The Dow Theory also includes movements such as the secondary reaction and the daily fluctuations. I am not interested in daily action because these short term movements are typically unimportant.

Edwards and Magee said:

“The Dow Theory is the granddaddy of all technical market studies” and “It is built upon and concerned with nothing but the action of the stock market itself (as expressed in certain “averages”), deriving nothing from the business statistics on which the fundamentalists depend”

The purpose of this post is to highlight the Principle of Confirmation which states that The Two Averages Must Confirm. The authors note that this principle has often been questioned and is the most difficult to rationalize of all the principles yet it has stood the test of time.

They go on to say:

“the fact that it has “worked” is not disputed by any who have carefully examined the records. Those who have disregarded it in practice have, more often than not, had occasion to regret their apostasy”.

Please repeat the following rule several times and learn it, understand it and trade by it:

“What it means is that NO valid signal of a change in trend can be produced by the action of one average alone”.

Here is a chart from the 4th edition of their book Technical Analysis of Stock Trends, published in 1957

Now take a look at today’s Dow Jones and Transports. Do you see any similarities?

Of course you do, the Transports have not confirmed the change in trend along with the DOW. In fact, the $DJIA is now back below the resistance line after this week’s negative action.

Many traders on StockTwits, Twitter, blogs and TV (if you still watch financial television) are miffed about the action of the market over the past several weeks, particularly the past week. Well, the trend hasn’t confirmed so the risk is still high that the so-called “leaders” are setting up for failure or head-fakes.

I’ve started to sound like a broken record with my Dow Theory tweets but if it is fact, it is fact. As traders, we must be patient and wait for the confirmation before loading up on new shares. A trend change may still occur but we must cast a shadow of doubt until both averages confirm.

If you don’t want to listen to me, a lowly stock blogger, at least listen to what Robert Rhea said in 1932:

“The movement of both the railroad and industrial stock averages should always be considered together. The movement of one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions based upon the movement of one average, unconfirmed by the other, are almost certain to prove misleading.”

Please note that “railroads” have been replaced with “transports” in today’s world.

Trading can essentially be broken down to managing risk and as Victor Sperandeo stated, “market forecasting is a matter of probabilities; the risk of being wrong is always present”.

So why tilt the risk against you if history shows us that both averages must confirm for a sustainable change of trend to take place. It’s a wacky world out there but the rules haven’t changed so wait for the confirmation before jumping in with both feet.

Market observation from Thursday, November 17, 2011: The NASDAQ has now flashed four distribution days since the start of the month. This is a red flag and a signal to lock in profits and sell losing positions before they grow in size.

Continue to follow me on twitter for daily tweets, charts and links to great articles.

PLEASE CLICK THE IMAGE TO SEE FULL SIZE GRAPHIC:

I can’t confirm that the recent extreme readings of the past week are forecasting a market bottom until the NH-NL ratio turns positive again. The key, please pay attention, to these extreme readings is when it is followed up by the ratio venturing back into positive ground! See the blue arrow examples on the chart. This confirmation signals a MAJOR market reversal.

When that happens, that’s when the confirmation for loading up on equities is ringing loud and clear. But, you may ask, how do we jump in earlier than this confirmation because a good portion of the move is already underway when this finally takes place.

Well, you look for a market reversal within one or more of the major market indexes along with a follow-through day, roughly 4 to 10 days later. A follow-through consists of a major index such as the $COMPQ, $DJIA or $SPX advancing 2% or more on volume larger than the previous day, preferably above average as well. When two or more major indexes follow-through, the signal to start initiating positions has arrived.

Tuesday was day 1 for the most recent “attempt” for a market reversal (even if it’s only short term). We now wait patiently before taking new positions for a follow-through day, beginning tomorrow (day 4).

Stay tuned to see what happens. I am sitting in cash waiting for a signal.

Politicians lie and markets do not so ignore Washington and focus on PRICE and VOLUME action!

So, with that said, what does last week’s action across the US and global market truly mean? The $DJIA was down 5.75% on the largest volume since last summer, the $COMPQ was down 8.13% on the largest volume since May 2010 and the $SPX was down 7.19% on the largest volume since May 2010.

