Thursday, June 30, 2011

Cyclic Commonality

There are five cycle principles - Summation – Commonality – Variation – Nominality and Proportionality. Commonality is rare, much like a lunar eclipse. The condition is setup when the cycles of the major stock sectors bunch together following periods of congestion or non-correlated splaying. In other words when the peaks and troughs of cyclic rhythms and the relative magnitudes are similar when over-laid in graphic form - we have a significant buy or sell opportunity

The innovators of this graphic placement of the intermediate cycles were the great Ian Notley and Don Stark back in the early (1982) Dominion Securities Trend & Cycle days.

Our weekly chart is displaying a pending rare cycle commonality trough in the top five weighted TSX sectors – financial, energy, materials, industrials and energy. The summation of these troughs and peaks precedes a major move – this is only the second time in the last 5-years we have had a pending significant trough – this is a setup for a pending powerful advance through the summer months - possibly the most significant advance opportunity of 2011!

Sunday, June 19, 2011

NYSE A/D Line & Positive Divergence

A Google search on NYSE Advance Decline Line will serve up many offerings and so I selected and this is a clip

“The Advance Decline Line (AD Line) is a breadth indicator based on Net Advances, which is the number of advancing stocks less the number of declining stocks. Net Advances is positive when advances exceed declines and negative when declines exceed advances. The AD Line is a cumulative measure of Net Advances. It rises when Net Advances is positive and falls when Net Advances is negative. Typically, the advance-decline statistics come from the NYSE or Nasdaq on a daily basis. Chartists can plot the AD Line for the index and compare it to the performance of the actual index. The AD Line should confirm an advance or a decline with similar movements. Bullish or bearish divergences in the AD Line signal a change in participation that could foreshadow a reversal.”

Note the key word here DIVERGENCES. A divergence occurs when two lines on a chart move in opposite directions vertically. The lines can be two indices (the DOW and the Russell2000) or, an index and a technical study such as a stochastic or for our purpose the NYSE advance/decline line. A positive divergence occurs when the indicator moves higher while the stock is declining. A negative divergence occurs when the indicator moves lower while the stock is rising.  
Our Current NYSE A/D line is displaying positive divergence due to the higher low relative to the prior March low. In other words the current low of the S&P500 is not confirmed by the bullish higher low of the A/D line.

Tuesday, June 14, 2011

The Intermediate Stock Cycle

An intermediate stock cycle trough will serve up the best entry an exit points for equities. Historically the intermediate cycle is measured in weeks and will have a bull or positive skew of about 12 weeks and a bear or negative skew of about 8 weeks. This gives us – on average – a trough to trough measurement of about 20 +/- weeks. In a bull market (like this one) the bull skew will be longer in duration than the bear skew and in a bear market (such as 2007 – 2008) the bear skew will be longer than the bull skew.

The last complete intermediate cycle peaked on May 7, 2010 and troughed 12-weeks latter on July 23, 2010.

The Japan earthquake of March 11 2011 has interrupted the current intermediate cycle correction in the commodity sensitive sectors - (metals & mining, materials and energy) that began in January 2011.  The "Japan Event" triggered a 6-week rally from March 18 to April 22 and has delayed our anticipated cycle low of early May 2011 until mid June 2011