I keep thinking things can't get any worse and then they do.
For example, I felt that whether or not all the bad news was revealed by the large banks, it was a foregone conclusion that these stocks would be dogs for months to come. Along came more news of write-downs and capital raising and, to my surprise, it took the market down as if it was something unexpected. Add to that the downgrade of the bond insurers and we had all the excuses needed for a sell-off.
Then we had the sectors most affected by high oil prices. Ford, GM and Fed Ex all contributed to the negative mood in the market this week but, once again, who would ever expect these stocks to do well in the current high cost energy environment?
I have pointed out that recent economic reports continue to be better than awful and that it indicates to me perhaps stocks have room to advance. That idea was overlooked this week as stocks tumbled despite core PPI that was moderate, a suggestion that housing starts are not decreasing so fast anymore and the fact that unemployment claims at least did not increase. A slight dip in industrial production supported the bears but the numbers are nowhere near recession levels.
In any case, investors were intent on selling stocks this week and they did so agressively.
An overview of the short-term technical picture is presented in the following chart of market statistics collected by our
Alert HQ process. Each weekend we scan over 7200 stocks and ETFs looking for BUY and SELL signals. We also collect various technical information that we roll up into a chart like the one below:
We plot six different indicators. This week, pretty much all of them reflect weakness in the broad stock market.
Moving average analysis --The bad news in the moving averages just got worse this week. We have seen the number of stocks trading above their 20-day moving average and above their 50-day moving averages decrease dramatically. Less than 2000 stocks are trading above their 20-day MA and only 2275 are trading above their 50-day MA. These are the worst numbers since March.
As a further effect, this week the number of stocks whose 20-day moving average is above their 50-day moving average also plunged. This is typically a somewhat slow moving indicator but this week's action tipped the balance for about 1000 stocks.