All three major markets confirmed a Dow Theory Reversal, a “Change of Trend”. In addition to the major indexes, the Dow Transports TRAN also confirmed a Dow Theory Reversal by breaking support and making a lower low.

Emotionally, I suspect that the market will bounce and that many stocks and indexes are “oversold” but this will most likely only be short term. Long term, the trend HAS CHANGED according to the charts. And until the charts show a new trend to the upside, all moves up are suspect. No one has to pick the exact bottom or top of a market so be grateful to recognize a trend and grab 60-80% of the move. It’s a lot safer and less risky to jump on board once the trend is confirmed rather than play a guessing game that can get you caught in a 500 point slide, similar to last Thursday. Markets can change on a dime so be prepared at all times but longer term trends stay intact for months, if not years.

I made a mistake in my general market analysis by not paying enough attention to my New High – New Low (NH/NL) Indicator. And it cost me because I put on positions in $RENN and $DANG in recent weeks after warning signals had been given. I did avoid a new position in $LNKD and saved money heading into the earnings announcement. Overall, shame on me but I didn’t lose too much because rules were followed and I am digging deep to listen to my indicators. Regardless of what “ I think may happen”, I am listening to my indicators and charts 100%!

So you ask: What warning signals?
The first signal was given by the Dow Jones NH/NL 10-day average differential (Diff) (chart above). The 10-d Diff started to make lower lows as the Dow was making higher highs, a clear divergence that warns the underlying stocks are weakening while the overall market is making a new high. This one signal alone should have put me on caution while entering new positions. It didn’t because the NH/NL 10-d Diff was still above the critical level of zero. Well, the market took care of that this week by plunging below the zero level, closing at -203 on Friday for the Dow. Consider this, it closed at +15.1 last Thursday ( 7/28) but went red the following day at -2.5 (last Friday, July 29, 2011). The divergence and the reading below zero was now screaming MOVE TO CASH and gave us enough time to do it before the end of the week romp! We all had time to get out without taking a loss. As it stands now, the 30-d Diff is also below zero with a reading of -21.47, the first reading below zero since July of 2010.

It’s interesting that the markets topped in May, just as Osama Bin Laden was killed – I must give a HT to Howard Lindzon for coining the Osama Bin Laden Top (he may have nailed it) and closing his blog post with this statement:

With the mood of financial markets quickly turning negative, the horrific price action of financials, the silliness of IPO valuations and some Bitcoin mishigas, you may not soon forget the ‘Osama’ top.

Now, let’s take a look at a number of charts and see what they “were” saying and what they “are” saying right now, as we head into next week (ahead of the market reaction to the US credit downgrade). NOTE: I personally believe that the downgrade is mostly priced into the market but I am sure we will still see some further selling pressure before a normal bounce.

The first chart that I would like to explore is the percentage of stocks trading above the 50-day moving average on the S&P 500 Index. Oversold conditions typically appear when this indicator drops below 20%. We last saw multiple readings under this level back in May, June and July of 2010, the last time the market traded below the 200-d ma. The reading closed at 3.6% on Friday, the lowest level since the 2008 market correction. This says that the market is oversold and is due for a bounce which may be the case but keep in mind that readings below 20% can exist for months at a time with short term rebounds. So, I see this signal as short term for now, considering the Dow Theory confirmations and the NH/NL readings. We will bounce higher but the other charts are signaling a longer term correction until told otherwise!

This chart shows the NH’s and NL’s added together to give us the daily differential. Friday registered the most new lows since November 21, 2008 when the reading spiked to 1,527 (historically low territory). The NH/NL ratio is best used to tell us when the market is changing trends rather than picking the tops and bottoms of markets. The NH/NL ratio has been mostly positive since March of 2009 so the readings of the past few days are red flags as the strength among the individual market participants is weakening considerably.

The NH/NL 10-d Diff is the average of the daily calculations over the past ten days. This 10-day average allows us to view the market action with less volatility than the daily fluctuations. The chart clearly shows us that the NH’s have weakened considerably since 2010 but did make a new high in February of this year. However, that new high was short lived and never quite made it to the peaks of 2010. The red arrow shows us that the NH’s have been trending downward for the past 18 months but most importantly, the peaks have been coming up short from March, to May to July.

