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Monday, September 1, 2008

Weekly Review - a tale of two markets

This past week the major averages for the most part turned in poor performances. The S&P 500 and the Dow both lost 0.7% and the NASDAQ lost a full 2%. As it turns out, that was not the whole story. There was actually some decent action in the small and mid-cap arenas. The Russell 2000 was up 0.3% and the S&P Midcap 400 Index was up 0.1%.

Our Alert HQ process bears this out. Each week we scan over 7200 stocks and ETFs and record their technical characteristics. Rather than seeing a continuation of the previous week’s downturn, we actually saw a bit of an uptick.

The following chart based on daily data summarizes the state of our technical indicators.


Moving Average Analysis –

All the moving average indicators moved up in unison this week. This means that the number of stocks above their 20-day moving average increased, the number of stocks above their 50-day moving average increased and the number of stocks whose 20-day MA is above their 50-day MA also increased. The increases were not large but, significantly, they show the underlying strength still apparent in the recent market rally.

Trending Analysis and Buying Pressure --

We use Aroon analysis to identify stocks exhibiting strong trends. The good news for the bulls is that the number of stocks in strong down-trends decreased. Unfortunately, the number of stocks in strong up-trends showed a even more of a decrease.

Our Chaikin Money Flow analysis shows a small increase in the number of stocks exhibiting strong buying pressure and a corresponding decrease in the number of stocks exhibiting strong selling pressure.

In the chart below based on weekly data, we see the same kinds of moves only somewhat more subdued.


S&P 500 Sector Analysis --

Below we present our sector analysis for the S&P 500. We have looked at three characteristics:

  1. Percentage of stocks in a sector whose Aroon analysis indicates they are in an UP trend
  2. Percentage of stocks in a sector whose DMI analysis indicates they are in an UP trend
  3. Percentage of stocks in a sector that are trading with their 20-day moving average above their 50-day moving average.


There hasn't been too much change from last week's sector analysis post. We do see some small improvement in the Energy sector. Meanwhile, Health Care, Consumer Discretionary and Technology sectors all gave up some ground.

In summary --

Our Alert HQ data on moving averages and trending generally shows a market that is tentatively bouncing back from the previous week's decline. It shows that the upward bias in the current market trend remains intact despite the drooping numbers turned in by some of the major averages.

Our S&P 500 sector analysis shows some weakness from the previous week but does not indicate a market particularly over-bought or over-sold. It is a portrait of a market that is muddling along.

The fireworks last week were in large part due to market reactions to the economic reports that were released, rising on better than expected GDP and durable goods numbers (read our take on durable goods) and falling on worse than expected personal income and PCE inflation reports.

This coming week the markets will have plenty more opportunities to bounce around based on economic reports. The week's busy calendar includes construction spending, ISM index, auto and truck sales, factory orders, ADP employment, initial claims, Non-Farm Payrolls, ISM Services and the unemployment rate.

With many institutional traders returning from vacation, we can also expect to see volume begin to pick up. After hearing various pundits offering that recent low volume indicates a market trading without conviction, the coming week should give us a good read on whether the strength we have discussed above is just temporary or for real. This should be an interesting week, indeed.

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