Thursday, April 23, 2009

Tracking Dwindling New Highs and Expanding New Lows in the Stock Market

As we can see from the chart above, the S&P 500 Index (SPY, blue line) is hovering near its recent highs, but the number of NYSE, NASDAQ, and ASE stocks registering fresh 20-day highs minus lows (pink line) has been dwindling. We are seeing an increasing number of sector non-confirmations (one sector makes short-term highs, others do not), and small cap stocks have retreated from their upside leadership.

The 391 new 20-day lows registered on Tuesday was the highest number we've seen since early March; even today's 281 is well above the level seen earlier in the month. I will be watching closely to see if these numbers continue to expand, as this would suggest a more serious correction of the recent market upturn.

We've also seen weaker readings in the Demand/Supply numbers, which track the number of stocks closing above vs. below the volatility envelopes surrounding their short-term moving averages. For example, Demand hit 160 on April 2nd and 137 on April 9th, but peaked at 100 so far this week on Tuesday.

To keep the upturn going, we need to see continued participation across market sectors. I will be scrutinizing any tests of new price highs accompanied by multiple divergences among indexes and sectors. Those interested in tracking these indicators daily will find them posted each morning via Twitter prior to the market open; subscription is free, or you can pick the tweets off on the home page.