Monday, June 16, 2008

Indicator Review for June 16th

Last week's indicator review found little to be excited about for the bulls, with a weakening picture across the board. This has led to a flow of funds out of stocks over the past week and further indicator weakness.

Across the NYSE, NASDAQ, and ASE, new 65-day lows continued to expand this past week (top chart), far outnumbering new highs. For three consecutive days, we registered over 2000 20-day lows, a situation that, since 2004, has tended to lead to a market bounce over the following week. Among just the common stocks listed on the NYSE, we hit 150 new 52-week lows at last week's nadir, which is significant weakening over the prior week, but not nearly as weak as the readings in January and March. This pattern of expanding new 52-week lows was evident among the S&P 600 small caps as well and, to a lesser degree, among the S&P 400 midcaps (which have been the strongest group of the three during the post-March rally).

With the selling, as noted in a recent Twitter comment, we've neared oversold levels (bottom chart) in the cumulative Demand/Supply index which have recently marked intermediate-term market lows, and we've hit levels from which the market has typically shown positive returns over the next month. Still, we'll need to see more sustained strength in the new high/low numbers and the money flows to get excited about the upside.

The market weakness has extended to most stock sectors. After dipping a bit below 30% during the week, the percentage of S&P 500 issues trading above their 50-day moving averages closed at 47% on Friday. That's down from 80% at the market high. The Friday percentages for small caps and midcaps respectively are 51% and 55%. Once again, we see considerable variation among the sectors: as of Friday, only 28% of S&P 500 financial issues are trading above their 50-day averages and 37% of consumer discretionary stocks, but 83% of energy stocks and 59% of technology shares are above their benchmarks.

Later this week, I'll devote a separate post to the Cumulative NYSE TICK, which has been making consistent new lows through the week, validating what we're seeing in money flows. Until we see greater evidence of demand for stocks, it will be difficult to sustain a bull move. That having been said, I'm not yet seeing the kind of selling that typified the markets in the first quarter of this year. As long as that's the case, we appear to be trading in a broad range defined by the March lows and the recent market highs.