* Highs/Lows - As you can see from the top chart, we moved lower last week, but new 20-day lows remain well off their levels of last month. We are likely to see divergences on further price weakness, something I'll be watching closely. Friday actually saw an improvement in new highs (516 vs. 449) and a reduction of new lows (394 vs. 607) relative to Thursday despite price weakness in the large cap indexes. Let's see if that translates into a bounce early this coming week.
* Overbought/Oversold - The Cumulative Demand/Supply indicator that I recently highlighted is now at a neutral level (bottom chart). Note that we're continuing to see peaks in that measure at lower price highs, which is exactly the pattern we look for under bear market conditions. So while I think we could be early in a process of bottoming, I'm still counting this as a downtrend.
* Sentiment - Short-term sentiment, as measured by the Adjusted NYSE TICK, turned distinctly negative last week following a period of considerable strength. Four of the past five trading sessions showed a distinct bias toward hitting bids among NYSE issues, a significant turnaround from the period following the January lows.
* Momentum and Strength - We continue to see weakness on a longer-term basis. Only 22% of stocks in the S&P 500 Index are trading above their 50-day moving averages; that figure is 32% for S&P 600 small caps and 20% for the NASDAQ 100 issues. Among the stocks in my basket, we see low Technical Strength readings. Only 3 stocks are trading in uptrends, 9 neutral, and 28 in downtrends. At -1840, the Technical Strength Index is definitely weak, though off the levels we saw at the January lows.
* Advance-Decline - We are hovering modestly above the January lows in the Advance-Decline line specific to the NYSE common stocks and the stocks in the S&P 500 large cap and S&P 600 small cap indexes. We actually made a fresh A-D Line low last week among the NASDAQ 100 issues.
In sum, we have backed off last week's highs and are poised to test the January lows on further price weakness. Should this occur, I'll be looking for divergences and possible buying opportunities. Although there are some good historical reasons for looking for a bottoming process going forward, it's also true that prices can move well below their downside momentum peaks before sustaining a turnaround. For that reason, I'm keeping powder dry at this point.
RELEVANT POST:
Last Week's Indicator Update
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