Tuesday, August 4, 2009

Most Overdone Breadth In At Least 23 Years

I almost showed a bullish study this morning for all the bulls who've been screaming for one. But when an indicator like T21112 hits a new all time high, it deserves a mention. T2112 measures the percent of stocks that are trading at least 2 standard deviations above their 40-day moving average. It set an all time-high in May and I noted it then. It went on to peak 2 days later (May 6th). After that the market experienced a 3-day pullback and a bit of a consolidation.

Monday it barely broke the old record. To provide some perspective as to how extended this indicator is I've shown below the full history going back to 1986.

(click to enlarge)

Spikes anywhere near what we are seeing now have been unsustainable in the past. This would seem to suggest a pullback is likely. (Of course, as the bulls will point out - there have been a lot of things suggesting that lately and the market has ignored most all of them.)

P.S. I also noticed T2112 got a mention from Cobra in his last commentary.


Anonymous said...

Great work rob !

At some point now probably sooner than later there will be some softness and consolidation. It may not be any ugly decline but this pace is unsustainable. Thanks for reminding us to stay cautious !

Dave Appel

Anonymous said...

please, stop with these bearish posts until a couple start working. you're undermining the integrity your site. traders need to understand that taking bets in market that chews up any bearish signals is a recipe for disaster. until market conditions are "normal", we don't need to hear from you.

Toptick said...

I can stop this market! -- all I have to do is provide a bullish view.

A similar indicator I keep is Percent of OEX 100 1 s.d. above 40 day average. It is now 80 (highest since 11/12/2004). At 80 or above it has been confirmatory, not contrarian (only about 4 instances since '99). At the beginning of big bull moves, many indicators go overbought, and stay that way, met with disbelief.

Zweig's Breadth Thrust is frequently used as an o.b. indicator, but his original idea was that if it had a big rise in a short time, it predicts a continuing up move. That use of ZBT last signalled 3/19 at 784, and took us to 950 (and 1000).

Anonymous said...

The rude mammal above (I don't say he or she because it has chosen to hide as anonymous) is exactly the sort of blogger I enjoy not seeing on this site.


That is just silly. If the market ALWAYS did what it most often did in the past, it would not be a Market, it would be a puppet show. Anyone who takes the time and spends the efforts to experience what Rob is kind enuf to share with us quickly learns that he simply presents what has HAPPENED in the past. He scans for patterns of interest and looks at results under similar parameters, hopefully gleaning a sweetspot between specificity of pattern-match and yet also a robust number of samples. The bottom line red or green ink results are not his suggestion-- they are what happened!

Why would anybody in their right mind prefer that he STOP doing this? It is HELPFUL. In fact, major clues are often derived by ANY kind of non-confirmation. It’s useful to know what happened in similar instances in the past--that it does NOT do so NOW can in itself be a form of useful information.

Perhaps you can do us a favor and show how a person does what you are requesting Rob to do.


MarketFeel said...
This comment has been removed by the author.
Eric said...

If one raindances long enough....

It rains.

Great Analysis!