Looking
just below the stock market’s surface we can see that there is still much need
of improvement before the next immediate-term buy signal is confirmed. The NYSE advance-decline (A-D) line is one of
the most basic, yet reliable, methods for discerning market breadth. Despite the new highs in the Dow and the SPX,
the A-D line still hasn’t confirmed the breakout in the large cap stocks. As you can see in the following graph, the
A-D line is lagging appreciably and should ideally reverse its downward slope
before we get the next all-clear signal.
Another
sign that there are volatile currents directly beneath the surface of the
market is seen in the fact that the number of new 52-week lows has been
excessive in the last couple of weeks. Considering
that a major longer-term series of Kress cycles are bottoming right now,
perhaps we’ll see that number diminish in October. If this happens it would in fact be a strong
indication that the cycle has bottomed and that the market’s internal condition
is improving. For now, though, the fact
that there are well above 40 new highs each day is a warning signal that the
market isn’t as strong as it should be internally.
Before
we can turn bullish we need to see improvement in the following areas: 1.) NYSE
new 52-week highs and lows; 2.) NYSE internal momentum (HILMO); and 3.) the
NYSE advance-decline (A-D) line.
