One of the great things that the merger with DecisionPoint.com brings to the table is its huge collection of market indicators and datasets. However, the sheer amount of data and indicators involved can be overwhelming, especially if you are not familiar with these kind of charts.
To help with that, we've created the new DecisionPoint Market Analysis Chart Gallery. In general, Erin and Carl will be discussing the charts in that gallery and what they mean in the DecisionPoint blog but I wanted to take a minute and introduce everyone to them here.
(Note: This blog was intended to be printed out and read while using the live website to see the charts mentioned.)
First off, to get to the DP Gallery, go to our homepage and click on the "DP Gallery" link located in the middle of the page underneath that big cloud of tickers.
Now, if you are not a member of StockCharts.com (or you are not logged into your account) you will only be able to see the S&P 500 charts. That's nothing to sneeze at - understanding what the S&P is doing is very important to all investors - but if you are a member of StockCharts, you'll also be able to switch your view from S&P 500 to Dow Industrials, S&P 100 and/or Nasdaq 100 using any of the dropdowns found throughout the gallery.
DecisionPoint's approach to analyzing the market is based on first looking at trend and then looking at various overbought/oversold oscillators. Thus, the first 3 charts on the gallery page are "Trend" charts to help you gauge the short-term, intermediate-term and long-term market trends. The process is pretty mechanical - just look at the relationship of the different EMAs on those three charts. If the shorter EMA is on top of the longer one, the market is in an up-trend, otherwise it is in a down-trend.
So right now (February 25th, 2014), when I look at the DP Gallery page, I see that the Daily, Weekly and Monthly Trends are all UP. I also notice that it has been that way for more than a week and that none of the movings average pairs look like they will cross each other for another couple of days.
Take a moment and review those first three charts and see if you agree.
Now, the other thing that you'll find on those first three charts is the DecisionPoint Price Momentum Oscillator (PMO). This technical indicator works very similarly to the MACD to show you a stock's direction and momentum. These charts use Carl's standard parameters of 35,20, and 10 to create a black indicator line and a red signal line. Broadly speaking, black line moving up is a short-term bullish signal. Black line above red line is intermediate-term bullish. Black line above zero line is long-term bullish.
Right now, the PMO is pretty strongly bullish on the daily chart with all three of the signals mentioned above occuring. Same is true for the long-term Monthly PMO chart. However, the Weekly PMO chart is muddled. While it has been above zero for over 2 years (bullish), it has also been moving sideways somewhat aimlessly causing the PMO line and signal line to get rather hopelessly tangled.
Conclusion: In general, the trend is still bullish. Don't fight the tape. But is it too bullish? That's what the next set of charts is all about - the Overbought/Oversold Condition charts.
Let's start by looking at the really jumpy "Volatile Short-Term Oscillators" chart. It tells you when the market is making a short-term peak or bottom. Basically, you are looking for spikes that stick up (or down) outside of each indicator's "normal" range.
The first indicator is the Climactic Volume Indicator (CVI). It is designed to jump higher whenever lots of the stocks have positive days on strong volume. If it is above zero, things are bullish. If it is above 50, things might be getting too bullish. If it is above 60, watch out for a short-term pull-back.
The Participation Index are green/red bars that show you how many stocks are actively helping the index move higher (green) or lower (red). Again, spikes are the key. If the green bars spike above 60, watch out for a pullback. Conversly, if the red bars spike down below -60, a bounce-back rally should happen soon.
Finally, an inverted $VIX chart is included. Moves to the top of that inverted chart signal excessive bullishness (often seen as a time to sell) and moves to the bottom of the chart signal excessive bearishness (typically a buying opportunity).
So what's going on right now, February 25th? The CVI and PI show almost three straight weeks of bullish activity as the SPX moved higher from its lows of early February. There are no recent spikes for either indicator and the VIX is not yet into strongly overbought territory just quite yet.
The next chart down is "Regular Short Term Oscillators" - they are a little more stable - and while they are all still above zero, they are all moving lower since peaking last week. If they move below zero, it will be very hard for the market to continue moving higher in the short-term.
The "Intermediate-Term Oscillators" chart is possibly the most important one in the DecisionPoint gallery. These indicators provide a longer-term perspective on the health of the market. First off, the PMO is the same as we saw on the Daily Trend chart above - only this is on a 3-year chart in order to provide more context. Again, rising above zero and moving above its red signal line is "a good thing(tm)."
Breadth Momentum and Volume Momentum are crucial to understanding where the market is going. Breadth Momentum (ITBM) shows the direction and strength of the change in advancers minus decliners - i.e., the breadth of the market. If ITBM is going up, you can expect advancers minus decliners to continue to increase - a generally bullish sign until it hits a high peak.
Volume Momentum (ITVM) shows the direction and strength of changes in advancing volume minus declining volume. It should mimic ITBM pretty closely. If those two diverge, watch out!
Currently, PMO is bullish, VTO is bullish, ITBM is bullish and ITVM is bullish but starting to weaken. Notice that (so far at least) it hasn't exceeded its January highs just about 100.
For now, I'm going to leave the rest of the page as an exercise to the reader - many of the charts are explained on the DP Gallery page itself. Click on the links for more explanations about the indicators used.
Taking into account all the factors on all of these charts, my conclusion is that the S&P 500 is just starting to enter into overbought territory after a strong 2 week rally. What is your conclusion?