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These days I’ve been seeing many TV pundits predicting a market melt-up, so let’s check out participation and see if there’s a set-up suitable with that notion. Absolutely, the rally from the early-October lows is an efficient begin on a melt-up, however the current new highs have barely exceeded the September prime. Is there any gasoline left within the tank? Our Golden Cross and Silver Cross Indexes give us a transparent view of market participation and the potential for future value efficiency.
The Golden Cross Index (GCI) exhibits the proportion of S&P 500 shares which have their 50EMA above their 200EMA, which provides an image of long-term particiption. For the reason that GCI excessive earlier this yr, it has dropped right down to 82.4%. This leaves it within the overbought a part of its vary and nonetheless sturdy, and it has loads of room to increase upward.
For the intermediate-term evaluation we’ll use the Silver Cross Index (SCI). It exhibits the proportion of shares with their 20EMA above their 50EMA, and offers a compelling view of participation. The SCI deteriorated considerably since its April prime, dropping from about 95% to 40% earlier this month — 60% of shares exhibiting intermediate-term weak spot! Frankly, I assumed we had been in actual hassle at that time, however the October rally started and drove costs to all-time highs, and the SCI to again as much as 59.2%. That isn’t spectacular participation, but it surely must be enough to help costs. Extra importantly, it’s barely into the overbought vary and has loads of room to increase upward.
CONCLUSION: The SCI and GCI are a good distance from the place an overbought situation would intrude with the continuation of the rally. The potential for the rally to proceed can also be sturdy based mostly upon the potential for seasonal pressures (Santa Claus rally). Whether or not will probably be a “melt-up” stays to be seen, however internals ought to allow continued constructive value motion.
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–Carl Swenlin
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Carl Swenlin is a veteran technical analyst who has been actively engaged in market evaluation since 1981. A pioneer within the creation of on-line technical sources, he was president and founding father of DecisionPoint.com, one of many premier market timing and technical evaluation web sites on the net. DecisionPoint focuses on inventory market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and weblog contributor.
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