Wednesday, October 28, 2009

A Look at Recent Market Weakness: Technical Damage

Note the price breakdowns today in the Russell 2000 Index (IWM; top chart); banking stocks ($BKX; middle chart); and homebuilding stocks (XHB; bottom chart). Each group has broken below recent lows, making multimonth lows.

I note also that, today, we registered 790 new 65-day lows among NYSE, NASDAQ, and ASE issues. That is the highest level of new lows since the March stock market bottom. What that means is that an increasing number of stocks are no longer in a bull market mode of making higher price lows on pullbacks.

We've also taken out the early October low in the advance-decline line specific to NYSE common stocks, as reported by Decision Point. Clearly the recent drop has inflicted some technical damage to this market. As mentioned earlier, as long as we continue to expand the number of stocks making new lows and Supply is handily outstripping Demand, it is premature to try to call a market bottom.