Monday, February 04, 2008

Indicator Update for February 4th

* Persistent Strength - We can see from the 20-day new highs minus lows for the stocks traded on the NYSE, NASDAQ, and ASE that we have bounced sharply off the recent lows and have been expanding the number of stocks making new highs each day. Indeed, Friday closed with 1728 new 20-day highs against only 256 new lows. Among NYSE common stocks only, we had 31 new 52-week highs against only 6 new lows. This strength has been mirrored by the very positive sentiment expressed in the Adjusted NYSE TICK, which has closed positive 7 of the last 9 trading sessions and quite positive for the last two sessions. I generally have not found it profitable to fade the market for anything more than a short-term trade when such strength is evident.

* Momentum Strong as Well - My Demand/Supply Index was solidly positive every single day last week. That's an unusual amount of strength and suggests persistence of buying across a wide range of issues. My Cumulative Demand/Supply measure is in overbought territory per my recent post, but as long as Demand exceeds Supply and new highs are expanding, it is premature to sell this market. On a longer time frame, we now see 49% of SPX stocks trading above their 50-day moving averages, up from 8% at the market lows. The bounce has been equally strong among small caps, with 50% of the S&P 600 small caps now trading above their 50 day MA.

* Bullish Shift - Technical strength among the stocks in my basket has shifted to the upside, with 21 issues trading in uptrends, 10 neutral, and only 9 in downtrends. Two of the formerly weak sectors, financials and consumer discretionaries, are now solidly bullish, suggesting bargain hunting among investors. The Advance-Decline Lines for the NYSE common stocks only and for the S&P 500 stocks remain below their December highs, but have bounced well off their recent lows.

In sum, we've been seeing bargain hunting and persistent buying following the efforts to stabilize the markets with fiscal and monetary measures. I will need to see waning momentum, a rise in the number of stocks making fresh 20-day lows, and weakness in the technical strength numbers before anticipating any correction or retest of market lows.


Last Week's Indicator Update

Technical Strength by Sectors