DOWNSIDE BREADTH STRONGER THAN UPSIDE BREADTH -- NEW 52-WEEK LOWS STILL OUTPACING NEW 52-WEEK HIGHS -- VOLUME LEVELS REMAIN UNINSPIRING
BREADTH LAGS ON BOUNCE ... Today's Market Message was written by Arthur Hill. - Editor
The stock market surged on Wednesday, but a look under the hood shows lagging breadth and uninspiring volume. Before getting into the analysis, let's review some key breadth indicators. Charts 1 and 2 show an array of key breadth statistics for the Nasdaq and NYSE. Volume is shown with the 200-day moving average to identify above and below average volume days. $NYAD and $NAAD show net advances (advances less declines). $NYUD and $NAUD show net advancing volume (volume of advancing stocks less volume of declining stocks). The horizontal blue and red lines show positive and negative thresholds. A surge above the positive threshold shows significant strength. A plunge below the negative threshold shows significant weakness. $NYHL and $NAHL show net new highs (new 52-week highs less new 52-week lows).
NYSE NET ADVANCES FALL SHORT... Chart 1 focuses on the breadth stats for the NYSE. The first indicator window shows above average volume the last four days. Green volume bars indicate that the NY Composite advanced three of the last four days. Even though volume levels were above average, they were still well below the peaks seen in September, October and November. Buying pressure was not all that strong. The second and third indicator windows show net advances and net advancing volume. Based on the percentage gains in the indices, Wednesday's surge looked quite strong. However, net advances did not exceed +2000 and did not make it up to its late December highs. On the downside, notice that net advances plunged below --2000 on 14-Jan and 20-Jan. The same is true for net advancing volume. Selling pressure on 14-Jan and 20-Jan was stronger than buying pressure on Wednesday. For an advance to gain traction, we need to see buying pressure outpace selling pressure. The bottom indicator window shows net new highs. Except for a few brief forays into positive territory, this indicator has been negative since early June. A bull market is pretty much impossible as long as new 52-week lows exceed new 52-week highs. You can click on this chart to see the settings and save it to SharpCharts.
Chart 1
NASDAQ VOLUME REMAINS LOW... Chart 2 focuses on these same statistics for the Nasdaq. Volume was above average just once this year. Overall, January volume levels are well below the levels seen in September, October and November. Volume is fuel for a rally. A sustainable advance requires big volume and volume has yet to impress this year. Net advances surged on Wednesday, but this buying pressure did not exceed the selling pressure seen on 14-Jan and 20-Jan. The same is true for net advancing volume. The net new highs indicator flirted with positive territory in early January, but fell back into negative territory over the last two weeks. Except for a few brief forays into positive territory, net new highs have been negative since November 2007. Yes, you read right, November 2007. As with the NYSE breadth stats above, the breadth stats for the Nasdaq are bearish overall. A sustainable uptrend requires three things. First, volume on advancing days needs to expand significantly. Second, buying pressure on up days needs to outpace selling pressure on down days (net advances and net advancing volume). Third, new 52-week highs need to exceed new 52-week lows. You can click on this chart to see the setting and save it to SharpCharts.
Chart 2
