INDICATOR INSIGHTS
Monthly Update
CATEGORY
Market Sentiment/Risk MO. END % CHANGE LEVEL
Fear & Greed Index (Market sentiment) 44 - 4 Fear
VIX (S&P 500 Volatility measure) 12.4 - 0.5 Decrease
MMRI (Risk measured by interest rates) 289 - 4 High Risk
U.S. 10yr-bond yield 4.36 - .15 Decrease
Fear & Greed Bitcoin 44 - 13.6 Fear
U.S. Economy UP/DOWN LEVEL
LEI (Overall leading indicators) Down Bearish
CPI (Consumer Price Index) unchanged Neutral
(Minus Food & Energy) Up Bearish
ISM/PMI (Producers Manufacturing Index) Down Bearish
JOLTS (Unemployment categories) Up Bearish - HTE
ADP (Jobs – non-farm payroll added) Up Bullish - HTE
Transports (shipping, orders) Down Bearish
Real Estate - Housing starts Down Bearish
*This section updated on July 5, 2024
**LTE = Lower than expected (bearish) / HTE = Higher than expected (bullish)
***We do not present the most recent numbers as they are often revised, and not reported in the mainstream media. Actual figures and charts can be found on the FRED (Federal Reserve Economic Data) site
Price Action UP/DOWN LEVEL
RSI (Relative Price Strength) Up Neutral
PCR (Put to Call Ratio – 5 day avg) Up Bearish
ADL (Advance/Decline line) Down Divergent
MFI (Money Flow Index) Down Bearish
Commodities MO. END % CHANGE LEVEL
Gold to Silver Ratio 80 + 5 Neutral
Crude Oil 83.50 +12.8 Bullish
As introduced in Chapter 3 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), there are several “leading indicators” that go largely unnoticed and under-utilized by the average beginner or intermediate investor. Some of these indicators measure human emotion and market sentiment that often determines shorter term price action, while others uncover the true conditions of the economy, institutional buying and selling, and risk levels.
In our monthly “Indicator Insights” blog (first weekend of each month) we report the previous month-end levels (pertaining to the U.S. economy and/or the S&P 500) regarding several of these easy-to-read gauges we discuss, as well as others, to provide a quick-guide for our readers, with periodic analysis when necessary. Our monthly updates in this blog section will include several market psychology related gauges, including the S&P 500 Fear & Greed index updated level, although there will be no commentary, as we dedicate an entire separate weekly blog to that indicator. Please note that we have made a few adjustments to last month’s Indicator Insights introductory edition.
In this edition we are highlighting the Advance/Decline Line (ADL), also explained in our publication, a volume-based measure of the number of stocks (during any specified trading session), that are being purchased (accumulation), vs those that are being sold (distribution), and can be used as a complimentary “leading indicator.” A healthy market is one which the ADL is rising, meaning the advances are consistently higher than the declines, and the ADL is moving WITH the trend. The ADL is measured in percentages, from a level starting from 0. Anything in the positive column above 0 (%), signifies positive strength in the market, or stock, and anything below 0 (%) signifies weakness. Generally anything over 70% is considered extremely strong, and anything below 70% is extremely weak.
As noted in other blogs, up until the past 2 weeks, much of the recent bull market has been led by a small number of companies, including, Apple, Google, Nvidia, Microsoft, and a few others (referred to as the “Magnificent 7), which has provided an illusion of a “healthy market.” The ADL, however, suggest otherwise…
In the figure above, depicting 2024, there is currently divergence in the S&P 500 (blue) and the ADL (red). The very recent cool down of those leading stocks has been reflected in the market, which currently has no clear direction. Especially, since around the beginning of April, when the S&P reached cycle highs, the ADL seemed to top-out, and move slightly downward, as the market continued to see gains. The ADL then rose again mid-May, before stalling out again (forming a “double-top” pattern). Again, this suggests an underlying issue, and can lead to quick declines if/when the “leaders” run out of steam. As recently suggested, continue to heed “caution” for new long positions (especially long-term), and utilize your risk management structure.
Other notable categories this month include the Put to Call Ratio, which spiked at the end of the month, suggesting a more bearish sentiment with options traders, which consists of many professionals and institutions. Looking forward this coming week (and beyond), the futures “open-interest” and “volume” of Puts to Calls reflects a continued increase in Puts, suggesting a decline in the S&P may be brewing (this information can be found on Barchart.com, and other sites). Keep in mind, should the market begin to move up (opposite these option positions), the “short-squeeze” (discussed in our publication), can send the market sharply higher as the Puts tend to be closed all at once.
Finally, there appears to be some divergence in the “jobs” market, as figures released on July 5, suggest higher than expected job “creation,” but a higher unemployment rate. This indicates further addition of part-time jobs (with no benefits) that would continue this trend. Part-time jobs are often filled by those with other jobs, which skews the actual number of jobs vs the number of employed individuals. Increasing unemployment is bearish for the economy, and is more important than the number of jobs.
