Tuesday, August 18, 2015

Some Market Technicals Looking More Bullish

When looking back to mid-October of last year, the S&P 500 Index has enjoyed a nice move higher from the mid October 2014 pullback: up 12.9%. However, since the beginning of March the S&P 500 Index has traded sideways within a range from around 2,044 to 2,130 and is down fractionally since March 2nd.

Since the October pullback, the Accumulation Distribution Line has manged to trend higher yet moving sideways since March. Since July though, the ADL is moving higher again. The full definition of the ADL can be found here, but contains a Money Flow Multiplier. Briefly, the StockCharts.com website contains the following summary,
"The Money Flow Multiplier fluctuates between +1 and -1. As such, it holds the key to the Money Flow Volume and the Accumulation Distribution Line. The multiplier is positive when the close is in the upper half of the high-low range and negative when in the lower half. This makes perfect sense. Buying pressure is stronger than selling pressure when prices close in the upper half of the period's range (and vice versa). The Accumulation Distribution Line rises when the multiplier is positive and falls when the multiplier is negative."
From The Blog of HORAN Capital Advisors

The On Balance Volume (OBV) indicator continues to trend lower and OBV adds a period's total volume when the close is up and subtracts it when the close is down. A cumulative total of this positive and negative volume flow forms the OBV line. The trend is important in this line as well and maybe the OBV is beginning to turn higher as well.

In summary, the rising ADL is an early indicator that the market may be nearing a bullish reversal. As the above shows, market volume on down days has been trending lower while volume on up days has been trending higher. There remains technical resistance to the upside; however, if the market can manage to continue making higher highs and higher lows, the S&P 500 Index may break to the upside and out of this protracted sideways trading range.

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