I still think the 2010 market is more of a template than not. I reviewed it Monday for you and I simply do not see that there should be any change in that view. Not yet, at least.
Let me begin by noting that there are some very scary statistics about when the Fed cuts 50 basis points in between meetings. It has rarely been a positive for markets and it happened Tuesday. So I suppose that would play into the 2010 template in that the market will not/should not make a “V” bottom.
If you want some of the positives I saw in Tuesday’s market, let me note that breadth was not bad at all. Not even close to bad. Net breadth on the New York Stock Exchange was negative 900. The S&P 500 lost 86 points. Let’s just think about Monday, where the S&P 500 gained 136 points, and I thought breadth was lacking when it was positive 1,900. If we do the math, then breadth has gained 1,000 points in two days and the S&P is up 50 points. Not great, but not so bad, either.
It’s possible that it will simply take time to catch up, but the red box on this chart of the cumulative advance/decline line is the month of November when breadth was so crummy. So far breadth is still higher than that area.
But notice that the S&P is well below that area. Should that hold up as we head into the end of the week, I’d put that on the positive side of the ledger.
I would also note that TRIN (Trading Index) was 2.4 today. I was complaining just the other day that we had not seen but one reading over 2.0. Now we did. Readings over 2.0 tend to be more bullish than bearish over time, because they show panic selling.
Finally, the number of stocks making new lows is what I am going to focus on now. Last Friday there were 963 new lows on the NYSE. Today there were 171. Now the S&P is still about 60 points over the closing low from Friday and 150 points from the intraday low, but as I noted on Monday, fewer new lows is the first sign that the selling is drying up. I will continue to focus on this statistic.
The Hi-Lo Indicator for the NYSE is now at 22%. Once it gets under 15% it is oversold.
What I did not like was that the put/call ratio was not high. I also did not like that Monday’s put/call ratio for the Volatility Index was super high at 243%. That is the highest since 2011. I looked back and nearly every single reading that high led to another pullback in the market, and none of them were just one day.
I will end by noting that the Daily Sentiment Indicator (DSI) for the S&P is 12. Nasdaq is 13. The VIX is an incredible 70 (was it just a few weeks ago that it went to single digits?). If we come back down in the next day or so, I’d look for us to rally again.
I look back and I cannot believe I was bullish on bonds in late December and when iShares Barclays 20-plus Year Treasury Bond (TLT:Nasdaq) rallied to $145 I thought that was enough. Here we are with TLT at $156. That base measures right around here. And the DSI is now 91. I’d err on the side of profit taking or at the very least wait to see if there is a dip back under $150 to re-buy.
The McClellan Summation Index is still heading down:
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PPL Corp. (PPL) - Get Free Report is a utility that fell hard over the last week or so, but managed to hold a good support area. I think it will take a long time to rebuild a base, but down in that $29.50 to $30 area it ought to hold. Just expect that it should take months before any pattern shows up.
I kept wondering why Roku (ROKU:Nasdaq) did not rally during the move down because won’t we all be staying at home watching TV? Be that as it may, this looks like a breakdown to me, so I would prefer not to bottom fish in it. I suspect it bounces off $100 if it gets down there, though.
And what shall we do with AbbVie (ABBV) - Get Free Report – which held at a higher low? I see two options here: You can live with it as long as it doesn’t break under $80 (that’s a long way away) or you can watch to make sure it doesn’t fail here at $90, thus forming a head- and-shoulders top.