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Sunday, February 24, 2008

Market statistics show a glimmer of hope

On a weekly basis I scan all the stocks and ETFs on the NYSE, NASDAQ and AMEX, over 7000 securities in all.

In addition to looking for individual buy and sell signals (see Alert HQ) I have started to capture some overall statistics for the market as a whole.

For the most part, stocks are not in such great shape. Here are some numbers on the moving averages that we calculate:
  • 42% of stocks are above their 20-day exponential moving average while 58% are below their 20-day EMA
  • 36% are above their 50-day exponential moving average while 64% are below their 50-day EMA
  • The 20-day EMA has crossed above the 50-day EMA for 33% of the stocks we tested while 67% have seen a negative crossover.
On the plus side, the Aroon indicators that we calculate show recent strong up-trends for 27% of the stocks we tested and recent strong down-trends for only 17%. The remainder are either not displaying a trend at all or are only exhibiting weaker trends.

The good news

With Aroon(up) signals outnumbering Aroon(down) signals and and almost half of stocks trading above their 20-day moving averages, perhaps we are seeing the beginnings of a bottom.

If stocks are actually beginning to slow their fall and begin to turn up, these shorter-term indicators are the ones we would expect to see turning positive first.

The bad news

On the other hand, we still have the majority of stocks below their 50-day MAs and two thirds have had bearish crossovers of the 20-day and 50-day. These two situations when taken together are generally considered to be seriously bearish. This implies that the glimmer of a rally we are seeing has a way to go before it can reverse these negative indications.

A sustained rally will have to include more than a minority of stocks. What we are seeing so far is hopeful but it is clear that the majority of stocks are still in trouble. Indeed, we may only be seeing what typically happens in a bear market rally.

Postscript

I intend to collect these statistics every week and will begin reporting on them regularly. As I collect more data, I will begin to present charts, as well. Hopefully, this will provide us some insights into market activity.

For those who are unfamiliar with the Aroon indicator system, this explanation at StockCharts.com provides a good introduction and overview.

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