Last week's indicator review noted, "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." We did indeed get that testing of lows on Thursday morning, followed by a vigorous afternoon rally, and then by a swoon on Friday. By the end of the week, the various S&P 500 sectors remained in a downtrend, with money flow negative on the week and a weak advance-decline line for NYSE common stocks.
The Cumulative Demand/Supply measure (top chart) remains moderately oversold, and we're coming off of expanded new 65-day lows (middle chart) among NYSE, NASDAQ, and ASE stocks on Thursday. Each selloff since October has resulted in fewer stocks making new 65-day lows, but we have also been unable to sustain periods in which new short-term highs have outnumbered new lows. This lack of buying interest is reflected in the Cumulative NYSE TICK line (bottom chart), which has been falling steadily through the week.
So that's the dilemma: while recent selloffs have not been as broad and sustained as in early October, neither are we yet getting indications of sustained buying interest. Until that occurs, it is premature to assume that a durable intermediate-term bottom is in place. The followthrough to Friday's weakness--whether we can hold Thursday's lows--will tell us a great deal about how much firepower the bears retain.
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