Saturday, March 29, 2008

Picking Up on a Stock Market Trend

There are many ways of picking up on a stock market trend that helped identify the weakness during Friday's session. Among those that I've emphasized in recent posts, the weakness among financial issues and the persistent weakness in the NYSE TICK were two notable tells.

Another indicator worth keeping an eye on intraday is the number of advancing minus declining stocks on the NYSE ($ADD on the five-minute e-Signal chart above; bottom chart). Note how advancing stocks led decliners early in the morning, but then saw that advantage wane and then turn negative around 11 AM CT. From there, each decline in stocks added more stocks to the list of daily decliners, a sign that the market weakness was broad-based.

On another note, observe how the banking stocks ($BKX; top chart) have retraced much of their recent rally during the past several trading sessions. No doubt, Wall St. speculation regarding cutting of dividends hasn't helped. Still, if the extraordinary steps taken by the Fed were seen as taking the banks out of jeopardy, it's hard to believe we'd be seeing the current retracement. Increasingly, each day's trading is amounting to a vote of confidence in the U.S. financial system. The swings of optimism and pessimism are contributing to both intraday volatility and to the relative frequency of trend days.