Monday, December 08, 2008

Indicator Review for December 8th

Last week's indicator review noted, "If we cannot sustain new 20-day highs exceeding new lows in the coming week, I will expect a test of recent market lows. I would look at a sustained break above 900 in the ES futures as intermediate-term bullish for stocks, particularly if accompanied by a meaningful expansion in the number of issues making fresh new highs." As we can see from the new highs/lows (middle chart) we were not able to sustain a surplus of new highs following Monday's sharp decline. Interestingly, however, the S&P 500 Index futures found repeated support in the 810-820 region, well above the bear market lows. Friday was a particularly significant day in that we sold off on very bad jobs news, but once again could not pierce the S&P support. The market rallied late in the day, bringing us to a neutral level in the Cumulative Demand/Supply Index (top chart).

Nor is the inability to drop on bad economic news the only bullish indication for this market. The Cumulative Adjusted NYSE TICK line (bottom chart) continued to grind higher through the week, indicating that more stocks were transacting on upticks than downticks, despite the repeated testing of Monday's lows. Too, we closed the week with 53% of SPX stocks trading above their 20-day moving averages, a healthy jump from the week's lows. While we've rallied nicely, neither the Cumulative DSI nor the percentage of stocks above their moving averages are anywhere near overbought levels.

To be sure, we have yet to see fresh 20-day highs exceed new lows; as I updated in my Twitter post, we had 355 new 20-day highs on Friday against 765 lows. Money flow for the Dow stocks, which I also update via Twitter each AM prior to trading days, was also negative on the week and only modestly positive on Friday.

In sum, the ball is in the bull's court. We made several runs at the lows this past week and held at higher lows. We rallied off bad economic news and now are testing resistance at SPX 900. As noted in the quote above from last week's review, a strong close above 900 with an expansion of new 20-day highs would confirm an intermediate-term uptrend. Failure to remain above the 900 level would keep us in a range bound market and, ultimately, would lead me to expect a test of last week's lows at minimum.