Supply and demand for stocks: A simple yet effective indicator

Technical analysis probably gets a bad rap due to “gurus” plotting a plethora of proprietary indicators, arcane wave counting, or numerology. Before considering any indicator, price itself must be analyzed. Is the market higher, lower, or about the same as it was? And often, that’s all that’s really necessary. “Net-net” price change, reflecting supply and demand for stocks, is the most basic yet most important “indicator.”

Taking this line of reasoning to the market, let’s look at what is. The S&P 500 and broader-based Russell 2000 are essentially where they were back in mid-July. The NASDAQ also hasn’t made much forward progress in months either, though it is relatively the strongest of the three major indexes.

The sector action remains mixed at best. The Energies are up around 50% so far in 2016 and have recently been peeping up toward new multiyear highs. Metals and Mining are strong on a relative basis for the year, but, in markets, you have to take a Janet Jackson “What have you done for me lately?” approach. On a net-net basis they remain unchanged since April. Gold and Silver, which have rolled back over, are weighing down this sector.

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Banks appear to be waking up, especially the regionals. Transports are closing in on multiyear highs. Selected technology such as Semiconductors are just shy of all-time highs, while other areas such as Drugs and Retail remain in downtrends. With bonds down over 7% since July, interest-rate-sensitive areas such as Utilities and Real Estate are following suit. Latin America shares remain strong both shorter term and longer term. I suppose mixed action in the sectors isn’t a big shocker when you frame it within the context of the range-bound market.

Again, technical analysis doesn’t have to be that technical. Is the market higher, lower, or about the same? Right now, it’s about the same. Just like you can’t catch a tan when the sun isn’t shining, you can’t catch a trend when there is none. So, we wait.