June 23 Indicator Review

In the most recent indicator review, we looked at a number of signs of weakness, including an expanding number of stocks making fresh 65-day lows and weak money flows. This past week saw more of the same, as new lows once again expanded (top chart) and selling sentiment (NYSE cumulative TICK; bottom chart) continued its bearish trend. We're now testing March lows in the Dow Jones Industrial Average and nearing those lows in the S&P 500 Index. Interestingly, the S&P 600 small caps and S&P 400 midcaps are well off their March lows, as is the NASDAQ 100 index.

These divergences help to explain why we're not seeing as many stocks making fresh 52-week lows as we did in January or March. On Friday, for example, we had 27 NYSE common stocks register fresh 52-week highs, against 161 new lows. By comparison, we had over 300 new lows in March and over 700 in January. Homebuilders, financials, auto manufacturers, airlines: there are a number of very weak sectors making annual lows. When we look at such sectors as technology, consumer staples, consumer discretionaries, materials, and energy, however, we see no new lows.

To be sure, the market is weak. The advance-decline lines specific to NYSE common stocks and S&P 500 stocks are right at their March lows. We're seeing fresh bear lows in the A-D line specific to the Dow 30 Industrials. But the S&P 400 midcaps and S&P 600 small caps? The lines specific to those remain modestly above their 2008 lows. So while the market is weak, it is not clear to me that it is weakening relative to the first quarter of the year. As long as selling sentiment (cumulative NYSE TICK) remains negative, riding the trend continues to be the best course of action. I'm not aggressively chasing the downside here, however, and may indeed nibble at the long side should sentiment improve.