Monday, April 06, 2009

Indicator Update for April 6th

Last week's indicator review concluded, " We need to see an expansion of 20-day new highs and an ability to hold the 800 level in the S&P 500 Index on pullbacks before we can conclude that the current rally is something more than a violent bear market bounce." We did indeed see the market rebound from early weakness during the past week, not only making new price highs, but also expanding the number of stocks making 20-day highs (second chart from top) on continued strength in the Cumulative NYSE TICK (second chart from bottom).

There are other signs of strength as well. The S&P 500 sectors that I follow moved smartly into a bullish short-term trending mode, with sectors that reflect themes of economic strength dominating. As the very helpful chart from Decision Point indicates, the advance-decline line for NYSE common issues (bottom pane, bottom chart) has also moved to new highs for this rally.

As I've noted in earlier indicator updates, the ability of the market to make new highs even when we are overbought in the Cumulative Demand/Supply Index (top chart) is characteristic of bull market action. Pullbacks in Demand/Supply become opportunities for further buying and fresh price strength.

We're at a point in the Cumulative DSI in which it would not be surprising to get one of those pullbacks. To sustain the uptrend, we should stay above the price lows registered this past week and we should continue to see new 20-day highs outnumbering new lows. As long as the indicators above continue to show strength, it is premature to fade this rally.

As always, I will be tracking Demand and Supply, new highs/lows, and short-term trend behavior each day prior to the market open via the Twitter posts. Subscription is free of charge; the latest five tweets appear on the blog page.


Darren said...

Indicators are great, but what are your thoughts on the built up belief that Q1 earnings will show improvement in the economy? My guess is that not only will Q1 be weak, but so will the forward looking statements.

A blow like that, especially after the media twists it, could give way to some downward pressure. The bull's are already fragile as is.

GS751 said...

these are one of my favorite posts you do. I truly believe from a global macro standpoint that 666 is not the bottom, and am conviced we are headed into a Multi year bear Market. Have you taken a look at the earnings section of Decision Point.

JMcD said...

Can you give me a link to your definition of DSI? Thanks.

Brett Steenbarger, Ph.D. said...

Hi Darren,

I don't really try to crystal ball those things: I try to stick to what stocks and groups are actually doing.


Brett Steenbarger, Ph.D. said...

Hi GS751,

Yes, lots of difference of opinion re: earnings. To me, doesn't make much difference as long as institutions are behaving in a readable way.


Brett Steenbarger, Ph.D. said...

Hi JMcD,

My recent post on AM preparation defines many of the indicators that I follow; thanks--