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.