Sunday, October 04, 2009

Indicator Update for October 4th

Last week continued the pullback from the momentum highs noted in the previous indicator review. We can see from the Cumulative Demand/Supply Index (top chart), a cumulated measure of upside and downside momentum, that we are at oversold levels. These levels are close to those that have typified intermediate-term bottoms since 2007.

Note that we've broken down in the 20-day new highs/lows (middle chart), with many more stocks registering intermediate-term lows than highs. Indeed, the number of 65-day lows on Friday was greater than any level posted since the July bottom.

Finally, we see from the excellent (bottom) chart from Decision Point, that the advance-decline line specific to the S&P 500 stocks is approaching its lows from July and August. These levels, both in the A/D line and the new highs/lows, should represent meaningful support if the longer-term uptrend is to remain intact. Taking out those summer levels would suggest a more significant, longer-term corrective process.

At this juncture, I expect those summer levels to hold, placing us at the very least in a broad trading range and setting us up for an eventual test of the bull highs. The indicator readings, however, are losing strength--not bottoming out--so I am not in the mode of catching falling knives. Should we see evidence of diminished selling pressure and downside momentum this coming week, I will likely be nibbling at the long side.