Weak Stock Market Closes are on the Rise, but What About Strong Closes?May 10, 2014
We’ve been commenting over the last few days here and here about the increasing number of weak stock market closes and how the number of weak closes seems to be closely correlated with Fed tapering of asset purchases. It seems fair enough, then, to comment on the number of strong stock market closes. In the same fashion as our GaveKal Weak Close Indicator, our GaveKal Strong Close Indicator compares the daily closing price to the daily range in which the index in question traded. If the closing price was within the top 25% of the daily range then we’d consider that a strong close. For example, if the S&P 500 trades in a 20 point range for a day and then closes 3 points from the high, we’d consider that a strong close. If the index closed 6 points from the day’s high then we would not count that as a strong close. We then sum up all the strong closes over the previous six months to create our indicator.
In the chart below we can observe a descent positive relationship between the number of strong closes and stock prices. We also observe the tendency of the Strong Close Indicator to lead stock prices at important highs and lows. Today, the strong close indicator currently stands at 53 vs a high of 68 about a year ago. Our Strong Close Indicator has thus fallen considerably while stock prices have continued their strong march higher. This a simple indicator, but the decreasing number of strong closes and the increasing number of weak closes is on our radar.