Monday, January 26, 2009

Indicator Update for January 26th

Last week's indicator review concluded "the move to price highs early in January has been reversed, and we are back to seeing 20-day lows exceeding new highs. As long as the new highs/lows remain weak, I expect continued price weakness and tests of the bear market lows." We did, indeed, see ongoing weakness in the new high/low statistics (middle chart), as the S&P 500 Index moved into moderately oversold territory on the Cumulative Demand/Supply Index (top chart). Interestingly, we are seeing moves below the November bear lows among financial stocks, but not most other sectors, which are showing only moderate weakness. I will be watching sector behavior carefully on any follow-through weakness, to see if we get glaring divergences.

The 800 level in that index is shaping up as a widely watched support level; a washout below that level would likely take the Cumulative DSI into oversold levels that have characterized intermediate-term market bottoms. The Cumulative NYSE TICK (bottom chart) has been holding up relatively well during the recent market weakness, as has the advance-decline line specific to S&P 500 stocks and money flow for Dow stocks. This again raises questions about possible divergences on any continued weakness; it is not clear to me that a spike below 800 would necessarily entail a fresh leg down in the bear market (though that would be a widely anticipated breakout move).

The new highs/lows should be helpful in confirming or not confirming any such move. Note that 65-day lows are modest at this juncture; Friday showed 129 65-day highs against 424 lows. Conversely, we had important upside resistance in the low 900 range in the S&P 500 Index; a break above that level with strong participation would be a significant bullish development. In sum, the indicators are leaning to the downside; as long as that continues, I expect a test of the 800 level and possibly the bear lows in SPX; but I also see evidence of diminished selling pressure during the recent market weakness.

I have reformulated my method for calculating pivot levels and price targets for the S&P 500 Index; the daily levels are issued prior to each market open via Twitter. The morning Twitter "tweets" also include updates on new highs/lows; Demand/Supply; and the proportion of SPX stocks trading above their moving averages (subscription is free via RSS; I will soon be adding more to the Twitter feature of the blog).

Meanwhile, here are weekly price levels for SPY. Background on using these levels can be found in this post and its links:

Pivot = 82.83
R1 = 88.62
R2 = 89.78
R3 = 91.33
S1 = 77.04
S2 = 75.88
S3 = 74.34

For short-term traders interested in tracking relative volume, here are median 30-minute volumes for ES (Central Time). Standard deviations are in parentheses:

8:30 - 259,412 (66,817)
9:00 - 194,961 (57,402)
9:30 - 143,791 (60,139)
10:00 - 132,556 (37,528)
10:30 - 125,055 (42,708)
11:00 - 99,075 (44,475)
11:30 - 89,360 (41,828)
12 N - 86,691 (37,697)
12:30 - 113,785 (53,362)
1:00 - 124,136 (69,600)
1:30 - 140,838 (67,488)
2:00 - 169,776 (50,382)
2:30 - 246,133 (77,931)
3:00 (15 min period) - 99,693 (28,446)

On days in which I am in front of the screen, not working with traders, I will try to send a Twitter message in the AM with a brief assessment of relative volume.