Don’t Get Too Excited About Current Gains
Monday, December 1st, 2008
By George Leong, B.Comm. for Profit Confidential
Stock markets made a nice four-day rally prior to the Thanksgiving break. Yet, despite this, I’m not convinced that the upward trend is sustainable, as the market risk remains high. Investor sentiment continues to be extremely bearish and this will hinder the sustainability of any upside move in stocks. As of November 26, only about 5.65% of all U.S. stocks are above the 200-day moving average, up from the 3.98% a week earlier, and compared to 5.60% a month ago. The same goes for the shorter-term moving averages. And, unless we see the percentages move higher, any gains will be questionable.
A technical measure that I like to monitor for a feel of the market is the new-high/new-low (NHNL) ratio, a measure of the number of stocks touching a new 52-week high versus the number of stocks that have declined to new 52-week lows. The theory is that, in a bullish market, investors quickly bid up stock and you see a rising NHNL ratio. When investors get nervous, less new highs are made and the NHNL ratio will tend to decline, thereby giving you a warning. At the other end of the spectrum, bear markets have more new lows than new highs.
There is a general guideline that we use to examine the NHNL ratio. When the ratio is above 70%, it is bullish; below 70%, it is a warning; and below 20%, it is bearish. Watch the sentiment to see how the market is feeling.
The NHNL on the NYSE remains extremely bearish; 55 of the last 60 sessions have a reading of below 20%, including 46 of the last 47 sessions, which were very bearish. There have only been three readings over 70% since May 22. The NHNL on the NASDAQ has also been weak, with only three bullish readings since October 11, 2007. In all, 56 of the last 60 sessions were below the bearish 20% level. The near-term trends on both the NYSE and NASDAQ are in a downward trend. You want to see a reversal in the trend before getting too excited with the current rally.
Next Post: Don’t Be Fooled by What They Are Telling You
Previous Post: This Recession-resistant Stock Growing Revenues
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
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.
