Tuesday, May 5, 2009

Breadth Measures Hitting Historical Highs

I’m seeing some breadth measures again hitting all-time extremes. Worden Bros. measures the % of stocks trading at least 1 and 2 standard deviations above their 40-day moving average. I mentioned the 1-standard deviation indicator (T2110) in the blog a couple of weeks ago. At the time it was hitting an all-time high of nearly 81%. Tonight it broke that record registering over 83%. The number of stocks closing 2-standard deviations above their 40-day ma (T2112) also hit a new extreme Monday - and in a big way. Before Monday this indicator had never reached 40%. Monday it spiked up to 52.14%. A chart with the complete history is below.

This suggests the market is incredibly overbought. As I went over a couple of weeks ago, this doesn’t necessarily mean we’ll see a sharp selloff. At such incredible levels, though I’d certainly be careful taking long positions. These overbought levels will be worked off at some point. A selloff is one way to accomplish that.


Anonymous said...

interesting how the market "feels" like 2003 with persistent buying, but is even more overbought than 2003.

Douglas said...

yes - comparisons to 2003 would be interesting.

Also would be good if we had easy ways of comparing to 1930's rallys.

Anonymous said...

I think it looks more like the post 9/11 rally, which lasted for months but eventually collapsed.

Anonymous said...

I was thinking it felt more like the oil market as it marched toward $150. Maybe this will turn when somebody goes bankrupt and the short squeeze is no fun anymore too.