Sunday, January 03, 2010

Indicator Review for January 3rd, 2010

Here's a look at a few market indicators as we get ready to start a new year and new decade:

* TECHNICAL STRENGTH - This is my proprietary measure of short-term trending that I use to track eight S&P 500 sectors weekly (top chart). We can see that only two sectors--Materials and Technology--remain in uptrends and only Health Care is displaying a downtrend. The remainder of the sectors are in neutral territory, suggesting rangebound trade. The reversal in strength week-over-week for Health Care was notable; only Financial stocks picked up a bit of strength from last week.

* NEW HIGHS/LOWS - The bottom chart tracks 20-day new highs minus new lows across the NYSE, NASDAQ, and ASE. Note that we peaked early in the week and fell off from there, as the market turned more rangebound. New 20-day highs continue to outnumber new lows, so there is no indication as yet of any reversal of trend. Interestingly, we have not exceeded October's readings on new 52-week highs, suggesting that the recent market move to new highs has missed a number of stocks. (Note that the NYSE Composite Index also has failed to sustain bull market high prices).

* ADVANCE/DECLINE LINES - I notice that the A/D line specific to NYSE common stocks has returned to its October peak. The same is true of the line specific to S&P 600 small cap stocks. The line for all NASDAQ stocks has not yet reached its October high, but the lines for the large cap S&P 500 and NASDAQ 100 stocks remain in uptrend modes. Again, this suggests some selectivity to the recent market strength.

With Thursday's late selloff and waning strength in the sessions before that, we're now trading in a range mode. A move of the Russell 2000 Index back into its September/October range and a move of the S&P 500 Index back into its late November/early December range would look like a failed breakout move and could lead to a meaningful price reversal. We need to see an expansion of new 20-day highs; sectors trading in uptrending modes; and a broadening of strength into secondary issues to sustain this bull market.