Art's Charts

Sharp Decline Does Serious Technical Damage

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Unsurprisingly, there were several downgrades this week as sharp declines did lots of technical damage. Last week I noted that many indicators were on the verge of turning bearish. Some turned bearish after the close on Friday and the rest followed on Tuesday. The AD Volume Lines both broke below their March-June lows. Net New Highs plunged below -5%. The volatility indices surged above 25. Seven of the nine Bullish Percent Indices moved below 50%. Selling pressure over the last two weeks was the most intense since February-March 2009. This selling pressure occurred after an extended decline to mark a bottom (selling climax). Current selling pressure started after an extended advance, which is more indicative of a market top.

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  • AD Lines: Bearish. The Nasdaq AD Line has been in a downtrend for months and the NYSE AD Line broke below its June low this week.  
  • AD Volume Lines: Bearish. The AD Volume Lines peaked in late April and formed lower highs in July and broke below their March-June lows. Nothing but downtrend here. 
  • Net New Highs: Bearish. Nasdaq and NYSE Net New Highs dipped below -5% and the Cumulative Net New Highs Lines moved below their 10-day EMAs.   
  • Bullish Percent Indices: Bearish. Seven of the nine sector Bullish Percent Indices are below 50%. Only the consumer staples and utilities BPIs remain above 50%. 
  • VIX/VXN: Bearish. The CBOE Volatility Index ($VIX) and the Nasdaq 100 Volatility Index ($VXN) broke above their June highs and exceeded 25. Fear is in an uptrend and this is bearish for stocks.     
  • Trend Structure: Bearish. DIA, IWM, MDY and SPY broke below their March-June lows to turn bearish. QQQ remains above these lows, but the majority is clearly bearish.   
  • SPY Momentum: Bearish. RSI(14) moved below 25 this week, its first oversold reading since March 2009 and lowest reading since October 2008. MACD(5,35,5) is in negative territory and Aroon(20) is below -50. 
  • Offensive Sector Performance: Bearish. The Industrials SPDR (XLI), Finance SPDR (XLF) and Consumer Discretionary SPDR (XLY) moved to new lows for 2011. The Technology ETF (XLK) remains above its March-June lows.
  • Nasdaq Performance: Bullish. The $COMPQ:$NYA ratio held up much better than the NY Composite ($NYA) over the last two weeks. This Price Relative hit a new high this week. Go figure.
  • Small-cap Performance: Bearish. The $RUT:$OEX ratio moved sharply lower the last two weeks and hit a new low for 2011 on Thursday. Small-caps are showing relative weakness.
  • Breadth Charts (here) and Inter-market charts (here) have been updated.

This table is designed to offer an objective look at current market conditions. It does not aim to pick tops or bottoms. Instead, it seeks to identify noticeable shifts in buying and selling pressure. With 10 indicator groups, the medium-term evidence is unlikely to change drastically overnight.

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Previous turns include:
Positive on 11-Sept-09
Negative on 5-Feb-10
Positive on 5-March-10
Negative on 11-Jun-10
Positive on 18-Jun-10
Negative on 24-Jun-10
Positive on 6-Aug-10
Negative on 13-Aug-10
Positive on 3-Sep-10
Negative on 18-Mar-11
Positive on 25-Mar-11
Negative on 17-Jun-11
Positive on 30-Jun-11
Neutral on 29-Jul-11
Negative on 5-August-11

Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More
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