Friday, March 23, 2007

Watch out for the waves Sandpipers!!

This is a basic chart of the NYSE Composite with volume and the advance/decline line moving average in the bottom section.

1. Shows that volume on the rally the past few days is not matching the volume on the decline we had a week and two weeks back.

2. Shows the rising prices in the market along with the declining slope in the advance decline moving average. This was a key that this move into new high territory was being carried by less and less stocks. That doesn't mean that the rally is not real, just that it could be healthier and more stocks should have participated.

3. Shows that the low last week was an oversold area, confirmed by the divergence in the advance/decline moving average. This divergence was an indication that the sell pressure from the week before was not as great as two weeks ago. This is a good point to enter the market with a stop close by. How far can this rally go?

? Is an area that looks hard to enter into new positions. The advance/decline moving average is now above its recent high, yet prices have not recovered in the same way. How much steam is left, where are the new buyers going to come from. It's hard to know the answers, but caution is warranted.

This is the corresponding chart of the Nasdaq Composite.

The two charts here are both of the Nasdaq 100 Index and the S&P 500 Index. The bottom most section of the chart is a spread between the two(NDX/SPX). In a healthy bull market technology is seen as a leader. This is in the 1 area on the first chart. This was the bull market that ended in 2000. The spread showed a strong upward slope and stayed above its moving average. After 2000, when the glass became half empty, technology lead on the downside also. Its gains are greater in bull markets and losses harder to handle in bear markets. It is where growth and innovation are, it is where the new companies of tomorrow are supposed to be. In the second chart it is evident that the S&P 500 is as strong, if not stronger, that the NDX. The NDX has times that it leads, and those are great rallies to trade in, but lately it isn't showing strength on a relative scale. It doesn't mean that there are not winning stocks, it just means you have to be a lot more selective and accepting of profits when they come. There is no need to be greedy, when the wind is in your face; just take what the market gives you.

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