline Analytics has used the "400" level on the NYSI to delineate between bullish and bearish trends.  As can be seen in the chart below, that level has marked trend changes rather reliably.  To enhance the value of the NYSI indicator, we have applied a 20-day simple moving average.  An early trend-change signal is flashed when the NYSI crosses this moving average.  The summation index is typically used for medium-term and long-term timing (whereas the McClellan Oscillator is effective for more of a short-term horizon).  This is because the slower cumulative nature of the Summation Index requires more data points to support the current trend.  This indicator is not perfect, but represents another tool in the technical analysis toolkit worth tracking.

What is the NYSI telling us today?  the NYSI effectively flagged the market setback in June. At its most recent reading of -134, it is not yet at an extreme reading that would suggest a trend change. We will look out for the early signal moving average cross to consider a potential market trend shift to an uptrend.

- Baseline Analytics

Sunday, June 16, 2013

Is JO (Coffee ETN) Going to Zero?

As a market technician, I cannot help but marvel at how some price patterns exhibit parabolic euphoria or parabolic gloom. Looking at the iPath-Dow Jones IBS Coffee ETN (JO), I can't help but speculate how low this price will go. I'm still drinking my 4 cups per day and I haven't seen any coffee shops close lately.



Weather is clearly the factor for the weak prices, as favorable conditions in Brazil, Vietnam, Columbia all transpire to yield a bumper crop.

What is interesting is the Commitment of Traders report from this Friday. The Commercials (the smart money we will call them) have continued to reduce their short exposure. As seen in the chart below, the ratio of short to total open interest for coffee futures and options is at its lowest point since 2006 (the blue dotted line).



Note the coffee weekly chart below. When the COT ratio was at its mid-2006 low, coffee prices began to recover and resume their uptrend.



Based on the COT report and the slaughter that JO has been through since its peak in the Spring of 2011, it may be worth speculating on a price recovery of this commodity.

Visit Baseline Analytics for insightful investment opportunities.

Wednesday, June 5, 2013

S&P 500 At Important Technical Juncture

Today's 1.38% decline in the S&P 500 has left the index sitting atop its 50-day exponential moving average support. In addition, the RSI (Relative Strength Index) of the S&P 500 has fallen to levels that, during this uptrend, have contained corrections. See the chart below:



What does this mean? Should equities see a bid and a potential bounce at this juncture, a follow-through and potential continuation of the uptrend may ensue. If, on the other hand, the S&P 500 closes below 1600 and RSI dips further below the 40 level, a more pronounced correction may ensue. That correction may resemble the setback experienced in November 2012.

So watch the balance of the week's action. We will be watching carefully at Baseline Analytics. Should the market begin to firm, we will be looking to add to long positions. For the time being, we will remain cautious with protective stops and step aside until the market figures out what it wants to do.

- Baseline Analytics