Weekly 360° View - 05/2012

(click to enlarge)

Seasonality

[positive]

Last week of January has a bullish bias (B/C).

Price Action

[positive]

Trend conditions signal a positive environment (D/E). Volatility continues to decrease on multiple time-frames (F/G) as the market remains somewhat overbought (G). A combination of low volatility, positive trend as well as slightly overbought conditions signals a positive week ahead (H).

Correlation

[positive]

Correlation analysis is a new feature of this and coming weekly 360° reports. For this study I calculated a correlation matrix of all S+P500 stocks (without survivorship bias). An environment with weak correlation among the S+P500 members indicates a healthy environment. The conclusions taken from this study are based on extensive research. At a later point I will do a detailed post about the implications of weakening/ strengthening correlation.

During last week correlation continued to decreased providing us with a very bullish bias.

Breadth

[positive]

Market Breadth (K/L) continues to be healthy, but weakened during last week indicating a good environment.

Sectors

[neutral]

Sector leadership (M/N) changed during the week. While XLI (Industrials) continued it's run, XLF (Financials) came in second. XLI/XLF combination doesn't give any insight about what to expect.

Bonds
[positive]

The bond market (O/P) continues to improve as risk willingness is increasing. Bond market signals RISK ON mode.

Outlook

Last weeks prediction worked out – the market showed a lower low than the opening of that week while maintaining overall price levels.

During last week intermediate term overbought levels decreased. Overall picture continues to improve, especially the Bond market. I expect the week to close higher than it opened.