Friday, August 13, 2010

The market is scary W/E 8/13

This week as the talking heads kept telling us how strong the economy was recovering the market went down almost every session. Time to step back, ignore the hype and go to Barchart for just the facts. We will still use our 3 standard yard sticks because we know that no single indicator works 100% of the time.

Value Line Index -- Contains 1700 unweighted stocks so I think it better represents the market than the narrow S&P 500 or very narrow Dow 30 -- Down for both the week and the last month
  • Down by 4.66% for the week
  • Down by 3.11% for the last month
  • 14 day Relative Strength Index is at 39.85% and falling
  • Barchart only has 1 buy on its 13 technical indicators for a 40% short term sell and a 64% overall sell signal
  • Index closed Friday below its 20, 50 and 100 day moving averages at 2287.87 which is 2.4% below its 50 day moving average of 2343.52

Barchart Market Momentum -- Contains approximately 6000 stocks -- Percentage of stocks closing above their Daily Moving Averages for various time periods -- above 50% is good --Worse than last week

  • Friday only 35.61% closed above their 20 DMA, over 51.13% closed above their 50 DMA, only 41.75% closed above their 100 DMA
  • Last week over 73.82% closed above their 20 DMA, over 73.31% closed above their 50 DMA and over 57.46% closed above their 100 DMA
  • Last month only 46.61% closed above their 20 DMA, only 40.30% closed above their 50 DMA , only 33.55% closed above their 100 DMA

Ratio of stocks hitting new highs/new lows for various time periods -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- This is the most bearish I've seen in quite a while.

  • 1 month ratio of new highs/new lows -- 138/776 = .18
  • 3 month ratio of new highs/new lows -- 57/423 = .13
  • 6 month ratio of new highs/new lows -- 30/320 = .09

Summary and strategy for the next week -- The market was definitely in a net downward trend last week. During the next week I will be trimming stocks that are tanking faster than the market and try not to loss more than 10% on any individual position. I will begin to accumulate cash until the market starts to recover.

Jim Van Meerten is an investor who writes on investing here and on Barchart Portfolio Blogs. Please leave a comment below or email

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