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Strategies & Market Trends : Effective Collaboration - Team Research for Better Returns:

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Jacob Snyder

To: Jacob Snyder who wrote (3814)	10/23/2014 8:03:26 PM
From: Return to Sender	1 Recommendation Read Replies (1) of 8239

Jacob, I am going to answer your question but first let me say that if you are trading medium term that as long as the NYSI and NASI are moving higher then not being long is extremely risky. When they trade lower as they were doing until very recently the market is at further risk. That's the intermediate story. But what do we need to see before I think the market is out of trouble? How about a whole lot more new highs if and when the market makes a new high. Market Breadth is Poor at Market Tops - Would you believe that on average only 6% of the stocks on the DJIA have been hitting new highs at each of the last 14 major tops since 1929? financialsense.com At the most recent top we had less than 4% of stocks on the NYSE making new highs. In addition the number of new lows was expanding. I'll show you charts using the NYSE info from the Wall Street Journal first. You can check that data a couple hours after the close daily here: markets.wsj.com There were 112 New Highs on the NYSE today with only 32 New Lows but look back at how many new lows we had recently. In order to really get a look at long term market breadth you need to see long term charts. Try these charts instead Jacob as they better show that over time it's the deterioration of market breadth that leads to a market top. At the present time we are working off a deeply oversold situation to the market leading to some marked improvement in market breadth. But how does that market breadth compare to the market breadth we saw earlier in what is now nearly a six year market advance? I hope as you look through the charts you will see as I do that were it not for QE 3 the market would have actually succumbed to a much deeper correction than the nearly 20% dip we got then. Now at this time we are seeing enough positive earnings reports to see some improvement in market breadth. Is that improvement going to be enough for us to see new highs in the market? That just may be possible but when the last new high came with barely 4% of the stocks on the NYSE hitting new highs and the number of stocks setting new lows was expanding I think we should be anything but complacent. Long Term Market Breadth Indicators for the SOX and market as a whole. Crossing over the green horizontal lines are indicative of oversold conditions that could lead to a rally. Crossing over the red lines is indicative of overbought conditions that could lead to a sell off. In either case the market might recover from these conditions only to head further into oversold or overbought territory. It is therefore important to look for positive or negative divergences. Positive divergences were seen at the last major market bottom in October 2002 where most market breath indicators had improved readings than those seen at the previous bottoms even though the market was actually much lower.

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