I always like a market with good breadth and Wednesday’s market had good breadth. In fact it was the best New York Stock Exchange breadth since early October.
The curiosity? The S&P 500 made a higher high, but breadth did not. Now it is mere fractions on both sides – the new high and the failure to make new high -- so I wouldn’t fuss to loudly, if at all. But I do think it continues to show us that breadth is not leading as it did two months ago.
It did manage to get the McClellan Summation Index to stop going down. But think about this: It took a rally of just about 100 S&P points just to get the indicator to stop going down. I still think that’s why when this oversold rally stalls out (likely late this week/early next week) we should see us head back down. Take a look at the iShares Russell 2000 Index (IWM) - Get Free Report chart pattern I drew in last night for the pattern.
There is something more. The number of stocks making new highs is far off the prior reading. I might give it some leeway because of the big group rotation, but if we don’t see much improvement there it’s going to turn into a negative divergence. Either way, it’s another reason I think that pattern of coming back down -– likely next week — is still in the cards.
We’ve got the employment number coming up on Friday and the Daily Sentiment Indicator (DSI) for the Volatility Index at 12, so while I think Wednesday’s action was good, I still think a pullback next week will make it better.
As you know I became a fan of the banks again last week. They have had a good week. The Bank Index itself is getting close to the first resistance level from that downtrend line. I would like to see it trade over it and then pull back to tag the line (drawn in blue), but I have no real feel for if it trades that way or if it stalls out at resistance and pulls back before then. I still think we’d buy the dip though.
I want to follow up on the chart of Target (TGT) - Get Free Report -- which reports next month --that I was asked about recently. It broke that uptrend line I had drawn in, so I have replaced it with this flat line, because it filled the gap from November. Now I think TGT is OK as long as it stays over that $110 area.
The Volume Indicator ticked at 49% on Friday and has had a very mediocre rebound. At 49% it was on the cusp of being intermediate-term oversold. At 47%, it would have made it intermediate term oversold.
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I am going to cover Haliburton (HAL) - Get Free Report and Schlumberger (SLB) - Get Free Report together even though they were asked about by different people. That’s because in the big picture, they both have the potential of being big head-and-shoulders bottoms.
What I would love to see is the market sell off later this week and these stocks hold this week’s gains, because that would make them at least look like they are trying to make a bottom.
For HAL, I think I would prefer not to see it back under $21 in any meaningful way.
For SLB, it’s not as clear cut, because the trend line is heading down. But I think I would get out of the way if it broke back under $33 in a meaningful way.
Folks did not like Merck’s news Wednesday (MRK) - Get Free Report, but it hasn’t broken that uptrend line yet. As long as it can hold over this $84 area, it gets the benefit of the doubt, that this is just a correction from the highs.