Thursday, May 18, 2006

The Market is at an Important Juncture

After attempting a recovery this AM, the market fell in late trading, making new lows for this recent decline. As a counterpoint to the late bearishness today, allow me to point out a few perspectives:

* Across the broad universe of operating company stocks, we made 2026 new 20-day lows today--fewer than the day before.

* My Demand/Supply Index, which tracks stocks with very strong and very weak momentum, shows greatly reduced downside momentum. Demand was 42 today; Supply was 37.

* Today we had 13 new 52-week lows in the S&P 500, down from 23 the day before. We had 13 new lows in the S&P 600 small cap issues, down from 18 yesterday. We also had 12 new lows in the S&P 400 midcaps, down from 14 yesterday.

* Finally, a total of 15% of NYSE issues are trading above their 20 day moving average. The last times we've had readings below 20% have been October, 2005; April, 2005; August, 2004; and May, 2004. Those were excellent intermediate-term buying opportunities.

Yes, this may be the start of a new bear market. If so, we should see an *expansion* of new lows and *increasing* downside momentum. If we do not see a continuation of the late weakness tomorrow and continue to see new lows and downside momentum dry up, the odds of a market bounce will be greatly enhanced.

I will be following the new highs/lows and momentum studies carefully on the Trading Psychology Weblog in my next post Saturday.