The Bigger Picture

Yesterday the Dow and the S&P 500 averages both closed at their lowest levels seen in the past 11 years. I thought a few charts from my public chart list at StockCharts.com would help to put this fact in a little better perspective.

The first chart shows the daily count of new 12 month lows for issues traded on the New York Stock Exchange. You can see that this number reached a high point on October 10, 2008, a lower high on November 21, 2008 and a still lower high yesterday. These three lower highs are associated with lower lows in both major averages. I think this is a sign that the bear market has reached a stage where the sellers are ceding control to the buyers, but the latter have yet to take command. In any case this is a very bullish divergence and indicates higher prices to come.

The second chart shows the 20 day moving average of the number of NYSE issues which advance in price each day. Here too we see a series of higher lows associated with successively lower lows in the averages. This is also a long term, bullish divergence.

The third chart gives some information about the very short term condition of the market. It shows the daily count of advancing issues on the NYSE. You can see that this number made a higher low yesterday as the averages made new closing lows. I think this is a clue that the short term trend is about to turn upward. If it does the other two indicators imply that the next upswing will probably be the first leg of a new bull market.