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November 11, 2008

The Inside Story of What Leadership Stocks Have Been Telling Investors...
by Marty Chenard

On November 6th., we posted an in depth study and explanation of the Leadership Stock Ratio. See this link for the study and explanation: Leadership stock Ratio explained.

This morning, we will look at a little different twist on the Leadership Stock Ratio.

Instead of calculating the Ratio, what if we calculated the difference between the Very Strong to Very Weak daily number of stocks? What would that show?

It would show "the change of balance fight" between how many stocks were shifting between being Very Strong in Strength, or Very Weak in Strength as seen in today's chart.

The chart tell's quite a story.

From the end of March to the end of May, the Lead of the Very Strong stocks was in positive territory and trending up. On May 22nd., the trend line was broken to the downside, and the market corrected until the middle of July.

Coincidently, the Lead/Lag chart turned up on July 17th. ... which was also the beginning of the market's up move that lasted until the end of August. But, the market's up move was sickly with the market moving sideways.

Is it any wonder why it only went sideways? Take a look at the July to August time period on the chart below. What do you notice? The Lead/Lag indicator was negative half the time and positive half of the time ... a stalemate. And, the indicator did not get very high in positive territory ... in fact, it made a higher/low signifying that a down trend was in play relative to Very Strong stocks being able to outnumber Very Weak stocks.

So, where are we now?

The Lead/Lag Indicator of the Very Strong stocks minus the number of Very Weak Stocks just moved up close to its resistance line (which is still in negative territory). When it got close, it pulled back and moved lower. It is very probable that it will make another try at moving up to the resistance line to test it in the coming days.

The warning for investors will be if the Lead/Lag indicator does not make it above the resistance line, AND make it above the zero line to move into positive territory.

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Marty Chenard
StockTiming.com
Asheville, NC 28805
Tel: 828-296-1200

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Copyright © 2006-2009 Marty Chenard

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