This weekly comment is not that easy to write, because all the charts are positive and hence there is little perspective that can be added.
There is however always something to learn somewhere, so I'll try to offer some understanding at how the Effective Volume work and can be used in the current environment.
The never ending bull market
The current trend is still up and expected to continue moving that way. We can see below that the money flow is still positive. The slight divergence between the price and the Money Flow trends is only due to the oscillator aspect of the 20DMF indicator. This is not a sign of weakness.
The NQ8 Money Flow has been positive for months now, while the non-SP500 stocks MF has been negative for months. This is due to pair trades: long the most liquid NQ8 stocks and short the small caps.
Financials have strongly moved into the positive Money Flow side of their chart, while Energy seems to be moving below it. But this move is not a general sign of weakness. It is only due to the CVX purchase of APC, which instantly triggered algos to sell CVX, a heavy weight of the XLE ETF.
The NQ100 and the S&P500 Futures continue being bought and confirm that there is no fear of any type.
Now, both the 20Y and the 10Y Treasuries Total Effective Volume patterns fell below their respective average line, indicating Treasuries selling (which is equities positive.)
The slight negative US/German rates differential could support a weaker US$/Euro as this seems to be happening. But this weakness is hardly a strong move and I suspect that foreign money will continue to support US markets and US assets.
There are some pockets of negativity such as in Biotech and Drugs. This could be a market expectation that Trump will declare victory on the US/China deal and then will switch to tackling the evil Pharmaceuticals/drugs industry.
If I had to conclude my market comment here, I'd say to stay long but beware of the drugs/biotech sectors.
How to follow the 'ratio of sectors that are in a short wait mode' indicator?
As a reminder, the EV web site tracks more than 1000 individual stocks, but also 114 sectors. Each sector evolves following defined Money Flow cycles. Each sector can indeed be in a Buy mode, in a Short mode, but also in two specific modes that are called the 'short signal wait mode' or the 'buy signal wait mode'.
I will only concentrate today in the 'short signal wait mode'. This is an interesting cycle to follow, because by definition, the sectors that are in such a mode are in a Buy zone, but it is only natural to be expecting the Money Flow of the sector to turn negative at some point and hence issue a short signal (the MF is a 20D oscillator)
We can see for example below that the drug sector fell into a short signal, while the movies sector is still is a buy signal, but simply waiting for the Money Flow Gray line to cross below 0. This could take days or weeks. Nobody knows, but this line is easy to follow day by day.
There are two measures that can be taken on these Figures. The first measure is simply to evaluate the ratio of the number of sectors that are in a short signal wait mode (These sectors are within the Yellow painted area.)
This is the measure shown below. It is interesting to follow what happens to the price once this signal falls below the 70% level or the 50% level (Blue arrows or Red arrows.) We can see that the Blue arrows seem to be early, while the Red arrows are closer to detecting real market negativity. The most reliable Red signal came when the cross below 0 was swift, indicating a wide spread move.
The second measure that I take is the distance between the Gray line and the zero level. This is the distance to a short signal. It is rather straightforward to measure such a distance for all the sectors that are in this 'short signal wait mode' and to calculate the average, displayed as an expected number of days.
This signal is shown below. For now, we can see that we are about 2.5 days from a short signal. However, we could stay at that distance for days or weeks though.
How to find shorting opportunities using the traditional TA and the EV patterns.
Technical analysis is rather simple: follow the trend and when the 50MA is trending higher and above the 200MA, then the long-term trend is up.
In such a case, even a downtrending EV pattern is not reliable and not a sign of weakness. Indeed, most funds need to sell strength and rotate into stocks that have better prospects of moving up. Hence, the EV pattern can detect such selling without it being predictive of a coming price weakness.
This is the case for LII and MCO: both trends are up, but they do display weak EV patterns. These are not the type of moves that are safe to bet against.
I prefer shorting stocks that recently broke below their 50MA and display weak bounces toward a resistance area. This is the case for HPE, SU or DE. I do not have positions in these stocks for now.