As a technician, I am constantly looking under the hood of the markets to understand current or new trends, notes Bob Lang of ExplosiveOptions.net.
According to the breadth indicators, we could be at a turning point. I cannot say a new bull market is an underway (or that we are close to one), but I can say some bullish qualities are starting to emerge. Now, trying to call a bull market is foolish. Nobody can time the market with great precision, and that is not what I’m trying to do here. I am simply looking for evidence that market trends could change, and I understand that I could be completely wrong.
What the Breadth Indicators Are Telling Us
Breadth indicators help us determine the health of the markets and whether a trend is sustainable or short-lived. New highs vs new lows is an intermediate-term breadth indicator. I look at whether stocks are moving higher with the market. Are they making new 52-week highs or simply churning? When markets are trending lower, you will see stocks consistently making new lows. That downward trend is hard to change when the number of new lows is extreme.
Over the past year, we have not seen stocks make too many new highs, but recently the bulls have flexed their muscles and suddenly more new highs are appearing. That is encouraging because as long as this trend stays firm, the dip buyers will come in and pick up the markets during down sessions (this happened last week). The accumulation of positive readings is very bullish.
The McClellan oscillator is a short-term indicator that provides daily readings on breadth. Recently, a massive and extremely overbought reading occurred, and the market sold off quickly. I expected the indicator to reset at zero (a neutral reading), but it did not. Instead, it pushed higher. That is a healthy bullish sign for the markets.
Keep your eye on both these indicators, as they provide accurate and factual information about the health of the markets. If stocks continue to make new highs and the McClellan oscillator stays in positive territory, we may consider moving more capital into the market. But until a bull market is firmly established, I’ll continue to treat every move higher as a bear market rally.
Learn more about Bob Lang at ExplosiveOptions.net.
