Tuesday, July 14, 2009

Indicator Update for July 14th

Last week's indicator review suggested that we were likely to see further weakness, given the strong downside momentum going into the week. We did, indeed, get a follow through to the downside, taking out the important lows from May and June. This turned the sector trends bearish and expanded the number of stocks registering fresh 20-day lows (middle chart) before Monday's solid bounce.

That bounce took us from a moderately oversold level in the Cumulative Demand/Supply Index (DSI) to a neutral reading (top chart). Note how downside momentum in the DSI did not confirm the recent lows, something we also saw in the Cumulative Adjusted TICK. I will be watching closely to see if price weakness going forward is increasingly accompanied by non-confirmations of momentum and strength. That would suggest that we remain in the range defined by the May/June highs and lows and could move well into that range from current levels.

I continue to view the market's action as more typical of a correction in a bull market than as the start of a new bear market. This is supported by the relatively modest correction in the advance-decline line specific to NYSE common stocks (bottom chart; mad props to the excellent and much recommended Decision Point site).

An expansion of new 20-day lows on subsequent market weakness would violate this scenario and point to a more significant market correction. I will be tracking that and other market indicators in my intraday Twitter posts (follow here) to gauge how we are trading within the extended market range.