Monday, December 01, 2008

Indicator Update for December 1st

Last week's indicator review concluded that "we have been quite weak, we are at oversold levels that have corresponded to intermediate-term rallies, but so far the indicators are in clear bear market modes." We did indeed see such a rally, and now the key question is whether or not we have exited the bear market mode. While advancing stocks clearly led decliners for the week and the vast majority of issues rose from their bear lows, markets continue to anticipate deflation and recession. My Technical Strength measures show sectors in only modest uptrends, and money flow for Dow stocks on the week was only modestly positive.

The Cumulative Demand/Supply Indicator (top chart) moved to neutral levels during the week; it is not close to overbought levels that have recently corresponded to intermediate-term market tops. New 65-day highs and lows (middle chart) find relatively few new highs (only 34 issues made 65-day highs on Friday), but far fewer new lows than last week (only 68 stocks registered fresh 65-day lows on Friday). When we look at 20-day highs and lows, these stalled out on Friday; we had 304 new 20-day highs against 120 lows. This low level of new highs suggests that the market rally of the past week has not yet been able to place stocks in intermediate-term uptrends.

The rally was accompanied by significant buying interest, as the Cumulative NYSE TICK (bottom chart) rose through the week. Note, however, that the Cumulative TICK line remains below its recent November peak, which is also the case for the advance-decline lines and the Cumulative Demand/Supply Index. In short, while the rally has been substantial, we continue to see a pattern of lower highs and lower lows in the stock market. 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.