3 Ways to Measure the Health of the Trading Action
If we combine all the pieces, we can gauge what's happening in the market and how to play it.
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I look at three things to measure the intraday strength of the market.
The first is the number of stocks trading up 10% or more. This tells me if there are pockets of speculation. There are times when the indexes are acting poor, but traders gravitate toward certain sectors or themes. So far Tuesday morning, there are only about a dozen stocks trading up 10% or more, which means that speculation is almost nonexistent.
The second thing that I look at is the number of stocks trading near their intraday highs. If this increases, it is a sign that there might be some buying action bubbling up, but if it decreases, it tells me that traders are raising cash and moving to the sidelines. So far, on Tuesday morning, there are only a few stocks close to intraday highs, and none of them are leading names.
The third thing I consider is breadth. This will indicate if small-caps are participating or if a few big-caps are covering up weaknesses. Currently, breadth is positive, which is a good sign with all the major indices down, but the lack of big movers means that there isn’t any real buying interest.
It is also interesting to note that the number of new 12-month highs is down to a little over 100, and new 12-month lows are over 70. That does not at all reflect bull market action and shows how momentum has recently collapsed.
If we combine all those pieces, we see a very lackluster market without any energy. There is selling, but it isn’t intense, and there is still some support.
In this sort of market environment, we can’t expect sustained upside movement in stocks, so there is no need to be aggressive when buying. There can be opportunities when stocks drift without regard to their fundamentals, but it is important to stay very incremental when buying.
Probably the best thing that could happen right now is that we have a deeper correction and shake up sentiment a bit more. We could use a higher level of negativity to help create more buying opportunities.
I’m watching for Uber Technologies UBER to test its 50-day simple moving average around $72, but I’m doing very little right now.
At the time of publication, Rev Shark was long UBER.
