Broad Market Internals, at beginning of February 2014 
Last month produced the best volume since Oct, but levels remain subpar on a seasonally adjusted basis. Best areas were Nondurables, Office Equip, IT Svcs, Ind Metals, and Retail.

Breadth has been fractionally better in recent weeks, in contrast to the LT trend most recently generally in evidence since last summer. 52wk highs ended the week near negligible having steadily deteriorated since setting a 3yr record mid Oct, with the best concentrations in Mobile Telecoms, Gas Dist, Pipelines, and Forestry & Paper.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - are attempting to rally off extreme oversold levels hit Mon/Wed last week, and are now back in heavily oversold territory.

At the same time the intermediate 50-day moving average is in mildly oversold territory, around levels that have triggered sustainable upside reversals since last spring. However, the LT 200-day indicator hit a 1yr low Mon, which along with 52wk highs at the mid Jan record broad market highs amounting to less than 1/2 of the mid Oct tally, is indicative of significantly contracting stock level leadership. If recent patterns persist the broad market should be in the area for a cyclical bounce with ST conditions deeply oversold. Conversely it is worth bearing in mind that waterfall declines invariably develop from deeply oversold conditions, especially if the market has been wrong-footed by excessive complacency.



Published February 3, 2014

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Introducing the MarketScalpel US Sector Rotation Model Portfolio 
With 2014 almost upon us, we are pleased to introduce a new research service based on a sector rotation model portfolio invested in ETF proxies.

This new service is to a certain extent a departure from our existing focus based more on identifying out- and underperforming groups at the subsector and industry group levels.

However, at the same time it is a natural extension of our existing sector research and calls, and will serve to bring a significantly greater focus on the potential returns in a format intended to cater to the needs of a growing segment on the investment community seeking to employ a low cost sector rotation strategy.

Best wishes for a prosperous 2014 from the MarketScalpel Team!

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Broad Market Internals, week beginning December 16, 2013  
Last week volume pulled back again and overall remains unseasonally light this far in advance of the holiday. Best areas were Mobile Telecoms and Autos & Parts (both again), Environmental, Electricity, and E&P.

Breadth was again soft consistent with generally lagging theme since mid Jul as well as the LT trend. 52wk highs ended the week negligible having steadily deteriorated since setting a marginal new 3yr record mid Oct, with the aggregate fairly evenly distributed in downstream areas, and the lows tentatively building Thu at a 4m record with the worst areas Agriculture (again) and Industrial Mining.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - Wed hit the most extreme oversold levels since early Oct, well inside the territory from which ST reversals typically emerge within a few days, before ending the week merely heavily oversold.

At the same time the intermediate 50-day moving average has broken below the mildly overbought range inhabited since early Nov to end the week neutral, and is approaching levels not far off the typical area that has triggered intermediate upside reversals through the spring.

However, with the cyclical outlook likely negative and turning more so into mid Q1, the market is particularly vulnerable this week heading into Fri’s expiry ST deeply oversold, with an attendant elevated risk of a waterfall decline developing.



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Broad Market Internals, week beginning December 9, 2013  
Last week volume recovered somewhat from another very poor showing the preceding Thanksgiving holiday affected week, but overall levels remain unseasonally light. Best areas were Autos & Parts as usual, Mobile Telecoms, PMs, Pipelines, Gas Distribution, and Office Equipment.

Breadth reversed better readings the preceding week to turn soft, after generally having lagged since mid Jul consistent with the LT trend. 52wk highs ended the week around 1/2 of the 6wk best set the preceding Wed that amounted to around 3/4qtrs of the mid Oct 3yr record, with the best concentrations in Household Nondurables, IT Services, Computer Hardware, Integrated Banks, and Chemicals, with the lows negligible but disproportionately concentrated in PMs and Agriculture.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - have bounced off mildly oversold levels Thu and are now in neutral territory, with the indicator having failed to attain either extreme overbought or oversold levels since mid Oct, which is indicative of somewhat choppy trading.

Similarly the intermediate 50-day moving average has also been locked in a fairly tight - mildly overbought - sideways range since late October, which in the context of recent broad market highs is indicative of the narrowing stock level leadership also suggested by 52wk highs. And with the LT 200-day indicator the most overbought of all and still sporting a key non-confirmation, where is the fuel for an Xmas rally?



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Broad Market Internals, week beginning November 25, 2013  
Last week volume contracted for the second straight week if only marginally so, sustaining concern regarding the sub par recovery following the summer doldrums. Best areas were Autos & Parts and Environmental (for the 5th and 7th straight week respectively), and Mobile Telecoms,.

Breadth was mixed but overall in line after generally having lagged since mid Jul consistent with the LT trend. 52wk highs are building Fri around 3/5ths of the mid Oct 3yr record, with the best concentrations in Office Equip, Financials ex Real Estate and Consumer & Mortgage, as well as Aero & Def, with the lows negligible and disproportionately concentrated in PMs.

Short term indicators - measuring the percentage of stocks above their 10-day moving average - remain highly overbought following a trip to neutral on the sell-off into the midweek lows, still just shy of levels from which ST downside reversals reliably develop from.

Meanwhile the intermediate 50-day moving average indicator also remains mildly overbought, just below the highest readings the preceding week. This is also the case with the LT 200-day indicator which further remains considerably below the Jul +2yr record, in one of two critical non-confirmation of new broad market index highs along with 52wk highs. The dominant 15m cycle in the broad market is overdue for a top with the next low due mid Q1 and overall conditions continue to suggest that this is imminent.



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