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Point & Go Figure: Midweek Market Review


Can you wake me up when it's time?


Short-term Overview:
The short-term conditions, extended and in high-risk areas, crossed the threshold to negative territory on the NYSE last week and the NASDAQ earlier this week. The percent of stocks above their 50-day moving average indicators for both the NYSE and Nasdaq are now negative, having reversed down from high-risk levels and crossing below 70%.

Meanwhile, according to figures from Investors Intelligence, the High-Low Index for the NYSE and the Nasdaq are both at extremes and have declined significantly since Monday, despite the more positive tenor to the day market, at least based on the broad indices, since last Friday's action. These indicators were pushing their highest levels since this past summer, while continuing to show a long-term divergence indicative of an important near-term top forming.

Intermediate Overview:
The Nasdaq-100 Bullish Percent
reversed down from above 70% and is now negative. The Dow Jones Industrial Average Bullish Percent has reversed down from 70% and is also now negative, while the S&P 500 Bullish Percent remains positive, but in high risk territory above 70%. It is important to understand that because the indices these bullish percents are comprised of are either capitalization-weighted, or in the case of the Dow price-weighted, the indices themselves can move based on a small group of stocks. What these bullish percent indices, which weight each stock in the indices equally, measure, is participation. Fewer stocks are participating in each rally.

Long-term Overview:
While the bullish percent charts for the NYSE and Nasdaq Composite remain in Xs, the pattern of lower highs (meaning diminishing breadth and participation) combined with their relative high risk level, continues to suggest we are closer to a conclusion of the cyclical rally that began in October 2002 than to the beginning of an important new leg higher. The reversal down in some of the short-term indicators has raised the risk that an important new leg down in the longer-term structural bear market is close to beginning.

Charts of Interest:
Nasdaq-100 (NDX) Bullish Percent
(Chart courtesy Dorsey Wright)

Nabors Industries (NBR)
(Chart courtesy Dorsey Wright)

Novellus Systems (NVLS)
(Chart courtesy Dorsey Wright)

Novellus Systems (NVLS)
(Chart courtesy Thomson Financial)

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No positions in stocks mentioned.

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