Morning Market Thoughts

by DAN As is typical after two days of selling, the Nasdaq futures are up about 14, and the S&P up about 4. So it’s not a big enough jump to present any opportunities by itself, but the strength does delay the onset of a more meaningful correction. And there are a couple of other related data points that contribute to a bullish thesis.

First, I was doing some work over the weekend, studying various chart relationships and trying to find some valuable insight into the relationship between the % of stocks above their 200 day moving average. Virtually any breadth indicator can give you some insight into the equity market because it enables you to look into the guts that make up this living, breathing indicator. It is not just a line drawn by opening, high, low, and close prices. A breadth indicator takes all of that information and parses it with the same information in every single listed stock, parsing that data to come up with a single data point each day.

Since it is an average of so much data taken from so many stocks, you might expect it to be quite smooth as one stock cancels out another on many comparisons. Not true. This breadth indicator is quite volatile and presents a LOT of extreme moves (which reflect extremes in the majority of stocks that make up the indicator. And those extreme moves give us insight into the general condition of the market. And the chart, when viewed from a wide distance which encompasses a lot of data, reveals the typical reaction to these extreme conditions.

So by looking at this “%stocks/200dma” indicator, we’ll have an edge.

I’ll cover this in tonight’s strategy session and show you how it can make a difference in your trading results. Better decisions, better actions, higher profits.

See you in the forum.

–Dan

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