Not a Repeat of Last Year

 | Aug 22, 2011 | 6:25 AM EDT
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There is so much talk about the upcoming meeting at Jackson Hole with the Fed folks that I thought I would note right here and now that the charts look nothing like they looked in August 2010.

Let me begin with the 30-day moving average of the advance/decline line. It is now oversold, but look how far down it is on the chart. It begins at a lower low. I have circled the 2008 and the 2010 lows on the chart. In each case the actual low in the index came with a higher low in the indicator. The arrow on the chart shows where we stood in August of last year.

30-Day Average of the A/D Line

This is not to say we're not oversold, but the setup last year was much different. For example, the Volume Indicator tends to show that readings in the upper 30s to low 40s represents an oversold condition; lows in the market that lead to sustainable rallies tend to come when the indicator has made a higher low. The red circle on the chart indicates where the indicator was as we headed into Jackson Hole last year. I think you can see, this year it is not in the same place.

S&P 500 With Volume

To put the current reading of 40% into context, the July 2002 low in the market had the reading at 36% (the actual low in the market, with a higher low in the indicator, came in October). The 2008 low in the indicator showed up at 38% in October, while the indicator was higher at the index low of March 2009. Last summer's low in the indicator was at 39% in May while the market actually made its low in July with the indicator already at 43%.

If we look at the put/call ratio's 10-day moving average, we see the same situation. Let me begin by noting we are now at 16 straight days with readings over 100%; the previous peak reading I find is at 18 days, and that was heading into the Bear Stearns low, circled in red on the chart. As a reminder, we had a nice rally off that Bear Stearns low in mid-March 2008 but by May we were headed back down again.

The blue circle on the chart represents the October 2008 low; notice where this indicator was at the March 2009 low -- certainly not up in the stratosphere as it is now. The green circle was June 2010; as we headed into Jackson Hole, the moving average was hovering just under 100%, well off that peak reading.

The final indicator I will note is the Investors Intelligence readings. As you can tell, this has become my new pet peeve indicator: I cannot believe the bullish percentage has remained so high! The arrow on the chart shows where we were at Jackson Hole last year. Bulls were at 29.2% back then, compared to the current reading of 46.2%. Heck, folks were more bearish in June of this year than they are now! I have been looking for this survey to turn less bullish for three weeks, but they have proved me wrong each week so far.

II Bullish Percentage

This is not to say we're not oversold. All these charts show how stretched we are now on an intermediate-term basis. Nasdaq made a lower low on Friday, and there were still far fewer stocks at new lows than the last time it was down here (314 on Friday vs. 725 on Aug. 8). But I believe the setup is far different this year compared to last year's Jackson Hole event.

Oversold? Yes. August 2010 repeat? Not likely.

Overbought / Overold -- NYSE
Overbought / Oversold -- Nasdaq



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