Skip to main content

Break out or break down? Stocks approach extreme levels

Running late tonight. I'm all covered in polyurethane and joint compound from the multiple projects I'm working on around the house. Painful as it may be, progress is being made.

And so it was in the markets this week, also. Progress was made again despite a disappointment or two from a few tech stocks. Major averages were able to add another 4% or so to the previous week's 7% gains. Stocks now appear to be well overbought and ripe for a pullback. I've read recently, however, that there is still quite a bit of skepticism out there. A contrarian might think that suggests this rally might have a bit of gas left in the tank. And earnings season may still have a few positive surprises waiting for us.

So where are the markets today and where might they be going? We look for clues in some of the charts that follow.

The view from Alert HQ --

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


The above chart, illustrating our moving average analysis, is leaning quite bullish. You can see a sharp downturn followed by an equally sharp upturn. Note that the number of stocks above their 50-day MA is extending its lead over the number of stocks whose 20-DMA is over their 50-DMA. We are closing in on roughly 80% of all stocks being above their 50-day moving average. We're not there yet, but we are certainly getting to kind of extreme levels that precede a pullback.

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.


Here again, the chart is quite bullish. It shows that more than half of all stocks are now in up-trends and a dwindling number of stocks are in down-trends. This chart is also approaching extreme levels.

Conclusion --

Sentiment is positive, earnings are decent considering the recessionary backdrop and economic reports have been reasonably benign. Why shouldn't stocks go up?

Technicians are pleased at the moves that have been made (some are even predicting another leg up) while those who rely on fundamentals are more skeptical (with some justification).

With the charts showing the market out of danger for the time being (though closing in on extreme levels), investors will need to see some follow through from earnings and economic reports.

Whereas last week was very light in terms of economic news, this week the pace picks up. We will see new home sales, consumer confidence, the S&P/Case-Shiller Home Price Index, durable goods, the Fed Beige Book, initial jobless claims, advance GDP, core PCE and the Chicago PMI.

We have a slew of earnings reports coming up, as well. So far, there has been a good percentage of companies beating lowered expectations. Will investors get impatient with that scam? Or will they continue to look on the bright side?

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