Saturday, October 25, 2008

Weakness Through the Week

Traders hoping to put in a bottom this week were disappointed as weakness expanded through the week. The advance-decline line for NYSE common stocks, helpfully tracked by Decision Point (top chart), shows us breaking down to new bear market lows. This was no doubt aided by weakness among secondary issues, as the Russell 2000 stock index made new bear market lows as well.

The new high/new low figures also found weakness expanding as the week moved along. Friday saw us register 99 new 20-day highs across the NYSE, NASDAQ, and ASE against 2564 new lows. While the new lows are still fewer than we saw a couple of weeks ago, so far the market's oversold condition has not brought significant buying interest, as can be seen from the money flow figures for the Dow industrial stocks (bottom chart). We have moved from very heavy selling to more neutral levels in the four-day average (pink line), but there is no evidence so far of sustained buying interest.

Among the 40 stocks in my basket divided evenly among eight S&P 500 sectors, my technical strength measure finds only one in a slight uptrend (AMGN), one neutral (WFC), and the remaining 38 in downtrends. What is significant is not just the broad weakness, but the way in which broad weakness has been sustained over time. We are seeing a historic liquidation of stocks and, so far, my indicators are not picking up any reversal of that trend.


Brandon said...

These are tough markets to be trading. Ive read a review about a site who is outperforming everyone. has anyone heard of it? Here is the link to the review.

Chris said...

Brandon, great information. I reviewed that website and as well. I just signed up, thanks for pointing me in the right direction!

zircon-212 said...

Good traders are making money or at worst protecting assets until they find positive expectancy trades to take. Chasing the next best website, market newsletter or holy grail is a clear sign to me that you are in over your head. These are not markets to be getting a baptism by fire. Be honest with yourself and if you are unable to put up profitable trades either sit it out until volatility comes back to a level you can handle (i.e actually make money) or trade such small size so that poor habits or an undeveloped skill set will not lead to you being taken out of the trading arena in a pine box.