NASDAQ CHARTS:
Similar to the Dow Jones NH/NL chart, this NH/NL chart of the Nasdaq is also racking up new low statistics, the most since March of 2009, the beginning of the bull market. What does this tell me: it tells me that the market may be turning since the readings now mimic the start of the up-trend. Short term, we’ll bounce around but watch the NH/NL 10 & 30-d Diff charts to avoid the daily noise.

The next three charts reinforce the action that we are seeing on the Dow Jones. Trend changes can be taken more seriously when two or more of the major indexes confirm the same action on the charts. We have all major indexes flashing the same signals: NH’s weakening, NL’s increasing, Dow Theory Reversal confirmation and distributions days and weeks on big time volume.

One last signal to watch is the action on the Value Line Index (VLE) which was featured in the post What Should We Do, written on October 27, 2008 when the market was hitting new lows. This indicator was down 9.62% last week, a clear sell signal.

The Four Percent Model Indicator uses the Value Line Composite Index (I use the Value Line Arithmetic Index (EOD) or symbol $VLE on StockCharts.com), which can be found on the web or in financial pages of newspapers. The model makes use of the weekly close of the Value Line Index. A buy signal is generated when the index rises four percent or more from the previous week. Similarly, a sell signal is indicated when the index falls four percent or more from the previous week.

I leave you with this: If the trend (this article and analysis applies to the longer term trend, not for day and swing traders) has truly changed for good and does not have the stamina to reverse back to the upside, be careful but understand that this is only the beginning. You still have time to get out before further damage to your accounts. We will have a bounce or two so use them wisely but don’t stay or go long if the Dow Theory doesn’t reverse the trend back to the upside. You have been warned, not by me but by the price and volume action of the market!

However, this clear distribution is giving us a message. What is that message?

Well, just as follow-through days signal the potential start of a new rally (uptrend), five or more distribution days within a few weeks (on above average volume) is starting to hint the rally is coming to an end.

It’s clear that the uptrend has halted its continuous trek to new highs while the odds favor that the market is heading towards a correction.

So, what do you do?

Immediately assess each of you individual holdings and start to lock in gains on stocks churning (no longer making new highs). You don’t have to sell the entire position but it may be a good idea to scale back and definitely get off margin if you are employing leverage.

As mentioned in a previous post, Market Reversal? View the NH-NL Ratio, the NH-NL ratio is the strongest secondary indicator on the market for a major trend reversal. The NYSE registered its first negative reading since November 16, 2010. The NASDAQ has registered its first multi-day negative readings since November 16-17, 2010. The overall 10-day MA differential for both indices is still positive but a move to negative territory will be the major confirmation.

Price and volume tips you off as the main indicator while the NH-NL ratio confirms the longer term trend reversal.

If following items confirm, I highly suggest that you move to cash and avoid the risk of losing recent gains or start to show a loss.

• 5 or More distribution days on multiple indices within a few weeks
• Index price moves below the major moving averages (50-d and 200-d MA)
• New High – New Low 10-d MA Diff turns negative
• And most important: your individual holdings are making lower lows and lower highs while slicing major moving averages

Nothing is guaranteed in the market but when distribution days pile up (in a short period of time), it’s time to take notice, lock in gains and look to move to cash if all support and confirmation indicators confirm.

Let’s keep an eye on the NASDAQ, DOW and NH-NL ratio.

Only one other date surpasses Friday’s total: Monday, October 11, 1982 when the DJIA closed at 1,072.79. The market recorded 653 NH’s, 7 NL’s, 1,504 advances, 292 decliners and “up” volume outpaced “down” volume by an almost 10-1 ratio.

The NASDAQ closed at 202.31 on the same day with 418 NH’s, 14 NL’s (not even in the top 10 for the highest number of NH’s ever recorded). Do note this: the highest NASDAQ reading ever came later that year on Thursday, November 4, 1982 with 525 NH’s (following that week’s election day).

So what does this all mean? Well, by mid-1983, the market surged higher by 20%. It continued to move higher until the crash in 1987 but long term, the market is up well over 10-fold since this NH extreme.

How about today’s market? I can only tell you this: we are in an up-trend as of today and until the market breaks that trend, do not try to “guess” when it will reverse.

