Tuesday, August 20, 2013

Stock market update

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.]