A time for caution
When you can't tell the difference between light at the end of the tunnel and a train coming your way, then it's time to pay attention.
Let's look at my three yardsticks for evaluating the market. I use three because no single yardstick tells the whole picture. Barchart is the source of all my data.
Value Line Index -- contains 1700 stocks so I think it's more representative of the market than the narrower S&P 500 or the very narrow Dow 30 -- Index closed up for the week but still no long term trend
- Index gained 5.43% last week
- Index gained 2.05% last month
- Index was up for 3 of the last 5 weeks
- Still rated as a Barchart 40% technical sell
- Friday closed at 2253.61 and approaching its 20 day moving ave age of 2324.87
Barchart Market Momentum -- Contains approximately 6000 stocks -- The percentage of stocks closing above their Daily Moving Averages for various time periods -- Above 50% is always good --One bright note among many sour notes
- Friday 52.63% closed above their 20 DMA, only 43.18% closed above their 50 DMA, only 38.28% closed above their 100 DMA
- Last week only 24.97% closed above their 20 DMA, only 23.59% closed above their 50 DMA, only 28.36% closed above their 100 DMA
- Last month only 43.05% closed above their 20 DMA, only 24.10% closed above their 50 DMA and only 38/.22% closed above their 100 DMA
Ratio of stocks hitting new highs/new lows for various time frames -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- We've got some strong bullish signs here
- Ratio of stocks hitting 1 month new highs/new lows -- 754/219 = 3.44
- Ratio of stocks hitting 3 month new highs/new lows -- 288/152 = 1.89
- Ratio of stocks hitting 6 month new highs/new lows -- 238/116 = 2.05
Summary and Investment Strategy -- Something is beginning to happen. Whether it's the light at the end of the tunnel or the train coming our way I'm not sure. You can run these yardsticks at the end of each day yourself and be able to get a market pulse.
The best sign is that more stocks are hitting new highs than new lows so the market is off its bottom range. Since only 52.63% of the stocks are trading above their 20 DMA but not their 50 and 100 DMA, the trend is very short. I will continue to trim stocks that trade lower and add a stock only if it meets my strictest criteria. Daily caution should be your standard operating procedure for this week.
Disclosure: No positions in the stock mentioned at the time of publication
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The back-to-school season could be strong, and this year's holiday season could follow suit.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.