Monday, June 01, 2009

Indicator Update for June 1st

Last week's indicator review concluded that "I continue to view us as within the May range, leaning toward fading range extremes unless expanding new lows and collapsing NYSE TICK tell us otherwise." We did not see an expansion of new lows or a decline in the Cumulative TICK this past week and, with Friday's late rally, ended up knocking on the door of 2009 bull highs.

My range-based view remains intact, however, until we can see breakout strength among the sectors and the indicators above. (I will cover Cumulative TICK in a separate post shortly). We continue to see waning upward momentum among stocks, as captured by the Cumulative Demand/Supply Index (top chart); we're also seeing fewer NYSE, NASDAQ, and ASE issues registering fresh 65-day highs. Even among the S&P 500 sectors, there is mixed performance relative to the momentum highs of early May.

This weakness shows up in the advance-decline line for NYSE common stocks, as posted by the excellent Decision Point site. (By the way, their tracking of advance-decline lines specific to the S&P 500 sectors is especially informative). Although we hit a bull market high in the NYSE Composite Index (bottom chart), the advance-decline line for NYSE common shares is lagging a bit. That lag is even more pronounced among S&P 600 small cap stocks, suggesting a narrowing of the base of this rally.

I will need to see a broadening of that base before concluding that Friday's strength is the start of a fresh bull leg higher. Should we fail to sustain new price highs across the major indexes, I would expect a return to well within the trading range defined by the highs and lows of the past several weeks. As always, I will post the major indicators to Twitter prior to the open of each market day; free subscription via RSS here.