Monday, April 20, 2009

Indicator Update for April 20th

Last week's indicator review suggested that "the market is strong on an intermediate-term basis and gaining strength over time". We did indeed see further strength during this past week, taking stocks to new recovery highs. A look at the sectors, however, as well as at selected indicators, suggests that the pace of the rally has been slowing. That, in itself, does not necessarily mean that we're in for a fresh bear market leg, but it does raise the possibility that the rise of six consecutive weeks may take a breather.

We continue in an overbought mode in the Cumulative Demand/Supply Index (top chart), with prices moving steadily higher throughout. To get a normal pullback in this indicator, we would most likely need to take out this past week's lows. Such a pullback would also take the 20-day highs minus lows, which has also sustained strength (second chart from top) toward zero. If this is a fresh bull market, such a pullback should be an opportunity to buy stocks. If we are to see another bear leg, such a correction would begin a topping process, with waning momentum and participation as we test old highs.

At this juncture, we're seeing steady strength in the Cumulative NYSE TICK (second chart from bottom), suggesting that buyers have remained dominant. As the bottom chart from Decision Point illustrates, this strength is also reflected in the rising advance-decline line, which hit new recovery highs this past week. Along with the new 65-day highs, which hit a fresh peak last week, we're not seeing the kinds of divergences in these indicators that would lead us to believe that a fresh bear market is around the corner.

I will be tracking many of these indicators daily via the morning Twitter posts to update market views. Subscription is free; the last five tweets appear on the blog page.