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.