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| StatTrader |
 Posted: Sun Nov 04, 2007 10:54 am Post subject: Continuing weakness. |
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Member Of The Month! April
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The coming week should show continued weakness characterized by the markets being unable to establish/maintain upward movement. The weakness will come from some of the market internals that are now moving against the market.
For instance, the 21-day moving average of the CBOE Equity Put/Call Ratio has started rising. This indicators moves inversely to the market. When it is falling the markets are rising and vice versa.
Also, the McClellan Summation Index (MSI) is also falling. The MSI is a momentum indicator that shows the relationship between the 19-day and 39-day moving averages on the NYSE. It is generally difficult for the market to establish upward momentum while this indicator is falling.
For a complete description of the MSI and how it is calculated, visit
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:introduction_to_mark#bullish_percent_index_bpi
The Bullish Percentage on the SP-500 is a good contrarian indicator. Market tops generally occur after this indicator gets above 70% and bottoms occur when the indicator drops below 52%. It is currently falling precipitously. The fall needs to slow before the market can re-establish upward momentum, otherwise rallies will tend to get sold.
Similarly, the percentage of stocks trading above their 50-day moving average usually reaches or exceeds 85% at market tops and sinks below 18% at market bottoms. We've seen the 85% level.
There is also the up/down volume ratio. This indicator is calculated by taking the 20-day exponential moving average of the volume on the preceding up days and dividing by the 20-day exponential moving average of the volume of the preceding down days. This indicator has dropped below 100% which means that we are now experiencing heavier volume on down days than on up days. That is not a sign of a healthy market.
The next two indicators are calculated by letting each day equal the sum of the preceding 5 days and then taking a 30-day moving average of those numbers. This technique helps to smooth the resulting graphs, allowing longer term trends to show more clearly. Additionally, since they are computed using a simple moving average the effect of the days that are being dropped from the end of the average during the coming week can be shown by plugging in a 0 for each of the coming 5 days. Thus, if negative numbers will be dropped going forward, we would need even bigger negative in the coming days to stop the indicator from rising.
This first graph is based on market breadth where each day is the difference between the number of advancing issues and the number of declining issues.
The second graph is similar but instead of using the number of issues we use advancing and declining volume.
The last two graphs above show over-bought and over-sold conditions. The markets generally move either sideways or in the same direction as these indicators. So just because they are falling doesn't mean that the markets have to fall, it just means that they do not support a market rise. Both of these indicators should stop falling by Friday of this week, so that is the earliest that they will be supportive of any market rally.
In summary, the coming week should show continued market weakness with any rallies occurring in the first half of the week failing.
Be careful out there, |
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| Im Not Warren Buffett |
| Posted: Sun Nov 04, 2007 5:41 pm Post subject: |
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CFO
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There may be a pop in the financials to start the week with Chuck Prince's resignation from Citigroup (C) and some more clarity about the writeoffs... this would likely help the S&P more than anything else.
Could be the shortable rally you are talking about... |
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