Last week's indicator review found that we were trading in a broad trading range, with further weakness likely. We did indeed see that weakness late in the holiday-shortened weak, as the S&P 500 sectors turned bearish and 20-day new lows once again jumped ahead of new highs. With downside momentum strong, further price weakness can be expected this coming week, which would have us testing the June price lows at the low end of the market's extended trading range.
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Interestingly, our cumulative Demand/Supply Index (top chart) is only near its zero level, indicating that we are not yet at intermediate-term oversold levels. Similarly, 65-day highs continue to outnumber 65-day lows (middle chart) and remain stronger than at the June lows.
One reason that the indicators have held up reasonably well into the recent weakness can be seen in the advance-decline line for NYSE common stocks only, a very useful chart posted by Decision Point. We remain well off the June lows for the A/D line, raising the interesting possibility of a non-confirmation should we dip below the June price lows in the major averages.
Quite a few market participants are focusing on the seeming head-and-shoulders pattern in the S&P 500 Index since May's highs. A break of the May/June neckline would no doubt bring sellers to the fore. It's at that point that we would see if this is more than a shallow correction of the strength we've seen in stocks since March. From the state of the indicators at present, it's not clear to me that we're about to enter a prolonged bear phase.