Weekly Chart Review: Ready, Set, ……

In a range-bound market, such as we are currently experiencing, I look for tell-tail signs to help us make better investment decisions on behalf of our clients. In my twenty plus years in this profession, one of the most valid signals I look at is the Accumulation/Distribution Index (see below). It is defined as:  A momentum indicator that attempts to gauge supply and demand by determining whether investors are generally “accumulating” (buying) or “distributing” (selling) a certain stock by identifying divergences between stock price and volume flow. It is calculated using the following formula:

Acc/Dist = ((Close – Low) – (High – Close)) / (High – Low) * Period’s volume

Over the weekend, looking at the S & P 500 (see below), it looks to me like the market is setting up for a major rally. Although not perfect, this indicator is not to be taken lightly.

Remember that:

On November 7th, I wrote: Although critics of technical analysis contend that for every support level that holds, many more are broken, even critics of technical analysis should be aware of notable levels. In this case, the S&P 500 should see short term support in any pullback at the 1,215 to 1,220 level, while 1,275—1,285 is likely to act a short-term ceiling.

I believe that a break above the 1285 level on the S&P 500 will result in an impressive rally through year-end.

The Euro crisis continues to dominate the financial news flow, and this week Italy and its skyrocketing sovereign debt yields have been front and center. Since early this year, however, yields on Italian and German debt have actually shifted from a positive to negative correlation. Over the last several months, yields on German debt along with the yield on 10-year US Treasuries have seen sharp declines, while yields on long-term Italian debt have risen to multi-year highs. As a result, the spread between Italian and German debt is at record highs.

In terms of revenues, 59.8% of companies have beaten top-line sales estimates. This is by far the weakest reading seen since the bull market began. While companies have done okay with bottom line numbers, sales have definitely been shaky this quarter. Like the revenue beat rate, guidance has also been weak this earnings season. 8.8% of companies have lowered guidance this season, while just 6.7% have raised guidance. This is the first time that more companies have lowered guidance than raised guidance since the bull market began. Technology and Industrials have had the strongest earnings beat rates this earnings season at 67%. Consumer Discretionary ranks third at 63%, followed by Health Care (62%), Consumer Staples (61%), and Utilities (60%). Telecom has by far the weakest beat rate at 38%. Financials, Materials, and Energy all have beat rates in the 50s.

The price of oil (West Texas crude) has been surging since the start of October. As shown below, the commodity was finally able to break above its 200-day moving average earlier this week, and it hasn’t looked back. Unfortunately, oil is now just a couple of dollars below the $100 mark as consumers head into their biggest spending period of the year.

We always hear investors saying that they would love to pick up some Apple shares if it would only pull back a little bit. Well, now it has pulled back a bit and here’s the chance. The stock did break below its 50-day this week, but it has done this three other times since August and it has bounced back nicely each time. At the moment, the stock remains in a very strong uptrend, and it is trading at the bottom end of its trading range. Click here for our latest post on Apple.

Below, I have highlighted some of the notable charts of the week.

Have a pleasant and productive week.

Key Rates from Bloomberg.com

Fed Funds Rate 0.07 0.08 0.13 0.09 0.20
Fed Reserve Target Rate 0.25 0.25 0.25 0.25 0.25
Prime Rate 3.25 3.25 3.25 3.25 3.25
US Unemployment Rate 9.00 9.10 9.10 9.00 9.70
1-Month Libor 0.25 0.24 0.21 0.20 0.25
3-Month Libor 0.46 0.40 0.29 0.26 0.29

Mortgage* (National Average)

provided by Bankrate.com
30-Year Fixed 4.09 4.18 4.22 4.59 4.38
15-Year Fixed 3.40 3.51 3.44 3.82 3.79
5/1-Year ARM 3.01 3.08 2.94 3.18 3.32
1-Year ARM 2.75 2.95 2.97 2.93 3.11
30-Year Fixed Jumbo 4.75 4.78 4.88 5.19 5.16
15-Year Fixed Jumbo 4.05 4.15 4.28 4.47 4.54
5/1-Year ARM Jumbo 3.13 3.18 3.39 3.52 3.81

Economic Calendar from Econoday.com

Monday Nov 14 Tuesday Nov 15 Wednesday Nov 16 Thursday Nov 17 Friday Nov 18
3-Yr Note Settlement10-Yr Note Settlement30-Yr Bond SettlementJames Bullard Speaks
7:30 AM ET

Charles Evans Speaks
8:00 AM ET

Retail Sales
8:30 AM ET
8:55 AM ET

John Williams Speaks
9:30 AM ET

Jeffrey Lacker Speaks
11:15 AM ET

Richard Fisher Speaks
12:30 PM ET

Jeffrey Lacker Speaks
11:15 AM ET

Eric Rosengren Speaks
12:45 PM ET

Weekly Bill Settlement52-Week Bill Settlement

Housing Starts
8:30 AM ET
Jobless Claims
8:30 AM ET

Sandra Pianalto Speaks
12:30 PM ET

Money Supply
4:30 PM ET

“When I was five years old, my mother always told me that happiness was the key to life. When I went to school, they asked me what I wanted to be when I grew up. I wrote down ‘happy’. They told me I didn’t understand the assignment, I told them they didn’t understand life.” –John Lennon

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