Sunday, January 06, 2008

Reviewing the Stock Market Indicators

* Beginning of Some Buying? - Despite the ferocious weakness on Friday, the Cumulative TICK line has held above its prior low and is holding, so far, above its November lows. I break down the TICK into separate buying and selling components; unlike the past two weeks, we're seeing an increase of buying, not just diminished selling.

* Twenty-Day New Highs/Lows - The nascent TICK strength notwithstanding, we've seen a steady expansion of new 20-day lows every day this past week, and it doesn't pay to stand in the way of that. On Friday, we registered 570 new 20-day highs and a whopping 2706 lows. The 1666 new 65-day lows were the highest we've seen since November 20th, when we hit 1944. It's when we see fresh price lows and fewer stocks making 20-day lows that I am more inclined to nibble at the buy side.

* Annual New Highs/Lows - Now for the bad news. New 52-week highs expanded dramatically on Friday. If we limit our look to common stocks trading on the NYSE, we see that we had 14 new annual highs and 433 new lows on Friday. By contrast, we only had about 300 new lows in November and back in August. This tells us that the market is weakening, not getting stronger. This is largely a function of weakness among small caps. Among the S&P 600 small caps, we had 1 new high on Friday and 165 new lows--much weaker than November or August. Among S&P 500 issues, we had 1 new high and 129 new lows, also exceeding the November and August readings. Among NASDAQ 100 stocks, we had 3 new highs and 23 new lows on Friday, also weaker than November and August. Nothing bullish in these data.

* Momentum - Among NYSE stocks, we're seeing 19% closing above their 50-day moving average on Friday; among SPX stocks that proportion is 18%. This has been a level at which we've seen rallies over the past several years. I note, however, that 34% of SPX stocks are trading above their 200-day moving average, and that's higher than levels we had at the last bear market lows in 2002-3.

* Advance-Decline Lines - The advance-decline line specific to common stocks traded on the NYSE has now moved below its August and November lows. Again, that reflects weakness among small caps. The AD Lines specific to S&P 500 stocks and for the NASDAQ 100 stocks are hovering right at their August lows and below November levels.

In sum, with expanding new lows, weak momentum, and weakening advance-decline lines, it's tough to step up to the plate and buy here. The fact that many of these indicators are breaking levels from August and November lends credence to the bear market hypothesis, even though large cap indexes are currently holding above those levels.