Power and Force

I have shown you many examples why I think we are still amidst a bull market. In this note, I will show you my Power and Force Model or PF Model for short. It essentially looks at the volume of the market relative to the price movement and determines if we are sitting in a bull or bear market. As this chart shows, based on the variables shown, we are still in a bull market - even if the press or most market pundits will not admit such! This model is broken out into four pieces. The top two are momentum indicators with one a leading momentum indicator while the other is a more short term view (though still carries a very long term horizon). The third chart is an oscillator which basically argues which there is a good time to buy and when there is a good time to sell. Finally the last model is a volume model which is compared to the momentum models above in addition to the actual price action. From there I get my bull or bear market viewpoint. So lets march through each piece.

Momentum
This end of the model is bullish though the leading indicator of the model is actually bearish. So why the bullish stance? Because one end of the momentum model is breaking out to the upside arguing that the bull market is about to have another phase movement to the upside. Since the leading momentum indicator has not made a new low and is holding in for the most part, this argues that the shorter term price action, with the breakout, should push the long term momentum back into an upward trend pushing the overall market higher.

Oscillator
The oscillator broke over the 50 level over the past few weeks and this is bullish for a few reasons. First, if the oscillator remained in sub 50 territory for a longer period of time, that would argue that the downside to the market may still be in play (ie sub 1000 probably). With the bounce above the 50 level, following an extreme signal to the downside, this reversal of sorts argues that higher prices are now in order. Thus the oscillator is arguing for positive things going forward.

PForce Model
This section is holding support though to be honest, it is not super optimistic. At the same time, in the past each market correction has pushed this model to the threshold of a breakdown only to turn back upward. Since it has not broke down for a significant period of time, I would argue that the volume is about to come back in for the bulls. However, if the market bounces as the oscillator and the momentum models are arguing and the PForce does not bounce, that is a major warning of some problems to come. So I will be watching this end closely.

Summary
So all in all the PF model is bullish and arguing that we will have a strong fall trend upward. This is not priced into the current trade at all and could lead to the mother of all short squeezes. The data out of China on Friday was just gangbuster strong (though at times I have to question how much one can trust that data since it is not capitalism and more a controlled version). This could pop the markets higher and that is how I am playing things heading into next week.

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