* New Highs/Lows - As of Friday's close, we weren't yet seeing an expansion of fresh 20-day lows relative to last week's readings (top chart). Opening weakness on Monday should test this, and indeed pose an important test. We also still are not seeing an expansion of new lows relative to the January lows. For example, on Friday we had 36 NYSE common stocks make new 52-week highs and only 141 make new lows. Last week, we registered over 220 new annual lows among NYSE common issues, and in January we had over 700 new 52-week lows. The same pattern can be seen among SPX stocks: we had 2 new 52-week highs and 40 new lows. Last week, we saw over 70 new lows among SPX stocks; in January we had over 200 fresh annual lows. The identical pattern of dwindling lows can also be seen among the S&P 600 small cap issues. Interestingly, I don't see any commentary on this; the bearish behavior of the financial issues is getting all the press, while fewer stocks make new lows over time. Clearly these are perilous times for financial markets, and I am not holding long positions until I see stabilization among financial, housing, and other weak sectors. The bulls need to see us hold at these January lows; otherwise we could see quite a capitulation.
* Overbought/Oversold - We continue oversold in my Cumulative Demand/Supply Index (bottom chart), having hit a level last week that has tended to accompany or immediately precede intermediate-term market bottoms. Note, however, that we are tracing a pattern of lower price highs at overbought levels and lower price lows at oversold levels. This is the essence of a bear market. While we could get a rally from current oversold levels, we need to see a pattern of higher price highs at overbought levels to infer a change of trend. Shorter-term, among the 40 stocks in my basket (equally divided among 8 SPX sectors), we have 4 stocks in uptrends, 13 neutral, and 23 in downtrends. The Technical Strength Index is oversold at -1500, but above extreme oversold levels from last week.
* Momentum - We see a pattern with the momentum data very similar to the new highs/lows. Among SPX stocks, we're seeing 20% trading above their 200 day moving averages as of Friday, up from 15% last week and 13% in January. This pattern of rising % of stocks above 200-day MAs is even more noticeable among NYSE issues. Demand was 37 on Friday; Supply was 92, so short-term momentum remains bearish. Thus far we are remaining above last week's advance-decline line among NYSE common stocks (as well as NASDAQ 100 stocks and S&P 600 small caps), but that could change with weakness early this week.
All in all, we can see from the indicators that we're in a bear market mode; that we're testing the January lows; that weakness among financial stocks has been leading recent market weakness; but that there are early signs of waning new lows and waning downside momentum across the broad market. Taking day-to-day market cues from the financials has been a winning strategy, and I plan to stick with that. I am reluctant to chase new price lows, however, in the face of non-confirming new lows and momentum--particularly if we see stabilization among the financials (which would have me nibbling on the long side).
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Last Week's Indicator Update
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