Skip to main content

Weekly Review - indicators at extremes

Another great week with the stocks on the upswing! It's certainly pleasant to see multiple weeks of follow-through but can it be true that suddenly all is well?

On the plus side this week, investors welcomed the decision by the FASB to ease market-to-market rules. The ISM manufacturing index came in slightly better than expected and so did pending home sales. Construction spending declined less than expected. The expectations portion of the Consumer Confidence survey indicated people were a bit more hopeful than they were last month.

There were negatives this week but, for the most part, they were ignored. The ADP employment report was horrible but investors shrugged it off. This set the stage for an equally horrible Non-Farm Payrolls report that was also shrugged off because it was considered to be "in line". Whether or not it was in line or out of line, it would seem to me that the importance of an 8.5% unemployment rate shouldn't be underestimated in a consumer driven economy. Nevertheless, the attitude now is that employment is a lagging indicator so continued increases in unemployment can safely be ignored.

Well, maybe that's true and maybe it's not. It does seem that things are going to hell in a handbasket at a slower pace than we saw over the course of the last 12 months. Does that mean it's safe to rally? Most investors seem to think so. I like David Fry's comment that, as a technician, he's long stocks while holding his nose.

We also track a lot of technical indicators and we try to publish a summary every weekend. Here is what our statistics look like this week.

TradeRadar Alert HQ Stock Market Statistics --

Each week our Alert HQ process scans almost 7300 stocks and ETFs and records their technical characteristics. Primarily we look for BUY and SELL signals for our free stock alerts; however, we also summarize the data in order to gain insights in the week's market action. The following charts are based on daily data and present 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.


Does this look overbought on a short-term basis? Look at the number of stocks above their 50-day moving averages. This is a record high since we started keeping track over 13 months ago. The number of stocks whose 20-day MA is over their 50-day MA has also surged. This is a picture a market with very strong upward momentum. Can stocks keep up this pace?

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.


Here again we see our indicators moving to extremes. This is the lowest number of stocks in down-trends we have recorded since we began keeping track. Similarly, we are also seeing a record in the number of stocks in up-trends.

This next chart shows how the sectors in the S&P 500 are doing. It's been a while since we have shown this chart since pretty much all the sectors were in toilet. Now, however, most sectors have more than recovered.


All the speculative sectors are now soaring and all the defensive sectors are lagging. This looks more like a market peak rather than an early recovery from a historic low.

Conclusion --

Nothing goes straight up and nothing goes straight down.

The market has essentially been going straight up lately. Can it continue? History would seem to say no. All the indicators, including ours, show that stocks are in a short-term overbought status. And this is despite the fact that the world economy is still clearly ailing.

Conversely, the U.S. economy has been going straight down for months now. These last few weeks, however, there have been some slight signs of improvement. Are these signs just noise in what remains a negative trend? Can the injection of trillions of dollars of government money put things right?

I keep expecting stocks to take a breather but instead they keep sprinting higher. Even a stopped clock is right two times a day so I suppose, at some point, there will be a pullback. In the meantime, bears would do well to stand aside and bulls might do well to reduce winning positions and take a few profits.

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street profess

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing wh

Interactive Ads - Google one-ups Yahoo again

Google's ( GOOG ) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages. I have written in the past on Yahoo's ( YHOO ) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format. Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format. The evolution of the Gadget Ad -- One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much any