Thursday, October 25, 2007

Advance-Decline Line Dynamics and Other Items On the Thursday Radar

* Lagging Advance-Decline Line
- Above we see a great chart from Decision Point. It tracks only the common stocks within the NYSE universe. Throughout the recent bull market we can see that the Advance-Decline line for the NYSE common stocks has confirmed price rises--until very recently. Note how the most recent high in the NYSE Index was not accompanied by a fresh peak in the AD line. A look at advance-decline lines that are sector specific finds that the line for the S&P 600 small caps is actually making new lows, as are the lines for financial and consumer discretionary stocks within the S&P 500 universe. The lines specific to the Dow Industrials and S&P 500 have made new highs recently. This continues to be a large cap led market, with notable weak sectors related to housing, banking, and certain consumer areas.

* What's Holding Up Well? - Four stocks in my forty-stock basket (five most highly weighted stocks within eight S&P 500 sectors) show particular relative strength: MO, KO, MSFT, and MRK. That having been said, looking at my Technical Strength measure (which quantifies trending behavior), we have 8 stocks qualifying as technically strong, 11 as neutral, and 21 as weak. What that tells me is that, even among the relatively strong large caps, strength is selective at present. Here's a post on the Technical Strength measure; note that I track Technical Strength (along with other measures of momentum and strength) each day in my Twitter comments. The most recent five Twitter comments appear on the home page of this blog (under "Twitter Trader"); the entire set of comments can be found on my Twitter page.

* Strongest and Weakest Sectors - The excellent Barchart site ranks industry groups by their intermediate-term relative strength. The strongest, from top down, are agricultural chemicals, shipping, copper, personal computers, technical services, and internet service providers. The weakest, from bottom up, are residential construction, surety title insurance, home furnishing stores, toy and hobby stores, home improvement stores, and department stores. Housing and the consumer seem to be the problem areas. Sectors benefiting from the weak dollar are among the leaders.

* Thoughtful Subprime Comments and More - A worthwhile perspective linked by Trader Mike analyzes what got us into the mess. See also his link to the article on blogs as takeover targets. It's difficult to appreciate the inroads blogs have made in a short time. I was recently approached about speaking to a major investor conference that would attract well over 1000 participants. Many of the financial blogs, this one and Mike's included, address much larger audiences every day. But the average blog visitor only spends a few minutes on each site. Clearly, there's been a shift in how people access information and engage the media.

* Seasonal Trends - Kirk examines seasonal trading patterns and stocks broken down by monthly performance. Markman has also done some nice work in this area in his Online Investing book.

* Macro Views of Markets - The rise of emerging markets and diversification isn't what it used to be: more worthwhile links from Abnormal Returns.

* Worthless Indicators - Great video clip from Fox Business and Jon Hoenig.