No Post-Election Boost for Us
Monday, November 10th, 2008
By George Leong, B.Comm. for Profit Confidential
Stock markets have declined for two straight days post-election. Investors have renewed concerns on the economy and whether President-elect Barack Obama can turn the country’s fortunes around, especially given the global problem with credit and slowing.
Technically, investor sentiment continues to be extremely bearish and this will hinder the sustainability of any upside move in stocks.
I like to monitor 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. 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, with 40 of the last 45 sessions having a reading below 20%, including 31 of the last 32 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, 41 of the last 45 sessions were below the bearish 20% level. The near-term trend on both is down.
At this point, about 6.13% of all U.S. stocks, as of November 6, are above the 200-day moving average, which is worse than the 6.69% reading last week and the 3.38% reading of a month ago. The same goes for the shorter-term moving averages.
The selling capitulation appears to be over, but I expect that the extreme intraday market swings will continue given the major uncertainties.
I believe that a bottom has yet to be established, despite what some pundits are saying. We may be near a bottom, but are not sure where. I sense that markets may trade sideways if the lows can hold. We could see a retest over the next few sessions if the selling continues. The positive is that a retest of the lows would help to confirm whether a near-term bottom is in place.
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Tags: stock markets, U.S. Dollars
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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.
