July Market Breadth: Overbought Readings
Tiho Brkan | Jul 22, 2014 03:35AM ET
My last market breadth update
After the report was published, the majority of the main US indices paused, as the price action has been consolidating in a sideways manner throughout majority of July. During the consolation, we have seen a slight pullback in indicators that were overbought the month before (as seen in Chart 1), but not enough change to write an in-depth summary. At the time of writing, the HL Ratio and Stocks Above 200 MA both remain around 90% readings, which is considered overbought. This is still not a time to be making long term investments.
Chart 2: NASDAQ’s internals are weakening since the beginning of year
One interesting condition that does stand out as a cautionary signal is seen within the NASDAQ Composite internals. While the overall index remains in a bull market and continues to higher highs, one should be able to observe that since the beginning of the year internals measured by New Highs vs New Lows have been showing signs of deterioration. We have seen a similar condition during peaks in both 2007 and 2011.
I will definitely be keeping a close eye on the condition of Nasdaq’s internals in the future posts focusing on market breadth. As the volatility picks up, I am sure the market's internal picture will get more interesting and thus my posts more in-depth.
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