Thursday, May 18, 2006

New York Stock Exchange Advancing Issues

Here is a chart showing the daily count of the number of issues on the New York Stock Exchange that advance in price. The pink line is the 5 day moving average of this number. I last commented on this advancing issues indicator here.

At Tuesday's close the 5 day moving average dropped below the 1100 level. This is a fairly rare event and has happened only 10 times since 1999. On average an important price low has occurred between 3 and 4 trading days after the first drop below 1100. The range is 1 to 5 trading days.

Once the price low occurred the subsequent rally in the S&P 500 cash index avergaged 150 points, the median rally being 140 points. The smallest rally was 40 S&P points, the next smallest was 59 points.

I think a very conservative conclusion to draw from this analysis is that the S&P will make a low this week not far from my 1266 target and then will rally above 1300. In fact I think one would be justified in guessing that the subsequent rally will go much higher to 1400 or so. But I hesitate to draw this more optimistic conclusion yet because the drop from 1331 so far does not have a clear three phase look to it.

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