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Point & Go Figure: Risk and Context

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Market Overview:
The short-term conditions, extended and in high-risk areas, crossed the threshold to negative territory on the NYSE on Tuesday, and this will likely soon follow on the Nasdaq. The percent of stocks above their 50-day moving average for the NYSE reversed to negative following Tuesday's market action. The Nasdaq 50-day indicator remains positive for now, but is edging closer to a reversal down from high-risk levels.

Meanwhile, according to figures from Investors Intelligence, the High-Low Index for the NYSE and the Nasdaq are both at extremes. These indicators are pushing their highest levels since this past summer, while continuing to show a long-term divergence indicative of an important near-term top forming.

Longer-term there is no change to the bullish percent indicators. However, all but one of these bullish percent indicators for the NYSE, NASDAQ, Dow, S&P 500, and NDX are at or above the 70% high-risk threshold while all are continuing to show diminished participation through lower highs even as the markets they measure are at price highs. This cannot be emphasized enough. While these indicators remain in Xs, suggesting positive overall conditions, they are at levels from which major market moves typically conclude, not begin.

When combined with the extremes in the short-term indicators, we are once again near a major inflection point in terms of risk.

Charts of Interest:
Bullish Percent for NYSE
(Chart courtesy Dorsey Wright)

Bullish Percent for S&P 500
(Chart courtesy Dorsey Wright)

Bullish Percent for Nasdaq-100 (NDX)
(Chart courtesy Dorsey Wright)

Bullish Percent for Dow Jones Industrial Average
(Chart courtesy Dorsey Wright)

It is important to understand that these measures of participation are contextual tools, not predictors of magnitude. I use other tools for determining the probabilities of magnitude. But context itself is critical to decision-making. Most of us trade the markets as if we are in a rowboat on a river in the fog. At any given time we have no idea how close we are to rowing over a waterfall, or discovering dry land. The contextual picture painted by the indicators above is that we are closer to rowing over a waterfall than reaching shore.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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