Tuesday, October 05, 2010

If You Dare, Look Death In The Face - The NYSE Advance-Decline Data

Over the past few months many market technicians remain bullish because of the state of the NYSE advance-decline line. Since the 2008 crash, the NYSE advance-decline data has actually made a new high.

The human brain often does as little as possible. Especially when sitting in an office cubicle at a major corporation collecting a cushy paycheck. I guess we classify this as efficiency. Or we might call it the inverse of 'necessity is the mother of invention'. Not a lot of necessity between afternoon naps in countless corporate meetings.

Anyhow, as we have remarked many times over the years, technical analysis is simply a function of fundamentals. That is why expected future outcomes are often never realized and then the financial community loses interest for a few decades until someone re-ignites technical analysis with some "new" invention.  Today's new inventions are hedge funds, program trading, quantitative models and on and on.  But as fundamentals change, so do the corresponding technicals.  And so will the success of the financial industry.  In other words, as we have remarked countless times over the years, the finance industry is headed for a very hard landing. The first sign of this was the 2008 collapse.

A prime example of changing fundamentals not supporting expected future outcomes is the NYSE advance-decline data making new highs post the 2008 crash.  The financial community considers this to be bullish but it's not. It's nothing more than a reflection of fundamentals. And fundamentals, they are a changing. But if one understands Frankenstein finance and backs out its aberrational effects, we get a much different view of the advance-decline data. One that more closely reflects sustainable reality. That is shown below. And contrary to being bullish, it is wildly bearish.

So, does the collapse of this data to well below the 2000-2003 stock market collapse give us an indication that price will eventually follow to horrendous new lows?  Long time readers already know the answer to that question.
posted by TimingLogic at 5:35 AM

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