I have my “opinions” of the market but as you all know, we must trade what is actually happening, not what we think should be happening. Yes, I am concerned the market would like to correct longer term based on poor economic policies, tremendous debt levels, a depreciating dollar and most important: possible inflation. But, until we get the true catalyst, trade what the market is telling you.

The 634 NH’s represents an extreme in the market and I will be watching for further catalysts. How long can this market sustain higher stock prices based on faulty growth? You can only take so many cash advances on your credit cards without paying before they cut off your borrowing capacity. Maybe I have it all wrong but I am concerned long term. Short term, the market is higher unless it says otherwise.

I leave you with this: the vast number of “gap-ups” in stocks making new highs concerns me. Do they want to fill? If so, we will have an almost endless supply of high quality shorts to trade.

Chart provided courtesy of www.Decisionpoint.com

Well, you don’t need a crystal ball, you don’t need any Wall Street guru’s, you certainly don’t need fancy computer software and you can simply ignore the talking heads. It’s that easy. Maybe we won’t pick absolute tops and bottoms but we can identify trends as they begin to develop.

You just need to follow the action among the individual stocks in the market! Learn to focus on the number of stocks making new highs versus the number of stocks making new lows. It’s been the true crystal ball in my method since I started to turn a consistent profit in 2002. It’s the backbone of my trend following methods.

The NH-NL Differential is simply the number of stocks making new highs minus the number of stocks making new lows.

I follow the progress of stocks making new highs and new lows on the NASDAQ and NYSE and pay specific attention to turning points in the differential. I am not so interested in the extreme highs or lows of the ratio but rather changes in trend from positive to negative and negative to positive over a period of time.

The yearly Nasdaq New Highs and New Lows (Differential) are captured in my charts below, dating back 10 years. With many market pundits (or talking heads) saying that we may have reached a bottom, I felt it was time to do some homework and study the past charts so we know what to look for in 2009. It is true that the trend seems to be changing but we aren’t quite there yet. Focus on 2002 and 2003 to get an idea of what we may see if this market decides to make a true up-trending run, one that’s sustainable.

Consistent Nasdaq readings above 100-200+ will be the official confirmation to grab and add shares for trend traders!

The chart highlights in red where I was making the sell posts (the articles are listed below):

Anyway, I have been posting twits about the strengthening of the NH-NL ratio which is starting to tell me that the newest trend change is beginning. Yes, this is my first major blog post saying that my screens (market tools) are telling me to wake up because things are starting to change. It’s not time to jump in with both feet and buy every stock that’s up on above average volume but it’s time to sharpen the skills and be ready. We may look back and point to March and April of 2009 as the bottom of the market or at least the start of the changing trend.

We don’t have market leaders yet but when they appear, I will locate them, post up charts and talk about them nightly on twitter (twitter.com/cperruna). Too many stocks still have their 50-d moving averages below their longer term 200-d moving averages and new highs are still limited. However, new lows have dried up considerably and the NH-NL ratio has a moving average that is trending higher for about a month now. That’s the most sustainable trend for this ratio since the big decline started.

Stay tuned to the blog and my twits for follow-ups to my research on individual stocks and the overall trend.

In the meantime, take a look back at the numerous blog articles I posted in 2007and 2008 talking about a market decline, shorting stocks and selling in general. Learn from what the simple tools were telling us. I am far from a market genius and far from rich but I can make a few dollars following the leaders and the NH-NL ratio.

A Review of Articles Pointing to a Stock Market Decline in early 2008:

• May 23, 2008: Smelling Trouble
  

  The bottom line or point of today’s rant is the fact that I still feel that the market is headed for a decline or as I phrased it a couple weeks ago: The Big Decline (long term perspective of course).

• May 8, 2008: Market Distribution
  

  I originally started to point out market troubles back on March 14, 2008 in a post titled Snapshot Friday; I highlighted both the Dow Jones and NASDAQ with clear yellow shaded areas showing the 200-day moving averages pointing down for the first time since 2003 (that’s huge if you ask me).

• May 7, 2008: The Big Decline
  

  I am a positive person by nature and I prefer to buy stocks going up but I am starting to see several leading stocks struggle to hold new highs or fail to challenge recent highs. These patterns are familiar and they are suggesting that the recent bounce is the final stage before a possible market decline.

• January 23, 2008: Setups for Selling Stocks Short
  

  I wrote an article on October 15, 2007 titled How to Make Money Selling Short, precisely when the general market indexes were topping. I am not going to take full credit but subconsciously my charts were giving me signals that the market was showing the major red flags and signals of what we are seeing today.

A Review of Articles Talking about Selling, Profit Taking and Market Distribution in late 2007:

• 10/03/07: Is Shanghai a Nasdaq Déjà vu
  

  Well, the current two year rise of the Shanghai Stock Exchange Composite Index looks remarkably similar to the rise of the NASDAQ of the late 1990’s and the charts below explain better than I can!

• 10/04/07: A Technique for Profit Taking
  

  What do you do in a market like today when you have profits in multiple positions but you don’t want to give it all back? You want to continue to ride the winners but at the same time, you want to maintain the unrealized gains in your account. HOW?

• 10/12/07: Distribution Day
  

  This was the largest showing of volume in two months and is not healthy because it was pure distribution. It was only the second distribution day over the past month so we can’t call this a bear run but please be on the lookout for a possible correction of 5%-10%. Technology stocks led the decline as BIDU gave back 10% of its amazing run.

• 10/15/07: How to Make Money Selling Short
• 10/17/07: Inverse ETFs
  

  Have you ever wanted to short the market because you knew it was going down but your were too overwhelmed, nervous or even scared because you were unsure of how to do it. Well, Inverse ETFs may be your thing.

  These inverse ETF’s closed Wednesday with gains of 13.42%, 15.43%, 22.31% and 18.76% since I wrote about them.

• 10/18/07:The Real PTR Climax Run?
  

  I was early in September by trying to locate a climax run in PTR in this post:
  Petrochina (PTR) Climax Top? However, the HUGE volume on the latest push to new highs clearly indicates something is going on.

• 10/20/07: Second Major Distribution Day
  

  Technically speaking, we now have 4 distribution days for the NASDAQ and 3 for the DOW over the past month. It’s now time to start focusing big-time on the market leaders to see where they are going to take this market. If they start to roll over, you better be quick to take profits and even quicker to take losses.

• 11/01/07: CROX getting Swallowed
  

  I wrote a post titled Will CROX get Eaten? on September 20, 2007 and strongly noted the declining institutional support (see numbers below). Someone was jumping out of the stock and we now know why!

• 11/08/07: Market Corrections, Bears and the Big Picture
  

  Keep in mind that nearly 75% of all stocks follow the general market trend. Your cash doesn’t need to be committed to the market at all times. This philosophy is suited to making the most money in bull markets or markets trending higher.

• 12/11/07: When to Sell
  

  Why do so few books exist on the subject of “How to Sell”? Selling techniques are far more complicated than buying techniques and subject to considerably more emotional pressure, than those of buying.

I’d love to find someone that can venture through a single day without reading, hearing or talking about the current state of the economy, the stimulus plan, the bailouts or ponzi schemes. It’s sickening but what’s worse is the fact how NO ONE talks about fixing the problem correctly. Does anyone learn from the past?

I didn’t read the stimulus package in its entirety (it appears that our representatives didn’t either) so take what I say with a grain of salt.

We can blame Bush, blame Clinton, blame Obama, blame Regan, blame Nixon, etc. – it’s all the same; they work for the same crooks, I mean corporation, the US Government!

Time magazine recently published a list of the top 25 people most responsible for this crisis but I would argue that their thinking is flawed and dated by at least 100 years. As Victor Sperandeo noted in his book, Trader Vic – Methods of a Wall Street Master, Thomas Jefferson understood better than any political leader in world history that government “profusion” can only be paid by the “labors of the people.” He knew that a growing government budget and an extension of the services government offers “under the pretense of caring for [the people]” can only come at the expense of private property and individual liberty.

“I place economy among the first and most important virtues, and public debt as the greatest of dangers … We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.” – Thomas Jefferson

“The issue is always the same: the government or the market. There is no third solution.” – Ludwig von Mises

This blog entry is not about playing the blame game, pointing fingers or determining who is responsible but rather a move towards first discussing and then implementing responsibility and accountability based on how economics 101 truly works (without government interference). I am certainly not ruling out oversight and regulation but I am asking the government to just butt out of the free-market system we call capitalism. They will not make things better. For example, Ludwig von Mises once said:

“Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.”

