Tuesday, April 14, 2009

Market Sentiment: Breadth Entering Bull Market Territory

The three breadth indicators have entered or about to enter bull market territory. Leading the charge is the Percentage of Stocks Above the 50-day MA; at 74% it is in a bull market zone rather than the 60s of bear markets. However, its weakening of the technical picture remains so a downleg is due soon. On the plus side, it did break above the last reaction peak of 67% made in January - at its simplest, this rally has enjoyed far greater stock participation.

The Summation Index has barely wavered and has now entered positive territory; bear markets typically reverse when the Summation Index is zero or lower. It looks like there is more juice in the tank here.

Finally, the Bullish Percents have the most work to do given they finished at January peak resistance. At 47% it is someway from bull tops at 70% and is a couple percent below bear market top territory at 50%.

If the latter indicator can break through the 50% mark it would effectively confirm the next drop as a pullback and not a continuation of the cyclical bear market.

But current breadth action does not confirm a new cyclical bull market as new highs and new lows are still required. We have the basis of the first leg up (like many before it), now we need a pullback (i.e. no new low) and then new highs.

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.