Saturday, October 25, 2008

Weakness Through the Week

Traders hoping to put in a bottom this week were disappointed as weakness expanded through the week. The advance-decline line for NYSE common stocks, helpfully tracked by Decision Point (top chart), shows us breaking down to new bear market lows. This was no doubt aided by weakness among secondary issues, as the Russell 2000 stock index made new bear market lows as well.

The new high/new low figures also found weakness expanding as the week moved along. Friday saw us register 99 new 20-day highs across the NYSE, NASDAQ, and ASE against 2564 new lows. While the new lows are still fewer than we saw a couple of weeks ago, so far the market's oversold condition has not brought significant buying interest, as can be seen from the money flow figures for the Dow industrial stocks (bottom chart). We have moved from very heavy selling to more neutral levels in the four-day average (pink line), but there is no evidence so far of sustained buying interest.

Among the 40 stocks in my basket divided evenly among eight S&P 500 sectors, my technical strength measure finds only one in a slight uptrend (AMGN), one neutral (WFC), and the remaining 38 in downtrends. What is significant is not just the broad weakness, but the way in which broad weakness has been sustained over time. We are seeing a historic liquidation of stocks and, so far, my indicators are not picking up any reversal of that trend.