Well, the best news I can offer you is anecdotal. Two days ago, it seemed everyone was poking fun at the “Death Cross” in the Russell 2000. That sort of banter was nowhere to be found today. In fact, today I heard those same folks use the word “caution” more than I have in a long time.
Or maybe the word of the day was “flush.” Yes, the same folks who thought the market was just fine and dandy a few days ago now want a flush. Here’s what the statistics say. We are short term oversold. My oscillator is oversold but it is not a great oversold reading because it is a lower low.
Remember that higher lows in the oscillator make for great oversold readings. Or alternatively, since this is based on the 10-day moving average of the advance/decline line, a long string of negative numbers to be dropped makes for a great oversold reading.
What we have instead is two decent red days to be dropped, then three “black” days to be dropped. You know what that implies: up, then back down.
Also in the oversold category, we have the McClellan Summation Index’s “what if,” -- or, what it will take to turn this indicator from down to up? My line in the sand for this tends to be over 4,000 (advancers minus decliners), although often it gets a bit higher than that. But once it is in that zone it is oversold.
Also in the short term, the NYSE’s TRIN got above 2.0 for only the fourth time this year. Each of the prior instances came near a low: early February, mid-March and mid-June. Mid-March and mid-June only led to short-term snapbacks before it came down again.
Also in the short term, the percentage of volume on the downside for the NYSE came in at 90%. That is only the second time this year we have seen that; the prior time was the February low when it was 94%. In addition, the volume on the PowerShares QQQ (QQQ) was quite high. This is also typically something we see right before a short-term snapback. Finally, the put/call ratio chimed in at 115%, which is the highest reading since the August lows.
What was not good about today was the increase in stocks making new lows. The 10-day moving average of the put/call ratio is still pointing upward (bearish). The McClellan Summation Index is still heading down and it will take a heckuva lot (see above) to turn it around. And finally, the 30-day moving average of the advance/decline line is not oversold.
Therefore, I think the market can/should rally in the short term, but I don’t think we’re done with the correction yet. You’re probably getting tired of hearing me say this!
I was again asked about Potash (POT), which continues to look like it’s trying to trace out a head- and-shoulders bottom. I do not want to see it scoot back below $34.50 and I would like to see it get above that $35.75 area where the neckline is since then the target would be back near the highs.
The 10-day moving average of the put/call ratio is pointing upward as discussed above.
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Compass Minerals (CMP) has broken a second fan line yet it is at previous support near $85. I am inclined not to trust it to hold. The only way I might trust this is if it climbed back up over the second fan line. For now, I would call it a wait-and-see because if it breaks from this level and takes out the August lows, we would then look for an oversold rally. But we would also be able to draw in a third fan line. For those who don’t know the fan line principle, it’s basically like baseball: three strikes and you’re out. Breaking the third fan line is a major negative.
Facebook (FB) hasn’t broken the long-term uptrend line yet. In fact, so far all it has had is a failed breakout. I suspect for now that the $72-$74 area will hold on the downside.
When I look at a chart such as Finisar (FNSR), my first inclination is to try and find a bottom in it but we know that this year that has not worked. With the tax- loss selling season in full bloom, it will probably take a while for FNSR to build a base. On a short-term trading basis, it is just about to fill that gap. So the stock can probably rally a bit, but, otherwise, I don’t see much else there.