We’ve shown this chart several times before, most recently on January 23rd: It is the percentage of NYSE stocks trading above their 200 Day Moving Average.
From that January 23rd trough low, the S&P500 gained ~10% over 10 days; from that February 1 peak, the next 4 days saw a 5.7% selloff. Net net from the January low, we are up 7.25%.
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% of Stocks on the NYSE > than 200 Day Moving Average
Chart courtesy of Bloomberg, Fusion IQ
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The present reading on the % of NYSE stocks above their 200 Day Moving Average indicator is at readings that — at least in the early part of the market cycle — have led to strong rallies in the short run. The first 3 readings (far left of chart) were deeply oversold conditions caused by a) the initial collapse from March 2,000; b) The 9/11 sell off; and c) the sell off following that 9/11 selloff/bounce.
So far, this reading has produced a peak rally reading of 9.6% at its recent high price. This is a far cry from the past bounces.
If you believe — and this is a big if — that history will repeat itself, then we still have a ways to run. If you expect those prior bounces were materially different than today, than this rally may run out of steam.
This is a set of circumstances where opinions can legitimately differ. Discuss below (please avoid ad hominum attacks)
So far so ugly today. A well advertised rally is having a hard time growing legs. Credit troubles trumping “attractive” stock valuations? Its easy to forget how small the stock market is versus derivative market. Dog wagging the high profile tail this time?
3 is not exactly a statistically significant number . . .
Barry,
What’s your assessment of the probability of a near-term bounce based on this indicator?
For whatever it’s worth (probably not much), I’m inclined to believe that what we’ve experienced to date in equities (and probably in credit markets as well) is far too asymmetric a penalty to pay for what has arguably been the largest financial bubble in history. I’m not hoarding guns or buying property in the Australian Outback, but 13% or so off the highs on the S&P 500 is, well, hardly anything.
What say you Mr. Ritholtz?
~~~
BR: Its not that precise — certainly not down to the day.
And as I outline above, I am not very convinced that the present environment is parallel to the prior one . . .
BR, not only is 3 a statistically insignificant number, but the data set of 8 years is hardly one to base such a prediction on….particularly is one is to believe that the past 5-7 have been bubble-induced.
barry,
ad hominEm.
Reversion, I agree with you. I’m placing my bets on QID, SKF and SRS. And, I sleep quite well at night. This correction is far from over!
Where is Ad Hominum anyway? I’m going to kick his ass!
I can’t feel bullish with gold and oil barreling into new highs. Your indicator shows we’re ripe for a bounce, but a bounce is all IMO.
It could bounce for a bit longer. Or it could rise a very good bit, retrace in maybe May, and then zoom. Or it could zoom at a deliberate rate for a long time. My crystal ball is cloudy at the detail level.
Unless a brand new MASSIVE shock hits the economy, this is a bottom. And a buying opportunity.
Personally, I was betting on 15% – 20% on my total buy before I close the positions. Your 24% estimate would put me there and maybe beyond from my entry point.
“Markets can stay irrational….” They can also stay oversold for long periods as well. The duration of the most recent period far exceeded the current data set by a wide margin in both time and price. There continues to be major risk of the real possibility that “you ain’t seen nothin’ yet”.
We’ll need to see a lot more complacency before the bear market resumes. If the S&P can get up to 1450, the majority will believe that it’s safe to get back in the water.
Stock price declines in some sectors and individual names has been just brutal (and may constitute a not-so-stealth bear market). But when the S&P 500 is off “only” 19.5% peak to trough in light of the historically high weighting of financials in the index, I suspect that more downside may be in store as credit market conditions continue to deteriorate.
“A lot more complacency”?
Or just another “surprise” announcement that those responsible for counting the beans are all a bunch of crackheads.
Slightly off topic.
According to “Real Estate Asking Price” Web Site, housing prices may be firming in about 80% of the Country.
http://housing-watch.com/home.aspx?d=30
> Where is Ad Hominum anyways? I am going to kick his ass!
Oh yeah?
– Ad Hominum
Since nyse stocks > 200dma is essentially a breadth indicator, and we’re talking about a bounce in a cap-weighted index, I thought it might be interesting to look at cap-related performance.
Back in 2000/01, RUT was ~35-40% of SPX and coming off a bottom in the low 30’s. Today, RUT is about 50-55% of SPX, and coming off a high near 60%.
I’m not sure what that means in terms of a bounce, but it does suggest things may not unfold quite as they did in 2000/01.
I think the biggest reason it might be different this time is the unavailability of credit right now. If that persists, then everything is going to get worse. If liquidity providers return to the market, this is a great buying opportunity.
I personally believe the former is more likely than the latter.
I think we are going to see a bounce in equities. Whether that bounce turns into an extension of the bull market due to the FED’s extra liquidity and foreigners buying US assets at an exchange rate discount is much less clear. Gold is still the safest place to be, and I am approximately 20% foreign equities, 40% domestic equities, and 40% gold stocks.
I know the indicator.
The catch is that last week it started to head back down again and was at a low for February. – a lower low from Feb high.
This was very strange to observe.
I had to check it but it was correct and both it and %40D seemed to be declining.
I guess it means even though this rally has been on declining volume, it may also be on declining breadth. Not good.
