Monday, February 23, 2009

Indicator Update for February 23rd

Last week's indicator update found sector and indicator weakness, but stressed that we were not at an oversold level and remained in a wide, choppy trading range. With the break of the 800 level in the S&P 500 Index early in the week, we moved below that range and stayed below for the week. That brought the Cumulative Demand/Supply Index (top chart) into oversold territory, though not at that -30 level that has marked recent intermediate-term market bottoms. The weakness has been broad, extending across all sectors, suggesting that the bear market remains intact as long as we stay below the prior, extended trading range mentioned above.

Another indication of the breadth of the market weakness is the expansion of stocks making fresh 20-day lows across the NYSE, NASDAQ, and ASE (middle chart). We are seeing fewer new lows on a 52-week basis than we saw late in 2008, and not all sectors have seen fresh bear market price lows. Similarly, while we were notably weak in Cumulative NYSE TICK this past week (bottom chart), we remain above the November lows. The same is true for the advance-decline lines specific to NYSE common stocks and S&P 500 issues. These divergences would become much more important in my estimation should we sustain a broad rally that keeps the S&P 500 market above its violated support at that 800 level.

As I emphasized the last couple of weeks, the peaks in the Cumulative Demand/Supply index have occurred at successively lower price highs; each rally in this bear market has failed to surmount the one previous. As long as that is the case, and especially as long as we're seeing weakening Cumulative TICK and expanding new lows, it is premature to be pounding the table on the long side.

I have posted the daily and weekly SPY target levels to Twitter (free subscription via RSS) and will update the indicators each morning prior to the market open. The market's relative volume--how current volume compares to the average volume for that particular time of day--is very helpful in gauging market volatility and the odds of hitting these targets. The relative volume norms for this week's S&P 500 e-mini market appear below:

8:30 - 234,993 (62,792)
9:00 - 199,589 (48,899)
9:30 - 152,938 (48,688)
10:00 - 136,174 (65,293)
10:30 - 117,904 (59,114)
11:00 - 104,818 (40,222)
11:30 - 90,351 (33,155)
12 N - 110,937 (37,560)
12:30 - 121,941 (46,688)
1:00 - 125,444 (58,883)
1:30 - 140,481 (61,592)
2:00 - 175,042 (50,129)
2:30 - 230,477 (84,999)
3:00 (15 min period) - 99,318 (25,438)