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Nasdaq Market Breadth Says Buy at Trader’s Narrative




Nasdaq Market Breadth Says Buy


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Looking at the Nasdaq advance decline numbers, I noticed that we are at a very deep oversold level here. It basically confirms what I outlined yesterday through other indicators.

I look at the 5 day simple moving average of the Nasdaq breadth numbers because I want something very short term and 5 is also the number of trading days in an average week. So the chart shows a rolling average of a week’s worth of trading (see below).

According to this measure of Nasdaq breadth, we are just a little bit better than the late February 2007 bottom. And to beat that exterme, you’d have to go back to the panic bottom formed after the September 11 attacks in 2001.

The NYSE advance decline numbers are even more stretched to the downside because it contains a lot of interest rate sensitive issues which have been getting obliterated. The 5 day moving average of the NYSE breadth in fact is almost as low as it was on 9/11.

So the probability that we are about to witness a bounce here is very high.

Click To Enlarge Graph:
nasdaq advance decline July 2007.png

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8 Responses to “Nasdaq Market Breadth Says Buy”  

  1. 1 Dave

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    Jimmy, I’m trying to take account of the market’s being oversold with the flattened yield curve. What are your thoughts on the proper sectors (in stocks) as opposed to simply holding cash, during times of a flattened or inverted yield curve?

  2. 2 Jimmy

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    yield curve isn’t my area but when goes from inverted to flat or steep that’s sign of contraction in liquidity (from what i had read?) anyone have other thoughts?

    precious metals benefit from this IF rates been rising the past 6 months (i believe it has) and the ISM index is near/below 50 (which isn’t) so it unsure here?

    there’s also speculation that there’s rotation from value to growth stocks (the positive yesterday, if there were any, was that the NDX 100 held up better than the rest of the market)

    with the credit contraction, i also have been moving my investments from value/growth to mainly growth the past few months. semiconductors been down the last 2-3 yrs. maybe money is beginning to flow there too.

    most TA indicators point to a bounce or bottom here. otherwise if none we are in deep poo poo for the intermediate term for next several weeks (maybe a month or so.) worst case, the bull run since oct 2002 is over (but i doubt that.)

    any thoughts Babaks?

  3. 3 Babak

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    I don’t think the yield curve is inverted, is it?
    This looks like all the other bull market corrections we’ve had to date. Will it in actuality turn out to be the end of the bull market? In other words, is it different this time? Maybe. But I’d like to keep using the same compass until I get confirmation it is broken.

  4. 4 Jimmy

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    there was inversion between the 30 yr treasury and 3 month bill from mid Oct to end of March of this year. not as bad as the last one during the 4th qtr of 2000.

    yeah, technical indicators LOOKS like the market bottom here as in the last 4-5 years. only questions for me are that…
    1) credit default swap rates spreads are expanding (contraction in easy money) which the stock market had or hadn’t fully discounted that into stock/index prices?
    2) DJIA and SP500 are long overdue for a 10% correction.
    3) the 2004 top was a big one for growth stocks (mainly technology stocks/indexes) while value stocks/indexes held up better. So is this now signaling a shift/rotation from value to growth?

    this current market weakness have me quite concerned of more weakness to come or a shift from value to growth stocks.

  5. 5 Babak

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    Jimmy, right, I thought you meant we had inverted again. All I can do is follow the indicators that have worked so well in the past. Unless there is a really good reason to not do so. Just saying this time is different isn’t good enough. I think we might get another whoosh down next week and then probably a bounce followed by a retest. most bottoms follow that script.

  6. 6 Jimmy

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    Babak,

    I noticed that some of the value indexes corrected down more (or same) than the growth indexes this past 10 days. if that’s the case then we are going in an orderly fashion like the early 2004 top where growth stocks/indexes got a bear market correction while the value stocks/indexes barely got over a 5-10% correction. value outperformed growth the last 3-4 yrs. so could be a rotation that’ll take several months to work out (consolidation for growth and correction for value.)

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