Trader’s Narrative

Things are getting very stretched towards the downside and the bears are having too easy a time. That is about to change if history is any guide.

The number of lows has ballooned to critical levels which usually have presaged snapback rallies. Also, Lowry’s research into the percentage of stocks above a moving average is compelling. Specifically they say:

…a number of significant buying opportunities have been identified in the past after periods of market weakness have caused the percentage of stocks above their 10-day moving averages to drop below 10%.

For further details and a historical chart of times when this has happened, see Lowry’s research. Below is a recent chart of the Standard and Poors 500 index (SPX) showing that last week we had just slightly over 90% of the components of the bellwether index trade below their short term, 10 day moving average:

Click to Enlarge Graph:

If you look closely you’ll notice just peeking below the speech bubble on the graph that in mid-August we had a similar situation which corresponds to the intermediate lows we saw then.

Source: Stephen Whiteside at theuptrend.com

The US market isn’t the only one getting whacked. Almost all the international markets have swooned in unison, thanks to an ever intertwining global financial market.

The Canadian market has been most recently driven by the natural resource sector: the mining (gold, uranium, etc) and energy sectors (oil and natural gas) especially.

According to Lowry’s research, when the percentage of stocks trading above their 10 day moving average is below 10%, the market reaches not only a short term bounce but also a lasting intermediate to long term bottom. It has only failed once! To see a graph of this indicator from 1990 onwards, click the above link.

On March 5th 2007, the US market had less than 4% of stocks trading above their 10 day moving average. You all know how that turned out. Last week, in the Canadian market, we saw less than 9% of stocks trading above their 10 day moving average.

While there is no law that says that this indicator can’t go lower (even to zero), past behaviour would argue that we are seeing an opportunity here for an inflection point.

Click to Enlarge Graph

Graph from Stephen Whiteside’s uptrend.com

Here are some great place to get (free) weekly wrap-up analysis of the week that was and get insight into what may be around the corner:

Dave Landry
Dave is a CTA, author of several trading books as well as co-founder of TradingMarkets.com His videos are quite long (30+ min) and I find Dave’s old-school use bar charts (vs. candlesticks) a bit annoying. But the analysis itself is great. His archives are here and here you can see the most recent video.

ShadowTrader
This weekly video is produced by thinkorswim’s Chief Technical Strategist, Peter Reznicek. He goes over the main indices and usually also covers a few select sectors. This Sunday’s ShadowTrader video can be viewed here. This weekends’s analysis is unconventional and he explains why he’s not waiting for a pullback. The archives are here.

Uptrend’s Big Picture
This weekly presentation is produced by the stock market newsletter “The Uptrend”. It is biased towards the bear side (as readily acknowledged by its author, Stephen Whiteside). So take it with a few grains of salt. Otherwise I like it because it presents a wider view of the markets with coverage of gold, oil, bonds, and many specific sectors including the often ignored bull market in uranium. The most recent video can be seen here with the archives found here.

Tony Oz’s Stock Trader TV
Tony recently started a great weekly wrap up video blog. But after only four shows he put it on the backburner to concentrate on helping you win the CNBC Million Dollar Challenge through his site: WinDaMillion.com I’m counting the days till he’s back dispensing his technical analysis. Stock Trader TV: First video, second video, third video and fourth video.