He made this statement more than half a century ago but the current administration is doing exactly that, spending an unprecedented amount of money (trillions when they look in the mirror and state the truth) on a stimulus plan that will most likely fail to achieve what its authors claim. I am not arguing that is won’t create jobs but how many jobs will be lost due to the new package. What will the net gain or loss total be once we look back in five or ten years?

The talking heads of the media offer no help as they skew the unemployment numbers every chance they get so they can “GET” their headlines. Even the president is talking about the economy and unemployment numbers reaching levels not seen since the Great Depression. Really? What stats are they looking at? This is a sensitive topic as several of my family’s closest friends have lost jobs in recent months but the truth is the truth.

Business Week noted:

In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost — fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.

Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82. This was reflected in unemployment rates.

The latest survey pegs U.S. unemployment at 7.6%. That’s more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can’t equate 7.6% unemployment with the Great Depression.

Come on, 7.6% is not 25.2%. Gross numbers of jobs lost today may be larger than a specific time in the 1930’s but an apples-to-apples comparison using percentage ratios shows us that the comparison is stupid. Times are tough and many people have lost their jobs and many small businesses are shutting their doors but let’s not spew inaccurate data to rush a stimulus plan through congress.

“The wavelike movement effecting the economic system, the recurrence of periods of boom which are followed by periods of depression is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

As the quote says above, economic cycles of booms and busts are inevitable so let them run their course rather than have these non qualified elected politicians (with lobbyists in their pockets) making the decisions. How many current and past administration members actually started and owned a business or were active investors? So why are they the ones trying to pull us out of this mess? It’s a joke!

I don’t have all of the answers and I am not the smartest or most qualified guy in the room; however, Washington doesn’t have the most qualified guys in the room either (the most qualified guys/gals were not even on the ballots prior to the election)! With all of the bailouts running though Washington, what’s the incentive to do the “right thing” when Uncle Sam will come to your rescue and in some cases reward you for fucking up! Sorry but this pisses me off.

Many of the quotes throughout are from Ludwig von Mises (1881 – 1973), who was an Austrian Economist, philosopher, and a major influence on the modern libertarian movement. Although I don’t agree with everything Ludwig wrote, I can say that the vast majority of his writings are singing the tune: “I told you so”.

One last thing – I HATE THE PHASE: “Distribution of Wealth”

• “The masses, in their capacity as consumers, ultimately determine everybody’s revenues and wealth.” – Ludwig von Mises
• “Taxing profits is tantamount to taxing success.” – Ludwig von Mises
• “It is untrue that some are poor because others are rich. If an order of society in which incomes were equal replaced the capitalist order, everyone would become poorer.” – Ludwig von Mises
• “The riches of successful entrepreneurs is not the cause of anybody’s poverty; it is the consequence of the fact that the consumers are better supplied than they would have been in the absence of the entrepreneurs effort.” – Ludwig von Mises

Finally, I sure as hell hope we are not walking down the path of Socialism (and I am not targeting Obama and his administration; this journey started decades ago).

“A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism: is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.”

Tell me what you think, let’s start a discussion! I prefer to hear from you as the media and these so-called experts are pure garbage.

Of course it does but just keep in mind that it’s a longer term indicator rather than a short term buy and sell signal. I make today’s post due to what I am seeing with the NH-NL differential as it is starting to tread near positive territory for the first time in many months. The key for a sustainable bull market will be a push to a new 52-week high for this indicator.

“Chart provided courtesy of “DecisionPoint.com”

For a history of NH-NL posts, please see this category.

How about the foreshadowing provided in the post I made on August 21, 2007? Talk about calling a top!

According to Carl’s data, we must go back to 1998 to find a lower reading than last week’s NH-NL ratio. Even more amazing is the fact that we must then go back 20 to 38 years to find readings in the same vicinity as 1998 and 2007.

Ignoring the spike in 1987, we must visit the 1970’s to find readings below the -400 level on the chart.