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Interesting Market Health July 30, 2011

Posted by Tom in Thoughts.
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O.K., no discussion about the debt talks, I promise.

Instead, let’s look at the market.  “Only Price Pays!”, yes, I understand that and the market in the US has taken a beating last week.  It’s easy to get wrapped up in how terrible thing are; but let’s look below the surface.

Charts courtesy of www.highgrowthstock.com; copyright 2010-11

The chart above shows the Accumulation and Distribution of stocks in the  S&P 1500 Index.  Now 20% in Accumulation is not great, but in view of the past week it’s not that terrible either.  I think the 30% Unchanged tells the story.  Many investors are just waiting this out.  There is selling (at 50%), but not doomsday panic by any means.

This chart is more interesting.  It shows the direction of the A/D.  68% towards Distribution . . . . that’s more of a concern.  It shows a steady and orderly liquidation of shares.  IF this continues, the prices will continue to drop (there is no one to buy them).

So, what if anything is being bought?  Strong sectors are: Healthcare, Human Resources, Marine, Oil (refining, drilling, equipment), Casino/Gaming and Gold.  Select foreign ETF’s are doing OK, such as: Thailand, Peru, Indonesia, Singapore.  Safe havens: Swiss Franc, Gold and base metals.

If/When we get a relief rally, the true test comes afterwards.  Do we continue higher back to the previous highs, stagnate for the rest of the Summer, or head down?  Keep an eye on volume to see if the big money comes back in with “both feet” and does some bargin hunting (especially in tech.).  That will tell us something.

Have a good week and be careful.

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