Market rally or just a recovery?

Last week's action was good, but can we call it a rally?

By Jim Van Meerten Jul 24, 2010 10:23AM
Every weekend I step back and make an evaluation of the market based on data only, no headlines or prognostications. You old Dragnet fans might remember Sargent Friday say: " Just the facts. " I'll use my three standard yard sticks, because although each measures the trend of the market, each does it in a slightly different way. All the data come from Barchart. Let's see what happened.
Value Line Index -- Contains 1700 stocks so it's more representative of the market than the narrow S&P 500 or very narrow Dow 30 -- Marked improvement this week but still not a full blown trend

  • Index up 5.77% for the week but only up about 1.83% for the last month
  • Barchart technical indicators have 6 out of 13 indicators signaling a buy for a 16% overall buy signal
  • Barchart Trend Spotter (tm) is still on hold
  • Index closed Friday above its 20 and 50 day moving average but is still below its 100 day moving average
  • Index closed on Friday at 2400.25 slightly above its 50 day moving average of 2347.37

Barchart Market Momentum -- Contains approximately 6000 stocks -- Percentage of stocks closing above their Daily Moving Averages (DMA) for various time frames -- Above 50% is bullish, below 50% bearish -- For the week good but still not a trend

  • For the week 82.16% closed above the 20 DMA, 68.90% above the 50 DMA, 50.15% above the 100 DMA
  • Last week only 41.69% closed above their 50 DMA, only 40.44% closed above their 50 DMA, only 33.90% closed above their 100 DMA
  • Last month only 42.46% closed above their 20 DMA, only 29.22% closed above their 50 DMA, only 39.97% 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 -- Many more new highs than new lows

  • 1 month new highs/new lows -- 2315/259 = 8.94
  • 3 month new highs/new lows -- 591/136 = 4.35
  • 6 month new highs/new lows -- 494/90 = 5.49

Summary and Investment Strategy -- There is no doubt that this week was a remarkable week but I'm still cautious, We have had a downward trading trend since April and I'll call last weeks action more of a recovery than a rally. I will continue to stick to my strategy of culling from my portfolio stocks that aren't keeping up with the market and only replacing with stocks that have hit new highs in at least 50% of the recent trading sessions.

 

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