Last week's indicator review noted, "To be sure, the divergences noted in recent posts--most evident in the new high/low figures--remain; the list of stocks making fresh annual lows has been shrinking during 2008. While this is necessary for a market bottom, it is not--in itself--sufficient. Until we see increased buying among institutions, as measured by NYSE TICK, money flows, and broad strength in the other indicators, it is premature to conclude that the bear is ready to hibernate."
The bear has not hibernated, indeed, as the government's rescue package first failed to pass the house, then failed to impress after being packaged with extra government expenditures. Many of the divergences alluded to above broke down in this weakness, including the advance-decline line for NYSE common stocks (bottom chart, courtesy of Decision Point). Stocks registering fresh 65-day lows (second chart) also expanded to July levels; the expansion of 52-week new lows was also notable, reaching their July levels for both NYSE common stocks and S&P 500 issues. With the weakness, we once again touched oversold levels in the Cumulative Demand/Supply Index that, in the last few years, have corresponded to favorable buying opportunities (top chart). As long as the decline is broadening, however, it is perilous to equate an oversold condition with a buy signal.
Late in the week, we did get some evidence of buying from the money flow measure, which was independently corroborated by the Cumulative NYSE TICK (third chart above). My look at sectors and my stock-by-stock analysis of money flow suggests that this buying has been quite selective. We'll need to see greater strength in the advance-decline numbers and the numbers on stocks making fresh short-term highs before we can make too much of this late-week buying. Indeed, with markets poised to open sharply lower this AM, it appears that much of this rescue-package buying is being unwound.
In sum, weakness has expanded this week, not dried up. As long as this is the case, it remains premature to conclude that a durable bottom is at hand.
.
Posts
