Our last update was on August 1st. Stocks continue to move higher through the first half of August and more indicators are turning upward. The S&P 500 rose 9.11% in July after dropping -8.39% in June. Year to date now the S&P 500 is down -9.84% through Monday’s close. The low on the S&P 500 was -23.07% on June 16th. One month does not mean the end of the yearlong misery, but we are now three months with positive action and a long way from the June lows.
In our last Bias Indicator update on the major equity indexes, the only periods that had strength were the Daily and Weekly (see July 29th Table). Now the Monthly is starting to see U.S. Equity Indexes move back into their DMA Channels (see August 15th Table).
July 29th Table
August 15th Table
Two weeks ago we noted, “The trick in August is going to be getting the indexes into their monthly DMA Channel first and then above the channel”. The S&P 500 and the other indexes have now made it into the Monthly.
The reality is that it may take a couple more months to get back above the monthly DMA Channel. The upper band of the Monthly DMA Channel is 4669.57. That is another 372.43 points from here or 8.67%. So far, the S&P 500 has been below the monthly DMA Channel over the last five months.
Once we entered a fifth month below the monthly DMA Channel in August then we entered the 2000 to 2002 period and 2007 to 2009 as the only periods with a longer duration below the monthly DMA Channel.
A failure here of the Monthly and then Weekly DMA Channel would be problematic but still a possibility despite the positive action in mid-August. Remember the August through September troubling time period and into October can still happen.
We recommended Salesforce (CRM) in an article that was published on June 13th at a price of $166.03. It closed Monday at $191.06 up $25.03 which is 15.07% while in the same period the S&P 500 is up 14.60% and the Technology Select Sector SPDR ETF (XLK) is up 20.98%. It remains worth holding but will put in a stop at $185.91.
In our July update, we showed the chart of Growth vs Value ETFs. We suggested to trade IVE for IVW and that has worked out well so far. IVW was at $63.41 and is now at $71.43 up $8.02 or 12.65%. Meanwhile IVE is up 9.84%.
Over the last nineteen weeks, the S&P 500 has now risen seven weeks and has risen four weeks in a row the longest stretch this year. This week will be a pivotal week to see if the indexes can extend the streak to five consecutive weeks in a row and break above 4300 on the S&P 500.
The Erlanger Big Barf (EBB) remains strong which we discussed in our last up. The EBB tracks the relationship of the S&P 500 against the CBOE Volatility Index. It will move higher if the S&P 500 rises and the VIX falls.
The EBB will also fall if the S&P 500 falls and the VIX rises. The VIX has now closed below 20 three of the last four trading days. A retest of 20 to remains a key level to see if we can get into the teens.
The daily EBB Is now at 14.77 from 11.80 on August 1st. Meanwhile, the weekly EBB is now positive at 16.22 from 3.80. The monthly is still negative and like the weekly DMA Channel we will need to get it into positive territory.
Currently, the S&P 500 has gotten to 4297.14 from 4130.29 so progress is being made but there is still work to be done.
© Erlanger Research
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