Saturday, November 17, 2012

Summation Index

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Markets could see another volatile week as investors remain anxious about the “fiscal cliff” and watch escalating tensions in the Middle East. Bernanke speaks Tuesday at the Economics Club of New York, could also elaborate more on the Fed’s effort to change its communications policy. The Fed has been discussing more definitively connecting its interest rate policy to specific levels for unemployment and inflation.

Then  housing data Monday and Tuesday, and jobless claims and consumer sentiment Wednesday, ahead of the Thanksgiving holiday Thursday.  Stocks closed higher Friday after Congressional leaders made encouraging comments about negotiations on the fiscal cliff.

The question remains however...has a bottom been put in? ITZ noted several indicators last week and in today's post takes a look at the Summation Index. Link

 The original "classic' SI maintained that +1000 neutral level -  the modern version  Ratio Adjusted Summation Index (RASI) uses the more natural zero level as the neutral level. The RASI factors out changes in the number of issues traded, making it better for longer term comparisons and analysis.

When the Summation Index crossed down through +1000 back in May 2012, the price bottom marked by that event was a bit early for the final bottom, but it was a bottom nonetheless.  
Now we are seeing another downward crossing through the +1000 neutral level, just as the market seems to be reaching the conclusion that taxes are going higher, and earnings are going to fall, and money will dry up, and the economy is driving off a cliff!!!  

As for the RASI, we need to not only see a reversal, but a cross above the +500 to confirm any rally.

Below are the NYSE & NASDAQ Summation Indexes both original & Ratio adjusted.

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