Bulls Not Out Of The Woods Yet

Last week, I opined that the key to the near-term action was the battle that looked to be raging over the 50-day moving average. While I haven't placed much emphasis on the 50- and/or 200-day moving averages in decades, it appears that the press and a great many algos do. As such, I like to use the action around these technical levels as possible "tells" to help determine which team has control of the ball. The good news for the bull camp is they appear to have won the most recent skirmish over the 50-day. The bad news is there is another - and in my opinion, more important - line in the sand just above current levels that our heroes in horns need to breach in order to declare victory and be able to argue that a new uptrend has begun. It is also positive that the Trend board continues to sport an awful lot of green here. But... I'm also of the mind that the bulls are not out of the woods yet and all of the "good stuff" that looks to be happening now could easily be reversed if talks for additional stimulus break down.

The State of the Trend Indicators

The Trend Board remains in good shape, with all models save one being positive this week. And it is worth noting that the Cycle Composite will turn green next week. Looking a little farther ahead, the Cycle indicator turns red the week after next and then is largely green (except for a couple down weeks) for the majority of the remaining weeks in calendar 2020. Although markets don't always follow the historical script, I have learned that when the markets are in sync with their historical patterns, they tend to stay that way until/unless some external event takes control. And with the Coronavirus raging in the West Wing and the election on tap, it is easy to argue that there could be a headline or two between now and New Year's Eve that could influence traders. But for now, the trend board suggests the bulls hold the edge.

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* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.

About The Trend Board Indicators: The models/indicators on the Trend Board are designed to determine the overall technical health of the current stock market trend in terms of the short- and intermediate-term time frames.

My Take on the State of the Charts...

Once again, I largely summarized the state of the chart action in my executive summary above. In short, it looks to me as if the bulls have the ball at the present time but are definitely not "rolling" just yet. One indicator I'll be watching closely in the coming days is my customized 5-day smoothing (I prefer a weighted moving average that is moved ahead 3 days). I have learned that when the S&P 500 can move above and remain above the 5-day for 10 consecutive days, the odds of further gains increase. And with today being day number 7 in my count, it will be interesting to see if the bulls can continue to make progress and break above near-term resistance. But again, the news flow will likely continue to play an outsized role for the foreseeable future.

S&P 500 - Daily

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Next, let's check in on the state of the market's internal momentum indicators.

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* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.

Last week I suggested that if the bulls were expecting to make a run anytime soon, we needed to see some improvement in the Momentum board. The good news is the board did indeed perk up over the last week. One week ago, there were 3 sell signals on the board and only 2 buy signals. This week, we've got 4 buy signals and only 1 sell. And while there is still room for additional improvement, I am pleased to see the bulls moving in the right direction.