Popular Stock Market Indicator Is Bullish

By: Chris Ciovacco | Tue, Jul 31, 2012
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With a Fed statement coming Wednesday, many believe the bulls need a formal announcement of QE3, which may not be the case. The odds are extremely low the Fed does not deliver at least some market-friendly language in their July/August statement. They do not need to announce QE3, they just need to hint at it. QE2 was hinted at in late August 2010, but not formally announced until early November. In 2010, the markets did not wait for the formal announcement (see chart below). As shown via the numerous weekly bullish signals in the remainder of this article, the markets may be following the bullish script from late summer 2010.

$SPX Chart

On July 30, we showed bullish signals from two easy to use indicators, RSI and moving averages. Today, we show bullish "crossovers" on the weekly charts of numerous markets using an indicator known as MACD.

Since it can give some powerful signals relative to a change in trend, MACD is one of the most widely used indicators by traders and money managers. MACD stands for Moving Average Convergence Divergence, which sounds intimidating. In the real world, MACD is very easy to use.

A bullish MACD cross occurs when the black MACD line moves above the red line. According to Dr. Alexander Elder in Trading For A Living:

MACD crossovers identify shifts in the balance of power between the bulls and the bears. When the black MACD line rises above the red MACD line, it shows that the bulls dominate the market, and it is better to trade from the long side. When the black line moves above the red line, it gives a buy signal (see green arrow below).

$INDU Chart

The S&P 500 Index (below), like the Dow above, has an encouraging look to its weekly MACD. The MACD Histogram is also telling us to be open to bullish outcomes since it is rising (see blue bars).

$SPX Chart

Central bankers want to avoid deflation and create positive asset inflation to assist impaired global balance sheets. The recent signs of life in gold (GLD) also support the bullish case.

$GOLD Chart

In Short Takes, we often point out that weekly signals are more meaningful than daily signals. Therefore, a weekly MACD cross is something we want to be aware of and account for in our portfolio allocations.

$SILVER Chart

Some of the charts shown here have "locked-in" a MACD bullish cross by closing last week with the signal in place. Some of the markets have not yet seen a weekly close with a bullish signal from MACD. If the signal carries into the end of a week, it is more important.

SPY:IEF Chart

Since all indicators can be "whipsawed" or give false signals, it is important to have a "what happens if I am wrong" strategy in place.

EFA Chart

You do not need to be an anchor at CNBC to know Europe has some financial problems. Notice how clear the bullish MACD cross is on the weekly chart of the Euro Stoxx 50 Index below.

$STOX5E Chart

If central bankers print more money, it may take some of the short-term pressure off Germany to write additional bailout checks. The weekly chart of the German DAX below is a welcome sign for all risk assets.

$DAX Chart

Emerging markets have been laggards for quite some time. When the laggards begin to perk up, it can be a sign a rally is in the cards.

EEM Chart

Economic growth in China has slowed noticeably in recent months. Chinese stocks have been significant laggards since late 2010. The FXI ETF below is trying to complete a bullish MACD cross. When laggards show some strength their "bounce back" rallies can often be significant.

FXI Chart

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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