I'm going to focus primarily on the Price / Volume relationship. There are 4 P/V relationships (while the P/V relationships should always be considered relative to the market action, in general you can consider each as being bullish or bearish), they are:
Price Down / Volume Down - This is the thematic relationship of a bear market and is the most neutral.
Price Down / Volume Up - This can be bearish or bullish, at the end of an extended down trend it can indicate bullish capitulation. At the start of a break away downtrend it can be bearish bearish.
Price Up / Volume Down - This is considered to be the most bearish of the 4, it indicates traders are backing away from higher prices.
Price Up / Volume Up - This is considered the most bullish of the 4 relationships.
Price / Volume relationships are only considered relevant when there is a dominant theme, usually something approaching 40% for a single relationship. I scan every night after the close for dominant P/V relationships among the component stocks of the NYSE, The Dow-30, The NASDAQ 100, the S&P-500 and the Russell 2000.
Tonight's dominant theme can be found in 4 averages (The Russell 2k did not have a dominant P/V relationship) and they are all Price Down / Volume Up.
NYSE: 2520 stocks
Dow 30: 18 stocks
NASDAQ 100: 57 stocks
S&P-500: 255 stocks
As I said, the relationships must be viewed in light of market conditions. I view the dominant theme as being somewhat bullish as short term capitulation, which falls in to line with my guess that the SPY will close around $132.50 tomorrow which is based on the options chain.
I haven't showed you breadth analysis for the market n some time so here are a few indications of where we are now. This can be a little confusing, but the green line is the breadth indicator and the red line is the comparison symbol, which is usually the NYSE composite, unless otherwise specified.
Percentage of NYSE stocks above their 200-day moving average. As you can see, when the market was lower in October of 2010, the % of stocks above their 200 day moving average was around 90%, now with the market even higher, that percentage has dropped to about 62%. This shows poor market breadth or the number of stocks participating in an advance, it shows thin market breadth.
The NASDAQ Composite Advance/Decline Line Here you can see the NASDAQ in red has been moving higher over the time period, but since March 2011, the advance / decline line has been steadily marching lower meaning there are fewer advancing issues and again, market breadth is thin, counting on a handful of heavily weighted stocks to carry the average higher. The NASDAQ has a proprietary weighting system for their stocks, at one point AAPL alone represented nearly 20% of the NASDAQ 100, about the same as the bottom 50 NASDAQ stocks (by weight) combined. The actual weighting of the NASDAQ 100 is available through NASDAQ for $10,000.
Percentage of NYSE Stocks Trading 2 Standard Deviations Above Their 200 Day Moving Average- Once again, these stocks that are some of the better performers have declined from their October high of around 40% to the current 7.9% even though the market is higher now then in October. Again, this shows very bad market breadth.
Percentage of NYSE Stocks Trading 1 Standard Deviation Above Their 200 Day Moving Average. These are healthy performers, but not as strong as the 2 standard deviation stocks, still they have declined from their October, 2011 high of over 65% to a level currently at 31%. This shows many stocks are moving lower, despite the market moving higher over the time period.
Percentage of NYSE Stocks Trading 1 Standard Deviation Above Their 40-Day Price Moving Average. Once gain, this indicator peaked around October of last year around 70% to a current level of 23%. This is a huge breadth problem considering the NYSE composite is about 10% higher then it was in October.
Percentage of NYSE Stocks Trading 1 Standard Deviation Below Their 200-Day Moving Average. Ideally this indicator should decline in to a rally, but once again it went from a November 2010 low of 7% to a current 20.44%
Percentage of NYSE Stocks Trading 1 Standard Deviation Below Their 40-Day Price Moving Average. Here I'm comparing two recent troughs which are roughly the same, 1 in March 2011 and the last in June of 2011. At these troughs, the number of stocks trading a standard deviation below the 40 sma increased from 55% to nearly 65%.
The Take Away-
I've been calling this area a top and tops take time to form and can be quite volatile, they can also be arbitrary so we look for evidence of a deteriorating market and breadth indicators are a pee of that puzzle. Each of the indicators above have shown significant deterioration in the market. It's almost like comparing the market to a house of cards, there are only a select few, heavily weighted stocks among the averages that have been pushing the market higher, when the legs of these stocks give way, the market tumbles as most of the other stocks are already in bad shape.
I hope this was helpful in showing you the condition of the market by looking at the actual percentage of stocks that are performing, especially compared to the market at lower levels.
No comments:
Post a Comment