Wednesday, May 23, 2007

Midweek Stock Market Observations

* Money Flow Chugs Along - My weekend review of money flow across the S&P sectors found that dollars were still flowing into the large caps. Nothing so far this week has altered that scenario. Indeed, we've had six consecutive sessions in which dollar volume flow into the Dow 30 stocks has been above the 200-day average. Hard to sustain the downside with that kind of buying interest.

* What's Hot, What's Not - Keep an eye on PFE; dollar volume flows are up noticeably over the past three trading sessions. The money flow laggards among the Dow stocks are INTC and WMT. WMT shows net outflows for eight of the last nine sessions; INTC has shown net outflows for seven of the last eight sessions.

* Know Your Limits - Victor Niederhoffer makes a case for periodic, difficult self assessments.

* Energy Stock Recommendations and Much More - Charles Kirk opens up his Q&A for members for general viewing, with plenty of insights regarding his new stock screening.

* Support for the Russell 2000 Index - Trader Mike tracks index strength and notes the 50-day moving average support for $RUT.

* Technicals Look Healthy for this Market - Brian Shannon reviews the NASDAQ 100 and S&P 500 Index and likes what he sees.

* The Private Equity Boom is Affecting the Options Market - Adam Warner offers a nice insight into the underlying bid. See also the analysis from A Dash of Insight: how private equity is creating an underlying bid for equities.

* The Market's a BRIC House - The Big Picture notes optimistic sentiment in a recent WSJ piece and shows how the emerging markets of Brazil, Russia, India, and China have trounced the European averages and especially the U.S. equity market.

* Inverted Nifty Fifty? - Abnormal Returns notes how undervalued large caps have been making their return. Check out StockPickr for data on 10 large cap stocks rising on increasing volume.

* Saving Dessert for Last - Many thanks to Rennie Yang for his recent shout out. His Market Tells service has pointed out a number of historical trading patterns that enabled traders to benefit from the recent strength. But now that we've had eight consecutive higher highs on the weekly chart for the S&P 500 Index and nine higher weekly lows, can we expect a correction? Rennie looks at the historical evidence and finds that such consistent strength leads to further price gains going forward.

5 comments:

g0thm0g said...

I'm not sure what we'd like to argue is the true market memory, or whether one exists in a nice continuous, let alone constant form, but how are we all ignoring how the Russell 2000 seems to be the one correcting up to the Dow/S&P in the last few days? I've covered this repeatedly over the last few days (1, 2).

Brett Steenbarger, Ph.D. said...

Hi,

Actually, the Russell 2000 stocks have been playing catch up to the large caps so far this week. New 20 day highs expanded to their highest level in two weeks and new 65 day highs expanded to their highest level since 4/25.

Brett

g0thm0g said...

Hello Brett, yes, I had said that the Russell was correcting up to Dow/S&P (i.e. that its YTD return was less than the larger indexes). In the links above, I have 4 or 5 graphs showing the past months difference in cumulative return, in contrast to the rapid difference over the past 5 days.

My primary question is why we do not question the "large caps should be beating the small caps" argument, as it has been quite common in commentary I have read lately. If we assume the 90's to be our model of the "true market relationship for capitalization", in contrast to small caps dominance over the shorter term, do we have any good reason? Obvious places to look are risk premium and awareness, but the low VIX seems to be a good indicator of this, and would argue that small caps therefore should outperform large caps, given the lower systemic market risk implied.

-Michael J Bommarito II

ryang said...

Brett -

Thanks very much for the mention in today's column. Your site(s) are truly outstanding. I've read a LOT of the material on both your blog and personal site, and am constantly amazed at the scope of your work. I've learned so much, both on a professional and personal level.

One quick question - I'm in the process of computing your cumulative adjusted TICK indicator and my #'s match up fairly closely with what you show here
except I have to divide my final reading by 100. Does this sound right?

Thanks,
Rennie

Brett Steenbarger, Ph.D. said...

Hi Rennie,

I appreciate the feedback. Your Market Tells service is just excellent. Your calculation of the Adjusted TICK is correct: I divide the sum by 100. I'll be interested to see what patterns you come up with!

Brett