Sunday, December 27, 2009

Indicator Update for December 27th

This past week, we broke to bull market highs across most of the major U.S. stock market indexes. Let's see how our major indicators behaved:

TOP CHART: S&P 500 Sector Technical Strength - We saw significant improvement in Technical Strength ( a proprietary measure of short-term trending) across the eight sectors that I track weekly, with particularly notable gains among Materials, Health Care, and Technology shares. Interestingly, we still see neutral readings for three of the sectors. I will be watching closely to see if we broaden the rally; note that trend data for the basket of stocks that I follow are posted each morning prior to the market close via Twitter (follow here).

SECOND CHART FROM TOP: Cumulative Demand/Supply Index - We've broken to a multi-week high in the cumulative DSI, which tracks the number of stocks closing above their volatility envelopes relative to those closing below. Note, however, that we are not at all at levels that have recently corresponded to overbought; note, too, that we tend to get those overbought readings prior to price peaks. This suggests that we could have significantly more room to go to the upside early in 2010;

THIRD CHART FROM TOP: Here we see the number of NYSE, NASDAQ, and ASE stocks trading at 65-day highs minus those closing at 65-day lows. This, too, has broken out to a multiweek high, but is not at levels that have recently corresponded to market tops. As long as we see new highs expanding and exceeding new lows, I consider the intermediate-term trend to be intact to the upside.

BOTTOM CHART: Here we see one of my favorite charts from Decision Point: it tracks the advance-decline line for NYSE common stocks only. Observe that it, too, has broken to a new bull market high, reflecting strength across smaller cap stocks as well as large caps. We need to stay above the advance/decline line levels from the past several months to sustain the uptrend.

In sum, we're seeing both higher prices and stronger indicator readings, suggesting that the upside break from the recent intermediate-term trading range is legit. As long as we stay above last week's lows, I'll be viewing this uptrend as intact.