Wednesday, August 26, 2009

Percent of Stocks Above Their 200ma's Hitting Extreme Levels

Some extreme readings are appearing in a few Worden Bros. indicators that look at stocks relative to their 200 day moving averages. One is T2107, which simply looks at the percentage of stocks trading above their 200ma. The other is T2109, which looks at the percentage of stocks trading at least 1 standard deviation above their 200ma. Both indicators are near all time highs (dating back to 1986). In fact, the only period of time in which these indicators registered higher readings was in the beginning of 2004. Below is a chart of T2107 which illustrates this:

This demonstrates just how extreme the current move is in terms of breadth. Also interesting about the chart is that we aren’t that far removed time-wise from extremely low readings. Extreme overbought doesn’t necessarily mean a decline is about to begin. In fact the last time these levels were reached in 2004, the market continued to trudge higher for about 2 ½ months before finally beginning a meaningful correction.


David Varadi said...

perhaps consolidation seems a more likely outcome based on what the chart looks like. interesting indicator!


Toptick said...

I frequent some of the chartist blogs. Many who had been very profitably bearish through the crash also picked the March low. Sounds great, except they all (the ones I track, anyway), were sure it was just a bear market rally and quickly started shorting again (and again ...). The market has risen against a lot of skepticism, and shown great power doing so. Point is that sometimes "overbought" indicators show the (distrusted) strength.

Jeremy Grantham may have the right context. He also started buying around March (on valuation), but explains that this environment is like the third year of the presidential cycle, where liquidity/stimulus operates full blast. Third years have the best performance of the cycle on average; first years, like 2009, show below average returns.

"Don't fight the Fed." There are teradollars of liquidity. With consumption and investment limited, the target becomes assets.

[With this missive, I'm trying to toptick this market!]

Joe said...

Another factor to consider is that many things that are called stocks (especially in Worden Bros. Telechart system) aren't really stocks. They're ETFs of all variety.

I've tried to neutralize my work with the Worden db by tagging all ETFs and non-traded securities (subject to M&A activity) and to delete them from the 6700 "stocks". Would you believe the cleaned list is closer to 5100?

I have no idea of what the comparable numbers were in 2004 or prior but my guess is that all canned stats have become suspect because of the addition of ETFs, ADRs, etc. Offering this just for your information.