Sunday, March 01, 2009

Indicator Update for March 1st

Last week's indicator review concluded that "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." That turned out to be the proper trading stance, as the breadth of weakness noted in that review continued over the past week.

The Cumulative Demand/Supply Index (top chart) stalled out in moderately oversold territory over the week; interestingly, despite the recent weakness, it is not at the oversold levels that have typified recent intermediate term market lows.

New 20-day lows continued to swamp new highs across the NYSE, NASDAQ, and ASE (second chart from top). Note, however, that new lows remained above the levels registered the prior week, even though stocks closed at their bear lows Friday. This non-confirmation was also evident in the Cumulative NYSE TICK (second chart from bottom). We will need to see continued weakness in these measures early in the week or a rally from oversold levels could result from bargain hunting and short covering.

Finally, take a look at the bottom chart, which is one of the excellent offerings of the Decision Point site. It displays the advance-decline line specific to common stocks only traded on the NYSE. We can see that the line is right at its bear lows, having weakened significantly over the past two weeks. Indeed, we have seen declining stocks outnumber advancing ones for these common stocks for nine of the past ten trading sessions. That represents broad and persistent market weakness. We need to see signs of greater buying interest and an ability to sustain a move above near-term resistance in the 785-790 area in the S&P 500 Index (ES) futures to begin the process of putting in a durable intermediate-term bottom.

Readers interested in tracking these indicators daily can look for my pre-opening Twitter posts that summarize the previous day's readings (free subscription via RSS). Starting this week, I will be updating relative volume norms for the ES futures on a biweekly basis, so I'll be using the values from last week as a guide this coming week.