December 9, 2007- Market Summary
In our last report, we mentioned that there has been large
divergence between the number of issues on the NYSE
Composite Index that have created new highs and the number
that has been making new lows. Generally, traders don't expect
to see a large number of new highs and lows occur simultaneously
because it suggests that market participants are losing conviction
and that they are unsure of the future direction.
We also noted that recent breadth numbers have been above
2.2%, which will likely to be used as an early indication
of a valid Hindenburg
omen - an indicator used to predict market corrections.
As you can see from the charts below, the bearish signal has
not lead to a move lower yet, but we believe that it is still
a major red
flag.
We'll
wait a few more weeks to see if the momentum started by the
Santa
Claus rally will be able to carry over into the new year.
For now we believe it is a good idea to remain on the sidelines.
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