The weekly oscillator for SPY is still trending downwards

The weekly oscillator for SPY (etf for S&P500) is still trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few more weeks.

The daily oscillator for SPY (etf for S&P500) is also trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few more days. Here the prices made a lower low and after that did not make a higher high. This means the daily prices trend is also trending down.

Once the weekly oscillator reaches the bottom we can evaluate the status of the market movement. At that point we can know if we are still in a primary uptrend or the market trend is changing based on the price pattern of the market. If the primary trend is still up, it will give us an opportunity to buy. If the primary trend has turned down then we should get rid of our holdings.

The Market will correct or base for a few weeks

The weekly oscillator for SPY (etf for S&P500) is trending downwards. This indicates that S&P500 prices will correct (go down) or base (go sideways) for a few weeks.

Once the oscillator reaches the bottom or starts to trend up before reaching the bottom, we can evaluate the status of the market movement. At that point we can know if we are still in a primary uptrend or the market trend is changing based on the price pattern of the market.

Temporarily the market is extended and may correct or base for a few weeks

Market is in weak uptrend. The table below shows the gains (since their buy signal) made by the indexes shown on the left side. We are calling the market to be in a weak uptrend because the price gains are not “stellar” from their buy signal.

  

The Market Breadth Ratios are giving good readings for an uptrend. However the market is temporarily extended and may correct or base for a few weeks. This is what we call a countertrend, the primary trend being up right now. Read the blog of Sept 10, 2012 to get a detailed picture of what is working in the “Current market environment”.

Sectors working in the current market environment

The sectors working in the current market environment are precious metals (gold and silver), energy (Oil & gas drilling and exploration), banks, financial, home builders, retail and consumer discretionary. See the chart below.

A few Growth Momentum Leaders are working but as an asset class this group is still in trouble.

Stock categories like “Small Cap Companies (IWM)”, and “Overall U.S. economy (SPY)”  are working due to the valuation play. Companies have a lot of cash on their balance sheet, so at their current stock price they are attractive from a value standpoint.

“Hi Yield junk bonds” are working because of their high yields. Here again we see a value/income play.

“Gold” is working because of monetary easing by central banks all over the world.

“Growth Momentum Leaders" as a group is still in trouble though a few select stocks in this category are working. We need to wait for growth in the economy for this class of stocks to start working again.

“Treasury Bonds” are not working because the market considers them to be extended in price, currently.

Market Breadth Ratios are giving very good readings

Market Breadth Ratios are giving very good readings. This means most of the stocks are participating in the rally and we should be invested in the market. However we did not get a reading over 500 in the “4% up” column, even after the Fed's announcement of QE3. This means we may not have an explosive rally to the upside.

The areas which are working are those providing decent dividend yields, interest yields and those benefiting from monetary easing by central banks worldwide. Read the blog of Sept 10, 2012 to get a detailed picture of what is working in the “Current market environment”.