% NYSE STOCKS ABOVE 50 AND 200-DAY MOVING AVERAGES CONTINUES TO DROP -- S&P 500 BOUNCES OFF LOWER 100-DAY BOLLINGER BAND -- BUT NEEDS TO CLEAR SOME OVERHEAD RESISTANCE BARRIERS TO SIGNAL END OF CORRECTION
% NYSE STOCKS ABOVE 50-DAY MA STILL DROPPING... Nearly a month ago on May 16 I showed the % of NYSE stocks trading over their 50-day moving averages ($NYA50R) dropping below 50% which betrayed a weakening market beneath the surface. As of yesterday, that percentage had dropped to 23% which is the lowest reading since last summer. The good news is that the line is moving close to oversold territory near 20%. To signal a market upturn, however, the line has to start rising again. So far, there's no sign of that happening.
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Chart 1
SO IS THE % NYSE STOCKS OVER 200 MA ... The same May 16 message showed the % of NYSE stocks trading over their 200-day moving average dropping to 74% and in danger of undercutting its May low. Chart 2 shows the $NYA200R having dropped to 61% which is the lowest level since last September. That means that more than a third of NYSE stocks have fallen below long-term support at their 200-day average. Chart 3 shows ten years of history and reveals that it's not unusual for the $NYA200R to drop into the 40-50% region during bull market corrections (red line). That happened several times during the bull market between 2003 and 2006 (and again last summer). The bear market during 2008 pushed the line all the way down to 10%. Chart 3 carries both good and bad news. The good news is that the decline so far is still consistent with a normal downside correction within an ongoing uptrend. The bad news is there's no sign of an upturn as of yet.
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Chart 2
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Chart 3
P&F VERSIONS OF SAME CHARTS... When looking for signs of an upside reversal, point & figure charts are often more helpful than line charts. Chart 4, for example, shows the p&f version of the % of NYSE stocks trading over their 200-day averages. [P&F charts show alternating columns of rising X boxes and falling O boxes. Each box in Chart 4 is worth 1%]. The chart gave an initial sell signal at 78 during May and another one at 69 this month. [A p&f sell signal is triggered when a down O column falls below a previous O column. To generate a buy signal, a rising X column needs to exceed a previous X column]. There's little chance of that happening anytime soon since the O column is still dropping. The first sign of improvement to watch for is a three-box reversal to the upside to create a rising X column. At the present moment, that would require the NYA200R to rise to 65. Chart 5 shows the p&f version of the more volatile NYA50R (with a 2% box size). It's also still in a downtrend. That more sensitive line would have to rise to 30 to show any improvement.
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Chart 4
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Chart 5
S&P 500 TESTS LOWER BOLLINGER BAND... One of the downside targets given back in May was a drop to the lower 100-day Bollinger band (which is the equivalent of a 20-week band) used for intermediate trend analysis. That downside target was triggered when prices fell below the dotted 100-day average last week. Prices are trying to bounce off that lower band today. More significant chart support is found near the March low (1250) and/or the red 200-day moving average. The best we can say at this point is that the SPX has reached its first downside target. It's going to have to do a lot more, however, to suggest that the downside correction is over. One of the first things would be a close above its mid-April low near 1295. Then it would have to clear its late May low near 1310 (horizontal line). That's because broken support levels usually become overhead resistance barriers.
