Don’t Bet Against the Current Market
Thursday, February 22nd, 2007
By George Leong, B.Comm. for Profit Confidential
The current market continues to be one that you just don’t want to bet against, especially from the short end. The blue-chip DOW broke above 12,800 on February 15 and continues to indicate that more upside moves lie ahead, as the trend remains positive. The same goes for the NASDAQ, S&P 500 and small-cap Russell 2000.
Market sentiment has been one area that has been quite positive. To examine this, we look at the new-high/new-low (NHNL) ratio, which measures the number of stocks touching a new 52-week high versus the number of stocks that have declined to a new 52- week low. The theory is that, in a bullish market, investors quickly bid up stocks and you see a rising NHNL ratio. When the ratio is above 70%, it’s considered bullish.
The daily NHNL on the NYSE remains bullish, with 118 of the last 125 sessions above the bullish 70% level. On the tech front, the NHNL ratio for the NASDAQ has been stronger over the last several weeks with 15 of the last 17 sessions above 70%.
The near-term signals for the NASDAQ remain bullish. The Relative Strength is just above neutral. The NASDAQ is trading above its 20-day MA of 2,458 as well as its 50-day and 100-day MA of 2,448 and 2,400, respectively. The index is also above the 200-day MA of 2,277. Upper targets include the 52-week high of 2,508 and the 14-day 70% RSI at 2,556.
On the blue-chip side, the near-term technical picture for the large- cap DOW remains bullish, while the Relative Strength is relatively strong. The index is holding above its 20-day MA of 12,594. Upper targets include the 14-day 70% RSI at 12,839.
The S&P 500 remains above some key multi-year resistance at 1,380 to 1,390 and recently broke out at 1,430. Near-term technical signals for the broadly based S&P 500 remain bullish, and the Relative Strength is relatively strong. The index is trading above its 20-day MA of 1,437. The near-term target is the 14-day 70% and 80% RSI at 1,471 and 1,517, respectively.
On the small-cap side, the near-term technical signals for the Russell 2000 — a barometer of small-cap performance and the economy — remain bullish. The Relative Strength is above neutral. The index is trading above its 20-day MA of 799 and well above its 200-day MA of 744. The break at 800 was bullish, as was the subsequent advance to 815. The upper target is the 14-day 70% RSI at 830.
Now, while the trends are positive and the near-term signals are bullish, watch for the overbought condition, as well as potential near-term selling pressure. This is not a big deal, as long as support levels hold. If they do hold, we could see higher gains in the near future.
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Tags: bear market, bull market, stock analysis, stock market
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
