The New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 59.79 up from 58.96 the previous week. This tenth consecutive weekly increase shows that positive momentum remains in the US stock market even in the face of a small decline in stock prices last week. The market decline did cause the Overbought reading to drop to 45% for the S&P 500. This means that stocks are still trading above their ten-week average, but are not especially overpriced. Bonds are the most overbought asset class, but have pulled back markedly the past two weeks.
Another set of data I watch which is provided by Dorsey Wright & Associates is score direction. Score direction looks back over the past six months and monitors whether the technical strength of an asset category or sub-category is rising or falling. It allows me to see what categories are generally improving or weakening on a technical basis. Score direction is not a primary indicator that I evaluate but does help me to identify trends over time. Emerging market bonds have shown the most positive improvement over the past six months. Convertible bonds, cash, and small capitalization value round out the top four most improved asset classes.
The Dorsey Wright & Associates analysis of the markets indicate that US stocks and Bonds are the two favored major asset categories followed by Foreign Currencies, International stocks, and Commodities. Middle capitalization stocks are favored, as is growth over value, and equal-weighted indexes over capitalization weighted indexes. Equal-weighted indexes are those where each stock in the index is weighted the same, while in capitalization-weighted indexes the larger stocks have the largest weighting consistent with their size relative to the other stocks. The relative strength sector weightings favor Consumer Discretionary, Real Estate, Information Technology, and Health Care. US Treasuries and International Bonds are favored in the Bond category, while US and Developed Markets are favored
I would like to close this week’s Update by offering a final salute to Neil Armstrong who passed away this past Saturday. For those of us old enough to remember, one of the most defining moments in our lives occurred on a July afternoon 43 years ago when Neil Armstrong became the first man to step on the moon’s surface. In the years that followed we have developed a much better understanding of the risks he, Buzz Aldrin, and Michael Collins took getting to the moon and back. We also stand in awe of the collective efforts of the thousands of American men and women it took to land Armstrong and Aldrin on the moon. Job well done Commander Armstrong!