A Long-Term View: Is This Market Ripe for Opportunities?

click to enlarge

With a major shout-out to Decision Point, here's a long-term perspective on the NYSE Composite Index ($NYA), which is a pretty good reflection of the broad stock market. The top panel shows price movement in $NYA, and the bottom panel shows the percentage of NYSE issues trading above their 200-day moving averages. I labeled the points at which we moved below 20% in the indicator. As you can see, those points captured major market bottoms in December, 1987; October, 1990; December, 1994; October, 1998; October, 2002; and most recently in January, 2008.

The percentage of stocks trading above their long-term moving averages is not a bad indicator of "overbought" and "oversold". If you think about it, we can define a bull market as one in which we see successive overbought and oversold levels at higher prices. A bear market is one in which we see successive overbought and oversold levels at lower prices.

I'm well aware of the market's short-term weakness, but I wanted to pull up this longer-term perspective because, unless my eyesight is failing me, $NYA remains in one helluva bullish configuration. For all the sky-is-falling worries about housing, weak dollar, national debt, and toxic credit, we remain far above our 2002 lows and less than 15% off all-time highs.

Now maybe this time is different, and maybe the sky will fall. If so, my shorter-term indicators will pick up the expanding number of stocks making new lows; the sustained weakness in cumulative TICK, money flows; etc. But we've seen dwindling new lows since January, and the percentage of NYSE issues above their 200-day moving averages has been on the rise since then, even as we made price lows in March. If we cannot sustain the recent weakness and decisively take out the March lows, I will approach the long term the way I approach short-term trading, entering an established trend on a pullback.

Comments

[User 143167]

"For all the sky-is-falling worries about housing, weak dollar, national debt, and toxic credit, we remain far above our 2002 lows and less than 15% off all-time highs."
That is exactly what you should worry about.

[karchad]

I'd say this guy knows what he's talking about. If we haven't seen the lows, we've seen pretty close to it. I'd look for a HUGE rally in the 2nd half of 2008. I'd say 6/08 - 6/09, the s&p will gain 30%. Beaten down financials will at least dead-cat-bounce, and other stocks will gain sharply.

[globalmacro]

I love martians