Bullish signs, Strong stocks

Amid the choppy action in the past few months, the US stock market has gradually regained a healthy disposition. Each week I gauge the market with Weinstein's 8 Indicators and keep track of the score. This has given me reason to look for long positions for the past few weeks. The table below gives a snapshot of the indicators currently, and the graph shows how I've scored the indicators over the past year.

The current snapshot shows the S&P500 maintaining its bullish uptrend above the MA(30). I should note that William Dirlam's asset allocation model just switched from Long Bonds to SPY this weekend -- another sign that US equities are an appealing place for money flow. Meanwhile, breadth indicators are maintaining positive signs as the NYAD, Momentum, and NYHL, are all either advancing or holding above zero. These signs could be more positive, but they're ok for now. On the world-stage, international markets have stabilized and VEU has managed to regain its MA(30), after finding support at the $38 level three times in the past year.

On the leadership front, the clock has been ticking on Weinstein's "4 month window" and after AAPL reported earnings it looked like it was headed off the 10-m diving board. But sure enough, AAPL found support at its 50-day SMA and has roared back, breaking out of a pennant. After consolidating last week, it pushed for another breakout today, closing at 630, the high of the day and with higher volume compared to last week. Next upside target is 650, its ATH. The dividend yield on the S&P continues to be historically low, but that's the "new normal" and doesn't matter until one day, when it does. The yield on treasuries is a pittance too, so it's relative I suppose. Contrary opinion made a bullish signal on the week of July 20, when there were 22% Bulls and 42% Bears.

Weinstein's Indicators

Indicator	Status	Bias
Stage Analysis	S&P 500 above MA(30), nearing its 2007 highs.	Bullish
Advance-Decline	NYAD above MA(30), new high last week	Bullish
Market Momentum	NYAD MA(200) in short-term downtrend, but well above zero	Bullish
Highs vs Lows	NYHL short-term low last week, but above zero for several wks	Bullish
World Markets	VEU is above MA(30). MA(30) slightly rising. Possible triple bottom around $38-39.	Bullish
Market Leader	AAPL is above MA(30), poised for a run at ATH. Leading.	Bullish
Price-to-Dividend	S&P500 dividend yield 1.95%, below 1930-2011 average.	Bearish
Contrary Opinion	AAII sentiment survey is neutral, but coming off a contrarian bullish signal a few weeks ago.	Bullish/Neutral

Calculating a numerical score is not something Weinstein recommended, and I'm not sure it gives a tradeable signal. Nevertheless, I do it as part of my process. The goal is to judge the Message of the Market, and I find it helpful in mulling over the indicators. Taking a longer-term view is interesting, so here it is. To me it illustrates that 2012 has been characteristically choppy, whereas in the fall of 2011 we were experiencing more of downtrend. For 2012 its also worth noting that most of the gains in the S&P500 came while the indicator score moved from 1 to 5.

In terms of individual stocks, I have been riding the 3D printing names (I was in TDSC, which is now DDD), REITS, and several lesser-known Canadian stocks that were highlighted here before. As the amount of time I have for trading (and blogging) gets constrained I have become even more of a position trader, operating on the weekly time-frame primarily. To tell you the truth, I have enjoyed this transition. It is relaxing.

For a few more names, GOOG made a nice move today, closing at the HOD on above average volume.  Looking at a monthly chart shows it consolidating for a long time. If it gets going that would have quite an impact on the major indices because of its market cap. Likewise, AAPL is looking strong.

More interesting are the smaller names that have been performing well and showing up in the Priority List repeatedly. The likes of DDD, SSYS, have behaved exactly as strong stocks should - pushing to new highs as soon as the"pressure" of a bad market releases. Likewise, ELLI (Elli Mae) with its uninspiring stock name; SWI (Solar Winds) and MLNX (Mellanox Tech) with their penchant for gaps have performed well. PAMT (Parametric Sound) offers a cool technology that could become a theme of some kind. Another interesting technology with a killer stock moving on high volume is OSIS (OSI-Systems), which makes security scanners. Canadian stocks aren't quite as interesting these days, but there are some strong trends in the likes of CSU, CMG, AD, and so on. Westport Innovations (WPT-T) is consolidating around its key moving averages and could get interesting again.

There is a direct correlation between your ability to let the market tell you what it is likely to do next and the degree to which you have released yourself from the negative effects of any beliefs about losing, being wrong, and revenge on the markets. - Mark Douglas

Related Posts

• The Priority List
• Is this a bull or a bear?
• Focus on the Best Stocks
• Dan Zanger's Trading Advice
• Van Tharp on Stalking Your Next Trade