Skip to main content

Weeky Review - sure we're over-bought but is that really a negative?

I've been doing a bunch of new development on the Alert HQ software, upgrading to a more robust database, automating more tasks and improving the Swing Signals algorithm. I also took some time off to enjoy the family over the Easter holiday. Bottom line - I'm late in posting the Weekly Review.

Being late, I won't go into too much depth but I do want to present the usual two charts.

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.

Look at the yellow line - the number of stocks over their 50-day moving average is hitting the highest level since we started tracking back in early 2008. Almost 80% of all stocks we evaluated are now over their 50-DMA. To me this screams "over-bought" but sure enough this represents another increase in this measure compared to last week's results.

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.

In this chart, it looks like the indicators are finally running out steam. The number of stocks in down-trends can't get much lower without going negative which, of course, is not possible. The number of stocks in up-trends finally stopped increasing this week and actually dipped slightly.

Conclusion --

I've been interpreting the statistics presented above as indications that the market is extremely over-bought and due for a pullback. After reading a post by Dr. Duru this weekend, I realize this can be looked at in a another way. The point of Dr. Duru's post is that at several major market bottoms, when stocks finally began to rally again, the number of stocks trading above various moving averages moved to very high levels, much as we are seeing in the charts above. This does make sense - after stocks were beaten down so low, any reversal, especially the beginning of a bull market, would indeed tend to result in a large number of stocks initially surging above their 20-DMA and, if the move is strong enough, above their 50-DMA also.

This kind of action would result in the charts we see above. Though stocks might truly be over-bought, the strength and the broad-based nature of this rally are very different than what we have seen over the last year. According to our data, way more stocks participated in this rally than in any of the previous rallies we have experienced during this bear market. This would lead one to think that when stocks finally do pull back, they will not be dropping to new lows but will recover and more than likely continue to new highs.

Lest anyone become too complacent, however, there is another opinion that contends that the fact that this rally is so broad-based indicates that buying has been indiscriminate. An article discussing this topic illustrates the point by describing several small caps that are nowhere near profitable or showing any kind of fundamental strength, current or future, yet have surged in price more than other, more deserving larger-cap stocks. This indication of froth, this line of thinking goes, shows that this is a bear market rally that has been grossly overdone.

So which is it? Over-bought and due for a pullback that sets the stage for further gains? Or Over-bought and due for a pullback that will see previous lows retested?

Trade Radar leans toward the former but worries about the latter. How about you?


Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Alert HQ has moved!

End of an era!

This site was started way back in 2006/2007 to showcase my blog posts and the Alert HQ buy signals and sell signals. Alert HQ grew to include other kinds of stock alerts including Swing Signals, Trend Busters, Trend Leaders, Cash Flow Kings and more.

In the meantime, I built a sister site, and I started using some of the same Alert HQ content over there. As a result, I am discontinuing the Alert HQ data here at

The good news, however, is that all the Alert HQ signals and stock screens are still completely free. In addition, the pages have been enhanced so that you can hover over a stock symbol and a small chart will pop up so you can get a quick look at the stock's recent price action. If you click on a symbol it will take you to a page with plenty of financial and technical analysis information (still free!) as well as a larger chart that you can play with in terms of adding or deleting indicators, moving averages, etc.

Click …

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:

Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:

Results here were actually quite good and, to make things even better, the previous month was revised upward.