I fail to see how the market can rally for a sustained period with rising food and energy prices. Where is the US consumer going to get the money to spend on discretionary items? All the talk about sovereign wealth funds and bargain priced stocks ignores the fact that people need money to buy stuff. The gov’t rebate isn’t enough. There are too many people expecting a mild recession for my taste. I’d rather buy when a lot more people are discouraged about the stock market.
Barry,
Interesting. I like this indicator as well and it was important in my thinking we were way oversold and definitely going to get a bounce in mid-late January.
I just don’t see it here though. I think the move you reference from Jan 23 – Feb 1 relieved the massively oversold conditions.
I think we’ll range trade on the indexes and the % NYSE stocks above 200 DMA indicator as well for a bit. That means that 30% is resistance and 17% support on this indicator.
That’s how I’m looking at it, anyways.
I guess its time for a bounce, just before the next wave of shit arrives.
I agree with the posters stating “we ain’t seen it all yet”. The credit markets are still in a vulnerable state and money / credit is definitely not flowing to consumers. I did a quick ‘focus group’ of my social network and ‘lack of credit or available funds’ was a common theme. Also, the results were not centered in one particular area of the country.
Furthermore, food, energy & medical prices are really kicking people in the ass. Grocery bills are climbing significantly month over month.
Lastly, everyone I know is desperately trying to sock away savings. It’s a “plan for the worst but hope for the best” type mentality.
Until commodity and housing / credit woes subside, I believe we’ll see more downward pressure.
Are you sure you are measuring the Dow? Maybe you are really measuring the value of the dollar, as it compares to the Dow.
But seriously, I KNOW that the value of my cash will go down by at least 4%/year. (Well for the way I measure value). I suspect it may go down 10%/year. Bonds will be maybe around 0%. At least with stocks I have a decent chance of +6%. I also KNOW I’m not smart enough to know when it will get its next major (permanent) leg up.
The driving force of any bull market is the availability of money. Debt-credit is disappearing faster than it can be reinfused. There can be no sustainable rally until that reverses. The repos from the Fed used to go to the Primary Dealers, who could then invest in the markets – the TAF auction money is going to banks who are in liquidity trouble. Everywhere you look, debt-credit is drying up. This is not bull market scenario.
Worst case investment scenario would be a grinding, range bound sideways market for the next few years.
Best case scenario would be another big leg down to a capitulation bottom.
What does the indicator mean and has the meaning changed over time?
Most of the posts seem to focus on why the above 200MA indicator may not now signal a “bounce.” The attention is focused on economic conditions. But look instead at market structure. Why the indicator based on all NYSE stocks may have different meaning now than in the past lies in the composition of “things” listed on the NYSE. Over the past 10 – 15 years the NYSE has expanded to included a far greater number of
1) “stocks” that are effectively debt instruments
2) REITS and a vast array of other “things” that are directly or indirectly effective claims on real estate
3) ETFs
4) a vast array of equities of new financial institutions, not just banks and brokers, now including hedge funds and private equity firms and so on and so on.
This list could go on but safe to say “this market is different” than the “old” NYSE. It is more debt sensitive and more real estate sensitive. It is more sensitive toinvestment returns of firms than operating earnings of firms producing goods and services to consumers.
What then produces a “bounce” and what leads a “bounce?”
All of this also suggests that comparison to similar above 200MA calculations for the SP500, NASDAQ and NASDAQ 100 should show interesting differences to the NYSE. Do they? What does it mean?
I was going to suggest you put up ads for hominems Barry but they’ll probably just get attacked
As usual, you can’t have too much confirmation. Notice the symetrical triangles printing in each of the major indices – Dow, S&P, Nasdaq. Bulkowski says that if a symetrical triangle occurring at or near a bottom violates the lower trendline to the downside, the resulting decline will be on average 10-19% and triangles with high volume breakouts show larger losses. Failure rate is about 2%. An upside breakout above the upper trendline shows an average gain of 20-40% – an upside breakout on high volume shows larger gains. Failure rate is about 3%. The stocks +/- the 200MA is a decent oversold indicator, but so is
number of stocks one or two channnels below the 200MA or the 40MA for that matter. Also, at this point volume indicators on a weekly chart favor more movement to the downside than the upside, although the daily charts favor the upside. Ambiguous as that may be, I don’t recall Mr Market being mandated to tell all all the time. Personally I’d keep a close watch on the triangles and heed Bulkowski’s analysis. He’s bailed me out of a spot of bother more than once.
I agree with badhaikuguy–
the symmetrical triangle should break out up or down and it’s present on major indices: SPY, QQQQ and IWM.
I would favor a breakout to the downside based on prior to trend, but the best thing is to wait for now.
BarChart.com
http://www2.barchart.com/momentum.asp
Helpful momentum page – daily , weekly , monthly . % of all stocks above their respective 200, 150,100, 50,20 dma’s
The 200 day over the last 13 months looks the same as the one you posted Barry , and yes , it is bullish to me as well . However, bullish doesn’t mean it can’t linger below -30 for a longer period of time than lows on chart . I plan to add substantially to equity holdings if your posted momentum chart rise above -30 .
Good post , thanx
Bill
I am only a surviving engineer, I wish I were an economist. In these days in age, if one is an investor, one of the most helpful items to know is that DJI opposing stocks may save us from bankruptsy. I only know, and like SKF. I wish I knew some more, for references.