Tuesday, April 27, 2010

Decision Point and the Value of Market Overview

As I wind down the blog, I want to offer a shout out to the excellent Decision Point site, which has served for a long time as a valuable information source for me. I find it to be the best single source for tracking sector behavior in the stock market, as well as key market indicators. A review of the charts each week provides an excellent overview of how the market is trading.

One valuable aspect of such chart review is that it enables traders to synthesize information into broad market themes. It also helps traders identify when markets are in trending or range bound mode and whether they are gaining or losing strength/weakness.

At this juncture, those charts are telling us of a bull market that has been transitioning from mounting a wall of worry to riding a path of euphoria. New 52-week highs have continued to grow among NYSE common stocks (top chart), thanks in part to very significant relative strength among small-cap stocks ($SML; middle chart). Indeed, with a steadily rising advance-decline line, $SML is not so far away from its all time highs.

Such strength has emboldened traders. The 10-day moving average of the CBOE equity put-call ratio has been moving steadily lower (bottom chart; note the inverse scaling), as traders become increasingly bullish in the face of rising prices. As a rule, bull markets end with divergences and waning strength; so far, the charts I follow on Decision Point have not been displaying those kinds of cracks in the market foundation.


Brian said...

yeah, and "as a rule" bear markets don't end with v shaped bottoms, but this one clearly did.

your "as a rule" type comments are too similar to the BS wall street platitudes that we hear daily on CNBC etc....

Brett Steenbarger, Ph.D. said...

Hi Brian,

The bear market did not end in a V; it was a two-stage process from the momentum lows of late 2008 to the price low of March, 2009.


Victor Riesco said...

It is very overbought. It is strong, but I think there is a lot of "fuel" for a strong correction.

Then after the panic flushes out weak players, like in early Feb, we can go long and turn off the screen for a couple of months.

Bob said...

What do you mean winding up the blog? This is the first I noticed you may be ending it. Did you do another post on this, and will you leave up what is here?


bleurain said...

Would really appreciate a "Best of TraderFeed" post before you depart.


trevor-es said...

Will the blog archives be off-lined, removed?

Ebisu said...

Two different market internal measurements, two different meanings:

"New Highs" is considered a measurement of general equity market strength. Large numbers reflects strength. Surely we are all familiar with the "Hindenburg Omen" and how "New Highs" is part of that equation. We are nowhere near any kind of situation that would prompt talk of the "Omen" (which last occurred in June 2008; we all know what followed that).

CBOE Put-Call ratio measures trader sentiment more. A very bullish reading usually precedes a very sharp selloff, like we had on April 16 (a very bullish reading on April 14) as well as today (a very bullish reading yesterday).

Another useful measurement is the McClellan Oscillator, which does a very good job of signal market turns.