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Director of Research & Owner at Ivancic Associates. Creator of the IMTS which uses multiple variables and signals to create a heatmap of market health and momentum.
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  • Stock Market Trend History & Current Levels Of Valuation

    There has been a lot of talk and discussion on whether the stock market today is in a bubble or overvalued. You can find good arguments for and against where today's markets are in terms of valuation and whether or not they are in a bubble. Here is my take on the situation, using the IMTS system.

    The Dow Jones Industrial Average

    (click to enlarge)

    (click here for the full-sized image)

    Since 1898, the Dow Jones has established multiple levels of peaks and troughs. Standard bull market peaks (the blue area in the chart) occur in the 0.03 to 0.08 range, and these often take place in between the times that the Dow Jones hits bubble territory. Bubble territory is defined in the IMTS as being above 0.100. After having its bubble peak back in 1997-1998, the Dow Jones is in the middle zone after a bubble and looks to be reaching one of those intermediary peaks.

    Another interesting aspect is that, after a bubble peak, the highs get progressively lower over time until a deep drop occurs to complete the descending wedge. Afterwards, the levels inverse and each peak gets progressively higher until another bubble peak happens. This pattern seems to repeat all the time.

    ** Note: You can see where the different areas on the chart correspond to the usual IMTS printout here, being taken from June 1906 in the Dow Jones:

    The blue area on the chart corresponds to the middle column in the above readout (yellow/orange), with the bottom value being 0.089 in this example. The red area on the chart corresponds to the column right next to it (white background above, ending with 0.04 here), and the short green spikes on the chart correspond to the last column on the right here (white background, with -0.011 being the last number above).

    Another recurring pattern is in the types of bull market peaks that occur. There seem to be two kinds: single peak spikes and double-peaks. The double-peak spikes have the first upward spike, followed by a trough with a second, higher spike happening just before the big drop back to the 0 area or below. Currently, it seems that the Dow Jones is completing its second peak now. It definitely could go higher towards the 0.100 range, but it will most likely stop short of that.

    On the negative, bear market side, you can see that most drops (with the exception of the Great Depression and to a lesser extent 2008) stop in the -0.03 to -0.08 range (pretty close to the opposite, bull market peak areas which are 0.03 to 0.08, as stated above).

    The S&P 500

    (click to enlarge)

    (click here to view the full-sized image)

    The S&P 500 chart begins at 1952 (sorry about the dates not showing up), and continues until today. The index is getting close to bubble territory and may indeed get there as an uptrend is in place. But that push past 0.100 may only come on the next spike up after a drop, as the top of the current spike may be rolling over. Only time will tell.

    A clue as to the direction of the current spike may be seen in the way the red area is starting to drop away from the blue, showing a divergence that could be indicating the momentum is stalling and rolling over. Past examples of bull market spikes show that during the strong initial push upwards, both the blue and red areas of the chart are close together, but as momentum wanes and dissipates, the blue continues up while the red falls behind and the gap between the two increases a lot. That process could have just started in the S&P 500.

    Just as in the Dow Jones, the S&P 500 seems to have two different types of bull peaks: single and double-peaks. Also, except for bubble periods (0.100+), the S&P 500 bull markets tend to stay in the 0.04 to 0.08 range, much like the Dow.


    (click to enlarge)

    (click here for the full-sized image)

    The NASDAQ is in an uptrend in this chart. Both the peaks and troughs (starting with the Dot Com bust) have gotten steadily higher. The NASDAQ was in an uptrend from 1975 to 1984, then a downtrend from 1984 to 1991 before beginning a new uptrend that culminated with the Tech Bubble.

    Unlike both the Dow and the S&P, the NASDAQ seems to have a well-defined pattern of creating steadily rising trends out of big drops & bear markets. It also gets into bubble territory far more often than the previous two markets. It is currently in a bubble and it is not easy to identify how much longer the NASDAQ can continue as it still seems to have upwards momentum at this point. NASDAQ drops seem to happen rapidly according to past history.

    Russell 2000

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    (click here for the full-sized image)

    The Russell 2000 is currently the hottest stock market index. It is in bubble territory but the widening gap between the blue and red areas could be signalling the start of the market rolling over. In addition, the short-term spikes (small green) are making lower highs and beginning to converge towards the 0 line. In the past, this has signaled the Russell will be suffering from a size-able drop from the current levels of momentum.

