My broad market indicator of trend and risk, the New York Stock Exchange Bullish Percent (NYSEBP) remains in a column of X’s meaning demand is back in control. The NYSEBP closed last Friday at 65.72 compared to the previous week’s close of 60.54. This is a bullish signal for the markets and I am encouraged by this recent strength. As I have said before, I will be especially pleased if the NYSEBP moves above its previous high of 67.38 on September 14th because this will reverse a 2012 trend of lower highs.
The CBOE Volatility index (VIX) decreased sharply last week falling to 13.83 at market close on Friday. This is a very significant improvement from a high of 23.23 on December 28th. The VIX is an indicator of investor nervousness of future market changes. The lower the VIX the greater the probability that volatility will be subdued in the future. While I like watching the VIX, it is also one of the most volatile indices in the markets. Complacency is not a virtue in today’s markets.
The Dorsey Wright & Associates analysis of the markets remained unchanged last week. Among the major asset categories, US Stocks are ranked first, followed by Bonds. International Stocks has risen to the number three position and has significantly narrowed the gap with Bonds. Currencies remains in fourth position while Commodities is in last. When Cash is included, Commodities falls to sixth place and Cash is fifth. 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. On a relative strength basis, the top three major economic sectors are unchanged: Consumer Discretionary, Health Care, and Financials. Real Estate remains in the fourth position while Industrials has displaced Consumer Staples in fifth position. Information Technology has moved from fourth to sixth. Energy and Utilities are in the bottom two sectors. US Treasuries and International Bonds are favored in the Bond category, while US and Developed Markets are favored within the International stock category. India and China have been making some strong moves in the past month or so in the International stock category and I am exploring options in these regions. Energy and Precious Metals are the favored sectors within the Commodity category.
My next Market Update and Commentary will be published in two weeks.