Monday, March 24, 2008

Indicator Review for March 24th

Back on March 7th, I began noticing a drying up of stocks making fresh bear market lows relative to January, noting some cracks in the foundation of the bear market. These divergences were also apparent in my last indicator review, which was waiting for stabilization among the financial stocks before aggressively taking the long side. The market did give us fresh price lows on Monday of this past week, but once again the divergences relative to January were present. With increasing Fed activism, those financial stocks rallied for the remainder of the week, posting a three-week closing high in the banking index ($BKX). Moreover, the same is true of the housing sector index ($HGX), which managed to hold above its price lows from January. As I write, the ES futures are knocking on the door of important three-week resistance around 1345 in the June contract. Are those financials leading the broad market higher?

Let's see what the indicators are saying:

New Highs/Lows - We can see from the top chart that, despite vigorous buying in the sectors hit hardest by the recent selling, new 20-day highs continue to lag new lows. Indeed, even with Thursday's price strength, we had 608 stocks across the NYSE, NASDAQ, and ASE make fresh 20-day new highs against 1391 new lows. This suggests that, at least so far, the buying is selective and not lifting the broad list of stocks significantly. We will need to see expanded new high strength--and certainly greatly diminished new lows--before we can conclude that the recent bounce is anything more than short covering. With 18 new 52-week highs and 73 new lows among NYSE common stocks on Thursday, we also saw an expansion of new lows, but we are well off the 300+ new lows registered on Monday.

Composite Money Flow - In the bottom chart, I combined the raw money flows across the 40 stocks from the eight S&P 500 sectors that I reviewed, so that we could see how total five-day money flows have been running vis a vis SPY. What we can see is that total money flow has been running below the zero line for the most part and is negative at present. This supports what we're seeing with the new high/low data: despite the recent price bounce, we're not yet seeing large influxes of funds into equities. I will be watching this indicator, along with the new highs/lows, on any test of the above-mentioned multi-week resistance in ES to handicap the odds of upside breakout vs. reversal. That's an issue that has important implications for the bear market and its longevity.

Advance-Decline Lines - The Advance-Decline Lines specific to the NYSE common stocks, SPX stocks, S&P 600 small caps, and NASDAQ 100 issues all made new lows last week and are only modestly hovering above those lows. The AD Lines specific to the eight S&P 500 sectors reviewed this past weekend for money flows also are near their bear lows; none is yet showing sustained strength.

I will post a separate analysis of the Cumulative NYSE TICK later this week. Suffice it to say that the TICK supports the findings from the three sets of indicators above: only tepid strength coming off the recent price lows. I need to see greater evidence of sustained buying interest before concluding that we've seen a turn in the recent bear market.