Friday, October 26, 2007

Bearish trend breadth

The current level of TSX Bull/Bear Ratio (0.4) was last plumbed in October 2002. We will recall that moment as the bottom of a 2-year bear market and the beginning of a tremendous 5-year bullish trend. But the current reading is more reminiscent of two other periods of time: the second quarter of 1998 and Q1 of 2000. In each of these periods there was a significant divergence in the signals of the Stock Trends TSX Bull/Bear Ratio and the S&P/TSX Composite Index. While the Bull/Bear Ratio then scraped below the 0.5 marker, the benchmark index was climbing to new highs. With the index presently doing a final chin-up to once again approach all-time highs, Stock Trends followers should now be wondering if the conflicting spirit of the Stock Trends sentiment indicator - a measure of market breadth - is advising extreme caution. Considering the subsequent downdraft of 1998 and 2000, prudence is advisable.

TSX Bull vs. Bears - Graph of Distribution of Stock Trends indicators:
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