Sunday, January 17, 2010

Indicator Update for January 17th

Last week's indicator review found a strengthening stock market, with bullish trending among a majority of sectors and new highs in the advance/decline line. With weakness late this past week, we have pulled back to a range market. Here's how the indicators are shaping up:

1) Technical Strength (bottom chart) - This proprietary index of short-term trending is showing very mixed sector conditions, with bullish trending in the Industrial, Health Care, and Technology areas, bearish trending in Consumer Discretionary shares, and a neutral mode among Materials, Consumer Staples, Energy, and Financial stocks. Particularly weak from the prior week were Materials and Energy shares, reflecting a commodity pullback. Overall, we're seeing sector rotation within a range trade;

2) New 20-Day Highs/Lows (middle chart) - The new highs minus lows across NYSE, NASDAQ, and ASE shares hit 2010 lows on Friday, registering greater weakness than we saw at the very end of 2009. This retracement of the 2010 strength suggests that we may be seeing a topping process in action, with recent highs representing momentum peaks. If that is the case, we could still see further price strength, but this would likely be accompanied by growing divergences and non-confirmations.

3) Advance/Decline Line (top chart) - I've chosen to focus here on the S&P 600 small cap stocks, as tracked by the excellent Decision Point site. We can see that, whereas large cap indexes remain at A/D line highs relative to their 2009 peaks, small caps are right at that those A/D line highs as of Friday's close. I will be tracking small caps very closely this coming week; if they show weakness relative to large caps, that would support the notion of a topping market.

As always, I will be posting daily updates of my indicators via Twitter before the market open. You can read those on the blog page under Twitter Trader (last five posts are on the page), or you can subscribe to the Twitter feed free of charge.