New Column up at Real Money (8/19/04)

RealMoney

My most recent Street.com column, “What’s in Store for the Rest of 2004” is up on the site. For those of you without a subscription, its loosely based upon 3 Handed Strategist.

A major addition was Jim Stack’s chart on Advance Decline divergences:

A/D Divergence Index

click for larger chart
a_d_divergence
Source: Jim Stack of InvesTech Research

Here’s what Jim has to say about A/D:

Market breadth measures participation. Broad participation breeds bull markets. Narrowing or failing participation reveals that investors are becoming more and more selective – a classic early warning flag of a bear market.

The A/D Divergence Index is a sophisticated measure of this market breadth. And its ongoing stability today suggests that it would be premature to announce the demise of this recent bull market. Could it be that this tool will fail in the event of a sudden or deflationary bear market? Perhaps. However, we are quick to point out that breadth was deteriorating for many months before the 1987 Crash struck. It began deteriorating almost two years before the bubble burst in March 2000. And even in the deflationary bear of 1929 falling breadth led the market lower every step of the way down. So we would still expect to see deterioration in this key index if a full-fledged bear market is looming.

I agree (as we careen down 82 points due to oil). Intermediate term, its not terribly likely — not impossible, just less likely than the other scenarios, in my opinion.

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