Tuesday, February 17, 2009

Indicator Update for February 17th

Last week's indicator review concluded, "In sum, this is a Missouri market: I need to see the market bulls "show me" their hand by following strength with further strength." The market did not show strength, as the recent sector update noted, and we fell back to the bottom of the multi-week trading range.

As an aside, let me emphasize that everything I've been writing lately regarding identifying and trading markets that are in ranges, as well as identifying and trading breakout moves, applies to swing time frames as well as intraday ones. This is why my morning Twitter posts at the start of the trading week emphasize weekly as well as daily price targets for the S&P 500 Index. What looks like a trending move on the day time frame may be a swing within a multi-week range. Knowing what is happening at the time frame just above the one you're trading is key to framing and executing trade ideas.

Because we're at the bottom of a multi-week range, we need to see if the market will once more hold its lows, which would target a move back to the intermediate-term pivot in the mid-830s in the S&P futures or whether we sustain a breakout move to the downside to test the November bear market lows.

Despite the sector weakness mentioned above, stocks are not in an oversold position in the Cumulative Demand/Supply Index (top chart) and continue to make successive peaks in Cumulative Demand/Supply at lower price highs. This is what we'd expect in bear market mode, as noted last week. New 20-day lows have once again begun to outnumber 20-day highs (middle chart); we need to see that continue to sustain a bear leg down.

The Cumulative NYSE TICK (bottom chart) has been toppy, but remains well above its November lows; that is noteworthy. On a break of the recent support and any test of November lows, it's quite possible we'll see a divergence in the Cumulative TICK, given recent strength. A close look at the advance-decline lines specific to various market sectors (Decision Point is a good source for these data) also suggests the possibility of divergences on further market weakness. For instance, the advance-decline line specific to Dow Industrial stocks is already near bear lows, but the line for NASDAQ 100 stocks is well off those lows and near multi-week highs. The line for Financial shares is near its bear low, but the line for Health Care and Energy stocks is well off those lows and also near multi-week highs.

For now, we're in a wide trading range with choppy, volatile trading and playing that range has been the winning strategy. I will be updating indicators daily via Twitter (free subscription via RSS), along with intraday market observations, to track strength and weakness at short- and intermediate-term horizons.

Below are relative volume numbers for this coming week to tell us if participation of large traders in the ES contract is significant on market moves:

8:30 - 224,335 (57,912)
9:00 - 191,149 (46,133)
9:30 - 151,742 (50,625)
10:00 - 134,700 (68,832)
10:30 - 104,551 (62,872)
11:00 - 101,011 (42,410)
11:30 - 88,368 (32,974)
12 N - 108,429 (36,033)
12:30 - 118,164 (49,088)
1:00 - 125,444 (53,390)
1:30 - 134,227 (56,771)
2:00 - 173,159 (52,533)
2:30 - 228,664 (82,710)
3:00 (15 min period) - 93,531 (25,377)