Monday, December 21, 2009

Indicator Update for December 21st

Last week's indicator review found that we stood in neutral territory between overbought and oversold, not surprising given the recent multi-week trading range. That neutral reading has continued into the most recent week, as we can see from the Cumulative Demand/Supply Index (top chart). That tells us that the number of stocks across the NYSE, NASDAQ, and ASE closing above vs. below the volatility envelopes surrounding their moving averages has been relatively balanced.

I rely heavily on the new 20-day highs/lows as a trend measure (middle chart), and we can see that, overall during this range period, new highs have exceeded new lows. The exception to that was the brief selloff during the Thanksgiving period, when stocks fell sharply on concerns over Dubai. On Friday, we saw a rise in both 20-day new highs and new lows; the 820 new lows was close to the level of new highs. New highs will need to continue to outnumber new lows and new lows need to stay above that 820 level to sustain a move to range highs. Conversely, if new lows begin to exceed highs and exceed that 820 level, I would expect a test of support in the 1080 level of the ES futures.

The advance-decline line specific to common stocks listed on the NYSE--a great perspective offered by Decision Point--shows little deterioration in the line and gradually rising lows since that late November selloff. As long as that continues, I continue to expect a test of market highs. Note that we saw advance/decline bull market highs this past week for the S&P 500 stocks and even the small caps, which had been relative strength laggards recently, have shown a rising A/D line since late November.

I will continue to track new highs/lows, Demand/Supply, and trend measures via Twitter. You can follow the Twitter stream on the blog under "Twitter Trader" (latest five tweets) or subscribe to the stream on my Twitter page.