** Don't Get Too Excited About Current Gains - by George Leong, B. Comm. - Profit Confidential
Stock markets made a nice four-day rally prior to the Thanksgivingbreak. Yet, despite this, I'm not convinced that the upward trend issustainable, as the market risk remains high. Investor sentimentcontinues to be extremely bearish and this will hinder thesustainability of any upside move in stocks. As of November 26, onlyabout 5.65% of all U.S. stocks are above the 200-day moving average, upfrom the 3.98% a week earlier, and compared to 5.60% a month ago. Thesame goes for the shorter-term moving averages. And, unless we see thepercentages move higher, any gains will be questionable.
Atechnical measure that I like to monitor for a feel of the market isthe new-high/new-low (NHNL) ratio, a measure of the number of stockstouching a new 52-week high versus the number of stocks that havedeclined to new 52-week lows. The theory is that, in a bullish market,investors quickly bid up stock and you see a rising NHNL ratio. Wheninvestors get nervous, less new highs are made and the NHNL ratio willtend to decline, thereby giving you a warning. At the other end of thespectrum, bear markets have more new lows than new highs.
Thereis a general guideline that we use to examine the NHNL ratio. When theratio is above 70%, it is bullish; below 70%, it is a warning; andbelow 20%, it is bearish. Watch the sentiment to see how the market isfeeling.
The NHNL on the NYSE remains extremely bearish; 55 ofthe last 60 sessions have a reading of below 20%, including 46 of thelast 47 sessions, which were very bearish. There have only been three readings over 70% since May 22. The NHNL on the NASDAQ has alsobeen weak, with only three bullish readings since October 11, 2007. Inall, 56 of the last 60 sessions were below the bearish 20% level. Thenear-term trends on both the NYSE and NASDAQ are in a downward trend.You want to see a reversal in the trend before getting too excited withthe current rally.
Profit Confidential
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George Leong, B. Comm., Senior Editor at Lombardi Financial, has been a technical analyst for 12 years and a financial analyst for seven years. His overall market timing and trading knowledge is extensive. George is the editor of several of Lombardi's popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical columns for stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as an analyst with Globe Information Services. Your Article Search Directory : Find in Articles
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