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Due For a Slow Down October 26, 2013

Posted by Tom in Thoughts.
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The stock market has been on a tear for the past couple of weeks but let’s keep things in perspective.  I hate to keep posting the same (tho updated) chart of the NASDAQ Composite Index, but I feel that this shows the big picture of what’s going on.

NASDAQchart courtesy of MetaStock; used with permission

What I see in the chart above are prices clinging into the upper price channel (upper purple line), the price spread decreasing (distance between the High and Low price for the day) and volume increasing (lower bar chart).  While advancing prices are bullish and “good”, it’s the decreasing spread and the increasing volume at the top of the channel that have me concerned.  Think of Volume as Supply.  More shares are coming into the market and the price (i.e. spread) is not increasing very much.  That looks like absorption to me.

Absorption?  Yes, that’s when selling nearly equals buying, on increasing volume.  Another way to look at it is “someone is getting out” while eager buyers are still buying.  Bad news?  Could be.  We’ve come a long way in a short period of time and right now I don’t see strong leadership in any particular industry.  Likely this is leading to a pause, so I would not over react, just be careful if you are a short-term investor and hold off on any buying if you’re a long-term guy / gal.

Just to confirm my feeling of “too much of a good thing”, take a look at the strength in the chart below (relating to the # of stocks in the S&P 1500 index with these characteristics).

Price Strength –

Price StrengthMoney Flow –

Money Flowpie charts courtesy of http://www.HighGrowthStock.com; used with permission

It doesn’t get much better than this, so . . . .

Have a good week and watch for signs of Distribution / Selling.       …………  Tom  ……………

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