Back in the middle of March I did a story looking at the stocks that make up the Dow 30 (Dow Jones Industrial Average). For those of you who don't know or forgot, the DJIA is a price-weighted index so higher-priced stocks exert an undue influence on the index.
Going through the 30 names in the DJIA Wednesday afternoon and doing a quick-and-dirty look at their individual daily bar charts I found that just six (6) of the 30 companies were in clear uptrends (American Express (AXP) , McDonald's (MCD) , Merck (MRK) , Procter & Gamble (PG) , Travelers (TRV) , and Visa (V) ). Back in March I counted 13 of the 30 companies in uptrends. This is clearly a significant weakening of this senior average. This means that the other 24 stocks are in sideways trends or downtrends.
As a reference point, at the top of the market in October 2007 when the DJIA was setting a record around 14,000 I remember that only eight of the 30 stocks were uptrends. The other 22 stocks were in terrible technical shape and a number of them were eventually kicked out of the average.
Some Real Money readers may want to argue that an average of just 30 stocks is not all that representative of the market today. Perhaps we should be looking at the Nasdaq with all those soaring technology names we wish we had in our portfolio. Let's look at the Nasdaq advance/decline line.
An advance/decline line (AD) is a cumulative breadth indicator that looks at the difference between the number of advance issues and the number of declining issues.
In this chart of the Nasdaq A/D line (below) we can see that the breadth line peaked at the end of February and despite the Nasdaq moving higher to the end of April, the broad list of stocks on this exchange were moving sideways to lower. As my teacher, Ralph Acampora, used to say back in 1974: "It is not a healthy market when the generals are still going up and the troops are in retreat."
Bottom-line strategy: I think the short and medium term trend of the stock market is down and prices could decline into the fall. Take appropriate action.