Monday, January 07, 2008
Here are two charts showing the daily count of the number of issues traded on the New York Stock Exchange (black line) and the 5 day (purple line) and the 10 day (red line) moving averages of this number. I last commented on this indicator here.
This morning the cash S&P 500 index took out its November 26 low at 1406 and I think it is likely to drop into the 1360-90 range before this decline ends. I want to bring your attention to the bullish divergences which are currently visible in the two charts above this post. Note that the 5 day moving average of the advancing issues count is still above the levels of its mid-November low as well as above the level of its mid-December low. The same is true of the 10 day moving average which shows an even more pronounced divergence.
Divergences such as these are not characteristic of a market in the midst of a massive bear market decline which has much further to go. Instead they suggest to me that the drop from the December 11 top is the last phase of a reaction in a bull market which has lasted 6 months so far and which I think is very close to its end. Just to jog memories recall that the 2004 bull market reaction lasted 5 months in the S&P and 8 months in the Dow Jones Industrial average.
Once the cash S&P reaches the 1360-90 zone I think we shall see the market put in an important low which will be followed by a move in the cash index above the 1600 level.