four Charts That Provide an explanation for The 2014 Market

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As new-12 months pension cash pours in, the inventory market is screaming larger these days. The proper take a look at will likely be when the very brief-time period oversold situation is relieved. Despite as of late’s rally, the primary three days have an immense importance that buyers will have to take note of.

On the primary day of 2014, the inventory market fell; this used to be the primary such prevalence after six years.

On Monday, the DJIA traced an outdoor day. Within the current context, an outdoor day — which is shaped when the excessive of the day is greater than the excessive of the day gone by and the low of the day is decrease than the low of the day past — is regarded as poor in conventional technical prognosis.

Within the statistical prognosis finished at The Arora Record, opposite to standard perception, outdoor days via themselves should not very important; alternatively, they steadily foretell the longer term in the event that they happen after a chronic strengthen, and the excessive of the day happens at or close to the open and the shut is at or close to the shut of the day. The DJIA met all of those three standards the day prior to this. Check out the chart of SPDR Dow Jones Industrial Moderate ETF BeliefDIA +0.57% , which represents DJIA.

Please click on the annotated chart of DIA.

The market internals are now again similar to the beginning of December 2013 and September 2011. In September 2011, the market experienced about a 7% correction. In December 2013, the market reversed and moved upward.

The Nasdaq 100 has fallen three days in a row, as you can see on this chart of the PowerShares QQQ Trust Series 1 ETF QQQ +0.66% , which represents Nasdaq 100.

Please click on the annotated chart of QQQ.

The first three days for the QQQ in January 2014 resembles the first three days of DIA in December 2013. A proper analysis takes into account many more factors than just the charts. In the beginning of December, when many market technicians thought that the pattern from the first three days was projecting a lower market, I wrote on MarketWatch . My December call proved spot on.

The market always has push and pull from hundreds of different factors. In my December column, I described some of the factors other than the technical pattern and concluded that these other factors would overcome the negative technical pattern. The question today is, “Are there other factors now that will overcome the technical patterns?”

Let me show you two charts, one of them is positive for the market and the other one is negative for the market.

One of the many factors we use at The Arora Report in our timing model is to see how key stocks behave at their support and resistance levels. For this purpose, we have constructed a basket of 100 stocks, and we analyze them individually. Apple AAPL -0.96% is one of the stocks in the basket.

On Monday, Apple fell to approach the top of the support zone and then bounced back strongly.

We determine support zones based on the money inflows and money outflows into a stock as calculated from tick data. Many market participants use the 50-day simple moving average (SMA) to determine the support level. As shown on the chart, the stock briefly dipped below the 50-day SMA and then bounced back strongly.

Please click on the annotated chart of AAPL .

The behavior shown on the chart is positive.

There is no sound intellectual basis to use a 50-day SMA as support. Why do many investors use the 50-day SMA as support? The answer lies in the history. About 100 years ago, there were no computers, and the availability of real-time data was scarce. Under the circumstances, ingenious traders came up with SMA, which was easy to calculate by hand and was considered a cutting edge technique in the days gone by. Even though the world has changed, many still cling to old traditions. The 50-day SMA derives its power simply because many believe in it and act on it.

The foregoing discussion is important because we are observing action similar to Apple in about three-quarters of the stocks in our basket. This is a positive for the market.

Now let us look at another chart that is negative for the market. The chart compares SPDR S&P 500 ETF TrustSPY +0.46% to the SPDR Gold Trust ETF GLD -0.72% and the iShares Silver Trust ETF SLV -1.79% .

Please click on the annotated chart of SPY compared to GLD and SLV.

In late December, we began gathering three gold and gold miner closed-finish cash. The dominant weight in our edition used to be given to a easy remark that at first of the 12 months, tax-loss promoting overhand would raise, and gold would jump. That is precisely what has came about as proven on the chart. One purpose that gold had been happening is since the inventory market was once going up. Traders had been merely promoting gold and hanging cash into shares. Apparently, the chart displays that within the final three days, gold has outperformed shares with the aid of about 2%. Gold outperforming shares is a poor sign for shares.

An extra highly effective remark can also be made out of the chart. Silver is lagging gold via about 50%. On the whole, silver leads gold, usually by means of about a hundred% in equivalent instances. When silver lags gold as a lot as it’s now, it signifies that speculative juices amongst buyers are very susceptible. Historic information presentations that that is any other poor indicator for shares.

The foregoing are most effective a small fraction of the issues that buyers will have to take into consideration. Our timing version, which takes under consideration the foregoing and plenty of different elements, is exhibiting blended outcomes right now. Observe that this is identical version that was once telling us with conviction at first of December, when the market went down for 3 days, that there was once no longer so much to fret about.

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