On Friday the S&P 500 was down for the day as a result of a jump in the 10-year Treasury yield index. In doing so the SPX closed under the widely watched 50-day moving average for the first time since July. The Dow was substantially below its 50-day MA and has even managed to violate the dominant interim 90-day MA on a 2-day closing basis.
The unhealthy number of new lows has resulted in a downward trend in the hi-lo momentum index (HILMO). The HILMO indicators, which are based on the new highs-new lows, show us the stock market’s path of least resistance on a short-term, intermediate-term and longer-term basis.
It goes without saying that HILMO needs to reverse before we get the next buy signal, but before this happens the number of stocks making new 52-week lows must diminish. In 19 of the last 20 days there have been greater than 40 new 52-week lows on the NYSE. Keep in mind that anything above 40 is considered to be a sign of internal selling pressure; the higher the number of new lows, the more the selling pressure….
It was equally surprising that Thursday’s AAII investor sentiment poll showed a net bullish reading. That is, more investors polled by AAII were bullish on the market outlook than were bearish. Again, this isn’t consistent with a market bottom. Historically the AAII poll registers a net bearish reading at market bottoms. This suggests the market decline may have further to run before it reverses course. [Excerpted from the Aug. 16 issue of Momentum Strategies Report.]