Monday, March 03, 2008

Indicator Update for March 3rd

In my last indicator update, I concluded that, "All in all, the evidence is suggesting an absence of bullish interest, as observed in the NYSE TICK, the weak new highs/lows, weak momentum, and tepid AD Lines." This past week, not much has changed that assessment.

* New Highs/Lows - We can see from the top chart that new 20 day lows vs. highs have continued to expand, with 395 NYSE, NASDAQ, and ASE stocks making fresh highs and 1665 making new lows. As long as new lows are expanding, it is premature to be bottom-fishing for anything other than a short-term trade. At a wider time frame, we had 15 NYSE common stocks register fresh 52-week highs on Friday, against 99 new lows. The latter is the highest number of new lows since the January bottom. Among S&P 500 stocks, we had no annual highs on Friday against 26 new lows; among S&P 600 small cap issues, we had 2 new 52-week highs and 37 new lows. All in all, we're seeing a deterioration of strength, though new lows are well off their very expanded levels from late January.

* Cumulative Adjusted TICK Line - Note from the second chart above how the recent market bounce was not at all confirmed by our Cumulative Adjusted TICK Line, suggesting that bullish participation was waning. Since then, we've broken to new lows in the Line, confirming what we're seeing among the new highs/lows. We need to see bullish sentiment sustained before we can put in a durable market bottom. The TICK Line bounce from the January lows was impressive, but has since faded. My readings from Thursday and Friday suggest both an absence of buyers (low positive TICK readings) and an excess of selling pressure (extreme negative TICK readings).

* Overbought/Oversold - The bottom chart tracks the cumulative line for my Demand/Supply Indicator, which has been a very good overbought/oversold measure of late. We see deterioration in the cumulative line in keeping with the new highs/lows and TICK, as we've entered oversold territory. Note that readings below -30 have typified recent market lows on a short-to-intermediate term basis; we're currently around -10.

* Advance/Decline Lines - The AD Line for NYSE common stocks remains above its January lows, though not by much. The same is true for the AD Line specific to S&P 500 and NASDAQ 100 stocks, but we're seeing marginal new lows in the AD Line for the S&P 600 small caps and the broad NASDAQ Composite. This is telling us that small caps have resumed weakness relative to large caps. All of these lines are in downtrends longer-term.

* Momentum - Among S&P 500 stocks, we're seeing 24% trading above their 50-day moving averages, a significant deterioration from the 55% at the recent market peak. Similarly, we're seeing 29% of S&P 600 small cap stocks trading above their 50-day MAs, down from 51% recently. My Demand/Supply measure of short-term momentum was very weak on Friday, with Demand at 24 and Supply at 228. It is not at all unusual for momentum to hit extremes before we see actual price highs or lows for a market move.

All in all, we continue to see deterioration in the indicators and a possible test of the January lows in the making. I am not inclined to buy this market until we see definitive evidence of greater buying interest, momentum, and strength.