Thursday, April 30, 2009

Market Sentiment: Breadth Ascent Slowing

The old boundaries of the bear market may be broken but breadth is struggling to maintain recent form. The Percentage of Nasdaq Stocks above the 50-day MA has entered the 80th percentile, although it had plumbed to the depths of the 5th percentile at the worst of the market crisis. It can go higher but corrections in the indicator tend to be sharp and it's primed for a fall.


The more sedate Summation Index is also slowing. At 413 it is only 90 points or so shy of bull market top territory but it's the narrowing of the indicator to its 5-day EMA that is most of concern.

The breadth indicator which is in a position to maintain its run is the Bullish Percents. At 55% it has only passed bear market top territory but could run another 15% before it approached bull market levels.

But none of the above can hide the real momentum behind the rally as displayed by the Percentage of Stocks above their 200-day MA. Bulls can take real confidence from the strength shown by market participants in buying and holding stocks over and above this important long-term indicator. Also, at 35% it still has a long way to go before it gets to true frothy conditions. In effect, the rally we have seen has so far has come from a few key sectors, not the broad rising tide of a new bull market but the counter rally of a bear market.

However, the market is primed for buying any dips back to the 50-day MAs (or just below this level - which will be seen by a correction in this indicator). It will be the broadening of confidence in the market place which will see this strength spread to other sectors. The next major reaction low (as marked by breadth) will probably be the one to kick start the next cyclical bull market. If we are to take a seasonal approach to this the September/October 2009 low might be the one to buy with confidence. We will see closer to the date.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, stock charts, watchlist, multi-currency portfolio manager and strategy builder website. Forex data available too.
 
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