Sunday, May 17, 2009

Market Thoughts Going Into The New Week

A number of traders I've talked with have been concerned about the weakness we saw in the S&P 500 Index (top chart) late last week. Should we decisively take out the past week's lows across the S&P 500, NASDAQ 100 (bottom chart), and Russell 2000 Indexes, that certainly would keep momentum in the bear's court.

Interestingly, though, we started the recent weakness with lagging performance among the NASDAQ stocks, but those held nicely above their prior two day lows on Friday (bottom chart). We also saw non-confirmation of the Wednesday and Thursday lows among the Russell 2000 stocks (IWM).

Indeed, Friday registered more stocks making 20-day highs than lows (456 vs 404), which we did not see either Wednesday or Thursday.

I went back to 2000 and examined all occasions when we were up in the S&P 500 Index ($SPX) on a 60 and 20-day basis, but down for the most recent week. Over the next four trading sessions, we averaged a gain of .19% (163 occasions up, 102 down). Conversely, when we've been up on a 60, 20, and five-day basis, the next four sessions have averaged a loss of -.18% (301 up, 341 down).

In short, there has been no bearish edge when we have had a down week in a market that has been up over the past month and three months. Should we be able to hold last week's lows, especially in the NASDAQ 100 and Russell 2000 Indexes, keeping 20-day new highs above new lows, that would look favorable for the bulls. As always, I'll be tracking new highs and lows, as well as other indicators and sectors, via Twitter (subscription is free via RSS).