Monday, March 29, 2010

Indicator Update for March 29th

Last week's indicator review found that we had retreated from a momentum peak, but could likely experience higher prices going forward. Little has changed since that report; upside momentum has waned, but price has corrected only modestly.

We can see from the Technical Strength (a proprietary short-term measure of trending) of the sectors that most of the sectors remain in a bullish mode. The exceptions are the commodity-related sectors, Materials and Energy, and the uncertainty-laden Health Care stocks. Particularly strong are the Consumer Discretionary, Financial, and Technology areas, suggesting that we're responding to themes of strong economic performance. Most important from the vantage point of the sectors is that we seem to be correcting via sector rotation, rather than by wholesale selloff.

Momentum, as measured by the Cumulative Demand/Supply Index (middle chart), has moved toward the zero area. In a bull mode, we can get successively higher price highs on lower Cumulative DSI readings before the market as a whole turns over. New 20-day highs only slightly outnumbered new lows on Friday (bottom chart), with the 20-day lows expanding to over 500. This is a measure I'll be watching for possible further deterioration. As long as new highs outnumber new lows, I consider the intermediate-term trend to be bullish.

While the trend remains higher, I am vigilant for divergences that could show up if we test the bull market highs. Those would have me cautious about chasing the upside, as we could see further rotation and correction before starting any fresh leg higher. As always, I'll be updating indicators daily via Twitter before the market open.