Highs and Lows

Every once in a while, my goal on this site is provide a new chart - at least new in that it has not been posted here as of yet. Today's "new" chart is of the NYSE New Highs - New Lows index. Essentially so goes this index, so goes the market. It might be on a delay of sorts (the index topped out month before the marekt in 2007 and bottomed months before it turned up in 2008). This time around, the index turned down in late 2009 and the markets continued to motor higher. I call this a "stretch" of the rubber band - essentially the rubber band has its normal stretch and then it has an extended stretch. In short the markets went well into extended and the move from extended to normal took place taking the markets down. Now the index appears to be turning higher with the 9 month ema crossing above the 20 month. The oscillator is also extremely oversold - most oversold I can find on this chart ever - which argues that everything got taken to the woodshed more so than any time in the markets since the index stated in the early 1990s (at least from stockcharts.com perspective).

So what does this mean? In a bull market, when so many sotcks are getting sold down, that normally creates a bevy of opportunities. In 2004, the energy stocks were simply drilled into the summer and a multiyear rally followed. This time around it appears to be industrials and consumer discretionary that was thrown off the cliff - and the former is coming back with a vengeance over the past 2 weeks while the latter is coming back but nothing spectacular. As for the market as a whole, I am in the camp that things have bottomed for the year and we are in a rally phase off hte lows. Further every momentum indicator I use and those oscillators taht I have at my disposal tell me that the markets next place is somewhere past the previous highs at 1225. I hate to make predications so I will say that I just like stocks at this point. Supporting thsi point is the New Highs / new Lows index, uptrending again after downtrending for a good 7 months.

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