Tuesday, May 19, 2009

Indicator Update for May 19th

Last week's indicator review found that buyers continued to hold the upper hand in the market, with signs of bullish sentiment and sector behavior. Since that time, we did see selling into the end of this past week, taking most of the S&P 500 sectors into neutral trending territory. While new 20-day lows exceeded new highs on Wednesday and Thursday--the first time that has occurred since the March rally began--that situation changed by Friday, as new lows in the large cap indexes were not widely confirmed. With Monday's impressive rally, we now stand in a wide trading range defined by last week's price lows and the bull move highs.

We are tracing a pattern of lower highs in the Cumulative Demand/Supply Index (top chart); once those peaks are no longer accompanied by fresh price highs, we will have a potential intermediate-term sell signal. Similarly, any tests of the bull highs that fail to expand the number of stocks making fresh 65-day highs (middle chart) and/or fail to make new highs in the advance-decline line posted by Decision Point (bottom chart) will lead me to expect continued range trading, rather than a resumption of the bull. Conversely, should we see expanded participation in a new leg up, that would be a powerful sign of an ongoing bull market.

I am expecting last week's lows to hold this week, as trade will likely become quieter heading into the holiday weekend. Should we break those lows across the major indexes, that would be a clear indication of fresh downside participation and would almost certainly turn the indicators bearish on an intermediate-term basis.

I will be updating the indicators each morning prior to the market open via Twitter (follow here) and will be posting intraday market updates to the blog as time permits.