Monday, February 18, 2008

Indicator Update for February 18th

* New Highs/Lows - After a spike in new 20-day highs (combined NYSE, NASDAQ, ASE) following the January lows, we've seen a pullback this past week, with lows now exceeding highs. Note that peaks in the new highs minus lows of late have occurred at successively lower price highs. That is what happens in bear markets. If we get further pullbacks in the high/low numbers and can hold the January lows, I would be inclined to take the long side, especially if we also saw oversold readings on the Cumulative Demand/Supply numbers posted recently.

* Momentum - Momentum turned decidedly bearish Thursday and Friday with Demand readings of 40 and 34 and Supply readings of 155 and 115, respectively. Selling sentiment also dominated those two days, with Adjusted Cumulative NYSE TICK readings of -886 and -202. Indeed, five of the last six trading sessions have seen negative daily TICK readings. We're currently seeing 33% of S&P 500 and S&P 600 small cap stocks above their 50-day moving averages. That is off recent peaks of 50%. Only 21% of S&P 500 financial stocks are trading above their 50-day MAs, down from a recent peak of over 60%. As I mentioned earlier, I have difficulty believing we'll successfully sustain a rally without confidence in this sector.

* Advance-Decline Lines - The AD Line specific to NYSE common stocks is hovering just above its January lows; the same is true for the lines specific to S&P 500 large caps and S&P 600 small caps, as well as NASDAQ 100 stocks. A move above the January highs in the AD lines would be a bullish development; the failure to sustain AD strength is concerning for bulls.

* A Subjective Note of Sentiment - As I've indicated in past posts, traffic to this blog has been an unusually sensitive sentiment indicator. It peaked on the day of the January lows and retreated at the recent highs. Interestingly, with the pullback in prices late last week, there was no uptick in traffic. Indeed, readings are more consistent with a relative price topping than a market bottoming as of the close Friday.

In sum, after a strong snap-back rally from the January lows, we're now seeing deterioration in the indicators. I will need to see improvements in the readings before taking the long side for anything other than a short-term trade.


Trading Soldier said...

Hello, I just found your blog for the first time. I found it as I am searching for trading techniques I can use during the market open for stocks. I do not want to day trade all day, (too old). I find your analysis refreshing and helpful. Keep up the good work.
Jack Hallaran Atlanta, GA

Student_Of_The_Trade said...

Hi Dr. Steenbarger....please don't feel compelled to respond to my comment, as I know this is a busy week for you. :-)

I just want you to know that I greatly appreciate seeing your "Subjective Note of Sentiment"....and I'd welcome (and never judge) more frequent such conveyances. It helps us newbies a lot to see clear language from our online mentors as to where they stand in the short term.

Ahhh....and I hope my comment doesn't in itself become a "top tick indicator". :-)



Anatrader said...


On your subjective note on Sentiment, the lower outcome on traffic at your blog could be due to the President's Day holiday.

The other factor was Seasonality. In addition to February often conforming to the historical pattern of seeing weakness the day after an option expiration, markets tend to decline surrounding President's Day.

a8703825 said...

Hello Mr. Steenbarger!
Could you please tell us the SOURCE OF "DEMAND" AND "SUPPLY".
Are those indicators published anywhere or do you calculate them yourself?

Thank you!
Dietmar Friedl

Brett Steenbarger, Ph.D. said...

Hello Dietmar,

Demand and Supply are measures that I created myself to evaluate short-term strength and weakness in the broad stock market. They're not published anywhere, but I do update them regularly in my Twitter posts.