Josh Maher
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Josh Maher in Josh's value investing,

Nat. Gas has reached flame-out territory

WaveBOOM members will know this is what the DSE forecast last month, by showing the 4.30 (upper 2 sdb) level as the upside that should not be breached, before at least a test of 3.25 arrives in the next few months.  Today’s high of 4.285 has hit the bullseye.

The last two times we’ve seen this were near the market peaks in 2000 and 2007.  While indexes like the S&P 500 are 8% or more above the peaks they formed in May, broad breadth statistics are barely above their own May peaks. When we looked at them at that time with WaveBOOM members, the statistics showed that such impressive momentum tended to continue.

But now that momentum of breadth has slowed.

We’ve looked at the McClellan Oscillator and Summation Index in the past.  The Oscillator is a measurement of the momentum of the stock market’s breadth, and the Summation Index is a long-term summation of the Oscillator.  We use a ratio-adjusted version to cancel out the effects of a changing number of stocks traded on the NYSE over the years.  What’s notable about our current situation should be obvious from the chart.  While stock indexes are hitting new highs, the momentum of breadth has slowed materially.  The Summation Index is below 200, about 85% below its prior peaks.  The Oscillator is actually negative.  This is highly unusual.  The fact that the last two times this occurred were right before the bull market peaks in 2000 and 2007 is disturbing.

Finally, there have been five other times in 15 years that the S&P 500 tracking fund, SPY, gapped up and closed at a 52-week high, but it didn’t set a higher intraday high, and closed below its open.  All five preceded 1-3 month corrections (the dates were 10/6/97, 4/21/06, 7/19/07, 12/23/09 and 2/21/12).