August 16th, 2009

Measuring Market Health: Leading Momentum Stocks

Note: The following was posted last night, before this morning’s sell off. So long as decline doesn’t drop more than 10% it will remain above the declining 300-day moving average. Back to you this afternoon.

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In 2003, momentum as measured by the direction of the moving averages, had soon also turned up shortly after the Index crossed the neckline and the brief Traders’ Remorse Correction. In today’s market, the 300-DMA is still sloping down and won’t begin turning up until sometime in the first quarter (see “What’s Holding Back Sustained Market Growth?“). So while today’s market has successfully crossed all the major hurdles on its way towards a successful bottom formation, that one remain benchmark, a turning up of the 300-DMA, is still allusive.

We followed the market’s effort to navigate the turnaround by measuring the number of stocks that crossed above the 100-, 200- and 300-DMAs, the number making new highs and the number of Golden and Bullish Crosses. We have a similar monitor as the market revs up at the starting line and its momentum and shifts gears from the Accumulation to the Mark-up Stage: the number of stocks having upward momentum. The measure I use is:

  • Price: 300-DMA today is higher than it was 50 days ago
  • Volume: On-Balance Volume today is higher than it was 60 days ago and 180 days ago
  • Consistency: Stock is in “Bullish Cross” (Today’s Close > 50-DMA > 100-DMA > 200-DMA > 300-DMA)

Today, not surprisingly, the number of stocks successfully meeting this stringent criteria is small – only 133, or just about only 2.5% of all stocks. I don’t know how many stocks consistent meet the criteria after there’s been an extended confirmed bull market because I haven’t followed the index previously; I intended to do so now. If you can tolerate another spreadsheet list including name, symbol, price, industry, volatility and whether IBD 100 just click here.

Some of the stocks on the list are prominent familiar names by now because they’ve been on so many other lists (e.g., IBD 100), like: FUQI, STEC, KIRK, NVEC and DDRX. But others are names that you probably haven’t yet run across. Some that caught my interest include (in full disclosure, I already own many of these):

  • PLX (Protalix Biotherapeutic)
  • MED (Medifast)
  • CKSW (Clicksoftware)
  • HGG (HHGregg)
  • ORN (Orion Marine)
  • NKTR (Nektar Therapeutics)
  • TLAB (Tellabs)

It’s interesting to note that 23 are in the IBD 100 (I think it’s more than random that 23% are these high momentum stocks) and that 27 are drug and health services companies (try sorting the spreadsheet by the various columns). You should also note that many are significantly higher than the 300-DMA and worthy of a break; don’t chase them and wait to buy on that pullback that might come as the market moves into the long-awaited Traders’ Remorse Correction back to 950 on S&P by October.

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