Last week's indicator review concluded that "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." What followed in the past week was a broadening of the decline and a move, not only to new bear market lows, but also below the bear lows of 2002/2003.
Sentiment, as measured by the Cumulative NYSE TICK, has been quite bearish during the past week; price weakness has extended to all major sectors. The Cumulative Demand/Supply Index, which generally does an excellent job of tracking intermediate-term market highs and lows (top chart), is back at levels from which we've typically seen intermediate-term rallies. Note, however, that we continue to see a pattern of highs and lows in the Cumulative DSI corresponding to lower price highs and lower price lows. That is typical action in a longer-term bear market.
The number of NYSE, NASDAQ, and ASE stocks registering fresh 65-day lows expanded dramatically last week (bottom chart), hitting its most extreme level since the second week of October. Once again, the weakness was quite broad. On Thursday, for example, almost 1100 NYSE common stocks made fresh 52-week lows; 300 of the S&P 500 stocks and 323 of the S&P 600 small caps also made annual lows. The advance-decline line specific to NYSE common stocks and the line for the two S&P averages all made fresh bear market lows this past week; money flow for the Dow Jones Industrial stocks was negative on the week.
In short, we have been quite weak, we are at oversold levels that have corresponded to intermediate-term rallies, but so far the indicators are in clear bear market modes. To begin a bottoming process, we need to first see a sustained rally on solid breadth, cumulative TICK, and money flow prior to any further testing of lows. To this point, rallies have been short-lived and have not been accompanied by sustained, positive money flow. We saw a solid money flow rally late on Friday, and we are trading higher today as I write. I will be tracking the indicators closely each AM via Twitter to see if this rally differs from the ones previous.
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