Monday, September 21, 2009

Indicator Update for September 21st

Last week's indicator review found consistent strength across the indicators and a bullish bias among intermarket themes. That bias continued this past week, as we saw further weakness in the U.S. dollar and strength in gold and oil. Sectors continued their upward trend, and the advance-decline lines for the major indexes hit fresh bull highs.

As we can see from the top chart of the Cumulative Demand/Supply Index, momentum has expanded during the past week and we're now in moderately overbought territory. New 65-day highs minus lows (bottom chart) hit a bull market high this past week, suggesting that participation in the rally has been strong.

Given the recent slowdown in the market rise--two consecutive daily readings of weak momentum--and the market's overbought status, it would not be unusual to see consolidation of recent strong gains. Momentum peaks (peaks in number of stocks making new highs, peaks in cumulative Demand/Supply) tend to precede price peaks, so I would not assume that near-term weakness is the beginning of a bear turn. Rather, we may see a market go into a topping mode for a while, bringing swings both to the upside and downside and eventual new price highs.

Here are the weekly price targets for SPY:

Pivot = 106.34; R1=108.86; R2=109.36; R3=110.03; S1=103.82; S2=103.32; S3=102.64.

Have a great week trading.