Monday, December 15, 2008

Indicator Update for December 15th

Last week's indicator review concluded that the ball was in the bull's court, as we stood at the upper end of a trading range between 900 on the upside for the S&P 500 Index futures and the lows of the prior week. The bull could not deliver the goods, and we sold off early, only to rebound on Friday and leave us very close to where we were the previous week. Once again, we're knocking on the door of important resistance and the ball is in the bull's court.

The Cumulative Demand/Supply Index (top chart) has come a bit off its moderately overbought extreme; despite Friday's rally, Supply exceeded Demand. Stock sectors remain in range bound mode for the most part, but money flow for the Dow stocks has been negative for the week and made fresh bear market lows. The number of stocks making fresh 20-day highs fell behind new lows on Friday (second chart from top), in another indication of weakness.

Still, the Cumulative Adjusted NYSE TICK (second chart from bottom) has been able to grind higher. This underlying buying interest has kept the advance-decline line specific to NYSE common stocks near its recent highs (bottom chart). Indeed, as the chart from Decision Point notes, we've seen advancing issues outnumber decliners for 11 of the past 15 trading sessions.

I continue to view this as a range market; we need to see continued strength in NYSE TICK and a renewal of stocks making fresh 20-day highs to sustain a breakout move to the upside. With the weak money flow numbers, I'll need to see confirmation of strength from other indicators before assuming such a breakout. Renewed weakness in TICK and a continuation of 20-day lows outnumbering highs would lead me to expect a test of last week's lows.

Longer term, we continue to see a pattern of lower highs and lower lows during the overbought and oversold periods in the Cumulative DSI, suggesting we haven't yet reversed the bear.