What Can We Learn From Stock Market Momentum?

DAILY MOMENTUM 2019 vs. 2007

S&P 500 momentum is determined by the net aggregate opinion of all market participants and thus, helps us assess the market’s risk/reward profile. On a daily timeframe, the S&P 500 has a MACD bullish cross and MACD remains above the centerline, which odds-wise speaks to a bullish primary trend. The second chart allows us to compare the present day to the early stages of the 2007-2009 bear market.

MACD DAILY DAY JULY 2019.png

WEEKLY MOMENTUM 2019 vs. 2008

When we compare 2019 to 2007-08 on a weekly timeframe, we get similar results. The 2019 chart has a bullish MACD cross and MACD is above the centerline. The 2007-08 chart has a bearish MACD cross and MACD is below the centerline, which odds-wise speaks to a primary downtrend.

MACD WEEK JULY 2019.png

MONTHLY MOMENTUM 2019 vs. 2007-08

The S&P 500’s monthly chart is trying to nail down a bullish MACD cross this month; the outcome will be determined on the last trading day of July. The present-day chart looks quite a bit different from the 2008 chart, which features a bearish MACD cross and MACD below the centerline.

MACD month JULY 2019.png

VIDEO INCLUDES A MORE DETAILED LOOK AT MACD

If the S&P 500 can print a monthly MACD cross at the end of the month, what could it mean for stocks over the next five years based on similar setups dating back to 1949? The answer can be found in this week’s video.

MORAL OF THE MOMENTUM STORY

Swings in momentum often lead price. Momentum is currently favorable on multiple timeframes, telling us to keep an open mind about better than expected outcomes in the years ahead.

Monthly Breadth: Dark Clouds Or A Ray Of Hope?

MONTHLY BREADTH - MARCH 2000

Last week’s post looked at a weekly volume-based breadth indicator. With June in the history books, it is a good time to review the message from monthly breadth charts. As shown below, the monthly NYSE Advance-Decline Line peaked in 1998 and thus was saying “pay closer attention” well before the S&P 500 peaked in March 2000.

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DIVERGENCE IN OCTOBER 2007

While not as pronounced as the 2000 example, monthly NYSE advancing issues less declining issues was showing a multiple-month divergence when the S&P 500 peaked in October 2007.

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HOW DOES THE SAME MONTHLY CHART LOOK TODAY?

You can make an argument the present day version of the same chart has a bullish slant. Rather than the negative divergences that were in place before the S&P 500 peaked in 2000 and 2007, the 2019 monthly NYSE Advance-Decline Line has printed convincing higher highs .

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DO THE FACTS SUPPORT THE BEARISH CASE FOR STOCKS AND THE ECONOMY?

This week’s stock market video covers a wide range of fundamental and technical topics, including a close examination of the Chicago Fed National Financial Conditions Index. Comparing current conditions to those present before big stock market drops in 1973, 1987, 1990, 2000, 2007, and 2011 provides historical insight into the risk versus reward trade-offs in July 2019.

MARKET EXPECTING RATE CUT THIS MONTH

The June 14 video made the case the economy remains in expansion mode and demonstrated good things tended to happen in the S&P 500 after a first rate cut in a non-recessionary environment.

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During Monday’s session, CME’s FedWatch Tool was showing a 100% probability of at least a 25 basis point rate cut on July 31.

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THE WEIGHT OF THE EVIDENCE

There is nothing magical about market breadth when viewed in isolation; it is simply one component making up the weight of the evidence. Therefore, it is important we continue to review incoming information with an open mind about all outcomes, from wildly bullish to wildly bearish.