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Sunday, March 16, 2008

Market Statistics - indecision

This week our Alert HQ market scan process has provided a set of mixed signals. Is this evidence of investor indecision or consolidation or just a brief stop before the next big move? We now have four weeks worth of data, as seen in the chart below, and all in all, it is hard to interpret this data in a bullish manner.

Market Statistics, WE 3-14-2008
For those of you who are new to this weekly post, here is the background: We scan about 7200 stocks and ETFs each week after Friday's close. We apply a number of tests to each stock. The chart below shows how many stocks fell into which buckets. The following items are measured and tracked each week: number of stocks above their 20-day moving average, number of stocks above their 50-day moving average and number of stocks having a 20-day moving average above their 50-day moving average. In addition, an Aroon evaluation is performed to identify if each stock is in a down-trend or and up-trend.

Our first three weeks of data showed all positive indicators trending down, reflecting a widespread deterioration in stock prices.

This week, we actually have a jump in the number of stocks that are above their 20-day moving average. Similarly, we have a slight increase in the number of stocks above their 50-day moving average.

Unfortunately the number of stocks whose 20-day MA is above their 50-day MA has continued to decline in a straight line for three weeks now. This indicates to me that most stocks have a ways to go before the short-term moving average crosses above the longer-term moving average. Until we see more of these bullish cross-overs, it is safe to assume that the primary trend is still down.

We get similarly mixed indications from the Aroon measurements that we make. It is a positive that the number of stocks showing a down-trend has decreased. On the other hand, we have also seen a decrease in the number of stocks in an up-trend.

A new statistic was added this week: Chaikin Money Flow. This indicator attempts to quantify buying or selling pressure and can be used to identify a tradable trend. I only counted stocks that indicated a strong trend up or down. This first week, we see only 536 stocks exhibiting strong buying but 760 stocks exhibiting strong selling. It appears the bears have the edge here.

So this data provides some mixed messages from a weekly perspective. Looking at the data for general trend indications, however, it is clear that there has been no dramatic increase in bullish activity. When stocks truly begin to turn around, we will see the most recent data points for the positive indicators begin to climb above the earliest data shown on the chart above. We are clearly not there yet. It appears we have seen a week of market volatility and the result was indecision in stock prices. We can only assume the current trend remains in place: down.

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