    Since the Russell 2000 data only goes back to the late 1980s, the sample size is small but we can infer direction and patterns based on what has happened in the other indices. The IMTS measures both momentum and psychology, and is able to spot repeating patterns with all markets no matter which era they happened.

    If you have any comments, feel free to post them below or to email me via the contact form link above.

    Franjo Ivancic

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 01 1:34 PM | Link | Comment!
  • Apple Weekend Update

    Apple was on a pretty good run until it dropped suddenly on January 28. Here is the IMTS readout:

    It was very unusual for the stock to drop straight down from a strong bull market, past the neutral, "Go to cash" level and into a bear market like this. Such a big drop is never a good sign and from how far down the short term level went so quickly, Apple could drop even more. The next support level happens around the -0.017 to -0.019 level, and after that it would fall down to below -0.021. Durable bottoms usually occur at -0.031, but those happen after a stock has dropped into longer term oversold territory, from the current 0.040 down around the 0.020 level. If it got down to that (which it may not), the price would be around the 300 level.

    Subscribers who are interested in Apple will be given regular updates as to how the stock is progressing, including potential bottoms, or if the stock goes back into bull territory.

    Disclaimer: We have no positions in Apple at this time and have no plans to initiate any within the next 72 hours.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: AAPL
    Feb 02 11:43 AM | Link | 1 Comment
  • U.S. Stock Market Weekend Update

    After a turbulent week in the markets, let's see how they stand at the moment.


    The Dow has been showing short-term weakness in the IMTS since New Year's Eve, when it peaked at 0.009 (which is the usual range for mature bull market short term peaks). It entered red (negative territory) on January 22nd and is now solidly in negative short term territory. The Dow is still in a Bull Market in the IMTS (still orange in the first colored column), but is very close to leaving that area. If the Dow drops below 15627, the IMTS will give a "Go to cash" signal.

    S&P 500

    Much like the Dow, the S&P has weakened over the past couple of weeks, but it remains much more solidly in bull territory than does the Dow. The Dow has been the weakest of the four main indices that we follow over the course of this bull market and it is now the weakest on the way down.

    One sign of trouble that showed up was when the index, back on December 31st, made a new price high at a short term reading of 0.007. Then , on January 15, it reached nearly the exact same price level but only managed a short term reading of 0.004. This weakening, along with a potential double top, showed signs that a downturn was in the making.

    The S&P is still solidly in a bull market at 105.27 and would have to drop below 1728 in order for the IMTS to tell subscribers to go to cash. The last time the S&P dropped down to the white "exit longs/go to cash" area was on December 28, 2012 when it entered this zone for one day, before jumping back into bull market at 1426, and us telling subscribers to get back into the index for a year+ long bull run and a 350+ point gain.


    The NASDAQ is one of three bubbles that we are tracking right now for subscribers, along with the Russell 2000 and the Nikkei. To give you an idea of just how extreme prices have gotten, it would take the price dropping down to 3806 for the IMTS to signal a "go to cash" position. And even there, the IMTS would still show the index to be in a bubble.

    The NASDAQ is in dangerous territory, since a downdraft at these lofty levels can mean a deep drop. While this is not a sure thing, as the index currently has a lot of upside momentum and can continue in bubble territory for a long time, signs are showing that investors are becoming fearful after a big price runup last year, rising interest rates, and emerging economy weakness. These factors could sap strength from the NASDAQ and cause a bigger drop in prices.

    Subscribers will be updated regularly as the story unfolds.

    Russell 2000

    The Russell is currently the hottest of all the markets. The levels that it recently hit within the IMTS (0.112 yellow, and 0.06) were the highest ever recorded and even surpassed what the small cap index recorded during the Dot Com bubble. Back in December, I wrote that a 10+ correction in the Russell was imminent in the next month or two, as the index was approaching a level that it only had been at a few times before and that a severe correction was likely. The Russell then managed to go on to one more spike upwards to break previous readings before suffering a sharp drop back down to support.

    Currently, even with the recent drop, the Russell is still at the a level that it has only been at a few times before. Couple that with a string of weakness and I feel that a deeper small cap correction could be underway. We are currently short the Russell (Beginning from the 1160 level) via TZA and will see how it plays out in the IMTS in order to maximize returns for ourselves and investors.

    Disclaimer: We are currently only invested in TZA and hold no other positions. We may exit or change weighting on our position within the next 72 hours.

    Disclosure: I am short TZA.

    Tags: DIA, SPY, QQQ, TZA
    Feb 02 9:25 AM | Link | Comment!
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