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 JimVanMeerten@gmail.com

3Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

133
133 rated 1
286
286 rated 2
441
441 rated 3
737
737 rated 4
614
614 rated 5
606
606 rated 6
621
621 rated 7
441
441 rated 8
317
317 rated 9
122
122 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

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.