Potential Fissures in the Bear Market Foundation

I'll be posting my full indicator review this weekend; here's last week's review for reference. We're getting into the area where we're testing closing price lows from January; whether those levels can hold or not is the crucial question facing traders in coming days.

Thursday we saw 317 new 20-day highs and 2268 new lows across the NYSE, NASDAQ, and ASE. A little further out, we have 128 new 65-day highs against 914 lows. Compare this with the 3943 new 65-day lows at the January lows, and you can see that most stocks have not exceeded those lows. Going still further out and looking only at common stocks that trade on the NYSE, we see that, on Thursday, we had 13 new 52-week highs and 181 new lows. That is the highest level of new lows since the January bottom, but note that at that prior bottom we had 700 new lows among NYSE common issues. Indeed, we're seeing many fewer new lows now than January across all major exchanges and indexes.

Meanwhile, we're getting oversold. Among S&P 500 stocks, we are again seeing less than 20% of stocks trading above their 50-day moving averages, which has marked recent intermediate-term lows. Interestingly, we're seeing 22% of SPX stocks trading above their 200-day moving average, which is above the 14% level seen in January--another potential divergence.

On the bearish side, we're seeing new Advance-Decline lows for NYSE common stocks and S&P 600 small caps, but not yet for SPX stocks.

To be sure, stocks are still weak; they could get weaker and still maintain these divergences. My Demand figure closed at 20 on Thursday, with Supply at 139. That means 7 times more stocks are trading below the volatility envelopes surrounding their moving averages as trading above them. Still, my Cumulative Demand/Supply indicator, which has done a superlative job of tracking intermediate-term highs and lows in recent months, is nearing a buy signal at -23.

All in all it's prudent to wait for signs of growing strength in the indicators before making major commitments to the upside. And I'll want to see some indications of confidence in financial stocks and credit markets before putting considerable risk on the long side.

But make no mistake about it: the bearishness is thick. We've had put volume exceeding call volume for equities for five consecutive sessions. The traffic on my website has once again swelled, as at the March, August, and January lows. Back in July, when stock indexes were near their highs, the indicators were showing cracks in the bull market foundation. Now we're seeing potential fissures on the bear side. That has me still quite cautious, but ready to pounce if and when the bears are forced to cover their quite exposed backsides.
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