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Sunday, May 31, 2009

Weekly Review - where's my trend? I need a friend...

Only four days of trading this past week but there was no lack of surprises.

Consumer Confidence, not normally a huge market mover, came in much better than expected and sparked a rally in spite of seriously disappointing housing data. Then we saw Treasury prices take a dive and stocks prices immediately followed suit. When it looked like the week was going to finish on a dismal note, stocks pulled off another "stick save" in the last half hour on Friday. Major averages finished the week with decent gains.

After a couple of weeks of falling prices, this week's gains are welcome but by no means does it say we are out of the woods. Looking at the TradeRadar statistics we see a market that isn't breaking out in any direction but is meandering along while still looking "toppy".

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.

This chart over the last few weeks is beginning to look a lot like the tops we saw back in May 2008, September 2008 and February 2009. A big run-up followed by several weeks of up-and-down. The aforementioned tops, of course were followed big drops in stock prices. The question now is whether the economy will provide sufficient evidence of recovery to prevent another big drop this time around.

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.

The slide in Aroon performance seems to have been arrested this week. We have a small increase in the number of stocks registering strong up-trends and a corresponding small decrease in the number of stocks in down-trends. Another indicator of uncertainty

It's been a while since I have posted an analysis of the S&P 500 but it seemed like a good time to take a look and see if there are any insights to gained. The following chart shows several technical indicators and looks at the percentage of stocks in each sector displaying positive results.

We have an interesting mix of results here. On the one hand, Utilities are doing poorly based on the expectation a weak economy will reduce the demand for power while Energy stocks are soaring based on the expectation the economy is recovering. Likewise, Materials are doing well while Industrials are beginning to show some weakness in their trending indicators. Similarly, if the expectation is that the economy is improving , why are Consumer Staples doing so much better than Consumer Discretionary?

Conclusion --

It is clear that stocks are indeed in a trading range, as many bloggers have recently noted. Our indicators confirm stocks are unwilling to fall and unable to rise. The markets will need a catalyst to break out in one direction or the other.

With few earnings reports on tap and the GM bankruptcy widely expected, investors will be looking to economic reports. This week has a good selection that should help markets make up their minds. We will see Personal Income, Personal Spending (certain to impact Consumer Discretionary stocks), Construction Spending, the ISM index, pending home sales, auto and truck sales, ADP employment, factory orders, ISM Services, initial claims, Productivity and Unit Labor Costs and the big Non Farm Payrolls and Unemployment reports.

This week we have five days to zig zag around while investors try to determine the next stage in the market's journey. I wouldn't be surprised to see another week go by without a breakout. In the meantime, the trend is neither up nor down. All you can do is have patience and attend to your stop-loss levels.

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