Weekly v. Daily Breadth ~ The Risk Averse Alert

Saturday, June 25, 2011

Weekly v. Daily Breadth

You might recall my claim that, animal spirits are waning. One piece of evidence bolstering this view is NASDAQ's cumulative advance-decline line whose disposition remains in a death spiral...

$NAAD cumulative

Or so it seems. Yet some question about this conclusion arises when one considers advance-decline data from a weekly perspective...

Weekly A-D

Last week's trading saw the number of advancing issues exceeding declining issues on both NASDAQ and the NYSE. Of course, this result would stand to reason on NASDAQ, as the Composite Index rose 1.39% on the week. However the NYSE Composite fell 0.32% while advancing issues nearly doubled declining issues over the course of the week.

No doubt, a weekly perspective might enrich our perspective. Trouble is a long-term chart of cumulative weekly advances-declines going back ten years is not presently at my fingertips. So, let's make do with what's available at MasterDATA (a gold mine of breadth data analysis for major indexes and ETFs).

In contrasting weekly data with daily let's consider, rather than the NASDAQ Composite, the NASDAQ 100 ... and for grins a tracking ETF, 2x leveraged at that: the ProShares Ultra QQQ.


As you can see (bottom panel), the NASDAQ 100's cumulative, daily advance-decline line has not yet exceeded its March bottom. Now, contrast this with the NASDAQ Composite's cumulative, daily advance-decline line above. Its March 2011 low has been taken out, as has its November 2010 low. File this disparity, then, under growing underlying technical weakness afflicting NASDAQ more broadly.

Yet consider the NASDAQ 100's cumulative, weekly advance-decline line (again, contrasted to the ProShares Ultra QQQ)...

QLD weekly

Very interesting. First, if you look closely, the NASDAQ 100's weekly, cumulative advance-decline line did take out its March 2011 low. So, some further indication of increasing underlying technical weakness is evidenced via NASDAQ's top 100.

Yet plain as day is the fact that, taken weekly, the NASDAQ 100's cumulative advance-decline line is solidly rising. Whether this tempers my "death spiral" thesis is uncertain (for lack of data at the moment). Probably not, considering new 52-week highs and lows data...

As you can see, at no time over the past year have the number of NASDAQ 100 issues hitting new 52-week highs exceeded readings registered going into April 2010 peak. There is no indication of broadening underlying strength propelling the market's advance, despite the weekly, cumulative advance-decline line's consistent upward expansion. So, "death spiral" or not, NASDAQ's leadership, no doubt thin, is seen narrowing.

The oscillator plotted at the center of the above chart appears another useful means of substantiating an Elliott wave count. It presents the percentage of NASDAQ 100 components in weekly uptrends (i.e. trading above 200-day moving averages). Only with this reading's recent sinking off May 2011 peak has its late-August 2010 bottom been exceeded (adding evidence revealing 4th wave versus 2nd wave technical deterioration). Likewise might this measure's relative, negative extreme suggest an approaching bottom.

There's a lot more available at MasterDATA you might find useful, particularly if you are a frequent trader. Check it out.

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