Last week's indicator review noted considerable strength among the indicators, overbought readings, and resistance around the 1000 area of the S&P 500 Index. After some continued strength early in the week that briefly took us above that 1000 region, very strong selling hit the market for two consecutive days before a bounce on Friday left us pretty much in the middle of the wide range defined by the October lows and the recent price highs. As I noted in that earlier review, until I observe signs of breakout or breakdown among the indicators, I continue to view this action as part of a bottoming process that started with a momentum low around October 10th.
We continue to see signs of buying interest in the Cumulative Adjusted NYSE TICK line and a downward trend in the number of stocks making fresh 20-day lows. Overall, however, the majority of stocks within the major S&P 500 sectors are in short-term downtrends. We have come off very overbought levels in the Cumulative Demand/Supply Index (bottom chart) and finished on Friday at relatively neutral levels. While we've seen a reduction in the number of issues making new 65-day lows (top chart), we have not yet seen a meaningful expansion of 65-day highs, given the sharp market decline of the past few months.
The advance-decline lines specific to the S&P 500 large cap stocks and the S&P 600 small caps are off their late October lows, but also off their recent highs after the strong two-day selloff. That 1000 region of the S&P 500 Index remains important resistance; we saw plenty of sellers enter the market when we hit that mark. Unless and until we can pierce that level with some decisive breakouts among the indicators, I view this as a range market and expect further testing of market lows.
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