Is stock market rise a new bull or bear flutter?

Market Snapshot:

 

Last

Week Chg

Week %Chg

S&P 500 Index

1224.58

+69.12

+5.98%

Dow Jones Industrials

11644.49

+541.39

+4.87%

NASDAQ Composite

2667.85

+188.50

+7.60%

Value Line Arithmetic Index

2630.19

+186.62

+7.63%

Minor Cycle
(Short-term trend lasting days to a few weeks)
Positive

Intermediate Cycle
(Medium trend lasting weeks to several months)
Positive / Neutral

Major Cycle
(Long-term trend lasting several months to years)
Neutral / Negative

MAAD data collection changes somewhat due to inclusion of ETFs

Last week we received an email from a reader who said he was puzzled as to why the raw Most Actives Advance/Decline (MAAD) data he collects each day and each week that is based on our indicator is occasionally different from the raw MAAD numbers we report daily and weekly in our Futures commentaries.

When we began collecting NYSE 20 Most Actives data over two decades ago, a series which now includes data back into the 1960s, the securities listed on the “Big Board” accounted for the majority of all exchange traded volume. The retrieval process was straightforward and the raw data consisted almost entirely of NYSE equities with a few preferred stocks popping up occasionally. But the advent of Exchange Traded Funds, or ETFs, most of which track an underlying index like the S&P 500, has altered the Most Actives landscape.

At the Wall Street Journal a decision was made about three years ago to move all ETF listings to NYSE Arca where the data is comprised almost totally of ETFs. Yahoo Finance on the other hand combines daily NYSE listings with ETFs. On the weekly front, Barron’s combines NYSE and ETF data in its 20 Most Actives list. In other words, there are some reporting inconsistencies.

The first ETF, S&P Depository Receipts, or “Spiders,” was introduced in January 1993. But now there are more than 1000 ETFs traded on the NYSE Arca and another 100 on the NASDAQ. Many appear regularly in the 20 Most Actives daily and weekly lists we use to calibrate MAAD (see link at end of Weekly Market Summary to article we wrote in June 2009 relating to the construction and use of MAAD, “As Smart Money Goes, So Goes the Market”). In fact, for some market players ETFs are now “the market.”

Because these proxy issues are apparently here to stay and will continue to reflect a larger share of trading activity, our MAAD data collection includes the Daily 20 Most Actives extracted from the WSJ’s Composite list which comprises a universe of all exchange-listed stocks including NYSE Amex, plus ETFs. For weekly data we use Barron’s 20 Most Actives NYSE list that also includes ETFs.

Market Overview – What We Know:

  • Further gains in primary indexes last Friday and last week solidified staying power of larger Intermediate Cycle that likely put in place a low via October 4 intraday bottom (1074.77—S&P 500).
  • Volume in the S&P 500 declined by nearly 8% last Friday and by nearly 30% on the week despite net strength in prices.
  • NASDAQ Composite Index rallied to new short-term high and above late August resistance on Friday.
  • Intermediate Cycle Price Channel high (1232.07), good in S&P 500 through Friday, looms just ahead at level which can act as statistical resistance.
  • Short-term Momentum and our proprietary Trading Oscillators remain positive, but all are in “Overbought” territory.
  • Intermediate Cycle remains “Oversold” and in zone of opportunity.
  • Major Cycle Momentum remains marginally negative in all of major indexes.
  • Daily MAAD data rose sharply last Friday as did Weekly MAAD data. But Daily MAAD Ratio has returned to extremely “Overbought” levels. Weekly MAAD remains moderately “Oversold.”
  • CPFL was fractionally positive Thursday and Friday, but on net basis indicator remains anemic to underscore lack of upside conviction by options players.

There are other issues relating to ETFs that need clarification. First, with the occasional inclusion in the Most Actives lists of ETF “short” issues that are a bet on a declining market, recording a “Pro Short” as a plus in a downtrend is a problem. While the ETF short is actually a long bet that rises in value as the “market,” for example the S&P 500, declines, the security upon which the ETF short is based is actually losing value. To correct this “error” we adjust all ETF shorts in terms of the underlying “issue bias,” the bias of the S&P 500 in this case. So we count the ETF short gain as a minus because the S&P is a loser. Or the ETF short loss as a plus when the S&P rises. ETF longs are not a problem because they move with the market.

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