Tuesday, September 16, 2008

Divergences Continue in the Stock Market

Hats off once again to the Decision Point site for their excellent coverage of indexes and indicators. While the woes of financial firms and the health of the financial system have dominated media headlines, we've been making fresh annual lows in the S&P 500 large cap index (top chart, top pane). Interestingly, the advance-decline line specific to the S&P 500 stocks (top chart, bottom pane) remains above its July lows, suggesting that a large share of the index's weakness is attributable to a relatively small subset of stocks and sectors.

When we look at the S&P 600 small cap stocks (bottom chart, top pane), we can see that they have not followed the large caps to new bear market lows. Similarly, the advance-decline line specific to the 600 small caps (bottom chart, bottom pane) is well off its July lows.

I continue to observe that the market is not as unhealthy as the headlines would lead us to believe. Fear is certainly present: Put option volume among equities has been at multiweek highs for two days running, handily exceeding call option volume. The VIX has moved nicely north of 30. Among the S&P 500 stocks, however, 92 made annual lows on Tuesday, up from 150 in July. Among the 600 small caps, only 33 made 52-week lows on Tuesday, up from over 100 in July.

And there's those fuzzy indicators: Traffic on the blog is way up, reflecting trader uncertainty and desire for information. I just fielded my fourth media interview request in two days. During quiet and bullish market periods, I don't get four requests in a month. Like I said in my recent post, I'm trading like a bear, but watching for investment opportunities like a bull.