Are you wondering, as I am, why the markets rallied toward the end of last week?

The only conclusion to draw is that turmoil in the financials must be good for investors. Earlier in the week we had the takeover of Fannie Mae and Freddie Mac. Their stocks are so wasted they were dropped from the S&P 500. Then we had the accelerating slide in Lehman Bros. Heading into the weekend, the government is hosting meetings trying to find someone to buy the company, whole or in pieces. Take-overs, take-unders: I guess it's all bullish.

For those who actually pay attention to fundamentals, the news this past week was not particularly good. Retails sales were weak despite lower gas prices. Growth in Europe is projected to be lower which will help the buck appreciate and increase the cost of goods imported into the U.S. (consumer gets hit again). The Producer Price Index (PPI) came in hotter than expected as did core PPI. On the bright side, the University of Michigan Consumer Sentiment Index came in much better than expected.

Fundamentals and sentiment are, of course, what drives the market yet it is useful to review the technical situation. Each week our Alert HQ process scans over 7200 stocks and ETFs and records their technical characteristics. The following chart based on daily data summarizes the state of our technical indicators:


As can be seen on the chart above, the only line heading upward is the one that counts the number of stocks in strong down-trends as determined by Aroon analysis. Everything else is heading south: number of stocks above their 20-day moving average, above their 50-day moving average, number of stocks in strong up-trends according to Aroon and number of stocks exhibiting strong buying pressure as determined by Chaikin Money Flow.

Of note on the above chart is the path taken by the light blue curve describing the number of stocks whose 20-day moving average is above their 50-day moving average. The last time it reversed course and turned downward was back in early June. That was a prelude to the markets losing approximately 10% and falling to the July lows.

The chart below is based on weekly data.