Skip to main content

Weekly Review - stocks look tired

Stocks dropped this past week but thankfully it could not be considered a rout. It is almost unbelievable that for the S&P 500 this is only the third down week we have seen since early March!

Though down like all the other indexes, the NASDAQ was the week's best performer. This was despite a sell-off in Blackberry maker Research in Motion (RIMM) who announced better than expected earnings but delivered an uninspiring forecast and solid but not overwhelming debut for Apple's new iPhone.

On the economic front, the Industrial Production and Capacity Utilization report showed that manufacturing slid again in May after a couple of months of improvement while factory utilization continues to drift at record low levels. The housing market showed more small signs of improvement but it wasn't enough to keep stocks moving up.

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below:


The chart above shows our analysis of the universe of stocks we evaluate, roughly 7200 of them. A couple of weeks ago, I said that we can see from these moving average statistics that after a very constructive phase we have been going through a period of indecision. Prior to that I had said things looked "toppy". After this week's modest market decline, these conclusions look ever more accurate. Still, they don't necessarily provide a clear indication of the path forward though the bias does seem to be downward now.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.


While the number of stocks in strong up-trends is not extremely high, it is clear stock prices have been stagnating, with this number moving up and down within a range that is a bit below the middle of our scale.

The number of stocks in strong down-trends is still rather low but it has been increasing slowly for the last few months. As the weakest of the stocks that were caught in the post-March low updraft begin to give up unsustainable (undeserved?) gains, this indicator should indeed be coming off the extreme lows seen a couple of months ago.

The following chart show SPY, the S&P 500 SPDR ETF. I have drawn two line on the chart: the blue line is the up-ward trend line and the magenta line is the first support line.


It can be seen that SPY has violated both lines, dropping below the trend line and dropping below the support line.

Does this mean the market is about to plunge?

It is hard to think we won't see more weakness but it is even harder to think the market will plunge. From a technical point of view, the initial support line was too close to the recent high so it is no wonder it was violated. The trend line is fairly steep, so no surprise that it, too, was violated. Note that the 50-day moving average just crossed above the 200-day moving average. This is generally considered a bullish signal for chart watchers. SPY also approached its 200-day MA but did not break below it, also a good sign.

On the other hand, if SPY doesn't jump over the trend and support lines illustrated above and regain its highs, then we are no doubt headed down to the region around $90 or even $87. That would equate to drops of 2.1% and 5.4%, not very serious pullbacks at all.

Conclusion --

Our charts show stocks range bound with a better than 50% chance of further weakness. The refrain lately among stock market pundits is that investors are now looking for real economic improvement, not just the "less bad" theme.

Accordingly, we will have plenty to chew on this week. The economic calendar is full with Existing Home Sales, the Durable Goods report, New Home Sales, the FOMC rate decision (the statement will no doubt be more important that the actual rate decision), initial jobless claims, the final numbers for Q1 GDP (old news by now), Personal Income, Personal Spending, PCE Core (all liable to market moving for the consumer discretionary sector) and the Michigan Comsumer Sentiment report.

Dare I say it? Markets seem to have returned to normalcy. Stocks weaken when the economic backdrop dims. Banks are returning TARP money and resuming some measure of independence. Major averages are not showing extreme volatility. A few people are even buying houses.

A pullback seems in the cards now. As long as it is only a moderate pullback it can probably be considered a healthy development, allowing time for the economy to develop a few more signs of recovery which could provide the catalyst for the next move up. In the meantime, stocks are looking tired.

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 professionals and …

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 what to lo…

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7400 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper…