I'll be posting my full indicator review this weekend; here's last week's review for reference. We're getting into the area where we're testing closing price lows from January; whether those levels can hold or not is the crucial question facing traders in coming days.
Thursday we saw 317 new 20-day highs and 2268 new lows across the NYSE, NASDAQ, and ASE. A little further out, we have 128 new 65-day highs against 914 lows. Compare this with the 3943 new 65-day lows at the January lows, and you can see that most stocks have not exceeded those lows. Going still further out and looking only at common stocks that trade on the NYSE, we see that, on Thursday, we had 13 new 52-week highs and 181 new lows. That is the highest level of new lows since the January bottom, but note that at that prior bottom we had 700 new lows among NYSE common issues. Indeed, we're seeing many fewer new lows now than January across all major exchanges and indexes.
Meanwhile, we're getting oversold. Among S&P 500 stocks, we are again seeing less than 20% of stocks trading above their 50-day moving averages, which has marked recent intermediate-term lows. Interestingly, we're seeing 22% of SPX stocks trading above their 200-day moving average, which is above the 14% level seen in January--another potential divergence.
On the bearish side, we're seeing new Advance-Decline lows for NYSE common stocks and S&P 600 small caps, but not yet for SPX stocks.
To be sure, stocks are still weak; they could get weaker and still maintain these divergences. My Demand figure closed at 20 on Thursday, with Supply at 139. That means 7 times more stocks are trading below the volatility envelopes surrounding their moving averages as trading above them. Still, my Cumulative Demand/Supply indicator, which has done a superlative job of tracking intermediate-term highs and lows in recent months, is nearing a buy signal at -23.
All in all it's prudent to wait for signs of growing strength in the indicators before making major commitments to the upside. And I'll want to see some indications of confidence in financial stocks and credit markets before putting considerable risk on the long side.
But make no mistake about it: the bearishness is thick. We've had put volume exceeding call volume for equities for five consecutive sessions. The traffic on my website has once again swelled, as at the March, August, and January lows. Back in July, when stock indexes were near their highs, the indicators were showing cracks in the bull market foundation. Now we're seeing potential fissures on the bear side. That has me still quite cautious, but ready to pounce if and when the bears are forced to cover their quite exposed backsides.
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Friday, March 07, 2008
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4 comments:
The post at quantifiable edges this am is interesting. Check back to your mid January post on the VIX's action back then. Maybe there is a meaningful correlation in the action worth watching for short term...maybe not.
Good point, David; no question: the current leg to the decline has yet to see real panic. But, then, if this proves to be a successful test of a panic low, one should expect less panic.
Brett
Your post compares your current indicator readings to indicator readings from the most recent bull market.
Why don't you compare your current indicator readings to the most recent bear market? My gut instinct (I don't have exhaustive data like you) tells me that a lot of stocks were below their 50 MA for a long time during the last bear market. My gut also tells me that a high percentage of stocks could stay below their 50 MAs for a long time in this bear market too.
The % below X MA indicator is useful to indicate bottoms in bull markets, but I think its relevance is less during bear markets. Again, not having access to the data makes my argument vulnerable, but I think your post would be more useful if it looked back to how stocks behave during bear markets.
Hi Chris,
The data on % stocks below *200* day MA, but also other data (such as stocks making new lows vs. highs) suggest that the current market is at levels very similar to the lows of the last bear markets.
Brett
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