Indicator Update for October 13th

Last week, the indicator review concluded, "In sum, weakness has expanded this week, not dried up. As long as this is the case, it remains premature to conclude that a durable bottom is at hand." In retrospect, that was the understatement of the year. We saw a historic decline last week, in which all major indices fell to significant bear market lows.

As recently noted, we saw new lows in the Cumulative NYSE TICK; money flows into the Dow stocks also turned decidedly negative. Also as noted during the week, the new high/new low measures and percentages of stocks trading above their moving averages all hit lows that I have not seen in many years of following these measures.

To give an idea of the weakness, of the 40 stocks that I track in my basket (five highly weighted issues within each of eight S&P 500 sectors), all are trading in downtrends by my Technical Strength measure. This is the first time this has occurred in several years of tracking this indicator. What it tells us is that the market has sold off the good with the bad: this has been indiscriminate selling.

As further measure of the breadth (and indiscriminate nature) of the selling, a look at some of the indicators tracked by Decision Point finds that the advance/decline line for NYSE common stocks only has hit a three-year low; less than 3% of NYSE stocks are trading above their 200-day moving average; and (this is my favorite) 406 of the S&P 500 issues (and 82 of the NASDAQ 100 issues) made 52-week lows on Friday alone.

The huge volatility (with a 1000 point Dow range on Friday) offers both risk and opportunity to daytraders; the indiscriminate selling offers risk and opportunity to longer term investors. We're seeing a healthy bounce before the open on Monday, which might start a process of base building; I will need to see evidence of a drying up of selling pressure before concluding that the worst is over for stocks. Thus far, every indicator tells us that weakness has been expanding, not drying up.
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