MARKET BREADTH IS STARTING TO IMPROVE

NYAD LINE MAINTAINS ITS UPTREND, NEW HIGHS ARE OUTPACING NEW LOWS AGAIN... The NYSE Advance-Decline line has been rising for several months. That's normally a good sign for the market. Historically, the AD line usually peaks before the market does. During January, the AD line started to drop along with the market. As Chart 1 shows, however, it bounced off its 50-day average and, as of yesterday, had started to climb again to the highest level in a month. Chart 2 plots the NYSE New Highs-New Lows differential. The line had been dropping since the start of December as the technical condition of the market weakened. But after bouncing off support near its October low, the line has started to rise again. As of yesterday, it has broken its two-month down trendline. The fact that both breadth lines are rising again supports the idea that the recent downside market correction has seen its worst and that short-term market momentum is swinging to the upside.

Chart 1

Chart 2

NASDAQ BREADTH ALSO SHOWS IMPROVEMENT ... The Nasdaq Advance-Decline line shown in Chart 3 has been much weaker that the NYSE AD line. But it too is starting to show some improvement. The 9-day RSI line may explain why since it shows the Nasdaq AD line to be in oversold territory under 30 and showing short-term positive divergence (see arrows). It has a long ways to go, however, to climb back over its 50-day average. The Nasdaq New Highs-New Lows line looks similar to the NYSE line. It too is bouncing off support along its fourth quarter lows and is starting to move higher again. That should strengthen its short-term trend.

Chart 3

Chart 4