The Rally's Over - Now What? | Stock Market Investing

Wednesday, May 21, 2008 | Home | Andy Mayo

The next few days will confirm whether recent stock market action was just a Bear Market rally or the beginning of something new.  Right now it looks like the former.

While the NYSE Advance-Decline line is not a perfect gauge, because so many non-operating company stocks trade on it, it has not lost its usefulness, especially over long periods of time.

Applying two moving averages -- 4-week and 26-week -- we can see that the trend remains negative:  both the short and long MAs are below the zero line with the shorter crossing below the longer average today.  This does not bode well.


Of course, in 2006, it made no difference.  The chart clearly shows a falling A-D line moving average while stocks rocketed up.  We bought a credit crisis with that move.  It seems doubtful we will see a reprise in stock prices.

It is notable that the recent rally in the S&P 500 Index was not able to penetrate the neckline of the Head & Shoulders formation that I've showed in past posts.  We will probably see the index revisit 1276 before this is over.

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