Technical Analysis: Stocks Turn Wobbly
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Note: The Technical Analysis column will be on hiatus until Jan. 2. Happy Holidays, and best wishes for a prosperous New Year.
The market has turned wobbly in recent weeks, with a number of sectors and indicators sporting worrisome developments, with technology, transportation and retail among the sectors showing dangerous levels of underperformance. The NYSE advance-decline line (first chart below) is another we'd like to see looking a little livelier. That said, after a little more downside, we expect holiday strength to support the market for the next couple of weeks. Sentiment is mixed, with Investors Intelligence bulls leading bears by a three to one margin, but ISE options averages nowhere near previous highs. Historically, strong mid-term years (1986, 1982, 1958, 1954, 1950 and now 2006) have been followed with more strength the following year, so the market remains in a positive seasonal period for several more months, perhaps until mid-2007. As long as leading sectors like the banks hold up and the Dow and S&P maintain some semblance of an uptrend, the benefit of the doubt will continue to go to the bulls despite some obvious weakening of the market's underpinnings here.