Do I hear a stall warning?

The market is giving some mixed signals. How can you weed through them all?

By Jim Van Meerten Jan 16, 2010 2:10PM
I love flying small planes. My first flying lesson was in a J-3 Cub at a grass field in Newberry, S.C. Under the wing was a little horn that would beep if the plane was going to stall. When you heard the noise, you had to make a quick decision: either drop the nose and apply power or let it stall and hope you didn't spin and lose control.

The market is right in that stall-warning place now, and you have to make your decision:
  • False alarm; buy more on the dip.
  • Tighten stop losses and ride it out.
  • The market is in a true stall, and it's time top go short.
Let's step back and go through my standard weekly exercise on evaluating the market by using some of the data readily available on Barchart. Actually I do this every evening but publish it only once a week.

Value Line Index contains 1,700 stocks, so it's broader than the S&P 500 or Dow 30 a lot of others use. Not as strong as last week but still no sign of panic
  • The Index was up 3 days and down 2 days for a net loss of 0.82% for the week.
  • The Index is still closed above its 20, 50 and 100 day moving average.
  • Nine of the 13 Barchart technical indicators give buy signals -- that's fewer than last week but still a 20% short term buy and a 56% overall buy rating.

Barchart market momentum -- approximately 6,000 stocks -- the percentage of stock trading above their daily moving average for various time frames -- still good but weakening on the short term.

  • 20 DMA -- 66.84% are trading above the DMA
  • 50 DMA -- 78.96% are trading above the DMA
  • 100DMA -- 82.97% are trading above the DMA

Ratio of stocks hitting new highs to stock hitting new lows for various periods -- 1.0+ bullish, 1.0 neutral, below .99 bearish -- Still more new highs than new lows but weakening

  • 20 day new high/new low ratio -- 872/569 = 1.53
  • 50 day new high/new low ratio -- 545/75 = 7.27
  • 100 day new high/new low ratio -- 423/52 = 8.13

Summary and my investing strategy for the upcoming week: The market is strong but not as strong as it was last week. This week I will make sure I have all my stop losses were I feel comfortable. I will not replace any till I see what the market does each day.

I'm not ready to go short, but I do heed the warning signs. In order for me to present a "fair and unbalanced view" -- to paraphrase Fox -- I'd like to share an article by Michael Shulman: Shorting the Double Dip. He's one of the smartest guys I know, and although I don't agree with him 100%, he's that little horn on the wing giving out an early warning I'm not getting from the other instruments on my dashboard.


Over on Wall Street Survivor the contributors to Top Stocks that recommend stock still have that little friendly competition with our model portfolios. The S&P was up 0.42% month to date, but our leader so far this month, Anthony Mirhaydari, has a nice gain of 8.24%. I'm down in the No. 4 spot with a gain of 3.33% so far this month.


Disclosure: I do not hold positions in any of the stocks in my Wall Street Survivor portfolio.


Jim Van Meerten is an investor who writes on financial matters here and on Financial Tides. Please leave a comment below or email

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