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Important Bearish Chart of the Day: NYAD

Recs

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November 20, 2009 – Comments (8)

I was perusing my charts this evening (I literally have hundreds in several directories... sigh) and found an interesting / important development on major one: The NYSE Cumulative Advance Decline (NYAD)

On all my microcharts, I show (at the bottom) NYADV:NYDEC in green and the inverse in orange to show the breadth that day. But looking at a cumulative plot of the NYAD show how the breadth is increasing (or decreasing) as a trend as the price move wears on.

And breadth as a whole is not confirming this higher high the past week in the market.

Which makes perfect sense. So many of us bloggers have been been talking about how fractured the market is right now. The difference between the Russell 2000 and the Dow just jumps off the page. This is an obvious sign of risk aversion. There is a huge risk spread (the difference between the "safe" Dow and the "risky" small caps of the Russell). If the atmosphere was really bullish, shouldn't small caps be outperforming?

8 Comments – Post Your Own

#1) On November 20, 2009 at 1:03 AM, binve (< 20) wrote:

Anyways, the NYAD (orange line in the chart below) failed to make a higher high as the SPX (pink line) and the Dow did.

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#2) On November 20, 2009 at 1:44 AM, Tastylunch (29.28) wrote:

Shortest BINVE post Evah.

be interesting to see if it gets more recs. Sometimes I think your blogs are so detailed the typical CAPS dude is like wha?

If the atmosphere was really bullish, shouldn't small caps be outperforming?

to play devil's advocate. mungofitch mentioned something the other day about seasonality with small caps that I had forgotten.

What often happens is that fund managers get scared this time of year, they wish to lock in gains so they dump the smalls and buy the bigs to protect gains. Then come Jan 1 they go hard into smalls again.(cuz everyone knows small have a better chance to outperfrom the indicies)

the smarter/more daring bullish ones will try to front run the reloaders this year in mid-late december by loading up on smalls then.

So I dunno BInve. Don't think it's quite as abnormal as it seems. I think it's just maginified by the size of the run we've had.

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#3) On November 20, 2009 at 8:18 AM, Mark910 (< 20) wrote:

Thanks Binve,

Seems to be a lot of divergance.  I closed about 1/2 of my shorts...but my puts on the Russel are only losing a bit of time value...the index(and "the" market) topped more than a month ago.  Doesn't mean you can't make money long on individual stocks, or that some indexes....but have an exit strategy.

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#4) On November 20, 2009 at 8:37 AM, binve (< 20) wrote:

Tastylunch,

Hey man, LOL! Yeah most of my other posts like to explore a topic and this one was short and to the point. We'll see :)

What often happens is that fund managers get scared this time of year, they wish to lock in gains so they dump the smalls and buy the bigs to protect gains. Then come Jan 1 they go hard into smalls again.(cuz everyone knows small have a better chance to outperfrom the indicies)

the smarter/more daring bullish ones will try to front run the reloaders this year in mid-late december by loading up on smalls then.

So I dunno BInve. Don't think it's quite as abnormal as it seems. I think it's just maginified by the size of the run we've had.

That's a fair rebuttal. And if that were the only sign of weakness, I would concede the point and move along. But the point of this post is that the Russell (which the NYAD does not represent) is behaving substantially weaker than the large caps. Not just profit taking weaker. Now couple that with my observation above on the chart that the NYSE A/D is showing divergence for the first time in this rally.

-- Small cap index (RUT) are diverging from the large cap indices.
-- Market internals of the large cap indices are diverging with price.

Not indicators, but actual breadth measures.

So this chart is not saying that the market crashes from here (necessarily), but it says that topping is likely beginning to happen.

Mark910,

Thanks Mark! Yes I couldn't agree more. Smart money management is key, and you know this better than most...

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#5) On November 20, 2009 at 8:32 PM, Tastylunch (29.28) wrote:

No doubt  the could be topping action. You already know I'm not bullish :)

general rule of thumb is that the last rally's biggest winners are the downsloide's biggets losers (lookin at you Rite Aid and Las vegas Sands, STEC already got whacked). so the smalls should get railed first.

I have to admit I'd be shocked if we get a meaningful lurch downward before mid january now, too much market internals taking over at this point to not keep it aloft I think until then...

well I guess we'll see.

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#6) On November 20, 2009 at 9:05 PM, binv271828 (< 20) wrote:

Tastylunch,

Hey man, I wrote 3 posts recently that I think you would be very interested in. I too think this is topping action but my projection that I have had for a couple of weeks now has this current wave down to about ~1050 to the beginning of Decemeber and then the final wave up that make a modest new high ~(1125-1150) in mid December for the end of P2. Then minor waves 1-2 of P3 for the end of December, beginning of January. So I am very much in agreement with your observations above. Here is my conversation with amassafortune on the issue

.I am far from bullish. In fact I have been bearish to my detriment (by not capitalizing on these rallies as much as I could have). But this is still a BS P2 rally. So I have built up a sizeable short position via TZA and a smaller one in FAZ, and at 1050 I will probably lighten up on those, but I will not go long with any meaningful amount of money, if at all.

Because I think this last wave up (Minor C)... assuming of course my count is right and we even get a Minor C up vs. just crashing down here... will be the ultimate window dressing wave. There will be a run up due to Q4 anticipation. There will be a lot of year end run up just before the year end tax loss selling (you see I put a peak in mid December). But I think the participation will be very spotty. I think we will get a lot of non-confirmations. And as per my post last night: http://marketthoughtsandanalysis.blogspot.com/2..., the current divergence between the cumulative NYAD and the SPX and Dow will grow. I think breadth will be very erratic. In fact I think the breadth will be very bad and similar to the run up last month (see these posts: Man SPX, Your Brea(d)th Stinks! and SPX says "Pass Me the Binaca!")

But I will be right along side you at +1115. That is what I will be using this last Wave C for, to add to short positions. It will be a bearish Christmas gift :)

And thank you so much for the props! I really appreciate that man! We have had so many great and useful discussions on Caps and I am so glad we are continuing that here :) Thanks man!!.

.So here are the posts that I think you would like

-- Predictions for Minor B
-- My Positions and Projections
-- Projections, In the Corner of My Mind

Thanks man!.

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#7) On November 23, 2009 at 8:07 AM, Mary953 (76.47) wrote:

Binve, great as usual.  Is this the stock market version of the haves and the have-nots?  Because I definitely want to stay on the "haves" side of that group.

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#8) On November 23, 2009 at 11:43 AM, binve (< 20) wrote:

Thanks Mary! Me too, I would like to be on the "haves" side please :)

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