Markets Showings Signs of Life
Saturday, May 3rd, 2008
By George Leong, B.Comm. for Profit Confidential
Stock markets have shown some positive signs over the last few weeks. The DOW came within seven points of 13,000 on Wednesday and the tech-laden NASDAQ broke 2,500. There is also buying in the small-cap sector, as the Russell 2000 has been strong at above 700.
Let’s take a look at some of the technical indicators that I like to review on a daily basis.
The new-high/new-low (NHNL) ratio measures 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 the ratio is above 70%, it is bullish; below 70%, it is a warning; and below 20% is bearish. Watch the sentiment to see how the market is feeling. Buying should be supported by a rising NHNL.
In the broader market, the NHNL on the NYSE remains somewhat weak at this time, with only 16 readings above 70% since November 1. However, the recent sentiment has been improving, with six bullish readings over the past 13 days. The near-term trend is showing an uptrend, which suggests that investor sentiment is improving. In technology, the NHNL on the NASDAQ is cautious, with the majority of reading below 70%. We have yet to see a 70%-plus reading since October 11, or near the market top. The near-term trend is down, but has been stronger in recent session.
Now, take a look at an option volatility reading that also helps in evaluating the market.
The CBOE NASDAQ Volatility Index (VXN) — a barometer of near-term market volatility based on NASDAQ 100 index option prices — is generally viewed as a contrarian indicator. The five-day CBOE NASDAQ VXN to May 14 is flat and is below the 30-day and 50-day market averages (MA). The lower readings could indicate a near-term top. On the S&P 500, the CBOE S&P 500 Volatility Index (VIX) fell for the five days to May 14, and is also below the 30-day and 50-day MA, as well as the 200-day MA. Again, the lower readings may point to a near-term top. In the near term, watch for some topping.
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Tags: dow jones, market view, small-cap stocks
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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.
