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Sunday, May 17, 2009

Weekly Review - new trend but in the wrong direction?

Well, we finally had a week where all the major averages moved together - downward. This makes two in row for the NASDAQ 100 though it's only the first week of declines for the others. Is this the new trend?

Technicians and non-technicians alike have been expecting a pullback and it's looking more and more like that's what's beginning to unfold. Declines this week were no joke with the Russell 2000 down 7% and the S&P 500 down 5%. Looking at sectors, financials fell a whopping 12% and, after retail sales for April came in below expectations, consumer discretionary fell over 7%.

The statistics we collect at TradeRadar pretty much confirm the downbeat assessment presented above. The two charts below demonstrate the state of the overall stock market.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans almost 7300 stocks and ETFs and records their technical characteristics. The following charts are based on daily data and presents the state of some of our technical indicators.

This first chart presents the moving average analysis for the entire market and contrasts it with the performance of the S&P 500 SPDR (SPY). When the number of stocks trading above their 50-day moving average (the yellow line) crosses the line that tracks the number of stocks whose 20-day moving average is above their 50-day moving average (the magenta line) there is an expectation that you will get a change in the trend of the S&P 500.

SPY versus the stock market - Moving Average Analysis, 05-15-2009
This chart is certainly looking awfully toppy. We're getting a crossover where the number of stocks above their 50-DMA has fallen below the number of stocks whose 20-DMA is over their 50-DMA. This shows stocks are falling quickly and the moving averages are not quite keeping up.

This next chart is based on Aroon Analysis and compares our trending statistics to the performance of SPY. We use Aroon to measure whether stocks are in strong up-trends or down-trends. The number of stocks in down-trends is indicated by the red line and the number of stocks in up-trends is indicated by the yellow line.

SPY versus the stock market - Trend Analysis, 05-15-2009
This chart confirms what we have been seeing on our Alert HQ Trend Leaders page: there are less and less stocks in solid up-trends according to Aroon analysis, MACD and DMI. So far, though, the deterioration in stocks has not pushed prices so low as to establish outright down-trends.

Conclusion --

With earnings season coming to a close and a light week of economic reports, there is probably a bit of a vacuum under stocks. As I write this, the Nikkei is down 2.86% and it's likely we will see weakness when stocks open in the U.S.

Oh well, pullbacks are healthy and nothing goes straight up. Let's hope we don't go straight down.

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