Tuesday, September 08, 2009

A Look at Advance-Decline Strength Among Stocks

I recently posted an indicator review illustrating momentum and strength divergences at recent highs in the stock market. Above we see an excellent chart from Decision Point that tracks the advance-decline line specific to S&P 500 stocks. As we can see from the bottom pane in the chart, we have moved back to highs in that indicator.

A great feature of Decision Point is that they cover advance-decline lines specific to other indexes and sectors. For example, we are not at prior peak levels in the A/D lines specific to S&P 600 small caps and the broad NASDAQ Composite, but we are at those peaks in the A/D line for the S&P 400 midcaps and the NASDAQ 100 stocks, as well as most S&P 500 sectors.

This suggests that it may be the smallest cap stocks that are lagging in the current market. I note that, even after Monday's rise, we had 1338 stocks across the NASDAQ, NYSE, and ASE make fresh 20-day highs and 899 register 65-day highs. Both numbers are stronger than the day before, but both still lag the levels of new highs seen in July and August.

I will be watching closely to see if any test of new highs in the major indexes can continue to attract broad participation. For the second consecutive day, we closed with a very strong Demand/Supply ratio, indicating that far more stocks are trading with significant upside momentum than downside momentum. That is not what we'd expect of a market ready to roll over.