I see a lot of complaining about today's decline. Let me explain.
The complaints center around the market's inability to decline with any gusto. Why do they always rally late in the day after gapping down? Why is there no selling follow- through?
Let me see if I can address this. As you know, I harp away at the market's breadth. And in conjunction with that, I harp away at the McClellan Summation Index. The Summation Index is like a third or fourth derivative of breadth, so it smooths out the day-to-day fluctuations. The direction is important to me because it tells me the general direction of the majority of stocks.
So if the Summation Index is rising or even if it's just a chopfest the way it has been for the last few weeks, it gets the benefit of the doubt. It tells us the selling underneath the index is not heavy enough to fuss over. In my experience, once this indicator rolls over and begins a journey on the downside, that's when we can get a decline that matters.
It's a lot easier for the market as a whole to go down when the majority of stocks are going down. Look at the chopfest we saw for the S&P in August and September and compare that to the action in the Summation Index, which was nothing but down. Once we started the decline in September, it became easier for the market as a whole to go down. We haven't yet seen the Summation Index roll over in this current period. We've seen it stall out.
The Summation Index did curl over today and it will now take a net differential of +2,900 advancers minus decliners to get it back up, so I think there is a real possibility it begins to head down in the next week or so.
In the meantime, folks got quite cautious quite quickly today. The best example I can give you is that the one-day put/call ratio for equities jumped to 82%. We have not seen a reading over 80% since Nov. 2. That should tell us something about the shift in sentiment.
Tuesday is the last day of the month and the day before an FOMC announcement, so it wouldn't surprise me if we rallied. For now, the chopfest continues, but I will be monitoring the Summation Index closely since so many other indicators are failing and rolling over.
My inbox is full of questions on buying Bristol Myers (BMY) - Get Free Report. You might recall I liked it a few months ago when everyone hated it. It had a nice rally so everyone jumped on board and I overstayed my welcome (I was wrong not to sell when we got that "group think" going on). Has it formed a bottom here? No. It is trying to rebound. If it gets itself up and over $50 to $51 then it can try and fill the gap to $55, but I think it's more likely it stalls out between $50 and $52 and comes back down, at the very least for a retest.
The 30-day moving average of the advance/decline line, which represents an intermediate-term overbought/oversold oscillator, is not oversold.
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We already know I am a fan of EFA, an ETF to be long Europe and some other world markets, so I was asked about Spain, more specifically EWP, an ETF to be long that country's market. Unlike EFA, it has not cleared a previous yearly high but rather got up there and backed off. I would take another look at it back near $26 since that would be a retest of the breakout.
We looked at Apache (APA) - Get Free Report a few weeks ago where I noted that if it didn't hold $62 it was in trouble. It is now breaking down. I think the spike low at $58 will provide short-term support for a bounce. But for now that's the best I can say. There is also a short-term measured target there so I'd look for a bounce from $58.
I don't think CVS (CVS) - Get Free Report has done enough work down here to have an extended rally, but I do think bouncing off this black line should lead to a rally near $81 to $82 (green line). After that I would expect another retreat.