Chart of the Day: CHECK ENGINE Light is On!

For those of you who have been following my Chart of the Day column you know that I'm a big believer in looking at non-cap weighted indexes.  I especially like the Value Line Arithmetic Index ($VLA) , an index of 1700 stocks covering about 95% of the entire US stock market capitalization and Barchart's Market Performance Indicator which is also a non-cap weighted index but covers about 5,300 stocks.  

If you follow these you get a much bigger view of what is really going on in the overall Market.

Lately just a few very large Black Swan events have had a ripple effect through out the entire market even though it shouldn't.  Events like the collapse of FTX, the failure of Silvergate Capital (SI) and the recent run on SVB Financial (SIVB) also known as Silicon Valley Bank.  Your common sense would tell you that only those investors that owned those companies are the only ones who should be affected, but in these days of individual investors only reading the headlines and listening to the pundits on the TV financial channels and the hedge funds and institutional investors running huge sums of money with computer algorithms and programmed artificial intelligence bigger and broader things happen.  When it hits the fan it really splatters though the whole Market.

Take to heart some of the old sayings like Don't Fight the Tape, Don't Swim Against the Tide and my favorite Don't Spit in the Wind that take on new meanings.

Let's look at a few charts to get a overview perspective on the Market as a whole.

First let's look at the Value Line Arithmetic Index (VLA) vs. the Daily Moving Averages:

It's easy to see the downward trend on a short term basis.

Next let's look at the VLA and add the Barchart Trend Seeker, the 50 day moving average and the 30 day turtle channel:

Look how the VLA has pierced that 30 day Turtle Channel bottom

Last week John Rowland presented a very insightful webinar about the Golden Cross, you should all take a listen to that under Barchart's Archived Webinars.  I like the Golden Cross but add the Trend Seeker to give me an additional perspective:

Another indicator that short term momentum is not being reflected in some of the more long term momentum indicators.

If you are a long term investor then look at a weekly chart instead of a daily chart.  This chart has the weekly price vs. the 50 week moving average and the Trend Seeker adjusted to weekly instead of daily data.

Again we see a Market that hasn't established a clear direction but is definitely hitting resistance.

Lastly I'd like to review a page I urge you to look at every single day - the Barchart Market Performance Indicator:

Market Performance Indicator

Barchart Market Momentum Index ($BCMM) [-0.25%] is an exclusive index used as an indicator of change in overall markets. It reflects the movement of stocks who fit the following criteria: must have current SEC filings, must have traded for a minimum of 6-months, and must be trading above $2.

MARKET AVERAGE

The percentage of stocks in $BCMM above their individual Moving Average per period.

I hope I haven't overwhelmed you with too much information but you do need to realize that when just a few widely followed stocks get a cold the whole Market gets the Flu.

The CHECK ENGINE light is on but don't panic.  You should ALWAYS have some predetermined stop losses in place.  You can use 10% off the recent high, some daily moving average or a longer term indicator like the Golden Cross.  Each one of us has a different investing time horizon and a different tolerance for pain.  Find your own investing discipline and stick to it.

Right now in my own portfolios some of my stop losses are triggering and I am keeping my powder dry and will not be reinvesting till Barchart's Market Performance Indicator confirms upward market momentum.

Be careful and don't spit into the wind!