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On Monday the NYSE Cumulative Advance Decline line reached a new all time high. For obvious reasons that turned a lot heads in the technical analysis community. After all, this happens relatively rarely and it is interpreted as a bullish omen for obvious reasons.

click to enlarge
NYSE cumulative breadth Aug 2010

While I acknowledge the occurrence, I’m not completely persuaded to join the bullish camp. For starters, one single indicator rarely convinces me of anything. And when we look for confirmation of underlying strength in the market, there is precious few corroborating data points.

Personally, I prefer to look at the “clean” version of advance decline breadth because the NYSE has too much non-operating company stocks trading on it these days. Turning to the Cumulative Advance Decline for the S&P 500 we see that it is still far from reaching new highs:
S&P500 cumulative advance decline Aug 2010

On the plus side, the positive divergence in breadth that we’ve noted for a while is still in effect. That is to say while the S&P 500 index itself fell below its February level, the breadth measure didn’t.

Another market internal metric I monitor is the percentage of stocks trading above their long term average. Currently the percentage of S&P 500 components trading above their 150 moving day average is still struggling to put in a higher high and to reach cyclical bull market levels once again. Yesterday it fell after almost reaching its previous high in mid-June (59%). But it yet to decisively break the down trend (lower lows and lower highs) in effect since May and which I showed previously in this chart: Continuing Weakness from Price & Breadth.

While the long term measure of breadth is still rather weak, the medium term measure (percentage above 50 day moving average) is at 75%. This is not only high on a nominal basis (close to reaching extremes in the 80-90% range), it is also much higher than the mid-June peak (46%). Usually, stocks have a difficult time continuing to rally when most stocks are trading above their 50 day moving average. The exception is at the start of cyclical or secular bull markets when we strap on the afterburners.

Finally, the Nasdaq McClellan Oscillator (Ratio Adjusted) recently hit a high not seen since March 2009 - when we did in fact strap on the afterburners:

Nasdaq McClellan Oscillator Aug 2010

Disclosure: None

Source: NYSE Cumulative Breadth Hits New High: Not Turning Bullish Yet