Thursday, October 10, 2013

Price/Volume Diffusion Index Points to Higher Prices But....

The Price/Volume Diffusion Index (PVDI) currently measures in at 55 demarcation. This is event after the latest bout of selling, most likely due to generally weak volume levels on the decline sans two or three trading days. The below chart shows the PVDI through the latest trading day.

In my mind, this suggests that equity prices will likely be higher in the trading days ahead, as a PVDI at or above 50 have generally been followed by an improvement in performance.

That said, the strength of the rally appears to have weakened. For evidence of that, I turn to the raw summation index (date results that pour into the PVDI) and the slope of the summation index. First, here is the summation index.

The turn in summation index from the recent decline confirms my belief that equity prices will turn higher from the recent sell off. However, the index has become increasingly volatile, suggesting a growing feeling of uncertainty in the minds of traders and investors. More so.....

The slope of the summation index continues to weaken. To me this suggests that, despite remaining overall positive, the demand for equities has waned with higher prices. This has occurred in conjunction with the uncertainty caused by the Fed's will they or won't they stance as it pertains to QE, the arguing children in Washington, and an overall weak economic environment.

I think the rally in equities is probably set to resume, or at the very least a test of the highs is on the offing, but that any rally is on borrowed time.

No comments:

Post a Comment