Tracking Stock Market Weakness: Indicator Review

* Perspective - The Fed rate cut news dominated the trading landscape yesterday, but make no mistake, it was a weak market. The extreme level of new lows reached by stocks is typical of a momentum low and that often leads to a sizable bounce short-term. That having been said, very weak momentum lows are typically followed by further price lows. As long as advance-decline lines are falling, momentum is weakening, and new lows are expanding, it's dangerous to go bottom fishing.

* New Highs/Lows - The market is washing out the broad list of stocks, creating a huge spike in the number of stocks making new lows. Specifically, we see 299 issues making new 20-day highs and 4786 new lows. When we look across the NYSE, NASDAQ, and ASE, we also see 95 new 52-week highs and 2576 new lows. These are extreme levels that exceed the weakness seen in August of last year. If we just look at NYSE common stocks, we also find expansion in the number of new lows, with 6 new 52-week highs and 707 new lows. Among S&P 500 stocks, 209 made fresh annual lows; among S&P 600 small caps, we had 218 new lows.

* Momentum - My measure of Demand finished at 44, while Supply was 88. It surprised me to see twice as many stocks closing below their volatility envelopes compared to those closing above. Yesterday's bounce was strongest in the sectors that had been weakest: homebuilders and banks, a sign of short-covering more than fresh, sustained buying across the stock universe. We now see only 15% of SPX and NYSE stocks trading above their 200-day moving averages, a level seen near many bear market lows in the past 20 years.

* Advance-Decline Lines - We saw new lows for the A-D Lines specific to NYSE common stocks, S&P 500 issues, and NASDAQ 100 shares.

* Technical Strength - Within my basket of 40 stocks from the S&P 500 universe (evenly divided among eight sectors), we had 2 stocks trading in uptrends (HD, WMT), none neutral, and 38 in downtrends. This is the weakest reading I've seen since I began collecting the data last year.

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