Tuesday, June 12, 2007

Advancing Issues

Here are two daily line charts showing the number of issues which advance in price on a given day on the New York Stock Exchange. The purple line on the first chart is the 5 day moving average of this number while the wavy red line on the second chart is the 10 day moving average of this number. I last commented on this indicator here.
I estimate that about half the lows in all time frames in the stock market are accompanied by bullish divergences of some sort in the advancing issues indicators. A bullish divergence occurs when the market averages drop to new lows for the move while some measure of the advancing issues number holds above a recent low. Bullish divergences are significant only if a moving average has already reached "oversold" levels.
At the lows this past March the only bullish divergence visible occurred in the daily count of advancing issues which refused to make new lows even as the averages attempted repeated downside breakouts. It is much more common to see a bullish divergence against the 5 day moving average or the 10 day moving average.
Note that both these moving averages have reached oversold levels (horizontal green lines) and the 10 day moving average has rallied a bit. If the market averages fluctuate in the trading range bounded by last weeks low and yesterday's high for two or three more days, I think the stage will be set for a break to new lows for the correction which will at the same time show a bullish divergence in the 10 day and/or 5 day moving averages of the advancing issues numbers.
Such a development would set the stage for a rally to new bull market highs later this month and in July.


Anonymous said...

Carl, What is the rationale behind your comment that bond yields may be putting in a top? is it based on box theory?

thanks for your good work!

Anonymous said...

Carl is a contrarian so he should like my theory. We are looking at a major market crash, globally, sometime between June 25 and July 15 when the Chinese stock market melts down 40% or more. The summer correction will spread globally and will cause an "aha moment" among American consumers who are going to slap their wallets shut to non essential purchases en masse. At that point, the GDP goes extremely negative, foreign central banks stop buying our bad debt, the dollar drops as interest rates rise, unemployment spikes. The second American Great Depression. America will never recover fully, and our lives will be different after this summer always. It is only a matter if time then before, as happened in the former Soviet Union, the weight of the security apparatus breaks the back of the population's ability to pay. UNLESS, of course, a world war happens and the economy is fully militarized and finely controlled by the government. So it looks like protecting freedom by bombing Iran will be how the "free market" ends.