Are We Still Rolling Over or Getting a Repreive

The markets yesterday finished down fairly significantly and it looked like they would qualify for a 90% Down Volume Day. However, both the NYSE and the NASDAQ fell just short with the NYSE at 89.3% and the NASDAQ at 89.1%.

The market breadth was also negative with the decliners outpacing advancers by approximately 3 to 1 on both the NYSE and the NASDAQ. Volume on the NYSE was 4.9 billion shares, well below its 30 day moving average of 5.8 billion. Likewise the NASDAQ was below its 30 DMA of 2.3 billion coming in at 2 billion shares traded.

This was the 4th straight down day and I am glad I am holding a lot of cash and bonds. Important to watch are selling pressure and buying strength. It looks like selling pressure is beginning to pick up momentum. If we don't get a offsetting increase in buying strength or selling keeps increasing, it would be bearish for the markets.

I have attached a graph of the proprietary chart from the technical analysis firm of Lowrys, the most respected and decorated technical firm in the world. They have many trademarked indicators and methodologies they use which are extremely reliable. Their Selling Pressure and Buying Power is one of their most reliable indicators I have yet found.

I will explain in a later blog the background math to this chart, but suffice it to say, it measures the supply and demand for stocks on the NYSE. See for yourself and see if you think buying strength is "rolling over" and/or selling pressure is "increasing." Both would be bearish signs.

You want the Selling Pressure to be sloping downward and the Buying Power to be sloping upward. The slope or direction is paramount, but also important is the "rate of change" of the slope of the line or how "vertical" the line is. The more vertical, the faster it is changing and the more you have to pay attention.

Today, the market reversed and ended on a positive note. The Dow was flat, and the S&P and NASDAQ were both up almost 1/3%. Volume, which has been very light compared to the 30 day moving average, increased significantly and was well above their 30 DMA on both the NYSE and the NASDAQ.

The revised GDP numbers came out during the day at 2.7%, below the 3% estimate. This put further doubts about the global recovery and Asia and Europe were both down. Our markets were also down but then our consumer confidence numbers came out positive and the markets turned around.

Investors are beginning to feel more trepidation about all the spending, debt, and economic problems the bailouts or stimulus didn't solve. On the commodity front, oil spiked because of bad weather and the threat of hurricanes in the Gulf is going to shut down all the rigs soon. There are still tension in the Middle East so keep an eye on the price of oil.

Keep studying,
Dan Stewart CFA®