Stock Market Bullish Participation Level Slowly Declines

By: Donald_W_Dony

In the February Newsletter, I mentioned that the high level of bullish participation was expected to gradually wane starting in February. The extra high percent (85% to 92%) of stocks on the NYSE Composite trading above their 200-day moving averages was not sustainable. Fledgling bulls markets typically display this high range during the first year and then drift lower into a 80% to 50% band in the second year. The NYSE appears to be following the standard path.

Chart 1 shows that the number of up trending stocks moved over 80% in July 2009 and remained above that threshold until just recently. Latest data indicates that the index will be gradually rolling over in February. The lower end of the range (50% to 55%) is the anticipated target.

In the bottom portion of the chart, momentum has also begun to fall and is expected to reach a low by late February to mid-March.

Bottom line: The strong enthusiastic stance that has developed from July to February appears to be coming to an end. The percentage of stocks in an upward trend is now shifting out of the overly bullish 93% to 80% band and into the bullish 80% to 50% range. The drift downward to the lower end of the band (55%-50%) is expected to occur during the next 4-6 weeks.

Investment approach: Equity markets normally follow the same route as the level of participation. This means that as the percentage of stocks trading over their 200-day moving averages declines, so does the short-term trend of the NYSE. Investors may wish to wait until late February to mid-March before adding new positions into their portfolios.

More research will be available in the upcoming February newsletter. Go to www.technicalspeculator.com and click on member login for the full report.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2010 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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