Sunday, March 14, 2010

Indicator Update for March 14th

Last week's indicator review concluded that the path of least resistance was toward the upside and a test of bull highs. That indeed materialized this past week, as the major indexes--as well as the advance-decline lines for most averages--moved to new highs.

The bullish trend status is captured by the proprietary measure of Technical Strength (top chart), which assesses short-term trending for major stocks within each sector. All of the sectors are in uptrend modes, with week-over-week strength seen among Industrial, Consumer Discretionary, Financial, and Technology shares. Health Care remains the weakest of the sectors, as it's been for several weeks now.

The Cumulative Demand/Supply Index (middle chart) has begun to move off its highs, reflecting the loss of upside momentum noted in the recent post. It is not unusual for the DSI to top ahead of price with a considerable lead time, leading me to anticipate that a pullback of the DSI toward the zero level could offer a short-term buying opportunity. As long as those pullbacks in DSI are occurring at successively higher price levels, we have to count the longer-term trend as up.

Finally, we've seen an expansion of 20-day new highs this past week (bottom chart), but those also have pulled back during the latter portion of the week. We are not seeing the kind of elevation of 20-day lows that normally precedes a significant correction, which again supports the idea that pullbacks from here may become buying opportunities even if the market is beginning an extended topping process.

In short, we have lost upside momentum and it would not at all be unusual to see the market take a breather here. The indicators, however, are not showing meaningful deterioration, so that I'm not anticipating a drop below late February lows. As always, I'll be updating indicators each morning before the market open via Twitter; you can follow the tweets here.